Tel Instrument Electronics Corp has a market cap of $18.3 million; its shares were traded at around $7 with and P/S ratio of 1.4.
Highlight of Business Operations:The Company has received pilot production orders for 162 units of the AN/USM-719 (IFF only) and 20 units of the AN/USM-708 under this contract, totaling approximately $4.2 million in addition to the approximately $4.5 million for testing, documentation and qualification units. In July 2010, the Company received an additional order for 160 AN/USM-708 pilot production units with a $3.6 million contract value. The Company has experienced delays on this program, but has completed the development of the AN/USM-708 and expects to begin design validation testing late summer of 2010 and expects to receive production orders at the end of calendar year 2010. The Company believes that the core technology in the AN/USM-708 can be the foundation for additional products.
The AN/ARM-206 or ITATS is a bench test set combining advanced digital technology with state of the art automated testing capabilities. This product will represent an important expansion to Tel s current product line, and the automated testing capabilities will provide a significant labor savings benefit to our customers. This contract with the U.S. Navy has options for approximately 148 units with a total value of over $12 million; the initial work authorization was $4.4 million. Tel is working with an engineering sub-contractor and, as a result, this program has not requiredas much Tel engineering design effort as needed for the AN/USM-708. Given the unique nature of the design, this unit could also generate significant sales to other military customers, both domestically and overseas. The Company and its subcontractor have made substantial progress on this program and is nearing completion of design validation test. In June 2010, the Company received a production order for 101 units amounting to approximately $5.3 million, although a production release has not yet been issued. The Company expects to begin production shipment in the fourth quarter of calendar year 2010.
In fiscal year 2009 Mr. Harold K. Fletcher, CEO, converted a $50,000 convertible note due into 20,000 shares of common stock at a conversion price of $2.50 per share. These shares were sold pursuant to Section 4(2) of the Securities Act of 1933, and are restricted against resale. This conversion reduced the Company s liabilities by $50,000 (see Notes 10 and 11 to Notes to Consolidated Financial Statements).
The Company also has a line of credit from a bank, which expires October 30, 2010. The agreement includes a borrowing base calculation tied to accounts receivable and inventories with a maximum availability of $1,000,000. At March 31, 2010 the Company had outstanding balances of $600,000 and borrowed an additional $150,000 in the first quarter of fiscal year 2011. As of March 31, 2010, the remaining availability under this line was approximately $189,000 based upon receivables and inventories at March 31, 2010.
For the fiscal year ended March 31, 2010, total sales decreased $4,363,300 (32.7%) to $8,963,349 as compared to $13,326,649 for the same period in the prior year. Avionics Government sales decreased $4,131,070 (37.6%) to $6,859,696 for the fiscal year ended March 31, 2010 as compared to $10,990,774 for the prior fiscal year. The decrease in Government sales is primarily attributed to: a decrease in shipments of the T-47N, T-30D, TR-401, T-76 as well as sales associated with the ITATS, which are recognized on a percentage of completion as the initial phase of the programs nears completion. Additionally, the prior fiscal year included a negotiated billing to the government in the amount of $406,000 for additional work previously performed and expensed on the CRAFT program as well as increased billings for revenues associated with the test and documentation phase of the CRAFT program. Government sales have been impacted by delays in the receipt of several expected large orders as well as delays in the completion of two of its major programs. These decreases were partially offset by higher sales of the TR-420. Avionics Commercial sales decreased $83,425 (4%) to $2,001,743 for the fiscal year ended March 31, 2010 as compared to $2,085,168 for the same period in the prior year. This decrease in sales is the result of the continued weak financial condition of the commercial airline industry. Revenues associated with the marine systems business declined as this business has been discontinued.
Gross margin decreased $2,092,263 (32.9%) to $4,258,040 for the fiscal year ended March 31, 2010 as compared to $6,350,303 for the prior fiscal year. The decrease in gross margin is primarily attributed to the decrease in volume. The gross margin percentage for the fiscal year ended March 31, 2010 was 47.5% as compared to 47.7% for the fiscal year ended March 31, 2009. The decrease in gross margin dollars and percentage is also attributed to a negotiated billing in the prior fiscal year to the government in the amount of $406,000 for additional work previously performed and expensed on the CRAFT program.
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