See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Business, Organization and Liquidity
Business and Organization
Tel-Instrument Electronics Corp. (“Tel,” “TIC” or the “Company”) has been in business since 1947. The Company is a leading designer and manufacturer of avionics test and measurement instruments for the global, commercial air transport, general aviation, and government/military defense markets. Tel provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. The Company sells its equipment in both domestic and international markets. Tel continues to develop new products in anticipation of customers’ needs and to maintain its strong market position. Its development of multi-function testers has made it easier for customers to perform ramp tests with less operator training, fewer test sets, and lower product support costs. The Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment over the last two decades.
The Company is publicly traded and was quoted on the Over-the-Counter Market Place (“OTCQB”) under the symbol “TIKK.”
Liquidity
On December 31, 2021, the Company had positive working capital of $4,323,243 as compared to working capital of $3,159,731 on March 31, 2021. This included approximately $7.3 million of cash including the $2 million restricted cash supporting the appeal bond. The Company has recorded total damages of $6,045,924 including accrued interest, as a result of the jury verdict associated with the Aeroflex litigation.
With a $3.3 million backlog on December 31, 2021, the Company expects that in fiscal year 2022, revenue and profitability will continue to improve.
On March 27, 2020, former President Trump signed the Coronavirus Aid, Relief and Economic Security (the “CARES Act”), which, among other things, outlines the provisions of the Paycheck Protection Program (the “PPP”). The Company determined that it met the criteria to be eligible to obtain a loan under the PPP because, among other reasons, in light of the COVID-19 outbreak and the uncertainty of economic conditions related thereto, the loan was considered necessary to support the Company’s ongoing operations and retain all its employees. In addition, former President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act on April 24, 2020, which increased funding provided by the CARES Act. On May 4, 2020, the Company issued a promissory note (the “Note”) to Bank of America in the principal aggregate amount of $722,577 (the “PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The amount was deposited in our bank on May 4, 2020. On June 5, 2020, the Paycheck Protection Program Flexibility Act was signed into law and extended the program until December 31, 2020.
TIC qualified for full loan forgiveness on the initial tranche on December 18, 2020. On January 6, 2021, updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for this second round of funding and on March 15, 2021, the Company secured a Second Draw PPP loan in the amount of $722,577. On September 17, 2021, TIC qualified for full loan forgiveness of the second round of funding and was recognized as other income in the quarter ended September 30, 2021.
On August 24, 2021, TIC, and the New Jersey Economic Development Authority (NJEDA) signed a small business emergency assistance grant agreement in the amount of $20,000. The funds related to the grant were received from the NJEDA on August 30, 2021, and were recognized as other income during the quarter ended September 30, 2021.
Based on the foregoing, we believe that our expected cash flows from operations and current cash balances will be sufficient to operate in the normal course of business for next 12 months from the issuance date of these unaudited condensed consolidated financial statements, including any payments for settlement of the Aeroflex litigation.
The Bank of America line of credit has been renewed for $690,000 and will expire on July 30, 2022. As of December 31, 2021, the line of credit draw remained at zero.
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Business, Organization and Liquidity (continued)
Impact of the COVID-19 Coronavirus
In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States, Europe, and certain other countries. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society, which has resulted, and will likely continue to result, in significant disruptions to the global economy as well as businesses and capital markets around the world.
On September 9, 2021, President Biden announced Executive Order 14042 (“Executive Order”) and related initiatives designed to lead the country out of the COVID-19 pandemic. The Executive Order includes policies that will require employees of contractors that do business with the federal government to be vaccinated. On September 24, 2021, The Safer Federal Workforce Task Force released COVID-19 vaccine guidance for Federal contractors and subcontractors. According to this guidance, covered employees must be fully vaccinated by December 8, 2021, or at the latest, by the first day of performance on a covered contract, absent the need for a disability or religious accommodation. In addition, covered contractors must follow the CDC’s mask and physical distance requirements for covered contractor employees and visitors. The Executive Order and the guidance apply to any prime contractor or subcontractor that is a party to a “contract or contract-like instrument” that includes a clause incorporating the requirements of the Executive Order. The new clause was applied on October 15, 2021, to only new federal contracts, solicitations, contract extensions and renewals.
On December 7, 2021, the federal court in Georgia issued a preliminary injunction temporarily halting the enforcement of EO 14042 (Ensuring Adequate COVID Safety Protocols for Federal Contractors) for all covered contracts nation-wide. New guidance from OMB also followed suit giving federal agencies input on how to go about non-enforcement provisions until legal challenges have been resolved. The updated guidance will remain applicable despite any change to new or existing court decisions. The new guidance does not impact the Safer Federal Workforce Taskforce Guidance. The vast majority of TIC employees are fully vaccinated, and TIC is preparing for full compliance of the Executive Order should it apply.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of Tel-Instrument Electronics Corp. as of December 31, 2021, the results of operations change in stockholders’ equity for the three and nine months ended December 31, 2021, and December 31, 2020, and statements of cash flow for the nine months ended December 31, 2021, and December 31, 2020. These results are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include disclosures normally made in an Annual Report on Form 10-K. The March 31, 2021, balance sheet included herein was derived from the audited financial statements included in the Company’s Annual Report on Form 10-K as of that date. Accordingly, the unaudited condensed consolidated financial statements included herein should be reviewed in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as filed with the United States Securities and Exchange Commission (the “SEC”) on June 29, 2021 (the “Annual Report”).
Revenue Recognition
Under Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 – Summary of Significant Accounting Policies (continued)
The Company accounts for revenue recognition in accordance with ASC 606.The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The ASC 606 defines a five-step process to achieve the core principle.
The Company generates revenue from designing, manufacturing, and selling avionic tests and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. The Company also offers calibration and repair services for a wide range of airborne navigation and communication equipment.
Nature of goods and services
The following is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each.
Test Units/Sets
The Company develops and manufactures unit sets to test navigation and communication equipment, such as ramp testers and bench testers for equipment installed in aircraft and ground radios. The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract, which is usually at the time of shipment. Revenue on products is presented gross because the Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears the risk of loss while the inventory is in-transit. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to the customer.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines stand-alone selling prices based on the price at which the performance obligation is sold separately. If the stand-alone selling price is not observable through past transactions, the Company estimates the standalone selling price considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
When determining the transaction price of a contract, an adjustment is made if payment from the customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of December 31, 2021.
Replacement Parts
The Company offers replacement parts for test equipment, ramp testers, and bench testers. Similar to the sale of test units, the control of the product transfers at a point of time and therefore, revenue is recognized at the point in time when the obligation to the customer has been fulfilled.
Extended Warranties
The extended warranties sold by the Company provide a level of assurance beyond the coverage for defects that existed at the time of a sale or against certain types of covered damage with coverage terms ranging from 5 to 7 years. Amounts received for warranties are recorded as deferred revenue and recognized as revenue ratably over the respective term of the agreements. As of December 31, 2021, $402,549 is expected to be recognized from remaining performance obligations for extended warranties as compared to $408,219 at March 31, 2021. For the three and nine months ended December 31, 2021, the Company recognized revenue of $20,267 and $52,249, respectively from amounts that were included in Deferred Revenue as compared to $22,140 and $66,420, respectively from amounts that were included in Deferred Revenue for the three months and nine months ended December 31, 2020.
The following table provides a summary of the changes in deferred revenues for the nine months ended December 31, 2021:
Deferred revenues at April 1, 2021
|
|
$
|
408,219
|
|
Additional extended warranties
|
|
|
46,579
|
|
Revenue recognized for the nine months ended December 31, 2021
|
|
|
(52,249
|
)
|
Deferred revenues at December 31, 2021
|
|
$
|
402,549
|
|
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 – Summary of Significant Accounting Policies (continued)
Other Deferred Revenues
The Company sometimes receives payments in advance of shipment. These amounts are classified as other deferred revenues. For the periods ended December 31, 2021, and March 31, 2021, the Company has other deferred revenues of $28,644 and $74,920, respectively.
Repair and Calibration Services
The Company offers repair and calibration services for units that are returned for annual calibrations and/or for repairs after the warranty period has expired. The Company repairs and calibrates a wide range of airborne navigation and communication equipment. Revenue is recognized at the time the repaired or calibrated unit is shipped back to the customer, as it is at this time that the work is completed.
Other
The majority of the Company’s revenues are from contracts with the U.S. government, airlines, aircraft manufacturers, such as Boeing and Lockheed Martin, domestic distributors, international distributors for sales to military and commercial customers, and other commercial customers. The contracts with the U.S. government typically are subject to the Federal Acquisition Regulation (“FAR”) which provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts.
Payment terms and conditions vary by contract, although terms include a requirement of payment within a range from 30 to 60 days, or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts do not include a significant financing component. Payments received prior to the delivery of units or services performed are recorded as deferred revenues. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales. The Company applied the practical expedient to account for shipping and handling activities as fulfillment cost rather than as a separate performance obligation. Shipping and handling costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales. All sales are denominated in U.S. dollars.
The Company chose to apply the available practical expedient as commission eligible sales orders are fulfilled within less than one year and commissions are generally paid by the Company within 30 days of the related sales order fulfillment. Accordingly, management has determined that no change in accounting for costs to obtain a contract will be required for the Company to conform to ASC 606.
Disaggregation of revenue
In the following tables, revenue is disaggregated by revenue category.
|
|
For the Three Months Ended
December 31, 2021
|
|
|
|
Commercial
|
|
|
Government
|
|
Sales Distribution
|
|
|
|
|
|
|
|
|
Test Units
|
|
$
|
91,688
|
|
|
$
|
2,533,296
|
|
|
|
$
|
91,688
|
|
|
$
|
2,533,296
|
|
The remainder of our revenues for the three months ended December 31, 2021, are derived from repairs and calibration of $469,095,
replacement parts of $37,186, extended warranties of $20,267 and other revenues of $20,000. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.
|
|
For the Three Months Ended
December 31, 2020
|
|
|
|
Commercial
|
|
|
Government
|
|
Sales Distribution
|
|
|
|
|
|
|
|
|
Test Units
|
|
$
|
104,346
|
|
|
$
|
2,212,507
|
|
|
|
$
|
104,346
|
|
|
$
|
2,212,507
|
|
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 – Summary of Significant Accounting Policies (continued)
The remainder of our revenues for the three months ended December 31, 2020, are derived from repairs and calibration of $273,388, replacement parts of $59,026, extended warranties of $22,140 and other revenues of $1,335. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.
|
|
For the Nine Months Ended
December 31, 2021
|
|
|
|
Commercial
|
|
|
Government
|
|
Sales Distribution
|
|
|
|
|
|
|
|
|
Test Units
|
|
$
|
269,652
|
|
|
$
|
9,012,562
|
|
|
|
$
|
269,652
|
|
|
$
|
9,012,562
|
|
The remainder of our revenues for the nine months ended December 31, 2021, are derived from repairs and calibration of $1,389,894, replacement parts of $170,430, extended warranties of $52,249 and other revenues of $20,000. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.
|
|
For the Nine Months Ended
December 31, 2020
|
|
|
|
Commercial
|
|
|
Government
|
|
Sales Distribution
|
|
|
|
|
|
|
|
|
Test Units
|
|
$
|
280,743
|
|
|
$
|
7,697,701
|
|
|
|
$
|
280,743
|
|
|
$
|
7,697,701
|
|
The remainder of our revenues for the nine months ended December 31, 2020, are derived from repairs and calibration of $762,828, replacement parts of $82,796, extended warranties of $66,420 and other revenues of $58,087. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.
In the following table, revenue is disaggregated by geography.
|
|
For the Three Months Ended
December 31, 2021
|
|
|
For the Three Months Ended
December 31, 2020
|
|
Geography
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,974,538
|
|
|
$
|
1,304,664
|
|
International
|
|
|
1,196,994
|
|
|
|
1,368,078
|
|
Total
|
|
$
|
3,171,532
|
|
|
$
|
2,672,742
|
|
|
|
For the Nine Months Ended
December 31, 2021
|
|
|
For the Nine Months Ended
December 31, 2020
|
|
Geography
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
6,885,551
|
|
|
$
|
3,842,263
|
|
International
|
|
|
4,029,236
|
|
|
|
5,106,312
|
|
Total
|
|
$
|
10,914,787
|
|
|
$
|
8,948,575
|
|
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 – Summary of Significant Accounting Policies (continued)
For the three months ended December 31, 2021, three customers accounted for sales of $673,758 (Muirhead Avionics), $583,680 (DFAS) and $328,230 (H2L Tech) or 21%, 18% and 10% respectively. For the nine months ended December 31, 2021, four customers accounted for sales of $3,008,911 (DFAS), $1,585,620 (Muirhead Avionics), $1,368,964 (H2L Tech) and $1,244,380 (Lockheed Martin) or 28%, 15%, 13% and 11% respectively.
For the three and nine months ended December 31, 2020, Muirhead Avionics, the Company’s distributor for Western Europe accounted for sales of $681,293 and $3,234,035 or 25% and 36% respectively. One government customer (Lockheed Martin) represented 17% of sales for the three months ended December 31, 2020.
The Company, in addition to inside sales efforts, utilizes independent brokers to sell its products to customers. A related party independent broker has earned approximately $13,000 and $94,000 in commissions for the three and nine months ended December 31, 2021. The same related party independent broker has earned $27,000 for the nine months ended December 31, 2021, for monthly sales and marketing consulting services, earned $3,000 per month.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments -Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. The effective date of the new standard has been deferred to April 1, 2023. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.
No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.
Note 3 – Accounts Receivable, net
The following table sets forth the components of accounts receivable:
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
Government
|
|
$
|
1,164,424
|
|
|
$
|
1,700,907
|
|
Commercial
|
|
|
228,460
|
|
|
|
239,914
|
|
Less: Allowance for doubtful accounts
|
|
|
(7,500
|
)
|
|
|
(7,500
|
)
|
|
|
$
|
1,385,384
|
|
|
$
|
1,933,321
|
|
Note 4 – Restricted Cash to Support Appeal Bond
In January 2018, the Company transferred $2,000,000 to a restricted cash account to secure a letter of credit which was used for collateral for the appeal bond (See Note 12).
Note 5 – Inventories, net
Inventories consist of:
|
|
December 31,
2021
|
|
|
March 31,
2021
|
|
|
|
|
|
|
|
|
|
|
Purchased parts
|
|
$
|
2,437,294
|
|
|
$
|
2,912,599
|
|
Work-in-process
|
|
|
910,981
|
|
|
|
1,020,402
|
|
Finished goods
|
|
|
-
|
|
|
|
79,988
|
|
Less: Inventory reserve
|
|
|
(600,000
|
)
|
|
|
(575,000
|
)
|
|
|
$
|
2,748,275
|
|
|
$
|
3,437,989
|
|
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 – Net Income per Share
Net income per share has been computed according to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 260”), “Earnings per Share,” which requires a dual presentation of basic and diluted income per share (“EPS”). Basic EPS represents net income divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS reflects the potential dilution that could occur if securities, including preferred stock, warrants and options, were converted into common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average unrecognized compensation.
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
December 31, 2021
|
|
|
December 31, 2020
|
|
Basic net income per share computation:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
194,622
|
|
|
$
|
499,633
|
|
Less: Preferred dividends
|
|
|
(80,000
|
)
|
|
|
(80,000
|
)
|
Net income attributable to common shareholders
|
|
|
114,622
|
|
|
|
419,633
|
|
Weighted-average common shares outstanding
|
|
|
3,255,887
|
|
|
|
3,255,887
|
|
Basic net income per share
|
|
$
|
0.04
|
|
|
$
|
0.13
|
|
Diluted net income per share computation
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
114,622
|
|
|
$
|
419,633
|
|
Add: Preferred dividends
|
|
|
80,000
|
|
|
|
80,000
|
|
Diluted income attributable to common shareholders
|
|
$
|
194,622
|
|
|
$
|
499,633
|
|
Weighted-average common shares outstanding
|
|
|
3,255,887
|
|
|
|
3,255,887
|
|
Incremental shares attributable to the assumed conversion of preferred stock
|
|
|
1,839,778
|
|
|
|
1,839,778
|
|
Total adjusted weighted-average shares
|
|
|
5,095,665
|
|
|
|
5,095,665
|
|
Diluted net income per share
|
|
$
|
0.04
|
|
|
$
|
0.10
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31, 2021
|
|
|
December 31, 2020
|
|
Basic net income per share computation:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,769,799
|
|
|
$
|
833,361
|
|
Less: Preferred dividends
|
|
|
(240,000
|
)
|
|
|
(240,000
|
)
|
Net income attributable to common shareholders
|
|
|
1,529,799
|
|
|
|
593,361
|
|
Weighted-average common shares outstanding
|
|
|
3,255,887
|
|
|
|
3,255,887
|
|
Basic net income per share
|
|
$
|
0.47
|
|
|
$
|
0.18
|
|
Diluted net income per share computation
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
1,529,799
|
|
|
$
|
593,361
|
|
Add: Preferred dividends
|
|
|
240,000
|
|
|
|
240,000
|
|
Diluted income attributable to common shareholders
|
|
$
|
1,769,799
|
|
|
$
|
833,361
|
|
Weighted-average common shares outstanding
|
|
|
3,255,887
|
|
|
|
3,255,887
|
|
Incremental shares attributable to the assumed conversion of preferred stock
|
|
|
1,839,778
|
|
|
|
1,809,778
|
|
Total adjusted weighted-average shares
|
|
|
5,095,665
|
|
|
|
5,065,665
|
|
Diluted net income per share
|
|
$
|
0.35
|
|
|
$
|
0.16
|
|
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 – Net Income per Share (continued)
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share for the three months ended:
|
|
December 31,
2021
|
|
|
December 31,
2020
|
|
Stock options
|
|
|
121,500
|
|
|
|
83,500
|
|
|
|
|
121,500
|
|
|
|
83,500
|
|
The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share for the nine months ended:
|
|
December 31,
2021
|
|
|
December 31,
2020
|
|
Stock options
|
|
|
121,500
|
|
|
|
83,500
|
|
|
|
|
121,500
|
|
|
|
83,500
|
|
Note 7 – Line of Credit
In August 2021, Bank of America renewed the line of credit with a maturity of July 30, 2022. The agreement includes a line of credit up to $690,000. Monthly payments are interest only. The line is collateralized by substantially all of the assets of the Company.
As of December 31, 2021, the Line of Credit draw has remained at zero balance.
Note 8 – SBA PPP Loan
On January 6, 2021, updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for this second round of funding and on March 15, 2021, the Company secured a Second Draw PPP loan in the amount of $722,577. On September 17, 2021, TIC qualified for full loan forgiveness of the second round of funding which was recognized as other income.
Note 9 – Segment Information
In accordance with FASB ASC 280, “Disclosures about Segments of an Enterprise and related information”, the Company determined it has two reportable segments - avionics government and avionics commercial. There are no inter-segment revenues.
The Company is organized primarily on the basis of its avionics products. The avionics government segment consists primarily of the design, manufacture, and sale of test equipment to the U.S. and foreign governments and militaries either directly or through distributors. The avionics commercial segment consists of design, manufacture, and sale of test equipment to domestic and foreign airlines, directly or through commercial distributors, and to general aviation repair and maintenance shops. The Company develops and designs test equipment for the avionics industry and as such, the Company’s products and designs cross segments.
Management evaluates the performance of its segments and allocates resources to them based on gross margin. The Company’s general and administrative costs and sales and marketing expenses, and engineering costs are not segment specific. As a result, all operating expenses are not managed on a segment basis. Net interest includes expenses on debt and income earned on cash balances, both maintained at the corporate level.
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 – Segment Information (continued)
The tables below present information about reportable segments within the avionics business for the three and nine months ending December 31, 2021, and 2020:
Three Months Ended
December 31, 2021
|
|
Avionics
Government
|
|
|
Avionics
Commercial
|
|
|
Avionics
Total
|
|
|
Corporate
Items
|
|
|
Total
|
|
Net sales
|
|
$
|
2,552,546
|
|
|
$
|
618,986
|
|
|
$
|
3,171,532
|
|
|
$
|
-
|
|
|
$
|
3,171,532
|
|
Cost of sales
|
|
|
1,366,699
|
|
|
|
397,040
|
|
|
|
1,763,739
|
|
|
|
-
|
|
|
|
1,763,739
|
|
Gross margin
|
|
|
1,185,847
|
|
|
|
221,946
|
|
|
|
1,407,793
|
|
|
|
-
|
|
|
|
1,407,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering, research, and development
|
|
|
|
|
|
|
|
|
|
|
574,118
|
|
|
|
-
|
|
|
|
574,118
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
187,132
|
|
|
|
336,834
|
|
|
|
523,966
|
|
Litigation costs
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
17,145
|
|
|
|
17,145
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(996
|
)
|
|
|
(996
|
)
|
Interest expense – judgment
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
52,490
|
|
|
|
52,490
|
|
Total expenses
|
|
|
|
|
|
|
|
|
|
|
761,250
|
|
|
|
405,473
|
|
|
|
1,166,723
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
646,543
|
|
|
$
|
(405,473
|
)
|
|
$
|
241,070
|
|
Three Months Ended
December 31, 2020
|
|
Avionics
Government
|
|
|
Avionics
Commercial
|
|
|
Avionics
Total
|
|
|
Corporate
Items
|
|
|
Total
|
|
Net sales
|
|
$
|
2,212,507
|
|
|
$
|
460,235
|
|
|
$
|
2,672,742
|
|
|
$
|
-
|
|
|
$
|
2,672,742
|
|
Cost of sales
|
|
|
1,247,606
|
|
|
|
414,047
|
|
|
|
1,661,653
|
|
|
|
-
|
|
|
|
1,661,653
|
|
Gross margin
|
|
|
964,901
|
|
|
|
46,188
|
|
|
|
1,011,089
|
|
|
|
-
|
|
|
|
1,011,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering, research, and development
|
|
|
|
|
|
|
|
|
|
|
492,432
|
|
|
|
-
|
|
|
|
492,432
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
215,952
|
|
|
|
524,744
|
|
|
|
740,696
|
|
Litigation costs
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,998
|
|
|
|
1,998
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(1,591
|
)
|
|
|
(1,591
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(758
|
)
|
|
|
(758
|
)
|
Forgiveness of PPP loan
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(722,577
|
)
|
|
|
(722,577
|
)
|
Interest expense - judgment
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
52,490
|
|
|
|
52,490
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
8,030
|
|
|
|
8,030
|
|
Total expenses (income)
|
|
|
|
|
|
|
|
|
|
|
708,384
|
|
|
|
(137,664
|
)
|
|
|
570,720
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
302,705
|
|
|
$
|
137,664
|
|
|
$
|
440,369
|
|
Nine Months Ended
December 31, 2021
|
|
Avionics
Government
|
|
|
Avionics
Commercial
|
|
|
Avionics
Total
|
|
|
Corporate
Items
|
|
|
Total
|
|
Net sales
|
|
$
|
9,031,812
|
|
|
$
|
1,882,975
|
|
|
$
|
10,914,787
|
|
|
$
|
-
|
|
|
$
|
10,914,787
|
|
Cost of sales
|
|
|
4,627,834
|
|
|
|
1,196,507
|
|
|
|
5,824,341
|
|
|
|
-
|
|
|
|
5,824,341
|
|
Gross margin
|
|
|
4,403,978
|
|
|
|
686,468
|
|
|
|
5,090,446
|
|
|
|
-
|
|
|
|
5,090,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering, research, and development
|
|
|
|
|
|
|
|
|
|
|
1,950,545
|
|
|
|
-
|
|
|
|
1,950,545
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
589,076
|
|
|
|
1,085,542
|
|
|
|
1,674,618
|
|
Litigation costs
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
21,545
|
|
|
|
21,545
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(2,977
|
)
|
|
|
(2,977
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(35,854
|
)
|
|
|
(35,854
|
)
|
Interest expense – judgment
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
156,901
|
|
|
|
156,901
|
|
Forgiveness of PPP Loan
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(722,577
|
)
|
|
|
(722,577
|
)
|
Total expenses
|
|
|
|
|
|
|
|
|
|
|
2,539,621
|
|
|
|
502,580
|
|
|
|
3,042,201
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
2,550,825
|
|
|
$
|
(502,580
|
)
|
|
$
|
2,048,245
|
|
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 – Segment Information (continued)
Nine Months Ended
December 30, 2020
|
|
Avionics
Government
|
|
|
Avionics
Commercial
|
|
|
Avionics
Total
|
|
|
Corporate
Items
|
|
|
Total
|
|
Net sales
|
|
$
|
7,751,936
|
|
|
$
|
1,196,639
|
|
|
$
|
8,948,575
|
|
|
$
|
-
|
|
|
$
|
8,948,575
|
|
Cost of sales
|
|
|
4,145,959
|
|
|
|
920,093
|
|
|
|
5,066,052
|
|
|
|
-
|
|
|
|
5,066,052
|
|
Gross margin
|
|
|
3,605,977
|
|
|
|
276,546
|
|
|
|
3,882,523
|
|
|
|
-
|
|
|
|
3,882,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering, research, and development
|
|
|
|
|
|
|
|
|
|
|
1,678,940
|
|
|
|
-
|
|
|
|
1,678,940
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
627,944
|
|
|
|
1,238,812
|
|
|
|
1,866,756
|
|
Litigation costs
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
10,208
|
|
|
|
10,208
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(6,316
|
)
|
|
|
(6,316
|
)
|
Forgiveness of PPP loan
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(722,577
|
)
|
|
|
(722,577
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(14,612
|
)
|
|
|
(14,612
|
)
|
Interest expense – judgment
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
180,124
|
|
|
|
180,124
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
27,190
|
|
|
|
27,190
|
|
Total expenses
|
|
|
|
|
|
|
|
|
|
|
2,306,884
|
|
|
|
712,829
|
|
|
|
3,019,713
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
1,575,639
|
|
|
$
|
(712,829
|
)
|
|
$
|
862,810
|
|
Note 10 – Income Taxes
FASB ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company does not have any unrecognized tax benefits.
The tax effect of temporary differences, primarily net operating loss carryforwards, asset reserves and accrued liabilities, gave rise to the Company’s deferred tax asset. Deferred income taxes are recognized for the tax consequence of such temporary differences at the enacted tax rate expected to be in effect when the differences reverse. The Company had approximately $2.4 million in deferred tax assets at December 31, 2021. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.
The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax expense are due to the recognition of non-taxable PPP funds of $722,577 as other income during the nine months ended December 31, 2021. Taxable income was $241,070 and $2,048,245 for the three and nine months ended December 31, 2021, resulting in income tax expense of $46,448 and $278,446 for the three and nine months ended December 30, 2021, respectively.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU was effective April 1, 2021, and adoption of this standard had no significant impact on our financial position and results of operations.
Note 11 – Operating Lease Liability
The Company leases its facility in East Rutherford, NJ with monthly payments of $18,467 which expired in August 2021 and the renewed monthly payments are $21,237 for an additional four years. Thereafter, monthly payments are $23,083 for the balance of the 8 year renewal lease agreement expiring August 2029.
The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the market for similar borrowings. The Company used a discount rate of 3.90% at December 31, 2021.
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 – Operating Lease Liability (continued)
The following table reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under non-cancelable operating leases with terms of more than one year to the total lease liabilities recognized on the unaudited condensed consolidated balance sheet as of December 31, 2021:
Remaining payments 2022
|
|
$
|
63,710
|
|
2023
|
|
|
254,840
|
|
2024
|
|
|
254,840
|
|
2025
|
|
|
254,840
|
|
2026
|
|
|
267,767
|
|
Thereafter
|
|
|
946,417
|
|
Total undiscounted future minimum lease payments
|
|
|
2,042,414
|
|
Less: Difference between undiscounted lease payments and discounted lease liabilities
|
|
|
(274,071
|
)
|
Present value of net minimum lease payments
|
|
|
1,768,343
|
|
Less current portion
|
|
|
(192,487
|
)
|
Operating lease liabilities – long-term
|
|
$
|
1,575,856
|
|
Total rent expense for the three and nine months ended December 31, 2021, was $100,967 and $288,117, respectively, as compared to $90,920 and $272,725 for the three and nine months ended December 31, 2020, respectively.
Note 12 – Litigation
Contingencies are recorded in the unaudited condensed consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss is reasonably estimable, or otherwise disclosed, in accordance with Accounting Standards Codification 450, Contingencies (ASC 450). Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, when applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss or if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
On March 24, 2009, Aeroflex Wichita, Inc. (“Aeroflex”) filed a petition against the Company and two of its employees in the District Court located in Sedgwick County, Kansas, Case No. 09 CV 1141 (the “Aeroflex Action”), alleging that the Company and its two employees misappropriated Aeroflex’s proprietary technology in connection with the Company winning a substantial contract from the U.S. Army, to develop new Mode-5 radar test sets and kits to upgrade the existing TS-4530 radar test sets to Mode 5 (the “Award”). Aeroflex’s petition, seeking injunctive relief and damages, alleges that in connection with the Award, the Company and its named employees misappropriated Aeroflex’s trade secrets; tortiously interfered with Aeroflex’s business relationship; conspired to harm Aeroflex and tortiously interfered with Aeroflex’s contract. The central basis of all the claims in the Aeroflex Action is that the Company misappropriated and used Aeroflex proprietary technology and confidential information in winning the Award. In February 2009, subsequent to the Company winning the Award, Aeroflex filed a protest of the Award with the Government Accounting Office (“GAO”).
In its protest, Aeroflex alleged, inter alia, that the Company used Aeroflex’s proprietary technology in order to win the Award, the same
material allegations as were later alleged in the Aeroflex Action. On or about March 17, 2009, the U.S. Army Contracts Attorney, and the U.S. Army Contracting Officer each filed a statement with the GAO, expressly rejecting Aeroflex’s allegations that the Company used or infringed on Aeroflex’s proprietary technology in winning the Award and concluding that the Company had used only its own proprietary technology. On April 6, 2009, Aeroflex withdrew its protest.
In December 2009, the Kansas District Court dismissed the Aeroflex Action on jurisdiction grounds. Aeroflex appealed this decision. In May 2012, the Kansas Supreme Court reversed the decision and remanded the Aeroflex Action to the Kansas District Court for further proceedings. The case then entered an extended discovery period in the District Court.
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12 – Litigation (continued)
On May 23, 2016, the Company filed a motion for summary judgment based on Aeroflex’s lack of jurisdictional standing to bring the case. The motion asserts that Aeroflex does not own the intellectual property at issue since it is a bare licensee of Northrop Grumman. Northrop Grumman has declined to join this suit as plaintiff. The motion asserted Aeroflex lacks standing to sue alone. Also, the motion raises the fact that Aeroflex allowed the license to expire, Aeroflex’s claims are either moot or Aeroflex lacks standing to sue for damages alleged to have accrued after the license ended in 2011. The motion for summary judgment was denied.
The Aeroflex trial on remand in the Kansas District Court began in March 2017. After a nine-week trial, the jury rendered its verdict. The jury found no misappropriation of Aeroflex trade secrets but found that the Company tortiously interfered with a prospective business opportunity and awarded damages of $1.3 million for lost profits. The jury also ruled that Tel tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees and awarded damages of $1.5 million for lost profits, resulting in total damages against the Company of $2.8 million. The jury also found that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex and awarded damages against these two individuals totaling $525,000. The jury also decided that punitive damages should be allowed against the Company.
Following the verdict, the Company filed a motion for judgment as a matter of law. In the motion, the Company renewed its motion for judgment on Aeroflex’s tortious interference with prospective business opportunity claim arguing that such claim is barred by the statute of limitations. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim. Additionally, the motion for judgment addresses inconsistency between the awards against the former Aeroflex employees for breach of the non-disclosure agreements and the award against the Company for interfering with those agreements. Alternatively, the motion asserts there is insufficient evidence supporting the lost profit award on that claim.
During July 2017, the Court heard the Company’s motion for judgment as well as conducting a hearing as to the amount of a punitive damages award. Kansas statutes limit punitive damages to a maximum of $5 million.
Aeroflex submitted a motion to the Court requesting that the judge award punitive damages at the maximum $5 million amount. In October 2017, the Court denied the Company’s motions and awarded Aeroflex an additional $2.1 million of punitive damages, which brings the total Tel damages awarded in this case to approximately $4.9 million. Pursuant to K.S.A. 16-204(d) “any judgment rendered by a court of this state on or after July 1, 1986, shall bear interest on and after the day on which judgment is rendered at the rate provided by subsection (e). The Kansas Secretary of State publishes the interest rate which is modified annually based on market interest rates.
For the year starting July 1, 2020, the interest rate was 4.25% and cumulative interest as of fiscal year ended June 30, 2021, was $1,040,943. For the year starting July 1, 2021, the interest rate will be 4.25 %. Interest on the $4.9 million judgment started to accrue on November 22, 2017, the date the judgment was entered. As of December 31, 2021, the outstanding amount of the judgement and accrued interest is $6,045,924.
The Company filed post-trial motions to avoid damage duplication and inconsistency, and to secure judgment as a matter of law or a new trial. The trial court denied those motions. The Company appealed the verdict in 2019 and the post-trial rulings to the Court of Appeals of the State of Kansas, Case No. 18-119,563. The Company posted a $2 million supersedeas bond. The Plaintiff filed a cross-appeal. The appeal and cross-appeal are fully briefed. The appellate court has not set a date to hear the appeal.
The Company is optimistic about the prospects of its appeal for a judgment as a matter of law. The appeal decision has been delayed due to the COVID-19 related shutdown of the Kansas court system and the inability of court staff to work remotely on confidentiality issues. During August 2021, in an effort to move the appeal forward, all parties agreed to supply the appeal information to the court on a dedicated and secured laptop that would be used by the research attorney remotely. The Company has the ability to settle this case at its sole discretion by withdrawing the appeal and paying the judgment plus interest amount. The Company currently has sufficient cash on hand to pay off this liability if the appeal is lost. On January 28, 2022, Aeroflex filed a Motion to Require Supplemental Appeal Bond with the Court of Appeals of the State of Kansas, seeking a bond from the Company in the amount of $6 million to supplement the existing bond of $2 million. The Company has filed a response and we are confident that this motion will be denied.
Other than the matters outlined above, we are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of executive officers of our Company, threatened against or affecting our Company, or our common stock in which an adverse decision could have a material effect.
TEL-INSTRUMENT ELECTRONICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 13 – Stock Options
The Board of Directors (the “Board”) adopted on January 18, 2017, and ratified by the shareholders at the Annual Meeting on January 18, 2017, the Company’s 2016 Stock Option Plan (the “Plan”). The Plan provides for the granting of incentive stock options, by a committee to be appointed by the Board (both the Board and the Committee are referred to herein as the “Committee”) to directors, officers, and employees (excluding directors and officers who are not employees) to purchase shares of the Common Stock of the Company, par value $0.10 per share (the “Stock”), in accordance with the terms and provisions. The 2016 Plan reserves for issuance, options to purchase up to 250,000 shares of its common stock. Options granted under the plan are exercisable up to a period of five years from the date of grant at an exercise price which is not less than the fair market value of the common stock at the date of grant, except to a shareholder owning 10% or more of the outstanding common stock of the Company, as to which the exercise price must be not less than 110% of the fair market value of the common stock at the date of grant. Options are exercisable on a cumulative basis, 20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary. During fiscal year 2022, the Company granted 23,000 stock options at a price of $2.94 per share, the fair market value on the grant date.
The fair value of each option awarded is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of Common Stock. The expected life of the options granted represents the period of time from date of grant to expiration (5 years). The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant.
|
|
Dividend
|
|
|
Risk-free
|
|
|
|
|
|
|
|
|
|
Yield
|
|
|
Interest rate
|
|
|
Volatility
|
|
|
Life
|
2022
|
|
|
0.0
|
%
|
|
|
0.78
|
%
|
|
|
82.69
|
%
|
|
5 years
|
A summary of the status of the Company’s stock option plans for the fiscal year ended March 31, 2021, and year to date December 31, 2021, and changes during the year are presented below (in number of options):
|
|
Number of
Options
|
|
|
Average
Exercise Price
|
|
Average Remaining
Contractual Term
|
|
Aggregate
Intrinsic Value
|
|
Outstanding options at April 1, 2021
|
|
|
98,500
|
|
|
$
|
3.19
|
|
3.3 years
|
|
$
|
30,835
|
|
Options granted
|
|
|
23,000
|
|
|
$
|
2.94
|
|
|
|
|
|
|
Options exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
Options canceled/forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at December 31, 2021
|
|
|
121,500
|
|
|
$
|
3.14
|
|
2.9 years
|
|
$
|
8,090
|
|
Vested Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021:
|
|
|
37,900
|
|
|
$
|
3.21
|
|
2.1 years
|
|
$
|
304
|
|
March 31, 2021:
|
|
|
19,700
|
|
|
$
|
3.22
|
|
2.8 years
|
|
$
|
5,567
|
|
Remaining options available for grant were 128,500 and 151,500 as of December 31, 2021, and March 31, 2021, respectively.
For the year ended March 31, 2021, and year to date December 2021, the unamortized compensation expense for stock options was $60,013 and $55,505 respectively. Unamortized compensation expense is expected to be recognized over a weighted-average period of approximately 2.7 year.
For the three and nine months ended December 31, 2021, the Company recorded stock compensation costs of $7,514 and $19,848, respectively, as compared to $5,277 and $15,829 for the three and nine months ended December 31, 2020.