Overview
For the first nine months of the current fiscal year sales totaled more than
$5,500,000 already exceeding the total for all of the prior fiscal year.
Shipments of the AN/APM-480 IFF (Identification, Friend or Foe) Transponder Set
Test Sets (TSTS) continue without any significant problems and the unit has been
favorably received by the customer. The Company has now received orders from the
U.S. Navy for a total of 960 units, with a value totaling over $12,500,000 to be
delivered over the next three to four years. The AN/APM 480 is a militarized
avionics ramp tester used to simulate IFF Transponder/Interrogator and TCAS
(Traffic Alert and Collision Avoidance System) functions to provide accurate go,
no-go testing of avionics test equipment installed in military aircraft on the
flightline and aircraft carrier deck.
During the second quarter of the current fiscal year, the Company began shipment
to a major freight carrier (through a domestic distributor) of T-30D ILS
(Instrument Landing System) and T-49C (TCAS) commercial test sets. The total
order exceeds $900,000, and the Company expects to ship the majority of this
order in the current fiscal year. In addition, during the current fiscal year
the Company shipped all of the T-76 DME/P (Precision Distance Measuring
Equipment) ramp test sets under the contract, totaling approximately $400,000,
with Marconi Communications through our Italian intermediary, M.P.G. Instruments
s.r.l. DME/P is directed solely to the European market. The Company continues
its efforts to complete the DME/P bench test sets under a contract with Marconi
Communications in the amount of $680,000.
The Company continues to actively pursue opportunities in both the commercial
and government markets, both domestically and internationally, and new product
development efforts based upon its evaluation of these markets. The Company is
also exploring opportunities in other government and commercial markets in order
to broaden the Company's product base. The Company's backlog at December 31,
2000 exceeds $14,500,000. This backlog is deliverable over the next three to
four years.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations (continued)
Overview (continued)
In summary, sales for the nine months ended December 31, 2000 sales increased
$1,659,800 (43.0%) to $5,518,413 as compared to the same period in the prior
fiscal year. For the nine months ended December 31, 2000, the Company generated
net income before taxes of $708,130, an increase of 198.6% as compared to the
same nine months in the prior fiscal year, primarily as a result of increased
government and commercial sales.
In accordance with SFAS 109, for the nine months ended December 31, 2000, the
Company recorded a net tax provision of $133,032, net of the additional deferred
tax asset of $150,000 recorded for the three months ended December 31, 2000.
This additional deferred tax asset partially offsets the tax provision based
upon the effective federal and state tax rate on the Company's income before
taxes of $708,130. The Company has no significant liability for federal taxes.
Sales
Total sales increased $866,166 (61.4%) for the three months ended December 31,
2000 as compared to the same period in the prior fiscal year. Commercial sales
increased $522,300 (174.3%) and government sales increased $343,866 (31.0%). The
increase in commercial sales is primarily attributed to the shipment of
commercial test sets to a major freight carrier and an increase in ILS and TCAS
test set shipments. There is no assurance that commercial sales will continue to
grow at the current rate. Government sales increased as a result of the shipment
of the AN/APM-480 to the U.S. Navy, and higher sales of the T-47C IFF test sets.
These increases were partially offset by lower sales of T-49CF military TCAS
unit, T-47N IFF/TCAS/TACAN test sets, and sales associated with the test and
documentation portion of the Navy contract, which is substantially complete.
For the nine months ended December 31, 2000 total sales increased $1,659,800
(43.0%) as compared to the same period in the prior fiscal year. Commercial
sales increased $830,451 (60.0%) and government sales increased $829,349
(33.5%). The increase in commercial sales is primarily attributed to the
shipment of ILS test sets from the order from the major freight carrier and an
increase in TCAS test sets. Government sales increased as a result of the
shipment of the AN/APM-480 IFF to the U.S. Navy, and the T-76 DME ramp test
sets. These increases were partially offset by lower sales of the T-47 family of
IFF test sets and of T-49CF military TCAS units.
Gross Margin
Gross margin increased $385,173 (52.6%) and $595,964 (28.6%) for the three and
nine months ended December 31, 2000, respectively, as compared to the same
periods in the prior fiscal year. The increase in gross margin, for the most
part, is attributed to the higher volume. However, gross margin, as a percentage
of sales, was reduced by the introduction of new products, such as the AN/APM
480 and the T-76, and the associated learning curve in building these new and
more sophisticated products, and lower gross profit on the AN/APM 480 contract.
The gross margin percentage for the three months ended December 31, 2000 was
49.1% as compared to 52.0% for the three months ended December 31, 1999. The
gross margin
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations (continued)
Gross Margin (continued)
percentage for the nine months ended December 31, 2000 was 48.5% as compared to
53.9% for the nine months ended December 31, 1999. The gross margin percentage
was also lower in the current fiscal year as a result of the increase in sales
to distributors (sales to distributors are sold at a discount from standard list
prices).
Operating Expenses
Selling, general and administrative expenses increased $167,166 (61.9%) and
$315,216 (37.6%) for the three and nine months ended December 31, 2000,
respectively, as compared to the three and nine months ended December 31, 1999.
This increase is attributed to higher sales and marketing expenses, and an
increase in accrued compensation expense.
Engineering, research and development expenses decreased $87,503 (22.9%) and
$228,513 (23.7%) for the three and nine months ended December 31, 2000 as
compared to the same period last year. This decrease is associated with certain
development activities that were funded through contracts and, therefore, not
included in engineering, research and development expenses. The Company expects
company funded expenses to increase when the work for these contracts has been
completed.
Income Taxes
For the nine months ended December 31, 2000, the Company, in accordance with
FASB 109, recorded a net tax provision of $133,042, which represents the
recognition of a federal and state tax provision on the Company's net income
before taxes of $708,130 in the amount of $283,042 offset by reduction of its
deferred tax valuation allowance in the amount of $150,000. For the nine months
ended December 31, 1999, the Company recorded a net deferred tax benefit of
$290,267, which represents the recognition of federal and state tax provision on
the Company's net income before taxes of $237,130 in the amount of $94,733 and
offset by a reduction of its deferred tax valuation allowance in the amount of
$385,000. The Company currently does not have any significant federal tax
liability.
Liquidity and Capital Resources
At December 31, 2000 the Company had positive working capital of $1,599,509 as
compared to $921,130 at March 31, 2000. For the nine months ended December 31,
2000, the Company generated cash from operations in the amount of $262,525 as
compared to using $26,507 for the nine months ended December 31, 1999. This
increase in cash from operations is primarily attributed to the improvement in
the Company's operating income as a result of the higher sales volume and an
increase in accrued compensation expense. These increases were partially offset
by increases in accounts receivable and inventory.
The Company has a credit line in the amount of $600,000 from Summit Bank. The
line of credit bears an interest rate of 1% above the lender's prevailing base
rate, which is payable monthly, based upon the outstanding balance. At December
31, 2000, the Company had an outstanding balance of $250,000. The line
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Liquidity and Capital Resources (continued)
of credit is collateralized by substantially all of the assets of the Company
and expires in June 2001. The credit facility requires the Company to maintain
certain financial covenants. As of December 31, 2000, the Company was in
compliance with all financial covenants.
Based upon the current backlog, available credit line, and cash balance, the
Company believes that it has sufficient working capital to fund its plans for
the next twelve months. At present, the Company does not anticipate significant
long-term needs for capital outside its normal operating activities. There was
no significant impact on the Company's operations as a result of inflation for
the nine months ended December 31, 2000. |
