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Tel-Instrument Electronics Corp. Reports Financial Results for Fourth Quarter and Fiscal Year 2017

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Tel-Instrument Electronics Corp. ("Tel", "Tel-Instrument" or the
"Company") (NYSE MKT: TIK), a leading designer and manufacturer of
avionics test and measurement solutions, today reported its financial
results for the fourth quarter and year ended March 31, 2017.

Highlights for Fiscal Year 2017

  • Revenues decreased to 24% to $18.7 million from $24.8 million in 2016.
  • Gross profit decreased 16% to $6.7 million. Gross margin percentage
    improved to 35.7% versus 32.2% in 2016.
  • Litigation expenses increased to over $1.2 million, as compared to
    $448k in the prior fiscal year.
    Operating profit would have been
    $1.67 million if Aeroflex litigation and damage amounts were backed
    out of the results.
  • Recorded $2.8 million in estimated damages associated with the jury
    verdict in the Aeroflex litigation.
  • Operating loss was $2.4 million compared to operating income of $2.5
    million in 2016.
  • Net loss was $4.8 million as a result of valuation allowance against
    the tax asset versus net income of $1 million in 2016.
  • Working capital declined to $215k as compared to $3.5 million in 2016
    as a result of litigation expenses and damages
  • Completion of mechanical design for our key hand-held modular
    communications and avionics test set products.

Highlights for Fourth Quarter of Fiscal Year 2017

  • Revenues decreased to $4.1 million or 34% from $6.2 million in the
    fourth quarter last year.
  • Litigation expenses increased to $564k compared to $133k in the fourth
    quarter of 2016.
  • Recorded $2.8MM in estimated damages associated with the jury verdict
    in the Aeroflex litigation.
  • Operating loss of $3.3MM as compared to $481k profit in the fourth
    quarter of 2016.
  • Net loss was $5.6MM as a result of valuation allowance against the tax
    asset as compared to net income of $299k in 2016.
  • Increased line of credit with Bank of America to $1,000,000

Subsequent Events

  • Following the trial the Company filed a post-trial motion for judgment
    and these motions were heard July 10-11, 2017. The Court has not yet
    issued a ruling.

Fiscal Year Ended March 31, 2017 as Compared to March 31, 2016

Revenues for the fiscal year ended March 31, 2017 were $18.7 million, a
24% decrease from $24.8 million for fiscal year 2016. Gross margin for
the year was $6.7 million, or 35.7% of sales, a $1.3 million (16.3%)
decrease from the prior year. The decrease in sales is mostly attributed
to the decrease in shipment of the U.S. Army TS-4530A KITS, CRAFT and
ITATS units associated with the U.S. Navy programs, which contracts have
now been completed. This decrease was partially offset by the shipment
of the TS-4530A SETS and CRAFT units sold to Lockheed Martin for the
Joint Strike Fighter ("JSF") program and to other customers.

Gross margin as a percentage of sales increased to 35.7% for 2017 as
compared to 32.2% for 2016. The improvement is due to the completion of
the ITATS program which was bid with very tight margins and higher
prices for the CRAFT units. Gross margin dollars decreased $1.3 million
(16.3%) to $6.7 million for the year ended March 31, 2017 as compared to
$8.0 million for the year ended March 31, 2016. This decrease is mostly
attributed to the lower volume offset partially by increased prices on
CRAFT and the change in sales mix.

Selling, general and administrative decreased 11.6%, but litigation
expenses significantly increased to $1.2 million in 2017 from $448k in
2016.

The Company also recorded estimated damages of $2.8 million in 2017.

Engineering, research and development expenses increased $392k (19.2%)
to $2.4 million for the year ended March 31, 2017 as compared to $2.0
million for the year ended March 31, 2016. The Company continues to
invest in new products by taking advantage of our CRAFT and TS-4530A
technology to develop smaller hand-held products, which will broaden our
product line for both commercial and military applications. We also
introduced a new commercial Nav/Comm test set earlier this calendar
year. This is a large and important market segment for the Company, and
we are optimistic that this new product will help us regain market share
in this segment. We have added additional personnel to research and
development activities to accelerate our time to market.

The operating loss for the year was $2.4 million as compared to
operating income of $2.6 million in 2016. Excluding the litigation costs
and damages operating income is $1.7 million for 2017 as compared to
$3.0 million for 2016. Net loss for 2017 was impacted by the valuation
allowance against the tax asset, which resulted in a large tax expense.
The amount of the charge against taxes was $3.5 million.

Quarter Ended March 31, 2017 as Compared to March 31, 2016

Revenues for the fourth quarter were $4.1 million, a decline of 34% from
the $6.2 million for the fourth quarter of fiscal year 2016, primarily
as a result of the lower volume as a result of the completion of its
three major programs. Gross margin in the fourth quarter was 32.9% of
revenues compared to 30.7% in the same quarter last year. Gross margin
dollars decreased $544k or 29% primarily as a result of the decrease in
volume.

Selling, general and administrative expenses decreased $107k or 18%, but
litigation expenses for the quarter were $564k as compared to $133k in
the fourth quarter of 2016. The Company also recorded estimated damages
of $2.8 million in 2017.

Engineering, research and development expenses increased to $647k in the
fourth quarter of 2017 as compared to $560k in the fourth quarter of
2016 as we continue to invest for the future.

The operating loss for the quarter was $3.3 million as compared to
operating income of $481k million in 2016. Excluding the litigation
costs and damages operating income is $92k for the fourth quarter of
2017 as compared to $615k for fourth quarter of 2016. Net loss for the
quarter ended March 31, 2017 was impacted by the valuation allowance
against the tax asset, which resulted in a large tax expense. The amount
of the charge against taxes was $3.5 million.

Commenting on the results, Mr. Jeffrey O'Hara, President and CEO of Tel,
stated, "After participating in the Kansas trial for six weeks, I
thought we presented a very strong case. As such, I was extremely
disappointed with the jury verdict of $2.8 million. These damages were
awarded despite the fact that the Kansas jury found no trade secret
misappropriation. We have filed post-trial motions, which were heard on
July 10-11, 2017 arguing that the jury award was incorrect and should be
reduced. We have also argued that punitive damages were not appropriate
in this case. At this stage, the Company has recorded a $2.8 million
liability but this could materially change based on the judge's ruling
which is expected to be issued in the next several weeks. Depending on
the outcome of these hearings, both sides have the ability to appeal the
decision or the judge could vacate the jury decision and schedule a new
trial. If the judge enters a final damages award, both sides have
approximately 30 days to file an appeal or a request a new trial.

Tel is actively working to arrange financing t0 cover the cost of the
expected appeal and/or pay the final damages award depending on the
amount of the final award. The appeal process would entail posting a
bond which is expected to be in excess of $1 million. Tel believes it
has excellent grounds for appeal which would likely take several years
to complete.Tel has an excellent position in Mode 5 and TACAN test sets
representing an internal development cost of over $20 million. While the
fiscal year 2018 revenues are predicted to decline substantially from FY
2017 levels, we are forecasting a modest operating profit as the
expected reduction in sales should be partially offset by a continued
increase in our gross margin percentage. We are also forecasting
increasing revenues and profitability in fiscal year 2019 when the
international and F-35 Mode 5 sales are expected in volume as well
increasing sales from our new hand-held products. This new test set will
be half the size of competitive test sets and should do extremely well
in the marketplace. The 2018 and 2019 projections are of course
dependent on our ability to finance the appeal process or pay the final
damages award."

The Company encourages investors to read its full results of operations
as contained in our Annual Report on Form 10-K filed on July 14, 2017at www.sec.gov.

Conference Call

The Company will host a conference call and webcast, Monday,
July 17, 2017 at 9:00 a.m. Eastern Time to discuss the Company's fiscal
fourth quarter and full year results.

To access the live webcast, log onto Tel-Instrument's website at:

https://www.telinstrument.com/learn-about-telinstrument/investor-relations.html.

To participate in the call by phone, dial (877) 407-8035 approximately
five minutes prior to the scheduled start time. International callers
please dial (201) 689-8035.

A replay of the teleconference will be available until August 17, 2017
and may be accessed by dialing (877) 481-4010. International callers may
dial (919) 882-2331. Callers should use conference ID: 17948.

About Tel-Instrument Electronics Corp

Tel-Instrument is a leading designer and manufacturer of avionics test
and measurement solutions for the global commercial air transport,
general aviation, and government/military aerospace and defense markets.
Tel-Instrument provides instruments to test, measure, calibrate, and
repair a wide range of airborne navigation and communication equipment.
For further information please visit our website at www.telinstrument.com.

This press release includes statements that are not historical in
nature and may be characterized as "forward-looking statements,"
including those related to future financial and operating results,
benefits, and synergies of the combined companies, statements concerning
the Company's outlook, pricing trends, and forces within the industry,
the completion dates of capital projects, expected sales growth, cost
reduction strategies, and their results, long-term goals of the Company
and other statements of expectations, beliefs, future plans and
strategies, anticipated events or trends, and similar expressions
concerning matters that are not historical facts. All predictions as to
future results contain a measure of uncertainty and, accordingly, actual
results could differ materially.
Among the factors which could
cause a difference are:
changes in the general economy; changes
in demand for the Company's products or in the cost and availability of
its raw materials; the actions of its competitors; the success of our
customers; technological change; changes in employee relations;
government regulations; litigation, including its inherent uncertainty;
difficulties in plant operations and materials; transportation,
environmental matters; and other unforeseen circumstances.
A
number of these factors are discussed in the Company's previous filings
with the U.S. Securities and Exchange Commission. The Company disclaims
any intention or obligation to update any forward-looking statements as
a result of developments occurring after the date of this press release.
The safe harbor for forward-looking statements contained in the
Securities Litigation Reform Act of 1995 (the "Act") protects companies
from liability for their forward-looking statements if they comply with
the requirements of the Act.

TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Balance Sheets
   
ASSETS March 31, 2017 March 31, 2016
Current assets:
Cash $ 287,873 $ 972,633
Accounts receivable, net of allowance for doubtful accounts

of $7,500 and $7,500, respectively

1,556,382 1,454,361
Inventories, net 4,208,179 4,679,032
Prepaid expenses and other current assets   188,578   128,071
Total current assets 6,241,012 7,234,097
 
Equipment and leasehold improvements, net 161,427 193,518
Deferred tax asset – non-current - 2,643,633
Other assets   33,509   36,871
 
Total assets $ 6,435,948 $ 10,108,119
 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
 
Current liabilities:
Current portion of long-term debt $ 291,991 $ 418,255
Line of credit 200,000 -
Capital lease obligations – current portion 6,268 10,232
Accounts payable 1,428,320 1,686,469
Deferred revenues – current portion 123,720 48,766
Federal and state taxes payable 4,105 53,623
Accrued expenses - vacation pay, payroll and payroll withholdings 527,413 836,589
Accrued legal damages 2,800,000 -
Accrued expenses - related parties 45,586 213,344
Accrued expenses – other   599,049   501,687
Total current liabilities 6,026,452 3,768,965
 
Subordinated notes payable – related parties - 25,000
Capital lease obligations – long-term 13,760 20,524
Long-term debt, net of debt discount 2,124 304,560
Warrant liability 95,000 1,136,203
Deferred revenues – long-term 352,973 172,703
Other long-term liabilities   -   7,800
 
Total liabilities   6,490,309   5,435,755
 
Commitments and contingencies
 
Stockholders' (deficit) equity
Common stock, 4,000,000 shares authorized, par value $.10 per share,

3,255,887 and 3,255,887 shares issued and outstanding, respectively

325,586 325,586
Additional paid-in capital 8,107,369 8,074,655
Accumulated deficit   (8,487,316 )   (3,727,877 )
 
Total stockholders' (deficit) equity   (54,361 )   4,672,364
 
Total liabilities and stockholders' (deficit) equity $ 6,435,948 $ 10,108,119
TEL-INSTRUMENT ELECTRONICS CORP.
Consolidated Statements of Operations

 

                     
For the years ended March 31,
2017   2016
 
Net sales $ 18,745,456 $ 24,804,825
 
Cost of sales   12,061,341   16,819,235
 
Gross margin   6,684,115   7,985,590
 
Operating expenses:
Selling, general and administrative 2,581,085 2,919,165
Litigation expenses 1,244,639 448,379
Legal damages 2,800,000 -
Engineering, research and development   2,430,322   2,038,126
 
Total operating expenses   9,056,046   5,405,670
 
(Loss) income from operations (2,371,931 ) 2,579,920
 
Other income (expense):
Amortization of deferred financing costs (5,429 ) (5,429 )
Change in fair value of common stock warrants 321,203 (617,241 )
Interest expense (40,431 ) (58,133 )
Interest expense - related parties   (18,736 )   (42,996 )
 
Total other income (expense)   256,607   (723,799 )
 
(Loss) income before income taxes (2,115,324 ) 1,856,121
 
Provision for income taxes   2,644,115   851,968
 
Net (loss) income $ (4,759,439 ) $ 1,004,153
 
 
Basic (loss) income per common share $ (1.46 ) $ 0.31
Diluted (loss) income per common share $ (1.49 ) $ 0.31
 
Weighted average number of shares outstanding
Basic   3,255,887   3,256,887
Diluted   3,266,842   3,261,153

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