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Tel-Instrument Electronics Corp. Reports Financial Results for Third Quarter 2018

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Tel-Instrument Electronics Corp. ("Tel", "Tel-Instrument" or the
"Company") (NYSE:TIK), a leading designer and manufacturer of
avionics test and measurement solutions, today reported a net loss of
$333k on revenues of $2.6 million for the third quarter of fiscal year
2018. This loss included $135k of litigation expenses related to the
Aeroflex litigation.

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

For the three months ended December 31, 2017, total net sales decreased
$1,610,726 (38.0%) to $2,625,793, as compared to $4,236,519 for the
three months ended December 31, 2016. Avionics government sales
decreased $1,945,640 (51.6%) to $1,825,744 for the three months ended
December 31, 2017, as compared to $3,771,384 for the three months ended
December 31, 2016. The decrease in sales is mostly attributed to the
decrease in shipment of the U.S. Army TS-4530A Kits and Sets, and the
CRAFT units associated with the U.S. Navy programs, which contracts have
now been completed, partially offset by the increase in sales associated
with the initial shipments of the T-47/M5. Commercial sales increased
$334.914 (72.0%) to $800,049 for the three months ended December 31,
2017 as compared to $465,135 for the three months ended December 31,
2016. This increase is attributed to increased shipments of the TR-220
to a major U.S. airline as well as increased revenues from our repair
and calibration business.

For the three months ended December 31, 2017, total gross margin
decreased $697,571 (42.7%) to $936,680 as compared to $1,634,251 for the
three months ended December 31, 2016, primarily as a result of the lower
volume as well as labor and overhead variances as a result of the lower
volume. The gross margin percentage for the three months ended December
31, 2017 was 35.7%, as compared to 38.6% for the three months ended
December 31, 2016.

Selling, general and administrative expenses decreased $34,489 (5.9%) to
$548,391, for the three months ended December 31, 2017, as compared to
$582,880 for the three months ended December 31, 2016. These decreases
were primarily attributed to lower salaries and related expenses offset
partially by higher commission fees, shareholder communication expenses
and consulting fees.

Litigation expenses decreased $147,725 to $134,765 for the three months
ended December 31, 2017 as compared to $282,490 for the three months
ended December 31, 2016. The litigation expenses in the quarter ended
December 31, 2017 related to the additional motions filed with the court
to correct the damages award and securing the appeal bond.

Engineering, research and development expenses decreased $68,316 (11.1%)
to $546,691 for the three months ended December 31, 2017 as compared to
$615,007 for the three months ended December 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.
The Company has completed its development of the T-47/M5 Mode 5 test
set, which began initial shipments in the quarter ended December 31,
2017, and which we believe will compete effectively in the international
market.

The Company recorded a loss from operations of $323,690 for the quarter
ended December 31, 2017, as compared to income from operations of
$153,874 for the quarter ended December 31, 2016.

Mr. Jeffrey O'Hara, President and CEO of Tel, stated, "After a sharp
drop in second quarter revenues, revenues increased 47% in the third
quarter to $2.6 million which is still below our estimated quarterly
break-even revenue level of approximately $3 million. The positive news
is that we are starting to see increased quote and sales activity in
both our domestic and international markets with bookings for the third
quarter increasing to $3.2 million. We have several large potential
military orders in the pipe-line including a possible multi-million
dollar follow-on test set order from the U.S. DOD, which if secured,
should lead to improved revenues and profitability starting in the 2019
fiscal year starting April 1, 2018. We continue to actively target the
international Mode 5 market and our recent "Drive-to-Mode 5" marketing
incentive plan for our international Mode 5 customers has resulted in
several medium size orders for our new T-47/M5 product which we
announced in December. We are committed to aggressively pursuing this
business and continue to meet with key international customers. My
meetings with customers in the Far East last month were very positive
and we expect to capture the lion's share of the Mode 5 test set
business in these key markets. We are also seeing steady sales on our
TS-4530A test set, and expect a volume CRAFT order from Lockheed Martin
for the F-35 program later this spring. We have also released a new
Remote Client software application for all of our Mode 5 products that
will generate increased revenues and help improve our gross margins.
Finally, the Company continues to see strong market activity on our
TR-220 air traffic control ("ATC") test set, and we expect the
commercial portion of our business to continue to remain solid as a
result of the 2020 FAA ADS-B mandate."

"The Company believes its key long-term growth potential is in our new
line of modular hand-held test sets which provides unmatched
capabilities in a market leading form factor. We expect that these
hand-held test sets will provide us with the opportunity to regain a
leading market position in commercial avionics testing and expand into
the much larger secure communications radio test market. We plan to
introduce the first avionics related commercial product called the
SDR-Omni next month at an industry show with initial deliveries expected
to take place in the late summer of 2018. The plan is to add additional
avionic test capabilities to this product via software download every
three to six months with the goal of becoming the market leader in
world-wide commercial avionics. We are also in preliminary discussions
with potential partners to collaborate on the secure communications
radio market which is the key to TIC's long-term growth. We expect to
face stiff competition from Aeroflex which has been the dominant
supplier in these markets. This is an extremely attractive market
segment as evidenced by VIAVI Solutions (a U.S. company) recently
announcing plans to purchase the Aeroflex AvComm and Wireless Test and
Measurement businesses from Cobham at a price of $455 million, or more
than two times trailing revenues."

"With respect to the Aeroflex litigation, we plan to appeal the decision
if the Judge does not change the result or vacate the damage award based
on our latest motions. A hearing on this motion is expected on February
27, 2018 and a final decision is expected within the next two to three
months. The Judge could deny our motions, reduce the amount of damages
or even order a new trial. Once a final decision has been rendered, the
Company has 30 days to file an appeal. The Company has posted a
$2,000,000 bond to prevent Aeroflex from enforcement actions until a
final decision has been rendered by the Court. This $2 million bond
amount would remain in place during any appeal process. The Company
believes it has excellent grounds to appeal this verdict. The appeal
process would be expected to take several years to complete. We believe
that we will have approximately 2-3 years to generate sufficient cash or
secure additional financing to support the repayment of the remaining
$2.9 million not covered by the $2 million appeal bond, if we do not
prevail with the appeal."

The Company encourages investors to read its full results of operations
as contained in our Quarterly Report on Form 10-Q filed on February 14,
2018 at www.sec.gov.

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.
CONDENSED
CONSOLIDATED BALANCE SHEETS

 

December 31,
2017

March 31,
2017

(unaudited)
ASSETS
 
Current assets:
Cash and cash equivalents $ 263,983 $ 287,873
Accounts receivable, net 1,660,757 1,556,382
Inventories, net 4,309,324 4,208,179
Restricted cash to support appeal bond 2,000,000 -
Prepaid expenses and other current assets   107,450     188,578  
Total current assets 8,341,514 6,241,012
 
Equipment and leasehold improvements, net 197,602 161,427
Other long-term assets   35,109     33,509  
Total assets   8,574,225     6,435,948  
 
LIABILITIES & STOCKHOLDERS' DEFICIT
 
Current liabilities:
Current portion of long-term debt 3,696 291,991
Line of credit 1,000,000 200,000
Capital lease obligations – current portion 6,718 6,268
Accounts payable and accrued liabilities 2,431,763 2,072,955
Federal and state taxes payable - 4,105
Deferred revenues – current portion 54,671 123,720
Accrued legal damages 4,930,523 2,800,000
Accrued payroll, vacation pay and payroll taxes   396,207     527,413  
Total current liabilities 8,823,578 6,026,452
 
Capital lease obligations – long-term 8,664 13,760
Long-term debt - 2,124
Deferred revenues – long-term 353,280 352,973
Warrant liability   -     95,000  
Total liabilities   9,185,522     6,490,309  
 
Commitments
 
Mezzanine Equity:
Preferred stock, 1,000,000 shares authorized, par value $0.10 per
share,

500,000 shares 8% Cumulative Series A Convertible Preferred issued
and outstanding

  2,990,667     -  
Total mezzanine equity   2,990,667     -  
 
Stockholders' deficit:
Common stock, 4,000,000 shares authorized, par value $0.10 per share,

3,255,887 shares issued and outstanding, respectively

325,586 325,586
Paid-in capital in excess of par value, common stock 8,099,882 8,107,369
Accumulated deficit   (12,027,432 )   (8,487,316 )
Total stockholders' deficit   (3,601,964 )   (54,361 )
Total liabilities, mezzanine equity and stockholders' deficit $ 8,574,225   $ 6,435,948  
 
       

TEL-INSTRUMENT ELECTRONICS CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 
Three Months Ended Nine Months Ended

December 31,
2017

   

December 31,
2016

December 31,
2017

   

December 31,
2016

 
Net sales $ 2,625,793 $ 4,236,519 7,955,035 $ 14,654,917
Cost of sales   1,689,113     2,602,268     5,377,195     9,318,425  
 
Gross margin 936,680 1,634,251 2,577,840 5,336,492
 
Operating expenses:
Selling, general and administrative 548,391 582,880 1,881,072 2,042,922
Litigation expenses 134,765 282,490 560,610 609,330
Legal damages 30,523 - 2,130,523 -
Engineering, research and development   546,691     615,007     1,691,631     1,783,655  
Total operating expenses   1,260,370     1,480,377     6,263,836     4,435,907  
 
(Loss) income from operations (323,690 ) 153,874 (3,685,996 ) 900,585
 
Other income (expense):
Proceeds from life insurance - - 92,678 -
Amortization of deferred financing costs (649 ) (1,359 ) (3,363 ) (4,072 )
Change in fair value of common stock warrants 5,000 37,000 95,000 288,203
Interest expense   (14,097 )   (11,620 )   (38,435 )   (46,953 )
Total other income (expense)   (9,746 )   24,021     145,880     237,178  
 
(Loss) income before income taxes (333,436 ) 177,895 (3,540,116 ) 1,137,763
 
Income tax expense   -     36,382     -     313,886  
 
Net (loss) income (333,436 ) 141,513 (3,540,116 ) 823,877
 
Preferred stock dividends   (30,667 )   -     (30,667 )   -  
 
Net (loss) income attributable to common shareholders $ (364,103 ) $ 141,513   $ (3,570,783 ) $ 823,877  
 
Basic (loss) income per common share $ (0.11 ) $ 0.04 $ (1.10 ) $ 0.25
Diluted (loss) income per common share $ (0.11 ) $ 0.03 $ (1.10 ) $ 0.23
 
Weighted average shares outstanding:
Basic 3,255,887 3,255,887 3,255,887 3,255,887
Diluted 3,255,887 3,265,135 3,255,887 3,266,532

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