Market Overview

Tel-Instrument Electronics Corp. Reports Financial Results for Second Quarter of FY 2019

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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 announced its financial
results for the second quarter of fiscal year 2019.

Jeff O'Hara, Tel's President and CEO said, "While second quarter
revenues were $2.2 million due to delays in the receipt of in-process
orders and export license approvals, the Company did, however,
materially improve its bottom line with our operating loss for the
quarter declining to under $100,000. This was accomplished by tight cost
controls including the streamlining of our manufacturing processes and
reductions in overhead, resulting in our gross margins growing to 45%,
which was double the year-ago percentage. Gross margin percentages
should continue to improve going forward based on much higher projected
revenues and a favorable product mix. The recently announced $4.3
million test set order from the U.S. DOD and pending volume orders from
domestic and international Mode 5 customers should result in a return to
solid profitability for the current fiscal year with revenues and
profits expected to further improve in the 2020 fiscal year. We are also
working to introduce our new SDR/OMNI test set by the end of this fiscal
year, and we are very optimistic that this will let us regain a market
leading position in the commercial avionics market and allow for future
expansion into the much larger secure communications test market.

The near-term goal for the Company is to return to strong profitability
starting this quarter, and rebuild our balance sheet that was negatively
impacted by the Aeroflex litigation and damages award. The recent $1
million issuance of Series B Preferred Stock was crucial, as it has
allowed us to quickly ramp-up production and take full advantage of the
many opportunities now in play for the Company. We remain very excited
about our prospects and look forward to seeing our shareholders at our
Annual Meeting, which is scheduled to occur on January 16, 2019 in East
Rutherford, New Jersey."

Results of Operations

Sales

For the three months ended September 30, 2018, total net sales increased
$435,776 (24.4%) to $2,222,941 as compared to $1,787,165 for the three
months ended September 30, 2017. Avionics government sales increased
$255,406 (24.8%) to $1,284,099 for the three months ended September 30,
2018, as compared to $1,028,693 for the three months ended September 30,
2017. The increase in sales is mostly attributed to the increase in
shipment of the new T-47/M5, ITATS, and the T-47NH offset partially by
decreases in the shipment of the TS-4530A, CRAFT products and other
legacy products. Commercial sales increased $180,370 (23.8%) to $938,842
for the three months ended September 30, 2018 as compared to $758,472
for the three months ended September 30, 2017. This increase is
attributed to the increased sales from our repair business and the TR-36
offset partially by lower sales of the TR-220.

For the six months ended September 30, 2018, total net sales decreased
$1,292,087 (24.2%) to $4,037,155, as compared to $5,329,242 for the six
months ended September 30, 2017. Avionics government sales decreased
$1,624,338 (40.6%) to $2,376,681 for the six months ended September 30,
2018, as compared to $4,001,019 for the six months ended September 30,
2017. The decrease in sales is mostly attributed to the decrease in
shipment of the U.S. Army TS-4530A which is now completed, CRAFT units
and certain other legacy products, partially offset by the increase in
sales associated with the shipments of the T-47/M5. Commercial sales
increased $332,251 (25.0%) to $1,660,474 for the six months ended
September 30, 2018 as compared to $1,328,223 for the six months ended
September 30, 2017. This increase is attributed to the increased sales
from our repair business and the TR-36 offset partially by lower sales
of the TR-220.

As discussed above in the overview section, sales are expected to
increase in the second half of the current fiscal year as a result of
the $4.3 million order for additional Mode 5 test sets from the U.S.
military, the multi-million German order, as well as other large
expected orders for our Mode 5 test sets both domestically and
internationally.

Gross Margin

For the three months ended September 30, 2018, total gross margin
increased $599,343 (149.9%) to $999,213 as compared to $399,870 for the
three months ended September 30, 2017 primarily as a result of the
reduction in manufacturing overhead as well as manufacturing
efficiencies and the increase in volume. The gross margin percentage for
the three months ended September 30, 2018 was 45.0% as compared to 22.4%
for the three months ended September 30, 2017. The higher gross margin
percentage is attributable to the reduction in manufacturing overhead as
well as manufacturing efficiencies.

For the six months ended September 30, 2018, total gross margin
decreased $160,634 (9.8%) to $1,480,526 as compared to $1,641,160 for
the six months ended September 30, 2017 primarily as the lower volume
offset partially by the reduction in manufacturing overhead and
improvement in manufacturing efficiencies as well as higher prices. The
gross margin percentage for the six months ended September 30, 2018 was
36.7% as compared to 30.8% for the three months ended September 30,
2017. The higher gross margin percentage is attributable to the
reduction in manufacturing overhead as well as manufacturing
efficiencies.

Operating Expenses

Selling, general and administrative expenses decreased $70,984 (11.3%)
to $555,411 for the three months ended September 30, 2018 as compared to
$626,395 for the three months ended September 30, 2017, respectively.
This decrease is primarily attributed to lower salaries and related
expenses as well as lower commission expenses.

Selling, general and administrative expenses decreased $210,745 (15.8%)
to $1,121,936 for the six months ended September 30, 2018 as compared to
$1,332,681 for the six months ended September 30, 2017, respectively.
This decrease is primarily attributed to lower salaries and related
expenses as well as lower commission and travel expenses partially
offset by higher consulting fees.

Litigation costs decreased $7,485 and $350,726 to $35,848 and $75,119
for the three and six months ended September 30, 2018, respectively, as
compared to $43,333 and $425,845 for the three and six months ended
September 30, 2017, respectively, as a result of less activity
associated with the Aeroflex litigation. The Company has filed its
appeal (see Notes 5 and 14 to Notes to the Condensed Consolidated
Financial Statements).

For the three and six months ended September 30, 2017, the Company
recorded $2.1 million in additional legal damages as a result of the
court's decision regarding punitive damages last year (see Note 14 to
Notes to the Condensed Consolidated Financial Statements).

Engineering, research and development expenses decreased $26,287 (5.0%)
and $124,237 (10.9%) to $503,380 and $1,020,703 for the three and six
months ended September 30, 2018, respectively, as compared to $529,667
and $1,144,940 for the three and six months ended September 30, 2017,
respectively. The Company also continues to invest in the development of
the Company's SDR/OMNI hand-held product line and the T47-M5 test set,
the enhanced remote client, and the incorporation of other product
enhancements in existing designs.

Other Items

In October 2018, the Company entered into a subscription agreement
pursuant to which an investor purchased 166,667 shares of the Company's
Series B Preferred Stock for $1 million. A portion of these funds have
been used for working capital purposes to support the orders received
and expected in the near term.

The Company is currently appealing the Aeroflex $4.9 million judgment,
as we believe that substantive mistakes were made in the trial and that
we have strong legal arguments. The Company has posted a $2,000,000
appeal bond which will remain in place during the appeal process, which
is expected to take several years to complete. If we do not prevail with
the appeal, we will have several 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.

On August 8, 2018, the Company received a letter from the staff of the
NYSE American (the "Exchange") stating that based on the Company's
financial statements at March 31, 2018, the Company is not in compliance
with Section 1003(a)(ii) of the NYSE American Company Guide, which
requires that a company's stockholders' equity be $4.0 million or more
if it has reported net losses in three of its last four fiscal years
(the "Stockholders' Equity Requirement"). The Company has also been
advised that it will be subject to delisting proceedings if it does not
regain compliance prior to the deadline of January 29, 2019, or if the
Exchange determines that Company is not making progress consistent with
the Plan. The Company's stock will continue to be listed on the NYSE
American while the Company evaluates its various alternatives. The
Company's receipt of such notification from the Exchange does not affect
the Company's business, operations or reporting requirements with the
U.S. Securities and Exchange Commission. The Company continues to work
with the Exchange, but there is no assurance that it will remain listed
on the Exchange.

The Company encourages investors to read its full results of operations
as contained in our Quarterly Report on Form 10-Q filed on November 19,
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

 
September 30,

2018

March 31,

2018

(unaudited)
ASSETS
 
Current assets:
Cash and cash equivalents $ 278,443 $ 307,812
Accounts receivable, net 769,553 1,095,049
Inventories, net 3,762,164 4,269,934
Restricted cash to support appeal bond 2,002,873 2,000,866
Prepaid expenses and other current assets   130,835   147,746
Total current assets 6,943,868 7,821,407
 
Equipment and leasehold improvements, net 142,917 180,763
Deferred tax asset, net 63,500
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