TEL-INSTRUMENT ELECTRONICS CORP.

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Included in this Annual Report on Form 10-K are “forward-looking” statements, within the meaning of Section 27A and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties, as well as historical information. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors. Forward-lookingAll statements other than statements of historical fact could be deemed forward-looking statements. Statements that include words such as “may,” “will,” “might,” “projects,” “expects,” “plans,” “believes,” “anticipates,” “targets,” “intends,” “hopes,” “aims,” “can,” “should,” “could,” “would,” “goal,” “potential,” “approximately,” “estimate,” “pro forma,” “continue” or “pursue” or the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. For example, forward-looking statements include those that use forward-looking terminology, such asany statements of the words “potential”, continuing”, “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,”plans, strategies, and similar expressions, including when used inobjectives of management for future operations; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements.foregoing. Important factors that could cause our actual results, performance, or achievements to differ from these forward-looking statements include the following:

These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and the other documents referred to and relate to a variety of matters. These forward-looking statements should not be relied upon as predictions of future events and Tel-Instrument Electronics, Corp. (the “Company”) cannot assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore, if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by the Company or any other person that the Company will achieve its objectives and plans in any specified timeframe, or at all. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.

All forward-looking statements attributable to us are expressly qualified in their entirety by these and other factors. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise unless required by applicable law.

PART I

Item 1. Business

Item 1.GeneralBusiness

General

Tel-Instrument Electronics Corp. (“Tel”,Tel,” “TIC” or the “Company”) has been in business since 1947 and based in East Rutherford NJ. The Company is a leading designer and manufacturer of avionics test and measurement solutionsinstruments for the global, commercial air transport, general aviation, and government/military aerospace and defense markets. The Company designs, manufactures and sellsTel provides instruments to test, measure, calibrate, and measure, and also calibrates and repairsrepair a wide range of airborne navigation and communication equipment.

The Company’s strategy over the years has been to invest heavily in research and development to design products significantly better than its competition. Our products provide the stimulus and signals necessary for certification, verification, fault finding and diagnosis of airborne military and commercial navigation and communication systems. Our products incorporate high levels of integration by combining more test functions into a single unit, and thereby reducing customer acquisition, training, and life-cycle support costs than legacy systems. The Company offers avionic test sets for:

Tel’s instruments are used to test navigationsells its equipment in both domestic and communications equipment installed in aircraft, both on the flight line (“ramp testers”) and in the maintenance shop (“bench testers”), andinternational markets that range in list price from $10,000$13,900 to $90,000 per unit.$99,900. 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, a fewer number of test sets, and lower product support costs.

The Company has builtbecome a very solid position in the Mode 5major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment market,over the last two decades.

The Company is publicly traded and these products will be very competitivewas quoted on the Over-the-Counter Market Place (“OTCQB”) under the symbol “TIKK.”

The Company continues to pursue opportunities in both the domestic and overseas markets.international market for our Mode 5 test sets. The international market has been slow over the last year due in part to the recent strength of the dollar. We believe that we are well-positioned as our CRAFT and TS-4530A flight-line test sets have been endorsed bystill expecting a large follow-on order from the German government within the next six months for $1.6 million. We continue to receive orders from the U.S. military. We are currently servingGovernment and delivering units to the international market. The T-47/M5Lockheed Martin for our AN/USM-708 and 719 (“CRAFT”) Mode 5 IFF test set has been a cost-effective upgrade option for our large installed base of Mode 4 test sets and we have shipped a growing number of units to various countries, and expect to receive additional orders for this product.  All allied countries have a drop-dead date of July 1, 2020 for Mode 5 capability and our international business has grown as a result. We expect this business to remain strong for at least the next couple of years. We will continue to actively market our products to all of the major international customers.sets. Our expectation is that weorders and back-log will improve this fiscal year as the SDR/OMNI test set enters the marketplace. We are also in negotiations with the U.S. Army on a funded software upgrade to the TS-4530A product in the amount of $0.9 million It is also possible that the USAF will elect to upgrade its TS-4530A units as well. This is high-margin business as the development work has largely been completed.

TIC has also received a $2.9 million funded ECP contract from the U.S. Navy to take out product obsolescence from the CRAFT units. The development and testing contract is expected to be completed within the next 18 months. TIC will then upgrade the Navy units with new printed circuit boards (“PCB’s”) and software which is expected to generate revenues of almost $20 million from the Navy over a four-year period. This could also generate substantial revenues from other CRAFT customers that need the updated software and hardware.

TIC is also exploring new avenues to broaden its product portfolio including designing a high frequency test set for the Lockheed Martin F-35 program. This contract takes advantage of our expertise in RF technology. This is a completely new market for TIC as it involves high frequency communication signals. This contract includes non-recurring engineering funding and expected annual production revenues in the $600,000 range. TIC has successfully completed the engineering portion of the program and is waiting for a production order. TIC will continue to improve both our revenues and gross margins.

The commercial avionics industry is undergoing a great deal of change, and has been affected by the COVID-19 pandemic. We believe our new lightweight 4.5-pound SDR/OMNI hand-held products that we are planning to introduce towards the end of calendar year 2020 will generate increased market share at very attractive gross margin levels. However, the effect of the pandemic in the commercial segment will slow sales in the market. The introductionexplore funded engineering programs of this nature as this is high margin business that helps diversify and expand our product has been delayed due to technology upgrades to meet the standardsportfolio.

The main focus area for the next generation ofCompany is moving into the secure communications testing. The key for long-term sustained growth will be to supplement our strong position in military applications. The upgraded and faster processorMode 5 transponder testing with improved video graphics processing capability will provide more opportunities to expand the applications for this new unit. The technology for the hand-helddominant product will provide a platform for future products. This new technology provides us with the opportunity to expand out of our relatively narrow avionics test market niche and enterofferings in the much larger commercial and military communications and navigation test set market. TIC has spent several years and millions of dollars in developing our ground-breaking SDR/OMNI product which is meant to address both the commercial market for transponder and navigation test sets as well as competing in the military secure communications radiocomm test set market. WeThe SDR/OMNI supports a wide frequency range to accommodate new commercial and military waveforms in an industry leading 4-pound package. This is approximately half the weight of competitive test sets. It is also the only new multi-purpose test set which meets the Class 1 military environmental specifications. It utilizes the latest touch screen technology and has the capability to replace all TIC commercial test sets and military flight-line test sets with one handheld product. The Company started initial production deliveries in December 2022. There are actively working to secure partners to enterseveral companies competing in this growth market andspace, but we believe that our new hardware platform provides unmatched capabilities in a market leading form factor. TIC is also evaluating upcoming customer test set requirements and expects at least one large competitive solicitationSDR/OMNI design will be issued in the next 12 monthsextremely competitive, particularly for a product in our technical area of expertise. We are also working closely with our other military customers on new potential market opportunities that will be needed to maintain our sales and profitability growth.applications.

We continue to evaluate other attractive potential market opportunities.

Item 1. Business (continued)Business

General (continued)

Company Response to COVID-19

In late January 2020,December 2019, a novel strain of coronavirus, which causes the Company begandisease known as COVID-19, was reported to monitor the global effects of “COVID-19,” an infectious disease caused by Severe Acute Respiratory Syndrome Coronavirus 2 (SARS CoV-2) that was first detectedhave surfaced in November 2019 in the city of Wuhan, China.

The subsequent Since then, COVID-19 coronavirus has spread of COVID-19 to the U.S. and many other parts of the world ledglobally. In March 2020, the World Health Organization to characterizedeclared the COVID-19 asoutbreak a pandemic and the U.S. government imposed travel restrictions on March 11, 2020. Thereafter, most U.S. states imposed “stay-at-home” orders on their populationstravel between the United States, Europe, and certain other countries. The impact of this pandemic has been, and will likely continue to stem the spreadbe, extensive in many aspects of COVID-19. Of specific interestsociety, which has resulted, and will likely continue to result, in significant disruptions to the Company, stay-at-home orders were imposed inglobal economy as well as businesses and capital markets around the states of New Jerseyworld.

On September 9, 2021, President Biden announced Executive Order 14042 (“Executive Order”) and Kansas.

The stay-at-home orders generally requiredrelated initiatives designed to lead the closure of businesses that did not provide essential functions. Because the Company’s operations are as a supplier to the U.S. Military, and its manufacturing operations provide essential functions, the Company has continued shipping, receiving and manufacturing activities. The Company advised all other employees that could perform their job functions remotely to do so. As such, the Company’s operations, for the most part, remained fully operational.

On March 27, 2020, 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 lightcountry out of the COVID-19 outbreakpandemic. 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 uncertaintyguidance 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 economic conditions related thereto, the loan was considered necessaryExecutive Order. The new clause applied on or after October 15, 2021, to supportonly new federal contracts, solicitations, contract extensions and renewals whose value exceeds $250,000. TIC currently does not have any federal contracts or similar contract-like instruments that are in excess of $250,000, however the Company’s ongoing operations and retain allvast majority of the TIC employees are fully vaccinated.

On August 31, 2022, the Biden administration updated its employees. UnderSafer Federal Workforce Task Force guidance on the PPP, the Company could obtain a U.S. Small Business Administration loan in an amount equalfederal contractor COVID-19 vaccine mandate. According to the averagenew guidance, “the Federal Government will take no action to implement or enforce Executive Order 14042. For existing contracts or contract-like instruments (hereinafter ‘contracts’) that contain a clause implementing requirements of Executive Order 14042, the Company’s monthly payroll costs (as defined underGovernment will take no action to enforce the PPP) for calendar 2019 multiplied by 2.5 (approximately 10 weeksclause implementing requirements of payroll costs). In addition, President Trump signed into lawExecutive Order 14042, absent further written notice from the Paycheck Protection Program and Health Care Enhancement Act on April 24, 2020, which increased funding provided by the CARES Act. On June 5, 2020 the Paycheck Protection Program Flexibility Act was signed into law and extended the program until December 31, 2020. On May 4, 2020, the Company secured a PPP loan in the amount of $772,577.agency.”

The CARES Act contains provisions for the forgiveness of all or a portion of a PPP loan, subject to the satisfaction of certain requirements.  The amount eligible for forgiveness is, subject to certain limitations, the sum of the Company’s payroll costs, rent and utilities paid by the Company during the eight-week period beginning on the funding date of the PPP loan.

The COVID-19 outbreak and the uncertainty of economic conditions relating thereto may negatively impact the Company’s results of operations, cash flows and financial position; however, the overall financial impact cannot be reasonably estimated at this time. Based on the operational and financial plans that management has developed, the Company expects to be able to meet its obligations as they become due over the next twelve months.

Item 1.Business (continued)

General (continued)

Mode 5 Identification Friend or Foe (“IFF”(“IFF”) Products

T-47/M5 Dual Crypto Test Set

This new test set has been well-received in the market, especially in the international market. It is designed as a KIV 77/KIV78 Mode 5 upgrade for the approximately 2,000 AN/APM-480A and T-47 series Mode 4 IFF test sets that the Company has sold both domestically and internationally. This will be a cost-efficient upgrade to Mode 5 for our large installed customer base.

The T-47/M5 capabilities allow full testing, simulation, and analysis of the following systems: Interrogator/Transponder Test set for Modes 1, 2, 3A, C, S, EHS, ADS-B TX and RX with 4 and Mode 5, TACAN, TCAS I, II and E-TCAS. The T-47/M5 utilizes the KIV-77, SIT 2010 or the KIV-78 Crypto applique (not included) for Mode 4 & Mode 5 testing and built in USB connection available for remote diagnostic testing and download of test results to a PC.

The T-47/M5 performs the following tests:

We have already sold approximately $5$13 million of these test sets to Canada, Japan, Korea, Europe,both domestically and other international customers. We are also receiving interest from various U.S. customers.internationally. TIC believes this product will be a key product supportingcontinue to support our future growth and profitability.

Tel has also received U.S. DOD AIMS certification for the T-47/M5 Test Set.Set and is working on an updated approval for the most recent software build.

TS-4530A IFF Test Set

The TS-4530A test set provides simple to use GO/NO-GO operation. The TS-4530A, developed under a U.S. Army contract, now tests IFF Mode 5, ADS-B, EHS, and TCAS. The TS-4530A includes a large 8 line, color display and a new 3-button switch assembly that adds a 4-way directional toggle action for improved usability. The upper housing includes a built-in KIV-77 CCI appliqué enclosure.

Based on a new, highly integrated digital architecture; the TS-4530A performs the following tests:

We have delivered over 3,500 kits and test sets. We are seeing continued demand from both the U.S. military and international customers, and we continue to explore all opportunities for this market.  We have received an initial purchase order totaling $520,000 from our European Distributor, Muirhead Avionics (“Muirhead”) for Mode 5 test sets from the contract awarded by the German military. This is a seven-year procurement contract with anticipated orders of approximately $3.5 million in total. In fiscal year 2019, the Company received a $4.3 million order from the U.S. military which the Company completed in fiscal year 2020. The Company continues to explore opportunities for this product in both the domestic and international markets.

Item 1.Business (continued)

General (continued)

We have delivered over 3,540 TS-4530A kits and test sets. The U.S. Army plans to upgrade the software for its units to provide increased functionality such as the addition of Mode 5 Identification Friend or Foe (“IFF”) Products (continued)Level 2B. It is also possible that the U.S. Air Force will upgrade its TS-4530A units which would entail an additional funded contract.

T-4530i IFF Test Set

This new test is a software/hardware upgrade of the TS-4530A that we will be selling internationally and potentially to our U.S. Army and U.S. Air Force customers.product. The lead customer for this test is the German military. This unit also includes extended life Ni-MH batteries and significantly expanded manual Mode 5 test capability using either the KIV-77 or European SIT-2010 crypto appliques as well as additional functionality with the addition of the TACAN test function. We are very optimistic about the prospects for this software upgrade for the international market. Penetrating the U.S. military market will entail securing customer buy-in and funding which can be an extended process. This upgraded unit will also require AIMS testing for which we are in the process of obtaining approval.

During fiscal year 2020, we shipped approximately $1.2 million of this producta seven-year indefinite-delivery-indefinite quantity (“IDIQ”) contract to the German military through our European distributor, Muirhead Avionics. We have recently received anAvionics (“Muirhead”) for T-4530i test sets. In total, TIC has delivered $3.5 million of these test sets to Germany. TIC is expecting a follow-on order for additional order valued at $1.6 million from our European distributor for delivery to the German military. We expect to shipunits this order during calendar year 2020. We are currently pursuing other significant domestic and international opportunities which we hope to secure later this summer.year.

Communications/Navigation (“(“COMM/NAV) Radio Frequency (RF) Avionics Flight line Tester”Tester”) (“CRAFT”(“CRAFT”) (AN/USM-708 and AN/USM-719)

The AN/USM-708 multi-purpose test set was developed by the Company in conjunction with the U.S. Navy. The AN/USM-708 large 6.0 inch color LCD screen and surrounding soft-keys and keyboard provides easy and quick access to a multiple of test screens menus, and display options affording single man operation, instant results, and a host of pre-programmed and manually variable parameters to meet the most demanding requirements for testing of airborne avionic and communication equipment.

The AN/USM-708 has been and continues to be a key product for the Company as it represents a new generation technology product. The Company delivered approximately $40 million in orders, representing over 1,200 test sets, for the AN/USM-708 and AN/USM-719 (IFF only) test sets to the U.S. Military. The AN/USM-708 CRAFT unit combines advanced IFF (including Mode 5 encryption technology) navigation, communication, and sonobuoy test capabilities in a portable test set, which will utilize a flexible and expandable digital-signal-processing-based architecture. Both the AN/USM-708 and the AN/USM-719 have been certified by the AIMS Program Office.

Based on entirely new up-to-date technology and digital architecture, the AN/USM-708 is a leap forward in precision testing of the following systems:

This program represented the culmination of a multi-year, multi-million dollar investment by the Company in Mode 5 technology and continues to provide a significant competitive advantage. Management believes that the CRAFT program also has potential for sales into the balance of the U.S. Military, NATO, and internationally, as the new Mode 5 IFF systems are installed in overseas aircraft platforms.

The contract for the AN/USM-708 and AN/USM-719 was a significant milestone for the Company because the development of this proprietary technology, which was funded by the Company, established Tel’s position as a leader in the industry. The CRAFT test set replaced seven obsolete U.S. Navy test sets that collectively cost approximately $300,000, making the CRAFT test set an excellent value to the government. This unit has been well-received by the end users. The core technology in the AN/USM-708 has been the foundation for additional military and commercial products. We believe that the CRAFT test set also has potential for sales into the balance of the U.S. Military, NATO, and internationally, as the new Mode 5 IFF systems are installed in overseas aircraft platforms.

The Joint Strike Fighter (“JSF”) program continues to generate CRAFT orders as this program ramps up production. The Company has already received orders from Lockheed Martin and Northrup Grumman for the AN/USM-708 units, for the JSF Program, totaling approximately $6approximate $9 million. Sikorsky has also indicated that it will be ordering CRAFT test sets for its new helicopters. The Company also believes it will receive orders from other customers for this product.

The CRAFT ECP program is proceeding on schedule, and we held the Critical Design Review (“CDR”) in April 2023. The next major engineering milestone is the Test Readiness Review that should take place next summer. This will entail replacing the Single Board Computer and four PCB’s (printed circuit board”) in existing Navy units. The production contract is expected to generate significant revenues from the Navy and other customers starting next fiscal year.

Item 1.Business (continued)

General (continued)

Intermediate Level TACAN Test Set (“ITATS”) ((AN/ARM-206) with the U.S. Navy))

The AN/ARM-206 is the industry’s first fully automated TACAN Test Set and is designed for depot and intermediate level support. The AN/ARM-206 meets all requirements for evaluating the performance and accuracy of airborne TACAN UUT’s. The AN/ARM-206 generates signals that accurately simulate TACAN beacon signals to both the normal X and Y surface-to-air modes, as well as signals of an interrogating or complementary aircraft in X or Y air-to-air modes, including inverse mode. An easy to use color touch screen interface allows for simple changes to parameters and testing signals providing unsurpassed versatility.

The AN/ARM-206 measures fixed or varying range and bearing performance, including search/track ability, transmitter power output, receiver sensitivity and coding and decoding parameters on all TACAN channels and air-to-air range and bearing performance. The AN/ARM-206 or ITATS is a bench test set combining advanced digital technology with state of the art automated testing capabilities. The ITATS product is a fully automated TACAN test set for use in U.S. Navy Intermediate Level repair locations. This product represents an important expansion to Tel’s current product line, and the automated testing capabilities will provide a significant labor savings benefit to our customers. We continue to market this unit to other domestic and international customers and have received interest in this test set from both the U.S. Air Force and various international customers.

TR-420 Ramp Test Set

The TR-420 (Multi-function including Mode 5) Ramp Test Set is the next generation of avionics support equipment. The TR-420 is a battery powered portable unit used to test the operation of Transponders and Interrogators including: IFF (with Mode 5) Mode S Transponders, EHS, and ADS-B. TACAN/DME, ADS-B Transmit/Receive and TCAS testing functionality are also offered as part of the standard test set capability. Tests of both Transponders and Interrogators can be performed by using the TR-420 hand held antenna to radiate to and from the unit-under-test (UUT) or by directly connecting to the UUT antenna port. The TR-420 employs a user interface with a large 5.7 in. color LCD screen and surrounding soft-keys. This allows for easy and quick access to a multiple of test screens, menus and display options.

PleaseFor more information, please visit www.telinstrument.comwww.telinstrument.com for a complete listing of all of the Company’sCompany’s different military and commercial products.

New Products

The CompanySDR/OMNI/MIL

TIC has also developed a Remote Client LabVIEW program forspent the CRAFT, TS-4530A, and T-47/M5 products and we have seen solid interest is this product. The Remote Client LabVIEW program will be used by TIC customers in both manufacturing and engineering environments. The software application allows for remote control oflast several years developing the unit with a print-out of allSDR/OMNI avionics test results. It is expected that its primary application will be for Mode 5 and ADS-B certification testing. We believe that this product will be a source of recurring high margin profitsset which currently operates in the years ahead.1 MHz to 2.2 GHz range. This software should also assist in the sale of Mode 5new test sets due to the added functionality provided.

Over the last year, the Company has upgraded its industry leading T-760 precision DME bench test set. The Company is the only manufacturer in the world that manufactures DME-P test equipment and it received orders in excess of $500k in the last 12 months for this updated test set.

The Company is also working on the next generation of Mode 5 Level 2B software. This will add significant additional information to the existing Mode 5 design and could result in the sale of upgraded software to our Mode 5 customer base. If this Mode 5 Level 2B is implemented by the military, this has the potential to generate significant revenues to the Company over the next several years.

TIC continues to invest in new products and has invested significant dollars in its new lightweight hand-held design, the SDR/OMNI.

Item 1.Business (continued)

General (continued)

SDR-OMNI

The Company is finalizing its new handheld avionics flight-line Test Set, the “SDR-OMNI”. The world’s first “All-in-One” Avionics Test Setset utilizes true software-designed radio technology that enables it to test all common avionics functions in one 4.54.5- pound test set, which is half the weight of competitive test sets. The SDR/OMNI has very wide frequency to accommodate new commercial and military waveforms. It utilizes the latest touch screen technology and has the capability to replace all TIC commercial test sets with one handheld product. At less than five pounds, this test set will be the smallest and most rugged test set available in the market with full Class 1 MIL-PRF-28800 environmental compliance including temperature ranges from -40 degrees to +55 degrees centigrade. The initial SDR-OMNI software releaseU.S. military will provide test capability for Transponders (Modes A, C,need to upgrade thousands of existing communication and S), ADS-B, and 978 MHz UAT capability for the large general aviation test market. This release is initially targeted at the civil aviation market requirement for ADS-B out test capability. This will allow us to compete with the IFR 4000 and 6000navigation test sets over the next several years to address the new frequency and waveform requirements for our commercial aviationmilitary radios and military customers. The next software release will incorporate Nav/Comm test functions which can be purchased as APP’s by our customers. The SDR-Omni productwe believe the SDR/OMNI is well positioned to capture a game changer in the commercial avionics test market as it will allow customers to replace multiple competitive test sets with one unit that is smaller and provides more capabilities at a fractionlarge portion of the cost. It has also been designed to allow TIC to penetrate the secure communications test market which is considerably larger than our core avionics test market. The much larger growth potential is in the secure military and homeland security radio test market which is many times the size of our existing avionics test market.

this business. This new technology could provide us with the opportunity to expand out of our relatively narrow avionics test market niche and enter the much larger secure military and homeland security radio test market which is many times the size of our existing avionics test market. The secure military test set market is very large, and we are anticipating aseveral large competitive DOD solicitationsolicitations to take place in the next twoseveral years. We are currently in discussions

Item 1. Business (continued)

General (continued)

MADL TEST SET

TIC is also working with various companies about collaborating in these markets. We are actively working to line up partners to enter this growth market and we believe that ourLockheed Martin (LMCO) on a new hardware platform provides unmatched capabilitiesMADL test set after winning a competitive solicitation. MADL is a secure communications radio for the F-35. This operates in a market leading form factor.much higher frequency range than our other test sets and could represent a further diversification out of our core markets. TIC has completed the engineering development work and is waiting for a production order. It is expected that this product will generate approximately $0.6 million of recurring annual revenues and will position TIC for further development contracts with LMCO.

Future Prospects

The Company has built a very solid position in the Mode 5 IFF and TACAN test set market. The planned Navy ECP for CRAFT should generate substantial recurring revenues with the KIT upgrade of all of the Navy units and potentially units sold to other customers. We believe that we are well positioned as our CRAFT and TS-4530Acurrently have the majority of the Mode 5 IFF flight-line test sets have been endorsed by the U.S. militarymarket and we have already delivered test sets into 18 international markets. The commercial avionics industry is undergoing a great deal of change, and weexpect to continue to dominate this market segment with our commitment to self-funded research such as adding Mode 5 Level 2B to our T-47/M5 product.

We believe our new hand-held products thatSDR/OMNI will do very well in the world-wide commercial avionics market although we are planning to introduce this fiscal year, willfacing new competition from Aeroflex and a Canadian company. Based on extensive customer feedback, it appears that the SDR/OMNI has a superior design. This should generate increased market share at very attractive gross margin levels. WeThe real focus for the SDR/OMNI is in the military arena for Nav/Comm testers and communication test sets. This market has been dominated by Aeroflex for the last 30 years and TIC has not had a viable competitive product until now. The SDR/OMNI is ideally suited for these markets as it is the only test set on the market with full Class 1 DOD environmental compliance. The secure military test set market is very large, and we are also working closely with our military customers on new potential market opportunities that will be neededanticipating several large competitive DOD solicitations to maintain our sales and profitability.take place in the next several years.

Competition

The Company manufactures and sells commercial and military products as a single avionics business, and its designs and products cross both markets.

The general aviation market consists of some 1,000 avionics repair and maintenance service shops at private and commercial airports in the United States that purchase test equipment to assist in the repair of aircraft electronics. The commercial aviation market consists of approximately 80 domestic and foreign commercial airlines.

The civilian market for avionic test equipment ishas been dominated by two designers and manufacturers, the Company and Aeroflex Inc., a division of Viavi Solutions, Inc. (NASDAQ: VIAV) (“Aeroflex”),. They have dominated the commercial market with their IFR 4000 and 6000 test sets which were first introduced in 2004. They have sold thousands of these units over the last 18 years. These are becoming obsolete and will need to be replaced. Aeroflex being substantially largerhas recently introduced a new test set called the 10K which combines the two test sets into one unit. A Canadian company, CCX Technologies, has recently introduced a competitive product which appears to be doing well in the market. The SDR/OMNI is smaller, more rugged, and easier to use than Tel.  Thisthese two test sets and we are very optimistic that it will greatly improve our market is relatively narrow and highly competitive.  Tel has been successful because of its high quality, new technology, user friendly products and competitive prices.  share.

The military market is large and is dominated by large corporations with substantially greater resources than the Company, including Aeroflex. Tel competitively bids for government contracts based on the basis of the engineering quality and innovation of its products, competitive price, and “small business set asides” (i.e., statutory provisions requiring the military to entertain bids only from statutorily defined small businesses), and on bids for sub-contracts from major government suppliers. There are a limited number of competitors who are qualified to bid for “small business set asides.” The military market consists of many independent purchasing agencies and offices. The process of awarding contracts is heavily regulated by the U.S. Department of Defense.

Over the last fifteen years, the Company has won several large, competitively bid contracts from the military and has become the primary supplier for the U.S. Military, as well as the NATO countries, of flight line IFF test equipment. The CRAFT AN/USM-708, CRAFT AN/USM-719,TS-4530A, TS-4530i and TR-47/M5 test sets, discussed previously, involve a new generation of technology, including the next generation of IFF testing, and is expected to enable the Company to continue to be a major supplier of avionics test equipment to the military for years to come. Tel believes its new technology will also allow it to increase sales to the commercial avionics market in the future and expand into the very large secure communication test market.

Item 1.Business (continued)

General (continued)

Marketing and Distribution

Domestic commercial sales are made throughout the U.S. to commercial airlines and general aviation businesses directly or through distributors. No direct commercial customer accounted for more than 10% ofThere were $2,165,485 in domestic commercial sales in fiscal years 2020year 2023 and 2019.there was two (2) direct commercial customer who accounted for 22% and 19% of domestic commercial sales, respectively. The Company has one domestic distributor which receives discounts ranging between 16%-20% discount for stocking, selling, and, in some cases, providing product calibration and repairs. The loss of this distributor would not have a material adverse effect on the Company or its operations. Commercial salesOur domestic commercial distributor, Aero Express, represented approximately 19% and 24% of total sales, respectively, for the fiscal years ended March 31, 2020 and 2019. Our commercial distributor represented approximately 20% and 24%14%, respectively, of commercial sales during fiscal years 20202023 and 2019. This distributor also accounted for 4% and 6% of total sales for the years ended March 31, 2020 and 2019, respectively.2022.

Marketing to the U.S. Government is made directly by employees of the Company or through independent sales representatives, who receive similar commissions to the commercial distributors. For the years ended March 31, 20202023, and 2019,2022, sales to the U.S. Government, including shipments through the government’s logistics centers, represented approximately 30%18% and 39%26%, respectively, of total sales. For the year ended March 31, 2020 one2023, two (2) direct customercustomers represented 17% and 11% of total sales and three (3) customers represented 16%, 13% and 11% of government sales, respectively. No international distributors represented more than 10% of total sales and 12% of government sales. One international distributor represented 13% of total sales and 16%or of government sales for the year ended March 31, 2020. No other government customer2023. For the year ended March 31, 2022, two (2) direct customers represented over20% and 12% of total sales and 25% and 10% of government sales, respectively. Two (2) international distributors represented 13% and 12% of total sales and two (2) represented 16% and 15% of government sales for fiscal years 2020 and 2019.the year ended March 31, 2022.

International sales are made throughout the world to government and commercial customers, directly through American export agents, or through the Company’s overseas distributors at a discount reflecting a 15% to 22% selling commission, under written or oral, year-to-year arrangements. The Company has an exclusive distribution agreement with Muirhead Avionics Ltd (“Muirhead”) and Accessories, Ltd (“Muirhead”), based in the United Kingdom, to represent the Company in parts of Europe, and with Milspec Services in Australia and New Zealand. Tel also sells its products through exclusive distributors in Spain, Portugal, and the Far East Asia and is exploring distribution in other areas. For the years ended March 31, 20202023, and 2019,2022, total international sales were 54%22% and 20%37%, respectively, of sales, reflecting the Company’s growth intonotable decrease is due partially to the continuation of Covid-19 Pandemic related issues and international market.government budgetary restrictions. Additionally, the Company has an agreement with M.P.G. Instruments s.r.l., based in Italy, wherein this distributor has the exclusive sales rights for DME/P ramp and bench test units. The Company continues to explore additional marketing opportunities in other parts of the world, including the Far East. One international distributor accounted for 13% of total sales for the fiscal years ended March 31, 2020. No international distributor accounted for more than 10% of total sales for the year ended March 31, 2019. East Asia.

The Company has no material assets overseas.

Tel also provides customers with calibration and repair services. Repairs and calibrations accounted for 10%16.5% and 14%15% of sales for the years ended March 31, 20202023, and 2019,2022, respectively.

Future domestic market growth, if any, will be affected in part by whether the U.S. Federal Aviation Administration (“FAA”) implements additional plans to upgrade the U.S. air traffic control system regulations and by continuing recent industry trends towards more sophisticated avionics systems, both of which would require the design and manufacture of new test equipment. The major developmentCurrently, the T-47/M5 has been upgrade for continued support of NATO customers and we continue to develop the Mode 5L2B Flight Line Test. This technology will be supported in the commercial marketplace is the ADS-B requirement for all aircraft after January 1, 2020.  TIC’s new products will address this testing requirement.our T-47/M5 and T-4530i product lines. Military contracts are awarded and implemented by extensive government regulation. The Company believes its test equipment is recognized by its customers for its quality, durability, reliability, affordability, and by its advanced technology.

Backlog

Set forth below is Tel’s avionics backlog aton March 31, 20202023, and 2019:2022:

Tel believes that most of its backlog aton March 31, 20202023, will be delivered during the next 12 months. The backlog is pursuant to purchase orders. Historically, the Company obtains orders which are required to be filled in less than 12 months, and therefore, backlog amounts at the end of the period do not reflect delivered or future orders. The backlog does not reflect the a Mode 5 test set order, received in June 2020, valued at $1.6 million from its European distributor, Muirhead Avionics, for delivery to the German military.

Item 1.Business (continued)

General (continued)

Suppliers

TelTIC obtains its purchased parts from a number of suppliers. These materials are standardIn fiscal year 2023, our supply chain had significant issues with deliveries being delayed which negatively impacted TIC’s revenues and profitability. The situation has been slow in the industry,improving this calendar year and the Company foresees no difficulty in obtainingis placing orders earlier to allow for longer lead times to obtain purchased parts, as needed, at acceptable prices.

Patents and Environmental Laws

TelTIC has no patents or licenses which are material to its business, and there are no material costs incurred to comply with environmental laws.

Engineering, Research, and Development

In the fiscal years ended March 31, 20202023, and 2019,2022, Tel spent $2,239,811incurred expenses of $1,814,198 and $2,312,043,$2,548,626, respectively, on the engineering, research, and development of new and improved products. NoneThe decline for the latest fiscal year is due to engineering expenditures for the funded MADL and CRAFT ECP programs being transferred to cost of these amounts were sponsored by customers.goods sold. Engineering, research, and development expenditures in fiscal year 20202023 were made primarily for the final development of the Company’s SDR/OMNI hand-held product line utilizing CRAFT and TS-4530A technology, and the T47/M5finalization of the MADL test set thefor LMCO, T-4530i, Navy Craft ECP redesign and the incorporation of other product enhancements in existing designs. The Company owns all of these designs with the exception of the AN/ARM-206 product. Tel’s management believes that continued significant expenditures for engineering, research, and development are necessary to enable Tel to expand its products, sales, and profits, and to remain competitive.

Personnel

AtAs of June 24, 2020,14, 2023, Tel had forty-five44 employees, comprised of twenty-two20 full-time and 1 part-time employees in manufacturing, supply chain, and quality assurance, seven6 full-time and 1 part-time employees in administration and sales, including customer services and product support, and sixteen12 full-time and 4 part-time employees in engineering, research, and development, none of whom belongs to a union. The Company also employs one part-time individual in administration. From time to time, the Company also employs independent contractors to support its manufacturing, engineering, and sales organizations. AtAs of June 24, 2020,14, 2023, the Company utilized one2 independent contractorcontractors in sales management. Tel has been successful in attracting skilled and experienced management, sales, and engineering personnel, although the market for senior engineering talent is becoming very competitive. We have not experienced any work stoppages and we consider our relationship with our employees to be good.

Where You Can Find More Information

The public may read and copy any materials the Company files with the U.S. Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Item 1A. Risk Factors

Item 1A.Risk Factors

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Item 1B.Unresolved Staff Comments

Not Applicable.

Item 2. Properties

Item 2.Properties

The Company leases its general office and manufacturing facility in East Rutherford, NJ (approximately 27,000 square feet). In June 2016,April 2021, the Company extended the lease term for another fiveeight years until JulyAugust 31, 2021.2029, at an initial monthly rate of $21,237. Under terms of the lease, the Company is also responsible for its proportionate share of the additional rent to include all real estate taxes, insurance, snow removal, landscaping, and other building charges. The Company is also responsible for the utility costs for the premises.

The Company also leases a small office in Lawrence, Kansas under an operating lease agreement. In June 2019,March 2023, the Company extended the lease term which was set to expire June 30, 2020. On March 31, 2020, the Company negotiated a new lease for additional space, which expires March 31, 2021.2024.

We believe that our facilities are adequate for our needs for the foreseeable future. Tel is unaware of any environmental problems in connection with its location and because of the nature of its manufacturing activities, does not anticipate any such problems.

Item 3. Legal Proceedings

Item 3.Legal ProceedingsContingencies are recorded in the audited 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.

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 it did rulefound 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.

Item 3. Legal Proceedings (continued)

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.

Item 3.Legal Proceedings (continued)

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.

The Journal Entry of Judgment including judgment against the Company in the amount of $1.3 million for tortious interference with prospective business advantage, of $1.5 million for tortious interference with existing contracts, and $2.1 million in punitive damages was entered on November 22, 2017. 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 amount. The amount published forwhich is modified annually based on market interest rates.

For the year starting July 1, 2017 through June 30, 2018 is 5.75% and 6.5% July 1, 2018 through June 30, 2019. The current2021, the interest rate beginning July 1, 2019 is 7.0%. Interestwas 4.25 %. Cumulative interest on the $4,900,000$4.9 million judgment started to accrue on November 22, 2017, the date the judgment was entered. As of March 31, 2020,2023, the outstanding amount of the judgement and accrued interest is $5,657,549.$6.4 million.

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.

On October 14, 2022, the Company received an order from the Kansas appellate court of appeals lifting the briefing stay that was entered on March 19, 2020. The Kansas appellate court has notnotified the Company that the argument was set a date to hearfor hearing on March 30, 2023 in Topeka, Kansas which in fact took place. A decision on the appeal.case is expected approximately 90 days after the conclusion of the arguments that were heard on March 30, 2023. TIC’s cash should allow for the payment of the entire amount if necessary. This is based on expected improved first quarter results and receipt of the Navy CDR funding.

The Company is very optimistic about the prospects of its appeal for a judgment as a matter of law. The Company was hoping for a decision from the court this calendar year but this timing will likely be delayed due to the three month COVID-19 related shutdown of the Kansas court system. As such, the appeal process is expected to take at least another year to complete.

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 made an offer to settle this case in February 2020 for $2.5 million which was rejected by the other party. The Company plans to make another settlement offer.   

Other than the matters outlineddisclosed above, wethere 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, inquiryother actions, suits, proceedings, inquiries or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company,company or any of our subsidiaries, threatened against or affecting our Company,company, our common stock, any of our subsidiaries or of our companies or our common stocksubsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

As of the date of this Annual Report on Form 10-K, except as set forth herein, management believes that there are no claims against TIC, which it believes will result in a material adverse effect on TIC’s business or financial condition.

Item 4.Mine Safety Disclosures

Not applicable.

PART II

Item 5.Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

a) Market Information

The common stock, $0.10 par value per share, of the registrant (“Common Stock”) is traded on the OTCQB under the symbol “TIKK”. The Company had previously traded on the NYSE American LLC until March 11, 2019. On March 11, 2019, trading on NYSE American in the common stock of Tel-Instrument Electronics Corp. -- ticker symbol TIK -- was suspended. NYSE Regulation had previously announced on December 20, 2018 that it had commenced delisting procedures with respect to the Company for failure to meet the $4.0 million minimum net worth requirements pursuant to Section 1009 of the NYSE American Company Guide. This mandates that a company’s stockholders’ equity be $4.0 million or higher if such company has reported net losses in three of its last four fiscal years (the “Stockholders’ Equity Requirement”). The Company requested a review of this determination by a Committee of the Board of Directors of NYSE American (the “Committee”) and the Company’s appeal was heard at a meeting on Monday, February 11, 2019. The Committee affirmed NYSE Regulation’s delisting determination. The following table sets forth the high and low per share sale prices for our Common Stock for the periods indicated as reported for fiscal years 20202023 and 20192022 by the NYSE – American through March 11, 2019 under the symbol “TIK”OTC. The market quotations reflect interdealer prices, without retail markup, markdown, or commissions, and for the OTC after March 11, 2019 under the symbol “TIKK”.may not represent actual transactions.

b) Holders

The Company has approximately 149142 holders of its Common Stock as of June 26, 2020.14, 2023. This figure does not take into accountconsider those shareholders whose certificates are held in the name of broker-dealers or other nominees.

c) Dividends

We have not declared or paid any dividends on our Common Stock and intend to retain any future earnings to fund development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. TIC paid dividends on the preferred shares through during quarter one of fiscal 2023. As a result of the loss for the current fiscal year, we are not permitted to pay preferred dividends without written bank approval. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by law.

d) Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of March 31, 20202023, regarding compensation plans under which equity securities of the Company are authorized for issuance. See “Equity Compensation Plan Information” under Item 12 below.

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Rule 10B-18 Transactions

During the year ended March 31, 2020,2023, there were no repurchases of the Company’s Common Stock by the Company.

Recent Sales of Unregistered Securities

During the year ended March 31, 2020,2023, we have not issued any securities that were not registered under the Securities Act and not previously disclosed in the Company’s Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

Item 6. ReservedSelected Financial Data

The Company is a smaller reporting company as defined in Item 10 (f) of Regulation S-K and therefore is not required to provide the information under this item.

Item 7. Management’Management’ss Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and the notes thereto appearing elsewhere in this Annual Report. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the section relating to Forward-Looking Statements below and elsewhere in this Annual Report. Please see the notes to our Financial Statements for information about our Critical Accounting Policies and Recently Issued Accounting Pronouncements.

Forward Looking Statements

A number of the statements made by the Company in this report may be regarded as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1965.

Forward-looking statements include, among others, statements concerning the Company’s outlook, pricing trends and forces within the industry, the completion dates of 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 that could cause a difference are changes in the general economy; changes in demand for the Company’s products or in the costs and availability of its raw materials; the actions of 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, including the current COVID-19 pandemic. A number of these factors are discussed in the Company’s filings with the SEC.

General

Management’s discussion and analysis of results of operations and financial condition is intended to assist the reader in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiary.Company. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying financial notes, and with the Critical Accounting Policies noted below. The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references in this document to a particular year shall mean the Company’s fiscal year ending on March 31.

Overview

Fiscal year 2023 operations continued to be affected by the residual effects of the outbreak of COVID-19 and its variants. While the business is still strong, the Company has been impacted by the pandemic in its commercial business and delays in orders from some of its military customers. The pandemic has also impacted its supply chain and labor force with disruptions to both the delivery of critical inventory components and personnel shortages due to post COVID-19 quarantines, which have hampered our ability to ship units under normal lead times. Although the Company reported a 30%has been negatively impacted by the pandemic, there was an increase in sales to $15,774,943 for the year endedour receipt of new orders with an open order back log of approximately $6.5 million at March 31, 2020 as compared to $12,116,050 for the previous year. Net income before taxes was $2,087,210 for fiscal year 2020 as compared to $203,038 in fiscal year 2019. This increase is the mainly the result of increased international business for our Mode 5 test sets, including our T-47/M5, which has received AIMS (Air Traffic Control Radar Beacon System, Identification Friend or Foe, Mark XII/Mark XIIA, Systems) approval, increased shipments of our CRAFT products, especially for Lockheed Martin for the Joint Strike Fighter (“JSF”) program, and the T-4530i and the TS-4530A. In August 2018, we also reported that the German government had notified our U.K. distributor of its intent to award a multi-year, multi-million dollar contract. In February 2019, the Company received an initial purchase order totaling $520,000 from its European Distributor, Muirhead Avionics (“Muirhead”) for Mode 5 test sets from the contract awarded by the German military. In August 2019, we reported the receipt of a follow-on purchase order totaling approximately $1.5 million from Muirhead for Mode 5 test sets from the contract awarded by the German military, and in June 2020 another order for approximately $1.6 million. This order is part of a seven-year procurement. The Company has already received orders of approximately $3.6 million.  2023.

The Company continues to pursue opportunities in the international market for our Mode 5 test sets with good success. We continue to emphasize the importance of capturing the majority share of the large Identification Friend or Foe (“IFF”) international market. The Company is also in discussions with other major international customers that have evaluated our Mode 5 test sets and we are excited about the opportunities overseas, as evidenced by the order from Germany, but no guarantees can be made about these opportunities. We continue to receive orders from Japan, South Korea, Canada, Australia, New Zealand, United Kingdom and other countries. In January 2020, we also reported the receipt of a $1.87 million T-47/M5 Mode 5 test set order for the United Kingdom. These test sets will be sold through our European distributor, Muirhead Avionics, to Leonardo MW Ltd., which is handling the Mode 5 upgrade effort for the United Kingdom Ministry of Defense. Many other countries have expressed significant interest in our Mode 5 test sets.

The units for Lockheed Martin will be used for the Joint Strike Fighter (“JSF”) program, and we believe this program will generate significant CRAFT orders as this program ramps up limited rate production. The Company had already received orders from Lockheed Martin for the AN/USM-708 units, for the JSF Program, totaling over $6 million. Sikorsky has also indicated that it will be ordering CRAFT test sets for its new helicopters. The Company also received orders from other customers for this product.

The Company has built a solid position in the Mode 5 IFF flight line test equipment market, and our products are very competitive in the overseas markets. We believe that we are well-positioned as our CRAFT and TS-4530A flight-line test sets have been endorsed by the U.S. military and we have already delivered test sets into 18 international markets.

Item 7. Management’Management’ss Discussion and Analysis of Financial Condition and Results of Operations (continued)

Overview (continued)

The new T-47/M5Company reported net loss of $(388,545) and net sales of $8,631,157 for the fiscal year ended March 31, 2023. This compared to net income of $1,309,738 and net sales of $12,932,790 in the prior fiscal year. Net income for the prior fiscal year included $722,577 gain on forgiveness of PPP loan. Excluding the $722,577 gain on PPP forgiveness, net income for the year ended March 31, 2022, was $587,161. The Company reported a 33% decrease in sales to $8,631,157 for the year ended March 31, 2023, as compared to $12,932,790 for the previous year. Commercial sales decreased by 12% to $2,261,783 for the year ended March 31, 2023, as compared to $2,568,959 for the year ended March 31, 2022. The commercial airline industry was devastated by the COVID-19 pandemic during the past two prior fiscal years, and has been steadily rebounding to pre 2019 pandemic levels. Avionics government sales decreased by 39% to $6,369,374 for the year ended March 31, 2023, as compared to $10,363,831 for the year ended March 31, 2022. This decrease in government sales is due to COVID-19 pandemic related supply chain issues and international government budgetary restrictions. Gross margin decreased by $2,716,590 in fiscal 2023 as compared to 2022 and the gross margin percentage declined by 9.3 percentage points to 35.3%. The decline in gross margin was primarily due to lower volume, fixed manufacturing costs, and increases in production component costs. Total operating expenses for the year decreased by $881,811. This was primarily due to an engineering, research, and development expense decrease of $734,428 as compared to prior fiscal year that included customer project reimbursed engineering costs for the MADL (Lockheed Martin) and Craft ECP (U.S. Navy) projects. Net loss before taxes was $516,682 for fiscal year 2023 as compared to a net income of $1,485,191 in fiscal year 2022. The Company’s cash balance on March 31, 2023, was approximately $5.9 million, including the $2 million of restricted cash to support the appeal bond. The Company’s backlog on March 31, 2023, was $6.5 million.

The Company continues to pursue the domestic and international markets for our Mode 5 IFF test set is expectedsets with good results. We continue to be a cost-effective upgrade optionreceive orders from South Korea, Australia, Canada, the U.K., and Germany for our large installed base of Mode 4 test sets and we have seen substantial interest and orders for this test set from a number of countries.  All allied countries have a drop-dead date of July 1, 2020, which was extended from January 1, 2020, for Mode 5 capability so we expect this international business will begin to accelerate this yeartest sets. We also are receiving volume orders from the U.S. Government and it should remain strongLockheed Martin for at least the next three years, based on our current projections.AN/USM-708 and 719 (“CRAFT”) Mode 5 test sets. Our expectation is that we will continue to improve both our revenues and gross margins,have profitable operations in fiscal year 2024, but the timing of these new orders is largely out of our hands. Nonetheless, we are encouraged bycontrol. After a sharp drop in FY 2023, the increasing activity we areCompany is also seeing for both ourthe beginning of a rebound in commercial and military products.

The commercial avionics industrytest set business. TIC  is undergoing a great dealalso working on the next generation of change and we believe our new lightweight, hand-held product (the “SDR/OMNI”) that we are planningMode 5 called Mode 5 Level 2B. This could potentially lead to introducesubstantial software upgrades in the near term will generate increased market share at very attractive gross margin levels.future for our domestic and international Mode 5 customers. The technologyNavy has awarded a $2.9 million contract for the hand-heldECP upgrade of all of its test sets to remove parts obsolesce. Funded engineering started during the 2023 fiscal year. This is an important product for the Company, and this should ensure an additional 10 years of product life. It will provide a platform for future products. We are also working closely with our other military customers on new potential market opportunities that will be needed to maintain our salesgenerate substantial recurring revenue once the engineering development and profitability growth.testing is completed.

This new technology could provide us with the opportunity to expandThe Company is also actively looking at expanding out of our relatively narrowits current core avionics market area. TIC is working with Lockheed Martin (LMCO) on a new MADL test market niche and enter the much largerset. TIC was awarded this contract after winning a $956,000 competitive solicitation. MADL is a secure communications radio for the F-35. This operates in a much higher frequency range than our other test market. We believe thatsets. TIC has finished the design and is waiting on a production order. This should generate ongoing recurring revenues for the Company and will position TIC for further engineering work with LMCO.

The main focus area for the Company is moving into the secure communications testing with our new hardware platform provides unmatched capabilities in a market leading form factor.DSR/OMNI test set. The world’s first “All-in-One” Avionics Test Set utilizes true software-designed radio technology that enables it to test all common avionics functions in one 4.5 pound test set. The SDR/OMNI has very wide frequency to accommodate new commercial and military waveforms in an industry leading 4.5-pound package. This is half the weight of competitive test sets. It utilizes the latest touch screen technology and has the capability to replace all TIC commercial test sets and military flight-line test sets with one handheld product. The initial productU.S. military will beneed to upgrade thousands of existing communication and navigation test sets over the next several years to address the new frequency and waveform requirements for military radios and we believe the SDR/OMNI is well positioned to capture a commercial avionics air traffic control test set which adds ADS-B UAT test capability for the large general aviation test market that is subject to the January 1, 2020 requirement for ADS-B out capability. This will compete with the Aeroflex IFR 6000 test set and will replace the TIC TR-220 product. This release is initially targeted at the civil aviation market that is subject to the January 1, 2020 requirement for ADS-B out capability. Future software releases will incorporate Nav/Comm test functions which can be purchased as APP’s (applications) by our customers. We continue to evaluate other attractive potential market opportunities.

As a result of the potential new military applications for our new 4.5 pound SDR/OMNI hand-held test set, we are currently implementing a hardware CPU change to further improve high speed processing capabilities. This change will move the initial product introduction for the commercial avionics market towards the endportion of this calendar year, but will better position the Company for high dollar military contracts which will be critical to our long-term growth in revenues and profitability. The goal of this new test set is to expand out of our relatively narrow avionics test market niche and enter the much larger secure communications radio test market.business.

The Aeroflex litigation (see Note 2120 to the consolidated financial statements) did not result in a favorable outcome for the Company, despite our belief that we committed no wrong doing.wrongdoing.

The jury found no misappropriation of Aeroflex trade secrets, but it did rule that the Company tortiously interfered with a prospective business opportunity and awarded damages. The jury also ruled that Tel tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees. The jury also found that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex. The Court conducted further hearings on the Company’s post-trial motions which sought to reduce the damages award of $2.8 million, as well as the punitive damages claim. The Court denied the Company’s motions and awarded Aeroflex an additional $2.1 million of punitive damages. The Company has filed motions in January 2018 for the Court to reconsider the amountnumber of damages on the grounds that they are duplicative and not legally supportable. The Court heard these motions, and such motions were denied. The Company has filed for the appeal. The Company has posted a $2 million bond for the appeal. This $2 million bond amount will remain in place during the appeal process (See Note 6)5).

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Overview (continued)

As reflected in the accompanying consolidated balance sheet as of March 31, 2020,2023, the Company has recorded estimated damages to date of $5.7$6.4 million, including interest, as a result of a jury verdict associated with the Aeroflex litigation. The Company has filed for an appeal (see Notes 65 and 21)20). As of March 31, 2020,2023, the Company has cash balances of $5.1$5.9 million, including $2 million of restricted cash as well as $1.4 million in accounts receivable. We expect to continue to have sufficient cash to fully cover the Aeroflex damages amount.cash.

On October 14, 2022, the Company received an order from the Kansas appellate court of appeals lifting the briefing stay that was entered on March 19, 2020. The Kansas appellate court has notified the Company that the argument was set for hearing on March 30, 2023 in Topeka, Kansas which in fact took place. A decision on the case is expected approximately 90 days after the conclusion of the arguments that were heard on March 30, 2023. TIC’s cash and borrowing position should allow for the payment of the entire amount if necessary. This is based on expected improved upcoming first quarter results and receipt of the Navy CDR NRE funding. In May 2023, the Internal Revenue Service additionally approved the $628,401 ERC credit application that was submitted last fall. TIC received the $628,401 ERC from the Internal Revenue Service on June 1, 2023.

The Company is very optimistic about the prospects of its appeal for a judgment as a matter of law. The Company was hoping for a decision from the court this calendar year but this timing will likely be delayed due to the three month COVID-19 related shutdown of the Kansas court system. As such, the appeal process is expected to take at least another year to complete unless a settlement can be reached. 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 believes it has sufficient financing in place to fund its plans for the next twelve months due its increased revenues and profitability and its current projections (see liquidity section below).

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Overview (continued)

On March 21, 2016, the Company entered into a line of credit agreement with Bank of America, which expired March 31, 2017. In March 2017,America. Per the Company extended until March 31, 2018.most recent extension agreement entered into on July 22, 2022, the line of credit is set to expire on July 30, 2023. The line is collateralized by substantially all of the assets of the Company. The line provided a revolving credit facility with borrowing capacity of up to $1,000,000. There were no covenants or borrowing base calculations associated with this line of credit. On August 29, 2018, the Company entered a Loan Modification Agreement (the “Agreement”) with the bank to extend the Agreement until May 31, 2019, which included a debt service ratio covenant In June 2019, Bank of America agreed to extend the Company’s line of credit until March 31, 2020, including monthly principal payments of $10,000, and eliminating the covenant for the debt service ratio. The Company’s interest rates were 4.74% and 6.25% at March 31, 2020 and 2019, respectively. During the year ended March 31, 2020 the Company repaid $120,000 against this line of credit. As of March 31, 2020 and 2019, the outstanding balances were $680,000 and $800,000, respectively.  As of March 31, 2020 the remaining availability under this line is $10,000.

In March 2020, Bank of America agreed to extend the line of credit from March 31, 2020 to January 31, 2021. The new agreement includes availability up to $690,000. Monthly payments will be interest only.

At As of March 31, 2020,2023, the line of credit was fully drawn upon for $690,000 (see Note 8 to the consolidated financial statements) and on March 31, 2022 the full line of credit was available. The interest rate on March 31, 2023 was 8.64%. On March 31, 2023, the Company’s backlog of orders was approximately $4.0$6.5 million as compared to $6.1$3.5 million aton March 31, 2019.2022. Historically, the Company obtains orders which are required to be filled in less than 12 months, and therefore, these anticipated orders are not reflected in the backlog.

The Company believes it has sufficient financing in place to fund its planscash on hand and expected cash flow from operations for the next twelve months due to the increase in business and the opportunities that exist for the next few years. TIC received on June 1 2023, a $628,401 tax credit which was submitted last fall and approved by the Internal Revenue Service.

Results of Operations 20202023 Compared to 20120229

Sales

For the year ended March 31, 20202023, sales increased $3,658,893 (30.2%decreased $4,301,633 (33%) to $15,774,943$8,631,157 as compared to $12,116,050$12,932,790 for the year ended March 31, 2019.

Avionics government2022. Commercial sales increased $3,530,984 (38.2%decreased $307,176 (12%) to $12,770,363$2,261,783 for the year ended March 31, 20202023, as compared to $9,239,379$2,568,959 for the year ended March 31, 2019. This increase is2022. The commercial airline industry was devastated by the mainlyCOVID pandemic during the result of increased international business for our Mode 5 test sets, including our T-47/M5, whichpast two prior fiscal years, and has received AIMS (Air Traffic Control Radar Beacon System, Identification Friend or Foe, Mark XII/Mark XIIA, Systems) approval, increased shipments of our CRAFT products, especially for Lockheed Martin for the Joint Strike Fighter (“JSF”) program, and the T-4530i and the TS-4530A.been steadily rebounding to pre 2019 pandemic levels.

CommercialAvionics government sales increased $127,909 (4.4%)decreased by 39% to $3,004,580$6,369,374 for the year ended March 31, 20202023, as compared to $2,876,671$10,363,831 for the year ended March 31, 2019. The commercial business2022. This decrease in government sales is steadydue to COVID-19 pandemic related supply chain issues and changes are mainly the result of the timing of orders and parts availability.  international government budgetary restrictions.

Gross Margin

Gross margin increased $1,992,681 (36.8%percentage declined by 9.3 percentage points to 35.3%. The decline in gross margin was primarily due to lower volume, fixed manufacturing costs, and increases in production component costs.

Operating Expenses

Total operating expenses for the year decreased by $881,811 (18%) as compared to prior year.

The decline was primarily due to engineering, research, and development expense decrease of $734,428 (29%) as compared to prior fiscal year that included customer project reimbursed engineering costs for the MADL (Lockheed Martin) and CRAFT ECP (U.S. Navy) projects expense offsets.

Selling, general and administrative expenses, along with litigation expense, decreased $147,383 (6%) to $7,409,901$2,132,672 for the year ended March 31, 20202023, as compared to $5,417,220$2,280,055 for the year ended March 31, 2019, primarily as a result of the increase in volume. The gross margin percentage for the year ended March 31, 2020 was 47.0%, as compared to 44.7% for the year ended March 31, 2019. The higher gross margin percentage2022. This decrease is attributable to an improved product mix as well as the reduction in manufacturing overhead as well as manufacturing efficiencies.

Operating Expenses

Selling, general and administrative expenses increased $262,027 (11.8%) to $2,477,548 for the year ended March 31, 2020 as compared to $2,215,521 for the year ended March 31, 2019. This increase is primarily attributed to the increase in accruedlower sales commissions, consultant fees, and profit sharing expense, outside commissions, consulting fees,accruals, partly offset by a $63,308 fine from the Homeland Security Investigations (“HIS”) agency resulting from a Form I-9 audit that was initiated March 2018 and slightly higher payroll and payroll related expenses offset partially by lower professional fees and exchange listing fees. 

Litigation expenses decreased $94,670 to $140,050 for the year ended March 31, 2020 as compared to $234,720 for the year ended March 31, 2019. This decrease reflects decreased activity related to the litigation (see Notes 6 and 21 to the consolidated financial statements). With respect to the Aeroflex litigation, the Company has appealed the $4.9 million judgement and has set aside $2 million in cash to support an appeal bond. The appeal submissions are now complete. We continue to believe that the trial judge erred in his legal ruling on standing and other issuesfinal fine amount settled during the trial and that we have strong grounds for the award to be vacated or reduced. Our attorneys estimate that it will take over a year from now for this appeal to work its way through the Kansas court system. Management does not expect a significant increase in legal fees related to this litigation in the fiscal year.January 2023.

Item 7. Management’Management’ss Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of(Loss) Income from Operations 2020 Compared to 2019 (continued)

Operating Expenses (continued)

Engineering, research and development expenses decreased $72,232 (3.1%) to $2,239,811 for the year ended March 31, 2020 as compared to $2,312,043 for the year ended March 31, 2019. The Company continues to invest in the development of the Company’s hand-held product line utilizing CRAFT and TS-4530A technology. The Company also completed T47-M5 test set, for which the Company also obtained AIMS PO approval, the enhanced remote client, and the incorporation of other product enhancements in existing designs.

Income from Operations

As a result of the above, the Company recorded incomea loss from operations in the amount of $2,552,492$(898,120) for the fiscal year ended March 31, 20202023, as compared to income from operations of $654,936$936,659 for the year ended March 31, 2019.2022.

Other ExpenseIncome (Expense), Net

For the year ended March 31, 2020,2023, total other expenseincome (expense), net was $465,282$381,438 as compared to other expense$548,532 in the prior year. The net decrease includes $628,400 of $451,898Employee Retention Tax Credits (“ERC”) the Company was eligible for the year ended March 31, 2019, primarily the result of the higher loss on the change in fair value of the common stock warrants and higher interest relatedwas received June 1, 2023 as compared to the judgement offset by lower interest forprior year which included the linesecond Draw PPP loan forgiveness in the amount of credit$722,577, and $20,000 from the letter of credit.New Jersey Economic Development Authority (NJEDA) small business emergency assistance grant.

(Loss) Income (Loss) before Income Taxes

As a result of the above, the Company recorded incomea loss before taxes of $2,087,210$(516,682) for the year ended March 31, 20202023, as compared to income before taxes of $203,038$1,485,191 for the fiscal year ended March 31, 2019.2022.

Income TaxesTax (Benefit) Expense

For the year ended March 31, 2020,2023, the Company’s Federal and State provision requirements were offset by the reversal ofCompany reported a portion of the valuation allowance no longer deemed necessary. The Company recorded a net tax benefit of $2,649,280 which represents$128,137 as compared to a reduction$175,453 tax provision in our valuation allowance on tax attributes that are expected to be utilized based on management’s assessment and evaluation of historical and projected income.

For the prior year. The ERC included in year ended March 31, 2019,2023 nor the increasePPP loan forgiveness included in the Company’s deferredprior year were taxable events.

The differences between income taxes expected at the U.S. federal statutory income tax asset was offset, by a corresponding increase inrate of 21 percent and the Company’s valuation allowance.reported income tax expense are due to the recognition of the non-taxable ERC of $628,400 and non-taxable PPP funds of $722,577 as other income during both fiscal years ended March 31, 2023 and March 31, 2022, respectively.

Net (Loss) Income

As a result of the above, the Company recorded a net incomeloss of $4,736,490$(388,545) for the year ended March 31, 20202023, as compared to a net income of $203,038$1,309,738 for the year ended March 31, 2019.2022.

Liquidity and Capital Resources

AtOn March 31, 2020,2023, the Company had positive working capital of $1,776,176, which is negatively impacted by $5,657,549 in accrued legal damages,$3,058,638, as compared to negative working capital of $152,993 at$3,671,667 on March 31, 2019. This change2022. The Company has approximately $5.9 million of cash on hand at year-end including $2 million of restricted cash supporting the appeal bond.

On March 31, 2021, Bank of America further extended the maturity date of our line of credit from March 31, 2021, to June 30, 2021, to allow time for a full underwriting for the annual renewal period. The line of credit was subsequently renewed for $690,000 until July 30, 2022. Per the most recent extension agreement entered into on July 22,2022, the line of credit is primarily the result of the improvement in operating income, which has improved the Company’s cash position while also reducing its outstanding liabilities.set to expire on July 30, 2023.

As discussed in Note 21 to20 of the Notes to the Consolidated Financial Statements,consolidated financial statements, the Company has recorded total damages of $5,657,549,$6,360,698 including accrued interest, as a result of the jury verdict associated with the Aeroflex litigation as well as the Court’s decision on punitive damages. The jury found no misappropriation of Aeroflex trade secrets but it did rule that the Company tortiously interfered with a prospective business opportunity and awarded damages. The jury also ruled that Tel tortiously interfered with Aeroflex’s non-disclosure agreements with two former Aeroflex employees. The jury also found that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex. The Court conducted further hearings on the Company’s post-trial motions which sought to reduce the damages award of $2.8 million, as well as the punitive damages claim.  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. The court also awarded Aeroflex $59,000 for fees associated with the filing of documents. The Company has also recorded accrued interest of $757,118$1,460,698 as of March 31, 2023.

On October 14, 2022, the Company received an order from the Kansas appellate court of appeals lifting the briefing stay that was entered on March 19, 2020. The Company filed motions in January 2018 for the Court to reconsider the amount of damages on the grounds that they are duplicative and not legally supportable. A hearing on this motion was held. The Judge rejected all of our arguments and declined to order a new trial. We filed the appeal document the week of May 28, 2018. The Company has posted a $2,000,000 bond. This $2 million bond amount will remain in place during the appeal process (See Note 6).

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquidity and Capital Resources (continued)

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 and the post-trial rulings to the Court of Appeals of the State of Kansas Case No. 18-119,563. The Plaintiff filed a cross-appeal. The appeal and cross-appeal are fully briefed. The appellate court has notnotified the Company that the argument was set a date to hearfor hearing on March 30, 2023 in Topeka, Kansas which in fact took place. A decision on the appeal.case is expected approximately 90 days after the conclusion of the arguments that were heard on March 30, 2023. TIC’s cash position should allow for the payment of the entire amount if necessary.

This is based on expected improved first quarter results and receipt of the Navy CDR NRE funding. TIC received on June 1 2023, a $628,401 tax credit which was submitted last fall and approved by the Internal Revenue Service.

The Company is very optimistic about the prospects of its appeal for a judgment as a matter of law. The Company was hoping for a decision from the court this calendar year, but this timing will likely be delayed due to the three month COVID-19 related shutdown

The Company has the ability to settle this case at its sole discretion by withdrawing the appealItem 7. Management’s Discussion and paying the judgment plus interest amount.Analysis of Financial Condition and Results of Operations (continued)

On March 21, 2016, the Company entered into a line of credit agreement with Bank of America, which expired March 31, 2017. In March 2017, the Company extended until March 31, 2018.  The line is collateralized by substantially all of the assets of the Company. The line provided a revolving credit facility with borrowing capacity of up to $1,000,000. There were no covenants or borrowing base calculations associated with this line of credit. On August 29, 2018, the Company entered a Loan Modification Agreement (the “Agreement”) with the bank to extend the Agreement until May 31, 2019, which included a debt service ratio covenant. In June 2019, Bank of America agreed to extend the Company’s line of credit until March 31, 2020, including monthly principal payments of $10,000,Liquidity and eliminating the covenant for the debt service ratio. The Company’s interest rates were 4.74% and 6.25% at March 31, 2020 and 2019, respectively. During the year ended March 31, 2020 the Company repaid $120,000 against this line of credit. As of March 31, 2020 and 2019, the outstanding balances were $680,000 and $800,000, respectively.  As of March 31, 2020 the remaining availability under this line is $10,000.Capital Resources (continued)

In March 2020, Bank of America agreed to extend the line of credit from March 31, 2020 to January 31, 2021. The new agreement includes availability up to $690,000. Monthly payments will be interest only (see Note 10 to the consolidated financial statements).

On March 27, 2020, 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, 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 $772,577 (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.

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. No assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part. The PPP Loan has a two-year term and bears interest at a rate of 0.98% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. Based on the June 5, 2020 the Paycheck Protection Program Flexibility Act, certain changes will need to be made to the original Note, based on the new law.

Moving forward,foregoing, we believe that our expected cash flows from operations, as a result of the increase in business, and current cash balances which amounted to $5.1 million, including the $2 million is restricted cash will be sufficient to operate in the normal course of business for next 12 months from the issuance date of these financial statements, including any payments for settlement of the litigation, which we were not able to do in the prior year.Aeroflex litigation.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Liquidity and Capital Resources (continued)

The Company continues to monitor the impact of the COVID-19 outbreak on its supply chain, manufacturing and distribution operations, customers, and employees, as well as the U.S. economy in general. However, due to the uncertainty as to when governmental restrictions on business will be fully lifted, the impact thereof, and the duration and widespread nature of the COVID-19 outbreak, the Company cannot currently predict the long-term impact on its operations and financial results. The uncertainties associated with the COVID-19 outbreak include potential adverse effects on the overall economy, the Company’s supply chain, transportation services, employees, and customers. The COVID-19 outbreak could adversely affect the Company’s revenues, earnings, liquidity, and cash flows and may require significant actions in response, including expense reductions. Conditions surrounding COVID-19 change rapidly, and additional impacts of which the Company is not currently aware may arise. Based on past performance and current expectations, the Company believes that its anticipated cash flow from operations and the proceeds from the PPP loan arewill be sufficient to fund the Company’s requirements for working capital, capital expenditures and debt service for at least the next 12 months.

During the year ended March 31, 2020,2023, the Company’s cash balance increaseddecreased by $2,544,012$1,110,259 to $5,134,739,$5,850,481, including restricted cash to support the appeal bond. The Company’s principal sources, and uses of funds were as follows:

Cash (used in) provided by (used in) operating activities. For the year ended March 31, 2020,2023, the Company provided $2,921,030used $1,694,126 in cash for operations as compared to using $478,493$1,800,483 in cash provided for operations for the year ended March 31, 2019.2022. This increasedecrease in cash provided by operations is primarily attributed to the improvementdecrease in operating incomesales and the decreaseuse of cash to restock production inventory for components now being received after extraordinarily prolonged delivery lead times. Additionally, the Company is placing orders earlier for components with long lead times and in accounts receivable, partially offset by a lower decrease in accounts payable.many cases, vendors are requiring cash deposits at ordering.

Cash used in(used in) investing activities. For the year ended March 31, 2020,2023, the Company used $133,682$26,133 of its cash for investing activities, as compared to $121,790$16,068 used for investing activities for the year ended March 31, 2019 as result of higher purchases of equipment.2022.

Cash provided (used in) provided by financing activities. For the year ended March 31, 2020,2023 the Company used $243,336provided $690,000 in cash for financing activities as compared to $882,332from fully drawing upon its bank line of credit, offset by $80,000 in cash provided by financing activities forpreferred dividend payments. For the year ended March 31, 2019. The Company paid the warrant liability in the amount of $116,500 in the current fiscal year. During the fiscal year ended March 31, 2019,2022, the Company received net proceeds the from the issuance ofused $320,000 in cash for financing activities to pay preferred stock in the amount of $968,256 as well proceeds from short-swing profits from an investor of $123,075, which did not occur in the current fiscal year.dividends.

Currently, the Company has no material future capital expenditure requirements.

There was no significant impact on the Company’s operations as a result of inflation for the year ended March 31, 2020.2023.

Critical Accounting Policies

In preparing the consolidated financial statements and accounting for the underlying transactions and balances, the Company applies its accounting policies as disclosed in Note 2 of our Notes to Consolidated Financial Statements. The Company’s accounting policies that require a higher degree of judgment and complexity used in the preparation of these consolidated financial statements include:

Revenue recognition – The Company accounts for revenue recognition in accordance with the Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contracts with Customers (“ASC 606.606”). The core principle of TopicASC 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 ASUASC 606 defines a five-step process to achieve the core principalprinciple and, in doing so, it is possible more judgement and estimates may be required within the revenue recognition process than are currently in use.

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.

Item 7. Management’Management’ss Discussion and Analysis of Financial Condition and Results of Operations (Continued)(continued)

Critical Accounting Policies (continued)

Under Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from Contacts with Customers (“ASC 606”), theThe 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 or 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.

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 radios installed in aircraft. 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 areis 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 taking into accountconsidering 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 March 31, 2020.2023.

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

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Critical Accounting Policies (continued)

Nature of goods and services (continued)

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 generally 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 March 31, 2020,2023, approximately $413,554$296,400 is expected to be recognized from remaining performance obligations for extended warranties as compared to $361,791 at$386,907 on March 31, 2019.2022. For the year ended March 31, 2020,2023, the Company recognized revenue of $85,311$98,908 from amounts that were included in Deferred Revenue as compared to $50,353$75,791 for the year ended March 31, 2019.2022.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Critical Accounting Policies (continued)

The following table provides a summary of the changes in deferred revenues related to extended warranties for the year ended March 31, 2020:2023: