UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, ~~2017~~2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-31990

TEL-INSTRUMENT ELECTRONICS CORP.

(Exact name of registrant as specified in its charter)

New Jersey	22-1441806
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Branca Road

East Rutherford, NJ 07073

(Address of principal executive offices)

(201) 933-1600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such ~~files.~~files). Yes ý☒ No ☐

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large, accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~ ☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý☒

As of February ~~8, 2018,~~10, 2022, there were 3,255,887 shares outstanding of the registrant’s common stock.

TEL-INSTRUMENT ELECTRONICS CORP.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
		Page
Item 1.	Unaudited Condensed Consolidated Financial Statements.	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16 21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	23 25

Item 4.	Controls and Procedures.	23 25

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	24 26

Item 1A.	Risk Factors.	25 26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25 26

Item 3.	Defaults Upon Senior Securities.	25 26

Item 4.	Mine Safety Disclosures.	25 26

Item 5.	Other Information.	25 26

Item 6.	Exhibits.	26 27

Signatures		27 28

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements.

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31,
2017

March 31,
2017

(unaudited)
ASSETS

Current assets:
Cash and cash equivalents $ 263,983 $ 287,873
Accounts receivable, net 1,660,757 1,556,382
Inventories, net 4,309,324 4,208,179
Restricted cash to support appeal bond 2,000,000 -
Prepaid expenses and other current assets 107,450 188,578
Total current assets 8,341,514 6,241,012

Equipment and leasehold improvements, net 197,602 161,427
Other long-term assets 35,109 33,509
Total assets 8,574,225 6,435,948

LIABILITIES & STOCKHOLDERS’ DEFICIT

Current liabilities:
Current portion of long-term debt 3,696 291,991
Line of credit 1,000,000 200,000
Capital lease obligations – current portion 6,718 6,268
Accounts payable and accrued liabilities 2,431,763 2,072,955
Federal and state taxes payable - 4,105
Deferred revenues – current portion 54,671 123,720
Accrued legal damages 4,930,523 2,800,000
Accrued payroll, vacation pay and payroll taxes 396,207 527,413
Total current liabilities 8,823,578 6,026,452

Capital lease obligations – long-term 8,664 13,760
Long-term debt - 2,124
Deferred revenues – long-term 353,280 352,973
Warrant liability - 95,000
Total liabilities 9,185,522 6,490,309

Commitments

Mezzanine Equity:
Preferred stock, 1,000,000 shares authorized, par value $0.10 per share,
500,000 shares 8% Cumulative Series A Convertible Preferred issued and outstanding
2,990,667 -
Total mezzanine equity 2,990,667 -

Stockholders’ (deficit):
Common stock, 4,000,000 shares authorized, par value $0.10 per share,
3,255,887 shares issued and outstanding, respectively
325,586 325,586
Paid-in capital in excess of par value, common stock 8,099,882 8,107,369
Accumulated deficit (12,027,432 ) (8,487,316 )
Total stockholders’ deficit (3,601,964 ) (54,361 )
Total liabilities, mezzanine equity and stockholders’ deficit $ 8,574,225 $ 6,435,948

	December 31, 2021			March 31, 2021
	(unaudited)
ASSETS

Current assets:
Cash	$	5,288,810		$	3,485,275
Accounts receivable, net		1,385,384			1,933,321
Inventories, net		2,748,275			3,437,989
Restricted cash to support appeal bond		2,011,050			2,011,050
Prepaid expenses and other current assets		286,507			263,067
Total current assets		11,720,026			11,130,702

Equipment and leasehold improvements, net		127,322			200,769
Operating lease right-of-use assets		1,768,343			1,922,805
Deferred tax asset, net		2,396,594			2,675,040
Other long-term assets		35,108			35,110
Total assets	$	16,047,393		$	15,964,426

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities:
Operating lease liabilities – current portion	$	192,487		$	201,883
Accounts payable		438,569			906,149
Deferred revenues - current portion		123,615			150,709
Accrued expenses ‐vacation pay, payroll and payroll withholdings		376,073			457,232
Accrued legal damages		6,045,924			5,889,023
Accrued expenses - other		220,115			365,975
Total current liabilities		7,396,783			7,970,971

Operating lease liabilities – long-term		1,575,856			1,720,921
Long term debt - PPP		-			722,577
Deferred revenues – long-term		307,578			332,428

Total liabilities		9,280,217			10,746,897

Commitments and contingencies

Stockholders’ equity:
Preferred stock, 1,000,000 shares authorized, par value $0.10 per share
Preferred stock, 500,000 shares 8% Cumulative Series A Convertible Preferred issued and outstanding, par value $0.10 per share		3,695,998			3,695,998
Preferred stock, 166,667 shares 8% Cumulative Series B Convertible Preferred issued and outstanding, par value $0.10 per share		1,147,367			1,147,367
Common stock, 7,000,000 shares authorized, par value $0.10 per share, 3,255,887 shares issued and outstanding, respectively		325,586			325,586
Additional paid-in capital		7,098,468			7,318,620
Accumulated deficit		(5,500,243	)		(7,270,042	)
Total stockholders’ equity		6,767,176			5,217,529
Total liabilities and stockholders’ equity	$	16,047,393		$	15,964,426

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

~~(Unaudited)~~

Three Months Ended Nine Months Ended

December 31,
2017

December 31,
2016

December 31,
2017

December 31,
2016

Net sales $ 2,625,793 $ 4,236,519 7,955,035 $ 14,654,917
Cost of sales 1,689,113 2,602,268 5,377,195 9,318,425

Gross margin 936,680 1,634,251 2,577,840 5,336,492

Operating expenses:
Selling, general and administrative 548,391 582,880 1,881,072 2,042,922
Litigation expenses 134,765 282,490 560,610 609,330
Legal damages 30,523 - 2,130,523 -
Engineering, research and development 546,691 615,007 1,691,631 1,783,655
Total operating expenses 1,260,370 1,480,377 6,263,836 4,435,907

(Loss) income from operations (323,690 ) 153,874 (3,685,996 ) 900,585

Other income (expense):
Proceeds from life insurance - - 92,678 -
Amortization of deferred financing costs (649 ) (1,359 ) (3,363 ) (4,072 )
Change in fair value of common stock warrants 5,000 37,000 95,000 288,203
Interest expense (14,097 ) (11,620 ) (38,435 ) (46,953 )
Total other income (expense) (9,746 ) 24,021 145,880 237,178

(Loss) income before income taxes (333,436 ) 177,895 (3,540,116 ) 1,137,763

Income tax expense - 36,382 - 313,886

Net (loss) income (333,436 ) 141,513 (3,540,116 ) 823,877

Preferred stock dividends (30,667 ) - (30,667 ) -

Net (loss) income attributable to common shareholders $ (364,103 ) $ 141,513 $ (3,570,783 ) $ 823,877

Basic (loss) income per common share $ (0.11 ) $ 0.04 $ (1.10 ) $ 0.25
Diluted (loss) income per common share $ (0.11 ) $ 0.03 $ (1.10 ) $ 0.23

Weighted average shares outstanding:
Basic 3,255,887 3,255,887 3,255,887 3,255,887
Diluted 3,255,887 3,265,135 3,255,887 3,266,532

	Three Months Ended						Nine Months Ended
	December 31, 2021			December 31, 2020			December 31, 2021			December 31, 2020

Net sales	$	3,171,532		$	2,672,742		$	10,914,787		$	8,948,575
Cost of sales		1,763,739			1,661,653			5,824,341			5,066,052

Gross margin		1,407,793			1,011,089			5,090,446			3,882,523

Operating expenses:
Selling, general and administrative		523,966			740,696			1,674,618			1,866,756
Litigation expenses		17,145			1,998			21,545			10,208
Engineering, research, and development		574,118			492,432			1,950,545			1,678,940
Total operating expenses		1,115,229			1,235,126			3,646,708			3,555,904

Income (loss) from operations		292,564			(224,037	)		1,443,738			326,619

Other (expense) income:
Interest income		996			1,591			2,977			6,316
Other income		-			758			35,854			14,612
Gain on forgiveness of PPP loan		-			722,577			722,577			722,577
Interest expense – judgement		(52,490	)		(52,490	)		(156,901	)		(180,124	)
Interest expense		-			(8,030	)		-			(27,190	)
Total other net (expense) income		(51,494	)		664,406			604,507			536,191

Income before income taxes		241,070			440,369			2,048,245			862,810

Income tax (benefit) expense		46,448			(59,264	)		278,446			29,449

Net income		194,622			499,633			1,769,799			833,361

Preferred dividends		(80,000	)		(80,000	)		(240,000	)		(240,000	)

Net income attributable to common shareholders	$	114,622		$	419,633		$	1,529,799		$	593,361

Basic income per common share	$	0.04		$	0.13		$	0.47		$	0.18
Diluted income per common share	$	0.04		$	0.10		$	0.35		$	0.16

Weighted average shares outstanding:
Basic		3,255,887			3,255,887			3,255,887			3,255,887
Diluted		5,095,665			5,095,665			5,095,665			5,065,665

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended December 31, 2021 and 2020

(Unaudited)

	Series A Convertible Preferred Stock					Series B Convertible Preferred Stock					Common Stock
	# of Shares Issued		Amount			# of Shares Issued		Amount			# of Shares Issued		Amount		Additional Paid-In Capital			Accumulated Deficit			Total
Balances at October 1, 2021		500,000	$	3,695,998			166,667	$	1,147,367			3,255,887	$	325,586	$	7,170,954		$	(5,694,865	)	$	6,645,040
8% Dividends on Preferred Stock		-		60,000			-		20,000			-		-		(80,000	)		-			-
Dividend Payments		-		(60,000	)		-		(20,000	)		-		-		-			-			(80,000	)
Stock-based compensation		-		-			-		-			-		-		7,514			-			7,514
Net income		-		-			-		-			-		-		-			194,622			194,622
Balances at December 31, 2021		500,000	$	3,695,998			166,667	$	1,147,367			3,255,887	$	325,586	$	7,098,468		$	(5,500,243	)	$	6,767,176

	Series A Convertible Preferred Stock				Series B Convertible Preferred Stock				Common Stock
	# of Shares Issued		Amount		# of Shares Issued		Amount		# of Shares Issued		Amount		Additional Paid-In Capital			Accumulated Deficit			Total
Balances at October 1, 2020		500,000	$	3,635,998		166,667	$	1,127,367		3,255,887	$	325,586	$	7,467,176		$	(7,536,371	)	$	5,019,756
8% Dividends on Preferred Stock		-		60,000		-		20,000		-		-		(80,000	)		-			-
Stock-based compensation		-		-		-		-		-		-		5,277			-			5,277
Net income		-		-		-		-		-		-		-			499,633			499,633
Balances at December 31, 2020		500,000	$	3,695,998		166,667	$	1,147,367		3,255,887	$	325,586	$	7,392,453		$	(7,036,738	)	$	5,524,666

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Nine Months Ended December 31, 2021 and 2020

(Unaudited)

	Series A Convertible Preferred Stock					Series B Convertible Preferred Stock					Common Stock
	# of Shares Issued		Amount			# of Shares Issued		Amount			# of Shares Issued		Amount		Additional Paid-In Capital			Accumulated Deficit			Total
Balances at April 1, 2021		500,000	$	3,695,998			166,667	$	1,147,367			3,255,887	$	325,586	$	7,318,620		$	(7,270,042	)	$	5,217,529
8% Dividends on Preferred Stock		-		180,000			-		60,000			-		-		(240,000	)		-			-
Dividend Payments		-		(180,000	)		-		(60,000	)		-		-		-			-			(240,000	)
Stock-based compensation		-		-			-		-			-		-		19,848			-			19,848
Net income		-		-			-		-			-		-		-			1,769,799			1,769,799
Balances at December 31, 2021		500,000	$	3,695,998			166,667	$	1,147,367			3,255,887	$	325,586	$	7,098,468		$	(5,500,243	)	$	6,767,176

	Series A Convertible Preferred Stock				Series B Convertible Preferred Stock				Common Stock
	# of Shares Issued		Amount		# of Shares Issued		Amount		# of Shares Issued		Amount		Additional Paid-In Capital			Accumulated Deficit			Total
Balances at April 1, 2020		500,000	$	3,515,998		166,667	$	1,087,367		3,255,887	$	325,586	$	7,616,624		$	(7,870,099	)	$	4,675,476
8% Dividends on Preferred Stock		-		180,000		-		60,000		-		-		(240,000	)		-			-
Stock-based compensation		-		-		-		-		-		-		15,829			-			15,829
Net income		-		-		-		-		-		-		-			833,361			833,361
Balances at December 31, 2020		500,000	$	3,695,998		166,667	$	1,147,367		3,255,887	$	325,586	$	7,392,453		$	(7,036,738	)	$	5,524,666

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	December 31, 2021			December 31, 2020
Cash flows from operating activities:
Net income	$	1,769,799		$	833,361
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Deferred income taxes		278,447			63,883
Depreciation and amortization		78,225			92,820
Amortization of right of use assets		154,462			159,833
Provision for inventory obsolescence		25,000			25,000
Forgiveness of PPP Loan		(722,577	)		(722,577	)
Non-cash stock-based compensation		19,848			15,829
Changes in assets and liabilities:
Decrease (increase) in accounts receivable		547,937			(469,478	)
Decrease in inventories		664,714			136,815
Decrease (increase) in prepaid expenses & other assets		(23,440	)		148,743
Decrease in accounts payable and other accrued liabilities		(613,440	)		(353,905	)
Decrease in accrued payroll, vacation pay and payroll taxes		(81,159	)		(54,983	)
Decrease in deferred revenues		(51,944	)		(54,978	)
Decrease in operating lease liabilities		(154,461	)		(159,833	)
Increase in accrued legal damages		156,901			180,124
Net cash provided by (used in) operating activities		2,048,312			(159,346	)

Cash flows from investing activities:
Purchases of equipment		(4,777	)		(65,140	)
Net cash used in investing activities		(4,777	)		(65,140	)

Cash flows from financing activities:
Proceeds from SBA PPP Loan		-			722,577
Payment of dividends		(240,000	)		-
Repayment of line of credit		-			(680,000	)
Repayment of finance lease obligations		-			(49	)
Net cash (used in) provided by financing activities		(240,000	)		42,528

Net increase (decrease) in cash and restricted cash		1,803,535			(181,958	)
Cash and restricted cash at beginning of period		5,496,325			5,134,739
Cash and restricted cash at end of period	$	7,299,860		$	4,952,781

End of period
Cash	$	5,288,810		$	2,941,731
Restricted cash		2,011,050			2,011,050
	$	7,299,860		$	4,952,781
Beginning of period
Cash	$	3,485,275		$	3,126,195
Restricted cash		2,011,050			2,008,544
	$	5,496,325		$	5,134,739
Supplemental cash flow information:
Taxes paid	$	-			-
Interest paid	$	-		$	19,497

Supplemental disclosure of non-cash financing activities:

~~(Unaudited)~~

The Company’s first PPP loan was forgiven by the SBA during December 2020 in the amount of $722,577.

The Company’s second PPP loan was forgiven by the SBA during September 2021 in the amount of $722,577.

Nine Months Ended
December 31, 2017 December 31, 2016

Cash flows from operating activities:
Net (loss) income $ (3,540,116 ) $ 823,877
Adjustments to reconcile net (loss) income to net cash
used in operating activities:

Deferred income taxes - 317,509
Depreciation and amortization 53,221 95,209
Provision for inventory obsolescence 50,000 20,000
Amortization of deferred financing costs 3,363 4,072
Change in fair value of common stock warrant (95,000 ) (288,203 )
Non-cash stock-based compensation 23,180 24,536

Changes in assets and liabilities:
Decrease (increase) in accounts receivable (104,375 ) 396,430
(Increase) decrease in inventories (151,145 ) 185,145
Decrease (increase) in prepaid expenses & other assets 76,165 (28,774 )
Increase (decrease) in accounts payable and other accrued expenses 358,808 (299,359 )
Decrease in federal and state taxes (4,105 ) (53,623 )
Decrease in accrued payroll, vacation pay & withholdings (131,206 ) (224,072 )
(Decrease) increase in deferred revenues (68,742 ) 338,792
Increase in accrued legal damages 2,130,523 -
Restricted cash for appeal bond (2,000,000 )
Decrease in other long-term liabilities - (7,800 )
Net cash (used in) provided by operating activities (3,399,429 ) 1,303,739

Cash flows from investing activities:
Purchases of equipment (89,396 ) (37,070 )
Net cash used in investing activities (89,396 ) (37,070 )

Cash flows from financing activities:
Proceeds from line of credit 800,000 -
Proceeds from issuance of preferred stock, net of expenses 2,960,000 -
Payment of warrant liability - (720,000 )
Repayment of long-term debt (290,419 ) (322,894 )
Repayment of subordinated notes - related parties - (25,000 )
Repayment of capitalized lease obligations (4,646 ) (9,254 )
Net cash provided by (used in) financing activities 3,464,935 (1,077,148 )

Net decrease in cash and cash equivalents (23,890 ) 189,521
Cash and cash equivalents at beginning of period 287,873 972,633
Cash and cash equivalents at end of period $ 263,983 $ 1,162,154

Supplemental cash flow information:
Taxes paid $ 5,000 $ 87,374
Interest paid $ 50,374 $ 107,768

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

Note 1 – Business, Organization and Liquidity

Business and Organization

Tel-Instrument Electronics Corp. (“Tel,” “TIC” or the “Company”) has been in business since 1947. The Company is a leading designer and manufacturer of avionics test and measurement instruments for the global, commercial air transport, general aviation, and government/military defense markets. Tel provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. The Company sells its equipment in both domestic and international markets. 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, fewer test sets, and lower product support costs. The Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment over the last two decades.

The Company is publicly traded and was quoted on the Over-the-Counter Market Place (“OTCQB”) under the symbol “TIKK.”

Liquidity

On December 31, 2021, the Company had positive working capital of $4,323,243 as compared to working capital of $3,159,731 on March 31, 2021. This included approximately $7.3 million of cash including the $2 million restricted cash supporting the appeal bond. The Company has recorded total damages of $6,045,924 including accrued interest, as a result of the jury verdict associated with the Aeroflex litigation.

With a $3.3 million backlog on December 31, 2021, the Company expects that in fiscal year 2022, revenue and profitability will continue to improve.

On March 27, 2020, former 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, former 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 $722,577 (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.

TIC qualified for full loan forgiveness on the initial tranche on December 18, 2020. On January 6, 2021, updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for this second round of funding and on March 15, 2021, the Company secured a Second Draw PPP loan in the amount of $722,577. On September 17, 2021, TIC qualified for full loan forgiveness of the second round of funding and was recognized as other income in the quarter ended September 30, 2021.

On August 24, 2021, TIC, and the New Jersey Economic Development Authority (NJEDA) signed a small business emergency assistance grant agreement in the amount of $20,000. The funds related to the grant were received from the NJEDA on August 30, 2021, and were recognized as other income during the quarter ended September 30, 2021.

Based on the foregoing, we believe that our expected cash flows from operations and current cash balances will be sufficient to operate in the normal course of business for next 12 months from the issuance date of these unaudited condensed consolidated financial statements, including any payments for settlement of the Aeroflex litigation.

The Bank of America line of credit has been renewed for $690,000 and will expire on July 30, 2022. As of December 31, 2021, the line of credit draw remained at zero.

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Business, Organization and Liquidity (continued)

Impact of the COVID-19 Coronavirus

In December 2019, a novel strain of coronavirus, which causes the disease known as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 coronavirus has spread globally. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic and the U.S. government imposed travel restrictions on travel between the United States, Europe, and certain other countries. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society, which has resulted, and will likely continue to result, in significant disruptions to the global economy as well as businesses and capital markets around the world.

On September 9, 2021, President Biden announced Executive Order 14042 (“Executive Order”) and related initiatives designed to lead the country out of the COVID-19 pandemic. 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 guidance 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 the Executive Order. The new clause was applied on October 15, 2021, to only new federal contracts, solicitations, contract extensions and renewals.

On December 7, 2021, the federal court in Georgia issued a preliminary injunction temporarily halting the enforcement of EO 14042 (Ensuring Adequate COVID Safety Protocols for Federal Contractors) for all covered contracts nation-wide. New guidance from OMB also followed suit giving federal agencies input on how to go about non-enforcement provisions until legal challenges have been resolved. The updated guidance will remain applicable despite any change to new or existing court decisions. The new guidance does not impact the Safer Federal Workforce Taskforce Guidance. The vast majority of TIC employees are fully vaccinated, and TIC is preparing for full compliance of the Executive Order should it apply.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of Tel-Instrument Electronics Corp. ~~(the “Company” or “TIC”~~ ~~or “Tel”~~) as of December 31, ~~2017,~~2021, the results of operations change in stockholders’ equity for the three and nine months ended December 31, ~~2017~~2021, and December 31, ~~2016,~~2020, and statements of cash ~~flows~~flow for the nine months ended December 31, ~~2017~~2021, and December 31, ~~2016.~~2020. These results are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include disclosures normally made in an Annual Report on Form 10-K. The March 31, ~~2017~~2021, balance sheet included herein was derived from the audited financial statements included in the Company’s Annual Report on Form 10-K as of that date. Accordingly, the unaudited condensed consolidated financial statements included herein should be reviewed in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017,~~2021, as filed with the United States Securities and Exchange Commission (the “SEC”) on ~~July 14, 2017~~June 29, 2021 (the “Annual ~~Report)~~Report”).

Revenue Recognition

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

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 ~~- Liquidity~~– Summary of Significant Accounting Policies (continued)

The Company accounts for revenue recognition in accordance with ASC 606.The core principle of Topic 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 ASC 606 defines a five-step process to achieve the core principle.

The Company generates revenue from designing, manufacturing, and ~~Going Concern~~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.

~~These condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation~~

Nature of goods and services

The following is a description of the ~~Company as a going concern. As discussed in Note 15 to the Notes to the Condensed Consolidated Financial Statements,~~products and services from which the Company ~~has recorded total damages of $4,930,523 as a result of the jury verdict associated with the Aeroflex litigation~~generates revenue, as well as the ~~Court’s decision~~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 equipment installed in aircraft and ground radios. The Company recognizes revenue when the customer obtains control of the Company’s product based on ~~punitive damages. The jury found no misappropriation~~the contractual shipping terms of ~~Aeroflex trade secrets but it did rule~~the contract, which is usually at the time of shipment. Revenue on products is presented gross because the Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the ~~Company tortiously interfered~~product is produced in accordance with ~~a prospective business opportunity~~the related supply agreement 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~~bears the ~~former Aeroflex employees breached their non-disclosure agreements with Aeroflex. The Court conducted further hearings on~~risk of loss while the ~~Company’s post-trial motions which sought to reduce the damages award of $2.8 million,~~inventory is in-transit. Revenue is measured 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 Company has filed motions in January 2018 for the Court to reconsider the amount of ~~damages~~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 ~~grounds~~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 considering 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 December 31, 2021.

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

The extended warranties sold by the Company provide a level of assurance beyond the coverage for defects that ~~they~~existed at the time of a sale or against certain types of covered damage with coverage terms ranging from 5 to 7 years. Amounts received for warranties are ~~duplicative~~recorded as deferred revenue and ~~not legally supportable. A hearing on this motion~~recognized as revenue ratably over the respective term of the agreements. As of December 31, 2021, $402,549 is expected ~~within~~to be recognized from remaining performance obligations for extended warranties as compared to $408,219 at March 31, 2021. For the ~~next 30 days~~three and ~~a final decision is expected within the next two to three months. The Judge could deny our motions, reduce the amount of damages or even order a new trial. Once a final decision has been rendered,~~nine months ended December 31, 2021, the Company ~~has 30 days~~recognized revenue of $20,267 and $52,249, respectively from amounts that were included in Deferred Revenue as compared to ~~file an appeal.~~ $22,140 and $66,420, respectively from amounts that were included in Deferred Revenue for the three months and nine months ended December 31, 2020.

The ~~Company has posted~~following table provides a $2,000,000 bond to prevent Aeroflex from enforcement actions until a final decision has been rendered by the Court. This $2 million bond amount would remain in place during the appeal process (See Note 5). The Company believes it has excellent grounds to appeal this verdict. The appeal process would be expected to take several years to complete.

~~The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.~~ ~~The ability~~summary of the Company to continue as a going concern is dependent upon its ability to achieve profitable operations and/or raise additional capital to support the appeal process or pay any final damages amount. In November 2017, the Company signed a subscription agreementchanges in ~~which the Company received $3 million~~deferred revenues for Series A Convertible Preferred Stock (See Note 14 to the Notes to the Condensed Financial Statements). These funds were used to finance an appeal and provide funds for operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

~~Note 3 – Summary of Significant Accounting Policies~~

~~During~~ the nine months ended December 31, ~~2017, there have been no material changes~~2021:

Deferred revenues at April 1, 2021	$	408,219
Additional extended warranties		46,579
Revenue recognized for the nine months ended December 31, 2021		(52,249	)
Deferred revenues at December 31, 2021	$	402,549

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 – Summary of Significant Accounting Policies (continued)

Other Deferred Revenues

The Company sometimes receives payments in advance of shipment. These amounts are classified as other deferred revenues. For the periods ended December 31, 2021, and March 31, 2021, the Company has other deferred revenues of $28,644 and $74,920, respectively.

Repair and Calibration Services

The Company offers repair and calibration services for units that are returned for annual calibrations and/or for repairs after the warranty period has expired. The Company repairs and calibrates a wide range of airborne navigation and communication equipment. Revenue is recognized at the time the repaired or calibrated unit is shipped back to the customer, as it is at this time that the work is completed.

Other

The majority of the Company’s revenues are from contracts with the U.S. government, airlines, aircraft manufacturers, such as Boeing and Lockheed Martin, domestic distributors, international distributors for sales to military and commercial customers, and other commercial customers. The contracts with the U.S. government typically are subject to the Federal Acquisition Regulation (“FAR”) which provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts.

Payment terms and conditions vary by contract, although terms include a requirement of payment within a range from 30 to 60 days, or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts do not include a significant financing component. Payments received prior to the delivery of units or services performed are recorded as deferred revenues. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales. The Company applied the practical expedient to account for shipping and handling activities as fulfillment cost rather than as a separate performance obligation. Shipping and handling costs charged to customers are classified as sales, and the shipping and handling costs incurred are included in cost of sales. All sales are denominated in U.S. dollars.

The Company chose to apply the available practical expedient as commission eligible sales orders are fulfilled within less than one year and commissions are generally paid by the Company within 30 days of the related sales order fulfillment. Accordingly, management has determined that no change in accounting ~~policies~~for costs to ~~those previously disclosed~~obtain a contract will be required for the Company to conform to ASC 606.

Disaggregation of revenue

In the following tables, revenue is disaggregated by revenue category.

	For the Three Months Ended December 31, 2021
	Commercial		Government
Sales Distribution
Test Units	$	91,688	$	2,533,296
	$	91,688	$	2,533,296

The remainder of our revenues for the three months ended December 31, 2021, are derived from repairs and calibration of $469,095,

replacement parts of $37,186, extended warranties of $20,267 and other revenues of $20,000. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.

	For the Three Months Ended December 31, 2020
	Commercial		Government
Sales Distribution
Test Units	$	104,346	$	2,212,507
	$	104,346	$	2,212,507

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 – Summary of Significant Accounting Policies (continued)

The remainder of our revenues for the three months ended December 31, 2020, are derived from repairs and calibration of $273,388, replacement parts of $59,026, extended warranties of $22,140 and other revenues of $1,335. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.

	For the Nine Months Ended December 31, 2021
	Commercial		Government
Sales Distribution
Test Units	$	269,652	$	9,012,562
	$	269,652	$	9,012,562

The remainder of our revenues for the nine months ended December 31, 2021, are derived from repairs and calibration of $1,389,894, replacement parts of $170,430, extended warranties of $52,249 and other revenues of $20,000. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.

	For the Nine Months Ended December 31, 2020
	Commercial		Government
Sales Distribution
Test Units	$	280,743	$	7,697,701
	$	280,743	$	7,697,701

The remainder of our revenues for the nine months ended December 31, 2020, are derived from repairs and calibration of $762,828, replacement parts of $82,796, extended warranties of $66,420 and other revenues of $58,087. We do not disaggregate these revenue streams as they are not deemed an important element related to how management operates the business between segments.

In the following table, revenue is disaggregated by geography.

	For the Three Months Ended December 31, 2021		For the Three Months Ended December 31, 2020
Geography
United States	$	1,974,538	$	1,304,664
International		1,196,994		1,368,078
Total	$	3,171,532	$	2,672,742

	For the Nine Months Ended December 31, 2021		For the Nine Months Ended December 31, 2020
Geography
United States	$	6,885,551	$	3,842,263
International		4,029,236		5,106,312
Total	$	10,914,787	$	8,948,575

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2 – Summary of Significant Accounting Policies (continued)

For the three months ended December 31, 2021, three customers accounted for sales of $673,758 (Muirhead Avionics), $583,680 (DFAS) and $328,230 (H2L Tech) or 21%, 18% and 10% respectively. For the nine months ended December 31, 2021, four customers accounted for sales of $3,008,911 (DFAS), $1,585,620 (Muirhead Avionics), $1,368,964 (H2L Tech) and $1,244,380 (Lockheed Martin) or 28%, 15%, 13% and 11% respectively.

For the three and nine months ended December 31, 2020, Muirhead Avionics, the Company’s distributor for Western Europe accounted for sales of $681,293 and $3,234,035 or 25% and 36% respectively. One government customer (Lockheed Martin) represented 17% of sales for the three months ended December 31, 2020.

The Company, in addition to inside sales efforts, utilizes independent brokers to sell its products to customers. A related party independent broker has earned approximately $13,000 and $94,000 in commissions for the ~~Annual Report.~~three and nine months ended December 31, 2021. The same related party independent broker has earned $27,000 for the nine months ended December 31, 2021, for monthly sales and marketing consulting services, earned $3,000 per month.

New Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments -Credit Losses (Topic 326), Measurement of Credit Losses on Financial Statements. The amendment in this update replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses on instruments within its scope, including trade receivables. This update is intended to provide financial statement users with more decision-useful information about the expected credit losses. The effective date of the new standard has been deferred to April 1, 2023. We do not expect the adoption of this standard to have a significant impact on our financial position and results of operations.

No other recently issued accounting pronouncements had or are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.

Note 4 3 – Accounts Receivable, net

The following table sets forth the components of accounts receivable:

	December 31, 2017			March 31, 2017			December 31, 2021			March 31, 2021
Government	$	1,461,090		$	1,392,482		$	1,164,424		$	1,700,907
Commercial		207,167			171,400			228,460			239,914
Less: Allowance for doubtful accounts		(7,500	)		(7,500	)		(7,500	)		(7,500	)
	$	1,660,757		$	1,556,382		$	1,385,384		$	1,933,321

Note 5 4 – Restricted Cash to ~~support appeal bond~~Support Appeal Bond

~~The~~

In January 2018, the Company transferred $2,000,000 to a restricted cash account to secure a letter of credit which was used for collateral for the appeal bond (See ~~Notes 14 and 15)~~Note 12).

Note 5 – Inventories, net

Inventories consist of:

	December 31, 2021			March 31, 2021

Purchased parts	$	2,437,294		$	2,912,599
Work-in-process		910,981			1,020,402
Finished goods		-			79,988
Less: Inventory reserve		(600,000	)		(575,000	)
	$	2,748,275		$	3,437,989

613

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

Note 6 – ~~Inventories, net~~

~~Inventories consist of:~~

December 31, 2017 March 31, 2017

Purchased parts $ 3,839,370 $ 3,197,378
Work-in-process 817,543 1,272,235
Finished goods 32,411 68,566
Less: Inventory reserve (380,000 ) (330,000 )
$ 4,309,324 $ 4,208,179

~~Note 7 –~~ Net Income ~~(Loss)~~ per Share

Net income ~~(loss)~~ per share has been computed according to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 260”), “Earnings per Share,” which requires a dual presentation of basic and diluted income ~~(loss)~~ per share (“EPS”). Basic EPS represents net income ~~(loss)~~ divided by the weighted average number of common shares outstanding during a reporting period. Diluted EPS reflects the potential dilution that could occur if securities, including preferred stock, warrants and options, were converted into common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted method. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average unrecognized ~~compensation costs attributed to future services.~~ compensation.

Three Months Ended Three Months Ended
December 31, 2017 December 31, 2016
Basic net (loss) income per share computation:
  Net (loss) income $ (364,103 ) $ 141,513
  Weighted-average common shares outstanding 3,255,887 3,255,887
  Basic net (loss) income per share $ (0.11 ) $ 0.04
Diluted net (loss) income per share computation
  Net (loss) income $ (364,103 ) $ 141,513
  Add: Change in fair value of warrants - 37,000
  Diluted (loss) income $ (364,103 ) 104,513
  Weighted-average common shares outstanding 3,255,887 3,255,887
  Incremental shares attributable to the assumed exercise of
outstanding stock options and warrants
- 9,248
  Total adjusted weighted-average shares 3,255,887 3,265,135
Diluted net (loss) income per share $ (0.11 ) $ 0.03

	Three Months Ended			Three Months Ended
	December 31, 2021			December 31, 2020
Basic net income per share computation:
Net income	$	194,622		$	499,633
Less: Preferred dividends		(80,000	)		(80,000	)
Net income attributable to common shareholders		114,622			419,633
Weighted-average common shares outstanding		3,255,887			3,255,887
Basic net income per share	$	0.04		$	0.13
Diluted net income per share computation
Net income attributable to common shareholders	$	114,622		$	419,633
Add: Preferred dividends		80,000			80,000
Diluted income attributable to common shareholders	$	194,622		$	499,633
Weighted-average common shares outstanding		3,255,887			3,255,887
Incremental shares attributable to the assumed conversion of preferred stock		1,839,778			1,839,778
Total adjusted weighted-average shares		5,095,665			5,095,665
Diluted net income per share	$	0.04		$	0.10

	Nine Months Ended			Nine Months Ended
	December 31, 2021			December 31, 2020
Basic net income per share computation:
Net income	$	1,769,799		$	833,361
Less: Preferred dividends		(240,000	)		(240,000	)
Net income attributable to common shareholders		1,529,799			593,361
Weighted-average common shares outstanding		3,255,887			3,255,887
Basic net income per share	$	0.47		$	0.18
Diluted net income per share computation
Net income attributable to common shareholders	$	1,529,799		$	593,361
Add: Preferred dividends		240,000			240,000
Diluted income attributable to common shareholders	$	1,769,799		$	833,361
Weighted-average common shares outstanding		3,255,887			3,255,887
Incremental shares attributable to the assumed conversion of preferred stock		1,839,778			1,809,778
Total adjusted weighted-average shares		5,095,665			5,065,665
Diluted net income per share	$	0.35		$	0.16

714

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

Note 7 6 – Net Income ~~(Loss)~~ per Share (continued)

Nine Months Ended Nine Months Ended
December 31, 2017 December 31, 2016
Basic net (loss) income per share computation:
  Net (loss) income $ (3,570,783 ) $ 823,877
  Weighted-average common shares outstanding 3,255,887 3,255,887
  Basic net(loss)income per share $ (1.10 ) $ 0.25
Diluted net (loss) income per share computation
  Net (loss) income $ (3,570,783 ) $ 823,877
  Change in fair value of warrants - 70,000
  Diluted (loss) income $ (3,570,783 ) 753,877
  Weighted-average common shares outstanding 3,255,887 3,255,887
  Incremental shares attributable to the assumed exercise of
outstanding stock options and warrants
- 10,645
  Total adjusted weighted-average shares 3,255,887 3,266,532
Diluted net (loss) income per share $ (1.10 ) $ 0.23

The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per ~~share:~~share for the three months ended:

December 31, 2017 December 31, 2016
Convertible preferred stock 1,000,000 -
Stock options 75,000 71,000
Warrants 50,000 -
1,125,000 71,000

December 31,

2021

December 31,

2020

Stock options

121,500

83,500

121,500

83,500

The following table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share for the nine months ended:

December 31,

2021

December 31,

2020

Stock options

121,500

83,500

121,500

83,500

Note 8 7 – ~~Long-Term Debt~~Line of Credit

~~Term Loans with~~

In August 2021, Bank of America

~~In November 2014,~~ renewed the ~~Company entered into~~line of credit with a ~~term loan in the amount~~maturity of ~~$1,200,000 with Bank of America.~~July 30, 2022. The ~~term loan~~ ~~was~~ ~~for three years, and matured in November 2017. Monthly payments were $36,551 including interest at 6%. The term loan~~ ~~was~~ collateralized by substantially all of the assets of the Company. This loan was fully repaid in November 2017. At December 31, 2017 and March 31, 2017, the outstanding balances were $-0- and $285,810, respectively.

In July 2015, the Company entered into a term loan in the amount of $18,000 with Bank of America. The term loan is for three years, and matures in July 2018. Monthly payments are at $536 including interest at 4.5%. The term loan is collateralized by substantially all of the assets of the Company. At December 31, 2017 and March 31, 2017, the outstanding balances were $3,696 and $8,305, respectively. At December 31, 2017, $3,696 was classified as current.

~~Note 9 - Line of Credit~~

~~On March 21, 2016, the Company entered into~~agreement includes a line of credit agreement with Bank of America, which expired March 31, 2017. In March 2017, the line of credit was renewed and the expiration date extended until March 31, 2018. The new line provides a revolving credit facility with borrowing capacity of up to ~~$1,000,000~~. ~~There~~$690,000. Monthly payments are ~~no covenants or borrowing base calculations associated with this line of credit. Interest on any outstanding balances is payable monthly at an annual~~ interest ~~rate equal to the LIBOR (London Interbank Offered Rates) Daily Floating plus 3.75 percentage points. The Company’s interest rate was 5.319% at December 31, 2017.~~only. The line is collateralized by substantially all of the assets of the Company. ~~During the nine months ended December 31, 2017, the Company borrowed $800,000 from this line of credit.~~

As of December 31, ~~2017~~2021, the Line of Credit draw has remained at zero balance.

Note 8 – SBA PPP Loan

On January 6, 2021, updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for this second round of funding and on March ~~31, 2017, the outstanding balances were $1,000,000 and $200,000, respectively. As of December 31, 2017 the remaining availability under this line is $-0-.~~

~~TEL-INSTRUMENT ELECTRONICS CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Note 10 – Deferred Revenues~~

~~In June 2016,~~15, 2021, the Company ~~negotiated~~secured a ~~settlement with a customer~~Second Draw PPP loan in the amount of ~~$679,935~~$722,577. On September 17, 2021, TIC qualified for ~~price increases due to delays on a production release. Deferred revenues are~~full loan forgiveness of the second round of funding which was recognized ~~based upon the shipment of units under this contract. During the nine months ended December 31, 2017, the Company recognized the remaining balance of $73,302~~ as compared to $470,288 for the nine months ended December 30, 2016. As of December 31, 2017, the remaining deferred revenues related to the above-mentioned settlement was $-0- as compared to $73,302 at March 31, 2017. other income.

~~During the nine months ended December 31, 2017, the Company recognized revenues in the amount of $70,000 that pertained to fiscal year 2017 shipments and that were not recorded in fiscal year 2017.~~

Note 11 9 – Segment Information

In accordance with FASB ASC 280, “Disclosures about Segments of an Enterprise and related information”, the Company determined it has ~~two~~2 reportable segments - avionics government and avionics commercial. There are no inter-segment revenues.

The Company is organized primarily on the basis of its avionics products. The avionics government segment consists primarily of the design, manufacture, and sale of test equipment to the U.S. and foreign governments and militaries either directly or through distributors. The avionics commercial segment consists of design, manufacture, and sale of test equipment to domestic and foreign airlines, directly or through commercial distributors, and to general aviation repair and maintenance shops. The Company develops and designs test equipment for the avionics industry and as such, the Company’s products and designs cross segments.

Management evaluates the performance of its segments and allocates resources to them based on gross margin. The Company’s general and administrative costs and sales and marketing expenses, and engineering costs are not segment specific. As a result, all operating expenses are not managed on a segment basis. Net interest includes expenses on debt and income earned on cash balances, both maintained at the corporate level.

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9 – Segment Information (continued)

The ~~table~~tables below ~~presents~~present information about reportable segments within the avionics business for the three and nine ~~month periods~~months ending December 31, ~~2017~~2021, and ~~2016:~~2020:

Three Months Ended December 31, 2017	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Three Months Ended December 31, 2021													Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	1,825,744	$	800,049	$	2,625,793	$	-		$	2,625,793		$	2,552,546	$	618,986	$	3,171,532	$	-		$	3,171,532
Cost of sales		1,013,481		675,632		1,689,113		-			1,689,113			1,366,699		397,040		1,763,739		-			1,763,739
Gross margin		812,263		124,417		936,680		-			936,680			1,185,847		221,946		1,407,793		-			1,407,793

Engineering, research, and development						546,691		-			546,691							574,118		-			574,118
Selling, general and administrative						225,610		322,781			548,391							187,132		336,834			523,966
Litigation costs								134,765			134,765							-		17,145			17,145
Legal damages								30,523			30,523
Amortization of deferred financing costs						-		649			649
Change in fair value of common stock warrants						-		(5,000	)		(5,000	)
Proceeds from life insurance								-			-
Interest expense, net						-		14,097			14,097
Interest income																		-		(996	)		(996	)
Interest expense – judgment																		-		52,490			52,490
Total expenses						772,301		497,815			1,270,116							761,250		405,473			1,166,723
Income (loss) before income taxes					$	164,379	$	(497,815	)	$	(333,436	)					$	646,543	$	(405,473	)	$	241,070

Three Months Ended December 31, 2020	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	2,212,507	$	460,235	$	2,672,742	$	-		$	2,672,742
Cost of sales		1,247,606		414,047		1,661,653		-			1,661,653
Gross margin		964,901		46,188		1,011,089		-			1,011,089

Engineering, research, and development						492,432		-			492,432
Selling, general and administrative						215,952		524,744			740,696
Litigation costs						-		1,998			1,998
Interest income						-		(1,591	)		(1,591	)
Other income						-		(758	)		(758	)
Forgiveness of PPP loan						-		(722,577	)		(722,577	)
Interest expense - judgment						-		52,490			52,490
Interest expense						-		8,030			8,030
Total expenses (income)						708,384		(137,664	)		570,720
Income before income taxes					$	302,705	$	137,664		$	440,369

Nine Months Ended December 31, 2021	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	9,031,812	$	1,882,975	$	10,914,787	$	-		$	10,914,787
Cost of sales		4,627,834		1,196,507		5,824,341		-			5,824,341
Gross margin		4,403,978		686,468		5,090,446		-			5,090,446

Engineering, research, and development						1,950,545		-			1,950,545
Selling, general and administrative						589,076		1,085,542			1,674,618
Litigation costs						-		21,545			21,545
Interest income						-		(2,977	)		(2,977	)
Other income						-		(35,854	)		(35,854	)
Interest expense – judgment						-		156,901			156,901
Forgiveness of PPP Loan						-		(722,577	)		(722,577	)
Total expenses						2,539,621		502,580			3,042,201
Income (loss) before income taxes					$	2,550,825	$	(502,580	)	$	2,048,245

916

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

Note 11 9 – Segment Information (continued)

Nine Months Ended December 30, 2020	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	7,751,936	$	1,196,639	$	8,948,575	$	-		$	8,948,575
Cost of sales		4,145,959		920,093		5,066,052		-			5,066,052
Gross margin		3,605,977		276,546		3,882,523		-			3,882,523

Engineering, research, and development						1,678,940		-			1,678,940
Selling, general and administrative						627,944		1,238,812			1,866,756
Litigation costs						-		10,208			10,208
Interest income						-		(6,316	)		(6,316	)
Forgiveness of PPP loan						-		(722,577	)		(722,577	)
Other income						-		(14,612	)		(14,612	)
Interest expense – judgment						-		180,124			180,124
Interest expense						-		27,190			27,190
Total expenses						2,306,884		712,829			3,019,713
Income (loss) before income taxes					$	1,575,639	$	(712,829	)	$	862,810

Three Months Ended
December 31, 2016

Avionics
Government

Avionics
Commercial

Avionics
Total

Corporate
Items
Total
Net sales $ 3,771,384 $ 465,135 $ 4,236,519 $ - $ 4,236,519
Cost of sales 2,297,157 305,111 2,602,268 - 2,602,268
Gross margin 1,474,227 160,024 1,634,251 - 1,634,251

Engineering, research, and development 615,007 - 615,007
Selling, general and administrative 256,599 326,281 582,880
Litigation costs 282,490 282,490
Amortization of deferred financing costs - 1,359 1,359
Change in fair value of common stock warrants - (37,000 ) (37,000 )
Interest expense, net - 11,620 11,620
Total expenses 871,606 584,750 1,456,356
Income (loss) before income taxes $ 762,645 $ (584,750 ) $ 177,895

Nine Months Ended
December 31, 2017

Avionics
Government

Avionics
Commercial

Avionics
Total

Corporate
Items
Total
Net sales $ 5,826,763 $ 2,128,272 $ 7,955,035 $ - $ 7,955,035
Cost of sales 3,489,223 1,887,972 5,377,195 - 5,377,195
Gross margin 2,337,540 240,300 2,577,840 - 2,577,840

Engineering, research, and development 1,691,631 - 1,691,631
Selling, general and administrative 861,795 1,019,277 1,881,072
Litigation costs 560,610 560,610
Legal damages 2,130,523 2,130,523
Amortization of deferred financing costs - 3,363 3,363
Change in fair value of common stock warrants - (95,000 ) (95,000 )
Proceeds from life insurance (92,678 ) (92,678 )
Interest expense, net - 38,435 38,435
Total expenses 2,553,426 3,564,530 6,117,956
Income (loss) before income taxes $ 24,414 $ (3,564,530 ) $ (3,540,116 )

Nine Months Ended
December 31, 2016

Avionics
Government

Avionics
Commercial

Avionics
Total

Corporate
Items
Total
Net sales $ 12,981,768 $ 1,673,149 $ 14,654,917 $ - $ 14,654,917
Cost of sales 8,067,636 1,250,789 9,318,425 - 9,318,425
Gross margin 4,914,132 422,360 5,336,492 - 5,336,492

Engineering, research, and development 1,783,655 - 1,783,655
Selling, general and administrative 946,589 1,096,333 2,042,922
Litigation costs 609,330 609,330
Amortization of deferred financing costs - 4,072 4,072
Change in fair value of common stock warrants - (288,203 ) (288,203 )
Interest expense, net - 46,953 46,953
Total expenses 2,730,244 1,468,485 4,198,729
Income (loss) before income taxes $ 2,606,248 $ (1,468,485 ) $ 1,137,763

~~TEL-INSTRUMENT ELECTRONICS CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Note 1210 – Income Taxes

FASB ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The Company does not have any unrecognized tax benefits.

The tax effect of temporary differences, primarily net operating loss carryforwards, asset reserves and accrued liabilities, gave rise to the Company’s deferred tax asset. Deferred income taxes are recognized for the tax consequence of such temporary differences at the enacted tax rate expected to be in effect when the differences reverse. The Company ~~has provided a 100% valuation allowance against its~~had approximately $2.4 million in deferred tax ~~asset~~assets at December 31, ~~2017 and March 31, 2017.~~2021. The Company recognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority.

~~On December 22, 2017,~~

The differences between income taxes expected at the ~~2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including a reduction of the corporate~~U.S. federal statutory income tax rate of 21 percent and the reported income tax expense are due to ~~21%~~the recognition of non-taxable PPP funds of $722,577 as other income during the nine months ended December 31, 2021. Taxable income was $241,070 and $2,048,245 for the three and nine months ended December 31, 2021, resulting in income tax expense of $46,448 and $278,446 for the three and nine months ended December 30, 2021, respectively.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes - simplifying the accounting for income taxes (Topic 740), which is meant to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendment also improves consistent application and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU was effective ~~January~~April 1, ~~2018, among others. We~~2021, and adoption of this standard had no significant impact on our financial position and results of operations.

Note 11 – Operating Lease Liability

The Company leases its facility in East Rutherford, NJ with monthly payments of $18,467 which expired in August 2021 and the renewed monthly payments are ~~required to recognize~~$21,237 for an additional four years. Thereafter, monthly payments are $23,083 for the ~~effect~~balance of the ~~tax law changes~~8 year renewal lease agreement expiring August 2029.

The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing interest rates available in the period of enactment, such as re-measuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Tax Act had no impact on the accompanying financial statements.

~~Note 13 – Fair Value Measurements~~

~~FASB ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) defines fair value, establishes a framework~~market for ~~measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.~~

As defined in ASC 820-10, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).similar borrowings. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observationused a discount rate of those inputs. ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).3.90% at December 31, 2021.

~~The three levels of the fair value hierarchy defined by ASC 820-10 are as follows:~~

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

-	Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

1117

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~(Unaudited)~~

Note 13 11 – ~~Fair Value Measurements~~ Operating Lease Liability (continued)

~~The valuation techniques that may be used to measure fair value are as follows:~~

·	~~Market approach — Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.~~

·	Income approach — Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method.

·	~~Cost approach — Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).~~

The carrying value of the Company’s borrowings is a reasonable estimate of its fair value as borrowings under the Company’s credit facility reflect currently available terms and conditions for similar debt.

The following table ~~sets forth~~reconciles the undiscounted future minimum lease payments (displayed by ~~level within~~year and in the ~~fair value hierarchy~~aggregate) under non-cancelable operating leases with terms of more than one year to the ~~Company’s financial assets and~~total lease liabilities ~~that were accounted for at fair value~~recognized on the unaudited condensed consolidated balance sheet as of December 31, ~~2017~~2021:

Remaining payments 2022	$	63,710
2023		254,840
2024		254,840
2025		254,840
2026		267,767
Thereafter		946,417
Total undiscounted future minimum lease payments		2,042,414
Less: Difference between undiscounted lease payments and discounted lease liabilities		(274,071	)
Present value of net minimum lease payments		1,768,343
Less current portion		(192,487	)
Operating lease liabilities – long-term	$	1,575,856

Total rent expense for the three and ~~March 31, 2017. As required by ASC 820-10, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.~~

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

~~December 31, 2017~~

~~Level I~~

~~Level II~~

~~Level III~~

~~Total~~

~~Total Assets~~

~~Warrant liability~~

~~Total Liabilities~~

March 31, 2017 Level I Level II Level III Total
Total Assets $ - $ - $ - $ -

Warrant liability - - 95,000 95,000
Total Liabilities $ - $ - $ 95,000 $ 95,000

The Company adopted the guidance of ASC 815 “Derivative and Hedging”, which requires that we mark the value of our warrant liability to market and recognize the change in valuation in our statement of operations each reporting period. Determining the warrant liability to be recorded requires us to develop estimates to be used in calculating the fair value of the warrant.

~~The following table provides a summary of the changes in fair value of our Level 3 financial liabilities from March 31, 2017 through~~nine months ended December 31, ~~2017, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to the liability held at December 31, 2017:~~

Level 3 Reconciliation
Balance at
beginning of period

(Gains) and losses
for the period
(realized and unrealized)

Purchases, issuances,
sales and
settlements, net

Transfers in or
out of Level 3

Balance at the
end of period

Warrant liability $ 95,000 $ (95,000 ) $ - $ - $ -
Total Liabilities $ 95,000 $ (95,000 ) $ - $ - $ -

The Company has remaining warrants with an outside investor to purchase 50,000 shares of the Company’s common stock at an exercise price of $3.35 per share or exercising the “put option” to the Company. The warrant liability of the 50,000 warrants2021, was ~~$-0- at December 31, 2017~~$100,967 and $288,117, respectively, as compared to ~~$95,000 at March 31, 2017.~~

~~TEL-INSTRUMENT ELECTRONICS CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Note 14 – Series A 8% Convertible Preferred Stock~~

On November 14, 2017, the Company entered into definitive subscription agreements with an accredited investor, pursuant to which the investor purchased an aggregate of 500,000 shares of the Company’s Series A Preferred Stock (the “~~Series A Preferred”) for an aggregate of $3 million. The Company intends to use such proceeds~~$90,920 and $272,725 for the ~~payment of any Court judgment and/or settlement related to the Aeroflex Wichita, Inc. litigation, working capital purposes,~~three and for payment of fees and expenses associated with this transaction. The Closing occurred following the satisfaction of customary closing conditions. The securities issued pursuant to the Subscription Agreements were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but qualified for exemption under Section 4(a)(2) of the Securities Act. The securities were exempt from registration under Section 4(a)(2) of the Securities Act because the issuance of such securities by the Company did not involve a “public offering,” as defined in Section 4(a)(2) of the Securities Act, due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered. The Company did not undertake an offering in which it sold a high number of securities to a high number of investors. In addition, these shareholders had the necessary investment intent as required by Section 4(a)(2) of the Securities Act since they agreed to, and received, share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, the Company has met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act.

The shares of Series A Preferred have a stated value of $6.00 per share (the “Series A Stated Value”) and are convertible into Common Stock at a price of $3.00 per share. The holders of shares of the Series A Preferred shall be entitled to receive dividends out of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series A Stated Value of such shares of Series A Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-daynine months and shall accrue from the date of issuance of such shares of Series A Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of March, June, September and December of each calendar year, all dividends on any share of Series A Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid. As ofended December 31, 2017, the Company accrued $30,667 for dividends within mezzanine equity on the accompanying Balance Sheet. Since there were not sufficient authorized shares to allow for full conversion of the preferred stock into common stock at December 31, 2017, preferred stock was classified as mezzanine equity. At the January 2018 annual meeting approval was obtained for the additional authorized shares. As such, future financial statements will have preferred stock classified as permanent stockholders’ equity.2020, respectively.

Note 12 – Litigation

The Holders will vote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary of the Original Issue Date, and upon 30 days’ written notice to the Holders of Series A Preferred, the Company may, in its sole discretion, redeem the Series A Preferred at the aggregate Series A Stated Value plus any accrued and accumulated but unpaid dividends.

~~Note 15 – Litigation~~

Contingencies are recorded in the unaudited condensed 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”)~~(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

~~TEL-INSTRUMENT ELECTRONICS CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Note 15 – Litigation (continued)~~

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.

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12 – Litigation (continued)

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 rule~~found 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.

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.

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. 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 which is modified annually based on market interest rates.

For the year starting July 1, 2020, the interest rate was 4.25% and cumulative interest as of fiscal year ended June 30, 2021, was $1,040,943. For the year starting July 1, 2021, the interest rate will be 4.25 %. Interest on the $4.9 million judgment started to accrue on November 22, 2017, the date the judgment was entered. As of December 31, 2021, the outstanding amount of the judgement and accrued interest is $6,045,924.

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. The appellate court has not set a date to hear the appeal.

The Company is optimistic about the prospects of its appeal for a judgment as a matter of law. The appeal decision has been delayed due to the COVID-19 related shutdown of the Kansas court system and the inability of court staff to work remotely on confidentiality issues. During August 2021, in an effort to move the appeal forward, all parties agreed to supply the appeal information to the court on a dedicated and secured laptop that would be used by the research attorney remotely. 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 currently has sufficient cash on hand to pay off this liability if the appeal is lost. On January 28, 2022, Aeroflex filed a Motion to Require Supplemental Appeal Bond with the Court of Appeals of the State of Kansas, seeking a bond from the Company in the amount of $6 million to supplement the existing bond of $2 million. The Company has filed ~~motions in January 2018 for the Court to reconsider the amount of damages on the grounds~~a response and we are confident that ~~they are duplicative and not legally supportable. A hearing on~~ this motion is expected within the next 30 days and a final decision is expected within the next two to three months. The Judge could deny our motions, reduce the amount of damages or even order a new trial. Once a final decision has been rendered, the Company has 30 days to file an appeal. The Company has posted a $2,000,000 bond to prevent Aeroflex from enforcement actions until a final decision has been rendered by the Court. This $2 million bond amount would remain in place during the appeal process (See Note 5). The Company believes it has excellent grounds to appeal this verdict. The appeal process wouldwill be ~~expected to take several years to complete.~~denied.

Other than the matters outlined above, we 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, inquiry or investigation before any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of executive officers of our Company, threatened against or affecting our Company, or our common stock in which an adverse decision could have a material effect.

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TEL-INSTRUMENT ELECTRONICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 – Stock Options

~~(Unaudited)~~

~~Note 16 – New Accounting Pronouncements~~

~~In May~~

The Board of Directors (the “Board”) adopted on January 18, 2017, and ratified by the shareholders at the Annual Meeting on January 18, 2017, the ~~FASB issued ASU 2017-09, “Compensation -~~Company’s 2016 Stock ~~Compensation (Topic 718): Scope~~Option Plan (the “Plan”). The Plan provides for the granting of ~~Modification Accounting.” This ASU provides guidance about which changes~~incentive stock options, by a committee to be appointed by the Board (both the Board and the Committee are referred to herein as the “Committee”) to directors, officers, and employees (excluding directors and officers who are not employees) to purchase shares of the Common Stock of the Company, par value $0.10 per share (the “Stock”), in accordance with the terms ~~or conditions~~and provisions. The 2016 Plan reserves for issuance, options to purchase up to 250,000 shares of its common stock. Options granted under the plan are exercisable up to a ~~share-based payment award require~~period of five years from the date of grant at an entity to apply modification accounting. The amendments should be applied prospectively to an award modified on or after the adoption date. For public business entities, this update is effective for financial statements issued for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted. We are evaluating whether this ASU will have a material impact on our consolidated financial statements.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09 (“Improvements to Employee Share-Based Payment Accounting”) which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard was effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. The Company adopted this standard and it did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 (“Leases”), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted. The adoption of this ASU will increase assets and liabilities for operating leases. The Company is evaluating the impact that the adoption of this standard will have on the Company’s consolidated financial statements.

~~In November 2015, the FASB issued ASU 2015-17,~~exercise price which is ~~an update to Topic 740, “Income Taxes”. This update requires that all deferred tax assets and liabilities be classified as non-current. The Company adopted this update, which is reflected in~~not less than the ~~accompanying balance sheets. The adoption~~fair market value of ~~this update did not have any impact on~~ the ~~Company’s results of operations.~~

In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements - Going Concern to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern. The guidance requires management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year aftercommon stock at the date ~~that~~of grant, except to a shareholder owning 10% or more of the ~~financial statements are issued. When management identifies such conditions or events, a footnote disclosure is required to disclose their nature,~~outstanding common stock of the Company, as ~~well as management’s plans to alleviate the substantial doubt to continue as a going concern. The standard became effective for our fiscal year end 2017.~~

In May 2014, the FASB issued ASU 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the ~~entity expects to~~exercise price must be ~~entitled in exchange for those goods~~not less than 110% of the fair market value of the common stock at the date of grant. Options are exercisable on a cumulative basis, 20% at or ~~services. This ASU also requires disclosures sufficient to enable users to understand~~after each of the ~~nature, amount, timing,~~first, second, and ~~uncertainty~~third anniversary of ~~revenue~~the grant and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from40% after the ~~costs to obtain or fulfill~~fourth year anniversary. During fiscal year 2022, the Company granted 23,000 stock options at a ~~contract. In March 2016,~~price of $2.94 per share, the ~~FASB issued ASU 2016-08 which further clarifies the guidance~~fair market value on the ~~principal versus agent considerations within ASU 2014-09. In April 2016,~~grant date.

The fair value of each option awarded is estimated on the ~~FASB issued ASU 2016-10 to expand~~date of grant using the ~~guidance on identifying performance obligations and licensing within ASU 2014-09. In May 2016,~~Black-Scholes option valuation model that uses the ~~FASB issued ASU 2016-12 to improve revenue recognition~~assumptions noted in the ~~areas~~following table. Expected volatilities are based on historical volatility of collectability, presentation of sales tax and other similar taxes collected from customers, noncash consideration, contract modifications and completed contracts at transition. This update also amends the disclosure requirements within ASU 2014-09 for entities that retrospectively apply the guidance.Common Stock. The latest amendments are intended to address implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group, and provide additional practical expedients. These standards are effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is assessing their implementation process and the potential impact on its existing revenue accounting policies and newly required financial statement disclosures. The Company has not yet determined the impact from the adoptionexpected life of the ~~new standard on either its financial position or results of operations.~~

~~TEL-INSTRUMENT ELECTRONICS CORP.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Note 16 – New Accounting Pronouncements (continued)~~

~~ASU 2016-18, Restricted Cash, updates Topic 230, Statement of Cash Flows, to require that a statement of cash flows explain the change during~~options granted represents the period ~~in restricted cash or restricted cash equivalents, in addition~~of time from date of grant to ~~changes in cash and cash equivalents. That~~expiration (5 years). The risk-free interest rate is ~~restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown~~based on the ~~statement~~U.S. Treasury yield in effect at the time of ~~cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections~~grant.

	Dividend			Risk-free
	Yield			Interest rate			Volatility			Life
2022		0.0	%		0.78	%		82.69	%	5 years

A summary of the ~~cash flow statement. The ASU includes examples~~status of the ~~revised presentation guidance, and additional presentation and disclosure requirements apply. The ASU is effective~~Company’s stock option plans for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied retrospectively to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year ~~that includes that interim period.~~ended March 31, 2021, and year to date December 31, 2021, and changes during the year are presented below (in number of options):

	Number of Options		Average Exercise Price		Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding options at April 1, 2021		98,500	$	3.19	3.3 years	$	30,835
Options granted		23,000	$	2.94
Options exercised		-	$	-
Options canceled/forfeited		-	$	-

Outstanding options at December 31, 2021		121,500	$	3.14	2.9 years	$	8,090
Vested Options:
December 31, 2021:		37,900	$	3.21	2.1 years	$	304
March 31, 2021:		19,700	$	3.22	2.8 years	$	5,567

~~No other recently issued accounting pronouncements had or are~~

Remaining options available for grant were 128,500 and 151,500 as of December 31, 2021, and March 31, 2021, respectively.

For the year ended March 31, 2021, and year to date December 2021, the unamortized compensation expense for stock options was $60,013 and $55,505 respectively. Unamortized compensation expense is expected to ~~have~~be recognized over a ~~material impact on~~weighted-average period of approximately 2.7 year.

For the ~~Company’s condensed consolidated financial statements.~~three and nine months ended December 31, 2021, the Company recorded stock compensation costs of $7,514 and $19,848, respectively, as compared to $5,277 and $15,829 for the three and nine months ended December 31, 2020.

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Item 2. ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words ~~“anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”,~~“may,” “will,” “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management are intended to identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and we caution you that these statements are not guarantees of future performance or events and are subject to risks, ~~uncertainties,~~ assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended March 31, 2017, filed with the SEC on July 14, 2017, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire.factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited condensed consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Overview

~~Overview~~

The Aeroflex litigation (see Note 15) has been hugely disappointing and has strained our finances even with the preferred stock offering. If the Judge does not change the result or vacate the damage award based on our latest motions, we will appeal this decision.

The Company has 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 is expected within the next 30 days and a final decision is expected within the next two to three months. The Judge could deny our motions, reduce the amount of damages or even order a new trial. Once a final decision has been rendered, the Company has 30 days to file an appeal. The Company has posted a $2,000,000 bond to prevent Aeroflex from enforcement actions until a final decision has been rendered by the Court. This $2 million bond amount would remain in place during the appeal process (See Note 5). The Company believes it has excellent grounds to appeal this verdict. The appeal process would be expected to take several years to complete. We ~~believe that we~~ ~~will have approximately~~ 2-3 years to generate sufficient cash or secure additional financing to support the repayment of the remaining $2.9 million not covered by the $2 million appeal bond, if we do not prevail with the appeal.

The Company continues to pursue international opportunities with its “Drive to Mode 5” marketing campaign. All allied countries have a “drop dead” date of January 1, 2020 for implementing Mode 5 capability; as a result, we believe that this international Mode 5 business will remain strong for at least the next three years. 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. The new T-47/M5 Mode 5 IFF test set will be a cost-effective upgrade option 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. In addition to international Mode 4 business, we also believe that we will receive some sizable orders from the U.S. Department of Defense (the “DOD”) for additional TS-4530A test sets this calendar year. We believe that this will help drive revenues and profitability growth.

We have intensified our marketing efforts and increased our investment in research and development. We continue to emphasize the importance of capturing the majority share of the large IFF international market which we believe could generate substantial revenues starting later this fiscal year, and we have been working with international partners to ensure that we are well-positioned in this market. The new T-47M5 Mode 5 IFF test set will be a cost-effective upgrade option for our large installed base of Mode 4 test sets and we began shipment of this test set in the quarter ended December 31, 2017. Our business development team met with several European and Far Eastern customers with the intention of securing volume Mode 5 orders which should commence later this calendar year. We are currently pursuing opportunities in Australia and New Zealand and other areas in the Middle East and Far East.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued).~~

~~Overview (continued)~~

The Company believes its real long-term growth potential is in our new line of modular hand-held test sets. We expect that these hand-held test sets will provide us with the opportunity to expand from our relatively narrow avionics test market niche and enter the much larger secure communications radio test market. We are actively working to identify and secure partners to enter this growth market and we believe that our new hardware platform provides unmatched capabilities in a market leading form factor. Production prototypes of this new test set were available for view at the January 17, 2018 Annual Meeting. 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.

The commercial avionics industry is undergoing a great deal of regulatory change including the requirement that all aircraft be equipped with ADS-B transponders as well as the introduction of new UAT navigation for the general aviation market. We believe that our new hand-held products, which we are planning to introduce in the near term, will generate increased market share at attractive gross margin levels. The Company is also targeting the extremely large commercial and military radio test set market which is many times the size of our traditional avionics test market. We are also working closely with our military customers on new potential market opportunities that will be needed to maintain our sales and profitability growth.

~~We continue to evaluate other attractive potential market opportunities.~~

On November 14, 2017 the Company completed a $3 million issuance of its Series A Preferred Stock with an existing investor. This preferred stock includes an 8% dividend rate and is convertible into shares of our common stock at a price of $3.00 per share. The proceeds from this transaction are to be used to finance the appeal and for working capital purposes.

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 line of credit was renewed and the expiration date extended until March 31, 2018. ~~The Company plans to renew this line of credit, but there is no assurance that the line will be renewed or that the terms will be the same.~~ ~~The line provides a revolving credit facility with borrowing capacity of up to $1,000,000~~. There are no covenants or borrowing base calculations associated with this line of credit. Interest on any outstanding balances is payable monthly at an annual interest rate equal to the LIBOR (London Interbank Offered Rates) Daily Floating plus 3.75 percentage points. The Company’s interest rate was 5.319% at December 31, 2017. The line is collateralized by substantially all of the assets of the Company. During the nine months ended December 31, 2017, the Company borrowed $800,000 from this line of credit. As of December 31, 2017 and March 31, 2017, the outstanding balances were $1,000,000 and $200,000, respectively. As of December 31, 2017 the remaining availability under this line is $-0-.

On July 27, 2017, the Company received a letter from the staff of the NYSE American (the “Exchange”) stating that, based on Tel’s financial statements at March 31, 2017, Tel is not in compliance with Section 1003(a)(i) of the NYSE American Company Guide, which requires that a company’s stockholders’ equity be $2.0 million or more if it has reported net ~~losses in two~~income of its last three fiscal years (the “Stockholders’ Equity Requirement”). As of March 31, 2017, the Company had a stockholders’ deficit of $54,361, which resulted from litigation costs, the accrual of $2.8 million in damages, as well as the recording of a valuation allowance against the Company’s deferred tax asset of $3.5 million, which resulted in the Company recording a net loss of $4.8 million for the fiscal year ended March 31, 2017, thus bringing the Company below the Stockholders’ Equity Requirement.

The Company submitted is plan to the Exchange, a plan advising of the actions the Company has taken or will take to regain compliance with the Stockholders’ Equity Requirement by January 29, 2019. In October 2017, the Exchange accepted the Company’s plan. The Company continues to provide updates to the Exchange.

Tel’s stock will continue to be listed on the NYSE American while Tel works to regain compliance with the Stockholders’ Equity Requirement. The Company’s common stock will continue to trade under the symbol “TIK”. The Company’s receipt of such notification from the Exchange does not affect the Company’s business, operations or reporting requirements with the U.S. Securities$194,622 and ~~Exchange Commission.~~

~~Item 2. Management’s Discussion~~$1,769,799 and ~~Analysis of Financial Condition and Results of Operations (continued).~~

~~Results of Operations~~

~~Sales~~

~~For the three months ended December 31, 2017, total~~ net sales decreased $1,610,726 (38.0%) to $2,625,793, as compared to $4,236,519 for the three months ended December 31, 2016. Avionics government sales decreased $1,945,640 (51.6%) to $1,825,744 for the three months ended December 31, 2017, as compared to $3,771,384 for the three months ended December 31, 2016. The decrease in sales is mostly attributed to the decrease in shipment of ~~the U.S. Army TS-4530A Kits~~$3,171,532 and Sets, and the CRAFT units associated with the U.S. Navy programs, which contracts have now been completed and the T-47N, partially offset by the increase in sales associated with the initial shipments of the T-47/M5. Commercial sales increased $334.914 (72.0%) to $800,049 for the three months ended December 31, 2017 as compared to $465,135 for the three months ended December 31, 2016. This increase is attributed to the increased sales from our repair business as well as increased shipments of the TR-220 to a major U.S. airline.

For the nine months ended December 31, 2017, total net sales decreased $6,699,882 (45.7%) to $7,955,035, as compared to $14,654,917 for the nine months ended December 31, 2016. Avionics government sales decreased $7,155,005 (55.1%) to $5,826,763 for the nine months ended December 31, 2017, as compared to $12,981,768 for the nine months ended December 31, 2016. The decrease in sales is mostly attributed to the decrease in shipment of the U.S. Army TS-4530A Kits and Sets, and the CRAFT and ITATS units associated with the U.S. Navy programs, which contracts have now been completed. Commercial sales increased $455,123 (27.2%) to $2,128,272 for the nine months ended December 31, 2017 as compared to $1,673,149 for the nine months ended December 31, 2016. This increase is attributed to the increased sales of the TR-220 and the increase in sales from our repair business.

~~Gross Margin~~

For the three and nine months ended December 31, 2017, total gross margin decreased $697,571 (42.7%) and $2,758.652 (51.7%) to $936,680 and $2,577,840, respectively, as compared to $1,634,251 and $5,336,492$10,914,787 for the three and nine months ended December 31, ~~2016, respectively, primarily as a result~~2021. This compared to net income of ~~the lower volume as well as labor~~$499,633 and ~~overhead variances as a result~~$833,361 and net sales of ~~the lower volume. The gross margin percentage~~$2,672,742 and $8,948,575 for the same three ~~months ended December 31, 2017 was 35.7%, as compared to 38.6%~~and nine month period in the prior fiscal year, respectively. Net income for the ~~three~~current nine months ~~ended December 31, 2016. The gross margin percentage~~and for the prior three and nine months ~~ended December 31, 2017 was 32.4%, as compared to 36.4% for~~included separate $722,577 gains on forgiveness of PPP loans. Excluding the ~~nine months ended December 31, 2016.~~

~~Operating Expenses~~

~~Selling, general and administrative expenses decreased $34,489 (5.9%) and $161,850 (7.9%) to $548,391 and $1,881,072, respectively,~~$722,577 gain on PPP forgiveness, net income (loss) for the three and nine months ended December 31, ~~2017, as compared to $582,880~~2021, was $194,622 and ~~$2,042,922 for~~$1,047,222, the three and nine months ended December 31, ~~2016,~~2020, was ($222,944) and $110,784, respectively. These decreases were primarily attributed to lower salaries and related expenses and lower accrued profit sharing expenses offset partially by higher commission fees, shareholder communication expenses and consulting fees.

~~Litigation expenses decreased $147,725 and $48,720 to $134,765 and $560,610, respectively,~~

Profitability for the three and nine months ended December 31, ~~2017 as compared to $282,490 and $609,330 for~~2021, versus the same three and nine months ended December 31, ~~2016. The litigation expenses~~2020, was positively impacted by an increase in sales of $498,790 (19%) and $1,966,212 (22%), respectively. Additionally, gross margin percentages increased 7% for the ~~quarter ended~~current versus prior three months and 3% for the current versus prior nine months, respectively. Backlog orders on December 31, ~~2017 related to the legal expenses for the additional court motions and securing the appeal bond.~~

~~The Company recorded $30,323 and $2,130,523 in additional legal damages for the three and nine months ended~~2021, were $3.3 million versus $5.7 million on December 31, ~~2017 as a result of the Court’s decision regarding punitive damages. The additional expenses for the quarter related to the accrued interest on the assessed damages.~~2020.

Engineering, research and development expenses decreased $68,316 (11.1%) and $92,024 (5.2%) to $546,691 and $1,691,631, respectively, for the three and nine months ended December 31, 2017 as compared to $615,007 and $1,783,655 for the three and nine months ended December 31, 2016.

The Company continues to ~~invest~~pursue opportunities in the domestic and international market for our Mode 5 test sets with good results. We continue to receive volume orders from South Korea, Australia, Canada, the U.K., and Germany for our Mode 5 test sets. We also are receiving volume orders from the U.S. Government and Lockheed Martin for our 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, but the timing of these new ~~products by taking~~orders is largely out of our hands.. After a sharp drop in FY 2021, the Company is also seeing the beginning of a rebound in commercial test set business. TIC is also working on the next generation of Mode 5 called Mode 5 Level 2B. This could potentially lead to substantial software upgrades in the future for our domestic and international Mode 5 customers. The Navy is systematically moving forward on a mid-life update of our CRAFT product line which could entail funded engineering starting next fiscal year. This is an important product for the Company, which should result in significant revenues over the next three to seven years.

Table of Contents

Overview (continued)

TIC is also exploring new avenues to broaden its product portfolio including designing a high frequency test set for the Lockheed Martin F-35. This contract takes advantage of our ~~CRAFT~~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 ~~TS-4530A technology~~expected annual production revenues in the $600,000 range. This program had been subject to ~~develop smaller hand-held products,~~a January 2021 stop-work-order which was lifted in November 2021. TIC is making solid progress on this program and completed the Critical Design Review (“CDR”) in December 2021. TIC has working test set prototypes and expects the development contract to be completed in mid-2022 calendar year. TIC will ~~broaden~~continue to explore funded engineering programs of this nature as this is high margin business that helps diversify and expand our product ~~line~~portfolio.

The main focus area for ~~both~~the Company is moving into the secure communications testing. The key for long-term sustained growth will be to supplement our strong position in military Mode 5 transponder testing with dominant product offerings in the much larger commercial and military ~~applications.~~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 comm test set market. The ~~Company has completed its development~~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 ~~T-47/M5 Mode 5~~only new multi-purpose test set which ~~began initial shipments~~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 engineering design on this test set has largely been completed and we are currently in the ~~quarter ended December 31, 2017,~~process of demonstrating this product to customers and ~~which~~performing product verification. The Company will start taking customer orders next month with production deliveries commencing this summer. There are several companies competing in this market space, but we believe that our SDR/OMNI design will ~~compete effectively~~be extremely competitive, particularly for military applications.

The Aeroflex litigation did not result in ~~the international market.~~

~~(Loss) Income from Operations~~

As a ~~result of the above,~~favorable outcome for the Company, recorded losses from operations of $323,690 and $3,685,996 for the three and nine months ended December 31, 2017, as compared to income from operations of $153,874 and $900,585 for the three and nine months ended December 31, 2016.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

~~Other Income (Expense), Net~~

For the three months ended December 31, 2017, total other expense was $9,746, as compared to other income of $24,021 for the three months December 31, 2016. This decrease in other income is primarily due to the loss on the change in the valuation of common stock warrants as compared to a gain in the same period last year.

For the nine months ended December 31, 2017, total other income was $145,880, as compared to other income of $237,178 for the nine months December 31, 2016. This decrease in other income is primarily due to the lower gain on the change in the valuation of common stock warrants as compared to a gain in the same period last year offset partially by proceeds from a life insurance policy.

~~(Loss) Income before Income Taxes~~

As a result of the above, the Company recorded a loss before taxes of $333,436 and $3,540,116 for the three and nine months ended December 31, 2016, as compared to income before taxes of $177,895 and $1,137,763 for the three and nine months ended December 31, 2016.

~~Income Tax Provision/Benefit~~

~~For the three and nine months ended December 31, 2017, the Company recorded~~despite our belief that we committed no income tax benefit as such amount was offset by a valuation allowance. For the three and nine months ended December 31, 2016, the Company reported provisions for income tax in the amounts of $36,382 and $313,886, respectively.

~~Net (Loss) Income~~

As a result of the above, the Company recorded net losses of $333,436 and $3,540,116 for the three and nine months ended December 31, 2017, as compared to net income of $141,513 and $823,877 for the three and nine months ended December 31, 2016.

~~Liquidity and Capital Resources~~

At December 31, 2017, the Company had net negative working capital of $512,731 as compared to positive working capital of $214,560 at March 31, 2017. This change is primarily the result of the additional legal damages offset partially by the cash received from the issuance of preferred stock which was used to obtain a letter of credit to secure the appeal bond and additional amounts drawn from the line of credit.

These condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern. As discussed in Note 15 to the Notes to the Condensed Consolidated Financial Statements, the Company has recorded total damages of $4,930,523 as a result of the jury verdict associated with the Aeroflex litigation as well as the Court’s decision on punitive damages.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, which brings the total Tel damages awarded in this case to approximately $4.9 million.~~damages. The Company has filed motions in January 2018 for the Court to reconsider the ~~amount~~number of damages on the grounds that they are duplicative and not legally supportable. ~~A hearing on this motion is expected within the next 30 days~~The Court heard these motions, and ~~a final decision is expected within the next two to three months.~~such motions were denied. The ~~Judge could deny our motions, reduce the amount of damages or even order a new trial. Once a final decision has been rendered, the~~ Company ~~has 30 days to file~~filed for an ~~appeal.~~appeal during 2019. The Company has posted a ~~$2,000,000~~$2 million bond ~~to prevent Aeroflex from enforcement actions until a final decision has been rendered by~~for the ~~Court.~~appeal. This $2 million bond amount ~~would~~will remain in place during the appeal ~~process (See Note 5). The Company believes it has excellent grounds to appeal this verdict.~~process. The appeal process has effectively been in limbo for several years due to the Kansas Supreme Court moving to remote work. The case documents are sealed, and the court has not responded to our repeated scheduling update requests. We believe we have strong appeal grounds, and the plan is to wait for the eventual decision despite the negative impact of the interest accruals on our financial results. The best case scenario is that the award is vacated while the worst-case scenario would be ~~expected~~a dismissal which would require TIC to ~~take several years to complete.~~pay the judgement amount plus accrued interest.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and~~

Results of ~~Operations.~~Operations

Sales

Net sales were $3,171,532 and $10,914,787 for the three and nine months ended December 31, 2021, as compared to $2,672,742 and $8,948,575 for the same three and nine month period in the prior fiscal year, respectively. The increase in sales of $498,790 (19%) and $1,966,212 (22%), respectively was due primarily to resurgence of repair order revenue increasing 64% and 73% respectively, and due to the reopening of governmental facilities resulting in a 15% and 17% increase in government sales.

Gross Margin

For the three and nine months ended December 31, 2021, total gross margin increased $396,704 (39%) and $1,207,923 (31%) to $1,407,793 and $5,090,446 as compared to $1,011,089 and $3,882,523 for the three and nine months ended December 31, 2020, primarily as a result of the increase in volume, price adjustments, highly profitable training products and restart of the Lockheed Martin contract. The gross margin percentage for the three months ended December 31, 2021, was 44.4% as compared to 37.8% for the three months ended December 30, 2020. The gross margin percentage for the nine months ended December 30, 2021, was 46.6% as compared to 43.4% for the nine months ended December 31, 2020.

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Operating Expenses

Selling, general and administrative expenses decreased $216,728 (29%) to $523,966 and $192,138 (10%) to $1,674,618 for the three and nine months ended December 31, 2021, as compared to $740,696 and $1,866,756, respectively for the three and nine months ended December 31, 2020. The ~~financial statements have~~three months decrease of $216,729 and nine months decrease of $192,138 for the three and nine months ended December 31, 2021, as compared to prior year is a result of lower sales commissions, and lower legal and consulting fees with an offset of increased profit sharing accruals.

Aeroflex litigation costs increased by $15,147 to $17,145 for the three months ended December 31, 2021, as compared to $1,998 for the three months ended December 31, 2020. Litigation costs increased $11,337 to $21,545 for the nine months ended December 31, 2021, as compared to $10,208 for the nine months ended December 31, 2020. Other legal costs declined $300K from the year-ago period which included costs related to a government bid protest. 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 Company is optimistic about the prospects of its appeal for a judgment as a matter of law. The appeal decision has been ~~prepared~~delayed due to the COVID-19 related shutdown of the Kansas court system and the inability of court staff to work remotely on confidentiality issues. During August 2021, in an effort to move the appeal forward, all parties agreed to supply the appeal information to the court on a ~~going concern basis, which contemplates~~dedicated and secured laptop that would be used by the ~~realization~~research attorney remotely. 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 currently has sufficient cash on hand to pay off this liability if the appeal is lost. On January 28, 2022, Aeroflex filed a Motion to Require Supplemental Appeal Bond with the Court of ~~assets and satisfaction~~Appeals of ~~liabilities and commitments~~the State of Kansas, seeking a bond from the Company in the ~~normal course~~amount of ~~business.~~ $6 million to supplement the existing bond of $2 million. The ~~ability~~Companyhas filed a response and we are confident that this motion will be denied.

Engineering, research, and development expenses increased $81,686 (17%) to $574,118 and $271,605(16%) to $1,950,545 for the three and nine months ended December 31, 2021, as compared to $492,432 and $1,678,940 for the three and nine months ended December 31, 2020, respectively. Total engineering expense has increased as a result of our increased engineering activities primarily with the SDR-OMNI hand-held product line final development plans to begin production early 2022 and slightly offset by the restart of the Lockheed Martin MADL program which reduced engineering costs in the current quarter by $57,980.

Income (loss) from Operations

As a result of the above, the Company recorded income from operations of $292,564 and $1,443,738 for the three and nine months ended December 31, 2021, as compared to ~~continue~~income (loss) from operations of ($224,037) and $326,619 for the three and nine months ended December 31, 2020.

Other income (expense)

For the three and nine months ended December 31, 2021, total other net (expense) income was ($51,494) and $604,507 as compared to other net income of $664,406 and $536,191 for the three and nine months ended December 31, 2020, primarily the result of the Second Draw PPP loan in the amount of $722,577 being fully forgiven during September 2021 and the First Draw PPP loan in the amount of $722,577 being fully forgiven during December 2020.

Income before Income Taxes

The Company recorded income before taxes of $241,070 and $2,048,245 for the three and nine months ended December 31, 2021, as compared to income before taxes of $440,369 and $862,810 for the three and nine months ended December 31, 2020.

Income Taxes (benefit)

For the three and nine months ended December 31, 2021, the Company recorded income tax expense of $46,448 and $278,446, as a ~~going concern~~result of the Company’s taxable income for the respective quarters, as compared to ($59,264) and $29,449 for the three and nine months ended December 31, 2020. The differences between income taxes expected at the U.S. federal statutory income tax rate of 21 percent and the reported income tax expense are due to the recognition of non-taxable PPP funds of $722,577 as other income during the nine months ended December 30, 2021. Taxable income was $241,069 and $2,048,245for the three and nine months ended December 31, 2021. The forgiven PPP loan is ~~dependent upon its ability~~non-taxable.

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Net Income

The Company recorded net income of $194,622 and $1,769,799 for the three and nine months ended December 31, 2021, as compared to ~~achieve~~net income of $499,633 and $833,361 for the three and nine months ended December 31, 2020. The December 2020 results were positively impacted by the first PPP loan forgiveness.

Liquidity and Capital Resources

At December 31, 2021, the Company had net working capital of $4,323,243 including accrued legal damages related to the Aeroflex litigation of $6,045,924, as compared to working capital of $3,159,731 at March 31, 2021. This change is due to profitable operations ~~and/or raise additional capital to support~~for the ~~appeal process or pay any final damages amount. In November 2017,~~first nine months and the ~~Company signed a subscription agreement in which~~forgiveness of the Company received $3 million for Series A Convertible Preferred Stock (See Note 14 to the Notes to the Condensed Financial Statements). These funds were used to finance an appeal and provide funds for operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.PPP loan, partially offset by payment of preferred dividends.

During the nine months ended December 31, ~~2017,~~2021, the Company’s cash balance ~~decreased~~(including the $2 million in restricted cash for the appeal) increased by ~~$23,890~~$1.8 million to ~~$263,983.~~$7,299,860. The Company’s principal sources, and uses of funds were as follows:

Cash ~~used in~~provided by (used in) operating activities. For the nine months ended December 31, ~~2017, the Company used $3,399,429 in cash for operations as compared to providing $1,303,739~~2021, $2,048,312 in cash from operations ~~for~~was provided, as compared to the nine months ended December 31, ~~2016.~~2020, the Company used $159,346. This increase in cash ~~used~~provided for operations is ~~the result of using $2,000,000~~mostly attributed to ~~obtain a letter of credit to secure the appeal bond, lower operating income,~~an increase in ~~accounts receivable~~net income from increased sales and ~~inventories~~margin, decrease in inventory purchases, and offset ~~partially~~ by ~~the increase~~decrease in accounts ~~payable and accrued expenses and accrued legal damages.~~payable.

Cash used in investing activities. For the nine months ended December 31, ~~2017,~~2021, the Company used ~~$89,396 of its cash for investment~~$4,777 in investing activities as compared to ~~$37,070 for~~ the nine months ended December 31, ~~2016 as a result of an increase in~~2020, the ~~purchase of capital equipment.~~Company used $65,140 for IT equipment related upgrades.

Cash (used in) provided by ~~(used in)~~ financing activities. For the nine months ended December ~~31, 2017,~~30, 2021, the Company ~~provided $3,464,935~~used $240,000 in cash from financing activities as compared to ~~using $1,077,148~~providing $42,528 for the nine months ended December ~~31, 2016 primarily as a result of the proceeds from issuance of preferred stock and amounts~~31,2020. This decrease is due mainly from the ~~line~~receipt of ~~credit. The nine months ended December 31, 2016 included a $720,000 payment of a warrant liability that did not occur this year.~~

~~In November 2014, the Company entered into a term~~PPP loan funding received in the ~~amount~~prior year, compared to payments of ~~$1,200,000 with~~$240,000 in dividends in the current period.

The Bank of ~~America. The term loan~~ ~~was~~ ~~for three years, and matures in November 2017. Monthly payments are at $36,551 including interest at 6%. The term loan~~ ~~was~~ collateralized by substantially all of the assets of the Company. This loan was fully repaid in November 2017. At December 31, 2017 and March 31, 2017, the outstanding balances were $-0- and $285,810, respectively.

~~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~~ line of credit was renewed and ~~the expiration date extended until March 31, 2018.~~ ~~The Company plans to renew this line of credit, but there is no assurance that the line~~ will ~~be renewed or that the terms will be the same.~~ ~~The line provides a revolving credit facility with borrowing capacity of up to $1,000,000~~. There are no covenants or borrowing base calculations associated with this line of credit. Interest on any outstanding balances is payable monthly at an annual interest rate equal to the LIBOR (London Interbank Offered Rates) Daily Floating plus 3.75 percentage points. The Company’s interest rate was 5.319% at December 31, 2017. The line is collateralized by substantially all of the assets of the Company. During the nine months ended December 31, 2017, the Company borrowed $800,000 from this line of credit.mature July 30, 2022. As of December 31, ~~2017 and March~~2021, the line of credit draw remained at zero.

On December 31, ~~2017,~~2021, the ~~outstanding balances were $1,000,000 and $200,000, respectively.~~ Company has $7.3 million of cash on hand which included $2 million of restricted cash supporting the appeal bond.

As of December 31, ~~2017~~2021, the ~~remaining availability~~Company has recorded total damages of $6,045,924 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 Company has recorded accrued interest of $1,145,924 as of December 31, 2021.

The Company is very optimistic about the prospects of its appeal for a judgment as a matter of law. Due to the three-month COVID-19 related shutdown of the Kansas court system and subsequent partial reopening of the court system, a major backlog has resulted. As such, the appeal process is expected to take at least a 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 currently has sufficient cash on hand to pay off this liability if we lose the appeal.

On January 6, 2021, updated PPP guidance outlining program changes to enhance its effectiveness and accessibility was released on in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This was available to companies that recorded greater than a 25% sales reduction in any quarter compared to the prior year. The Company qualified for this ~~line is $-0-.~~second round of funding and on March 15, 2021, the company secured a Second Draw PPP loan in the amount of $722,577. TIC qualified for full loan forgiveness on September 17, 2021.

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~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

Liquidity and Capital Resources (continued)

~~The Aeroflex litigation (see Note 15) has been hugely disappointing~~

On August 24, 2021, TIC, and ~~has strained our finances even with~~ the ~~closing of our preferred stock offering. If the Judge does not change the result or vacate the damage award based on our latest motions, we will appeal this decision. The Company has filed motions~~New Jersey Economic Development Authority (NJEDA) signed a small business emergency assistance grant agreement in ~~January 2018 for the court to reconsider~~ the amount of ~~damages~~$20,000. We received these funds into our bank account on August 30, 2021, from NJEDA.

Moving forward, we believe that our expected cash flows from operations and current cash balances, which amounted to approximately $7.3 million, including the grounds that they are duplicative and not legally supportable. A hearing on this motion is expected within the next 30 days and a final decision is expected within the next two to three months. The Judge could deny our motions, reduce the amount of damages or even order a new trial. Once a final decision has been rendered, the Company has 30 days to file an appeal. The Company has posted a $2,000,000 bond to prevent Aeroflex from enforcement actions until a final decision has been rendered by the Court. Thisapproximately $2 million ~~bond amount would remain~~ in ~~place during~~restricted cash will be sufficient to operate in the appeal process (See Note 5). The Company believes it has excellent grounds to appeal this verdict. The appeal process would be expected to take several years to complete. We will have approximately 3 years to generate sufficient cash or secure additional financing to supportnormal course of business for next 12 months from the ~~repayment~~issuance date of these unaudited condensed financial statements, including any payments for settlement of the ~~remaining $2.9 million not covered by the $2 million appeal bond, if we do not prevail with the appeal.~~litigation.

In November 2017, the Company signed a subscription agreement in which the Company received $3 million for Series A Convertible Preferred Stock (See Note 14 to the Notes to the Condensed Financial Statements). These funds will be used to finance an appeal and provide funds for operations.

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 ~~nine~~three months ended December 31, ~~2017.~~2021.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on ~~Form~~For 10-K for the fiscal year ended March 31, ~~2017,~~2021, filed with the SEC on ~~July 14, 2017~~June 29, 2021 (the “Annual Report”).

Off-Balance Sheet Arrangements

As of December 31, ~~2017,~~2021, the Company had no ~~material~~ off-balance sheet arrangements.

Critical Accounting Policies

Our critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report. There have been no changes in our critical accounting policies. Our significant accounting policies are described in our notes to the ~~2017~~2021 consolidated financial statements included in our Annual Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a)Evaluation of Disclosure Controls and Procedures

The Company, including its principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based upon the evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective. Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include controls and procedures designed to reasonably ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in Internal Control over Financial Reporting

The Company, including its ~~principal~~chief executive officer and ~~principal accounting~~chief financial officer, reviewed the Company’s internal control over financial reporting, pursuant to Rule 13(a)-15(e) under the Exchange Act and concluded that there was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

~~On March 24, 2009,~~

The Aeroflex ~~Wichita, Inc. (“Aeroflex”) filed~~litigation (see Note 12 to the Unaudited Condensed Consolidated Financial Statements) did not result in a ~~petition against~~favorable outcome for 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~~despite our belief 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.we committed no wrong-doing.

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. 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 rule~~found that the Company tortiously interfered with a prospective business opportunity and awarded ~~damages of $1.3 million for lost profits.~~damages. 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.~~employees. 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.~~Aeroflex. The ~~jury also decided that punitive damages should be allowed against the Company.~~

~~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~~Court conducted further hearings 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~~post-trial motions which sought to reduce the damages award of $2.8 million, 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.~~

~~Aeroflex submitted a motion to the Court requesting that the judge award punitive damages at the maximum $5 million amount. In October 2017, the~~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.~~

damages. The Company has 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 is expected within the next 30 days~~The Court heard these motions, and ~~a final decision is expected within the next two to three months. The Judge could deny our~~such motions ~~reduce the amount of damages or even order a new trial. Once a final decision has been rendered,~~were denied. In 2019 the Company ~~has 30 days to file~~filed for an appeal. The Company has posted a ~~$2,000,000~~$2 million bond ~~to prevent Aeroflex from enforcement actions until a final decision has been rendered by~~for the ~~Court.~~appeal. This $2 million bond amount ~~would~~will remain in place during the appeal process (See Note 5)4).

As reflected in the accompanying unaudited condensed consolidated balance sheet as of December 31, 2021, the Company has recorded estimated damages to date of approximately $6 million, including interest, as a result of a jury verdict associated with the Aeroflex litigation. The Company ~~believes it~~ has ~~excellent grounds~~filed for an appeal (see Notes 4 and 12). As of December 31, 2021, the Company has cash balances of $7.3 million, including $2 million of restricted cash as well as $1.4 million in accounts receivable. We expect to ~~appeal this verdict.~~ continue to have sufficient cash to fully cover the Aeroflex damages amount.

The appeal ~~process~~decision has been delayed due to the COVID-19 related shutdown of the Kansas court system and the inability of court staff to work remotely on confidentiality issues. During August 2021, in an effort to move the appeal forward, all parties agreed to supply the appeal information to the court on a dedicated and secured laptop that would be ~~expected~~used by the research attorney remotely. The Company has the ability to ~~take several years~~settle this case at its sole discretion by withdrawing the appeal and paying the judgment plus interest amount. The Company currently has sufficient cash on hand to ~~complete.~~pay off this liability if the appeal is lost.

On January 28, 2022, Aeroflex filed a Motion to Require Supplemental Appeal Bond with the Court of Appeals of the State of Kansas, seeking a bond from the Company in the amount of $6 million to supplement the existing bond of $2 million. The Company has filed a response and we are confident that this motion will be denied.

~~PART II – OTHER INFORMATION~~

Item 1A. Risk Factors.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017,~~2021, filed with the SEC on ~~July 14, 2017.~~June 29, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of the Company’s equity securities during the quarter ended December 31, ~~2017 other than those previously reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission on November 16, 2017, regarding the issuance of Series A Preferred Stock.~~2021.

Item 3. Defaults upon Senior Securities.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

There is no other information required to be disclosed under this item which was not previously disclosed.

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Item 6. Exhibits.

Exhibit No.		Description

~~3.1~~ 31.1		~~Certificate of Amendment to Certificate of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2017.)~~

~~10.1~~		~~Form of Subscription Agreement (incorporated to the Company’s Current Report on Form 8-K filed with the SEC on November 16, 2017.)~~

~~31.1~~		Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*

31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of 2002*

32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

101.INS		Inline XBRL Instance Document*

101.SCH		Inline XBRL Taxonomy Extension Schema Document*

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document*

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document*

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TEL-INSTRUMENT ELECTRONICS CORP.


Date: February ~~14, 2018~~11, 2022	By:	~~/s/~~ /s/ Jeffrey C. ~~O’Hara~~O’Hara
		Name: Jeffrey C. O’Hara
		Title: Chief Executive Officer (Principal Executive ~~Officer~~ Officer)


~~Date: February 14, 2018~~	~~By:~~	~~/s/ Joseph P. Macaluso~~
		~~Name: Joseph P. Macaluso~~
		~~Title: Principal Financial Officer~~ ~~Principal Accounting Officer~~

iso4217:USD xbrli:shares

	December 31, 2017			March 31, 2017
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	263,983		$	287,873
Accounts receivable, net		1,660,757			1,556,382
Inventories, net		4,309,324			4,208,179
Restricted cash to support appeal bond		2,000,000			-
Prepaid expenses and other current assets		107,450			188,578
Total current assets		8,341,514			6,241,012

Equipment and leasehold improvements, net		197,602			161,427
Other long-term assets		35,109			33,509
Total assets		8,574,225			6,435,948

LIABILITIES & STOCKHOLDERS’ DEFICIT

Current liabilities:
Current portion of long-term debt		3,696			291,991
Line of credit		1,000,000			200,000
Capital lease obligations – current portion		6,718			6,268
Accounts payable and accrued liabilities		2,431,763			2,072,955
Federal and state taxes payable		-			4,105
Deferred revenues – current portion		54,671			123,720
Accrued legal damages		4,930,523			2,800,000
Accrued payroll, vacation pay and payroll taxes		396,207			527,413
Total current liabilities		8,823,578			6,026,452

Capital lease obligations – long-term		8,664			13,760
Long-term debt		-			2,124
Deferred revenues – long-term		353,280			352,973
Warrant liability		-			95,000
Total liabilities		9,185,522			6,490,309

Commitments

Mezzanine Equity:
Preferred stock, 1,000,000 shares authorized, par value $0.10 per share, 500,000 shares 8% Cumulative Series A Convertible Preferred issued and outstanding		2,990,667			-
Total mezzanine equity		2,990,667			-

Stockholders’ (deficit):
Common stock, 4,000,000 shares authorized, par value $0.10 per share, 3,255,887 shares issued and outstanding, respectively		325,586			325,586
Paid-in capital in excess of par value, common stock		8,099,882			8,107,369
Accumulated deficit		(12,027,432	)		(8,487,316	)
Total stockholders’ deficit		(3,601,964	)		(54,361	)
Total liabilities, mezzanine equity and stockholders’ deficit	$	8,574,225		$	6,435,948

	Nine Months Ended
	December 31, 2017			December 31, 2016

Cash flows from operating activities:
Net (loss) income	$	(3,540,116	)	$	823,877
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Deferred income taxes		-			317,509
Depreciation and amortization		53,221			95,209
Provision for inventory obsolescence		50,000			20,000
Amortization of deferred financing costs		3,363			4,072
Change in fair value of common stock warrant		(95,000	)		(288,203	)
Non-cash stock-based compensation		23,180			24,536

Changes in assets and liabilities:
Decrease (increase) in accounts receivable		(104,375	)		396,430
(Increase) decrease in inventories		(151,145	)		185,145
Decrease (increase) in prepaid expenses & other assets		76,165			(28,774	)
Increase (decrease) in accounts payable and other accrued expenses		358,808			(299,359	)
Decrease in federal and state taxes		(4,105	)		(53,623	)
Decrease in accrued payroll, vacation pay & withholdings		(131,206	)		(224,072	)
(Decrease) increase in deferred revenues		(68,742	)		338,792
Increase in accrued legal damages		2,130,523			-
Restricted cash for appeal bond		(2,000,000	)
Decrease in other long-term liabilities		-			(7,800	)
Net cash (used in) provided by operating activities		(3,399,429	)		1,303,739

Cash flows from investing activities:
Purchases of equipment		(89,396	)		(37,070	)
Net cash used in investing activities		(89,396	)		(37,070	)

Cash flows from financing activities:
Proceeds from line of credit		800,000			-
Proceeds from issuance of preferred stock, net of expenses		2,960,000			-
Payment of warrant liability		-			(720,000	)
Repayment of long-term debt		(290,419	)		(322,894	)
Repayment of subordinated notes - related parties		-			(25,000	)
Repayment of capitalized lease obligations		(4,646	)		(9,254	)
Net cash provided by (used in) financing activities		3,464,935			(1,077,148	)

Net decrease in cash and cash equivalents		(23,890	)		189,521
Cash and cash equivalents at beginning of period		287,873			972,633
Cash and cash equivalents at end of period	$	263,983		$	1,162,154

Supplemental cash flow information:
Taxes paid	$	5,000		$	87,374
Interest paid	$	50,374		$	107,768

	December 31, 2017		December 31, 2016
Convertible preferred stock		1,000,000		-
Stock options		75,000		71,000
Warrants		50,000		-
		1,125,000		71,000

Three Months Ended December 31, 2016	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	3,771,384	$	465,135	$	4,236,519	$	-		$	4,236,519
Cost of sales		2,297,157		305,111		2,602,268		-			2,602,268
Gross margin		1,474,227		160,024		1,634,251		-			1,634,251

Engineering, research, and development						615,007		-			615,007
Selling, general and administrative						256,599		326,281			582,880
Litigation costs								282,490			282,490
Amortization of deferred financing costs						-		1,359			1,359
Change in fair value of common stock warrants						-		(37,000	)		(37,000	)
Interest expense, net						-		11,620			11,620
Total expenses						871,606		584,750			1,456,356
Income (loss) before income taxes					$	762,645	$	(584,750	)	$	177,895

Nine Months Ended December 31, 2017	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	5,826,763	$	2,128,272	$	7,955,035	$	-		$	7,955,035
Cost of sales		3,489,223		1,887,972		5,377,195		-			5,377,195
Gross margin		2,337,540		240,300		2,577,840		-			2,577,840

Engineering, research, and development						1,691,631		-			1,691,631
Selling, general and administrative						861,795		1,019,277			1,881,072
Litigation costs								560,610			560,610
Legal damages								2,130,523			2,130,523
Amortization of deferred financing costs						-		3,363			3,363
Change in fair value of common stock warrants						-		(95,000	)		(95,000	)
Proceeds from life insurance								(92,678	)		(92,678	)
Interest expense, net						-		38,435			38,435
Total expenses						2,553,426		3,564,530			6,117,956
Income (loss) before income taxes					$	24,414	$	(3,564,530	)	$	(3,540,116	)

Nine Months Ended December 31, 2016	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	12,981,768	$	1,673,149	$	14,654,917	$	-		$	14,654,917
Cost of sales		8,067,636		1,250,789		9,318,425		-			9,318,425
Gross margin		4,914,132		422,360		5,336,492		-			5,336,492

Engineering, research, and development						1,783,655		-			1,783,655
Selling, general and administrative						946,589		1,096,333			2,042,922
Litigation costs								609,330			609,330
Amortization of deferred financing costs						-		4,072			4,072
Change in fair value of common stock warrants						-		(288,203	)		(288,203	)
Interest expense, net						-		46,953			46,953
Total expenses						2,730,244		1,468,485			4,198,729
Income (loss) before income taxes					$	2,606,248	$	(1,468,485	)	$	1,137,763

March 31, 2017	Level I		Level II		Level III		Total
Total Assets	$	-	$	-	$	-	$	-

Warrant liability		-		-		95,000		95,000
Total Liabilities	$	-	$	-	$	95,000	$	95,000

Level 3 Reconciliation	Balance at beginning of period		(Gains) and losses for the period (realized and unrealized)			Purchases, issuances, sales and settlements, net		Transfers in or out of Level 3		Balance at the end of period
Warrant liability	$	95,000	$	(95,000	)	$	-	$	-	$	-
Total Liabilities	$	95,000	$	(95,000	)	$	-	$	-	$	-