SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the fiscal year                                          Commission File No.
ended March 31, 2002                                              33-18978

                        TEL-INSTRUMENT ELECTRONICS CORP.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

        New Jersey                                      22-1441806
- ------------------------                    ------------------------------------
(State of incorporation)                    (IRS Employer Identification Number)

       728 Garden Street
    Carlstadt, New  Jersey                                              07072
- ----------------------------------------                              ----------
(Address of principal executive offices)                              (Zip Code)

Registrant's telephone number, including area code:   (201) 933-1600

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

         None
- ---------------------

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

         None
- ---------------------

Indicate by checkmark  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  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X]. No [ ].

The aggregate market value of the voting Common Stock (par value $.10 per share)
held by  non-affiliates  on June 10, 2002 was $2,392,796  using the price of the
last trade on June 10, 2002.

2,135,751 shares of Common Stock were outstanding as of June 10, 2002.

Total Pages - 45

Exhibit Index - pages 43-44


                                                                               1


                                     PART I

Item 1.     Business

            General

            Tel-Instrument  Electronics Corp. ("Tel" or the "Company")  designs,
            manufactures,  and  sells  test  equipment,  both  domestically  and
            internationally,  to the general  aviation and  commercial  aviation
            market and to the  government/military  aviation market. The Company
            has been in business since 1947. In the last 5 years,  the Company's
            revenues have increased by approximately  150% and its income before
            taxes has tripled.

            Tel's  instruments  are used to test  navigation and  communications
            equipment  installed  in  aircraft,  both on the flight  line ("ramp
            testers") and in the maintenance shop ("bench  testers"),  and range
            in list price from  $7,500 to $75,000  per unit.  Tel  continues  to
            develop new  products  in  anticipation  of  customers'  needs.  The
            development  of  multifunction  testers,  for  example,  has made it
            easier for  customers to perform ramp tests with less  training.  In
            recent  years the Company has become the dominant  manufacturer  and
            supplier  of IFF  (Identification  Friend or Foe)  flight  line test
            equipment,  discussed below. The Company is currently working on the
            next  generation of IFF test sets in  anticipation  of U.S. and NATO
            requirements for more sophisticated IFF testing.

            For the year ended March 31, 2002, sales increased approximately 30%
            to $9,731,081  and net income before taxes  increased  approximately
            53% to $1,585,689 (see Item 7 - Management's Discussion and Analysis
            of Financial Condition and Results of Operations).

            Over the last 5 years,  the Company has  significantly  improved its
            financial  condition,  increased  revenues,  profits  and cash flow,
            firmly  established  itself as one of the leading  suppliers  in the
            avionics test equipment industry, and improved its market position.

            The Company continues  actively to pursue  opportunities in both the
            commercial and government markets,  both domestic and international,
            and  expends   substantial  amounts  to  develop  new  and  improved
            products.  The  Company  has been  actively  responding  to customer
            requests by adapting its product designs or developing new products.
            Exploration  of  opportunities  in other  government  and commercial
            markets  also  continues  in an  attempt to  broaden  the  Company's
            product line. As previously announced, the Company engaged Semaphore
            Capital  Advisors  LLC  (formerly  Crary  Partners  LLC)  to  render
            investment-banking  services  to  the  Company,  and  in  June  2002
            extended the term of its agreement for twelve months. Semaphore will
            assist the Company in the extended period in pursuing growth through
            acquisitions and alliances of compatible businesses or technologies.

            During fiscal year 2002,  Company  shipments of the  AN/APM-480  IFF
            Transponder/Interrogator  test set to the U.S. Navy  represented 54%
            of total  sales.  Since  obtaining  the  contract,  the  Company has
            received  orders  from the U.S.  Navy for a total of 1,059 units and
            there are 241 units  remaining  subject  to the U.S.  Navy's  option
            under the  contract.  Any options not exercised by February 11, 2003
            will expire.


                                                                               2


Item 1.     Business (Continued)

            General (Continued)

            The  AN/APM-480  is a  militarized  avionics  ramp  tester  used  to
            simulate IFF  Transponder/Interrogator  and TCAS (Traffic  Alert and
            Collision Avoidance system) functions to provide "go, no-go" testing
            of avionics test equipment in military aircraft,  on the flight line
            and aircraft carrier deck. The Company has begun  development of the
            next  generation of more  sophisticated  IFF testers in anticipation
            that the U.S.  Navy will issue a  contract  in the future to upgrade
            these units.  Although  there is no assurance  that the Company will
            receive  any such  sales  contracts  which may be issued by the U.S.
            Navy, the Company believes that it is well positioned to obtain such
            contracts.

            While the government sales increased significantly, commercial sales
            decreased  due  to the  financial  difficulties  encountered  in the
            commercial  airline  industry and the  consequences of the September
            11th tragedy.

            The table  below sets forth the  composition  of Tel's sales for the
            last three fiscal years.

                                        Commercial     Government       Total
                                        ----------     ----------       -----
            March 31, 2002              $1,981,298     $7,749,783     $9,731,081
            March 31, 2001              $3,033,281     $4,475,620     $7,508,901
            March 31, 2000              $1,957,859     $3,172,923     $5,130,782

            Foreign  commercial  sales are made direct,  through American export
            agents or the  Company's  international  distributors  at a discount
            reflecting  the  20%  selling  commission  under  written  or  oral,
            year-to-year arrangements.  For the years ended March 31, 2002, 2001
            and  2000,   foreign  commercial  sales  were  20%,  17%,  and  20%,
            respectively, of total commercial sales.

            The Company has an exclusive  distribution  agreement  with Muirhead
            Avionics  and  Accessories,  Ltd,  based in the United  Kingdom,  to
            represent  the  Company  in  parts  of  Europe.  Sales  to  Muirhead
            represented  approximately  4%,  3%,  and 5% of total  sales for the
            fiscal years 2002, 2001, and 2000, respectively.

            In May 1999,  the  Company  received a $396,262  order for its DME/P
            ramp test units from a customer in Italy. These units were delivered
            in the first  quarter of fiscal year 2001.  The  Company  received a
            contract  for  $680,000  (subsequently  increased  to  $956,000)  to
            develop  a DME/P  bench  test  set  from  this  same  customer  with
            deliveries scheduled for the second quarter of fiscal year 2003.

            Tel also  sells its  products  in  Australia  and New  Zealand,  has
            recently signed an agreement to distribute its products in Spain and
            Portugal, and is exploring distribution in other areas.

            Domestic commercial sales are made directly or through distributors.
            No  direct  commercial  customer  accounted  for  more  than  10% of
            commercial  sales in fiscal years 2002 and 2001. One direct domestic
            commercial  customer accounted for 11% of commercial sales in fiscal
            year  2000.   There  are  no  written   agreements   with   domestic
            distributors,  who receive a 15%-20% discount for stocking,  selling
            and, in some cases, supporting these products. Tel gives a 5% to 10%
            discount to non-stocking distributors,


                                                                               3


Item 1.     Business (Continued)

            General (Continued)

            and  independent  sales  representatives,  depending  on their sales
            volume and promotional  effort. One domestic  distributor  accounted
            for  approximately  19%,  29%, and 10% of  commercial  sales for the
            years ended March 31, 2002, 2001, and 2000, respectively.

            Set forth below is Tel's backlog at March 31, 2002, 2001, and 2000.

                                       Commercial     Government        Total
                                       ----------     ----------        -----
                 March 31, 2002         $186,690     $ 8,346,557     $ 8,533,247
                 March 31, 2001         $633,761     $13,029,317     $13,663,078
                 March 31, 2000         $665,072     $14,355,429     $15,020,501

            Tel  believes  that most of the  backlog  at March 31,  2002 will be
            delivered during the next 12-18 months.

            Reduction in backlog is a result of having  delivered  approximately
            50% of the 1,059 units ordered by the U.S.  Navy for the  AN/APM-480
            IFF test sets, and the general decline, started late summer of 2001,
            in the commercial  market discussed above. Also discussed above, the
            Company is working on the next generation of test units, including a
            more  sophisticated IFF test set, and has retained Semaphore Capital
            Advisors to assist it in broadening its markets and products through
            acquisitions or alliances.

            All of the backlog is  pursuant  to  purchase  orders and all of the
            government contracts are fully funded. However, government contracts
            are  always   susceptible  to  termination  by  the  government  for
            convenience.

            Tel obtains its purchased  parts from a number of  suppliers.  These
            materials   are  standard  in  the  industry  and  Tel  foresees  no
            difficulty in obtaining  purchased  parts, as needed,  at acceptable
            prices.

            Markets and Competition

            The Company  manufactures and sells commercial and military products
            as the same avionics  business,  using best  commercial  practice in
            manufacturing  products for the  government.  Most of Tel's military
            test sets are similar to the Company's commercial test sets.

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

            The civilian market for avionic test equipment is dominated by three
            manufacturers, including Tel, IFR, a division of Aeroflex, Inc., and
            JC  Air,  a  division  of  Goodrich  Corporation.   This  market  is
            relatively  small and highly  competitive.  Tel has  generally  been
            successful  because  of  its  high  quality  products,  prices,  and
            responsive service. Tel also provides customers with calibration and
            repair services.

            The Company has entered into distribution arrangements with Muirhead
            to distribute in


                                                                               4


Item 1.     Business (Continued)

            Markets and Competition (continued)

            Europe and with  Milspec  Services  in  Australia  and New  Zealand.
            Additionally,  the Company  entered  into an  agreement  with M.P.G.
            Instruments s.r.l., wherein this distributor will have the exclusive
            sales  rights  for DME/P  ramp and bench  test  units.  The  Company
            continues to explore additional  opportunities in other parts of the
            world.

            Future  domestic  market  growth  will depend in part on whether the
            U.S.  Federal  Aviation  Administration  (FAA)  implements  plans to
            upgrade the U.S. air traffic control system and on continuing recent
            trends towards more  sophisticated  avionics systems,  both of which
            would require the design and manufacture of new test equipment.  The
            Company continues to analyze the needs of the market, to develop new
            and improved  instruments to meet emerging FAA requirements,  and to
            redesign  models to add functions  and reduce the cost.  The Company
            believes its test  equipment is  recognized by its customers for its
            quality, durability, reliability, and affordability.

            Military Markets

            The military market is large, but is dominated by large corporations
            with  substantially  greater  resources than Tel. Tel  competitively
            bids for government  contracts on the basis of the uniqueness of its
            products and "small business set asides" (i.e., statutory provisions
            requiring  the  military  to  entertain  bids only from  statutorily
            defined small businesses),  and on bids for sub-contracts from major
            government suppliers.

            Tel has  increased  its  efforts  to obtain  such  subcontracts  and
            meeting end user needs by  modifying  commercial  designs to satisfy
            special government/military  requirements. This approach has enabled
            Tel to sell the T-30D, T-36M, T-48I, T-47 family, and T-49 family to
            government agencies and prime contractors.

            In recent years the Company has become the dominant supplier for the
            U.S.  Military as well as throughout  the NATO  countries for flight
            line IFF test  equipment.  The Company is  currently  working on the
            next generation of IFF test sets.

            Tel has no patents or licenses which are material to its business.

            Engineering, Research and Development

            In the fiscal years ended March 31, 2002,  2001, and 2000, Tel spent
            $1,521,219,   $1,047,305,  and  $1,051,833,   respectively,  on  the
            engineering,  research and development of new and improved products.
            None of these amounts were sponsored by customers.  Tel's management
            believes that continued and increased  expenditures for engineering,
            research and  development  are necessary to enable Tel to expand its
            sales and profits.

            The increase in expenditures in fiscal year 2002 is the result of an
            increase  in staff  and an  increase  in the  Company's  development
            efforts. Engineering,  research and development expenditures in 2002
            were  directed,  in addition to the next  generation  IFF test sets,
            toward the development of a multi-function  commercial bench tester,
            and new  products  for other  targeted  markets,  such as the T-36C,
            TR-220, and T-47S. The Company owns all of these designs.


                                                                               5


Item 1.     Business (Continued)

            Personnel

            At  June  10,  2002,  Tel had  thirty  employees  in  manufacturing,
            materials management,  and quality assurance, nine in administration
            and sales, and ten in research and development, none of whom belongs
            to a union. While the job market is tight,  especially for technical
            personnel, Tel has generally been able to add personnel as required.
            The Company also uses several part-time  consultants on an as needed
            basis.

Item 2.     Properties

            During the fourth quarter of fiscal year 2001, the Company  expanded
            its facilities and increased its  manufacturing  capacity by leasing
            the additional space in the lower level of its current building. The
            Company now leases 19,564  square feet in  Carlstadt,  New Jersey as
            its manufacturing  plant and administrative  offices,  pursuant to a
            ten-year  lease  expiring in February,  2011.  Tel is unaware of any
            environmental  problems in connection with its location and, because
            of the nature of its manufacturing  activities,  does not anticipate
            such problems.

Item 3.     Pending Legal Proceedings

            There are no material pending legal proceedings.


                                                                               6


                                     PART II

Item 5.     Market for Registrant's Common Equity and Related Stockholder
            Matters

            Market Information

            There has been no established public trading market for Registrant's
            Common  Stock.  Subsequent  to the public  offering of the Company's
            Common  Stock  in  December   1988,  the  Common  Stock  has  traded
            sporadically in the over-the-counter  market. During the fiscal year
            ended March 31, 2002,  the  Company's  Common Stock had the high and
            low bids of $2.50 and $1.08, respectively.  These quotations reflect
            inter-dealer prices, without retail markup or commission and may not
            necessarily represent actual transactions. On June 10, 2002, the bid
            was $2.15 and the ask was $2.30.

            Approximate Number of Equity Security Holders

                                                               Number of Record
                                                                 Holders as of
                Title of Class                                  March 31, 2002
                ---------------------------------------------------------------
                Common Stock, par value                               814
                  $.10 per share

            Dividends

            Registrant  has not paid  dividends on its Common Stock and does not
            expect to pay such dividends in the foreseeable future.


                                                                               7


Item 6.     Selected Financial Data

                        TEL-INSTRUMENT ELECTRONICS CORP.
                        SUMMARY OF FINANCIAL INFORMATION



                                                                            Years Ended March 31,
                                                  ----------------------------------------------------------------------------
                                                     2002             2001            2000            1999            1998
                                                  -----------     -----------     -----------     -----------     -----------
                                                                                                   
Statement of Operations Data:
   Net revenues                                   $ 9,731,081     $ 7,508,901     $ 5,130,782     $ 3,484,499     $ 3,959,242
                                                  -----------     -----------     -----------     -----------     -----------
   Operating costs and expenses:
   Cost of sales                                    4,684,147       3,704,572       2,489,769       1,559,992       1,559,542
   Selling, general and administrative              1,858,843       1,622,881       1,165,844         920,547         909,505
   Engineering, research and development            1,521,219       1,047,305       1,051,833       1,204,077         902,250
                                                  -----------     -----------     -----------     -----------     -----------
                                                    8,064,209       6,374,758       4,707,446       3,684,616       3,371,297
                                                  -----------     -----------     -----------     -----------     -----------

   Income (loss) from operations                    1,666,872       1,134,143         423,336        (200,117)        587,945

   Other expenses, net                                (81,183)        (95,026)        (64,378)        (44,149)        (68,847)
                                                  -----------     -----------     -----------     -----------     -----------

   Diluted income/(loss) before income taxes        1,585,689       1,039,117         358,958        (244,266)        519,098

   Provision for (benefit from) income taxes          557,999        (295,888)       (241,595)        (97,585)        (58,719)
                                                  -----------     -----------     -----------     -----------     -----------
   Net income (loss)                              $ 1,027,690     $ 1,335,005     $   600,553     ($  146,681)    $   577,817
                                                  ===========     ===========     ===========     ===========     ===========
   Diluted income/(loss) per common share         $      0.48     $      0.63     $      0.28     ($     0.07)    $      0.28
                                                  ===========     ===========     ===========     ===========     ===========

                                                                            Years Ended March 31,
                                                  ----------------------------------------------------------------------------
                                                     2002             2001            2000            1999            1998
                                                  -----------     -----------     -----------     -----------     -----------
                                                                                                   
Balance Sheet Data:
  Working capital                                  $3,154,081      $1,766,360      $  921,130      $  507,582       $  864,061

   Total assets                                     6,233,572       5,934,646       3,932,765       2,218,508        1,941,141

   Long-term debt                                     152,183         218,345         301,682         266,486          300,000

   Stockholders' equity                             3,900,794       2,862,348       1,522,047         919,093        1,060,068



                                                                               8


Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations

            A number of the statements made by the Company in this report may be
            regarded as  "forward-looking  statements" within the meaning of the
            Private Securities Litigation Reform Act of 1995.

            Forward-looking   statements  include,   among  others,   statements
            concerning the Company's  outlook,  pricing trends and forces within
            the industry,  the completion  dates of capital  projects,  expected
            sales growth, cost reduction strategies and their results, long-term
            goals of the Company and other statements of expectations,  beliefs,
            future  plans and  strategies,  anticipated  events  or  trends  and
            similar  expressions  concerning  matters  that  are not  historical
            facts.

            All   predictions  as  to  future  results   contain  a  measure  of
            uncertainty and accordingly, actual results could differ materially.
            Among the factors that could cause a difference are:  changes in the
            general economy;  changes in demand for the Company's products or in
            the costs and  availability  of its raw  materials;  the  actions of
            competitors;  the success of our  customers;  technological  change;
            changes in employee relations;  government regulations;  litigation,
            including its inherent uncertainty; difficulties in plant operations
            and  materials  transportation;  environmental  matters;  and  other
            unforeseen circumstances. A number of these factors are discussed in
            the Company's filings with the Securities and Exchange Commission.

            Critical Accounting Policies

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

            Revenue  recognition  -  revenues  are  recognized  at the  time  of
            shipment to, or  acceptance by customer  provided  title and risk of
            loss is transferred to the customer.  Provisions,  when appropriate,
            are made where the right to return  exists.  Revenues  under service
            contracts are recognized when the services are performed.

            Property and  equipment - property and equipment are stated at cost,
            less  accumulated  depreciation.  Depreciation is provided using the
            straight-line   method  over  the  estimated  useful  lives  of  the
            respective  assets over  periods  ranging from three to eight years.
            Useful lives are estimated at the time the asset is acquired and are
            based upon  historical  experience  with  similar  assets as well as
            taking into  account  anticipated  technological  or other  changes.
            Leasehold  improvements  are amortized over the term of the lease or
            the useful life of the asset, whichever is shorter.

            Inventory  reserves - inventory  reserves are  estimated for excess,
            slow-moving  and  obsolete  inventory  as  well as  inventory  whose
            carrying value is in excess of net realizable value.


                                                                               9


Item 7.     Management's  Discussion  and  Analysis of Financial  Condition  and
            Results of Operations

            Critical Accounting Policies (continued)

            These  estimates  are  based on  current  assessments  about  future
            demands,  market conditions and related management  initiatives.  If
            market  conditions  and actual demands are less favorable than those
            projected by management,  additional  inventory  write-downs  may be
            required.

            Accounts   receivable  -  the  Company   performs   ongoing   credit
            evaluations  of its  customers  and adjusts  credit  limits based on
            customer  payment and current  credit  worthiness,  as determined by
            review of their current credit information. The Company continuously
            monitors  credits and  payments  from its  customers  and  maintains
            provision  for  estimated  credit  losses  based  on its  historical
            experience  and  any  specific   customer   issues  that  have  been
            identified.  While such credit losses have  historically been within
            our  expectation and the provision  established,  the Company cannot
            guarantee that it will continue to receive positive results.

            Income taxes - deferred tax assets and  liabilities  are  determined
            based on differences  between  financial  reporting and tax bases of
            assets and  liabilities and are measured using enacted tax rates and
            laws that will be in effect when such  differences  are  expected to
            reverse.  The  measurement  of deferred  tax assets is  reduced,  if
            necessary, by a valuation allowance for any tax benefit which is not
            more likely  than not to be  realized.  The effect on  deferred  tax
            assets and  liabilities of a change in tax rate is recognized in the
            period that such tax rate changes are enacted.

            Results of Operations 2002 Compared to 2001

            Overview

            For  the  year  ended  March  31,  2002  sales  increased  29.6%  to
            $9,731,081 and net income before taxes increased 52.6% to $1,585,689
            from $1,039,117. During fiscal year 2002 shipments of the AN/APM-480
            IFF (Identification, Friend or Foe) Transponder Set Test Sets (TSTS)
            to the U.S.  Navy  represented  54% of total sales.  The Company has
            received  orders for 1,059  units and there are 241 units  remaining
            subject to the U.S.  Navy's option under the  contract.  Any options
            not exercised by February 11, 2003 will then expire.  A total of 520
            have been shipped and revenue  recognized as of March 31, 2002.  The
            balance  of the units  ordered  by the U.S.  Navy  should be shipped
            within  the  next  12-18  months.  This  contract,  as  anticipated,
            represents a significant portion of the Company's revenues in fiscal
            year  2002  and  has  contributed  greatly  to the  increase  in the
            Company's  operating  profits.  The Company  increased  research and
            development expenditures in order to develop new products for future
            sales including the T-47S test set, a commercial bench test set, and


                                                                              10


Item 7.     Management's  Discussion  and  Analysis of Financial  Condition  and
            Results of Operations

            Results of Operations 2002 Compared to 2001 (continued)

            Overview (continued)

            new products for other targeted markets.  The Company also continues
            work on the next  generation  of IFF test  sets.  As a result of the
            continuing improvement in operating results, the Company's financial
            position has significantly improved.

            The Company continues to actively pursue avionics test opportunities
            in both the commercial and government  markets both domestically and
            internationally,  and  is  also  exploring  opportunities  in  other
            government and commercial  markets in order to broaden the Company's
            product and market base.  As previously  announced,  the Company has
            engaged Semaphore Capital Advisors LLC (formerly Crary Partners LLC)
            to render  investment-banking  services  to the  Company and in June
            2002 extended the term of that  agreement to provide that  Semaphore
            will assist the Company to grow through acquisitions and alliances.

            Sales

            Sales increased  $2,222,180 (29.6%) to $9,731,081 for the year ended
            March 31, 2002 as compared  to the year ended March 31,  2001.  This
            continues the growth of sales over the last five years.

            Government sales increased  $3,274,163 (73.2%) to $7,749,783 for the
            year ended  March 31, 2002 as  compared  to the prior  fiscal  year,
            primarily  as a result of the  shipment of the  AN/APM-480  IFF test
            sets to the U.S. Navy.

            Commercial sales decreased  $1,051,983 (34.7%) to $1,981,298 for the
            fiscal  year ended  March 31,  2002 as  compared  to the fiscal year
            ended March 31, 2001.  This  decrease is primarily the result of the
            completion  of a major  contract  with a  freight  carrier,  and the
            inability to replace this contract with  comparable new business due
            to the financial difficulties  encountered in the commercial airline
            industry and the consequences of the September 11th tragedy.

            Gross Margin

            Gross margin  increased  $1,242,605  (32.7%) to  $5,046,934  for the
            fiscal year ended  March 31,  2002 as  compared to the prior  fiscal
            year. The increase in gross margin, for the most part, is attributed
            to the higher  volume and,  to a lesser  extent,  to the  production
            efficiencies obtained as a result of the higher volume. Gross margin
            as a  percentage  of sales for the fiscal  year ended March 31, 2002
            was 51.9% as  compared  to 50.7% for the fiscal year ended March 31,
            2001.


                                                                              11


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

            Results of Operations 2002 Compared to 2001 (continued)

            Operating Expenses

            Selling,  general and  administrative  expenses  increased  $235,962
            (14.5%)  for the year ended  March 31, 2002 as compared to the prior
            fiscal year, as a result, for the most part, to an increase in sales
            and marketing  activities,  including the addition of new personnel,
            an increase in commission expenses, higher professional fees, and an
            increase in facility  costs  associated  with the Company adding the
            lower level of the building to its lease.

            Engineering,  research and development  expenses  increased $473,914
            (45.3%) for the year ended March 31, 2002 as compared to last fiscal
            year. The higher level of  expenditures  results from the completing
            the  design  of the  T-47S  test set,  continuing  development  of a
            commercial  bench test set, new products for other targeted  markets
            and  enhancements to existing  products.  The Company has also begun
            work on the next generation of IFF test sets.

            Income Taxes

            For the year ended March 31, 2002, the Company  recorded a provision
            for  income  taxes  of  $557,999,  which  represents  primarily  the
            effective  federal  and state tax rate on the  Company's  net income
            before  taxes.  For the year ended March 31, 2001,  the Company,  in
            accordance  with FASB 109,  recorded a net tax benefit of  $295,888,
            which  represented:  (1) the effective federal and state tax rate on
            the Company's net income before taxes,  and (2) the reduction of its
            deferred tax  valuation  allowance and other items and credited this
            amount to benefit from income taxes. The Company does not for fiscal
            year  2002  and did not for  fiscal  year  2001  have a  significant
            federal tax liability (see Note 9 to the Financial Statements).

            Although  income  before  taxes was  $546,572  higher in fiscal year
            2002,  than fiscal year 2001,  income after taxes declined in fiscal
            year 2002 as a result of  crediting  the 2001 tax  provision  with a
            benefit from a change in the valuation  allowance in accordance with
            FASB 109.

            Tel has used up its net operating  losses through March 31, 2002 and
            has, therefore,  not paid significant federal income taxes. Tel will
            begin to pay federal income taxes in fiscal year 2003.

            Results of Operations 2001 Compared to 2000

            Overview

            For the year ended March 31, 2001 sales  increased  over fiscal year
            2000 by 46% to $7,508,901 and net income before taxes increased 189%
            to $1,039,117 from $358,958.


                                                                              12


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

            Results of Operations 2001 Compared to 2000 (continued)

            During  fiscal  year  2001,  the  Company  began  shipments  of  the
            AN/APM-480 IFF (Identification,  Friend or Foe) Transponder Set Test
            Sets (TSTS) to the U.S. Navy. The Company  received  orders from the
            U.S.  Navy  for a total of 960  units of which a total of 128  units
            were shipped during fiscal year 2001 and the revenue recognized.

            During  fiscal  year 2001,  the  Company  began  shipment to a major
            freight  carrier  (through  a  domestic  distributor)  of T-30D  ILS
            (Instrument Landing System) and T-49C TCAS commercial test sets. The
            total order exceeded $900,000, and the Company shipped approximately
            $600,000 of this order during fiscal year 2001,  and expects to ship
            the balance of this order during the first half of fiscal year 2002.
            In addition,  during the fiscal year 2001 the Company shipped all of
            the T-76 DME/P (precision  distance  measuring  equipment) ramp test
            sets  under the  contract,  totaling  approximately  $400,000,  with
            Marconi  Communications  through  our Italian  intermediary,  M.P.G.
            Instruments s.r.l.

            Sales

            Sales increased  $2,378,119 (46.4%) to $7,508,901 for the year ended
            March 31, 2001 as compared to the year ended March 31, 2000.

            Government  sales  increased  $1,302,697  (41.1%) for the year ended
            March 31,  2001 as  compared to the prior  fiscal  year.  Government
            sales  increased as a result of the shipment of the  AN/APM-480  IFF
            test sets to the U.S.  Navy,  the T-36M and the T-76 DME/P ramp test
            sets.  These increases were partially  offset by lower foreign sales
            of the  T-47  family  of IFF test  sets  and of sales of the  T-49CF
            military TCAS units.

            Commercial sales increased  $1,075,422 (54.9%) to $3,033,281 for the
            fiscal  year ended  March 31,  2001 as  compared  to the fiscal year
            ended March 31, 2000. The increase in commercial  sales is primarily
            attributed  to the  shipment  of  commercial  test  sets  to a major
            freight carrier and an increase in ILS and TCAS test set shipments.

            Gross Margin

            Gross margin increased  $1,163,316 (44.0%) for the fiscal year ended
            March 31, 2001 as compared to the prior fiscal year. The increase in
            gross margin, for the most part, is attributed to the higher volume.
            However,  gross margin, as a percentage of sales, was reduced by the
            introduction of new products, such as the AN/APM 480 and the T-76,


                                                                              13


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

            Results of Operations 2001 Compared to 2000 (continued)

            and the  associated  learning  curve in building  these new and more
            sophisticated  products,  and lower  gross  profit on the AN/APM 480
            contract.  The gross  margin  percentage  for the fiscal  year ended
            March 31,  2001 was 50.7% as  compared  to 51.5% for the fiscal year
            ended March 31, 2000.

            Operating Expenses

            Selling,  general and  administrative  expenses  increased  $457,037
            (39.2%)  for the year ended  March 31, 2001 as compared to the prior
            fiscal  year.  This  increase  is  attributed  to  higher  sales and
            marketing expenses, and an increase in accrued compensation expense.

            Engineering,  research and development expenses decreased $4,528 for
            the year  ended  March 31,  2001 as  compared  to fiscal  year 2000.
            Similar to fiscal year 2000, certain resources were directed towards
            revenue-producing   activities  and,  therefore,   not  included  in
            engineering, research and development expenses. However, the Company
            continued to develop new  products and provide a foundation  for the
            future, including work on a universal test set and beginning work on
            the next generation of IFF test sets.

            Income Taxes

            For the year ended March 31, 2001, the Company,  in accordance  with
            FASB 109, recorded a net tax benefit of $295,888,  which represents:
            (1) the  effective  federal and state tax rate on the  Company's net
            income before taxes, and (2) reduction of its deferred tax valuation
            allowance  and other items and credited  this amount to benefit from
            income  taxes.  For the year  ended  March  31,  2000,  the  Company
            recorded a net tax benefit of $241,595,  which  represents:  (1) the
            effective  federal  and state tax rate on the  Company's  net income
            before taxes and (2) reduced its valuation allowance and other items
            in the amount of $385,000 and  credited  this amount to benefit from
            income  taxes.  The Company  currently  does not have a  significant
            federal tax liability (see Note 9 to the Financial Statements).

            Liquidity and Capital Resources

            Working capital  increased  $1,387,721 (79%) during fiscal year 2002
            to $3,154,081  as compared to $1,766,360 at March 31, 2001.  For the
            year  ended  March  31,  2002,  the  Company   generated  cash  from
            operations  in the amount of  $1,378,566  as compared to $725,864 in
            the prior  fiscal year.  This  increase in cash from  operations  is
            primarily  attributed to the improvement in the Company's  operating
            income  as a  result  of the  higher  sales  volume,  and is after a
            reduction during the year in accounts payable of $730,047.


                                                                              14


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

            Liquidity and Capital Resources (continued)

            The Company  expanded its line of credit to $1,000,000 from $600,000
            from Fleet Bank.  The line of credit bears an interest  rate of 0.5%
            above the lender's  prevailing base rate,  which is payable monthly,
            based upon the outstanding balance. As of March 31, 2002 the Company
            had no  outstanding  balance.  At March 31,  2001,  the  Company had
            borrowed  $250,000  against  its line of  credit,  which was  repaid
            during  fiscal year 2002.  The line of credit is  collateralized  by
            substantially all of the assets of the Company and expires in August
            2002. The credit facility  requires the Company to maintain  certain
            financial  covenants.  As of March  31,  2002,  the  Company  was in
            compliance with all financial covenants.

            Based upon the current  backlog,  its existing credit line, and cash
            balance, the Company believes that it has sufficient working capital
            to fund its operating plans for the next twelve months.  However, as
            the  Company  pursues   additional   opportunities,   the  need  for
            additional   capital  may  arise.  The  Company  will  evaluate  its
            alternatives  when these  opportunities  arise. The Company has also
            retained  Semaphore  Capital  Advisors as its investment  bankers to
            help pursue acquisitions and alliances and, if needed, to help raise
            capital.  The Company  maintains  its cash balance in a money market
            account, in the event the cash is needed for acquisition.  There was
            no  significant  impact on the  Company's  operations as a result of
            inflation for the fiscal year ended March 31, 2002.


                                                                              15


Item 8.     Financial Statements and Supplementary Data

                                                                           Pages
                                                                           -----
            (1)    Financial Statements:

                   Report of Independent Accountants                          17

                   Balance Sheets - March 31, 2002 and 2001                   18

                   Statements of Operations - Years Ended                     19
                       March 31, 2002, 2001 and 2000

                   Statements of Changes in Stockholders'                     20
                      Equity - Years Ended March 31,
                      2002, 2001 and 2000

                   Statements of Cash Flows - Years Ended                     21
                       March 31, 2002, 2001 and 2000

                   Notes to Financial Statements                           22-37

            (2)    Financial Statement Schedule:

                   II - Valuation and Qualifying Accounts                     38


            Financial  statement schedules not included in this annual report on
            Form 10-K have been omitted  because they are not  applicable or the
            required  information is shown in the financial  statements or notes
            thereto.


                                                                              16


Report of Independent Accountants

            To the Stockholders and Board of Directors of
            Tel-Instrument Electronics Corp.

            In our opinion,  the financial statements listed in the accompanying
            index  present  fairly,  in all  material  respects,  the  financial
            position of  Tel-Instrument  Electronics  Corp.  (the  "Company") at
            March 31, 2002 and 2001,  and the results of its  operations and its
            cash flows for each of the three years in the period ended March 31,
            2002, in conformity with accounting principles generally accepted in
            the United  States of America.  In  addition,  in our  opinion,  the
            financial  statement  schedule  included in the  accompanying  index
            presents fairly, in all material respects, the information set forth
            therein  when  read  in  conjunction  with  the  related   financial
            statements.  These financial  statements and the financial statement
            schedule are the  responsibility  of the Company's  management;  our
            responsibility   is  to  express  an  opinion  on  these   financial
            statements and the financial statement schedule based on our audits.
            We  conducted  our audits of these  statements  in  accordance  with
            auditing  standards  generally  accepted  in the  United  States  of
            America  which  require that we plan and perform the audit to obtain
            reasonable assurance about whether the financial statements are free
            of material  misstatement.  An audit includes  examining,  on a test
            basis,  evidence  supporting  the  amounts  and  disclosures  in the
            financial  statements,  assessing the accounting principles used and
            significant estimates made by management, and evaluating the overall
            financial statement presentation. We believe that our audits provide
            a reasonable basis for our opinion.

            PricewaterhouseCoopers LLP

            Florham Park, New Jersey
            June 13, 2002


                                                                              17


TEL-INSTRUMENT ELECTRONICS CORP.

Balance Sheets



                                      ASSETS                                    March 31, 2002        March 31, 2001
                                                                                --------------        --------------
                                                                                                 
Current assets:
        Cash and cash equivalents                                                $  1,198,191          $   433,438
        Accounts receivable, net of allowance for doubtful
           accounts of $36,598 at March 31, 2002
           and $11,598 at  March 31,  2001                                            937,849            1,264,383
        Inventories, net                                                            2,481,680            2,351,648
        Prepaid expenses and other current assets                                      47,956               43,568
        Deferred income tax benefit - current                                         669,000              527,276
                                                                                 ------------          -----------
             Total current assets                                                   5,334,676            4,620,313

Office and manufacturing equipment, net                                               822,010              674,656
Other assets                                                                           76,886               35,354
Deferred income tax benefit                                                                --              604,323
                                                                                 ------------          -----------

Total assets                                                                     $  6,233,572          $ 5,934,646
                                                                                 ============          ===========
                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Convertible note payable - related party - current portion                 $    250,000          $   200,000
      Convertible subordinated note - related party                                     7,500               15,000
      Line of credit                                                                       --              250,000
      Capitalized lease obligations - current portion                                 108,845               77,826
      Accounts payable                                                                212,126              942,173
      Deferred revenues                                                               518,103              267,630
      Accrued payroll, vacation pay and deferred wages                                399,437              535,850
      Accrued expenses - related parties                                              149,370              196,973
      Taxes payable                                                                    37,356               63,215
      Other accrued expenses                                                          497,858              305,286
                                                                                 ------------          -----------
             Total current liabilities                                              2,180,595            2,853,953

Convertible note payable - related party                                              100,000              150,000
Capitalized lease obligations - excluding current portion                              52,183               68,345
                                                                                 ------------          -----------
         Total liabilities                                                          2,332,778            3,072,298

Commitments and contingencies                                                              --                   --

Stockholders' equity
       Common stock, par value $.10 per share, 2,133,351 and 2,124,351
          issued and outstanding as of March 31, 2002 and 2001, respectively          213,338              212,438
       Additional paid-in capital                                                   3,941,967            3,932,111
       Accumulated deficit                                                           (254,511)          (1,282,201)
                                                                                 ------------          -----------

             Total stockholders' equity                                             3,900,794            2,862,348
                                                                                 ------------          -----------
      Total liabilities and stockholders' equity                                 $  6,233,572          $ 5,934,646
                                                                                 ============          ===========


The accompanying notes are an integral part of the financial statements


                                                                              18


TEL-INSTRUMENT ELECTRONICS CORP.
Statements of Operations



                                                                  For the years ended March 31,
                                                            2002               2001              2000
                                                            ----               ----              ----
                                                                                     
Sales - commercial, net                                  $1,981,298         $3,033,281        $1,957,859
Sales - government, net                                   7,749,783          4,475,620         3,172,923
                                                         ----------         ----------        ----------

              Total Sales                                 9,731,081          7,508,901         5,130,782

Cost of sales                                             4,684,147          3,704,572         2,489,769
                                                         ----------         ----------        ----------

              Gross margin                                5,046,934          3,804,329         2,641,013

Operating expenses:
  Selling, general and administrative                     1,858,843          1,622,881         1,165,844
  Engineering, research and development                   1,521,219          1,047,305         1,051,833
                                                         ----------         ----------        ----------

              Total operating expenses                    3,380,062          2,670,186         2,217,677
                                                         ----------         ----------        ----------

                 Income from operations                   1,666,872          1,134,143           423,336

Other income/(expense):
              Interest income                                15,103             23,877             9,682
              Interest expense                              (52,361)           (78,478)          (37,136)
              Interest  expense -  related parties          (43,925)           (40,425)          (36,924)
                                                         ----------         ----------        ----------

Income before income taxes                                1,585,689          1,039,117           358,958

Income tax expense (benefit)                                557,999           (295,888)         (241,595)
                                                         ----------         ----------        ----------

   Net income                                            $1,027,690         $1,335,005        $  600,553
                                                         ==========         ==========        ==========

Income per common share:
              Basic                                      $     0.48         $     0.63        $     0.28
                                                         ==========         ==========        ==========
              Diluted                                    $     0.48         $     0.63        $     0.28
                                                         ==========         ==========        ==========

Weighted average number of shares outstanding
          Basic                                           2,127,782          2,115,134         2,110,983
                                                         ==========         ==========        ==========
          Diluted                                         2,159,986          2,117,686         2,146,402
                                                         ==========         ==========        ==========


The accompanying notes are an integral part of the financial statements.


                                                                              19


TEL-INSTRUMENT ELECTRONICS CORP.
Statements Of Changes In Stockholders' Equity



                                                         Common Stock                Additional
                                               Number of Shares                        Paid-In      Accumulated
                                            Authorized     Issued       Amount         Capital        Deficit        Total
                                            ----------     ------       ------         -------        -------        -----
                                                                                                 
Balances at April 1, 1999                    4,000,000    2,109,957    $210,998      $3,925,854     $(3,217,759)   $  919,093

Net income                                                                                              600,553       600,553
Issuance of common stock in connection
 with the exercise of stock options                           3,333         334           2,067                         2,401
                                             ---------    ---------    --------      ----------     -----------    ----------
Balances at March 31, 2000                   4,000,000    2,113,290    $211,332      $3,927,921     $(2,617,206)   $1,522,047

Net income                                                                                            1,335,005     1,335,005
Issuance of common stock in connection
 with the exercise of  stock options                         11,061       1,106           4,190                         5,296
                                             ---------    ---------    --------      ----------     -----------    ----------

Balances at March 31, 2001                   4,000,000    2,124,351    $212,438      $3,932,111     $(1,282,201)   $2,862,348

Net income                                                                                            1,027,690     1,027,690
Issuance of common stock upon conversion
 of convertible subordinated note                             5,000         500           7,000                         7,500
Issuance of common stock in connection
 with the exercise of stock options                           4,000         400           2,856                         3,256
                                             ---------    ---------    --------      ----------     -----------    ----------

Balances at March 31, 2002                   4,000,000    2,133,351    $213,338      $3,941,967     $ (254,511)    $3,900,794
                                             =========    =========    ========      ==========     ==========     ==========


The accompanying notes are an integral part of the financial statements.


                                                                              20


TEL-INSTRUMENT ELECTRONICS CORP.

Statements Of Cash Flows


                                                                                For the years ended March 31,
                                                                             2002            2001          2000
                                                                         -----------      ---------     ---------
                                                                                                
Cash flows from operating activities:
    Net income                                                            $1,027,690     $1,335,005      $600,553
    Adjustments to reconcile net income to cash
       provided by (used in) operating activities:
          Deferred income taxes                                              462,599       (393,500)     (241,595)
          Depreciation and amortization                                      210,489        129,887        70,303
          Provision for losses on accounts receivable                         25,000             --        (3,987)
          Provision for inventory obsolescence                                12,517         28,672        14,504
          Changes in assets and liabilities:
            Decrease (increase) in accounts receivable                       301,534      (164,958)      (456,717)
            Increase in inventories                                         (142,549)      (893,435)     (787,689)
            (Increase) decrease in prepaid expenses and other assets         (21,837)        10,726       (21,545)
            (Decrease) increase in accounts payable                         (730,047)       195,310       444,428
            (Decrease) increase in taxes payable                             (25,859)        63,215            --
            Increase in deferred revenues, and other
                     accrued expenses                                        259,029        414,942       284,970
                                                                         -----------      ---------     ---------
            Net cash provided by (used in) operating
                     Activities                                            1,378,566        725,864      (96,775)
                                                                         -----------      ---------     ---------
Cash flows from investing activities:
   Additions to office and manufacturing equipment                          (238,603)      (396,057)     (125,948)
   Increase in cash surrender value of life insurance                        (24,083)        (5,000)      (24,494)
                                                                         -----------      ---------     ---------

            Net cash used in investing activities                          (262,686)      (401,057)     (150,442)
                                                                         -----------      ---------     ---------
Cash flows from financing activities:
   Proceeds from loan on insurance policy                                         --             --       129,456
   Proceeds from exercise of warrants and options                              3,256          5,296         2,401
   Proceeds from drawing on line of credit                                        --             --       250,000
   Repayment of line of credit                                              (250,000)            --            --
   Repayment of capitalized lease obligations                               (104,383)       (69,501)      (32,421)
                                                                         -----------      ---------     ---------

            Net cash (used in) provided by financing activities             (351,127)       (64,205)      349,436
                                                                         -----------      ---------     ---------

Net increase in cash and cash equivalents                                    764,753        260,602       102,219

Cash and cash equivalents, beginning of year                                 433,438        172,836        70,617
                                                                         -----------      ---------     ---------

Cash and cash equivalents, end of year                                   $ 1,198,191      $ 433,438     $ 172,836
                                                                         ===========      =========     =========
Supplemental information:
   Taxes paid                                                            $   140,314      $  34,157     $      --
                                                                         ===========      =========     =========
   Interest paid                                                            $ 69,757       $ 80,730      $ 68,744
                                                                         ===========      =========     =========
   Assets acquired through capitalized leases                               $119,240       $ 57,614      $164,326
                                                                         ===========      =========     =========


The accompanying notes are an integral part of the financial statements.


                                                                              21


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements

1.    Business, Organization, and Liquidity

      Business and Organization:

      Tel-Instrument  Electronics  Corp.  ("Tel" or the  "Company")  has been in
      business  since  1947.  The  Company  designs,  manufactures,  and markets
      avionic test equipment for the general and commercial aviation markets and
      for the  government/military  aviation markets. The Company's  instruments
      are used to test  navigation  and  communication  equipment  installed  in
      aircraft.  The  Company  sells  its  equipment  to both the  domestic  and
      international markets.

2.    Summary of Significant Accounting Policies

      Revenue Recognition:

      Revenues  are  recognized  at the time of shipment  to, or  acceptance  by
      customer  provided  title and risk of loss is transferred to the customer.
      Provisions,  when appropriate,  are made where the right to return exists.
      Revenues  under  service  contracts are  recognized  when the services are
      performed.

      The  Company  recognizes  revenue  in  accordance  with  Staff  Accounting
      Bulletin No. 101, "Revenue  Recognition  Financial  Statements"  (SAB101).
      SAB101  summarizes  certain  of the  SEC's  views  in  applying  generally
      accepted  accounting   principles  to  revenue  recognition  in  financial
      statements.  The adoption of SAB101 did not have a material  impact on its
      financial position or statement of operations. Shipping and handling costs
      charged to customers were not material.

      Payments received prior to the delivery of units or services performed are
      recorded as deferred revenues on the accompanying balance sheet.

      Cash and Cash Equivalents:

      The Company  considers all highly  liquid  investments  purchased  with an
      original  maturity of three  months or less to be cash  equivalents.  Cash
      equivalents are carried at cost which approximates market value.

      Financial Instruments:

      The carrying amounts of cash and cash equivalents and other current assets
      and liabilities  approximate fair value due to the short-term  maturity of
      these investments.  The Company does not determine an estimated fair value
      for its  related  party  debt,  since  such  debt  does not have a readily
      determinable market.


                                                                              22


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

2.    Summary of Significant Accounting Policies (continued)

      Concentrations of Credit Risk:

      Financial   instruments   that   potentially   subject   the   Company  to
      concentrations   of  credit  risk  consist  primarily  of  trade  accounts
      receivable.   The  Company's  customer  base  is  primarily  comprised  of
      airlines, distributors, and the U.S. Government. As of March 31, 2002, the
      Company  believes it has no risk related to its  concentration  within its
      accounts receivable. (See Note 12 to Financial Statements).

      Inventories:

      Inventories are stated at the lower of cost or market.  Cost is determined
      on a first-in,  first-out  basis.  In accordance  with industry  practice,
      service parts  inventory is included in current assets,  although  service
      parts are  carried for  established  requirements  during the  serviceable
      lives of the  products  and,  therefore,  not all parts are expected to be
      sold within one year.

      Office and Manufacturing Equipment:

      Office and  manufacturing  equipment are stated at cost.  Depreciation and
      amortization  is provided on a  straight-line  basis over periods  ranging
      from 3 to 8 years.

      Maintenance, repairs, and renewals that do not materially add to the value
      of the equipment nor  appreciably  prolong its life are charged to expense
      as incurred.

      Leasehold  improvements  are  amortized  over the term of the lease or the
      useful life of the asset, whichever is shorter.

      When assets are  retired or  otherwise  disposed  of, the cost and related
      accumulated  depreciation  are removed from the accounts and the resulting
      gain or loss is included in the Statements of Operations.

      Engineering, Research and Development Costs:

      Engineering, research and development costs are expensed as incurred.

      Income Per Common Share:

      The  Company's  basic  income  per  share is based on net  income  for the
      relevant period,  divided by the weighted-average  number of common shares
      outstanding  during the period.  Diluted  income per share is based on net
      income for the relevant period,  divided by the weighted average number of
      common  shares  outstanding  during the  period,  including  common  share
      equivalents,  such as  outstanding  stock  options and warrants  using the
      treasury stock method.


                                                                              23


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

2.    Summary of Significant Accounting Policies (continued)

      Accounting for Income Taxes:

      Deferred tax assets and  liabilities  are determined  based on differences
      between  financial  reporting and tax bases of assets and  liabilities and
      are measured  using enacted tax rates and laws that will be in effect when
      such differences are expected to reverse.  The measurement of deferred tax
      assets is reduced,  if  necessary,  by a valuation  allowance  for any tax
      benefit  which is not more likely than not to be  realized.  The effect on
      deferred tax assets and  liabilities of a change in tax rate is recognized
      in the period that such tax rate changes are enacted.

      Stock Option Plan:

      The Company  accounts  for its stock  option plan in  accordance  with the
      provisions  of  Accounting   Principles  Board  ("APB")  Opinion  No.  25,
      "Accounting for Stock Issued to Employees,"  and related  interpretations.
      The Company has adopted the  disclosure  only  provisions  of Statement of
      Financial  Accounting  Standards  No.  123,  "Accounting  for  Stock-Based
      Compensation"  ("SFAS 123"). Under SFAS 123 the Company provides pro forma
      net income and pro forma earnings per share disclosures for employee stock
      option grants made since fiscal 1996 as if the fair-value-based  method as
      defined in SFAS No. 123 has been applied.

      Long-Lived Assets To Be Disposed Of:

      In  October  2001,  the FASB  issued  SFAS No.  144,  "Accounting  for the
      Impairment or Disposal of Long-Lived  Assets." This  statement  supersedes
      SFAS No. 121,  "Accounting for the Impairment of Long-Lived Assets and for
      Long-Lived Assets to Be Disposed Of." The standard provides accounting and
      reporting  requirements  for  the  impairment  of  all  long-lived  assets
      (including  discontinued  operations)  and it also  extends the  reporting
      requirements for discontinued operations of APB 30, "Reporting the Results
      of  Operations  -  Reporting  the  Effects of  Disposal  of a Segment of a
      Business and Extraordinary,  Unusual and Infrequently Occurring Events and
      Transactions," to all components of an entity. The primary purpose of SFAS
      No. 144 is to establish guidelines to create a consistent accounting model
      for the  impairment of long-lived  assets to be disposed of and to clarify
      some  implementation  issues  of SFAS  No.  121.  The  provisions  of this
      Statement are effective for financial  statements  issued for fiscal years
      beginning after December 15, 2001.


                                                                              24


TEL-INSTRUMENT ELECTRONICS CORP.

      Notes To Financial Statements (Continued)

2.    Summary of Significant Accounting Policies (continued)

      Comprehensive Income

      SFAS No.130  "Reporting  Comprehensive  Income," SFAS No. 130  establishes
      standards  of  reporting  and  display  of  comprehensive  income  and its
      components  (revenues,  expenses,  gains,  and  losses)  in a full  set of
      general purpose financial statements. SFAS No. 130 requires that all items
      that  are  required  to  be  recognized  under  accounting   standards  as
      components of  comprehensive  income be reported in a financial  statement
      that is displayed with the same prominence as other financial statements.

      Business Combinations

      In July 2001, the Financial  Accounting  Standards  Board ("FASB")  issued
      Statement of Financial  Accounting  Standards  ("SFAS") No. 141, "Business
      Combinations." This statement addresses financial accounting and reporting
      for business combinations.  All business combinations in the scope of this
      statement  are to be  accounted  for using only the purchase  method.  The
      provisions of this statement apply to all business combinations  initiated
      after June 30, 2001 and those  accounted for using the purchase method for
      which the date of  acquisition  is July 1, 2001 or later.  The adoption of
      SFAS 141 has had no impact on the Company's financial statements.

      Goodwill and Other Intangibles

      In  July  2001,  the  FASB  issued  SFAS  No.  142,  "Goodwill  and  Other
      Intangibles".  This statement addresses financial accounting and reporting
      for  acquired  goodwill and other  intangible  assets.  It  addresses  how
      intangible assets that are acquired  individually or with a group of other
      assets,  but not  those  acquired  in a  business  combination,  should be
      accounted  for  in  financial  statements  upon  their  acquisition.  This
      statement  also  addresses  how goodwill and other  intangibles  should be
      accounted for after they have been  initially  recognized in the financial
      statements.  The provisions of this  statement are to be applied  starting
      with fiscal years beginning after December 15, 2001. In addition, goodwill
      and  intangible  assets  acquired  after  June 30,  2001  will be  subject
      immediately to the  non-amortization  and amortization  provisions of this
      statement.  The  adoption  of SFAS 142 has had no impact on the  Company's
      financial statements.

      Accounting for Asset Retirement Obligations

      In June  2001,  the  FASB  issued  SFAS No.  143,  "Accounting  for  Asset
      Retirement   Obligations."   This  standard   requires  that   obligations
      associated with the retirement of a tangible  long-lived asset be recorded
      as a liability when those obligations are incurred, with the amount of the
      liability  initially measured at fair value. Upon initially  recognizing a
      liability for an asset  retirement  obligation,  an entity must capitalize
      the


                                                                              25


TEL-INSTRUMENT ELECTRONICS CORP.

      Notes To Financial Statements (Continued)

2.    Summary of Significant Accounting Policies (continued)

      Accounting for Asset Retirement Obligations (continued)

      cost by  recognizing  an  increase in the  carrying  amount of the related
      long-lived  asset.  Over time,  this  liability is accreted to its present
      value, and the capitalized cost is depreciated over the useful life of the
      related asset. Upon settlement of the liability,  an entity either settles
      the  obligation  for its  recorded  amount  or  incurs a gain or loss upon
      settlement.  The  provisions  of  this  statement  will be  effective  for
      financial  statements  issued for fiscal  years  beginning  after June 15,
      2002.  We do not expect that the  adoption of this  statement  will have a
      material impact on our results of operations,  financial  position or cash
      flows.

      Segments:

      The Company adopted SFAS No. 131 ("SFAS 131")  "Disclosures about Segments
      of an Enterprise  and Related  Information."  SFAS 131  supersedes FAS 14,
      Financial Reporting for Segments of a Business  Enterprise,  replacing the
      "industry segment" approach with the "management" approach. The management
      approach  designates the internal  organization that is used by management
      for making operating decisions and assessing  performance as the source of
      the Company's reportable segments. SFAS 131 also requires disclosure about
      products  and  services,  geographical  areas,  and major  customers.  The
      adoption of SFAS 131 did not affect the Company's  result of operations or
      financial  position,  but did affect the disclosure of segment information
      (see Note 14 to Financial Statements).

      Use of Estimates:

      The  preparation  of financial  statements in conformity  with  accounting
      principles  generally  accepted in the United  States of America  requires
      that management  make estimates and  assumptions  that affect the reported
      amounts of assets and liabilities and disclosure of contingent  assets and
      liabilities at the date of the financial  statements and reported  amounts
      of revenues and expenses during the reporting period. Actual results could
      differ from those estimates. The most significant estimates include income
      taxes, warranty claims, inventory and accounts receivable valuations.

      Risks and Uncertainties:

      The Company's  operations are subject to a number of risks,  including but
      not limited to changes in the general  economy,  demand for the  Company's
      products, the success of its customers,  research and development results,
      reliance on the government  markets and the renewal of its line of credit.
      The  Company  has a major  contract  with the U.S.  Navy,  which  like all
      government contracts, is subject to termination.


                                                                              26


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

3.    Accounts Receivable

      The following table sets forth the components of accounts receivable:

                                                        March 31,
                                                   2002           2001
                                                   ----           ----

      Government                               $   735,757    $   883,767
      Commercial                                   238,690        392,214
      Less: Allowance for doubtful accounts        (36,598)       (11,598)
                                               -----------    -----------

                                               $   937,849    $ 1,264,383
                                               ===========    ===========

4.    Inventories

      Inventories consist of:

                                                       March 31,
                                                  2002            2001
                                                  ----            ----

      Purchased parts                         $   913,917     $ 1,072,191
      Work-in-process                           1,584,701       1,352,252
      Finished  goods                              68,375              --
      Less: Reserve for obsolescence              (85,313)        (72,795)
                                              -----------     -----------

                                              $ 2,481,680     $ 2,351,648
                                              ===========     ===========

      Work-in-process   inventory   includes   $1,390,960   and  $1,102,205  for
      government Contract contracts at March 31, 2002 and 2001, respectively.

5.    Office and Manufacturing Equipment

      Office and manufacturing equipment consists of the following:

                                                        March 31,
                                                  2002            2001
                                                  -----           ----

      Leasehold Improvements                   $   328,372    $   312,583
      Machinery and equipment                      900,710        749,598
      Automobiles                                   16,514             --
      Sales equipment                              239,041        183,853
      Assets under capitalized leases              367,623        248,383
      Less: Accumulated depreciation and
              Amortization                      (1,030,250)      (819,761)
                                               -----------    -----------

                                               $   822,010    $   674,656
                                               ===========    ===========


                                                                              27


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

6.    Accrued Expenses

      Accrued  payroll,   vacation  pay  and  deferred  wages  consists  of  the
      following:

                                                      March 31,
                                               ---------------------
                                                 2002         2001
                                               --------     --------

      Accrued profit sharing                   $223,876     $334,626
      Accrued vacation pay                      123,432      113,437
      Accrued salary and payroll taxes           52,129       47,266
      Deferred salary and wages and interest         --       40,521
                                               --------     --------

                                               $399,437     $535,850
                                               ========     ========

      Other  accrued  expenses  of $497,858  and  $305,286 at March 31, 2002 and
      2001,  respectively,  consist primarily of interest,  professional service
      costs  for  legal,   accounting,   and  independent  sales  representative
      commissions, and of product related costs, such as warranty.

7.    Line of Credit

      The  Company  has a line of credit of  $1,000,000,  maturing on August 30,
      2002.  Interest is payable  monthly at an annual  interest rate of half of
      one percent (0.5%) above the lender's  prevailing base rate. The Company's
      interest  rate was 5.25% and 8% at March 31, 2002 and 2001,  respectively.
      The line is  collateralized  by  substantially  all of the  assets  of the
      Company.  The credit  facility  requires  the Company to maintain  certain
      financial  covenants.  As of March 31, 2002, the Company was in compliance
      with all financial covenants and had no outstanding  borrowings.  At March
      31, 2001, the Company had an outstanding balance of $250,000.


                                                                              28


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

8.    Capitalized Lease Obligations

      The Company has entered into lease commitments for equipment that meet the
      requirements  for  capitalization.  The equipment has been capitalized and
      shown in office and  manufacturing  equipment in the accompanying  balance
      sheets.  The related  obligations  are also  recorded in the  accompanying
      balance  sheets and are based upon the present value of the future minimum
      lease  payments with  interest  rates ranging from 9% to 18%. The net book
      value of equipment  acquired under capitalized lease obligations  amounted
      to $236,387 and $177,133  respectively,  at March 31, 2002 and 2001. As of
      March 31, 2002 and 2001,  accumulated  amortization  under capital  leases
      were $131,236 and $71,250, respectively.

      Commitments  under these leases for the years subsequent to March 31, 2002
      are as follows:


                                                      2003      $ 129,318
                                                      2004         57,545
                                                      2005         33,040
                                                                ---------

      Total minimum lease payments                                219,903
      Less amounts representing interest                          (58,875)
                                                                ---------
      Present value of net minimum lease payments                 161,028
      Less current portion                                       (108,845)
                                                                ---------
      Long-term capital lease obligation                        $  52,183
                                                                =========


                                                                              29


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

9.    Income Taxes

      Income tax expense (benefit):

                                           March 31,    March 31,    March 31,
                                             2002         2001         2000
                                           ---------    ---------    ---------
      Current:
             Federal                       $  (1,695)   $  38,955    $      --

             State and Local                  96,441       59,155           --
                                           ---------    ---------    ---------

             Total Current Tax Provision   $  94,746    $  98,110    $      --
                                           =========    =========    =========

      Deferred:
             Federal                       $ 457,241    $(397,998)   $(220,595)

             State and Local                   6,012        4,000      (21,000)
                                           ---------    ---------    ---------

      Total Expense (Benefit)              $ 557,999    $(295,888)   $(241,595)
                                           =========    =========    =========

      The components of the Company's  deferred taxes at March 31, 2002 and 2001
      are as follows:

                                                March 31,    March 31,
                                                  2002         2001
                                               ----------   ----------
      Deferred tax assets:
         AMT carryforwards and credits         $  252,000   $  685,000
         Asset reserves                            49,000       34,000
         Deferred wages and accrued interest      189,000      250,000
         Provision for estimated expenses         179,000      163,000
                                               ----------   ----------

      Total deferred tax asset                 $  669,000   $1,132,000
                                               ==========   ==========

      As of March 31, 2002,  the Company has no Federal tax net  operating  loss
      carryforwards.  The  recognized  deferred  tax  asset  is  based  upon the
      expected  utilization  of its  benefit  from  the  reversal  of tax  asset
      temporary differences.


                                                                              30


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

9.    Income Taxes (Continued)

      The foregoing  amounts are  management's  estimates and the actual results
      could  differ  from  those   estimates.   Future   profitability  in  this
      competitive  industry depends on continually  obtaining and fulfilling new
      profitable purchase  agreements and modifying  products.  The inability to
      obtain  new   profitable   contracts  or  the  failure  of  the  Company's
      engineering   development   efforts  could  reduce   estimates  of  future
      profitability,  which could  affect the  Company's  ability to realize the
      deferred tax assets.

      A  reconciliation  of the income tax expense at the statutory  Federal tax
      rate  of  34%  to the  income  tax  expense  recognized  in the  financial
      statements is as follows:

                                                          March 31
                                               ------------------------------
                                               2002         2001         2000
                                               ----         ----         ----

Income tax expense - statutory rate         $ 539,134    $ 353,300    $ 122,403
Income tax expenses - state and local,
  net of federal benefit                       67,619       41,682      (13,860)
Change in valuation allowance                      --     (724,901)    (320,595)
Federal income tax credit                     (30,000)     (16,000)     (30,000)
Other                                         (18,754)      50,031          457
                                            ---------    ---------    ---------

Income tax provision (benefit)                557,999    $(295,888)   $(241,595)
                                            =========    =========    =========

10.   Related Party Transactions

      On March 31, 1997, the Company's Chairman/President renegotiated the terms
      of the  non-current  note  payable-related  party.  This note,  along with
      $250,000   of   other    accrued    expenses   due   to   the    Company's
      Chairman/President,   were  converted   into  seven  $50,000   convertible
      subordinated notes (the "Notes") totaling  $350,000.  The Notes are due in
      consecutive  years  beginning  March 31, 1999 with the last note due March
      31, 2005. In April 2002,  Notes,  which were  scheduled to mature  through
      March 31,  2002,  were  extended to  September  30,  2002.  The Notes bear
      interest at a rate of 10% per annum, payable semi-annually on the last day
      of September and March of each year. The Company is required to prepay the
      outstanding  balance of the Notes and any accrued interest thereon, if the
      Company  sells all or  substantially  all of its assets.  The Notes can be
      converted into newly issued common shares of the Company at the conversion
      price of $2.50 per share. The conversion  prices shall be adjusted for any
      stock dividends, stock issuances or capital reorganizations. The Notes may
      be redeemed by the Company prior to maturity upon giving written notice of
      not less than 30 days or more than 60 days at a redemption  price equal to
      120% of the  principal if redeemed two years or more prior to the maturity
      date or 110% of the  principal  if redeemed  more than one year,  but less
      than two years prior to the maturity date.


                                                                              31


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

10.   Related Party Transactions (Continued)

      Accrued  payroll,  vacation  pay and deferred  wages and related  interest
      includes  $41,450 and  $72,461 at March 31,  2002 and 2001,  respectively,
      which is due to officers of the Company.

      Accrued  expenses-related  parties  includes (a) interest and professional
      fees  of   approximately   $19,000  and  $90,000  due  to  a  non-employee
      officer/stockholder   of  the   Company  at  March  31,   2002  and  2001,
      respectively;  (b) professional fees of approximately $9,000 and $4,000 to
      a  director/stockholder  of  the  Company  at  March  31,  2002  and  2001
      respectively; (c) $121,000 and $103,000 respectively at March 31, 2002 and
      2001   for   interest   and   other   expenses   due  to   the   Company's
      Chairman/President.   Tel  has  obtained   professional  services  from  a
      non-employee  officer/stockholder  with  the  related  fees  amounting  to
      $66,834,  $57,966,  and $46,164 for the years ended March 31, 2002,  2001,
      and 2000, respectively.  Additionally,  Tel obtained professional services
      from a  director/stockholder  with the related fees  amounting to $88,300,
      $77,500, and $84,000 for fiscal years 2002, 2001, and 2000, respectively.

      The Company's $30,000 convertible subordinated  note-related party matured
      on March 31,  1997.  The  Company  renegotiated  such  note and  satisfied
      $15,000  of this  obligation.  In  March  2002  the  holder  of this  note
      converted  $7,500 into common stock and extended the maturity  date of the
      remaining  $7,500  until  March  31,  2003.  This  note  accrues  interest
      semi-annually  at  a  rate  of  7%.  The  subordinate  note  is  for  past
      professional fees and services to an  officer/stockholder  of the Company.
      The notes are  convertible  to common stock at the option of the holder at
      $1.50 per share, at any time prior to maturity.

11.   Commitments and Contingencies

      The Company  rents its office  space and  manufacturing  facility  under a
      lease  agreement.  In March 2001,  the Company  expanded  its  facility by
      leasing the entire  building,  thereby  increasing  its facility to 19,564
      square feet from 11,164.  The new lease  expires in February  2011.  Under
      terms of the lease,  the Company  pays all real  estate  taxes and utility
      costs for the premises.

      In addition,  the Company has an agreement to lease  equipment  for use in
      the operations of the business under operating leases.

      The  following  is a  schedule  of  future  minimum  rental  payments  for
      operating leases for the five years subsequent to the year ended March 31,
      2002.

                     2003                        $128,843
                     2004                         130,935
                     2005                         132,165
                     2006                         134,652
                     2007                         138,694
                     2008 and thereafter          584,287


                                                                              32


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

11.   Commitments and Contingencies (continued)

      Total  rent  expense,  including  real  estate  taxes,  was  approximately
      $159,000,  $97,000,  and $101,000 for the years ended March 31, 2002, 2001
      and 2000, respectively.

12.   Significant Customer Concentrations

      For the fiscal year ended March 31, 2001, one customer  represented 12% of
      total sales or 29% of  commercial  sales.  This customer did not represent
      over 10% of sales for  fiscal  years 2002 and 2000.  For the  fiscal  year
      ended March 31,  2000,  one customer  represented  over 12% of total sales
      which included  commercial sales of  approximately  $35,000 and government
      sales of $587,000.  This customer did not represent  over 10% of sales for
      either  fiscal year 2002 or 2001.  As of March 31,  2002,  two  individual
      account  balances  represented  20% and 17% of the  Company's  outstanding
      accounts receivable. As of March 31, 2001, two individual account balances
      represent 16% and 10% of the Company's  accounts  receivable.  Receivables
      from  the  U.S.  Government,   including  unbilled  revenues,  represented
      approximately  39% and 28%,  respectively,  of total  receivables  for the
      fiscal years ended March 31, 2002 and 2001.

13.   Stock Option Plan

      A summary of the status of the Company's stock option plans for the fiscal
      years  2002,  2001,  and 2000 and changes  during the years are  presented
      below: (in number of options):

                                                    March 31,
                                         --------------------------------
                                           2002        2001        2000
                                         --------    --------    --------
      Held at beginning of year            82,650      85,311      45,344
      Granted                              94,900       8,400      61,800
      Exercised                            (4,000)    (11,061)     (3,333)
      Canceled or expired                  (7,850)         --     (18,500)
                                         --------    --------    --------

      Held at end of year                 165,700      82,650      85,311
                                         ========    ========    ========


                                                                              33


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

13.   Stock Option Plan (Continued)

      As of March 31, 2002, the Company had the following options outstanding:

       Number of                   Weighted Average
        Options      Exercise          Remaining           Options Exercisable
      Outstanding     Price       Contract Life (years)     At March 31, 2002
      -----------    --------     ---------------------    -------------------
         5,000       $2.3750             1.2                     5,000
         8,400        2.2800             3.6                     1,680
        25,400        2.0900             4.7                        --
        20,000        1.8500             4.2                     4,000
        11,400        1.8400             2.7                     4,560
        45,250        1.8000             4.2                     9,050
         3,200        1.6600             2.2                     1,600
        42,650        1.5265             2.7                    17,060
         2,000        1.3750             1.0                     2,000
         2,400        1.2500             0.1                     2,400
       -------                                                  ------
       165,700                                                  47,350
       =======                                                  ======

      For the years ended March 31, 2002, 2001, and 2000,  47,350,  22,720,  and
      19,151,   respectively,   of  options  were   outstanding,   vested,   and
      exercisable.

      The per share weighted-average fair value of stock options granted for the
      years 2002, 2001, and 2000 were $1.67, $2.02, and $1.43, respectively,  on
      the date of grant using the Black  Scholes  option-pricing  model with the
      following weighted-average  assumptions:  expected dividend yield of 0.0%,
      risk-free  interest rate of 5%, volatility factor of 135%, and an expected
      life of 5 years. The Company applies  Accounting  Principles Board Opinion
      No.  25  in  accounting  for  its  stock  options  and,  accordingly,   no
      compensation  expense  has been  recognized  for its stock  options in the
      accompanying financial statements. Had the Company determined compensation
      cost  based  on the fair  market  value at the  grant  date for its  stock
      options  under SFAS No. 123, the  Company's net income would not have been
      materially affected. The pro forma amounts are indicated below:

                                              2002         2001         2000
                                              ----         ----         ----
Net income  - as reported                  $1,027,690   $1,335,005   $600,553
Net income - pro forma                        972,374    1,308,005    583,899

Basic earnings per share - as reported           0.48         0.63       0.28
Basic earnings per share - pro forma             0.46         0.62       0.28

Diluted earnings per share - as reported         0.48         0.63       0.28
Diluted earnings  per share - pro forma          0.45         0.62       0.27


                                                                              34


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

13.   Stock Option Plan (Continued)

      In June 1998,  the Board of  Directors  of the Company  adopted a new 1998
      Stock Option Plan ("the  Plan") which  reserves for issuance up to 250,000
      shares of its Common Stock.  The Plan,  which has a term of ten years from
      the date of adoption is  administered  by the Board of  Directors  or by a
      committee   appointed  by  the  Board  of  Directors.   The  selection  of
      participants,  allotment of shares,  and other  conditions  related to the
      purchase  of  options is  determined  by the Board of  Directors.  Options
      granted under the Plan are  exercisable up to a period of 5 years from the
      date of  grant at an  exercisable  price  which is not less  than the fair
      market  value  of the  common  stock  at the date of  grant,  except  to a
      shareholder  owning  10% or more of the  outstanding  common  stock of the
      Company, at which the exercise price may not be less than 110% of the fair
      value of the common stock at the date of grant. At March 31, 2002, 126,350
      options for common stock are available for future grant.

14.   Segment Information

      In 1999, the Company adopted SFAS 131.  Information has been presented for
      the Company's two reportable segments, government and commercial.

      The Company  evaluates  the  performance  of its  segments  and  allocates
      resources  to them  based  on gross  margin.  There  are no  inter-segment
      revenues.

      The Company is organized  primarily on the basis of its avionics products.
      The government segment consists primarily of the sale of test equipment to
      the U.S. and foreign  governments and militaries  either direct or through
      distributors.  The commercial  segment consists of sales of test equipment
      to domestic and foreign airlines and to commercial  distributors.  Segment
      assets include accounts  receivable and work-in-process  inventory.  Asset
      information, other than accounts receivable and work-in-process inventory,
      is not  reported,  since the  Company  does not produce  such  information
      internally. All long-lived assets are located in the U.S.


                                                                              35


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

14.   Segment Information (Continued)

      The table below presents  information  about  reportable  segments for the
      years ending March 31:

2002
- ----
                                                         Corporate/
                                                         Reconciling
                               Government   Commercial   Items           Total
                               ----------   ----------   ----------   ----------
Revenues                       $7,749,783   $1,981,298   $       --   $9,731,081
Cost of Sales                   3,745,720      938,427           --    4,684,147
                               ----------   ----------   ----------   ----------

Gross Margin                   $4,004,063   $1,042,871   $             5,046,934
                               ----------   ----------   ----------

Engineering, research,
 and development                                          1,521,219    1,521,219
Selling, general, and
 administrative                                           1,858,843    1,858,843

Interest expense, net                                        81,183       81,183
                                                                      ----------

Income before income taxes                                            $1,585,689
                                                                      ==========

Segment Assets                 $2,126,717   $  395,833   $3,461,245   $6,233,572
                               ==========   ==========   ==========   ==========

2001
- ----
                                                         Corporate/
                                                         Reconciling
                               Government   Commercial   Items           Total
                               ----------   ----------   ----------   ----------
Revenues                       $4,475,620   $3,033,281   $       --   $7,508,901
Cost of Sales                   2,274,152    1,430,420           --    3,704,572
                               ----------   ----------   ----------   ----------

Gross Margin                   $2,201,468   $1,602,861   $       --   $3,804,329
                               ----------   ----------   ----------

Engineering, research,
 and development                                          1,047,305    1,047,305
Selling, general, and
 administrative                                           1,622,881    1,622,881

Interest expense, net                                        95,026       95,026
                                                                      ----------

Income before income taxes                                            $1,039,117
                                                                      ==========

Segment Assets                 $1,985,972   $  630,663   $3,318,011   $5,934,646
                               ==========   ==========   ==========   ==========

2000
- ----
                                                         Corporate/
                                                         Reconciling
                               Government   Commercial   Items           Total
                               ----------   ----------   ----------   ----------
Revenues                       $3,172,923   $1,957,859   $       --   $5,130,782
Cost of Sales                   1,596,453      893,316           --    2,489,769
                               ----------   ----------   ----------   ----------

Gross Margin                   $1,576,470   $1,064,543   $       --    2,641,013
                               ----------   ----------   ----------

Engineering, research,
 and development                                          1,051,833    1,051,833

Selling, general, and
 administrative                                           1,165,844    1,165,844

Interest expense, net                                        64,378       64,378
                                                                      ----------

Income before income taxes                                            $  358,958
                                                                      ==========

Segment Assets                 $1,163,321   $  545,928   $2,223,516   $3,932,765
                               ==========   ==========   ==========   ==========


                                                                              36


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

14.   Segment Information (Continued)

      The Company primarily develops and designs test equipment for the avionics
      industry and as such, the Company's  products and designs cross  segments.
      The Company's general and  administrative  costs and marketing  strategies
      are  not  segment   specific.   As  a  result,   selling,   general,   and
      administrative  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.

      Foreign  sales are based on the country in which the  customer is located.
      Foreign sales were approximately  $1,007,000,  $1,717,000,  and $1,581,000
      for the years ended March 31,  2002,  2001,  and 2000,  respectively.  All
      other sales were to customers located in the U.S.

      For the fiscal year ended March 31, 2000, one domestic commercial customer
      accounted for  approximately  11% of total commercial  sales. One domestic
      distributor  accounted  for 19%, 20% and 10% of  commercial  sales for the
      years ended March 31,  2002,  2001,  and 2000,  respectively.  No end user
      customer  accounted for more than 10% of commercial sales for these years.
      Foreign  commercial sales were 17%, 20%, and 19% of total commercial sales
      for the years ended March 31, 2001, 2000, and 1999, respectively. Sales to
      an  international  distributor  accounted for  approximately  12% of total
      sales in fiscal year 2000.  For the fiscal  years ended March 31, 2002 and
      2001, sales to these distributors did not exceed 10% of total sales.

      Sales to the U.S.  Government were approximately  $6,128,000,  $2,527,000,
      and  $912,000  for the  years  ended  March  31,  2002,  2001,  and  2000,
      respectively.


                                                                              37


TEL-INSTRUMENT ELECTRONICS CORP.

Schedule II - Valuation and Qualifying Accounts

                              Balance at   Charged to
                              Beginning    Costs and               Balance at
Description                   of Period    Expenses   Deductions   End of Period

Year ended March 31, 2002:
    Allowance for doubtful
       accounts               $ 11,598     $ 25,000    $    --       $ 36,598
                              ========     ========    =======       ========

    Allowance for obsolete
       inventory              $ 72,795     $ 95,000    $82,482(1)    $ 85,313
                              ========     ========    =======       ========

Year ended March 31, 2001:
    Allowance for doubtful
       accounts               $ 11,598     $     --    $    --       $ 11,598
                              ========     ========    =======       ========

    Allowance for obsolete
       inventory              $ 44,124     $ 63,000    $34,329(1)    $ 72,795
                              ========     ========    =======       ========


Year ended March 31, 2000:
    Allowance for doubtful
       accounts               $ 15,585     $ (3,987)   $    --       $ 11,598
                              ========     ========    =======       ========

    Allowance for obsolete
        inventory             $ 29,620     $ 20,500    $ 5,996(1)    $ 44,124
                              ========     ========    =======       ========


(1)   Amounts represent disposals of obsolete inventory.


                                                                              38


TEL-INSTRUMENT ELECTRONICS CORP.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

                                                                     Year First
                                                                     Elected a
Name (age)                Position                                    Director
- ----------                --------                                    --------

Harold K. Fletcher (1)    Chairman of the Board,                        1982
  (77)                    President and Chief
                          Executive Officer since
                          1982.

George J. Leon            Director; Investment                          1986
  (58)                    Manager and beneficiary of
                          the George Leon Family Trust
                          (investments) since 1986.

Robert J. Melnick         Director and Chief Operating Officer          1998
  (67)                    and Vice President since 1999;
                          Marketing and Management Consultant
                          for the Company since 1991.

Jeff C. O'Hara (1)        Director; Financial Consultant from           1998
  (44)                    2001, Chief Financial Officer
                          from  1999-2000 of
                          Alarm Security
                          Group; Financial
                          Consultant from 1996 to
                          1998.

Robert H. Walker          Director; Retired Executive Vice              1984
  (66)                    President, Robotic Vision
                          Systems, Inc. (design and
                          manufacture of robotic
                          vision systems),
                          1983-1998.

(1)   Mr. O'Hara is the son-in-law of Mr. Fletcher


                                                                              39


TEL-INSTRUMENT ELECTRONICS CORP.

Item 10. Directors and Executive Officers of the Registrant (Continued)

      Officers
      --------
      Donald S. Bab               Secretary and General Counsel since 1982.

      Richard J. Wixson           Vice President and Director of
                                  Manufacturing, employed by Tel in his present
                                  capacity since 1987.

Item 11. Executive Compensation

         The  following  table and  accompanying  notes  set  forth  information
         concerning  compensation  for the fiscal  years ended  March 31,  2002,
         2001, and 2000.

                                                         Stock       (1)Other
Name and Principal Position       Year       Salary     Options     Compensation
- --------------------------------------------------------------------------------
Harold K. Fletcher                2002      $140,000                  $24,000
Chairman of Board                 2001       130,000                  $22,400
President and Chief               2000       130,000                  $11,700
Executive Officer

(1)   Represents  bonus based on the Company's  profitability.  Fiscal year 2002
      bonus is estimated. See Note 10 of Notes to the Financial Statements.


                                                                              40


TEL-INSTRUMENT ELECTRONICS CORP.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information known to the Company
         with respect to the  beneficial  ownership as of March 31, 2002, by (i)
         all persons who are  beneficial  owners of five percent (5%) or more of
         the Company's Common Stock,  (ii) each director and nominee,  (iii) the
         Named Executive Officers,  and (iv) all current directors and executive
         officers as a group.

                                         Number of Shares         Percentage
Name and Address                         Beneficially Owned      of Class (1)
- ----------------                         ------------------      ------------
5% Holders
- ----------

Fairview Cemetery                           139,545(9)              6.5%
Rice Family                                 137,000(9)              6.4%
Henry Partners LP                           121,000(9)              5.7%

Named Directors and Officers
- ----------------------------

Harold K. Fletcher, Director                496,102(2)             23.2%
728 Garden Street
Carlstadt, New Jersey 07072

George J. Leon, Director                    310,187(3)             14.5%
116 Glenview
Toronto, Ontario
Canada M4R1P8

Robert J. Melnick, Director                  28,040(4)              1.3%
57 Huntington Road
Basking Ridge, New Jersey 07920

Jeff C. O'Hara, Director                    106,540(5)              5.0%
853 Turnbridge Circle
Naperville, IL 60540

Robert H. Walker, Director                   29,863(6)              1.4%
27 Vantage Court
Port Jefferson, NY 11777

Donald S. Bab, Secretary                     73,194(7)              3.4%
330 Madison Avenue
New York, New York 10017

All Officers and Directors                1,089,726(8)             50.6%
as a Group (7 persons)

(1)   The class includes 2,135,751 shares  outstanding.  The common stock deemed
      to be owned which is not outstanding but subject to currently  exercisable
      options


                                                                              41


TEL-INSTRUMENT ELECTRONICS CORP.

Item 12. Security Ownership of Certain Beneficial Owners and Management
         (Continued)

      held by the individual  named is deemed to be outstanding  for the purpose
      of determining the percentage of all outstanding stock owned.

(2)   Includes 24,681 shares owned by Mr. Fletcher's wife, 4,254 shares owned by
      his son, 261,295 owned by a family  partnership in which Mr. Fletcher is a
      partner.  Mr. Fletcher disclaims  beneficial ownership of the shares owned
      by his wife and son and by the partnership.

(3)   Includes  300,267  shares owned by the George Leon Family Trust,  of which
      Mr.  Leon is  trustee  and a  beneficiary,  and 2,120  shares  subject  to
      currently   exercisable  stock  option.  Mr.  Leon  disclaims   beneficial
      ownership of the shares owned by the trust.

(4)   Includes 8,040 shares subject to currently exercisable stock options

(5)   Includes 1,040 shares subject to currently exercisable stock options.

(6)   Includes 3,680 shares subject to currently exercisable stock options.

(7)   Includes 2,560 shares subject to currently  exercisable stock options. Mr.
      Bab also has a  convertible  debenture  in the  amount of  $7,500  that is
      convertible into common stock at $1.50 per share.

(8)   Includes  14,880 shares subject to currently  exercisable  options held by
      all  executive  offices  and  directors  of the Company  (including  those
      individually named above).

(9)   The Company is exempt from the shareholder  reporting  requirements of the
      Securities  Exchange Act of 1934, and therefore,  these totals are Company
      estimates.

Item 13. Certain Relationships and Related Transactions

         The  disclosures  required by this item are contained in Note 10 to the
         Notes  Financial  Statements  included  on  pages  31  and  32 of  this
         document.


                                                                              42


TEL-INSTRUMENT ELECTRONICS CORP.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      a.)   The following  documents  are filed as a part of this report:

                                                                           Pages
                                                                           -----
            (1)   Financial Statements:

                  Report of Independent Accountants                          17

                  Balance Sheets - March 31, 2002 and 2001                   18

                  Statements of Operations - Years Ended                     19
                  March 31, 2002, 2001 and 2000

                  Statements of Changes in Stockholders'                     20
                  Equity - Years Ended March 31, 2002,
                  2001 and 2000

                  Statements of Cash Flows - Years Ended                     21
                  March 31, 2002, 2001 and 2000

                  Notes to Financial Statements                           22-37

            (2)   Financial Statement Schedule                            38
                    II - Valuation and Qualifying Accounts

            (3)   Agreement with Semaphore  Capital  Advisors dated November 28,
                  2001 and amendment dated as of June 1, 2002.

            (4)   10%  convertible  subordinated  note  between  Registrant  and
                  Harold K. Fletcher.

            (5)   1998 stock option plan and option agreement.

      b.)   Report  on Form 8-K  regarding  transcript  of an  interview  of the
            Company's President on CEOcast was submitted on March 25, 2002 under
            Item 9.


      c.)   Exhibits identified in parentheses below on file with the Securities
            and Exchange  Commission,  are  incorporated  herein by reference as
            exhibits hereto.

            *     (3.1)  Tel-Instrument   Electronics   Corp.'s  Certificate  of
                         Incorporation, as amended.

            *     (3.2)  Tel-Instrument Electronics Corp.'s By-Laws, as amended.


                                                                              43


TEL-INSTRUMENT ELECTRONICS CORP.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K


            *     (3.3) Tel-Instrument  Electronics Corp.'s Restated Certificate
                        of Incorporation dated November 8, 1996.

            *     (4.1) Specimen of  Tel-Instrument  Electronics  Corp.'s Common
                        Stock Certificate.

            *     (4.2) Specimen   of     Tel-Instrument   Electronics   Corp.'s
                        Convertible Preferred Stock Certificate.

                 (10.1) 7%, $30,000  Convertible  Subordinated  Note dated March
                        31, 1992 between Registrant and Donald S. Bab.

                 (10.2) Distributor   Agreement   with   Muirhead   Avionics   &
                        Accessories Ltd.

                 (10.3) Naval Air Warfare Center Aircraft  Division Contract No.
                        N68335-97-D-0060

                 (10.4) Lease dated March 1, 2001 by and between  Registrant and
                        210 Garibaldi Group.

*     Incorporated by reference to Registration 33-18978 dated November 7, 1988.

      The  Company  will  furnish,  without  charge to a security  holder,  upon
      request,  copy of the  documentary  portions  which  are  incorporated  by
      reference, and will furnish any other exhibit at cost.


                                                                              44


TEL-INSTRUMENT ELECTRONICS CORP.

                                   Signatures

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                  (Registrant)

Dated: July 10, 2002                             By:  /s/ Harold K. Fletcher
                                                      ----------------------
                                                      President and Director
                                                      (Principal Executive
                                                      Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the date indicated and by signature hereto.

Signature                                    Title                     Date
- ---------                                    -----                     ----

/s/  Harold K. Fletcher                     Director               July 10, 2002
- ---------------------------
/s/  Harold K. Fletcher

/s/  Joseph P. Macaluso           Principal Accounting Officer     July 10, 2002
- ---------------------------
/s/  Joseph P. Macaluso

/s/  George J. Leon                         Director               July 10, 2002
- ---------------------------
/s/  George J. Leon

/s/ Robert J. Melnick                       Director               July 10, 2002
- ---------------------------
/s/ Robert J. Melnick

/s/ Jeff O'Hara                             Director               July 10, 2002
- ---------------------------
/s/ Jeff O'Hara

/s/  Robert H. Walker                       Director               July 10, 2002
- ---------------------------
/s/  Robert H. Walker

Supplemental  Information to be Furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.

No annual  report to security  holders  covering the fiscal year ended March 31,
2002,  except in the form set forth in this Form  10-K,  has been  prepared.  No
proxy statement, form of proxy, or other proxy soliciting material has been sent
to shareholders with respect to any annual or other meeting of shareholders.  No
annual report or proxy material is contemplated.


                                                                              45