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

November 19, 2018

EAST RUTHERFORD, N.J.--(BUSINESS WIRE)--Nov 19, 2018--Tel-Instrument Electronics Corp. (“Tel”, “Tel-Instrument” or the “Company”) (NYSE American: TIK), a leading designer and manufacturer of avionics test and measurement solutions, today announced its financial results for the second quarter of fiscal year 2019.

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

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

Results of Operations

Sales

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

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

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

Gross Margin

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

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

Operating Expenses

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

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

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

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

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

Other Items

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

The Company is currently appealing the Aeroflex $4.9 million judgment, as we believe that substantive mistakes were made in the trial and that we have strong legal arguments. The Company has posted a $2,000,000 appeal bond which will remain in place during the appeal process, which is expected to take several years to complete. If we do not prevail with the appeal, we will have several years to generate sufficient cash or secure additional financing to support the repayment of the remaining $2.9 million not covered by the $2 million appeal bond.

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

The Company encourages investors to read its full results of operations as contained in our Quarterly Report on Form 10-Q filed on November 19, 2018 at www.sec.gov.

About Tel-Instrument Electronics Corp.

Tel-Instrument is a leading designer and manufacturer of avionics test and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. Tel-Instrument provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. For further information please visit our website at www.telinstrument.com.

This press release includes statements that are not historical in nature and may be characterized as “forward-looking statements,” including those related to future financial and operating results, benefits, and synergies of the combined companies, statements concerning the Company’s outlook, pricing trends, and forces within the industry, the completion dates of capital projects, expected sales growth, cost reduction strategies, and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. All predictions as to future results contain a measure of uncertainty and, accordingly, actual results could differ materially. Among the factors which could cause a difference are: changes in the general economy; changes in demand for the Company’s products or in the cost and availability of its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company’s previous filings with the U.S. Securities and Exchange Commission. The Company disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 (the “Act”) protects companies from liability for their forward-looking statements if they comply with the requirements of the Act.

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