Tel-Instrument Electronics Reports First Quarter 2021 Results and Receipt of $956K Contract from Lockheed Martin to Develop a New Test Set

EAST RUTHERFORD, N.J.–(BUSINESS WIRE)–Tel-Instrument Electronics Corp. (“Tel”, “TIC” or the “Company”) (OTCQB: TIKK), a leading designer and manufacturer of avionics test and measurement solutions, today reported net income of $110,980 on revenues of $2,939,437 for the first quarter of fiscal year 2021 ending June 30, 2020. The Company also announced the receipt of a $956K contract from Lockheed Martin to develop a new high frequency test set for the F-35 Joint Strike Fighter.

Highlights include:

  • Revenues decreased 11% from the year-ago quarter due to COVID-19 production and supply-chain interruptions
  • Gross margin for the quarter remained solid at 51%
  • Engineering expenses increased 20% representing the Company’s commitment to new product development
  • Income from operations was $208,711 as compared to $433,523 for the same quarter last year.
  • Backlog increased to $4.4 million at June 30, 2020 as compared to $4.0 million at March 31, 2020
  • Working capital increased to $2.4 million at June 30, 2020 from $1.8 million at March 31, 2020
  • Receipt of $722,577 loan from the Payroll Protection Program

Mr. Jeffrey O’Hara, Tel-Instrument’s President and CEO commented “Despite the impact of COVID-19 on our supply chain and labor force, the Company remained profitable in the first quarter of the 2021 fiscal year. This was a difficult quarter as we were forced to shut down our manufacturing facility in May for over a week as a result of COVID-19 infections among our manufacturing staff. We have also had numerous at-risk members of our manufacturing staff opt out of work due to the severity of the pandemic in the Tri-State area. The pandemic has also resulted in significant reductions in our commercial test set bookings and has delayed some orders from our domestic and international military customers.

Nonetheless, our core Mode 5 business remains strong. In June 2020 we received a follow-on order from Germany in the amount of approximately $1.6 million for the T-4530i. The Company secured AIMS certification for this test set this month, and we will begin shipments in the second quarter of FY 2021. The T-4530i includes upgraded hardware and software and we hope to market this as a potential upgrade for the TS-4530A units currently fielded. The Company also received a $1.6 million Mode 5 test set order from South Korea in July 2020, which we are scheduled to ship in the fourth quarter of the current fiscal year.

TIC was also notified this week that it has been awarded a $956K contract from Lockheed Martin to support the F-35 Joint Strike Fighter. This is a competitively bid development contract to design a “go-no-go” test set for the F-35 advanced communication systems. The system will involve much higher frequency levels than what TIC has worked with in the past and is a testament to our engineering team who came up with a winning design concept. The contract includes eight engineering qualification test sets with an option for 50 additional production test sets upon the completion of the development program. Lockheed Martin is a key customer and we are thrilled to be working with them on this critical program. It is expected that this development and testing program will be completed within 12 months.

Our near-term goal has been to continue our efforts in becoming the dominant supplier of Mode 5 test equipment throughout the world, and continuing to strengthen our balance sheet, while also setting aside sufficient cash to fully discharge the Aeroflex damage award in the event that we are unsuccessful with our pending legal appeal. We are well on our way to achieving this milestone with our cash balance at June 30, 2020 increasing to $5.2 million. The Company also received a $722,577 government loan from the Payroll Protection Program in May 2020. The Company believes that it will meet the requirements for forgiveness for a major portion of this loan. The loan has allowed us to continue development work on the SDR/OMNI test set despite the uncertain outlook for commercial aviation market.

As we’ve previously mentioned, to meet the standards for the next generation of military applications, we are upgrading the design of our 4.5-pound SDR/OMNI hand-held test set to include a much faster processor with improved video graphics processing capability. The upgraded digital PCB is now out for fabrication and we anticipate receipt of the new hardware this month. This change will likely move the initial product introduction for the commercial avionics market to late this calendar year, but we expect it will better position the Company for high dollar military contracts which will be critical to our long-term growth in revenue and profitability. The goal of this new test set is to recapture market share in the commercial avionics segment and expand into the much larger secure communications radio test market.

“With respect to the Aeroflex litigation, the Company has appealed the previously announced $4.9 million judgment and has set aside $2 million in restricted cash to support an appeal bond. The appeal submissions are now complete. We continue to believe that the trial judge erred in his legal ruling with respect to standing and other issues during the trial, and that we have strong grounds for the award to be vacated or reduced,” Mr. O’Hara concluded.

About Tel-Instrument Electronics Corp.

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

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

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30,

2020

March 31,

2020

(unaudited)

ASSETS

Current assets:

Cash

$

3,185,796

$

3,126,195

Accounts receivable, net

1,809,297

1,411,644

Inventories, net

3,483,883

3,092,679

Restricted cash to support appeal bond

2,009,543

2,008,544

Prepaid expenses and other current assets

288,555

382,428

Total current assets

10,777,074

10,021,490

Equipment and leasehold improvements, net

249,596

263,750

Operating lease right-of-use assets

254,290

306,740

Deferred tax asset, net

2,650,890

2,712,780

Other long-term assets

35,109

35,109

Total assets

$

13,966,959

$

13,339,869

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities:

Line of credit

$

680,000

$

680,000

SBA PPP loan – current portion

321,145

Operating lease liabilities – current portion

217,643

214,793

Accounts payable and accrued liabilities

944,151

1,035,023

Deferred revenues – current portion

90,257

145,168

Accrued legal damages

5,732,693

5,657,549

Finance lease obligations – current portion

49

Accrued payroll, vacation pay and payroll taxes

440,043

512,732

Total current liabilities

8,425,932

8,245,314

Operating lease liabilities – long-term

36,647

91,947

Deferred revenues – long-term

311,216

327,132

SBA PPP loan – long term

401,432

Total liabilities

9,175,227

8,664,393

Commitments and contingencies

Stockholders’ equity:

Preferred stock, 1,000,000 shares authorized, par value $0.10 per share

Preferred stock, 500,000 shares 8% Cumulative Series A Convertible

Preferred issued and outstanding, par value $0.10 per share

3,575,998

3,515,998

Preferred stock, 166,667 shares 8% Cumulative Series B Convertible Preferred

issued and outstanding, par value $0.10 per share

1,107,367

1,087,367

Common stock, 7,000,000 shares authorized, par value $0.10 per share,

3,255,887 shares issued and outstanding, respectively

325,586

325,586

Additional paid-in capital

7,541,900

7,616,624

Accumulated deficit

(7,759,119

)

(7,870,099

)

Total stockholders’ equity

4,791,732

4,675,476

Total liabilities and stockholders’ equity

$

13,966,959

$

13,339,869

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended

June 30, 2020

June 30, 2019

Net sales

$

2,939,437

$

3,306,462

Cost of sales

1,434,826

1,724,858

Gross margin

1,504,611

1,581,604

Operating expenses:

Selling, general and administrative

661,251

612,471

Litigation costs

2,696

10,507

Engineering, research and development

631,953

525,103

Total operating expenses

1,295,900

1,148,081

Income from operations

208,711

433,523

Other income (expense):

Change in fair value of common stock warrants

(78,500

)

Other income

13,854

Interest income

2,846

1,000

Interest expense – judgment

(75,144

)

(80,510

)

Interest expense

(9,780

)

(17,737

)

Total other expense

(68,224

)

(175,747

)

Income before income taxes

140,487

257,776

Income tax expense

29,507

Net income

110,980

257,776

Preferred stock dividends

(80,000

)

(80,000

)

Net income attributable to common shareholders

$

30,980

$

177,776

Net income per share:

Basic income per common share

$

0.01

$

0.05

Diluted income per common share

$

0.01

$

0.04

Weighted average shares outstanding:

Basic

3,255,887

3,255,887

Diluted

3,255,887

4,915,665

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