{"url_path":"/sec/cik-0000096885/10-k/2026/item-8","section_key":"item-8","section_title":"Item 8 Financial Statements and Supplementary Data**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-30","source_url":"https://www.sec.gov/Archives/edgar/data/96885/0001185185-26-002742-index.html","accession_number":"0001185185-26-002742","cik":"0000096885","ticker":null,"issuer_name":"TEL INSTRUMENT ELECTRONICS CORP","edgar_url":"https://www.sec.gov/Archives/edgar/data/96885/0001185185-26-002742-index.html","primary_entity_key":"0000096885","primary_entity_name":"TEL INSTRUMENT ELECTRONICS CORP"},"word_count":13503,"has_tables":true,"body_markdown":"**Item\n8. Financial Statements and Supplementary Data**\n\n \n\n(1) Financial Statements:    \n\n     \n\n[Report of Independent Registered Public Accounting Firm (CBIZ CPAs P.C., Firm ID 199)](#f_001)   18\n\n     \n\n[Report of Independent Registered Public Accounting Firm (Marcum LLP, PCAOB, Firm ID 688)](#h_002)   19\n\n     \n\n[Consolidated Statements of Operations - Years Ended March 31, 2025 and 2024](#f_003)   21\n\n     \n\n[Consolidated Statements of Changes in Stockholders’ Equity – Years Ended March 31 2025 and 2024](#f_004)   22\n\n     \n\n[Consolidated Statements of Cash Flows - Years Ended March 31, 2025 and 2024](#f_005)   23\n\n   \n\n[Notes to Consolidated Financial Statements](#f_006)   24\n\n \n\n17\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Report\nof Independent Registered Public Accounting Firm**\n\n \n\nTo\nthe Stockholders and Board of Directors of\n\nTel-Instrument\nElectronics Corp.\n\n \n\n**Opinion\non the Consolidated Financial Statements**\n\n** **\n\nWe\nhave audited the accompanying consolidated balance sheet of Tel-Instrument Electronics Corp. (the “Company”) as of March\n31, 2025, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended\nMarch 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial\nstatements present fairly, in all material respects, the financial position of the Company as of March 31, 2025, and the results of its\noperations and its cash flows for the year ended March 31, 2025, in conformity with accounting principles generally accepted in the United\nStates of America.\n\n \n\nAs\ndiscussed in Note 19 to the financial statements, the Company adopted ASU 2023-07, Segment Reporting (Topic 280) as of March 31, 2025.\nWe also have audited the adjustments necessary to restate the 2024 segment information and to reflect the adoption of ASU 2023-07, Segment\nReporting (Topic 280) to the 2024 segment information, as provided in Note 19. In our opinion, such adjustments are appropriate and have\nbeen properly applied. We were not engaged to audit, review or apply any procedures to the 2024 financial statements of the Company other\nthan with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2024 financial\nstatements taken as a whole.\n\n \n\n**Explanatory Paragraph – Going Concern**\n\n \n\nThe accompanying financial statements have been prepared\nassuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses\nand needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about\nthe Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The\nfinancial statements do not include any adjustments that might result from the outcome of this uncertainty.\n\n** **\n\n**Basis for Opinion**\n\n \n\nThese financial statements are the responsibility\nof the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We\nare a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (\"PCAOB\") and are\nrequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and\nregulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe conducted our audit in accordance with the standards\nof the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements\nare free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,\nan audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal\ncontrol over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control\nover financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur audit included performing procedures to assess\nthe risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond\nto those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.\nOur audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating\nthe overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.\n\n \n\n**Critical Audit Matters**\n\n \n\nCritical audit matters are matters arising from the\ncurrent period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:\n(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective,\nor complex judgments. We determined that there are no critical audit matters.\n\n  \n\n/s/ CBIZ CPAs P.C.\n\n \n\nWe have served as the Company’s auditor since\n2019 (such date takes into account the acquisition of the attest business of Marcum llp\nby CBIZ CPAs P.C. effective November 1, 2024).\n\n \n\nMarlton, New Jersey\n\nJune 30, 2026\n\n \n\n18\n\n[Table of Contents](#TableOfContents) \n\n \n\n**Report\nof Independent Registered Public Accounting Firm**\n\n \n\nTo\nthe Stockholders and Board of Directors of\n\nTel-Instrument\nElectronics Corp.\n\n \n\n**Opinion\non the Consolidated Financial Statements**\n\n** **\n\nWe\nhave audited, before the effects of the retrospective adjustments to the disclosures for the adoption of ASU 2023-07, Segment\nReporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) discussed in Note 19 to the\nconsolidated financial statements, the accompanying consolidated balance sheet of Tel-Instrument Electronics Corp. (the\n“Company”) as of March 31, 2024, the related consolidated statements of operations, changes in stockholders’\nequity, and cash flows for the year ended March 31, 2024, and the related notes (collectively referred to as the “financial\nstatements”) (the 2024 financial statements before the effects of the adjustments discussed in Note 19 to the financial\nstatements are not presented herein). In our opinion, the financial statements, before the effects of the retrospective adjustments\nto the disclosures for the adoption of ASU 2023-07 discussed in Note 19 to the financial statements, present fairly, in all material\nrespects, the financial position of the Company as of March 31, 2024, and the results of its operations and its cash flows for the\nyear ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America.\n\n \n\nWe\nwere not engaged to audit, review, or apply any procedures to the retrospective adjustments to the disclosures for the adoption of ASU\n2023-07 discussed in Note 19 to the financial statements, and accordingly, we do not express an opinion or any form of assurance about\nwhether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.\n\n** **\n\n**Basis\nfor Opinion**\n\n \n\nThese\nfinancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's\nfinancial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board\n(United States) (\"PCAOB\") and are required to be independent with respect to the Company in accordance with the U.S. federal\nsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\n \n\nWe\nconducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain\nreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company\nis not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit\nwe are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion\non the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.\n\n \n\nOur\naudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or\nfraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding\nthe amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant\nestimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides\na reasonable basis for our opinion.\n\n \n\n/s/\nMarcum LLP\n\n \n\nWe\nserved as the Company’s auditor from 2019 to 2025**.**\n\n** **\n\nMarlton,\nNew Jersey\n\nJune\n28, 2024\n\n \n\n19\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\nConsolidated\nBalance Sheets\n\n \n\n  \nMarch 31,\n2025  \nMarch 31,\n2024 \n\nASSETS \n   \n  \n\nCurrent assets: \n   \n  \n\nCash \n$121,587  \n$132,013 \n\nAccounts receivable, net \n 645,346  \n 1,110,548 \n\nInventories, net \n 4,027,236  \n 5,411,644 \n\nPrepaid expenses and other current assets \n 158,689  \n 214,161 \n\nTotal current assets \n 4,952,858  \n 6,868,366 \n\n  \n    \n   \n\nEquipment and leasehold improvements, net \n 42,108  \n 73,195 \n\nOperating lease right-of-use assets \n 1,114,352  \n 1,324,463 \n\nDeferred tax asset, net \n -  \n 2,450,657 \n\nOther assets \n 35,109  \n 35,109 \n\n  \n    \n   \n\nTotal assets \n$6,144,427  \n$10,751,790 \n\n  \n    \n   \n\nLIABILITIES AND STOCKHOLDERS’ EQUITY \n    \n   \n\n  \n    \n   \n\nCurrent liabilities: \n    \n   \n\nLine of credit \n$1,000,000  \n$690,000 \n\nPromissory Notes – Related Parties \n 120,500  \n - \n\nOperating lease liabilities - current portion \n 229,624  \n 210,111 \n\nAccounts payable – Accounts payable, related party of $102,710 and $140,511, respectively \n 790,553  \n 1,276,935 \n\nDeferred revenues - current portion \n 443,659  \n 72,803 \n\nAccrued expenses - vacation pay, payroll and payroll withholdings \n 288,304  \n 248,713 \n\nAccrued expenses - other \n 238,792  \n 120,027 \n\nTotal current liabilities \n 3,111,432  \n 2,618,589 \n\n  \n    \n   \n\nOperating lease liabilities – long-term \n 884,728  \n 1,114,352 \n\nOther long term liabilities \n 37,589  \n 45,501 \n\nDeferred revenues – long-term \n 122,917  \n 119,721 \n\n  \n    \n   \n\nTotal liabilities \n 4,156,666  \n 3,898,163 \n\nCommitments and contingencies (Note 20) \n \n \n  \n \n \n \n\nStockholders’ equity \n    \n   \n\nPreferred stock, 1,000,000 shares authorized, par value $0.10 per share \n    \n   \n\nPreferred stock, 500,000 shares 8% Cumulative Series A Convertible Preferred authorized, issued and outstanding, respectively par value $0.10 per share \n 4,355,998  \n 4,115,998 \n\nPreferred stock, 320,000 shares 8% Cumulative Series B Convertible Preferred authorized; 233,334 and 233,334 issued and outstanding, respectively par value $0.10 per share \n 1,816,701  \n 1,704,701 \n\nPreferred stock, 166,667 shares 8% Cumulative Series C Convertible Preferred authorized; 53,500 and 53,500 issued, and outstanding, respectively, par value $0.10 per share \n 360,895  \n 335,215 \n\nCommon stock, 7,000,000 shares authorized, par value $.10 per share, 3,255,887 and 3,255,887 shares issued and outstanding, respectively \n 325,586  \n 325,586 \n\nAdditional paid-in capital \n 6,036,632  \n 6,379,085 \n\nAccumulated deficit \n (10,908,051) \n (6,006,958)\n\n  \n    \n   \n\nTotal stockholders’ equity \n 1,987,761  \n 6,853,627 \n\n  \n    \n   \n\nTotal liabilities and stockholders’ equity \n$6,144,427  \n$10,751,790 \n\n \n\n**The\naccompanying notes are an integral part of the consolidated financial statements.**\n\n \n\n20\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\nConsolidated\nStatements of Operations\n\n \n\n  \nFor the years ended March 31, \n\n  \n2025  \n2024 \n\nNet sales \n$9,296,392  \n$8,809,087 \n\n  \n    \n   \n\nCost of sales \n 7,293,677  \n 4,791,734 \n\n  \n    \n   \n\nGross margin \n 2,002,715  \n 4,017,353 \n\n  \n    \n   \n\nOperating expenses: \n    \n   \n\nSelling, general and administrative \n 2,292,000  \n 2,124,815 \n\nEngineering, research, and development \n 2,056,977  \n 1,155,750 \n\n  \n    \n   \n\nTotal operating expenses \n 4,348,977  \n 3,280,565 \n\n  \n    \n   \n\n(Loss) income from operations \n (2,346,262) \n 736,788 \n\n  \n    \n   \n\nOther income (expense): \n    \n   \n\nInterest income \n 13  \n 24,642 \n\nInterest expense \n (103,755) \n (70,086)\n\nInterest expense – judgment \n -  \n (198,535)\n\nOther income, net \n 318  \n 27,025 \n\n  \n    \n   \n\nTotal other expenses, net \n (103,424) \n (216,954)\n\n  \n    \n   \n\n(Loss) income before income taxes \n (2,449,686) \n 519,834 \n\n  \n    \n   \n\nIncome tax expense \n 2,451,407  \n 177,943 \n\n  \n    \n   \n\nNet (loss) income \n (4,901,093) \n 341,891 \n\n  \n    \n   \n\nPreferred dividends \n (377,680) \n (351,549)\n\n  \n    \n   \n\nNet loss attributable to common shareholders \n$(5,278,773) \n$(9,658)\n\n  \n    \n   \n\nBasic and diluted loss per common share \n$(1.62) \n$(0.00)\n\n  \n    \n   \n\nWeighted average number of shares outstanding \n    \n   \n\nBasic and diluted \n 3,255,887  \n 3,255,887 \n\n \n\n**The\naccompanying notes are an integral part of the consolidated financial statements.**\n\n \n\n21\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\nConsolidated\nStatements of Changes in Stockholders’ Equity\n\n \n\n  \n\n**Series\nA Convertible**\n\n**Preferred\nStock**\n  \n\n**Series\nB Convertible**\n\n**Preferred\nStock**\n  \n\n**Series\nC Convertible**\n\n**Preferred\nStock**\n  \nCommon\nStock  \n   \n   \n  \n\n  \n\n**#\nof Shares**\n\n**Issued**\n  \nAmount  \n\n**#\nof Shares**\n\n**Issued**\n  \nAmount  \n\n**#\nof Shares**\n\n**Issued**\n  \nAmount  \n\n**#\nof\nShares\nIssued**\n  \nAmount  \n\n**Additional**\n\n**Paid-In**\n\n**Capital**\n  \n\n**Accumulated**\n\n**Deficit**\n  \nTotal \n\nBalances\nat April 1, 2023 \n 500,000  \n$3,875,998  \n 166,667  \n$1,207,367  \n -  \n$-  \n 3,255,887  \n$325,586  \n$6,721,535  \n$(6,348,849) \n$5,781,637 \n\n8% Dividends on Preferred Stock \n -  \n 240,000  \n -  \n 97,334  \n -  \n 14,215  \n -  \n -  \n (351,549) \n -  \n - \n\nIssuance\nof\nSeries B and C\nPreferred Stock \n -  \n -  \n 66,667  \n 400,000  \n 53,500  \n 321,000  \n -  \n -  \n -  \n -  \n 721,000 \n\nStock-based\ncompensation \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n 9,099  \n -  \n 9,099 \n\nNet\nincome \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n 341,891  \n 341,891 \n\nBalances\nat March 31, 2024 \n 500,000  \n$4,115,998  \n 233,334  \n$1,704,701  \n 53,500  \n$335,215  \n 3,255,887  \n$325,586  \n$6,379,085  \n$(6,006,958) \n$6,853,627 \n\n  \n    \n    \n    \n    \n    \n    \n    \n    \n    \n    \n   \n\n8% Dividends on Preferred Stock \n -  \n 240,000  \n -  \n 112,000  \n -  \n 25,680  \n -  \n -  \n (377,680) \n -  \n - \n\nStock-based\ncompensation \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n 35,227  \n -  \n 35,227 \n\nNet\nloss \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n -  \n (4,901,093) \n (4,901,093)\n\nBalances\nat March 31, 2025 \n 500,000  \n$4,355,998  \n 233,334  \n$1,816,701  \n 53,500  \n$360,895  \n 3,255,887  \n$325,586  \n$6,036,632  \n$(10,908,051) \n$1,987,761 \n\n \n\n**The\naccompanying notes are an integral part of the consolidated financial statements.**\n\n \n\n22\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\nConsolidated\nStatements of Cash Flows\n\n \n\n  \nFor the years ended\n\nMarch 31, \n\n  \n2025  \n2024 \n\nCash flows from operating activities: \n   \n  \n\nNet (loss) income \n$(4,901,093) \n$341,891 \n\nAdjustments to reconcile net (loss) income to net cash used in operating activities: \n    \n   \n\nDeferred income taxes \n 2,450,657  \n 177,278 \n\nDepreciation and amortization \n 31,087  \n 45,823 \n\nNon-cash lease expense \n 210,111  \n 202,088 \n\nRecovery of inventory obsolescence \n (6,338) \n (75,271)\n\nNon-cash stock-based compensation \n 35,227  \n 9,099 \n\n  \n    \n   \n\nChanges in assets and liabilities: \n    \n   \n\nDecrease (increase) in accounts receivable \n 465,202  \n (209,667)\n\nDecrease (increase) in inventories \n 1,390,746  \n (1,750,308)\n\nDecrease in prepaid expenses and other assets \n 55,472  \n 603,464 \n\n(Decrease) increase in accounts payable \n (486,382) \n 954,353 \n\nDecrease in accrued legal damages \n -  \n (6,360,698)\n\nDecrease in other long term liabilities \n (7,912) \n (7,915)\n\nIncrease (decrease) in deferred revenues \n 374,052  \n (104,476)\n\nIncrease in accrued payroll, vacation pay & withholdings \n 39,591  \n 8,679 \n\nDecrease in operating lease liabilities \n (210,111) \n (202,088)\n\nIncrease (decrease) in accrued expenses - other \n 118,765  \n (37,869)\n\nNet cash used in operating activities \n (440,926) \n (6,405,617)\n\n  \n    \n   \n\nCash flows from investing activities: \n    \n   \n\nAcquisition of equipment \n -  \n (33,851)\n\nNet cash used in investing activities \n -  \n (33,851)\n\n  \n    \n   \n\nCash flows from financing activities: \n    \n   \n\nProceeds from issuance of Preferred Stock \n -  \n 721,000 \n\nProceeds from promissory note – Related Party \n 120,500  \n - \n\nDraw from line of credit \n 310,000  \n - \n\nNet cash provided by financing activities \n 430,500  \n 721,000 \n\n  \n    \n   \n\nNet decrease in cash \n (10,426) \n (5,718,468)\n\nCash at beginning of year \n 132,013  \n 5,850,481 \n\nCash at end of year \n$121,587  \n$132,013 \n\n  \n    \n   \n\nEnd of year \n    \n   \n\nCash \n$121,587  \n$132,013 \n\n  \n$121,587  \n$132,013 \n\nBeginning of year \n    \n   \n\nCash \n$132,013  \n$5,850,481 \n\n  \n$132,013  \n$5,850,481 \n\nSupplemental cash flow information: \n    \n   \n\nTaxes paid \n -  \n - \n\nInterest paid \n$88,907  \n$1,728,593 \n\n \n\n**The\naccompanying notes are an integral part of the consolidated financial statements.**\n\n \n\n23\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements**\n\n \n\n**1.\nBusiness, Organization, and Liquidity**\n\n \n\n**Business\nand Organization**\n\n \n\nTel-Instrument\nElectronics Corp. (“Tel,” “TIC,” or the “Company”) has been in business since 1947. The Company is\na leading designer and manufacturer of avionics test and measurement instruments for the global, commercial air transport, general aviation,\nand government/military defense markets. Tel provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation\nand communication equipment. The Company sells its equipment in both domestic and international markets. Tel continues to develop new\nproducts in anticipation of customers’ needs and to maintain its strong market position. Its development of multi-function testers\nhas made it easier for customers to perform ramp tests with less operator training, fewer test sets, and lower product support costs.\nThe Company has become a major manufacturer and supplier of Identification Friend or Foe (“IFF”) flight line test equipment\nover the last two decades.\n\n \n\n**Liquidity and Going Concern**\n\n \n\nThe accompanying consolidated financial statements\nhave been prepared on the basis that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction\nof liabilities in the normal course of business. As of March 31, 2025, the Company had a significant accumulated deficit of $10,908,051.\nFor the year ended March 31, 2025, the Company had a loss from operations of approximately $2,346,262 and negative cash flows from operations\nof approximately $440,926.\n\n \n\nWhile the Company had a working capital surplus\nfor the same period of $1,841,426, the Company’s operating activities consume most of its cash resources.\n\n \n\nThe Company had $121,587 of cash on hand and $645,346\nof accounts receivable at year-end. On March 31, 2026, the Company had $250,162 cash on hand and $1,106,683 of accounts receivable. On\nJune 29, 2026, the Company had $110,503 cash on hand and $308,622 of accounts receivable.\n\n \n\nThe Company expects to report continued operating\nlosses of $849,189 for the year ended March 31, 2026. Going forward with large Navy and NATO booked orders, internal reorganization right\nsizing, and preferred stock issuance, the Company expects to have income from operations.\n\n \n\nThe Company’s ability to continue as a going\nconcern will be dependent upon our ability to execute on our business plan and ability to raise additional capital. Although no assurances\ncan be given as to our ability to deliver on our revenue plans or that unforeseen expenses may arise, management has evaluated the significance\nof the conditions as of this filing date and have concluded that we will not have sufficient cash and cash equivalents to satisfy our\nanticipated cash requirements for the next twelve months from the issuance of these consolidated financial statements. These plans were\ntherefore determined not to be sufficient to overcome the presumption of substantial doubt about the Company’s ability to continue\nas a going concern within twelve months from the issuance of these consolidated financial statements. The\naccompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to\ncontinue as a going concern.\n\n  \n\n24\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n  \n\n**2.\nSummary of Significant Accounting Policies**\n\n \n\n**Principles\nof Consolidation:**\n\n \n\nThe\nconsolidated financial statements have been prepared in accordance with accounting US GAAP and include the Company and its wholly owned\nsubsidiary. All significant inter-company accounts and transactions have been eliminated.\n\n \n\n**Leases:**\n\n \n\nThe Company accounts for leases under Financial Accounting\nStandards Board (“FASB”) Topic 842, *Accounting for Leases* (“ASC 842). Under its core principle, a lessee recognizes\na right-of-use (“ROU”) asset and a related lease liability on the balance sheet for most leases. For the income statement,\nthe pattern of expense recognition depends on a lease’s classification.\n\n \n\nThe\nCompany determines if a contractual arrangement is a lease at inception. Operating leases are included in operating lease right-of-use\n(“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities on the Company’s consolidated\nbalance sheet. The Company evaluates and classifies leases as operating or finance leases for financial reporting purposes. The classification\nevaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the\nCompany has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably\ncertain and failure to exercise such option which result in an economic penalty. The Company’s real estate lease is classified\nas an operating lease. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities\nrepresent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are\nrecognized at the commencement date of the lease based on the present value of lease payments over the lease term. The lease payments\nincluded in the present value are fixed lease payments. As most of the Company’s leases do not provide an implicit rate, the Company\nestimates its collateralized incremental borrowing rate, based on information available at the commencement date, in determining the\npresent value of lease payments. The Company applies the portfolio approach in applying discount rates to its classes of leases. The\noperating lease ROU assets include any payments made before the commencement date. Lease expense for lease payments is recognized on\na straight-line basis over the lease term. The Company does not currently have subleases. The Company does not currently have residual\nvalue guarantees or restrictive covenants in its leases.\n\n \n\n**Revenue\nRecognition:**\n\n \n\nFASB\nTopic 606, *Revenue from Contacts with Customers* (“ASC 606”), the Company recognizes revenue when the customer obtains\ncontrol of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for\nthose goods or services. The Company recognizes revenue following the five-step model prescribed under ASC 606: (i) identify contract(s)\nwith a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the\ntransaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance\nobligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration\nit is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, once the contract is determined\nto be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that\nare performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the\namount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is\nsatisfied.\n\n \n\nThe\nCompany accounts for revenue recognition in accordance with ASC 606.The core principle of Topic 606 is to recognize revenues when promised\ngoods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those\ngoods or services. The ASC 606 defines a five-step process to achieve the core principle and, in doing so, it is possible more judgement\nand estimates may be required within the revenue recognition process than are currently in use.\n\n \n\nThe\nCompany generates revenue from designing, manufacturing, and selling avionic tests and measurement solutions for the global commercial\nair transport, general aviation, and government/military aerospace and defense markets. The Company also offers calibration and repair\nservices for a wide range of airborne navigation and communication equipment.\n\n  \n\nNature\nof goods and services\n\n \n\nThe\nfollowing is a description of the products and services from which the Company generates revenue, as well as the nature, timing of satisfaction\nof performance obligations, and significant payment terms for each.\n\n \n\n25\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**2.\nSummary of Significant Accounting Policies (continued)**\n\n \n\n**Revenue\nRecognition (continued):**\n\n \n\n*Test\nUnits/Sets*\n\n \n\nThe Company develops, and manufactures unit sets\nto test navigation and communication equipment, such as ramp testers and bench testers for radios installed in aircraft. The Company\nrecognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract,\nusually at time of shipment. Revenue on products is presented gross because the Company is primarily responsible for fulfilling the promise\nto provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears\nthe risk of loss while the inventory is in transit. Revenue is measured as the amount of consideration the Company expects to receive\nin exchange for transferring products to the customer. If the contract contains a single performance obligation, the entire transaction\nprice is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation\nof the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each\nperformance obligation. The Company determines stand-alone selling prices based on the price at which the performance obligation is sold\nseparately. If the stand-alone selling price is not observable through past transactions, the Company estimates the standalone selling\nprice considering available information such as market conditions and internally approved pricing guidelines related to the performance\nobligations.\n\n \n\nWhen\ndetermining the transaction price of a contract, an adjustment is made if payment from the customer occurs either significantly before\nor significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph 606-10-32-18,\nthe Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations\nunder the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing\ncomponent as of March 31, 2025.\n\n \n\n*Replacement\nParts*\n\n \n\nThe\nCompany offers replacement parts for test equipment, ramp testers, and bench testers. Similar to the sale of test units, the control\nof the product transfers at a point of time and therefore, revenue is recognized at the point in time when the obligation to the customer\nhas been fulfilled.\n\n \n\n*Extended\nWarranties*\n\n \n\nThe\nextended warranties sold by the Company provide a level of assurance beyond the coverage for defects that existed at the time of a sale\nor against certain types of covered damage with coverage terms generally ranging from 2 to 7 years. Amounts received for warranties are\nrecorded as deferred revenue and recognized as revenue ratably over the respective term of the agreements. As of March 31, 2025, approximately\n$119,721 is expected to be recognized from remaining performance obligations for extended warranties as compared to $179,422 on March\n31, 2024. For the year ended March 31, 2025, the Company recognized revenue of $59,701 from amounts that were included in Deferred Revenue\nas compared to $122,378 for the year ended March 31, 2024.\n\n \n\nThe\nfollowing table provides a summary of the changes in deferred revenues related to extended warranties for the year ended March 31, 2025:\n\n \n\nDeferred revenues related to extended\nwarranties on April 1, 2023 \n$296,400 \n\nAdditional extended warranties \n 5,400 \n\nRevenue recognized for the year ended March\n31, 2024 \n (122,378)\n\nDeferred revenues related to extended warranties\non April 1, 2024 \n 179,422 \n\nAdditional extended warranties \n - \n\nRevenue recognized for\nthe year ended March 31, 2025 \n (59,701)\n\nDeferred revenues related\nto extended warranties on March 31, 2025 \n$119,721 \n\n \n\n*Other\nDeferred Revenues*\n\n \n\nThe Company sometimes receives payments in advance\nof shipment. These amounts are classified as other deferred revenues. For the period ended March 31, 2025, the Company has other deferred\nrevenues of $446,855. Included is $411,752 of Performance Base Payment “PBP” for the initial MADL unit production, as well\nas $35,103 other deferred revenues. The prior year ended March 31, 2024 included $13,102.\n\n \n\n26\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**2.\nSummary of Significant Accounting Policies (continued)**\n\n \n\n**Revenue\nRecognition (continued):**\n\n \n\n*Repair\nand Calibration Services*\n\n \n\nThe\nCompany offers repair and calibration services for units that are returned for annual calibrations and/or for repairs after the warranty\nperiod has expired. The Company repairs and calibrates a wide range of airborne navigation and communication equipment. Revenue is recognized\nat the time the repaired or calibrated unit is shipped back to the customer, as it is at this time that the work is completed.\n\n \n\n*Other*\n\n \n\nThe majority of the Company’s revenues are\nfrom contracts with the U.S. government, airlines, aircraft manufacturers, domestic distributors, international distributors for sales\nto military and commercial customers, and other commercial customers. The contracts with the U.S. government typically are subject to\nthe Federal Acquisition Regulation (“FAR”) which provides guidance on the types of costs that are allowable in establishing\nprices for goods and services provided under U.S. government contracts. Payment terms and conditions vary by contract, although terms\ngenerally include a requirement of payment within a range from 30 to 60 days, or in certain cases, up-front deposits. In circumstances\nwhere the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company’s contracts\ngenerally do not include a significant financing component. Payments received prior to the delivery of units or services performed are\nrecorded as deferred revenues. The Company applied the practical expedient to account for shipping and handling activities as fulfilment\ncost rather than as a separate performance obligation. Shipping and handling costs charged to customers are classified as sales, and the\nshipping and handling costs incurred are included in cost of sales. All sales are denominated in U.S. dollars. The Company excludes from\nrevenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers. The\nCompany chose to apply the available practical expedient as commission eligible sales orders are fulfilled within less than one year and\ncommissions are generally paid by the Company within 30 days of the related sales order fulfilment.\n\n \n\n*Disaggregation\nof revenue*\n\n \n\nIn\nthe following tables, revenue is disaggregated by revenue category.\n\n \n\n  \n\n**For\nthe Year Ended\nMarch 31, 2025**\n \n\n  \nCommercial  \nGovernment \n\nSales Distribution \n   \n  \n\nTest Units & Engineering \n$886,162  \n$7,017,340 \n\nRepairs & Calibration \n 1,058,990  \n - \n\nOther \n 333,900  \n - \n\n  \n$2,279,052  \n$7,017,340 \n\n \n\n  \nFor\nthe Year Ended\nMarch 31, 2024 \n\n  \nCommercial  \nGovernment \n\nSales Distribution \n   \n  \n\nTest Units & Engineering \n$638,375  \n$6,625,865 \n\nRepairs & Calibration \n 1,189,381  \n - \n\nOther \n 355,466  \n - \n\n  \n$2,183,222  \n$6,625,865 \n\n \n\n27\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**2.\nSummary of Significant Accounting Policies (continued)**\n\n \n\n**Revenue\nRecognition (continued):**\n\n \n\nIn\nthe following table, revenue is disaggregated by geography.\n\n \n\n \n \n**For\nthe Year\nEnded\nMarch 31,\n2025**\n \n \n**For\nthe Year\nEnded\nMarch 31,\n2024**\n \n\nGeography\n \n \n \n \n \n \n\nUnited States\n \n$\n7,836,805\n \n \n$\n7,679,000\n \n\nInternational\n \n \n1,459,587\n \n \n \n1,130,087\n \n\nTotal\n \n$\n9,296,392\n \n \n$\n8,809,087\n \n\n \n\n**Fair\nValue of Financial Instruments:**\n\n \n\nFair\nvalue is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction\nbetween market participants at the measurement date and is measured using inputs in one of the following three categories:\n\n \n\nLevel\n1 measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to\naccess. Valuation of these items does not entail a significant amount of judgment.\n\n \n\nLevel\n2 measurements are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar\nassets or liabilities in markets that are not active or market data other than quoted prices that are observable for the assets or liabilities.\n\n \n\nLevel\n3 measurements are based on unobservable data that are supported by little or no market activity and are significant to the fair value\nof the assets or liabilities.\n\n \n\nThe\nCompany considers cash, accounts receivable, accounts payable and accrued liabilities to meet the definition of financial instruments.\nAs of March 31, 2025 and 2024, the carrying amount of cash, accounts receivable, accounts payable and accrued liabilities approximate\ntheir fair value due to the relatively short period of time between their origination and their expected realization or payment.\n\n \n\n**Concentrations\nof Credit Risk:**\n\n \n\n**Cash held in banks:** The Company maintains cash\nbalances at a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally\ninsured limits of $250,000. At times balances may exceed FDIC insured limits. Cash balances for fiscal year 2025 and 2024 did not exceed\nthe FDIC insured limit. The Company has not experienced any losses in such accounts.\n\n \n\n**Accounts Receivable:** The Company’s avionics\ncustomer base is primarily comprised of airlines, distributors, and the U.S. Government. As of March 31, 2025, the Company believes it\nhas no significant credit risk related to its concentration within its accounts receivable. \n\n \n\nThere was one (1) customer who represented 21% of\naccounts receivable for the fiscal year ended March 31, 2025 and two (2) customers representing 39% and 15% for the prior fiscal year.\n\n \n\n**Inventories:**\n\n \n\nInventories are stated at the lower of cost or\nnet realizable value. Cost is determined on a first-in, first-out basis. Inventories are reviewed for obsolescence, and a reserve is recorded\nfor inventory allowances if the estimated net realizable value is less than the recorded value. The Company reviews the carrying cost\nof inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, the Company must make\nestimates regarding the estimated realizable value of inventory. If actual conditions are less favourable than those we have projected,\nwe may need to increase our reserves for excess and obsolete inventories. Any increase in our reserves will adversely impact our results\nof operations. Such reserves are not reduced until the product is sold. If we are able to sell such inventory any related reserves would\nbe reversed in the period of sale. In accordance with industry practice, service parts inventory is included in current assets, although\nservice parts are carried for established requirements during the serviceable lives of the products and, therefore, not all parts are\nexpected to be sold within one year.\n\n \n\n28\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (continued)**\n\n \n\n**2. Summary of Significant Accounting Policies (continued)**\n\n \n\n**Equipment\nand Leasehold Improvements:**\n\n \n\nOffice\nand manufacturing equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization are provided on a straight-line\nbasis over periods ranging from 3 to 5 years. Leasehold improvements are amortized over the term of the lease or the useful life of the\nasset, whichever is shorter.\n\n \n\nMaintenance, repairs, and renewals that do not materially\nadd to the value of the equipment nor appreciably prolong its life are charged to expenses as incurred. When assets are retired or otherwise\ndisposed of, the cost and related accumulated depreciation are removed from the accounts, and the resulting gain or loss is included\nin the Statement of Operations.\n\n \n\n**Engineering,\nResearch and Development Costs:**\n\n \n\nEngineering,\nresearch, and development costs are expensed as incurred.\n\n \n\n**Net\nLoss per Common Share Attributable to Common Shareholders:**\n\n \n\nNet loss per share attributable to common stockholders\nhas been computed according to Accounting Standards Codification (“ASC 260”*), Earnings per Share,* which requires a\ndual presentation of basic and diluted loss per share (“EPS”). Basic EPS attributable to common stockholders represents net\nloss, less preferred dividends divided by the weighted average number of common shares outstanding during a reporting period. Diluted\nEPS attributable to common stockholders reflects the potential dilution that could occur if securities, including preferred stock, warrants\nand options, were converted into common stock. The dilutive effect of outstanding warrants and options is reflected in earnings per share\nby use of the treasury stock method. The dilutive effect of preferred stock is reflected in earnings per share by use of the if-converted\nmethod. In applying the treasury stock method for stock-based compensation arrangements, the assumed proceeds are computed as the sum\nof the amount the employee must pay upon exercise and the amounts of average unrecognized compensation.\n\n \n\n**Income\nTaxes:**\n\n \n\nThe\nCompany accounts for income taxes using the asset and liability method described in FASB ASC 740, *Income Taxes.* Deferred tax assets\narise from a variety of sources, the most significant being a) tax losses that can be carried forward to be utilized against profits\nin future years; b) expenses recognized for financial reporting purposes but disallowed in the tax return until the associated cash flow\noccurs; and c) valuation changes of assets which need to be tax effected for book purposes but are deductible only when the valuation\nchange is realized.\n\n \n\nDeferred tax assets and liabilities are determined\nbased on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and\nlaws that are expected to be in effect when such differences are expected to reverse. The measurement of deferred tax assets is reduced,\nif necessary, by a valuation allowance for any tax benefit which is not more likely than not to be realized. In assessing the need for\na valuation allowance, future taxable income is estimated, considering the realization of tax loss carry forwards. Valuation allowances\nrelated to deferred tax assets can also be affected by changes to tax laws, changes to statutory tax rates and future taxable income levels.\nIn the event it was determined that the Company would not be able to realize all or a portion of our deferred tax assets in the future,\nwe would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine\nthat we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded\nvaluation allowance through an increase to income in the period in which that determination is made. In its evaluation of a valuation\nallowance the Company considers existing contracts and backlog, and the probability that options under these contract awards will be exercised\nas well as sales of existing products. The Company prepares profit projections based on the revenue and expenses forecast to determine\nthat such revenue will produce sufficient taxable income to realize the deferred tax assets.\n\n \n\n29\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**2.\nSummary of Significant Accounting Policies (continued)**\n\n \n\n**Income\nTaxes (continued):**\n\n \n\nThe Company accounts for uncertainties in income taxes\nunder ASC 740-10-50 which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement\nof a tax position taken or expected to be taken in a tax return. ASC 740-10 requires that the Company determine whether the benefits of\nits tax positions are more-likely-than-not of being sustained upon audit based on the technical merits of the tax position. The Company\nrecognizes the impact of an uncertain income tax position taken on its income tax return at the largest amount that is more likely than\nnot to be sustained upon audit by the relevant taxing authority. The implementation of ASC 740-10 had no impact on the Company’s\nresults of operations or financial position.\n\n \n\nDespite the Company’s belief that its tax return\npositions are consistent with applicable tax laws, one or more positions may be challenged by taxing authorities. Settlement of any challenge\ncan result in no change, a complete disallowance, or some partial adjustment reached through negotiations or litigation. Interest and\npenalties related to income tax matters, if applicable, will be recognized as income tax expense. There are no uncertain tax positions\nthat management is aware of as of March 31, 2025 and 2024.\n\n \n\nDue to the going concern noted in Note 1, a complete\nvaluation allowance of $3,335,237 was recorded resulting in a $2,451,407 tax expense for the year ended March 31, 2025. For the year\nended March 31, 2024 the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts\nwere accrued. The Company’s tax years remain open for examination by the tax authorities primarily beginning 2022 through present.\n\n \n\n**Stock-based\nCompensation:**\n\n \n\nThe Company accounts for stock-based compensation\nin accordance with FASB ASC 718 which requires the measurement of stock-based compensation based on the fair value of the award on the\ndate of grant. The Company recognizes compensation cost on awards on a straight-line basis over the vesting period, typically four years.\nThe Company estimates the fair value of each option granted using the Black-Scholes option-pricing model. Additional information and disclosures\nare provided in Note 13 below.\n\n \n\n**Long-Lived\nAssets:**\n\n \n\nThe\nCompany assesses the recoverability of the carrying value of its long-lived assets whenever events or changes in circumstances indicate\nthat the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison\nof the carrying amount of an asset to future, undiscounted cash flows expected to be generated by an asset. If such assets are considered\nto be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair\nvalue of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. No impairment\nlosses have been recognized for the years ended March 31, 2025, and 2024, respectively.\n\n \n\n**Use\nof Estimates:**\n\n \n\nThe\npreparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires\nthat management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent\nassets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.\nActual results could differ from those estimates. The most significant estimates include income taxes, and inventory valuations.\n\n \n\n**Accounts\nReceivable:**\n\n \n\nThe\nCompany performs ongoing credit evaluations of its customers and adjusts credit limits based on customer payment and current credit worthiness,\nas determined by review of their current credit information. The Company continuously monitors credit limits for and payments from its\ncustomers and maintains provision for estimated credit losses based on its historical experience and any specific customer issues that\nhave been identified. While such credit losses have historically been within the Company’s expectation and the provision established,\nthe Company cannot guarantee that this will continue. For fiscal year ended March 31 2025 and March 31 2024 there were allowances for\nbad debts of $6,895 and $8,570, respectively.\n\n \n\n30\n\n[Table of Contents](#TableOfContents) \n\n** **\n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**2. Summary of Significant Accounting Policies (continued)**\n\n \n\n**Warranty\nExpenses:**\n\n \n\nWarranty\nreserves are based upon historical rates and specific items that are identifiable and can be estimated at time of sale. While warranty\ncosts have historically been within the Company’s expectations and the provisions established, future warranty costs could be in\nexcess of the Company’s warranty reserves. A significant increase in these costs could adversely affect the Company’s operating\nresults for the period and the periods these additional costs materialize. Warranty reserves are adjusted from time to time when actual\nwarranty claim experience differs from estimates. For the year ended March 31, 2025, warranty reserve costs were $30,085 as compared\nto $18,047 for the year ended March 31, 2024, and are included in Cost of Sales in the accompanying consolidated statement of operations.\nSee Note 10 for warranty reserves.\n\n \n\n**Risks\nand Uncertainties:**\n\n \n\nThe\nCompany’s operations are subject to a number of risks, including but not limited to changes in the general economy, demand for\nthe Company’s products, the success of its customers, research and development results, reliance on the government and commercial\nmarkets, litigation, and the renewal of its line of credit. The Company has major contracts with the U.S. Government, which like all\ngovernment contracts are subject to termination.\n\n \n\nThe\nU.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of\nthe military conflict between Russia and Ukraine as well as the military conflicts in the Middle East. A continuation or worsening of\nthe levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital\nand on the market price of our common stock, and we may not be able to successfully raise capital through the sale of our securities.\nThe recent U.S. Tarriff unrest has not materially impacted TIC as our suppliers are all domestically sourced.\n\n \n\nImpact of Recently Issued Accounting Standard\n\n \n\nIn July 2025, the FASB released ASU 2025-05, “Measurement\nof Credit Losses for Accounts Receivable and Contract Assets.” (“ASU 2025-05”). ASU 2025-05 amends ASC Subtopic 326-20\nto provide a practical expedient for all entities and an accounting policy election for all entities, other than public business entities,\nthat elect the practical expedient related to the estimation of expected credit losses for current accounts receivable and current contract\nassets that arise from transactions accounted for under ASC 606. ASU 2025-05 addresses concerns from stakeholders that estimating expected\ncredit losses can be costly and complex for such transactions. ASU 2025-05 is effective for all business entities for annual periods beginning\nafter December 15, 2025, with early adoption permitted. The Company is currently assessing the impact of this update on the Company’s\nfinancial statements.\n\n \n\nIn November 2024, the FASB issued Accounting\nStandards Update ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):\nDisaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued Accounting Standards Update\nNo. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the\nEffective Date (“ASU 2025-01”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income\nstatement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement.\nASU 2024-03, as clarified by ASU 2025-01, is effective for us for our annual reporting beginning after December 15, 2026 and for interim\nperiod reporting beginning after December 15, 2027. Eary adoption is permitted. The Company is currently assessing the impact of this update on the Company’s financial\nstatements.\n\n \n\nIn December 2023, the FASB issued ASU 2023-09,\n*Improvements to Income Tax Disclosures,*which requires disaggregated information about our effective tax rate reconciliation as\nwell as information on income taxes paid. The guidance will first be effective in our annual disclosures for the year ended March 31,\n2026 and should be applied on a prospective basis with the option to apply retrospectively. Early adoption is permitted. The Company\nis in the process of assessing the impact of ASU 2023-09 on our disclosures.\n\n \n\nIn November 2023, the FASB issued ASU\n2023-07, *Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures*, which aims to improve reportable\nsegment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the\namendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple\nsegment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and\ncontain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity's overall\nperformance and assess potential future cash flows. The ASU applies to all public entities that are required to report segment\ninformation in accordance with ASC 280, and is effective for fiscal years beginning after December 15, 2023 and interim periods\nwithin fiscal years beginning after December 15, 2024. Early adoption is permitted. We initially adopted the disclosure requirements\nof ASU 2023-07 during the annual reporting period ended March 31, 2025, on a retrospective basis. Our adoption of this ASU did not\nhave a significant impact on our consolidated financial statements, see Note 19.\n\n \n\nNo\nother recently issued accounting pronouncements had or are expected to have a material impact on the Company’s consolidated financial\nstatements.\n\n \n\n**3.\nAccounts Receivable**\n\n \n\nThe\nfollowing table sets forth the components of accounts receivable, net:\n\n \n\n  \nMarch\n31, \n\n  \n2025  \n2024 \n\nGovernment \n$381,534  \n$933,249 \n\nCommercial \n 270,707  \n 185,869 \n\nLess: Allowance for credit\nlosses \n (6,895) \n (8,570)\n\n  \n$645,346  \n$1,110,548 \n\n \n\n31\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**4.\nInventories**\n\n \n\nInventories,\nnet consist of:\n\n \n\n  \nMarch 31, \n\n  \n2025  \n2024 \n\nPurchased parts \n$2,323,216  \n$2,450,277 \n\nWork-in-process \n 1,531,298  \n 2,912,737 \n\nFinished goods \n 172,722  \n 48,630 \n\n  \n$4,027,236  \n$5,411,644 \n\n \n\nWork-in-process inventory includes\n$1,177,416 and $1,066,665 for government contracts on March 31, 2025 and 2024, respectively. The allowance for obsolete inventory\ndecreased a net $6,338 year on year and included a $12,619 write off of inventory against the reserve for fiscal year end March 31,\n2025 as compared to $54,863 write off in the prior fiscal year.\n\n \n\n**5.\nPrepaids and Other Current Assets**\n\n \n\nPrepaid\nexpenses and other current assets consist of:\n\n \n\n  \n\n**March\n31,**\n\n**2025**\n  \n\n**March\n31,**\n\n**2024**\n \n\nPrepaid expenses \n$130,970  \n$186,231 \n\nDeferred charges \n 27,719  \n 27,719 \n\nOther receivables \n -  \n 211 \n\n  \n$158,689  \n$214,161 \n\n \n\n**6.\nEquipment and Leasehold Improvements**\n\n \n\nEquipment\nand leasehold improvements consist of the following:\n\n \n\n  \nMarch\n31, \n\n  \n2025  \n2024 \n\nLeasehold improvements \n$127,655  \n$127,655 \n\nMachinery and equipment \n 1,931,831  \n 1,931,831 \n\nAutomobiles \n 23,712  \n 23,712 \n\nSales equipment \n 590,365  \n 590,365 \n\nAssets under finance leases \n 637,189  \n 637,189 \n\nLess: Accumulated depreciation\n& amortization \n (3,268,644) \n (3,237,557)\n\n  \n$42,108  \n$73,195 \n\n \n\nDepreciation\nand amortization expense related to the assets above for the years ended March 31, 2025, and 2024 was $31,087 and $45,823, respectively.\n\n \n\n32\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**7.\nLine of Credit**\n\n \n\nThe\nCompany has a line of credit with Bank of America with open availability up to $1,000,000 with monthly payments of interest only. The\nborrowing base calculation is tied to accounts receivable collateralized by substantially all of the assets of the Company.\n\n \n\nAs\nof March 31, 2025, and March 31, 2024, the outstanding balances were $1,000,000 and $690,000, respectively. The interest rate on March\n31, 2025, was 8.55%. Line of credit interest expense was $88,447 for fiscal year end March 31, 2025, and $68,779 in the prior fiscal\nyear.\n\n \n\nOn September 18, 2024, Bank of America renewed\nthe Company line of credit with a maturity date of July 31, 2025, with a line of credit cash limit amount of $1,000,000. Interest on any\noutstanding balance is payable monthly at an annual interest rate equal to the Bank’s Prime Rate plus 1.05 percentage points and\nno less than 3.25%. On July 31, 2025, and the bank decided not to renew with the Company.\n\n \n\nThe Company line of credit expired July 31, 2025,\nwith $1,000,000 outstanding and was not renewed by Bank of America. TIC and the bank have entered into a loan modification agreement, with the next\npayment due June 30, 2026, for $150,000 with a final maturity date of March 31, 2027. As of June 29, 2026, the outstanding principal amount\nis $778,716. The interest on any outstanding balance is payable monthly at an annual interest rate equal to the Bank’s Prime Rate\nplus 1.05 percentage points and no less than 3.25%. The “Prime Rate” is the rate of interest publicly announced from time\nto time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and\ndesired return, general economic conditions, and other factors, and is used as a reference point for pricing loans.\n\n \n\n**8.\nRight of Use Assets and Operating Lease Liability**\n\n \n\nThe Company leases its facility in East Rutherford,\nNJ with monthly payments of $21,237 until August 2025. Thereafter, monthly payments are $23,083 for the balance of the 8-year lease agreement\nexpiring August 2029.\n\n \n\nThe\nCompany’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the\ndiscount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate\nthe Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term\nof a lease. The Company estimated its incremental borrowing rate based on its credit quality, line of credit agreement and by comparing\ninterest rates available in the market for similar borrowings. The Company used a discount rate of 3.90%. The weighted average remaining\nlease term is 4.42 years.\n\n \n\nThe Company also leased a small office in Lawrence,\nKansas under an operating lease agreement. In October 2025, the Company terminated the lease and closed this office. The Company leases\nan apartment near the New Jersey Plant for the use of Tel’s Chief Executive Officer. The lease was extended by the Company in April\n2026 and is set to expire in April 2027.\n\n \n\nRight\nto use assets is summarized below:\n\n \n\n  \nMarch\n31, \n\n  \n2025  \n2024 \n\nRight to use asset \n$1,830,857  \n$1,830,857 \n\nLess: Accumulated amortization \n (716,505) \n (506,394)\n\nRight to use assets,\nnet \n$1,114,352  \n$1,324,463 \n\n \n\nThe following table reconciles the undiscounted\nfuture minimum lease payments (displayed by year and in the aggregate) under non-cancellable operating leases with terms of more than\none year to the total lease liabilities recognized on the consolidated balance sheet as of March 31, 2025:\n\n \n\n2026 \n$267,767 \n\n2027 \n 277,000 \n\n2028 \n 277,000 \n\n2029 \n 277,000 \n\n2030 \n 115,415 \n\nTotal undiscounted future\nminimum lease payments \n 1,214,182 \n\nLess: Difference between\nundiscounted lease payments and discounted lease liabilities \n (99,830)\n\nPresent value of net minimum lease payments \n 1,114,352 \n\nLess current portion \n (229,624)\n\nOperating lease liabilities\n– long-term \n$884,728 \n\n \n\n33\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**8. Right of Use Assets and Operating Lease\nLiability (continued)**\n\n \n\nDuring\nthe year ended March 31, 2025 and 2024, the Company recorded $412,189 and $400,333, as lease expense to current period operations, respectively.\n\n \n\n**9.\nAccrued Expenses**\n\n \n\nAccrued\nvacation pay, payroll and payroll withholdings consist of the following:\n\n \n\n  \nMarch\n31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nAccrued vacation pay \n$187,201  \n$166,914 \n\nAccrued compensation and\npayroll withholdings \n 101,103  \n 81,799 \n\n  \n$288,304  \n$248,713 \n\n \n\nAccrued\nvacation pay, payroll and payroll withholdings include $24,363 and $22,451 on March 31, 2025, and 2024, respectively, which is due to\nofficers.\n\n \n\n**Accrued\nexpenses - other consist of the following:**\n\n \n\n  \nMarch\n31, \n\n  \n2025  \n2024 \n\n  \n   \n  \n\nAccrued commissions \n$49,888  \n$- \n\nWarranty reserve \n 87,660  \n 87,548 \n\nAccrued purchase \n 30,789  \n 13,756 \n\nOther \n 70,455  \n 18,723 \n\n  \n$238,792  \n$120,027 \n\n \n\n**10.\nSeries A 8% Convertible Preferred Stock**\n\n \n\nThe\nshares of Series A Preferred have a stated value of $6.00 per share (the “Series A Stated Value”) and are convertible into\nCommon Stock at a price of $3.00 per share. The holders of shares of the Series A Preferred shall be entitled to receive dividends out\nof any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series A Stated Value\nof such shares of Series A Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue\nfrom the date of issuance of such shares of Series A Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same\nrate. To the extent not paid on the last day of March, June, September and December of each calendar year, all dividends on any share\nof Series A.\n\n \n\nPreferred shall accumulate whether or not declared\nby the Board and shall remain accumulated dividends until paid. For the years ended March 31, 2025 and 2024, the Company recognized $240,000\nand $240,000 as deemed dividends and are included in the carrying value of the Series A Convertible Preferred Stock. The Holders will\nvote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted to a vote of holders\nof Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary of the Original\nIssue Date, and upon 30 days’ written notice to the Holders of Series A Preferred, the Company may, in its sole discretion, redeem\nthe Series A Preferred at the aggregate Series A Stated Value plus any accrued and accumulated but unpaid dividends. During the years\nended March 31, 2025 and 2024, the Company did not pay dividends, respectively.\n\n \n\n**11.\nSeries B 8% Convertible Preferred Stock**\n\n \n\nThe\nshares of Series B Preferred to have a stated value of $6.00 per share (the “Series B Stated Value”) and are convertible\ninto Common Stock at a price of $2.00 per share. The holder of shares of the Series B Preferred shall be entitled to receive dividends\nout of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series B Stated\nValue of such shares of Series B Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall\naccrue from the date of issuance of such shares of Series B Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at\nthe same rate. To the extent not paid on the last day of March, June, September and December of each calendar year, all dividends on\nany share of Series B Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid.\n\n \n\n34\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**11.\nSeries B 8% Convertible Preferred Stock (continued)**\n\n \n\nIn\nSeptember 2023, the Company entered into a definitive subscription agreement pursuant to which an accredited investor purchased 66,667\nshares of the Company’s Series B Preferred Stock (the “Series B Preferred”) for $400,000. These funds were used for\nworking capital purposes to support the orders received and expected in the near term. The shares of Series B Preferred to have a stated\nvalue of $6.00 per share (the “Series B Stated Value”) and are convertible into Common Stock at a price of $2.00 per share.\nThe holder of shares of the Series B Preferred shall be entitled to receive dividends out of any assets legally available, to the extent\npermitted by New Jersey law, at an annual rate equal to 8% of the Series B Stated Value of such shares of Series B Preferred, calculated\non the basis of a 360 day year, consisting of twelve 30-day months, and shall accrue from the date of issuance of such shares of Series\nB Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at the same rate. To the extent not paid on the last day of\nMarch, June, December and December of each calendar year, all dividends on any share of Series B Preferred shall accumulate whether or\nnot declared by the Board and shall remain accumulated dividends until paid.\n\n \n\nFor the years ended March 31, 2025 and 2024, the Company\nrecognized $112,000 and $97,334 as deemed dividends and are included in the carrying value of the Series B Convertible Preferred Stock.\nThe Holders will vote together with the holders of the Company’s Common Stock on an as-converted basis on each matter submitted\nto a vote of holders of Common Stock (whether at a meeting of shareholders or by written consent). Effective beginning on the third anniversary\nof the Original Issue Date, and upon 30 days’ written notice to the Holders of Series B Preferred, the Company may, in its sole\ndiscretion, redeem the Series B Preferred at the aggregate Series B Stated Value plus any accrued and accumulated but unpaid dividends.\nDuring the years ended March 31, 2025 and 2024, the Company did not pay dividends, respectively.\n\n \n\n**12.\nSeries C 8% Convertible Preferred Stock**\n\n \n\nIn\nSeptember 2023, the Company entered into a definitive subscription agreement pursuant to which two accredited investors purchased 53,500\nshares of the Company’s Series C Preferred Stock (the “Series C Preferred”) in total for $321,000. These funds were\nused for working capital purposes to support the orders received and expected in the near term (one accredited investor is a member of\nthe Board of Directors who invested $171,000 and the other accredited investor is a related party who invested $150,000).\n\n \n\nThe\nshares of Series C Preferred to have a stated value of $6.00 per share (the “Series C Stated Value”) and are convertible\ninto Common Stock at a price of $2.00 per share. The holder of shares of the Series C Preferred shall be entitled to receive dividends\nout of any assets legally available, to the extent permitted by New Jersey law, at an annual rate equal to 8% of the Series C Stated\nValue of such shares of Series C Preferred, calculated on the basis of a 360 day year, consisting of twelve 30-day months, and shall\naccrue from the date of issuance of such shares of Series c Preferred, payable quarterly in cash. Any unpaid dividends shall accrue at\nthe same rate. To the extent not paid on the last day of March, June, December and December of each calendar year, all dividends on any\nshare of Series C Preferred shall accumulate whether or not declared by the Board and shall remain accumulated dividends until paid.\n\n \n\nFor\nthe years ended March 31, 2025 and 2024, the Company recognized $25,680 and $14,215 as deemed dividends and are included in the carrying\nvalue of the Series Convertible Preferred Stock. The Holders will vote together with the holders of the Company’s Common Stock\non an as-converted basis on each matter submitted to a vote of holders of Common Stock (whether at a meeting of shareholders or by written\nconsent). Effective beginning on the third anniversary of the Original Issue Date, and upon 30 days’ written notice to the Holders\nof Series C Preferred, the Company may, in its sole discretion, redeem the Series C Preferred at the aggregate Series C Stated Value\nplus any accrued and accumulated but unpaid dividends. During the years ended March 31, 2025 and 2024, the Company did not pay dividends,\nrespectively.\n\n \n\n**13.\nStock Option Plans**\n\n \n\nThe\nBoard of Directors (the “Board”) adopted on January 18, 2017, and ratified by the shareholders at the Annual Meeting on January\n18, 2017, the Company’s 2016 Stock Option Plan (the “Plan”). The Plan provides for the granting of incentive stock\noptions, by a committee to be appointed by the Board (both the Board and the Committee are referred to herein as the “Committee”)\nto directors, officers, and employees (excluding directors and officers who are not employees) to purchase shares of the Common Stock\nof the Company, par value $0.10 per share (the “Stock”), in accordance with the terms and provisions. The 2016 Plan reserves\nfor issuance, options to purchase up to 250,000 shares of its common stock. Options granted under the plan are exercisable up to a period\nof five years from the date of grant at an exercise price which is not less than the fair market value of the common stock at the date\nof grant, except to a shareholder owning 10% or more of the outstanding common stock of the Company, as to which the exercise price must\nbe not less than 110% of the fair market value of the common stock at the date of grant. Options are exercisable on a cumulative basis,\n20% at or after each of the first, second, and third anniversary of the grant and 40% after the fourth year anniversary. During fiscal\nyear fiscal year 2025 the Company granted 160,000 stock options valued at $360,000 and none in the prior fiscal year.\n\n \n\n35\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**13.\nStock Option Plans (continued)**\n\n \n\nA\nsummary of the status of the Company’s stock option plans for the fiscal years ended March 31, 2025, and 2024 and changes during\nthe years are presented below (in number of options):\n\n \n\n   Number of\nOptions   Average\nExercise\nPrice   Average\nRemaining\nContractual\nTerm   Aggregate\nIntrinsic\nValue \n\nOutstanding options on April 1, 2023   99,000   $3.13    1.78 years     $       - \n\nOptions granted   -   $-           \n\nOptions exercised   -   $-           \n\nOptions cancelled/forfeited   -   $-           \n\n                     \n\nOutstanding options on March 31, 2024   99,000   $3.13    0.78 years     $- \n\nOptions granted   160,000   $2.25           \n\nOptions exercised   -   $-           \n\nOptions cancelled/forfeited   (68,500)  $3.16           \n\n                     \n\nOutstanding options on March 31, 2025   190,500   $2.38    3.8 years     $78,750 \n\n                     \n\nVested Options:                    \n\nMarch 31, 2025:   25,800   $3.04    1.1 years     $- \n\nMarch 31, 2024:   82,200   $3.16    0.5 years     $- \n\n \n\nRemaining\noptions available for grant were 59,500 of March 31, 2025.\n\n \n\nFor\nthe year ended March 31, 2025 the unamortized compensation expense for stock options was $151,191. Unamortized compensation expense\nis expected to be recognized over a weighted-average period of approximately 4.0 years.\n\n \n\nThe\ncompensation cost that has been charged was $35,227 and $9,099 for the fiscal years ended March 31, 2025, and 2024, respectively.\n\n \n\n**14.\nIncome Taxes**\n\n \n\nIncome tax provision:\n\n \n\n  \nFiscal Year Ended \n\n  \nMarch 31,  \nMarch 31, \n\n  \n2025  \n2024 \n\nCurrent: \n   \n  \n\nFederal \n$-  \n$- \n\nState and local \n 750  \n 665 \n\n  \n    \n   \n\nTotal current tax provision \n 750  \n 665 \n\n  \n    \n   \n\nDeferred: \n    \n   \n\nFederal \n 2,430,157  \n 146,595 \n\nState and local \n 20,500  \n 30,683 \n\n  \n    \n   \n\nTotal deferred tax provision \n 2,450,657  \n 177,278 \n\n  \n    \n   \n\nTotal tax provision \n$2,451,407  \n$177,943 \n\n \n\n36\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**14.\nIncome Taxes (continued)**\n\n \n\nThe\napproximate values of the components of the Company’s deferred taxes on March 31, 2025, and 2024 are as follows:\n\n \n\n  \nMarch 31,  \nMarch 31, \n\n  \n2025  \n2024 \n\nDeferred tax assets (liabilities): \n   \n  \n\nNet operating loss carry forwards \n$1,672,416  \n$1,234,075 \n\nTax credits \n 578,997  \n 342,218 \n\nCharitable contributions \n 53  \n 53 \n\nAllowance for credit losses \n 1,459  \n 1,817 \n\nReserve for inventory obsolescence \n 80,118  \n 81,609 \n\nVacation accrual \n 39,625  \n 35,396 \n\nWarranty reserve \n 18,555  \n 18,565 \n\nDeferred revenues \n 13,015  \n 25,388 \n\nGain on Sale of Asset \n 349  \n 350 \n\nDepreciation \n 17,375  \n 13,052 \n\n174 Capitalization \n 913,275  \n 835,914 \n\nDeferred tax asset \n 3,335,237  \n 2,588,437 \n\nLess valuation allowance \n (3,335,237) \n (137,780)\n\n  \n    \n   \n\nDeferred tax asset, net \n$0  \n$2,450,657 \n\n \n\nThe Company has federal net operating loss (“NOL”)\ncarry forwards of $7,904,423 as of March 31, 2025. These loss carry forwards are available to offset future taxable income and a certain\namount are subject to expiration, beginning in the year 2033. The current year federal NOL of $2,067,823 does not expire. New Jersey state\nNOL carry forwards of $44,779, as of March 31, 2025. New Jersey state NOL carry forwards expire in 20 years, and certain of these amounts\nbegin to expire in 2038. Kansas state NOL carry forwards $211,434, as of March 31, 2025. Kansas state NOL carry forwards do not expire.\n\n \n\nAs a result of the going concern noted, a complete\nvaluation allowance of $3,197,457 was recorded resulting in a $2,451,407 tax expense for the year ended March 31, 2025. For the year ended\nMarch 31, 2024 the Company did not incur any expense related to interest or penalties for income tax matters, and no such amounts were\naccrued. The Company’s tax years remain open for examination by the tax authorities primarily beginning 2022 through present.\n\n \n\nFor the year ended March 31, 2024, the Company reported\na tax provision of $177,943 tax provision as a result of income before taxes of $519,834\n\n \n\nA reconciliation of the income tax expense provision\nat the statutory Federal tax rate of 21% for the years ended March 31, 2025, and 2024, respectively, to the income tax benefit provision\nrecognized in the financial statements is as follows:\n\n \n\n  \nMarch 31,  \nMarch 31, \n\n  \n2025  \n2024 \n\nIncome tax (benefit) provision – statutory rate \n$(514,795) \n$109,165 \n\nIncome tax expenses – state and local, net of federal benefit \n (4,359) \n (170)\n\nPermanent items \n 7,756  \n 2,335 \n\nValuation allowance \n 3,197,457  \n 37,780 \n\nRate changes \n 1,854  \n 19,103 \n\nR&D expense credits \n (236,779) \n - \n\nTrue ups \n 273  \n 9,730 \n\nIncome tax provision \n$2,451,407  \n$177,943 \n\n \n\n37\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**15.\nNet Income (Loss) per Share**\n\n \n\nNet income (loss) per share attributable to common\nstockholders has been computed according to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification\n(“ASC 260”), “Earnings per Share,” which requires a dual presentation of basic and diluted income (loss) per share\n(“EPS”). Basic EPS attributable to common stockholders, represents net income (loss) less preferred dividends divided by the\nweighted average number of common shares outstanding during a reporting period. Diluted EPS attributable to common stockholders reflects\nthe potential dilution that could occur if securities, including preferred stock and options, were converted into common stock. The dilutive\neffect of outstanding options is reflected in earnings per share by use of the treasury stock method. The dilutive effect of preferred\nstock is reflected in earnings per share by use of the if-converted method. In applying the treasury stock method for stock-based compensation\narrangements, the assumed proceeds are computed as the sum of the amount the employee must pay upon exercise and the amounts of average\nunrecognized compensation.\n\n \n\n  \nMarch 31,\n2025  \nMarch 31,\n2024 \n\nBasic net (loss) income per share computation: \n   \n  \n\nNet (loss) income \n$(4,901,093) \n$341,891 \n\nLess: Preferred dividends \n (377,680) \n (351,549)\n\n  \n    \n   \n\nNet loss attributable to common shareholders \n (5,278,773) \n (9,658)\n\nWeighted average common shares outstanding \n 3,255,887  \n 3,255,887 \n\nBasic net loss per share \n$(1.62) \n$(0.00)\n\n \n\nThe\nfollowing table summarizes securities that, if exercised, would have an anti-dilutive effect on earnings per share:\n\n \n\n  \nMarch\n31,\n\n2025  \nMarch\n31,\n\n2024 \n\nConvertible preferred stock \n 2,774,739  \n 2,426,052 \n\nStock options \n 190,500  \n 99,000 \n\n  \n 2,965,239  \n 2,525,052 \n\n \n\n**16.\nRelated Parties**\n\n \n\nThe Company has obtained marketing and sales services\nfrom a brother-in-law of the Company’s CEO with the related fees and commissions amounting to $98,732 and $115,942 for the years\nended March 31, 2025, and 2024, respectively. Additionally, consulting fees were earned of $36,000 for each fiscal year ended March 31,\n2025, and March 31 2024. On March 31, 2025, $81,091 was due to this individual, which is included in accounts payable in the accompanying\nconsolidated balance sheets.\n\n \n\nThe Chief Executive Officer is provided with a\nNew Jersey apartment in the vicinity of the main plant for use during his onsite work schedule, the rental expense for fiscal year ended\nMarch 31, 2025, was $23,469 and $22,469 for the prior fiscal year. The lease is accounted for as a short-term lease.\n\n \n\nDuring June 2024, the Company’s CEO provided\nshort term advances totalling $105,500. During July 2024, an additional $40,000 was provided in short term advances of which $25,000 was\nrepaid during July 2024, with a balance owed as of yearend of $120,500. The maturity date for the principal balances was July 31, 2024,\nin the event the lender submitted a written demand for repayment. This event did not occur, and the interest continues to accrue on the\nprincipal until paid off in full at a per annum rate of 16%. As of March 31, 2025, the accrued interest was $14,843. Additionally, the\nCompany’s CEO provided an additional $46,000 during fiscal quarter ended September 30, 2025, with a total short-term advance of\n$166,500. The $166,500 was converted to 1,665 shares of Series D Preferred stock with a stated value of $100 on November 25, 2025.\n\n \n\nThe\nBoard of Director Chairperson provides monthly consulting expertise to the Chief Executive Officer at $2,400 on a monthly basis.\n\n \n\n**17.\nEmployee Benefit Plan**\n\n \n\nThe Company sponsors a 401k Plan in which employee\ncontributions on a pre-tax basis are supplemented by matching contributions by the Company. The Company charged to operations $41,365\nand $53,324 as its matching contribution to the Company’s 401k Plan for the years ended March 31, 2025, and 2024, respectively.\n\n \n\n38\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**18.\nSignificant Customer Concentrations**\n\n \n\nDomestic\ncommercial sales are made throughout the U.S. to commercial airlines and general aviation businesses directly or through distributors.\nThere were $1,774,042 in domestic commercial sales in fiscal year 2025 and there was one (1) direct domestic commercial customer who\naccounted for 21% of domestic commercial sales. There were $2,113,567 in domestic commercial sales in fiscal year 2024 and there were\ntwo (2) direct domestic commercial customers who accounted for 24% and 19% of domestic commercial sales, respectively. The Company has\none domestic distributor which receives discounts ranging between 10%-20% discount for stocking, selling, and, in some cases, providing\nproduct calibration and repairs. The loss of this distributor would not have a material adverse effect on the Company or its operations.\nOur domestic commercial distributor represented approximately 14% and 24%, respectively, of total sales during the fiscal years 2025\nand 2024.\n\n \n\nMarketing to the U.S. Government is made directly by employees of the\nCompany or through independent sales representatives, who receive similar commissions to the commercial distributors. For the years ended\nMarch 31, 2025, and 2024, sales to the U.S. Government, including shipments through the government’s logistics centers, represented\napproximately 65% or $6,062,763 and 63% or $5,565,433, respectively, of total sales.\n\n \n\nFor the year ended March 31, 2025, two (2)\ndirect customers represented 31% and 11% of total sales and three (3) customers represented 16%, 13% and 11% of total government\nsales, respectively. For the year ended March 31, 2024, two (2) direct customers represented 28% and 10% of total sales and two (2)\ncustomers represented 35% and 14% of total government sales, respectively.\n\n \n\nInternational sales are made throughout the world\nto government and commercial customers, directly through American export agents, or through the Company’s overseas distributors\nat a discount reflecting a 15% to 22% selling commission, under written or oral, year-to-year arrangements. The Company has an exclusive\ndistribution agreement with Muirhead Avionics Ltd (“Muirhead”), based in the United Kingdom, to represent the Company in parts\nof Europe, and with Milspec Services in Australia and New Zealand. Tel also sells its products through exclusive distributors in Spain,\nPortugal, and East Asia and is exploring distribution in other areas. For the years ended March 31, 2025, and 2024, total international\nsales were 16% and 13%, respectively. The Company has an agreement with M.P.G. Instruments s.r.l., based in Italy, wherein this distributor\nhas the exclusive sales rights for DME/P ramp and bench test units. The Company continues to explore additional marketing opportunities\nin other parts of the world, including East Asia. No international distributors represented more than 10% of total sales for year ended\nMarch 31, 2025, or March 31, 2024. No international distributors represented more than 10% of total sales for year ended March 31, 2025,\nor March 31, 2024\n\n \n\nNet\nsales to foreign customers, which, for the most part, are international distributors were $1,459,589 and $1,130,087 for the years ended\nMarch 31, 2025, and 2024, respectively. All other sales were to customers located in the U.S. The following table presents net sales\nby U.S. and foreign countries:\n\n \n\n  \n2025  \n2024 \n\nUnited States \n$7,836,805  \n$7,679,000 \n\nForeign countries \n 1,459,587  \n 1,130,087 \n\nTotal Avionics Sales \n$9,296,392  \n$8,809,087 \n\n \n\nNet\nsales related to any single foreign country, more than 10% of consolidated net sales included two (2) foreign countries for fiscal year\nended March 31, 2025. They were Korea (23%) and United Kingdom (57%). Net sales related to any single foreign country, more than 10%\nof consolidated net sales included two (2) foreign countries for the fiscal year ended March 31, 2024. They were Korea (35%) and United\nKingdom (30%).\n\n \n\nThe\nCompany had no assets outside the United States. Receivables from the U.S. Government represented approximately 9% and 6%, respectively,\nof total receivables on March 31, 2025, and 2024, respectively. As of March 31, 2025, there was one (1) individual customer that represented\n21% of the Company’s total outstanding accounts receivable. As of March 31, 2024, there were two individual customers that represented\n33% and 15% respectively of the Company’s total outstanding accounts receivable.\n\n \n\n39\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n \n\n**18.\nSignificant Customer Concentrations (continued)** \n\n \n\nThe\nCompany had one individual vendor that represented 10% of payables as of March 31, 2025. The Company had one individual vendor that represented\n18% of payables as of March 31, 2024.\n\n \n\nTotal\nsales by test set product that were more than 10% of consolidated net sales were the was AN/USM-708 (19%).\n\n \n\nTotal\nsales by test set product that were more than 10% of consolidated net sales were the AN/USM-708 (13%) and the T-47/M5 (11%) for the year\nended March 31, 2024.\n\n \n\n**19.\nSegment Reporting**\n\n \n\nIn accordance with FASB ASC 280, “Disclosures\nabout Segments of an Enterprise and related information”, the Company determined it has two reportable segments - avionics government\nand avionics commercial. There are no inter-segment revenues. Company adopted these standards for fiscal year 2025 and retrospectively\napplied to 2024. The CODM is the Company’s Chief Executive Officer (CEO). \n\n \n\nThe Company is organized primarily on the basis of\nits avionics products. The avionics government segment consists primarily of the design, manufacture, and sale of test equipment to the\nU.S. and foreign governments and militaries either directly or through distributors and is based on distinct product lines. The avionics\ncommercial segment consists of design, manufacture, and sale of test equipment to domestic and foreign airlines, directly or through commercial\ndistributors, and to general aviation repair and maintenance shops and is based on distinct product lines. The Company develops and designs\ntest equipment for the avionics industry and as such, the Company’s products and designs cross segments.\n\n \n\nManagement evaluates the performance of its segments\nand allocates resources to them based on gross margin. Significant segment expense categories include selling and engineering research\nand development, that are segmented among the Avionics Government and Commercial segments based on sales volume. Net interest includes\nexpenses on debt and income earned on cash balances, both maintained at the corporate level. Segment assets include only accounts receivable\nand work-in-process inventory. Asset information is segmented for accounts receivable and work-in-process inventory based on product line,\nall other assets are not reported since the Company does not produce such information internally. All long-lived assets are located in\nthe U.S.\n\n \n\nThe Company measures segment income (loss) as\nincome (loss) from operations. Segment assets are those assets controlled by each reportable segment.\n\n \n\nThe\ntables below present information about reportable segments for the years ended March 31:\n\n \n\n  \n   \n   \n   \nCorporate/  \n  \n\n  \nAvionics  \nAvionics  \nAvionics  \nReconciling  \n  \n\n2025 \nGovernment  \nCommercial  \nTotal  \nItems  \nTotal \n\nNet sales \n$7,017,340  \n$2,279,052  \n$9,296,392  \n$-  \n$9,296,392 \n\nCost of sales \n 5,410,097  \n 1,883,580  \n 7,293,677  \n -  \n 7,293,677 \n\n  \n    \n    \n    \n    \n   \n\nGross margin \n 1,607,243  \n 395,472  \n 2,002,715  \n -  \n 2,002,715 \n\n  \n    \n    \n    \n    \n   \n\nEngineering, research, and development \n 1,552,700  \n 504,277  \n 2,056,977  \n -  \n 2,056,977 \n\nSelling, general, and administrative \n 682,544  \n 221,673  \n 904,217  \n 1,387,783  \n 2,292,000 \n\nSegment operating loss \n (628,001) \n (330,478) \n (958,479) \n (1,387,783) \n (2,346,262)\n\nInterest expense, net \n -  \n -  \n -  \n 103,424  \n 103,424 \n\nSegment income (loss) from operations \n$(628,001) \n$(330,478) \n$(958,479) \n$(1,491,207) \n$(2,449,686)\n\n  \n    \n    \n    \n    \n   \n\nCorporate Assets \n$-  \n$-  \n$-  \n$1,471,845  \n$1,471,845 \n\nAccounts receivable, net of reserve \n 381,533  \n 263,813  \n 645,346  \n -  \n 645,346 \n\nInventories – WIP, net of reserve \n 1,155,893  \n 375,405  \n 1,531,298  \n -  \n 1,531,298 \n\nOther inventories, net of reserve \n 1,884,048  \n 611,890  \n 2,495,938  \n -  \n 2,495,938 \n\nTotal Segment Assets \n$3,421,474  \n$1,251,108  \n$4,672,582  \n$1,471,845  \n$6,144,427 \n\n \n\n40\n\n[Table of Contents](#TableOfContents) \n\n \n\n**TEL-INSTRUMENT\nELECTRONICS CORP.**\n\n \n\n**Notes\nTo Consolidated Financial Statements (Continued)**\n\n** **\n\n**19.\nSegment Reporting (continued) **\n\n** **\n\n  \n   \n   \n   \nCorporate/  \n  \n\n  \nAvionics  \nAvionics  \nAvionics  \nReconciling  \n  \n\n2024 \nGovernment  \nCommercial  \nTotal  \nItems  \nTotal \n\nNet sales \n$6,625,865  \n$2,183,222  \n$8,809,087  \n$-  \n$8,809,087 \n\nCost of sales \n 3,234,032  \n 1,557,702  \n 4,791,734  \n -  \n 4,791,734 \n\n  \n    \n    \n    \n    \n   \n\nGross margin \n 3,391,833  \n 625,520  \n 4,017,353  \n -  \n 4,017,353 \n\n  \n    \n    \n    \n    \n   \n\nEngineering, research, and development \n 869,312  \n 286,438  \n 1,155,750  \n -  \n 1,155,750 \n\nSelling, general, and administrative \n 534,723  \n 176,191  \n 710,914  \n 1,413,901  \n 2,124,815 \n\nSegment operating income \n 1,987,798  \n 162,891  \n 2,150,689  \n (1,413,901) \n 736,788 \n\nInterest expense, net \n -  \n -  \n -  \n 216,954  \n 216,954 \n\nSegment income (loss) before income taxes \n$1,987,798  \n$162,891  \n$2,150,689  \n$(1,630,855) \n$519,834 \n\nCorporate assets \n -  \n -  \n -  \n 4,229,598  \n 4,229,598 \n\nAccounts receivable, net of reserve \n 933,249  \n 177,299  \n 1,110,548  \n -  \n 1,110,548 \n\nInventories – WIP, net of reserve \n 2,184,553  \n 728,184  \n 2,912,737  \n -  \n 2,912,737 \n\nOther inventories – WIP, net of reserve \n 1,874,180  \n 624,727  \n 2,498,907  \n -  \n 2,498,907 \n\nTotal Segment Assets \n$4,991,982  \n$1,530,210  \n$6,522,192  \n$4,229,598  \n$10,751,790 \n\n \n\n**20.\nCommitments and Contingencies**\n\n \n\nCurrently,\nwe are not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.\nThere is no action, suit, proceeding, inquiry or investigation before any court, public board, government agency, self-regulatory organization\nor body pending or, to the knowledge of executive officers of our Company, threatened against or affecting our Company, or our common\nstock in which an adverse decision could have a material effect.\n\n \n\nDuring the year ended March 31, 2024, the Aeroflex\nlitigation did not result in a favourable outcome for the Company, despite our belief that we committed no wrongdoing. We have paid the\n$6.6 million judgment and interest in full and there are no outstanding obligations related to the Aeroflex litigation. The jury found\nno misappropriation of Aeroflex trade secrets but found that the Company tortiously interfered with a prospective business opportunity\nand awarded damages. The jury also found that TIC tortiously interfered with Aeroflex’s non-disclosure agreements with two former\nAeroflex employees, and that the former Aeroflex employees breached their non-disclosure agreements with Aeroflex. Upon appeal, a decision\non the case was rendered and released on July 21, 2023, the Kansas Appeals Court rejected each of TIC’s appeal arguments. TIC paid\nfull judgement and interest in the amount of $6,559,233 on September 15, 2023, including interest of $1,659,233.\n\n \n\nThe Company also leased a small office in Lawrence,\nKansas under an operating lease agreement. In October 2025, the Company terminated the lease and closed this office.\n\n \n\n**21. Subsequent Events**\n\n** **\n\nOn\nNovember 25, 2025, the Company amended its Articles of Incorporation to authorize a new class of Preferred Stock, Series D Preferred\nStock, which authorized the board to issue 3,000 shares of $0.10 par value per share with a stated value equal to $100. The amendment\nestablished the right, preferences, and privileges of the Series D Preferred Stock, including quarterly dividends at an annual rate of\n8% per year, the entitlement to receive immediately prior and in preference to any distribution to the holders of the Company's other\nsecurities a liquidation preference equal to the stated value plus all accrued and accumulated unpaid dividends in the event of any liquidations,\nthe right at any time commencing after the issuance date to convert the aggregate Series D State value of such shares, as well as accrued\nand accumulated unpaid declared dividends into fully paid an non-assessable shares of Common stock of the Company at the conversion price\nof $2.00 per share, and the right to vote together with the holders of the Company's Common Stock on an as converted basis.\n\n \n\nOn November 14, 2025, the Company issued 1,000 shares of Series C Preferred\nStock at a stated value of $6 per share to a related party. The shares were issued for the aggregate consideration of $600,000.\n\n \n\nOn January 27, 2026, the Company issued 1,000\nshares of the Series D Preferred Stock at a stated value of $100 per share, to a related party. The shares were issued for the aggregate consideration of\n$100,000.\n\n \n\nOn July 7, 2025 and September 23, 2025, the Company borrowed $16,000 and $30,000, respectively, from a related party, making the total related party promissory note due $166,500. On December 15, 2025, the Company converted\nthe debt into 1,665 shares of Series D Preferred Stock at a stated rate of $100 per share.\n\n \n\nThe Company's line of credit expired on July 31,\n2025 with $1,000,000 outstanding, and was not renewed by Bank of America, and the total outstanding balance of $1,000,000 became due.\nThe Company made payments of $125,000 and $100,000 on February 13, 2026 and April 1, 2026 respectively, to bring the outstanding balance\nto $775,000. On April 22, 2026, the Company agreed to modify the loan amount to which the Company will make quarterly payments ranging\nfrom $150,000 to $225,000 beginning on June 30, 2026, with the entire outstanding balance being due on March 31, 2027. The modified loan\namount was in the amount of $778,716, which represents the outstanding principal, plus accrued and unpaid interest, with interest accruing\non the principal under the same conditions as the line of credit as of March 31, 2025.\n\n \n\nDuring October 2025 2,500 stock options were issued\nto a key employee.\n\n \n\nThe One Big Beautiful Bill Act, “OBBBA”,\nsignificantly impacts public company taxes by making the flat 21% corporate tax rate permanent, implementing full expensing for Research\nand Development and capital investments. These provisions become effective for taxable years beginning after December 31, 2025 and the\nCompany has adopted these new rules.\n\n \n\n41\n\n[Table of Contents](#TableOfContents)"}