Modern technology gives us many things.

TEL INSTRUMENT ELECTRONICS : Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) (form 10-K)

Forward Looking Statements

A number of the statements made by the Company in this report may be regarded as
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1965.

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

All predictions as to future results contain a measure of uncertainty and
accordingly, actual results could differ materially. Among the factors that
could cause a difference are changes in the general economy; changes in demand
for the Company’s products or in the costs and availability of its raw
materials; the actions of competitors; the success of our customers,
technological change; changes in employee relations; government regulations;
litigation, including its inherent uncertainty; difficulties in plant operations
and materials transportation; environmental matters; and other unforeseen
circumstances, including the current COVID-19 pandemic. A number of these
factors are discussed in the Company’s filings with the SEC.



General


Management’s discussion and analysis of results of operations and financial
condition is intended to assist the reader in the understanding and assessment
of significant changes and trends related to the results of operations and
financial position of the Company together with its subsidiary. This discussion
and analysis should be read in conjunction with the consolidated financial
statements and accompanying financial notes, and with the Critical Accounting
Policies noted below. The Company’s fiscal year begins on April 1 and ends on
March 31. Unless otherwise noted, all references in this document to a
particular year shall mean the Company’s fiscal year ending on March 31.



Overview


Fiscal year 2021 was extremely challenging for the Company. The COVID-19
pandemic materially impacted commercial sales and supply chain disruptions
prevented us from shipping product on schedule. This led to substantially
reduced revenues and profitability. The Company reported a 26.6% decline in
sales to $11,582,520 for the year ended March 31, 2021, as compared to
$15,774,943 for the previous year. Commercial sales decreased by 42.6% to
$1,723,983 for the year ended March 31, 2021, as compared to $3,004,580 for the
year ended March 31, 2020. The commercial airline industry has been devastated
by the COVID pandemic and this led to a sharp reduction in commercial test set
orders. Avionics government sales decreased by 22.6% to $9,858,537 for the year
ended March 31, 2021, as compared to $12,737,362 for the year ended March 31,
2020
. This decrease in sales is mainly the result of supply chain disruption due
to the pandemic, the slowdown of purchased components significantly disrupted
the TIC manufacturing of finished goods. Gross Margin decreased by $2.6 million
in fiscal 2021 as compared to 2020 and the gross margin percentage declined by 6
percentage points to 41.3%. This was due to adverse manufacturing variances due
to the lower volume and discounted sales prices to Germany and the U.K. to
secure future business. Total operating expenses for the year declined by
approximately $150,000due primarily to lower bonus amounts. This expense
reduction was achieved despite one-time professional fees of $300,000 related to
M&A discussions and a GAO government protest that was filed in the fourth
quarter. Net income before taxes was $573,030 for fiscal year 2021 as compared
to $2,087,210 in fiscal year 2020. The Company’s cash balance on March 31, 2021,
was $5.5 million, including the $2 million of restricted cash to support the
appeal bond. The Company’s backlog on March 31, 2021, was $7.6 million, which is
$3.6 million higher than the year-ago period.




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



Overview (continued)


The Company continues to pursue opportunities in the domestic and international
market for our Mode 5 test sets with good results. We continue to receive volume
orders from South Korea, Australia, Canada, the U.K. and Germany for our Mode 5
test sets. We also are receiving volume orders from the U.S. Government and
Lockheed Martin for our AN/USM-708 and 719 (“CRAFT”) Mode 5 test sets. We have
also been awarded a large contract from the U.S. military for our T-47NH product
and are seeing solid demand for our other non-Mode 5 test sets. Our expectation
is that we will continue to improve both our revenues and gross margins, but the
timing of these new orders is largely out of our hands. Nonetheless, we are
encouraged by the increasing activity we are seeing for military products. After
a sharp drop in FY 2021, the Company is also seeing the beginning of a rebound
in commercial test set business with orders in the first two months exceeding
demand for all of FY2021. Tel Instrument is also working on the next generation
of Mode 5 called Mode 5 Level 2B. This could potentially lead to substantial
software upgrades in the future for our domestic and international Mode 5
customers. The Navy is also considering a mid-life update of our CRAFT product
line which could entail funded engineering starting next fiscal year. This is an
important product for the Company, and this should ensure an additional 10 years
of product life.

The Company is also actively looking at expanding out of its current core
avionics market area. TIC is working with Lockheed Martin (LMCO) on a new MADL
test set. TIC was awarded this contract after winning a $956,000 competitive
solicitation. MADL is a secure communications radio for the F-35. This operates
in a much higher frequency range than our other test sets. The contract has been
put on hold for at least the next four months due to LMCO funding issues, but we
are hopeful that the contract will resume this fall. TIC has completed the
majority of the development work on this new test set. If the funding issue
is resolved, this could generate substantial recurring revenues for the Company
and would position TIC for further development contracts with LMCO.

The main focus area for the Company is moving into the secure communications
testing with our new DSR/OMNI test set. The world’s first “All-in-One” Avionics
Test Set utilizes true software-designed radio technology that enables it to
test all common avionics functions in one 4.5 pound test set. The SDR/OMNI has
very wide frequency to accommodate new commercial and military waveforms in an
industry leading 4.5-pound package. This is half the weight of competitive test
sets. It utilizes the latest touch screen technology and has the capability to
replace all TIC commercial test sets and military flight-line test sets with one
handheld product. With the COVID pandemic, the Company focused all of its
engineering efforts on developing a secure communications and navigation test
set for the U.S. military. The communications test capability was moved up in
our development schedule based on the negative impact of the COVID-19 pandemic
on commercial aviation. The U.S. military will need to upgrade thousands of
existing communication and navigation test sets over the next several years to
address the new frequency and waveform requirements for military radios and we
believe the SDR/OMNI is well positioned to capture a large portion of this
business.

Once the communications and navigation software are completed, TIC plans to
introduce software APPS for the commercial transponder testing market. This will
provide Transponder (Modes A, C, and S), ADS-B, and 978 MHz UAT capability for
the large general aviation test market. This will allow us to compete with the
IFR 4000 and 6000 test tests for our military and commercial aviation customers.
The SDR-Omni product is a game changer in the commercial and military avionics
test market as it will allow customers to replace multiple competitive test sets
with one unit that is smaller and provides more capabilities at a fraction of
the cost. This new technology could provide us with the opportunity to expand
out of our relatively narrow avionics test market niche and enter the much
larger secure military and homeland security radio test market which is many
times the size of our existing avionics test market. The secure military test
set market is very large, and we are anticipating several large competitive DOD
solicitations to take place in the next several years.

The Aeroflex litigation (see Note 21 to the consolidated financial statements)
did not result in a favorable outcome for the Company, despite our belief that
we committed no wrongdoing.

The jury found no misappropriation of Aeroflex trade secrets, but it did rule
that the Company tortiously interfered with a prospective business opportunity
and awarded damages. The jury also ruled that Tel tortiously interfered with
Aeroflex’s non-disclosure agreements with two former Aeroflex employees. The
jury also found that the former Aeroflex employees breached their non-disclosure
agreements with Aeroflex. The Court conducted further hearings on the Company’s
post-trial motions which sought to reduce the damages award of $2.8 million, as
well as the punitive damages claim. The Court denied the Company’s motions and
awarded Aeroflex an additional $2.1 million of punitive damages. The Company has
filed motions in January 2018 for the Court to reconsider the number of damages
on the grounds that they are duplicative and not legally supportable. The Court
heard these motions, and such motions were denied. The Company has filed for the
appeal. The Company has posted a $2 million bond for the appeal. This $2 million
bond amount will remain in place during the appeal process (See Note 6).




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



Overview (continued)


As reflected in the accompanying consolidated balance sheet as of March 31,
2021
, the Company has recorded estimated damages to date of $5.9 million,
including interest, as a result of a jury verdict associated with the Aeroflex
litigation. The Company has filed for an appeal (see Notes 6 and 21). As of
March 31, 2021, the Company has cash balances of $5.5 million, including $2
million
of restricted cash as well as $690,000 of borrowing capacity. We expect
to continue to have sufficient cash and borrowing capacity to fully cover the
Aeroflex damages amount.

The Company is very optimistic about the prospects of its appeal for a judgment
as a matter of law. The Company was hoping for a decision from the court this
calendar year, but this timing will likely be delayed due to the three month
COVID-19 related shutdown of the Kansas court system. As such, the appeal
process is expected to take at least another six months year to complete unless
a settlement can be reached. The Company has the ability to settle this case at
its sole discretion by withdrawing the appeal and paying the judgment plus
interest amount.

On March 21, 2016, the Company entered into a line of credit agreement with Bank
of America
. The line is collateralized by substantially all of the assets of the
Company. The line provided a revolving credit facility with borrowing capacity
of up to $1,000,000. There were no covenants or borrowing base calculations
associated with this line of credit. On August 29, 2018, the Company entered a
Loan Modification Agreement (the “Agreement”) with the bank to extend the
Agreement until May 31, 2019, which included a debt service ratio “covenant”. In
June 2019, Bank of America agreed to extend the Company’s line of credit until
March 31, 2020, including monthly principal payments of $10,000, and eliminating
the covenant for the debt service ratio. In March 2020, the Company extended its
line of credit until January 31, 2021. Then extended to March 31, 2021, and then
subsequently to June 30, 2021. The new agreement includes availability up to
$690,000. Monthly payments will be interest only.

The Company’s interest rates were 3.86% and 4.74% on March 31, 2021, and 2020,
respectively. During the year ended March 31, 2021, the Company repaid $680,000
against this line of credit. As of March 31, 2021, and 2020, the outstanding
balances were $0 and $680,000, respectively. As of March 31, 2021, the
remaining availability under this line is $690,000. On March 31, 2021, Bank of
America
extended the maturity date of our line of credit from March 31, 2021, to
June 30, 2021, to allow time for a full underwriting for the annual renewal
period. As of March 31, 2021, the line of credit draw remains at zero, with
$690K available (see Note 10 to the consolidated financial statements).

On March 31, 2021, the Company’s backlog of orders was approximately $7.6
million
as compared to $4.0 million on March 31, 2020. Historically, the Company
obtains orders which are required to be filled in less than 12 months, and
therefore, these anticipated orders are not reflected in the backlog.

The Company believes it has sufficient cash on hand and expected cash flow from
operations for the next twelve months due to the increase in business and the
opportunities that exist for the next few years.

Results of Operations 2021 Compared to 2020



Sales


For the year ended March 31, 2021, sales decreased $4,192,423 (26.6%)
to $11,582,520 as compared to $15,774,943 for the year ended March 31, 2020.
Commercial sales decreased $1,280,597 (42.6%) to $1,723,983 for the year ended
March 31, 2021, as compared to $3,004,580 for the year ended March 31, 2020. The
COVID-19 pandemic devastated the commercial airline industry and new orders
declined by almost two thirds in the last fiscal year. Avionics government sales
decreased $2,878,825 (22.6%) to $9,858,537 for the year ended March 31, 2021, as
compared to $12,737,362 for the year ended March 31, 2020. This decrease in
sales is mainly the result of Supply chain disruption due to the Pandemic, the
slowdown of purchased components significantly disrupted the TIC manufacturing
of finished goods.



Gross Margin


Gross margin decreased $2,627,402 (35.5%) to $4,782,499 for the year ended March
31, 2021
, as compared to $7,409,901 for the year ended March 31, 2020, primarily
as a result of the decrease in volume. The gross margin percentage for the year
ended March 31, 2021, was 41.3%, as compared to 47.0% for the year ended March
31, 2020
. The lower gross margin percentage is primarily attributable to
additional discounts offered to international customers to secure sales orders
as well as negative manufacturing variances related to the reduced volume
levels.




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



Operating Expenses


Selling, general and administrative expenses, along with litigation expense,
decreased $24,404 (7.8%) to $2,413,194 for the year ended March 31, 2021, as
compared to $2,617,598 for the year ended March 31, 2020. This decrease is
primarily attributed to the decrease in accrued profit sharing expense, outside
commissions, consulting fees, litigation fees and travel expense, with some
offset for an increase in legal fees.

Engineering, research and development expenses increased $56,090 (2.5%) to
$2,295,901 for the year ended March 31, 2021, as compared to $2,239,811 for the
year ended March 31, 2020. The increase is primarily due to increase in
engineering staff to support the development of the Company’s SDR/OMNI and the
Lockheed Martin MADL test set projects.



Income from Operations


As a result of the above, the Company recorded income from operations in the
amount of $73,404 for the fiscal year ended March 31, 2021, as compared to
income from operations of $2,552,492 for the year ended March 31, 2020.



Other Income(Expense)


For the year ended March 31, 2021, total other income was $499,626 as compared
to an expense of $465,282 for the year ended March 31, 2020. This was primarily
the result of the $722,577 SBA PPP loan forgiveness, offset by lower interest
for the line of credit and the judgment.



Income before Income Taxes


As a result of the above, the Company recorded income before taxes of $573,030
for the year ended March 31, 2021, as compared to income before taxes of
$2,087,210 for the fiscal year ended March 31, 2020.

Income Taxes

For the year ended March 31, 2021, the Company reported a tax benefit of
$27,027, as a result of the Company’s taxable loss for the year as the
forgiveness of the PPP loan is not a taxable event.

For the year ended March 31, 2020, the Company’s Federal and State provision
requirements were offset by the reversal of a portion of the valuation allowance
no longer deemed necessary. The Company recorded a net tax benefit of $2,649,280
which represents a reduction in our valuation allowance on tax attributes that
are expected to be utilized based on management’s assessment and evaluation of
historical and projected income.



Net Income


As a result of the above, the Company recorded net income of $600,057 for the
year ended March 31, 2021, as compared to net income of $4,736,490 for the year
ended March 31, 2020.

Liquidity and Capital Resources

On March 31, 2021, the Company had positive working capital of $3,159,731, as
compared to working capital of $1,776,176 on March 31, 2020. This change is
primarily the result of being awarded two PPP draws totaling $1,445,154, which
has improved the Company’s cash position while also reducing its outstanding
liabilities. The Company has $5.5 million of cash on hand at year-end including
$2 million of restricted cash supporting the appeal bond.

On March 31, 2021, Bank of America further extended the maturity date of our
line of credit from March 31, 2021, to June 30, 2021, to allow time for a full
underwriting for the annual renewal period.

As discussed in Note 21 of the Consolidated Financial Statements, the Company
has recorded total damages of $5,889,023, including accrued interest, as a
result of the jury verdict associated with the Aeroflex litigation as well as
the Court’s decision on punitive damages. The Company has recorded accrued
interest of $989,023 as of March 31, 2021.




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

Liquidity and Capital Resources (continued)

The Company is very optimistic about the prospects of its appeal for a judgment
as a matter of law. The Company was hoping for a decision from the court this
calendar year, but this timing has been delayed due to the COVID-19 related
shutdown of the Kansas court system. As such, the appeal process is expected to
take at least another six to twelve months to complete. The Company has the
ability to settle this case at its sole discretion by withdrawing the appeal and
paying the judgment plus interest amount.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief and
Economic Security (the “CARES Act”), which, among other things, outlines the
provisions of the Paycheck Protection Program (the “PPP”). The Company
determined that it met the criteria to be eligible to obtain a loan under the
PPP because, among other reasons, in light of the COVID-19 outbreak and the
uncertainty of economic conditions related thereto, the loan was considered
necessary to support the Company’s ongoing operations and retain all its
employees. In addition, President Trump signed into law the Paycheck Protection
Program and Health Care Enhancement Act on April 24, 2020, which increased
funding provided by the CARES Act. On May 4, 2020, the Company issued a
promissory note (the “Note”) to Bank of America in the principal aggregate
amount of $772,577 (the “PPP Loan”) pursuant to the Paycheck Protection Program
(“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”). The amount was deposited in our bank on May 4, 2020. On June 5, 2020, the
Paycheck Protection Program Flexibility Act was signed into law and extended the
program until December 31, 2020.

TIC qualified for full loan forgiveness on the initial tranche on December 18,
2020
. On January 6, 2021, updated PPP guidance outlining program changes to
enhance its effectiveness and accessibility was released on in accordance with
the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. This
was available to companies that recorded greater than a 25% sales reduction in
any quarter compared to the prior year. The Company qualified for this second
round of funding and on March 15, 2021, the company secured a Second Draw PPP
loan in the amount of $772,577. Second Draw PPP loans made to eligible borrowers
qualify for full loan forgiveness if during the 8- to 24-week covered period
following loan disbursement:

o Employee and compensation levels are maintained in the same manner as required

for the First Draw PPP loan

o The loan proceeds are spent on payroll costs and other eligible expenses; and

o At least 60% of the proceeds are spent on payroll costs

A borrower can apply for forgiveness once all loan proceeds for which the
borrower is requesting forgiveness have been used. Borrowers can apply for
forgiveness any time up to the maturity date of the loan. If borrowers do not
apply for forgiveness within 10 months after the last day of the covered period,
then PPP loan payments are no longer deferred, and borrowers will begin making
loan payments to their PPP lender. The Company plans to file for loan
forgiveness of the second tranche of PPP funding during fiscal year ending March
31, 2022
.

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

The Company continues to monitor the impact of the COVID-19 outbreak on its
supply chain, manufacturing and distribution operations, customers and
employees, as well as the U.S. economy in general. The uncertainties associated
with the COVID-19 outbreak include potential adverse effects on the overall
economy, the Company’s supply chain, transportation services, employees and
customers. The COVID-19 outbreak could adversely affect the Company’s revenues,
earnings, liquidity and cash flows and may require significant actions in
response, including expense reductions. Conditions surrounding COVID-19 change
rapidly, and additional impacts of which the Company is not currently aware may
arise. Based on past performance and current expectations, the Company believes
that its anticipated cash flow from operations will be sufficient to fund the
Company’s requirements for working capital, capital expenditures and debt
service for at least the next 12 months.

During the year ended March 31, 2021, the Company’s cash balance increased by
$361,586 to $5,496,325, including restricted cash to support the appeal
bond. The Company’s principal sources and uses of funds were as follows:

Cash (used in) provided operating activities. For the year ended March 31, 2021,
the Company used $255,616 in cash for operations as compared to providing
$2,921,030 in cash for operations for the year ended March 31, 2020. This
decrease in cash provided by operations is primarily attributed to the decline
in revenue as a result of the global pandemic. In addition, $680,000 of cash was
used to fully pay off the line of credit and $80,000 of dividends were also
paid.




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

Liquidity and Capital Resources (continued)

Cash used in investing activities. For the year ended March 31, 2021, the
Company used $67,902 of its cash for investing activities, as compared to
$133,682 for the year ended March 31, 2020, as result of less purchases of
equipment during the current year.

Cash provided (used in) financing activities. For the year ended March 31, 2021,
the Company provided $685,105 in cash for financing activities as compared to
$243,336 in cash used by financing activities for the year ended March 31, 2020.
This predominantly was a result of the two PPP loans the company received.

Currently, the Company has no material future capital expenditure requirements.

There was no significant impact on the Company’s operations as a result of
inflation for the year ended March 31, 2021.

Critical Accounting Policies

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

Revenue recognition – The Company accounts for revenue recognition in accordance
with ASC 606. The core principle of Topic 606 is to recognize revenues when
promised goods or services are transferred to customers in an amount that
reflects the consideration that is expected to be received for those goods or
services. The ASC 606 defines a five-step process to achieve the core principle
and, in doing so, it is possible more judgement and estimates may be required
within the revenue recognition process than are currently in use.

The Company generates revenue from designing, manufacturing and selling avionic
tests and measurement solutions for the global commercial air transport, general
aviation, and government/military aerospace and defense markets. The Company
also offers calibration and repair services for a wide range of airborne
navigation and communication equipment.

Under Financial Accounting Standards Board (“FASB”) Topic 606, Revenue from
Contacts with Customers (“ASC 606”), the Company recognizes revenue when the
customer obtains control of promised goods or services, in an amount that
reflects the consideration which is expected to be received in exchange for
those goods or services. The Company recognizes revenue following the five-step
model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii)
identify the performance obligation(s) in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price to the performance
obligation(s) in the contract; and (v) recognize revenue when (or as) the
Company satisfies a performance obligation. The Company only applies the
five-step model to contracts when it is probable that the entity will collect
the consideration it is entitled to in exchange for the goods or services it
transfers to the customer. At contract inception, once the contract is
determined to be within the scope of ASC 606, the Company assesses the goods or
services promised within each contract and determines those that are performance
obligations and assesses whether each promised good or service is distinct. The
Company then recognizes as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) the performance
obligation is satisfied.




Nature of goods and services



The following is a description of the products and services from which the
Company generates revenue, as well as the nature, timing of satisfaction of
performance obligations, and significant payment terms for each.



Test Units/Sets


The Company develops, and manufactures unit sets to test navigation and
communication equipment, such as ramp testers and bench testers for radios
installed in aircraft. The Company recognizes revenue when the customer obtains
control of the Company’s product based on the contractual shipping terms of the
contract, which is usually at the time of shipment. Revenue on products is
presented gross because the Company is primarily responsible for fulfilling the
promise to provide the product, is responsible to ensure that the product is
produced in accordance with the related supply agreement and bears the risk of
loss while the inventory is in-transit. Revenue is measured as the amount of
consideration the Company expects to receive in exchange for transferring
products to the customer.




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

Critical Accounting Policies (continued)

If the contract contains a single performance obligation, the entire transaction
price is allocated to the single performance obligation. Contracts that contain
multiple performance obligations require an allocation of the transaction price
based on the estimated relative standalone selling prices of the promised
products or services underlying each performance obligation. The Company
determines stand-alone selling prices based on the price at which the
performance obligation is sold separately. If the stand-alone selling price is
not observable through past transactions, the Company estimates the standalone
selling price taking into account available information such as market
conditions and internally approved pricing guidelines related to the performance
obligations.

When determining the transaction price of a contract, an adjustment is made if
payment from the customer occurs either significantly before or significantly
after performance, resulting in a significant financing component. Applying the
practical expedient in paragraph 606-10-32-18, the Company does not assess
whether a significant financing component exists if the period between when the
Company performs its obligations under the contract and when the customer pays
is one year or less. None of the Company’s contracts contained a significant
financing component as of March 31, 2021.



Replacement Parts


The Company offers replacement parts for test equipment, ramp testers, and bench
testers. Similar to the sale of test units, the control of the product transfers
at a point of time and therefore, revenue is recognized at the point in time
when the obligation to the customer has been fulfilled.



Extended Warranties


The extended warranties sold by the Company provide a level of assurance beyond
the coverage for defects that existed at the time of a sale or against certain
types of covered damage with coverage terms generally ranging from 5 to 7 years.
Amounts received for warranties are recorded as deferred revenue and recognized
as revenue ratably over the respective term of the agreements. As of March 31,
2021
, approximately $408,219 is expected to be recognized from remaining
performance obligations for extended warranties as compared to $413,554 on March
31, 2020
. For the year ended March 31, 2021, the Company recognized revenue of
$86,588 from amounts that were included in Deferred Revenue as compared to
$85,311 for the year ended March 31, 2020.

The following table provides a summary of the changes in deferred revenues
related to extended warranties for the year ended March 31, 2021:

Deferred revenues related to extended warranties on April 1, 2020 $ 413,554
Additional extended warranties

                                          81,253
Revenue recognized for the year ended March 31, 2021                   (86,588 )

Deferred revenues related to extended warranties on March 31, 2021 $ 408,219




Other Deferred Revenues


The Company sometimes receives payments in advance of shipment. These amounts
are classified as other deferred revenues. For the period ended March 31, 2021,
the Company has other deferred revenues of $74,920 and $58,746 for period ending
March 31, 2020.

Repair and Calibration Services

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



Other


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




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

Critical Accounting Policies (continued)

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

All sales are denominated in U.S. dollars. The Company excludes from revenues
all taxes assessed by a governmental authority that are imposed on the sale of
its products and collected from customers. Company within 30 days of the related
sales order fulfillment. Accordingly, management has determined that no change
in accounting for costs to obtain a contract

will be required for the Company to conform to ASC 606.



Disaggregation of revenue


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



                          For the Year Ended
                            March 31, 2021
                      Commercial      Government
Sales Distribution
Test Units           $    325,195     $ 9,858,537
                     $    325,195     $ 9,858,537



The remainder of our revenues for the year ended March 31, 2021, are derived
from repairs and calibration of $1,169,399, replacement parts of $142,801, and
extended warranties of $86,588.



                          For the Year Ended
                            March 31, 2020
                      Commercial       Government
Sales Distribution
Test Units           $    918,720     $ 12,737,362
                     $    918,720     $ 12,737,362



The remainder of our revenues for the year ended March 31, 2020, are derived
from repairs and calibration of $1,525,288 replacement parts of $460,103 and
extended warranties of $85,311, and other revenues of $48,159.

In the following table, revenue is disaggregated by geography.



                  For the Year         For the Year
                     Ended                Ended
                 March 31, 2021       March 31, 2020
Geography
United States   $      5,511,516     $      7,205,596
International          6,071,004            8,569,347
Total           $     11,582,520     $     15,774,943




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Table of Contents

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

Critical Accounting Policies (continued)

Inventory reserves – inventory reserves or write-downs are estimated for excess,
slow-moving and obsolete inventory as well as inventory whose carrying value is
in excess of net realizable value. These estimates are based on current
assessments about future demands, market conditions and related management
initiatives. If market conditions and actual demands are less favorable than
those projected by management, additional inventory write-downs may be required.
While such write-downs have historically been within our expectation and the
provision established, the Company cannot guarantee that it will continue to
receive positive results.

Warranty reserves – warranty reserves are based upon historical rates and
specific items that are identifiable and can be estimated at time of sale. While
warranty costs have historically been within the Company’s expectations and the
provisions established, future warranty costs could be in excess of the
Company’s warranty reserves. A significant increase in these costs could
adversely affect the Company’s operating results for the period and the periods
these additional costs materialize. Warranty reserves are adjusted from time to
time when actual warranty claim experience differs from estimates. For the year
ended March 31, 2021, warranty costs were $64,092 as compared to $51,858 for the
year ended March 31, 2020 and are included in Cost of Sales in the accompanying
consolidated statement of operations. See Note 7 for warranty reserves.

Accounts receivable – the Company performs ongoing credit evaluations of its
customers and adjusts credit limits based on customer payment and current credit
worthiness, as determined by review of their current credit information. The
Company continuously monitors credits and payments from its customers and
maintains provision for estimated credit losses based on its historical
experience and any specific customer issues that have been identified. While
such credit losses have historically been within our expectation and the
provision established, the Company cannot guarantee that it will continue to
receive positive results. For the years ended March 31, 2021, and 2020
approximately 38% and 30%, respectively, of the Company’s sales were to the U.S.
Government
.

Income taxes – deferred tax assets arise from a variety of sources, the most
significant being: a) tax losses that can be carried forward to be utilized
against profits in future years; b) expenses recognized in the books but
disallowed in the tax return until the associated cash flow occurs; and c)
valuation changes of assets which need to be tax effected for book purposes but
are deductible only when the valuation change is realized. Deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax rates
and laws that are expected to be in effect when such differences are expected to
reverse. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefit which is not more likely than not to be
realized. In assessing the need for a valuation allowance, future taxable income
is estimated, considering the realization of tax loss carryforwards. Valuation
allowances related to deferred tax assets can also be affected by changes to tax
laws, changes to statutory tax rates and future taxable income levels. In the
event it was determined that the Company would not be able to realize all or a
portion of its deferred tax assets in the future, the Company would reduce such
amounts through a charge to income in the period in which that determination is
made. Conversely, if it were determined that it would be able to realize the
deferred tax assets in the future in excess of the net carrying amounts, TIC
would decrease the recorded valuation allowance through an increase to income
in the period in which that determination is made. In its evaluation of a
valuation allowance, the Company takes into account existing contracts and
backlog, and the probability that options under these contract awards will be
exercised as well as sales of existing products. The Company prepares profit
projections based on the revenue and expenses forecast to determine that such

revenues will produce sufficient taxable income to realize the deferred tax
assets. The Company determined they will be able to realize the majority of its
deferred tax assets as a result of its current projections on March 31, 2021.

Off Balance Sheet Arrangements

The Company is not party to any off-balance sheet arrangements that may affect
its financial position or its results of operations.

New Accounting Pronouncements

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




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Table of Contents

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

Critical Accounting Policies (continued)

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes – simplifying
the accounting for income taxes (Topic 740), which is meant to simplify the
accounting for income taxes by removing certain exceptions to the general
principles in Topic 740, Income Taxes. The amendment also improves consistent
application and simplify GAAP for other areas.

Topic 740 by clarifying and amending existing guidance. This ASU is effective
April 1, 2021, and we do not expect the adoption of this standard to have a
significant impact on our financial position and results of operations.

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

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