SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year                                          Commission File No.
ended March 31, 2001                                              33-18978

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

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

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

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

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

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

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

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

Indicate by checkmark  whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_ . No __.

The aggregate market value of the voting Common Stock (par value $.10 per share)
held by  non-affiliates  on June 11, 2001 was $1,945,409  using the price of the
last trade on June 11, 2001.

2,124,351 shares of Common Stock were outstanding as of June 11, 2001.

Total Pages - 42

Exhibit Index - pages 40-41


                                                                               1
<PAGE>

                                     PART I

Item 1. Business

        General

        Tel-Instrument  Electronics  Corp.  ("Tel"  or the  "Company")  designs,
        manufactures  and sells  test  equipment  to the  general  aviation  and
        commercial  aviation  market  and  to the  government/military  aviation
        market, both domestically and  internationally.  The Company has been in
        business since 1947.

        Tel's  instruments  are  used  to  test  navigation  and  communications
        equipment  installed  in aircraft and range in list price from $7,000 to
        $60,000 per unit.  Tel  continues to develop new products to improve its
        test instruments in anticipation of customers' needs. The development of
        multifunction  testers, for example, has made it easier for customers to
        perform ramp tests with less  training.  In recent years the Company has
        become   the   dominant   supplier   throughout   the   world   for  IFF
        (Identification Friend or Foe) test equipment, discussed below. This was
        a significant  internally  funded  development  effort which has yielded
        excellent  results.  The  Company  is  currently  working  on  the  next
        generation of IFF test sets.

        For the year ended March 31, 2001, sales increased 46% to $7,508,901 and
        net income before taxes  increased 189% to $1,039,117 from $358,958 (see
        Item 7 - Management's Discussion and Analysis of Financial Condition and
        Results of Operations).  The Company  considers  fiscal 2001 a milestone
        year.

        Management  continues to be  encouraged  about the future as a result of
        its substantial  backlog,  the unexpected  increase in commercial sales,
        efforts of its international  distributors,  the progress on the project
        for  DME/P  (Precision  Distance  Measuring  Equipment)  ramp and  bench
        testers  for  Marconi   Communications,   Italy,   the  European   prime
        contractor,  and other products under development.  The backlog at March
        31, 2001 exceeded $13,500,000, and includes approximately $10,900,000 in
        orders  from the U.S.  Navy for the AN/APM 480 Test Sets.  This  backlog
        will be shipped over the next few years.

        During fiscal year 2001 the Company began shipment of the AN/APM 480 IFF
        Interrogator,  Transponder  test set to the U.S.  Navy.  The Company has
        received  orders from the U.S. Navy for a total of 960 units.  More than
        125 units were shipped  during  fiscal year 2001,  and the unit has been
        favorably  received  by the  customer.  The AN/APM 480 is a  militarized
        avionics ramp tester used to simulate IFF  Transponder/Interrogator  and
        TCAS (Traffic Alert and Collision Avoidance system) functions to provide
        go,  no-go  testing of avionics  test  equipment  installed  in military
        aircraft on the flightline and aircraft carrier deck.

        The Company  continues  to  actively  pursue  opportunities  in both the
        commercial   and   government    markets,    both    domestically    and
        internationally,  and new  product  development  efforts  based upon its
        evaluation of these markets. The Company is also exploring opportunities
        in other  government  and  commercial  markets in order to  broaden  the
        Company's product line.


                                                                               2
<PAGE>

Item 1. Business (Continued)

        General (Continued)

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

                              Year Ended        Year Ended        Year Ended
                               March 31,         March 31,         March 31,
                                 2001              2000              1999
                                 ----              ----              ----
        Commercial            $3,033,281        $1,957,859        $1,753,723
        Government             4,475,620         3,172,923         1,730,776
                              ----------        ----------        ----------
        Total                  7,508,901         5,130,782         3,484,499
                              ==========        ==========        ==========


        Foreign commercial sales are made direct, through American export agents
        or the Company's international distributors at a discount reflecting the
        15% selling commission under written or oral, year-to-year arrangements.
        For the years ended March 31, 2001,  2000 and 1999,  foreign  commercial
        sales were 17%, 20% and 19%, respectively, of total commercial sales.

        The Company has signed an exclusive distribution agreement with Muirhead
        Avionics  based in the United  Kingdom to represent the Company in parts
        of Europe. Sales to Muirhead represented approximately 3%, 5% and 10% of
        total sales for the fiscal years 2001, 2000 and 1999, respectively.

        In May 1999,  the Company  received a $396,262  order for its DME/P ramp
        test units from Italy.  These units were  delivered in the first quarter
        of fiscal year 2001.  In addition,  the Company  received a contract for
        $680,000 to develop a DME/P bench test set from this same customer.

        Tel sells its products  either  directly or through  distributors to its
        many  domestic  commercial  customers.  No  direct  commercial  customer
        accounted for more than 10% of commercial sales in fiscal year 2001. One
        direct  domestic  commercial  customer  accounted  for 11% of commercial
        sales  in  fiscal  year  2000.  There  are no  written  agreements  with
        distributors  who receive a 15% discount for stocking and selling  these
        products.   Tel  also  gives  a  5%  to  10%  discount  to  non-stocking
        distributors,  depending on their sales volume and  promotional  effort.
        Independent  sales  representatives   receive  5%  to  10%  commissions,
        depending on their sales volume and  promotional  efforts.  One domestic
        distributor  accounted for approximately  29%, 10% and 13% of commercial
        sales for the years ended March 31, 2001, 2000 and 1999, respectively.


                                                                               3
<PAGE>

Item 1. Business (Continued)

General (Continued)

        Set forth below is Tel's backlog at March 31, 2001, 2000, and 1999.

                                Commercial      Government           Total
                                ----------      ----------           -----
        March 31, 2001           $633,761       $13,029,317       $13,663,078
        March 31, 2000           $665,072       $14,355,429       $15,020,501
        March 31, 1999           $379,404       $ 2,338,011       $ 2,717,415



        Tel  believes  that  most of the  backlog  at  March  31,  2001  will be
        delivered during the next few fiscal years.

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

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

        Markets and Competition

        The Company operates its commercial and military business as one market,
        using  best  commercial  practice  in  manufacturing  products  for  the
        government.

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

        The civilian market for avionic testing  equipment is dominated by three
        manufacturers,  including  Tel.  In the  general  aviation  and  airline
        market, Tel competes principally with IFR, an independent firm, and with
        JC Air, a division of BF Goodrich.  This market is relatively  small and
        highly  competitive.  Tel has generally been  successful  because of its
        high quality products, prices, and responsive service. Tel also provides
        customers  with  calibration  and repair  services.  At this  time,  the
        Company believes that the foreign  commercial market represents a better
        opportunity  than the U.S.  commercial  market for  growth.  The foreign
        market is larger than the domestic market and many foreign  airlines are
        upgrading  to meet U.S.  requirements.  The  Company  has  entered  into
        distribution arrangements with Muirhead to distribute in Europe and with
        an exclusive distributor in Australia and New Zealand. Additionally, the
        Company  entered  into an  agreement  with  M.P.G.  Instruments  S.R.L.,
        wherein this  distributor will have the exclusive sales rights for DME/P
        ramp and bench test units. The Company  continues to explore  additional
        opportunities in other parts of the world.


                                                                               4
<PAGE>

Item 1. Business (Continued)

        Markets and Competition (Continued)

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

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

        Because of the larger size of the  military  market,  in contrast to the
        civilian market,  Tel has been increasing its efforts to obtain military
        contracts and  sub-contracts.  Tel has increased  its  concentration  on
        meeting  end user  needs by  modifying  commercial  designs  to  satisfy
        special government/military  requirements. This approach has enabled Tel
        to sell the  T-30D,  T-36M,  T-48I,  T-47  family,  and T-49  family  to
        government agencies and prime contractors.

        In recent years the Company has become the dominant supplier  throughout
        the  world for IFF test  equipment.  This was a  significant  internally
        funded  development  effort  which has yielded  excellent  results.  The
        Company is currently working on the next generation of IFF test sets.

        Tel's  ability to compete  in both the civil and the  military  aviation
        market has been  restricted  in the past  because  of limited  financial
        resources.  Tel has no patents or  licenses  which are  material  to its
        business.

        Research and Development

        In the fiscal  years  ended  March 31,  2001,  2000 and 1999,  Tel spent
        $1,047,305,  $1,051,833, and $1,204,077,  respectively,  on the research
        and development of new and improved products.  None of these amounts was
        sponsored by customers.  Tel's  management  believes that  continued and
        increased  expenditures  for research and  development  are necessary to
        enable Tel to expand its sales and generate profits.

        The decrease in expenditures in fiscal years 2001 and 2000 is associated
        with  certain   resources  being  directed  towards   revenue-processing
        activities  and,  therefore,  included  in cost of  sales.  Engineering,
        research and development expenditures in 2001 were directed


                                                                               5
<PAGE>

Item 1. Business (Continued)

        Research and Development (Continued)

        primarily  toward  finalization  of a design of a universal  test set, a
        commercial bench test, and new products for other targeted markets, such
        as the, T-47S,  T-36M, and T-47N. The Company has also begun work on the
        next generation of IFF test sets. The Company owns all of these designs.

        Personnel

        At June  11,  2001,  Tel had  twenty-nine  employees  in  manufacturing,
        materials management,  and quality assurance, nine in administration and
        sales,  and ten in research and  development,  none of whom belongs to a
        union.  While  the  job  market  is  tight,   especially  for  technical
        personnel, Tel has generally been able to add personnel as required. The
        Company also uses several part-time consultants on an as needed basis.

Item 2. Properties

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

Item 3. Pending Legal Proceedings

        There are no material pending legal proceedings.


                                                                               6
<PAGE>

                                     PART II

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

        Market Information

        There has been no established  public  trading  market for  Registrant's
        Common Stock.  Subsequent to the public offering of the Company's Common
        Stock in December 1988, the Common Stock has traded  sporadically in the
        over-the-counter  market.  During the fiscal year ended March 31,  2001,
        the  Company's  Common  Stock  had the high and low bids of  $2.625  and
        $1.00,  respectively.  These  quotations  reflect  inter-dealer  prices,
        without  retail markup or commission and may not  necessarily  represent
        actual transactions. On June 11, 2001, the bid was $1.70 and the ask was
        $1.95.

        Approximate Number of Equity Security Holders

                                                          Number of Record
                                                            Holders as of
                Title of Class                             March 31, 2001
                --------------                             --------------
                Common Stock, par value                          812
                  $.10 per share

        Dividends

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


                                                                               7
<PAGE>

Item 6. Selected Financial Data

                        TEL-INSTRUMENT ELECTRONICS CORP.
                        SUMMARY OF FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                                                  Years Ended March 31,
                                                        ----------------------------------------------------------------------
                                                           2001           2000           1999           1998           1997
                                                           ----           ----           ----           ----           ----
<S>                                                     <C>            <C>            <C>            <C>            <C>
Statement of Operations Data:
  Net revenues                                          $7,508,901     $5,130,782     $3,484,499     $3,959,242     $3,165,674
                                                        ----------     ----------     ----------     ----------     ----------
  Operating costs and expenses:
  Cost of sales                                          3,704,572      2,489,769      1,559,992      1,559,542      1,325,659
  Selling, general and administrative                    1,622,881      1,165,844        920,547        909,505        854,093
  Engineering, research and development                  1,047,305      1,051,833      1,204,077        902,250        486,884
                                                        ----------     ----------     ----------     ----------     ----------
                                                         6,374,758      4,707,446      3,684,616      3,371,297      2,666,636
                                                        ----------     ----------     ----------     ----------     ----------
  Income (loss) from operations                          1,134,143        423,336       (200,117)       587,945        499,038

  Other expenses, net                                      (95,026)       (64,378)       (44,149)       (68,847)       (57,954)
                                                        ----------     ----------     ----------     ----------     ----------
  Diluted income/(loss) before income taxes              1,039,117        358,958       (244,266)       519,098        441,084

  Benefit from income taxes                                295,888        241,595         97,585         58,719        340,200
                                                        ----------     ----------     ----------     ----------     ----------
  Net income (loss)                                     $1,335,005     $  600,553      $(146,681)    $  577,817     $  781,284
                                                        ==========     ==========     ==========     ==========     ==========
  Diluted income/(loss) per common share                $     0.63     $     0.28      $   (0.07)    $     0.28     $     0.41
                                                        ==========     ==========     ==========     ==========     ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                                  Years Ended March 31,
                                                        ----------------------------------------------------------------------
                                                           2001           2000           1999           1998           1997
                                                           ----           ----           ----           ----           ----
<S>                                                     <C>            <C>            <C>            <C>            <C>
Balance Sheet Data:
 Working capital                                        $1,766,360     $  921,130     $  507,582     $  864,061     $  440,978

 Total assets                                            5,934,646      3,932,765      2,218,508      1,941,141      1,648,066

 Long-term debt                                            218,345        301,682        266,486        300,000        365,000

 Stockholders' equity                                    2,862,348      1,522,047        919,093      1,060,068        455,254
</TABLE>


                                                                               8
<PAGE>

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

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

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

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

        Results of Operations 2001 Compared to 2000

        Overview

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

        During  fiscal year 2001 the Company began  shipments of the  AN/APM-480
        IFF (Identification,  Friend or Foe) Transponder Set Test Sets (TSTS) to
        the U.S. Navy. The Company has received  orders from the U.S. Navy for a
        total of 960 units. A total of 128 units were shipped during fiscal year
        2001 under this contract.  The unit has been  favorably  received by the
        customer.  The AN/APM 480 is a militarized  avionics ramp tester used to
        simulate  IFF  Transponder/Interrogator  and TCAS  functions  to provide
        accurate  go,  no-go  testing of avionics  test  equipment  installed in
        military aircraft on the flightline and aircraft carrier deck.

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


                                                                               9
<PAGE>

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

    Results of Operations 2001 Compared to 2000 (Continued)

    DME/P is directed solely to the European market.  The Company  continues its
    efforts to complete the DME/P bench test sets under a contract  with Marconi
    Communications in the amount of $680,000.

    The  Company  continues  to  actively  pursue   opportunities  in  both  the
    commercial and government  markets,  both domestically and  internationally,
    and new  product  development  efforts  based upon its  evaluation  of these
    markets. The Company is also exploring opportunities in other government and
    commercial markets in order to broaden the Company's product base.

    Sales

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

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

    Commercial sales increased  $1,075,422  (54.9%) to $3,033,281 for the fiscal
    year ended  March 31,  2001 as  compared  to the fiscal year ended March 31,
    2000.  The  increase in  commercial  sales is  primarily  attributed  to the
    shipment of commercial  test sets to a major freight carrier and an increase
    in ILS and TCAS test set shipments.  There is no assurance  that  commercial
    sales will continue to grow at the current rate.

    Gross Margin

    Gross margin  increased  $1,163,316  (44.0%) for the fiscal year ended March
    31, 2001 as compared to the prior fiscal year. The increase in gross margin,
    for the most part,  is  attributed  to the  higher  volume.  However,  gross
    margin,  as a percentage of sales,  was reduced by the  introduction  of new
    products,  such as the AN/APM 480 and the T-76, and the associated  learning
    curve in building these new and more sophisticated products, and lower gross
    profit on the AN/APM  480  contract.  The gross  margin  percentage  for the
    fiscal  year ended  March 31,  2001 was 50.7% as  compared  to 51.5% for the
    fiscal year ended March 31, 2000.

    Operating Expenses

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


                                                                              10
<PAGE>

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

    Results of Operations 2001 Compared to 2000 (Continued)

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

    Income Taxes

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

    Results of Operations 2000 Compared to 1999

    Overview

    For the year ended March 31, 2000, sales increased 47% to $5,130,782 and net
    income before taxes increased to $358,958.

    The Company  has  completed  the design and  testing  for the U.S.  Navy IFF
    (Identification,  Friend or Foe)  Transponder  Set Test Sets ("AN/APM 480").
    The company has received  orders from the U.S. Navy for a total of 963 units
    of the AN/APM 480 with a value totaling over $12,500,000.  The contract with
    the U.S. Navy  includes  options for up to 1,300 units against which the 963
    have been ordered,  the  remainder of which the U.S.  Navy can exercise,  on
    behalf of all U.S. military services,  through calendar year 2001.  However,
    there can be no assurance that the U.S. Navy will exercise any additional of
    its purchase  options under this contract.  The Company began shipping these
    units in June 2000.  The units under this  contract will be shipped over the
    next few fiscal years.  These orders  represent a significant  milestone for
    the company and also represent the successful culmination of a major Company
    funded research and development effort.


                                                                              11
<PAGE>

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

    Results of Operations 2000 Compared to 1999 (continued)

    In January 2000, the Company received from Marconi  Communications,  through
    its  Italian  intermediary,  M.P.G.  Instruments  s.r.l.,  a contract in the
    amount of $680,000 for DME/P Bench Test Sets.  This contract is  incremental
    to the contract  received in May 1999 for DME/P Ramp Test Sets in the amount
    of $396,262.  At this time, DME/P is directed solely to the European market.
    The  Company  will  design and build the Bench Test Set and expects to begin
    delivering  these units in calendar year 2001.  The order for the DME/P Ramp
    Test Sets was delivered in the first quarter of fiscal year 2001.

    The Company's backlog at March 31, 2000 exceeds $15,000,000. This backlog is
    deliverable over the next few years.

    Sales

    Total sales increased  $1,646,283  (47.2%) for the year ended March 31, 2000
    as compared to the year ended March 31, 1999.

    Government sales increased  $1,442,147  (83.3%) for the year ended March 31,
    2000 as compared to the prior fiscal year. The increase in government  sales
    is  attributed  to the  sales of the T-47  family  of IFF test  sets to both
    domestic   and   international   customers,   including   the  T-47CC  which
    incorporates  a  directional   antenna  and  the  T-47N  which  includes  an
    interrogator  test function.  Government sales also increased as a result of
    sales of the T-49CF which  incorporates  collision  avoidance test scenarios
    required  by the U.S.  Air  Force.  Government  sales  were also  positively
    affected by revenues  associated with the  documentation and test portion of
    the U.S. Navy AN/APM 480 contract and revenues associated with completion of
    certain milestones for the Company's Precision DME Bench Test Set.

    Commercial  sales  increased  $204,136  (11.6%) for the year ended March 31,
    2000 as compared to the prior  fiscal year.  There is no assurance  that the
    positive trend of fiscal year 2000 will continue. However, in June 2000, the
    Company  received a substantial  order from a major freight  carrier through
    its  domestic  distributor  for  commercial  test  sets  with a sales  value
    exceeding $900,000. The commercial backlog at June 12, 2000 is approximately
    $1,600,000.  The  increase is sales in both the  commercial  and  government
    segments  is  also   attributed   to  the   efforts  of  our   international
    distributors.


                                                                              12
<PAGE>

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

    Results of Operations 2000 Compared to 1999 (Continued)

    Gross Margin

    Gross margin increased  $716,506 (37.2%) for fiscal year 2000 as compared to
    fiscal year 1999. The increase in gross margin  dollars,  for the most part,
    is attributed to the higher volume.  Gross margin, as a percentage of sales,
    has been negatively affected as a result of the introduction of new products
    and the  associated  learning  curve in  building  these more  sophisticated
    products.  The gross margin  percentage  for the fiscal year ended March 31,
    2000 was 51.5% as  compared  to 55.2% for the fiscal  year  ended  March 31,
    1999. The gross margin  percentage was lower in the current fiscal year as a
    result of the increase in sales to distributors  (sales to distributors  are
    sold at a discount from standard list prices). In addition,  the lower gross
    margin  percentage  is  attributed  to the lower  gross  profit on  revenues
    associated  with  the  documentation  and  test  portion  of the  U.S.  Navy
    contract.

    Operating Expenses

    Selling,  general and administrative expenses increased $245,297 (26.6%) for
    the year ended March 31, 2000 as compared  to the prior  fiscal  year.  This
    increase is attributed to higher sales and marketing  expenses,  an increase
    in salaries,  and the  addition to staff of a Director of Finance.  In March
    2000,  the Company hired a Director of Business  Development  to oversee its
    marketing and sales activities.

    Engineering,  research and development  expenses  decreased $152,244 (12.6%)
    for the year ended  March 31, 2000 as compared to the same period last year.
    The decrease is associated  with certain  resources  being directed  towards
    revenue-producing  activities and,  therefore,  not included in research and
    development expense.  However, the Company continued its development efforts
    which were directed  primarily  toward the finalization of the design of the
    AN/APM 480 IFF test sets for the U.S. Navy, the T-36M,  and the upgrading of
    additional products, such as the T-49CF, T-47CC, and the T-47N.

    Income Taxes

    For the year ended March 31, 2000, the Company, in accordance with FASB 109,
    recorded a net tax benefit of $241,595,  which  represents (1) the effective
    federal and state tax rate on the  Company's net income before taxes and (2)
    reduced its  valuation  allowance  and other items in the amount of $385,000
    and credited  this amount to benefit from income  taxes.  For the year ended
    March 31,  1999,  the  Company  recorded  a deferred  income tax  benefit of
    $97,585,  which  represents the effective  federal and state tax rate on the
    Company's net loss before taxes of $244,266.  The Company currently does not
    have  any  federal  tax  liability.  (See  Note  9  to  Notes  to  Financial
    Statements).


                                                                              13
<PAGE>

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

    Liquidity and Capital Resources

    Working  capital  increased  $845,230  (92%)  during  fiscal  year  2001  to
    $1,766,360  as compared to  $921,130 at March 31,  2000.  For the year ended
    March 31, 2001, the Company  generated cash from operations in the amount of
    $725,864  as  compared  to using  $96,775  in the prior  fiscal  year.  This
    increase in cash from operations is primarily  attributed to the improvement
    in the Company's operating income as a result of the higher sales volume and
    an increase in deferred  expense.  These increases were partially  offset by
    increases in accounts receivable and inventory.

    The Company has a credit  line in the amount of $600,000  from Summit  Bank.
    The  line of  credit  bears  an  interest  rate  of 1%  above  the  lender's
    prevailing base rate, which is payable  monthly,  based upon the outstanding
    balance.  At March 31, 2001, the Company had borrowed  $250,000  against its
    line of credit. The line of credit is collateralized by substantially all of
    the assets of the  Company  and  expires in June 2001.  The credit  facility
    requires the Company to maintain certain  financial  covenants.  As of March
    31, 2001, the Company was in compliance  with all financial  covenants.  The
    Company has begun to re-negotiate this line of credit with Summit Bank.

    Based upon the current backlog,  its existing credit line, and cash balance,
    the Company  believes  that it has  sufficient  working  capital to fund its
    operating plans for the next twelve months. At present, the Company does not
    anticipate  significant  long-term  needs for  capital  outside  its  normal
    operating  activities.  There was no  significant  impact  on the  Company's
    operations  as a result of  inflation  for the fiscal  year ended  March 31,
    2001.


                                                                              14
<PAGE>

Item 8. Financial Statements and Supplementary Data

                                                                 Pages
                                                                 -----

(1)    Financial Statements:

        Report of Independent Accountants                         16

        Balance Sheets - March 31, 2001 and 2000                  17

        Statements of Operations - Years Ended
           March 31, 2001, 2000 and 1999                          18

        Statements of Changes in Stockholders'
           Equity - Years Ended March 31,
           2001, 2000 and 1999                                    19

        Statements of Cash Flows - Years Ended
            March 31, 2001, 2000 and 1999                         20

         Notes to Financial Statements                           21-35

(2)    Financial Statement Schedule:

         II - Valuation and Qualifying Accounts                   36


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


                                                                              15
<PAGE>

Report of Independent Accountants

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

    In our opinion,  the financial  statements listed in the accompanying  index
    present  fairly,  in  all  material  respects,  the  financial  position  of
    Tel-Instrument Electronics Corp. (the "Company") at March 31, 2001 and 2000,
    and the results of its  operations  and its cash flows for each of the three
    years in the period  ended March 31, 2001,  in  conformity  with  accounting
    principles  generally accepted in the United States of America. In addition,
    in  our  opinion,   the  financial   statement   schedule  included  in  the
    accompanying   index  presents  fairly,  in  all  material   respects,   the
    information  set forth  therein  when read in  conjunction  with the related
    financial statements. These financial statements and the financial statement
    schedule  are  the   responsibility   of  the  Company's   management;   our
    responsibility  is to express an opinion on these  financial  statements and
    the  financial  statement  schedule  based on our audits.  We conducted  our
    audits of these statements in accordance with auditing  standards  generally
    accepted  in the United  States of America  which  require  that we plan and
    perform the audit to obtain reasonable assurance about whether the financial
    statements are free of material  misstatement.  An audit includes examining,
    on a test basis,  evidence  supporting  the amounts and  disclosures  in the
    financial   statements,   assessing  the  accounting   principles  used  and
    significant  estimates  made  by  management,  and  evaluating  the  overall
    financial  statement  presentation.  We believe  that our  audits  provide a
    reasonable basis for the opinion expressed above.

    PricewaterhouseCoopers LLP

    Florham Park, New Jersey
    June 13, 2001


                                                                              16
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Balance Sheets

<TABLE>
<CAPTION>
                                      ASSETS                            March 31, 2001     March 31, 2000
                                                                        --------------     --------------
<S>                                                                       <C>                <C>
Current assets:
        Cash                                                              $  433,438         $  172,836
        Accounts receivable, net of allowance for doubtful
           accounts of $11,598 at March 31,
           2001 and 2000, respectively                                     1,264,383          1,099,425
        Inventories, net                                                   2,351,648          1,486,885
        Prepaid expenses and other current assets                             43,568             56,020
        Deferred income tax benefit - current                                527,276            215,000
                                                                          ----------         ----------
             Total current assets                                          4,620,313          3,030,166

Office and manufacturing equipment, net                                      674,656            350,872
Other assets                                                                  35,354             28,628
Deferred income tax benefit                                                  604,323            523,099
                                                                          ----------         ----------
Total assets                                                              $5,934,646         $3,932,765
                                                                          ==========         ==========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

      Convertible note payable - related party - current portion          $  200,000         $  150,000
      Convertible subordinated note - related party                           15,000             15,000
      Line of credit                                                         250,000            250,000
      Capitalized lease obligations - current portion                         77,826             56,376
      Accounts payable                                                       942,173            746,863
      Deferred revenues                                                      267,630            176,193
      Accrued payroll, vacation pay and deferred wages                       535,850            350,286
      Accrued expenses - related parties                                     196,973            132,912
      Taxes payable                                                           63,215                 --
      Other accrued expenses                                                 305,286            231,406
                                                                          ----------         ----------
             Total current liabilities                                     2,853,953          2,109,036

Convertible note payable - related party                                     150,000            200,000
Capitalized lease obligations - excluding current portion                     68,345            101,682
                                                                          ----------         ----------
         Total liabilities                                                 3,072,298          2,410,718

Stockholders' equity
      Common stock, par value $.10 per share, 2,124,351 and 2,113,290
      issued and outstanding as of March 31, 2001 and 2000, respectively     212,438            211,332
      Additional paid-in capital                                           3,932,111          3,927,921
      Accumulated deficit                                                 (1,282,201)        (2,617,206)
                                                                          ----------         ----------
      Total Stockholders' equity                                           2,862,348          1,522,047
                                                                          ----------         ----------
      Total liabilities and stockholders' equity                          $5,934,646         $3,932,765
                                                                          ==========         ==========
</TABLE>

The accompanying notes are an integral part of the financial statements


                                                                              17
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Statements of Operations
<TABLE>
<CAPTION>
                                                                                          For the years ended March 31,
                                                                                 2001                2000                 1999
                                                                                 ----                ----                 ----
<S>                                                                           <C>                 <C>                 <C>
Sales - commercial, net                                                       $3,033,281          $1,957,859          $1,753,723
Sales - government, net                                                        4,475,620           3,172,923           1,730,776
                                                                              ----------          ----------          ----------
              Total Sales                                                      7,508,901           5,130,782           3,484,499
Cost of sales                                                                  3,704,572           2,489,769           1,559,992
                                                                              ----------          ----------          ----------
              Gross margin                                                     3,804,329           2,641,013           1,924,507
Operating expenses:
  Selling, general and administrative                                          1,622,881           1,165,844             920,547
  Engineering, research and development                                        1,047,305           1,051,833           1,204,077
                                                                              ----------          ----------          ----------
              Total operating expenses                                         2,670,186           2,217,677           2,124,624
                                                                              ----------          ----------          ----------
                 Income (loss) from operations                                 1,134,143             423,336            (200,117)
Other income/(expense):
              Interest income                                                     23,877               9,682               8,637
              Interest expense                                                   (78,478)            (37,136)            (16,736)
              Interest  expense -  related parties                               (40,425)            (36,924)            (36,050)
                                                                              ----------          ----------          ----------
Income (loss) before income taxes                                              1,039,117             358,958            (244,266)
Benefit from income taxes                                                        295,888             241,595              97,585
                                                                              ----------          ----------          ----------
   Net income (loss)                                                          $1,335,005          $  600,553          $ (146,681)
                                                                              ==========          ==========          ==========
Income (loss) per common share:
              Basic                                                           $     0.63          $     0.28          $    (0.07)
                                                                              ==========          ==========          ==========
              Diluted                                                         $     0.63          $     0.28          $    (0.07)
                                                                              ==========          ==========          ==========
Weighted average number of shares outstanding
              Basic                                                            2,115,134           2,110,983           2,101,264
                                                                              ==========          ==========          ==========
              Diluted                                                          2,117,686           2,146,402           2,101,264
                                                                              ==========          ==========          ==========

</TABLE>

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


                                                                              18
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Statements Of Changes In Stockholders' Equity
<TABLE>
<CAPTION>

                                                                 Common Stock
                                                     Number of Shares                        Additional
                                             --------------------------------------------      Paid-In     Accumulated
                                             Authorized            Issued          Amount      Capital       Deficit        Total
                                             ----------            ------          ------      -------       -------        -----
<S>                                         <C>                  <C>          <C>           <C>           <C>           <C>
Balances  March 31, 1998                     4,000,000           2,094,735    $   209,476   $ 3,921,670   $(3,071,078)  $ 1,060,068

Net loss                                                                                                     (146,681)     (146,681)
Issuance of common stock in connection
 with the exercise of stock options                                 15,222          1,522         4,184                       5,706
                                             ---------           ---------    -----------   -----------   ------------  -----------
Balances  March 31, 1999                     4,000,000           2,109,957    $   210,998   $ 3,925,854   $(3,217,759)  $   919,093

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

Net income                                                                                                  1,335,005     1,335,005
Issuance of common stock in connection
 with the exercise of stock options                                 11,061          1,106         4,190                       5,296
                                             ---------           ---------    -----------   -----------   ------------  -----------
Balances  March 31, 2001                     4,000,000           2,124,351    $   212,438   $ 3,932,111   $(1,282,201)  $ 2,862,348
                                             =========           =========    ===========   ===========   ===========   ===========

</TABLE>


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


                                                                              19
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Statements Of Cash Flows
Increase (Decrease) In Cash

<TABLE>
<CAPTION>


                                                                              For the years ended March 31,
                                                                              -----------------------------
                                                                           2001           2000           1999
                                                                           ----           ----           ----
<S>                                                                    <C>            <C>            <C>
Cash flows from operating activities:
    Net income (loss)                                                  $ 1,335,005    $   600,553    $  (146,681)
    Adjustments to reconcile net income to cash
       provided by operating activities:
          Deferred income taxes                                           (393,500)      (241,595)       (97,585)
          Depreciation and amortization                                    129,887         70,303         41,907
          Provision for losses on accounts receivable                           --         (3,987)          (479)
          Provision for inventory obsolescence                              28,672         14,504         (6,000)
          Changes in assets and liabilities:
            Increase in accounts receivable                               (164,958)      (456,717)      (263,736)
            Increase in inventories                                       (893,435)      (787,689)      (324,670)
            Decrease (increase) in prepaid expenses and other assets        10,726        (21,545)       (16,521)
            Increase in accounts payable                                   195,310        444,428        233,822
            Increase in taxes payable                                       63,215             --             --
            Increase in deferred revenues, and accrued
              accrued expenses                                             414,942        284,970        158,367
                                                                       -----------    -----------    -----------
            Net cash provided by (used in) operating
              activities                                                   725,864        (96,775)      (421,576)
                                                                       -----------    -----------    -----------
Cash flows from investing activities:
   Additions to office and manufacturing equipment                        (396,057)      (125,948)       (67,044)
   Increase in cash surrender value of life insurance                       (5,000)       (24,494)       (31,460)
                                                                       -----------    -----------    -----------
            Net cash used in investing activities                         (401,057)      (150,442)       (98,504)
                                                                       -----------    -----------    -----------
Cash flows from financing activities:
   Proceeds from loan on insurance policy                                       --        129,456             --
   Proceeds from exercise of warrants and options                            5,296          2,401          5,706
   Proceeds from drawing on line of credit                                      --        250,000         50,000
   Repayment of line of credit                                                                           (50,000)
   Repayment of capitalized lease obligations                              (69,501)       (32,421)          (290)
                                                                       -----------    -----------    -----------
            Net cash (used in) provided by financing activities            (64,205)       349,436          5,416
                                                                       -----------    -----------    -----------
Net increase (decrease) in cash                                            260,602        102,219       (514,664)
Cash - beginning of year                                                   172,836         70,617        585,281
                                                                       -----------    -----------    -----------
Cash - end of year                                                     $   433,438    $   172,836    $    70,617
                                                                       ===========    ===========    ===========
Supplemental information:
   Taxes paid                                                          $    34,157    $        --    $        --
                                                                       ===========    ===========    ===========
   Interest paid                                                       $    80,730    $    68,744    $    21,700
                                                                       ===========    ===========    ===========
   Assets acquired through capitalized leases                          $    57,614    $   164,326    $    26,443
                                                                       ===========    ===========    ===========

</TABLE>

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


                                                                              20
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements

1. Business, Organization, and Liquidity

      Business and Organization:

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

2. Summary of Significant Accounting Policies

      Revenue Recognition:

      Revenues are recognized at the time of shipment provided title and risk of
      loss is transferred to the customer.  Provisions,  when  appropriate,  are
      made where the right to return exists.  Revenues  under service  contracts
      are    recognized     when    the    services    are    performed.     The
      percentage-of-completion method is used on long-term contracts.

      The  Company  adopted  Staff   Accounting   Bulletin  No.  101,   "Revenue
      Recognition  Financial  Statements"  (SAB101) in fiscal year 2001.  SAB101
      summarizes  certain  of the SEC's  views in  applying  generally  accepted
      accounting principles to revenue recognition in financial statements.  The
      adoption  of  SAB101  did not  have a  material  impact  on its  financial
      position or statement of  operations.  Shipping and handling costs charged
      to customers were not material.

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

      Cash and Cash Equivalents:

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

      Financial Instruments:

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

                                                                              21


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

      Concentrations of Credit Risk:

      Financial   instruments   that   potentially   subject   the   Company  to
      concentrations   of  credit  risk  consist  primarily  of  trade  accounts
      receivable.   The  Company's  customer  base  is  primarily  comprised  of
      airlines, distributors, and the U.S. Government. As of March 31, 2001, the
      Company  believes it has no risk related to its  concentration  within its
      accounts receivable. (See Note 12 to Financial Statements).

      Inventories:

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

      Office and Manufacturing Equipment:

      Office and  manufacturing  equipment are stated at cost.  Depreciation and
      amortization  is provided on a  straight-line  basis over periods  ranging
      from 3 to 10 years.

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

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

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

      Research and Development Costs:

      Research and development costs are expensed as incurred.

      Income/(Loss) Per Common Share:

      The Company's  basic income (loss) per share is based on net income (loss)
      for the relevant period,  divided by the weighted average number of common
      shares outstanding during the period. Diluted income per share is based on
      net income for the relevant period, divided by the weighted average number
      of common shares  outstanding  during the period,  including  common share
      equivalents,  such as outstanding stock options and warrants which totaled
      2,552 and 35,419 for fiscal  years 2001 and 2000,  respectively  using the
      treasury stock method. Common share equivalents, such as outstanding stock
      options and warrants,  are not included in the  calculation for the fiscal
      year 1999, since the effect would be antidilutive.


                                                                              22
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

      Accounting for Income Taxes:

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

      Stock Option Plan:

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

      Long-Lived Assets To Be Disposed Of:

      In accordance with SFAS No. 121, the Company reviews long-lived assets for
      impairment whenever events or changes in business circumstances occur that
      indicate  that the carrying  amount of the assets may not be  recoverable.
      The Company assesses the  recoverability  of long-lived assets held and to
      be used based on undiscounted cash flows, and measures the impairment,  if
      any, using discounted cash flows.

      Comprehensive Income:

      On June 7,  1997 the FASB  issued  SFAS  No.130  "Reporting  Comprehensive
      Income".  SFAS No. 130  establishes  standards of reporting and display of
      comprehensive income and its components  (revenues,  expenses,  gains, and
      losses) in a full set of general purpose  financial  statements.  SFAS No.
      130  requires  that all items that are  required  to be  recognized  under
      accounting  standards as components of comprehensive income be reported in
      a financial  statement that is displayed with the same prominence as other
      financial statements.  The Company adopted SFAS No. 130 in fiscal 1999 and
      this adoption had no effect on the Company's financial statements.


                                                                              23
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

      Segments:

      In fiscal year 1999, the Company adopted Statement of Financial Accounting
      Standard 131 ("SFAS 131")  Disclosures about Segments of an Enterprise and
      Related Information.  SFAS 131, supersedes FAS 14, Financial Reporting for
      Segments  of a  Business  Enterprise,  replacing  the  "industry  segment"
      approach  with  the  "management"   approach.   The  management   approach
      designates the internal organization that is used by management for making
      operating  decisions  and  assessing  performance  as  the  source  of the
      Company's  reportable  segments.  SFAS 131 also requires  disclosure about
      products  and  services,  geographical  areas,  and major  customers.  The
      adoption of SFAS 131 did not affect the Company's  result of operations or
      financial  position,  but did affect the disclosure of segment information
      (see Note 14 to Financial Statements).

      Use of Estimates:

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

      Risks and Uncertainties:

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

      Reclassification:

      Certain  prior  years  amounts  have been  reclassified  to conform to the
      current year presentation.

                                                                              24


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

3. Accounts Receivable

The following tabulation sets forth the components of accounts receivable:

                                                     March 31,
                                           ---------------------------
                                               2001            2000
                                           ----------       ----------

Government                                 $  883,767       $  765,814
Commercial                                    392,214          345,209
Less: Allowance for doubtful accounts         (11,598)         (11,598)
                                           ----------       ----------
                                           $1,264,383       $1,099,425
                                           ==========       ==========


4. Inventories

      Inventories consist of:

                                                     March 31,
                                            ----------------------------
                                                2001             2000
                                            ----------        ----------

Purchased parts                             $1,072,191        $  921,185
Work-in-process                              1,352,252           609,824
Less: Reserve for obsolescence                 (72,795)          (44,124)
                                            ----------        ----------
                                            $2,351,648        $1,486,885
                                            ==========        ==========


      Work-in-process  inventory includes $1,102,205 and $397,507 for government
      contracts at March 31, 2001 and 2000 respectively.

14. Office and Manufacturing Equipment

            Office and manufacturing equipment consists of the following:

                                                     March 31,
                                            ---------------------------
                                               2001             2000
                                            ---------         ---------

Leasehold Improvements                      $ 312,583         $  54,640
Machinery and equipment                       749,598           644,899
Sales equipment                               183,853           150,438
Assets under capitalized leases               248,383           190,769
Less:   Accumulated depreciation and
         Amortization                        (819,761)         (689,874)
                                            ---------         ---------
                                            $ 674,656         $ 350,872
                                            =========         =========

                                                                              25


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

6. Accrued Expenses

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

                                                             March 31,
                                                   ---------------------------
                                                      2001            2000
                                                   ----------       ----------

      Accrued profit sharing                       $334,626         $ 149,790
      Accrued vacation pay                          113,437            92,585
      Accrued salary and payroll taxes               47,266            32,392
      Deferred salary and wages and interest         40,521            75,519
                                                   --------         ---------
                                                   $535,850         $ 350,286
                                                   ========         =========

      Other  accrued  expenses  of $305,286  and  $231,406 at March 31, 2001 and
      2000,  respectively,  consist primarily of interest,  professional service
      costs  for  legal,   accounting,   and  independent  sales  representative
      commissions, and of product related costs, such as warranty.

7. Line of Credit

      The  Company  has a line of credit of  $600,000,  maturing  in June  2001.
      Interest is payable  monthly at an interest  rate of 1% above the lender's
      prevailing  base rate. As of March 31, 2001,  the Company was paying 8% on
      the outstanding  balance.  The line is collateralized by substantially all
      of the assets of the Company.  The credit facility requires the Company to
      maintain certain financial covenants. As of March 31, 2001, the company is
      in compliance  with all financial  covenants.  At March 31, 2001 and 2000,
      the Company had an outstanding balance of $250,000.

                                                                              26


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

8. Capitalized Lease Obligations

      The Company has entered into lease commitments for equipment that meet the
      requirements  for  capitalization.  The equipment has been capitalized and
      shown in office and  manufacturing  equipment in the accompanying  balance
      sheets.  The related  obligations  are also  recorded in the  accompanying
      balance  sheets and are based upon the present value of the future minimum
      lease  payments with interest  rates ranging from 11% to 18%. The net book
      value of equipment  acquired under capitalized lease obligations  amounted
      to $177,134 and $166,690  respectively,  at March 31, 2001 and 2000. As of
      March 31, 2001 and 2000, accumulated amortization under capital leases was
      $71,250 and $24,079, respectively.

      Commitments  under these leases for the years subsequent to March 31, 2001
      are as follows:

                                                    2002        $ 90,526
                                                    2003          60,730
                                                    2004          43,631
                                                    2005          19,428
                                                                --------
      Total minimum lease payments                               214,315
      Less amounts representing interest                          68,144
                                                                --------
      Present value of net minimum lease payments                146,171
      Less current portion                                        77,826
                                                                --------
      Long-term capital lease obligation                        $ 68,345
                                                                ========


                                                                              27
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

9. Income Taxes

      The benefit for income taxes is comprised of the following:

                                          March 31,     March 31,   March 31,
                                            2001          2000        1999
                                          ---------    ---------    ---------
      Current:
         Federal                          $  38,955    $      --    $      --
         State and Local                     59,155           --           --
                                          ---------    ---------    ---------
         Total Current Tax Provision      $  98,110    $      --    $      --
                                          =========    =========    =========
      Deferred:
         Federal                          $(397,998)   $(220,595)   $ (99,585)
         State and Local                      4,000      (21,000)       2,000
                                          ---------    ---------    ---------
      Total Benefit                       $(295,888)   $(241,595)   $ (97,585)
                                          =========    =========    =========


      The components of the Company's  deferred taxes at March 31, 2001 and 2000
      are as follows:

                                                         March 31,   March 31,
                                                           2001        2000
                                                       ----------   ----------
      Net operating loss
             carryforwards and credits                $  685,000   $1,090,000
      Asset reserves                                      34,000       22,000
      Deferred wages and accrued interest                250,000      190,000
      Provision for estimated expenses                   163,000      161,000
                                                      ----------   ----------
      Deferred tax asset                               1,132,000    1,463,000
      Less, valuation allowance                               --      724,901
                                                      ----------   ----------
      Deferred tax asset                              $1,132,000   $  738,099
                                                      ==========   ==========


      As of March 31,  2001,  the Company has  Federal  tax net  operating  loss
      carryforwards of approximately $1,435,000,  which begin to expire in 2004.
      The recognized  deferred tax asset is based upon the expected  utilization
      of its net  operating  loss  carryforwards  before they expire and benefit
      from the reversal of tax asset temporary differences.

                                                                              28


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

9. Income Taxes (Continued)

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

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

                                              2001         2000         1999
                                              ----         ----         ----
Income tax expense - statutory rate        $ 353,300    $ 122,403    $ (83,050)
Income tax expenses - state and local,
 net of federal benefit                       41,682      (13,860)       1,320
Change in valuation allowance               (724,901)    (320,595)     116,415
Federal income tax credit                    (16,000)     (30,000)    (128,000)
Other                                         50,031          457       (4,270)
                                           ----------   ---------    ---------
Income tax benefit recognized in the
 financial statements                      $(295,888)   $(241,595)   $ (97,585)
                                           =========    =========    =========

10. Related Party Transactions

      On March 31, 1997, the Company's Chairman/President renegotiated the terms
      of the  non-current  note  payable-related  party.  This note,  along with
      $250,000   of   other    accrued    expenses   due   to   the    Company's
      Chairman/President,   were  converted   into  seven  $50,000   convertible
      subordinated notes (the "Notes") totaling  $350,000.  The Notes are due in
      consecutive  years  beginning  March 31, 1999 with the last note due March
      31, 2005. In April 2001, Notes which were scheduled to mature on March 31,
      1999,  March 31, 2000 and March 31, 2001 were  extended to  September  30,
      2001.  The  Notes  bear  interest  at a rate  of 10%  per  annum,  payable
      semi-annually  on the last day of  September  and March of each year.  The
      Company is required to prepay the outstanding balance of the Notes and any
      accrued interest thereon, if the Company sells all or substantially all of
      its assets.  The Notes can be converted into newly issued common shares of
      the Company at the  conversion  price of $2.50 per share.  The  conversion
      prices  shall be adjusted  for any stock  dividends,  stock  issuances  or
      capital reorganizations. The Notes may be redeemed by the Company prior to
      maturity upon giving  written notice of not less than 30 days or more than
      60 days at a redemption  price equal to 120% of the  principal if redeemed
      two years or more prior to the maturity  date or 110% of the  principal if
      redeemed more than one year, but less than two years prior to the maturity
      date.

                                                                              29


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

10. Related Party Transactions (Continued)

      Accrued  payroll,  vacation  pay and deferred  wages and related  interest
      includes  $72,461 and  $77,074 at March 31,  2001 and 2000,  respectively,
      which is due to officers of the Company.

      Accrued  expenses-related  parties includes interest and professional fees
      of   approximately   $90,000   and   $65,000   due   to   a   non-employee
      officer/stockholder   of  the   Company  at  March  31,   2001  and  2000,
      respectively.  Accrued  expenses - related parties  includes  professional
      fees of approximately $4,000 and $8,000 to a  director/stockholder  of the
      Company at March 31,  2001 and 2000  respectively.  In  addition,  accrued
      expense - related parties  includes  $103,000 and $60,000  respectively at
      March  31,  2001 and 2000  for  interest  and  other  expenses  due to the
      Company's Chairman/President.  Tel has obtained professional services from
      a  non-employee  officer/stockholder  with the related  fees  amounting to
      $57,966,  $42,464 and $46,164 for the years ended March 31, 2001, 2000 and
      1999, respectively.  Additionally, Tel obtained professional services from
      a director/stockholder with the related fees amounting to $77,500, $84,000
      and $76,500 for fiscal years 2001, 2000 and 1999, respectively.

      The Company's $30,000 convertible subordinated  note-related party matured
      on March 31,  1997.  The  Company  renegotiated  such  note and  satisfied
      $15,000 of this obligation and extended the maturity date of the remaining
      $15,000 until September 30, 2001. This note accrues interest semi-annually
      at a rate of 7%. The subordinate  note is for past  professional  fees and
      services  converted into a note payable due to an  officer/stockholder  of
      the Company.  The notes are  convertible  to common stock at the option of
      the holder at $1.50 per share, at any time prior to maturity.

11. Leases

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

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

      The  following  is a  schedule  of  future  minimum  rental  payments  for
      operating leases for the five years subsequent to the year ended March 31,
      2001.

                   2002                      $       129,936
                   2003                              124,836
                   2004                              126,928
                   2005                              130,829
                   2006                              134,652
                   2007 and thereafter               722,981

                                                                              30


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

11. Leases (Continued)

      Total  rent  expense,  including  real  estate  taxes,  was  approximately
      $97,000,  $101,000,  and $83,000 for the years ended March 31, 2001,  2000
      and 1999, respectively.

12. Significant Customer Concentrations

      For the fiscal year ended March 31, 2001, one customer  represented 12% of
      total sales or 29% of  commercial  sales.  This customer did not represent
      over 10% of sales for  fiscal  2000 and 1999.  For the  fiscal  year ended
      March 31,  2000,  one customer  represented  over 12% of total sales which
      included commercial sales of approximately $35,000 and government sales of
      $587,000.  This  customer did not  represent  over 10% of sales for either
      fiscal  2001 or 1999.  For the  fiscal  year  ended  March 31,  1999,  one
      customer  represented  over 10% of total sales which  included  commercial
      sales of  approximately  $77,000 and  government  sales of $288,000.  This
      customer  did not  represent  over 10% of sales for either  fiscal 2001 or
      2000. As of March 31, 2001, two individual  account  balances  represented
      16% and 10% of the Company's outstanding accounts receivable.  As of March
      31, 2000, two  individual  account  balances  represent 12% and 11% of the
      Company's  accounts  receivable.  Receivables  from the  U.S.  Government,
      including  unbilled  revenues,  represented  approximately  28%  and  26%,
      respectively,  of total  receivables  for the fiscal years ended March 31,
      2001 and 2000.

13. Stock Option Plan

      The Company  has a stock  option plan that  provides  for the  granting of
      options to employees and directors.  Activity during 2001,  2000, and 1999
      is summarized below (in number of options):

                                               2001       2000       1999
                                             --------   -------    -------
      Held at beginning of year               85,311     45,344     32,166
      Granted                                  8,400     61,800     29,500
      Exercised                              (11,061)    (3,333)   (15,222)
      Canceled or expired                         --    (18,500)    (1,100)
                                             -------    -------    -------
      Held at end of year                     82,650     85,311     45,344
                                             =======    =======    =======

                                                                              31


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

13. Stock Option Plan (Continued)

      As of March 31, 2001, the Company had the following options outstanding:

 Number of                            Weighted Average
  Options           Exercise              Remaining          Options Exercisable
Outstanding          Price         Contract Life (years)      At March 31, 2001
-----------      -------------     ---------------------     -------------------
    5,000        $    2.3750               2.2                      3,000
    8,400             2.2800               4.6                          0
   11,400             1.8400               3.7                      2,280
    3,600             1.6600               3.2                      1,440
   46,250             1.5265               3.7                      9,280
    2,000             1.3750               2.0                      1,200
    2,400             1.2501               1.0                      1,920
    3,600              .7201               0.2                      3,600
   ------                                                          ------
   82,650                                                          22,720
   ======                                                          ======

      For the years ended March 31, 2001,  2000 and 1999,  22,720,  19,151,  and
      15,844 of options were outstanding, vested, and exercisable.

      The per share weighted-average fair value of stock options granted for the
      years 2001, 2000 and 1999 were $2.02, $1.43 and $1.95 respectively, on the
      date of grant  using  the  Black  Scholes  option-pricing  model  with the
      following weighted-average  assumptions:  expected dividend yield of 0.0%,
      risk-free  interest rate of 5%, volatility factor of 135%, and an expected
      life of 5 years. The Company applies  Accounting  Principles Board Opinion
      No.  25  in  accounting  for  its  stock  options  and,  accordingly,   no
      compensation  expense  has been  recognized  for its stock  options in the
      accompanying financial statements. Had the Company determined compensation
      cost  based  on the fair  market  value at the  grant  date for its  stock
      options  under SFAS No. 123, the  Company's net income would not have been
      materially affected. The pro forma amounts are indicated below:

                                             2001          2000          1999
                                             ----          ----          ----
Net income (loss) - as reported       $   1,335,005   $   600,553   $  (146,681)
Net income (loss) - pro forma             1,308,005       583,899      (160,135)

Basic earnings (loss) per share -
 as reported                                   0.63          0.28         (0.07)
Basic earnings (loss) per share -
 pro forma                                     0.62          0.28         (0.08)

Diluted earnings (loss) per share -
 as reported                                   0.63          0.28         (0.07)
Diluted earnings (loss) per share -
 pro forma                                     0.62          0.27         (0.08)


                                                                              32
<PAGE>


TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

13. Stock Option Plan (Continued)

      In June 1998,  the Board of  Directors  of the Company  adopted a new 1998
      Stock Option Plan ("the  Plan") which  reserves for issuance up to 250,000
      shares of its Common Stock.  The Plan,  which has a term of ten years from
      the date of adoption is  administered  by the Board of  Directors  or by a
      committee   appointed  by  the  Board  of  Directors.   The  selection  of
      participants,  allotment of shares,  and other  conditions  related to the
      purchase  of  options is  determined  by the Board of  Directors.  Options
      granted under the Plan are  exercisable up to a period of 5 years from the
      date of  grant at an  exercisable  price  which is not less  than the fair
      market  value  of the  common  stock  at the date of  grant,  except  to a
      shareholder  owning  10% or more of the  outstanding  common  stock of the
      Company, at which the exercise price may not be less than 110% of the fair
      value of the common stock at the date of grant. At March 31, 2001, 203,000
      options for common stock are available for future grant.

14. Segment Information

      In 1999,  the  Company  adopted  SFAS 131.  Segment  information  has been
      restated to present the Company's two reportable segments,  government and
      commercial.

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

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

                                                                              33


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

14. Segment Information (Continued)

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

                                                        Reconciling
2001                         Government   Commercial      Items         Total
----                         ----------   ----------   ------------  ----------
Revenues                     $4,475,620   $3,033,281   $        --   $7,508,901
Cost of Sales                 2,274,152    1,430,420            --    3,704,572
                             ----------   ----------   -----------   ----------
Gross Margin                  2,201,468    1,602,861                 $3,804,329

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

Interest, net                                              (95,026)     (95,026)
                                                       -----------   -----------
Income before income taxes                                            1,039,117
                                                                     ==========
Segment Assets               $1,985,972   $  630,663   $ 3,318,011   $5,934,646
                             ==========   ==========   ===========   ==========

                                                         Reconciling
2000                         Government   Commercial       Items        Total
----                         ----------   ----------   ------------  ----------
Revenues                     $ 3,172,923  $1,957,859   $        --   $5,130,782
Cost of Sales                  1,596,453     893,316            --    2,489,769
                             -----------  ----------   -----------   ----------
Gross Margin                 $ 1,576,470  $1,064,543                 $2,641,013

Engineering, research,
 and Development                                         1,051,833    1,051,833
Selling, general, and
 administrative                                          1,165,844    1,165,844

Interest, net                                              (64,378)     (64,378)
                                                                     ----------
Income before income taxes                                           $  358,958
                                                                     ==========
Segment Assets               $ 1,163,321  $   545,928   $ 2,223,516  $3,932,765
                             ===========  ===========   ===========  ==========

                                                         Reconciling
1999                         Government   Commercial       Items        Total
----                         ----------   ----------   ------------  ----------
Revenues                     $ 1,730,776  $1,753,723   $        --   $3,484,499
Cost of Sales                    838,734     721,258            --    1,559,992
                             -----------  ----------   -----------   ----------
Gross Margin                 $   892,042  $1,032,465                 $1,924,507

Engineering, research,
 and Development                                         1,204,007    1,204,077
Selling, general, and
 administrative                                            920,547      920,547

Interest, net                                              (44,419)     (44,149)
                                                                     ----------
Loss before income taxes                                             $ (244,266)
                                                                     ==========
Segment Assets               $   728,497  $   250,740   $ 1,239,271  $2,218,508
                             ===========  ===========   ===========  ==========

                                                                              34


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

14. Segment Information (Continued)

      The Company primarily develops and designs test equipment for the avionics
      industry and as such, the Company's  products and designs cross  segments.
      The Company's general and  administrative  costs and marketing  strategies
      are  not  segment   specific.   As  a  result,   selling,   general,   and
      administrative  expenses are not managed on a segment basis.  Net interest
      includes  expenses  on  debt  and  income  earned  on cash  balances  both
      maintained at the corporate level.

      Foreign  sales are based on the country in which the  customer is located.
      Foreign sales were approximately  $1,717,000,  $1,581,000 and $833,000 for
      the years ended March 31, 2001,  2000, and 1999,  respectively.  All other
      sales were to customers located in the U.S.

      For the fiscal  years ended March 31, 2000 and 1999,  there was a domestic
      commercial   customer  that  accounted  for  approximately  11%  of  total
      commercial sales in each year. One domestic distributor accounted for 29%,
      10% and 13% of commercial  sales for the years ended March 31, 2001, 2000,
      and 1999,  respectively.  No end user customer accounted for more than 10%
      of commercial  sales for these years.  Foreign  commercial sales were 17%,
      20% and 19% of total  commercial sales for the years ended March 31, 2001,
      2000  and  1999,  respectively.  Sales  to  an  international  distributor
      accounted for  approximately 12% of total sales in fiscal year 2000. Sales
      to another  international  distributor accounted for 10% of total sales in
      fiscal year 1999. For the fiscal year ended March 31, 2001, sales to these
      distributors did not exceed 10% of total sales.

      Sales to the U.S. Government were approximately $2,527,621,  $912,000, and
      $669,000 for the years ended March 31, 2001, 2000, and 1999, respectively.


                                                                              35
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>

                                                 Balance at       Charged to         Charged to
                                                 Beginning        Costs and          Other                             Balance at
Description                                      of Period        Expenses           Accounts       Deductions         End of Year
<S>                                            <C>             <C>                <C>             <C>             <C>
Year ended March 31, 1999:
    Allowance for doubtful
       Accounts                                   $16,064                                          $   479(2)            $15,585
                                                  =======                                          =======               =======
    Allowance for obsolete
    Inventory                                     $35,620         $(6,000)                                               $29,620
                                                  =======         =======                                                =======
Year ended March 31, 2000:
    Allowance for doubtful
       Accounts                                   $15,585          (3,987)                                               $11,598
                                                  =======         =======                                                =======
    Allowance for obsolete
       Inventory                                  $29,620         $20,500                          $ 5,996(1)            $44,124
                                                  =======         =======                          =======               =======
Year ended March 31, 2001:
    Allowance for doubtful
       Accounts                                   $11,598                                                                $11,598
                                                  =======                                                                =======
    Allowance for obsolete
       Inventory                                  $44,124         $63,000                          $34,329(1)            $72,795
                                                  =======         =======                          =======               =======

</TABLE>


(1) Amounts represent disposals of obsolete inventory.

(2) Amount represents write off of accounts receivable.


                                                                              36


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

      No  disagreements   arose  between  the  Registrant  and  its  independent
      auditors'  regarding  accounting  and financial  matters during the twelve
      months preceding March 31, 2001.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

                        DIRECTORS AND EXECUTIVE OFFICERS

<TABLE>
<CAPTION>

                                                                                                      Year First
                                                                                                       Elected a
               Name (age)                             Position                                         Director
               ----------                             --------                                         --------
               <S>                                   <C>                                                <C>
               Harold K. Fletcher (1)                 Chairman of the Board,                             1982
                 (76)                                 President and Chief
                                                      Executive Officer
                                                      since 1982.

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

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

               Jeff C. O'Hara (1)                     Director; Financial Consultant from                1998
                  (43)                                2001, Chief Financial Officer of
                                                        Alarm Security Group 1999-2001;
                                                      Financial Consultant from 1996 to 1998.
                                                      Chief Financial Officer of Keywell
                                                      Corporation.

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

</TABLE>

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

                                                                              37


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

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

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

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

Item 11. Executive Compensation

      The  following  table  and  accompanying   notes  set  forth   information
      concerning  compensation  for the fiscal years ended March 31, 2000, 1999,
      and 1998.

                                                         Stock         Other
 Name and Principal Position     Year      Salary       Options    Compensation
 ---------------------------     ----      ------       -------    ------------
 Harold K. Fletcher              2001    $130,000                       --
 Chairman of Board               2000     130,000                   $11,700(1)
 President and Chief             1999     100,000                       --
 Executive Officer


(1) Represents bonus based on the Company's profitability.


                                                                              38


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The  following  tables set  forth,  as of March 31,  2000,  the number and
      percentage of the outstanding  shares of common stock,  beneficially owned
      by  each  director  and by  each  beneficial  owner  of 5% or more of such
      shares, and by all officers and directors as a group.

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

Harold K. Fletcher, Director            496,102 (2)                23.4%
728 Garden Street
Carlstadt, New Jersey 07072

George J. Leon, Director                308,747 (3)                14.5%
116 Glenview
Toronto, Ontario
Canada M4R1P8

Robert J. Melnick, Director              24,320 (4)                 1.1%
57 Huntington Road
Basking Ridge, New Jersey 07920

Jeff C. O'Hara, Director                105,500 (5)                 5.0%
853 Turnbridge Circle
Naperville, IL 60540

Robert H. Walker, Director               26,863 (6)                 1.3%
27 Vantage Court
Port Jefferson, NY 11777

Donald S. Bab, Secretary                 65,634 (7)                 3.1%
330 Madison Avenue
New York, New York 10017

All Officers and Directors            1,073,286 (8)                50.2%
as a Group (7 persons)

(1)   The class includes 2,124,351 shares  outstanding.  The common stock deemed
      to be owned which is not outstanding but subject to currently  exercisable
      options  held by the  individual  named is  deemed to be  outstanding  for
      determining the percentage of all outstanding stock owned.

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

                                                                              39


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

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

      Mr.  Fletcher  disclaims  beneficial  ownership of the shares owned by his
      wife and son and by the partnership.

(3)   Includes  300,267  shares owned by the George Leon Family Trust,  of which
      Mr.  Leon  is  a  beneficiary,  and  3,680  shares  subject  to  currently
      exercisable stock option. Mr. Leon disclaims  beneficial  ownership of the
      shares owned by the trust.

(4)   Includes 4,320 shares subject to currently exercisable stock options

(5)   Includes 320 shares subject to currently exercisable stock options.

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

(7)   Mr. Bab has a  convertible  debenture  in the  amount of  $15,000  that is
      convertible into common stock at $1.50 per share.

(8)   Includes  12,000 shares subject to currently  exercisable  options held by
      all  executive  offices  and  directors  of the Company  (including  those
      individually named above).

Item 13. Certain Relationships and Related Transactions

      The  disclosures  required  by this item are  contained  in Note 10 to the
      financial statements included on pages -- and -- of this document.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K

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

                                                                    Pages
                                                                    -----

            (1)   Financial Statements:

                  Report of Independent Accountants                   16

                  Balance Sheets - March 31, 2001 and 2000            17

                  Statements of Operations - Years Ended

                  March 31, 2001, 2000 and 1999                       18

                  Statements of Changes in Stockholders'
                  Equity/(Deficiency) - Years Ended
                  March 31, 2001, 2000  and 1999                      19

                  Statements of Cash Flows - Years Ended
                  March 31, 2001, 2000 and 1999                       20

                                                                              40


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Item 14.  Exhibits,  Financial  Statement  Schedules  and  Reports  on Form 10-K
          (Continued)

                                                                    Pages
                                                                    -----

                  Notes to Financial Statements                     21- 35

            (2)   Financial Statement Schedule
                  II - Valuation and Qualifying Accounts              36

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

      b.)   No reports on Form 8-K were filed during the fourth quarter of 2001.

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

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

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

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

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

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

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

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

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

           **    (27.)  Financial Data Schedule

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

      **    Financial  Data Schedule  which is submitted  electronically  to the
            Securities and Exchange  Commission for information  only and is not
            filed.

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

                                                                              41


<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

                                   Signatures

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
      Exchange  Act of 1934,  the  Registrant  has duly caused this report to be
      signed on its behalf by the undersigned, thereunto duly authorized.

                        TEL-INSTRUMENT ELECTRONICS CORP.
                                  (Registrant)

      Dated: June 26, 2001                         By:  /s/ Harold K. Fletcher
                                                        ----------------------
                                                         President and Director
                                                         (Principal Executive
                                                         Officer)

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

<TABLE>
<CAPTION>

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

             <S>                                        <C>                               <C>
              /s/  Harold K. Fletcher                     Director                         June 26, 2001
              ---------------------------
              /s/  Harold K. Fletcher

              /s/  Joseph P. Macaluso           Principal Accounting Officer               June 26, 2001
              ---------------------------
              /s/  Joseph P. Macaluso

              /s/  George J. Leon                         Director                         June 26, 2001
              ---------------------------
              /s/  George J. Leon

              /s/ Robert J. Melnick                       Director                         June 26, 2001
              ---------------------------
              /s/ Robert J. Melnick

              /s/ Jeff O'Hara                             Director                         June 26, 2001
              ---------------------------
              /s/ Jeff O'Hara

              /s/  Robert H. Walker                       Director                         June 26, 2001
              ---------------------------
              /s/  Robert H. Walker

</TABLE>

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

      No annual report to security  holders covering the fiscal year ended March
      31,  2001,  except  in the form  set  forth in this  Form  10-K,  has been
      prepared.  No proxy  statement,  form of proxy, or other proxy  soliciting
      material has been sent to shareholders with respect to any annual or other
      meeting  of   shareholders.   No  annual  report  or  proxy   material  is
      contemplated.

                                                                              42