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, 2000                                            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 12, 2000 was $2,518,697  using the price of the
last trade on June 12, 2000.

2,113,290 shares of Common Stock were outstanding as of June 12, 2000.

Total Pages - 42

Exhibit Index - pages  40-41

<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 is constantly  revising and improving its test  instruments (see
      "Research and  Development")  in  anticipation  of customers'  needs.  The
      development of  multifunction  "smart" testers,  for example,  has made it
      easier for customers to perform ramp tests with less training.

      For the year ended March 31, 2000,  sales increased to over $5,000,000 and
      the Company  generated income before taxes of approximately  $359,000 (see
      Item 7 - Management's  Discussion and Analysis of Financial  Condition and
      Results of Operations).

      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
      Precision  DME ramp and bench testers for Marconi  Communications,  Italy,
      the European prime contractor,  and other products under development.  The
      current   backlog   exceeds   $16,000,000,   and  includes   approximately
      $12,600,000  in orders  from the U.S.  Navy for the  AN/APM 480 Test Sets.
      This backlog will be shipped over the next few years.

      The Company  continues to focus its efforts in the  government  market and
      has been very active in responding  to requests  from the U.S.  Government
      for quotations,  in addition to adapting its product designs to respond to
      these requests.

      On August 12,  1997,  the  Company  received  notice that it was awarded a
      major  contract  from the U.S.  Navy  ("Navy").  The initial  order is for
      $949,324 to provide  five AN/APM 480  (Identification  Friend or Foe) test
      sets for Navy evaluation and for the associated testing and documentation.
      The  awarding  of this  contract  represented  a major  milestone  for the
      Company  and its  engineering  efforts  since  this  contract  could  be a
      significant source of future revenues.  This contract includes options for
      up to 1,300 units which the Navy can exercise  through calendar year 2001.
      The Company has  completed  the testing  portion of this  contract and has
      received  orders for 963 units.  The Company began shipping the production
      units in June 2000.  There is no assurance  that all of these options will
      be exercised by the Navy or that the gross margin on this contract will be
      at the historical level.

      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.


                                                                               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,
                                  2000            1999            1998
                                  ----            ----            ----

               Commercial      $1,957,859      $1,753,723      $1,489,563
               Government       3,172,923       1,730,776       2,469,679
                               ----------      ----------      ----------
               Total            5,130,782       3,484,499       3,959,242
                               ==========      ==========      ==========

      In  the  fiscal  year  ended  March  31,  1995,   Tel  won  a  competitive
      solicitation  from the U.S. Air Force (USAF) for the Model  T-30CM.  Sales
      derived from this contract  represented 34% of total  government sales for
      the year ended March 31, 1998.  This  contract was  completed in the third
      quarter of fiscal year 1998, and the Company derived no revenues from this
      contract in fiscal years 1999 and 2000.

      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 oral,  year-to-year  arrangements.  For the
      years ended March 31, 2000, 1999 and 1998,  foreign  commercial sales were
      20%, 19% and 21%, respectively, of total commercial sales.

      In June 1998, the Company 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 5% and 10% of
      total sales for the fiscal years 2000 and 1999, respectively.

      In  December  1998,  the  Company  received a $447,000  contract to supply
      T-47CC ramp test sets to the Australian military through Milspec Services,
      the Company's  exclusive  distributor  in Australia and New Zealand.  This
      test set  incorporates  a recently  developed  directional  antenna to the
      T-47C, and the Company delivered these units in fiscal year 2000. Sales to
      this distributor  represented  approximately 12% of total sales for fiscal
      year 2000.

      In May 1999,  the Company  received a $396,262 order for its Precision DME
      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  Precision  DME bench test set from this same
      customer.

      Tel sells its products either directly or through distributors to its many
      domestic commercial customers.  One domestic commercial customer accounted
      for 11% of  commercial  sales in fiscal  year  2000.  There is no  written
      agreement with these  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  10%, 13% and 15% of commercial
      sales for the years ended March 31, 2000, 1999 and 1998, respectively.


                                                                               3
<PAGE>

Item 1. Business (Continued)

      General (Continued)

      Set forth below is Tel's backlog at March 31, 2000, 1999, and 1998.

                            Commercial       Government         Total
                            ----------       ----------         -----

       March 31, 2000      $   665,072      $14,355,429      $15,020,501
       March 31, 1999      $   379,404      $ 2,338,011      $ 2,717,415
       March 31, 1998      $    65,800      $ 1,655,678      $ 1,721,478

      Tel believes  that most of the backlog at March 31, 2000 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 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,  of which Tel is believed to be the third  largest.  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 Precision DME 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 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  bids  for  government
      contracts on competitive bids, on the basis of "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.  Although it is  anticipated  that the total
      defense  budget will  continue to decline,  management  believes  that the
      portion  devoted to  operation  and  maintenance  of existing and improved
      avionics  will  be  less  adversely   affected.   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.

      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,  2000,  1999 and  1998,  Tel spent
      $1,051,833,  $1,204,077, and $902,250,  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  year 2000 is  associated  with
      certain  development  activities  that were funded through  contracts and,
      therefore,   included  in  cost  of  sales.   Engineering,   research  and
      development   expenditures   in  2000  were  directed   primarily   toward
      finalization of the design of the AN/APM 480, the T-36M,  and new products
      for other targeted markets, such as the T-49CF, T-47CC, T-48IC, and T-47N.
      The Company owns all of these designs.


                                                                               5
<PAGE>

Item 1. Business (Continued)

      Personnel

      At June 12, 2000, Tel has twenty-two employees in manufacturing, materials
      management,  and quality assurance,  nine in administration and sales, and
      six 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.  During fiscal year
      2000, the Company employed a number of engineering consultants to finalize
      the development of the AN/APM 480 test sets for the U.S. Navy.

Item 2. Properties

      The Company  leases  11,164  square feet in  Carlstadt,  New Jersey as its
      manufacturing  plant and  administrative  offices,  pursuant to a ten year
      lease  expiring  in August,  2008.  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. The Company
      is contemplating leasing additional space to accommodate future growth.

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, 2000, the
      Company's  Common  Stock  had the high and low  bids of $3.75  and  $1.25,
      respectively. These quotations reflect inter-dealer prices, without retail
      markup  or   commission   and  may  not   necessarily   represent   actual
      transactions. On June 12, 2000, the bid was $2.25 and the ask was $2.50.

      Approximate Number of Equity Security Holders

                                                  Number of Record
                                                    Holders as of
      Title of Class                               March 31, 2000
      -----------------------------------------------------------

      Common Stock, par value                            838
        $.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

<TABLE>
<CAPTION>
                                                                          Years Ended March 31,
                                              ---------------------------------------------------------------------------
                                                  2000            1999            1998            1997            1996
                                                  ----            ----            ----            ----            ----
<S>                                           <C>             <C>             <C>             <C>             <C>
Statement of Operations Data:
 Net revenues                                 $ 5,130,782     $ 3,484,499     $ 3,959,242     $ 3,165,674     $ 2,318,088
                                              -----------     -----------     -----------     -----------     -----------

 Operating costs and expenses:
 Cost of sales                                  2,489,769       1,559,992       1,559,542       1,325,659       1,022,942
 Selling, general and administrative            1,165,844         920,547         909,505         854,093         739,912
 Engineering, research and development          1,051,833       1,204,077         902,250         486,884         390,399
                                              -----------     -----------     -----------     -----------     -----------
                                                4,707,446       3,684,616       3,371,297       2,666,636       2,153,253
                                              -----------     -----------     -----------     -----------     -----------

 Income (loss) from operations                    423,336        (200,117)        587,945         499,038         164,835

 Other expenses, net                              (64,378)        (44,149)        (68,847)        (57,954)        (69,156)
                                              -----------     -----------     -----------     -----------     -----------

 Diluted income/(loss) before income taxes        358,958        (244,266)        519,098         441,084          95,679

 Benefit from income taxes (1)                    241,595          97,585          58,719         340,200              --
                                              -----------     -----------     -----------     -----------     -----------

 Net income (loss)                            $   600,553     $  (146,681)    $   577,817     $   781,284     $    95,679
                                              ===========     ===========     ===========     ===========     ===========

 Diluted income/(loss) per common share       $      0.28     $     (0.07)    $      0.28     $      0.41     $      0.04
                                              ===========     ===========     ===========     ===========     ===========

<CAPTION>

                                                                          Years Ended March 31,
                                              ----------------------------------------------------------------------------
                                                   2000           1999            1998            1997             1996
                                                   ----           ----            ----            ----             ----
<S>                                          <C>             <C>             <C>             <C>             <C>
Balance Sheet Data:
 Working capital (deficiency)                 $   921,130     $   507,582     $   864,061     $   440,978     $  (500,199)

  Total assets                                  3,932,765       2,218,508       1,941,141       1,648,066         824,606

  Long-term debt                                  301,682         266,486         300,000         365,000         100,000

  Redeemable preferred stock                           --              --              --              --         606,643

  Stockholders' equity (deficiency)             1,522,047         919,093       1,060,068         455,254      (1,118,364)
</TABLE>

(1) Income taxes recorded in accordance with FASB 109.


                                                                               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 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.


                                                                               9
<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 Precision DME (Distance Measuring  Equipment) Bench
      Test Sets.  This contract is incremental  to the contract  received in May
      1999 for Precision  DME Ramp Test Sets in the amount of $396,262.  At this
      time, Precision DME is directly solely to the European market. The Company
      will design and build the Bench Test Set and  expects to begin  delivering
      these units in early  calendar  year 2001.  The order for the Precison DME
      Ramp Test Sets was delivered in the first quarter of fiscal year 2001.

      The  Company's  backlog  currently  exceeds  $16,000,000.  This backlog is
      deliverable over the next few years.

      See Note 1 to Financial Statements.

      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.


                                                                              10
<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  activities that were funded
      through contracts and, therefore included in cost of sales.  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).


                                                                              11
<PAGE>

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

      Results of Operations 1999 Compared to 1998

      Overview

      The Company  continues to believe that it's long-term outlook is positive,
      however for the year ended March 31, 1999 sales decreased $474,743 (12.0%)
      as compared to the twelve  months ended March 31, 1998.  Operating  income
      declined  as  a  result  of  the  lower  sales  and  higher  research  and
      development  expenses,  which increased $301,827 (33.5%) from the previous
      year. The increase in research and development  expenses reflects the work
      on the U.S.  Navy  contract  and  development  of new  products  for other
      markets.

      The decline in sales is attributed  to reduced  shipment  rates  resulting
      primarily  from the  completion of the  substantial  U.S. Air Force T-30CM
      contract  in the third  quarter  of the prior  fiscal  year,  and  delayed
      shipments  on new  contracts,  due to  increased  engineering  and testing
      activities.  The Company believes that most of its delayed 1999 sales will
      be delivered in fiscal year 2000.

      Management  continues to be encouraged by the dollar value of the backlog,
      the large and unexpected increase in commercial sales, the progress on the
      U.S. Navy contract, and the efforts of its international distributors.  At
      March 31, 1999 the Company had a substantial backlog of $2,717,415.

      Sales

      For the fiscal year ended March 31,  1999 total sales  decreased  $474,743
      (12.0%)  as  compared  to the same  period  last  year.  Commercial  sales
      increased  $264,160  (17.7%) while  government  sales  decreased  $738,903
      (29.9%).  Government  sales related to the  substantial  contract with the
      U.S.  Air Force for the T-30CM  amounted to  $836,014 in the prior  fiscal
      year and the  contract  was  completed  prior to the current  fiscal year.
      Fiscal  year  1998  also  included  sales to a  Defense  Department  prime
      contractor  for the  Company's  T-47C in the  amount  of  $743,660.  These
      decreases were partially  offset by sales to Muirhead  Avionics and by the
      increase in commercial sales.

      Gross Margin

      Gross margin (total sales less cost of sales)  decreased  $475,193 (19.8%)
      for the fiscal  year ended  March 31,  1999 as compared to the fiscal year
      ended March 31, 1998.  This decrease is primarily  attributed to the lower
      sales  volume.  Gross  margin was also  affected  by the  decision  of the
      Company to strengthen its management  team in  anticipation  of additional
      growth.  As such,  the  Company  hired a Quality  Assurance  Manager and a
      Materials  Manager.  Gross  margin as a percent of sales was 55.2% for the
      year ended  March 31,  1999 as  compared to 60.6% for the year ended March
      31, 1998. The decrease in gross margin  percentage is associated  with the
      lower sales  volume and the lower gross margin  percentage  related to the
      documentation  and test portion of the U.S. Navy T-47M  contract.


                                                                              12
<PAGE>

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

      Results of Operations 1999 Compared to 1998 (continued)

      Operating Expenses

      Selling, general, and administrative expenses increased $11,042 (1.2%) for
      the fiscal  year ended March 31, 1999 as compared to the fiscal year ended
      March 31,  1998.  An  increase  in  selling  expenses  and  administrative
      salaries was mostly offset with lower employee incentive  compensation and
      a  reduction  in expenses  incurred  related to the  Company's  efforts to
      explore new markets for its technology.  In fiscal year 1998 the Company's
      President  devoted a percentage  of his time to research  and  development
      activities to ensure that such  activities  were properly  supervised.  In
      fiscal  year 1999,  the  Company  hired a Director  of  Engineering,  thus
      minimizing the President's time in overseeing the research and development
      function and allowing him to concentrate on Company growth, but increasing
      selling, general, and administrative expenses.

      Engineering,  research, and development expenditures increase $301,827, or
      33.5%,  for the  twelve-month  period ended March 31, 1999, as compared to
      the same  twelve-month  period  in the  prior  fiscal  year.  Engineering,
      research,  and  development  expenditures  represented  34.6% and 22.8% of
      sales for the years ended March 31, 1999 and March 31, 1998, respectively.
      These expenditures  reflect the Company's commitment and effort to develop
      new  products  and  maintain  its  competitiveness  within  the  industry.
      Research and development  expenditures in 1999 were directed  primarily on
      finalization of the design of the T-47M for the U.S. Navy and new products
      for other target markets,  including the T-47CF,  T-47CC,  T-48IC, and the
      T-47N.  Fiscal  year  1999 was also  impacted  by higher  recruitment  and
      relocation expenses for new engineers.

      Interest

      Interest  income  decreased as a result of the lower cash  balances  while
      interest expense decreased as a result of lower interest on deferred wages
      which have, for the most part, been repaid.

      Income Taxes

      In  accordance  with SFAS No.  109,  the  Company  recorded  an income tax
      benefit of $97,585 for the year ended March 31, 1999, which represents the
      effective  federal  and state tax rate on the net loss  before  taxes (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

      During fiscal year 2000 working capital increased  $413,538 to $921,130 as
      compared to $507,582 at March 31, 1999. For the year ended March 31, 2000,
      cash used in  operations  was $96,775 as compared to $421,576 for the year
      ended  March  31,  1999.  This  reduction  in cash used in  operations  is
      primarily attributed to the improvement in the Company's operating income.
      Increases in accounts  receivable and inventories were partially offset by
      the Company's operating income,  borrowings from the bank in the amount of
      $250,000,  proceeds from a loan on an insurance  policy,  and increases in
      accounts payable and other accrued liabilities.

      The Company has a line of credit from Summit Bank for $250,000,  which was
      originally scheduled to expire in July 2000. However, the Company received
      a 60 day extension to the agreement. As of March 31, 2000, the Company had
      an  outstanding  loan  balance  of  $250,000.  The  Company  is  currently
      discussing with the bank increasing its credit line based upon its current
      backlog, which exceeds $16,000,000, its increased accounts receivable, its
      profitability in four out of the last five years, and its positive outlook
      for the future.

      In the first  quarter of fiscal  year 2001,  the  Company  began  shipping
      AN/APM 480s to the U.S.  Navy and also shipped all the T-76 Ramp Test Sets
      under the contract  with M.P.G.  Instruments  for Marconi  Communications.
      Management  believes that these events will have a positive  effect on the
      Company's cash flow.

      Based upon the current backlog and available working capital,  the Company
      believes that it has sufficient  working capital to fund its plans for the
      next  twelve  months.  At present,  the  Company  does not expect to incur
      significant  long-term needs for capital  outside of its normal  operating
      activities.  However,  the Company continues to seek additional funding to
      help finance the growth of the Company.

      There was no significant impact on the Company's operations as a result of
      inflation for the year ended March 31, 2000.

      Year 2000 Issue

      The  Company is not aware of any  problems  associated  with the Year 2000
      issue and, as such, has experienced no disruption in its operations.


                                                                              14
<PAGE>

      Item 8. Financial Statements and Supplementary Data

                                                                 Pages
                                                                 -----

      (1)  Financial Statements:

           Report of Independent Accountants                      16

           Balance Sheets - March 31, 2000 and 1999               17

           Statements of Operations - Years Ended
              March 31, 2000, 1999 and 1998                       18

           Statements of Changes in Stockholders'
              Equity - Years Ended March 31,
              2000, 1999 and 1998                                 19

           Statements of Cash Flows - Years Ended
               March 31, 2000, 1999 and 1998                      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, 2000 and
      1999, and the results of its operations and its cash flows for each of the
      three  years in the  period  ended  March 31,  2000,  in  conformity  with
      accounting   principles  generally  accepted  in  the  United  States.  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 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

      June 9, 2000,  except for the second paragraph of Note 1,
       as to which date is June 22, 2000.


                                                                              16
<PAGE>

                        TEL-INSTRUMENT ELECTRONICS CORP.

<TABLE>
<CAPTION>

      Balance Sheets
                                                                                       March 31,
                                                                              -----------     -----------
                                     ASSETS                                       2000            1999
                                                                              -----------     -----------
<S>                                                                           <C>             <C>
Current assets:
        Cash                                                                  $   172,836     $    70,617
        Accounts receivable, net of allowance for doubtful
           accounts of $11,598 and $15,585 at March 31,
           2000 and 1999, respectively                                          1,099,425         638,721
        Inventories, net                                                        1,486,885         713,700
        Prepaid expenses and other current assets                                  56,020          39,173
        Deferred income tax benefit - current                                     215,000          78,300
                                                                              -----------     -----------

             Total current assets                                               3,030,166       1,540,511

Office and manufacturing equipment, net                                           350,872         130,901
Other assets                                                                       28,628         128,892
Deferred income tax benefit                                                       523,099         418,204
                                                                              -----------     -----------

Total assets                                                                  $ 3,932,765     $ 2,218,508
                                                                              ===========     ===========
                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Convertible note payable - related party - current portion              $   150,000     $   100,000
      Convertible subordinated  note - related party                               15,000          15,000
      Line of credit                                                              250,000              --
      Capitalized lease obligations - current portion                              56,376           9,667
      Accounts payable                                                            746,863         302,435
      Advance payments                                                            176,193         134,767
      Accrued payroll, vacation pay and deferred wages                            350,286         218,289
      Accrued expenses - related parties                                          132,912          84,779
      Other accrued expenses                                                      231,406         167,992
                                                                              -----------     -----------

             Total current liabilities                                          2,109,036       1,032,929

Convertible note payable - related party                                          200,000         250,000
Capitalized lease obligations - excluding current portion                         101,682          16,486
                                                                              -----------     -----------

         Total liabilities                                                      2,410,718       1,299,415

Stockholders' equity
       Common stock, par value $.10 per share, 2,113,290 and 2,109,957
        Issued and outstanding as of March 31, 2000 and 1999, respectively        211,332         210,998
       Additional paid-in capital                                               3,927,921       3,925,854
       Accumulated deficit                                                     (2,617,206)     (3,217,759)
                                                                              -----------     -----------

             Total stockholders' equity                                         1,522,047         919,093
                                                                              -----------     -----------

      Total liabilities and stockholders' equity                              $ 3,932,765     $ 2,218,508
                                                                              ===========     ===========
</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,
                                                      ----------------------------------------
                                                         2000           1999           1998
                                                      ----------     ----------     ----------
<S>                                                   <C>             <C>             <C>
Sales - commercial, net                               $1,957,859     $1,753,723     $1,489,563
Sales - government, net                                3,172,923      1,730,776      2,469,679
                                                      ----------     ----------     ----------

              Total Sales                              5,130,782      3,484,499      3,959,242

Cost of sales                                          2,489,769      1,559,992      1,559,542
                                                      ----------     ----------     ----------

              Gross margin                             2,641,013      1,924,507      2,399,700
                                                      ----------     ----------     ----------

Operating expenses:
  Selling, general and administrative                  1,165,844        920,547        909,505
  Engineering, research and development                1,051,833      1,204,077        902,250
                                                      ----------     ----------     ----------

              Total operating expenses                 2,217,677      2,124,624      1,811,755
                                                      ----------     ----------     ----------

                 Income (loss) from operations           423,336       (200,117)       587,945

Other income/(expense):
              Interest income                              9,682          8,637         27,872
              Interest expense                           (37,136)       (16,736)       (60,669)
              Interest  expense -  related parties       (36,924)       (36,050)       (36,050)
                                                      ----------     ----------     ----------


Income (loss) before income taxes                        358,958       (244,266)       519,098

Benefit from income taxes                                241,595         97,585         58,719
                                                      ----------     ----------     ----------

   Net Income (loss)                                  $  600,553     $ (146,681)    $  577,817
                                                      ==========     ==========     ==========

Income (loss) per common share:
              Basic                                   $     0.28     $    (0.07)    $     0.28
                                                      ==========     ==========     ==========
              Diluted                                 $     0.28     $    (0.07)    $     0.28
                                                      ==========     ==========     ==========

Weighted average number of shares outstanding
          Basic                                        2,110,983      2,101,264      2,044,075
                                                      ==========     ==========     ==========
          Diluted                                      2,146,402      2,101,264      2,070,503
                                                      ==========     ==========     ==========
</TABLE>

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


                                                                              18
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.
Statements Of Changes In Stockholders' Equity (Deficiency)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                         Common Stock
                                          -------------------------------------   Additional
                                                 Number of Shares                   Paid-In    Accumulated
                                           Authorized        Issued      Amount     Capital      Deficit         Total
                                          -------------------------------------   ----------   -----------    ----------
<S>                                        <C>            <C>          <C>        <C>          <C>            <C>
Balances  March 31, 1997                   4,000,000      2,030,948    $203,097   $3,901,052   $(3,648,895)   $  455,254

Net income                                                                                         577,817       577,817
 Issuance of common stock in connection
 With the exercise of stock purchase
  warrants                                                    2,734         273        3,828            --         4,101
Issuance of common stock in connection
  With the exercise of stock options                         61,053       6,106       16,790            --        22,896
                                          ----------      ---------    --------   ----------   -----------    ----------

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 at March 31, 2000                $4,000,000      2,113,290    $211,332   $3,927,921   $(2,617,206)   $1,522,047
                                          ==========      =========    ========   ==========   ===========    ==========
</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,
                                                                       ------------------------------------
                                                                          2000         1999         1998
                                                                       ------------------------------------
<S>                                                                    <C>          <C>          <C>
Cash flows from operating activities:
    Net income (loss)                                                  $ 600,553    $(146,681)   $ 577,817
    Adjustments to reconcile net income to cash
       provided by operating activities:
          Deferred income taxes                                         (241,595)     (97,585)     (58,719)
          Depreciation and amortization                                   70,303       41,907       34,894
          Provision for losses on accounts receivable                     (3,987)        (479)      (6,700)
          Provision for inventory obsolescence                            14,504       (6,000)          --
          Changes in assets and liabilities:
            (Increase)/decrease in accounts receivable                  (456,717)    (263,736)     (65,069)
            (Increase)/decrease in inventories                          (787,689)    (324,670)     (30,857)
            (Increase)/decrease in prepaid expenses and other assets     (21,545)     (16,521)     (17,073)
            (Decrease)/increase in accounts payable                      444,428      233,822      (20,731)
            (Decrease)/increase in advance payments and accrued
              expenses                                                   284,970      158,367     (291,008)
                                                                       ---------    ---------    ---------

            Net cash provided by (used in) operating
                     Activities                                          (96,775)    (421,576)     122,554
                                                                       ---------    ---------    ---------

Cash flows from investing activities:
   Additions to office and manufacturing equipment                      (125,948)     (67,044)     (68,723)
   Increase in cash surrender value of life insurance                    (24,494)     (31,460)     (24,183)
                                                                       ---------    ---------    ---------

            Net cash used in investing activities                       (150,442)     (98,504)     (92,906)
                                                                       ---------    ---------    ---------

Cash flows from financing activities:
   Proceeds from loan on insurance policy                                129,456           --           --
   Proceeds from exercise of warrants and options                          2,401        5,706       26,997
   Proceeds from drawing on line of credit                               250,000       50,000           --
   Repayment of line of credit                                                --      (50,000)          --
   Repayment of capitalized lease obligations                            (32,421)        (290)          --
                                                                       ---------    ---------    ---------

            Net cash provided by financing activities                    349,436        5,416       26,997
                                                                       ---------    ---------    ---------

Net increase (decrease) in cash                                          102,219     (514,664)      56,645

Cash - beginning of year                                                  70,617      585,281      528,636
                                                                       ---------    ---------    ---------

Cash - end of year                                                     $ 172,836    $  70,617    $ 585,281
                                                                       =========    =========    =========

Supplemental information:
 Interest paid                                                         $  68,744    $  21,700    $  77,666
                                                                       =========    =========    =========
 Assets acquired through capitalized leases                            $ 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.

      Liquidity:

      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 customers,  research and development results, and
      reliance on individual  contracts.  The Company has a major  contract with
      the  U.S.  Navy to sell in  excess  of 960  units  of the  AN/APM  480 for
      approximately  $12,500,000.  During the year ended March 31, 2000, certain
      design changes from the U.S. Navy and the Company delayed shipments of the
      units to the U.S.  Navy. The Company began shipping units to the U.S. Navy
      in June 2000 and  expects to  deliver  the  remaining  units over the next
      three to four  fiscal  years.  However,  government  contracts  are always
      subject to termination.

      As of March 31,  2000,  the  Company  had a  working  capital  balance  of
      $921,130,  which  exceeded the working  capital  balance at March 31, 1999
      which was $508,000.  The Company's  $250,000 line of credit was originally
      scheduled  to expire in July,  2000.  However,  the Company has received a
      60-day  extension  to the  agreement  and is  discussing  with the bank an
      increase in the amount of the line, and an extension of the maturity date.
      If the Company's line of credit is not ultimately renewed, the Company may
      be  required  to seek  alternative  sources of  financing.  The  Company's
      operating  plan  includes  among other things,  (i)  attempting to improve
      operating  cash flows  through  increased  sales  related  to third  party
      distributors and the anticipated execution of a large government contract,
      (ii) managing its research and development  costs to its anticipated level
      of revenues;  and (iii) other cost reduction  measures.  If the Company is
      unable to achieve its  operating  plan or is unable to obtain a renewal of
      its line of credit, or alternative  sources of financing,  it could have a
      material adverse effect on the Company's business, financial condition, or
      operations.  The  accompanying  financial  statements  do not  include any
      adjustments that could result there from.


                                                                              21
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements

2. Summary of Significant Accounting Policies

      Revenue Recognition:

      Revenues  are  recognized  at the time of shipment  and  provisions,  when
      appropriate,  are made  where the right to return  exists.  Revenue  under
      service  contracts is accounted  for as the  services are  performed.  The
      percentage-of-completion method is used on long-term contracts.

      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.

      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, 2000, the
      Company  believes it has no concentration of credit risk with 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.


                                                                              22
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued0

      Office and Manufacturing Equipment (continued):

      When  assets  are  retired or  otherwise  disposed,  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 of 35,419 for
      fiscal year 2000 and 26,428 for fiscal year 1998 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.

      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  year 1996 as if the  fair-value-based
      method as defined in SFAS No. 123 has been applied.


                                                                              23
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

      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 year 1999
      and this adoption had no effect on the Company's financial statements.

      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.


                                                                              24
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

      Reclassification

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

3. Accounts Receivable

      The following tabulation sets forth the components of accounts receivable:

                                                       March 31,
                                               ----------------------
                                                   2000        1999
                                               ----------    --------

       Government                              $  765,814    $474,564
       Commercial                                 345,209     179,742
       Less: Allowance for doubtful accounts      (11,598)    (15,585)
                                               ----------    --------

                                               $1,099,425    $638,721
                                               ==========    ========

4. Inventories

      Inventories consist of:

                                                       March 31,
                                               ----------------------
                                                   2000        1999
                                               ----------    --------

       Purchased parts                         $  921,185    $402,804
       Work-in-process                            609,824     340,516
       Less: Reserve for obsolescence             (44,124)    (29,620)
                                               ----------    --------

                                               $1,486,885    $713,700
                                               ==========    ========

      Work-in-process  inventory  includes  $397,507 and $199,620 for government
      contracts at March 31, 2000 and March 31, 1999, respectively.

5. Office and Manufacturing Equipment

                                                       March 31,
                                               ----------------------
                                                  2000         1999
                                               ---------    ---------

       Leasehold Improvements                  $  54,640    $  54,640
       Machinery and equipment                   644,899      578,762
       Sales equipment                           150,438      100,357
       Assets under capitalized leases           190,769       26,443
       Less: Accumulated depreciation and       (689,874)    (629,301)
                                               ---------    ---------
               Amortization
                                               $ 350,872    $ 130,901
                                               =========    =========


                                                                              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,
                                                -------------------
                                                  2000       1999
                                                --------   --------

       Accrued profit sharing                   $149,790   $102,970
       Accrued vacation pay                       92,585     90,687
       Accrued salary and payroll taxes           32,392     21,972
       Deferred salary and wages and interest     75,519      2,660
                                                --------   --------

                                                $350,286   $218,289
                                                ========   ========

      Other  accrued  expenses  of $231,406  and  $167,992 at March 31, 2000 and
      1999,  respectively,  consist primarily of interest,  professional service
      costs for  legal,  accounting,  and  consulting  services,  and of product
      related costs, such as warranty.

7. Line of Credit

      The Company has a line of credit of $250,000,  maturing in July 2000.  The
      Company has  received a 60 day  extension  to the  agreement.  Interest is
      payable  monthly at an interest  rate of 1% above the lender's  prevailing
      base  rate  (10% as of March  31,  2000).  The line is  collateralized  by
      substantially  all of the assets of the Company.  At March 31,  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 balance  sheets.  The
      related  obligations are also recorded in the balance sheets and are based
      upon the present value of the future  minimum lease payments with interest
      rates  of 11% to 18%.  The net  book  value of  equipment  acquired  under
      capitalized  lease obligations was $166,690 and $24,974  respectively,  at
      March 31, 2000 and 1999.

      Commitments  under these leases for the five years subsequent to March 31,
      2000 are as follows:

                                                     2001        $     71,641
                                                     2002              68,920
                                                     2003              39,124
                                                     2004              34,033
                                                     2005              17,434
                                                                 -------------

      Total minimum lease payments                                    231,152
      Less amounts representing interest                               73,094
                                                                 -------------
      Present value of net minimum lease payments                     158,058
      Less current portion                                             56,376
                                                                 -------------
      Long-term capital lease obligation                         $    101,682
                                                                 =============


                                                                              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,
                                              2000        1999         1998
                                           ---------    ---------    ---------
      Current:
                  Federal                  $      --    $      --    $      --

                  State and Local                 --           --           --
                                           ---------    ---------    ---------

                  Total Current Benefit    $      --    $      --    $      --
                                           =========    =========    =========

       Deferred:
                  Federal                  $(220,595)   $ (99,585)   $  (8,842)

                  State and Local            (21,000)       2,000      (49,877)
                                           ---------    ---------    ---------

                  Total Deferred Benefit   $(241,595)   $ (97,585)   $ (58,719)
                                           =========    =========    =========

      The components of the Company's  deferred taxes at March 31, 2000 and 1999
      are as follows:

                                                       March 31,    March 31,
                                                         2000          1999
                                                      ----------   -----------

       Net operating loss carryforwards and credits   $1,090,000   $1,275,000
       Asset reserves                                     22,000       18,000
       Deferred wages and accrued interest               190,000      142,000
       Provision for estimated expenses                  161,000      107,000
                                                      ----------   ----------

       Deferred tax asset                              1,463,000    1,542,000

       Less, valuation allowance                         724,901    1,045,496
                                                      ----------   ----------

       Deferred tax asset                             $  738,099   $  496,504
                                                      ==========   ==========

      As of March 31,  2000,  the Company has  Federal  tax net  operating  loss
      carryforwards of approximately $2,741,000,  which begin to expire in 2002.
      The  recognized  deferred  tax asset is based  upon the  expected  partial
      utilization of its net operating loss carryforwards


                                                                              28
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

9. Income Taxes (Continued)

      and of the deferred  tax assets as the Company  believes it is more likely
      than not that it will realize a portion of its net operating losses before
      they expire.  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  effect the  Company's  ability to realize the
      deferred tax asset on the balance sheet or its loss carryforwards.

      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:

<TABLE>
<CAPTION>
                                                                          2000         1999         1998
                                                                          ----         ----         ----
<S>                                                                    <C>          <C>          <C>
       Income tax expense - statutory rate                             $ 122,403    $ (83,050)   $ 176,500
       Income tax expenses - state and local, net of federal benefit     (13,860)       1,320      (32,919)
                                                                                                     1,320
       Change in valuation allowance                                    (320,595)    (183,731)
                                                                                                   116,415
       Federal income tax credit                                         (30,000)    (128,000)          --
                                                                                                  (128,000)
       Other                                                                 457       (4,270)     (18,569)
                                                                       ---------    ---------    ---------

       Income tax benefit recognized in the financial statements       $(241,595)   $ (97,585)   $ (58,719)
                                                                       =========    =========    =========
</TABLE>

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 2000 the maturity date of the Notes due March 31, 1999
      and March 31, 2000 were  extended to September  30,  2000.  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,  $77,074 and  $27,862 at March 31, 2000 and 1999,  respectively,
      which is due to officers of the Company.

      Accrued  expenses-related  parties includes interest and professional fees
      of   approximately   $65,000   and   $43,000   due   to   a   non-employee
      officer/stockholder   of  the   Company  at  March  31,   2000  and  1999,
      respectively.  Accrued  expenses - related parties  includes  professional
      fees of approximately $8,000 and $7,000 to a  director/stockholder  of the
      Company at March 31,  2000 and 1999  respectively.  In  addition,  accrued
      expense - related  parties  includes  $60,000 and $35,000  respectively at
      March  31,  2000 and 1999  for  interest  and  other  expenses  due to the
      Company's Chairman/President.  Tel has obtained professional services from
      the  officer/stockholder  with the  related  fees  amounting  to  $42,464,
      $46,164 and $35,600  for the years  ended March 31,  2000,  1999 and 1998,
      respectively.  Additionally,  Tel obtained  professional services from the
      director/stockholder  in the  amounts of $84,000  and  $76,500  for fiscal
      years 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 March 31, 2000. In April 2000, the maturity date of the note
      was  extended  to  September   30,  2000.   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  expiring in August,  2008.  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,
      2000.

                    2001                            $    82,136
                    2002                                 79,592
                    2003                                 72,985
                    2004                                 73,514
                    2005 and thereafter                 351,681


                                                                              30
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

11. Leases (Continued)

      Total  rent  expense,  including  real  estate  taxes,  was  approximately
      $101,000,  $83,000,  and $80,000 for the years ended March 31, 2000,  1998
      and 1997, respectively.

12. Significant Customer Concentrations

      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 year 1999 or 1998. 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 year 2000 or 1998. Another customer  represented over 10% of
      sales (all included in the  government  segment) for the fiscal year ended
      March 31,  1998.  This  customer did not  represent  over 10% of sales for
      fiscal years 2000 or 1999. As of March 31, 2000,  the  individual  account
      balances represent 12% and 11% of the Company's accounts receivable. As of
      March  31,  2000,   receivables  from  the  U.S.  government   represented
      approximately 33% of total accounts  receivable.  As of March 31, 1999 two
      individual  account  balances  represent  32%  and  11% of  the  Company's
      accounts receivable.

13. Stock Option Plan

      The Company  has a stock  option plan that  provides  for the  granting of
      options to employees and directors.  Activity during 2000,  1999, and 1998
      is summarized below (in number of options):

                                           2000       1999      1998
                                         -------    -------    -------

       Held at beginning of year          45,344     32,166     93,219
       Granted                            61,800     29,500         --
       Exercised                          (3,333)   (15,222)   (61,053)
       Canceled or expired               (18,500)    (1,100)        --
                                         -------    -------    -------

       Held at end of year                85,311     45,344     32,166
                                         =======    =======    =======


                                                                              31
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

13. Stock Option Plan (Continued)

      As of March 31, 2000, the Company had the following options outstanding:

                                              Weighted
                                              Average
           Number of                          Remaining            Options
            Options          Exercise       Contract life        Exercisable
          Outstanding         Price            (years)        At March 31, 2000
         --------------    ------------    ---------------    -----------------
                  5,000           2.375               3.2                2,000
                 11,400            1.84               4.7                    0
                  4,000            1.66               4.2                  800
                 46,400          1.5265               4.7                    0
                  2,000           1.375               3.0                  800
                  2,400            1.25               2.0                1,440
                  3,600             .72               1.2                3,600
                  1,600             .66               1.0                1,600
                  8,911            .375                .8                8,911

         --------------                                       ----------------
                 85,311                                                 19,151

      For the years ended March 31,  2000,  1999 and 1998  19,151,  15,844,  and
      16,323 of options are outstanding, vested, and exercisable.

      The per share weighted-average fair value of stock options granted for the
      years  2000 and 1999 were  $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.  No stock  options  were  granted  in  1998.  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 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:

                                                           2000        1999
                                                         --------   ----------

       Net income (loss)- as reported                    $600,553   $(146,681)
       Net income (loss)- pro forma                       583,899    (160,135)

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

       Diluted earnings (loss) per share - as reported   $   0.28       (0.07)
       Diluted earnings (loss) per share - pro forma         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.

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  intersegment
      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:

<TABLE>
<CAPTION>
      --------------------------------------- ----------------- ---------------- ----------------- ----------------
                                                                                 Reconciling
      2000                                    Government        Commercial       Items             Total
      --------------------------------------- ----------------- ---------------- ----------------- ----------------

      --------------------------------------- ----------------- ---------------- ----------------- ----------------
<S>                                                 <C>              <C>               <C>              <C>
      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                                                        1,051,833        1,051,833
       Development
      --------------------------------------- ----------------- ---------------- ----------------- ----------------
      Selling, general, and administrative                                              1,165,844        1,165,844
      --------------------------------------- ----------------- ---------------- ----------------- ----------------

      --------------------------------------- ----------------- ---------------- ----------------- ----------------
      Interest, net                                                                      (64,378)         (64,378)
      --------------------------------------- ----------------- ---------------- ----------------- ----------------

      --------------------------------------- ----------------- ---------------- ----------------- ----------------
      (Loss) before income taxes                                                                          $358,958
      --------------------------------------- ----------------- ---------------- ----------------- ----------------

      --------------------------------------- ----------------- ---------------- ----------------- ----------------
      Segment Assets                                $1,163,321         $545,928        $2,223,516       $3,932,765
      --------------------------------------- ----------------- ---------------- ----------------- ----------------

      --------------------------------------- ----------------- ---------------- ----------------- ----------------
</TABLE>

<TABLE>
<CAPTION>
      --------------------------------------- ----------------- ---------------- ----------------- ----------------
      1999                                    Government        Commercial       Reconciling       Total
                                                                                 Items
      --------------------------------------- ----------------- ---------------- ----------------- ----------------

      --------------------------------------- ----------------- ---------------- ----------------- ----------------
<S>                                                 <C>              <C>               <C>              <C>
      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                                                        1,204,007        1,204,077
       Development
      --------------------------------------- ----------------- ---------------- ----------------- ----------------
      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
      --------------------------------------- ----------------- ---------------- ----------------- ----------------
</TABLE>


                                                                              34
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Notes To Financial Statements (Continued)

14. Segment Information (Continued)

<TABLE>
<CAPTION>
     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     1998                                    Government        Commercial       Reconciling       Total
                                                                                Items
     --------------------------------------- ----------------- ---------------- ----------------- ----------------

     --------------------------------------- ----------------- ---------------- ----------------- ----------------
<S>                                                <C>              <C>               <C>              <C>
     Revenues                                      $2,469,670       $1,489,563        $       --       $3,959,242
     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     Cost of Sales                                    893,249          666,293                --        1,559,542
     --------------------------------------- ----------------- ---------------- ----------------- ----------------

     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     Gross Margin                                  $1,576,421         $823,279                         $2,399,700
     --------------------------------------- ----------------- ---------------- ----------------- ----------------

     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     Engineering, research, and                                                          902,250          902,250
      Development
     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     Selling, general, and administrative                                                909,505          909,505
     --------------------------------------- ----------------- ---------------- ----------------- ----------------

     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     Interest, net                                                                      (68,847)         (68,847)
     --------------------------------------- ----------------- ---------------- ----------------- ----------------

     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     Income before income taxes                                                                          $519,098
     --------------------------------------- ----------------- ---------------- ----------------- ----------------

     --------------------------------------- ----------------- ---------------- ----------------- ----------------
     Segment Assets                                  $143,987         $395,552        $1,401,602       $1,941,141
     --------------------------------------- ----------------- ---------------- ----------------- ----------------
</TABLE>

      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. Interest, net
      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  $1,495,000,  $833,000 and $1,150,000 for
      the years ended March 31, 2000,  1999, and 1998,  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 10%,
      13% and 15% of commercial  sales for the years ended March 31, 2000, 1999,
      and 1998,  respectively.  No end user customer accounted for more than 10%
      of commercial  sales for these years.  Foreign  commercial sales were 20%,
      19% and 21% of total  commercial sales for the years ended March 31, 2000,
      1999  and  1998,  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. Government sales to the U.S. Air Force were 34% of total
      government sales for the year ended March 31, 1998.

      Sales to the U.S. Government were approximately  $968,000,  $669,000,  and
      $1,213,000   for  the  years  ended  March  31,  2000,   1999,  and  1998,
      respectively.


                                                                              35
<PAGE>

TEL-INSTRUMENT ELECTRONICS CORP.

Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                         Balance at    Charged to    Charged
                                         Beginning     Costs and     to Other                   Balance at
Description                              of Period     Expenses      Accounts    Deductions     End of Year
<S>                                      <C>           <C>           <C>         <C>            <C>
Year ended March 31, 1998:
    Allowance for doubtful
       accounts                           $65,521       $(6,700)                 $ 42,757(2)     $ 16,064
                                          =======       =======                  ========        ========

    Allowance for obsolete
    inventory                             $68,419                                $ 32,799(1)     $ 35,620
                                          =======                                ========        ========

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
                                          =======       =======                  ========        ========
</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, 2000.

                                    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
        (75)                     President and Chief
                                 Executive Officer
                                 since 1982.

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

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

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

      Robert H. Walker           Director; Retired Executive Vice                1984
        (64)                     President, Robotic Vision
                                 Systems, Inc. (design and
                                 manufacture of robotic
                                 vision systems),
                                 1983-1997.
</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              2000   $130,000                     --
      Chairman of Board               1999    100,000                     --
      President and Chief             1998    100,000                $20,000(1)

      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.

<TABLE>
<CAPTION>
                                             Number of Shares            Percentage
      Name and Address                       Beneficially Owned         of Class (1)
      ----------------                       ------------------         ------------
<S>                                               <C>                       <C>
      Harold K. Fletcher, Director                496,102(2)                23.5%
      728 Garden Street
      Carlstadt, New Jersey  07072

      George J. Leon, Director                    309,787(3)                14.6%
      116 Glenview
      Toronto, Ontario
      Canada M4R1P8

      Robert J. Melnick, Director                  22,000(4)                 1.0%
      57 Huntington Road
      Basking Ridge, New Jersey  07920

      Jeff C. O'Hara, Director                    105,500                    5.0%
      Alarm Security Group
      4343 Commerce Court, Suite 600
      Lisle, Illionois  60532

      Robert H. Walker, Director                   24,516(5)                 1.2%
      425 Robro Drive East
      Hauppague, New York  11788

      Donald S. Bab, Secretary                     65,634(6)                 3.1%
      330 Madison Avenue
      New York, New York 10017

      All Officers and Directors                1,070,239(7)                50.3%
      as a Group (8 persons)
</TABLE>

      (1)   The class includes  2,113,290 shares  outstanding.  The common stock
            deemed to be owned which is not outstanding but subject to currently
            exercisable  options 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  9,520  shares  subject  to
            currently  exercisable stock option.  Mr. Leon disclaims  beneficial
            ownership of the shares owned by the trust.

      (4)   Includes 2,000 shares subject to currently exercisable stock options

      (5)   Includes  5,983  shares  subject  to  currently   exercisable  stock
            options.

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

      (7)   Includes 17,453 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 29 and 30 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, 2000 and 1999                 17

              Statements of Operations - Years Ended
              March 31, 2000, 1999 and 1998                            18

              Statements of Changes in Stockholders'
              Equity/(Deficiency) - Years Ended March 31, 2000,
              1999 and 1998                                            19

              Statements of Cash Flows - Years Ended
              March 31, 2000, 1999 and 1998                            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

      b.) No reports on Form 8-K were filed during the fourth quarter of 2000.

      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

           (10.4) Lease dated  December 7, 1998, by and between  Registrant  and
                  210 Garibaldi Avenue Corp.

          **(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:  July 12, 2000                         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              July 12, 2000
      ---------------------------                                     --------------
      /s/  Harold K. Fletcher

      /s/  Joseph P. Macaluso         Principal Accounting Officer    July 12, 2000
      ---------------------------                                     --------------
      /s/  Joseph P. Macaluso

      /s/  George J. Leon                       Director              July 12, 2000
      ---------------------------                                     --------------
      /s/  George J. Leon

      /s/ Robert Melnick                        Director              July 12, 2000
      ---------------------------                                     --------------
      /s/ Robert Melnick

      /s/ Jeff O'Hara                           Director              July 12, 2000
      ---------------------------                                     --------------
      /s/ Jeff O'Hara

      /s/  Robert H. Walker                     Director              July 12, 2000
      ---------------------------                                     -------------
      /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,  2000,  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