AEROSONIC CORP /DE/

In August 2011, the Budget Control Act (The Act) reduced the United States defense top line budget by approximately $490 billion through 2021. The Act further reduced the defense top line budget by an additional $500 billion through 2021 if Congress did not enact $1.2 trillion in further budget reductions by January 15, 2012. Should Congress in future years provide funding above the yearly spending limits of The Act, sequestration will automatically take effect and cancel any excess amount above the limits. The annual spending limits of The Act will remain in place until current law is changed. On March 1, 2013, sequestration was implemented for the U.S. government fiscal year 2013 (FY2013), canceling $42.7 billion of planned U.S. defense budgetary spending. The Office of Management and Budget (OMB) subsequently issued a report to Congress listing illustrative cuts which equal a 7.8% reduction in FY2013 non-exempt defense discretionary funding and a 5.0% reduction in non-exempt nondefense discretionary funding. However, as noted in the OMB report, the effective reduction in funds would be approximately 13% for non-exempt defense programs and 9% for non-exempt nondefense programs if implemented over the seven-month period from March 1, 2013 to September 30, 2013.

While the OMB report and other communications with the United States Department of Defense ( U.S. DoD ) indicate that there would likely be reductions to the Company’s defense business, the U.S. DoD is in the process of identifying specific program and contract reductions required by the FY2013 sequestration order. As such, at this time the Company cannot determine how sequestration will impact the Company's specific programs and contracts. Any reductions, cancellations or delays impacting existing contracts or programs could have a material effect on the Company’s results of operations, financial position and/or cash flows.

Tender Offer by TransDigm and Merger

On June 5, 2013, Aerosonic and TransDigm announced the completion of the Offer. The Offer expired on the Expiration Date. According to American Stock Transfer & Trust Company, LLC, the depositary for the Offer, as of the Expiration Date, 3,553,830 Shares were validly tendered into and not properly withdrawn from the Offer, which represented approximately 88.4% of the outstanding Shares as of the Expiration Date (including 17,711 Shares tendered pursuant to guaranteed delivery procedures). On June 10, 2013, pursuant to the Merger Agreement, Purchaser exercised its “top-up” option to purchase directly from Aerosonic an additional number of Shares sufficient to enable Purchaser to effect a short-form merger under Delaware law. Accordingly, Aerosonic issued 900,000 Shares (the “Top-Up Shares”) to Purchaser, at a price of $7.75 per Share. Purchaser paid for the Top-Up Shares by delivery of cash equal to $360,000 (representing the aggregate par value of the Top-Up Shares) and a promissory note for the balance of the consideration due in exchange for the Top-Up Shares. The Top-Up Shares were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act, as a transaction by an issuer not involving a public offering. On June 10, 2013, Purchaser merged with and into Aerosonic, with Aerosonic surviving the Merger and continuing as a wholly-owned indirect subsidiary of TransDigm.

Upon the effectiveness of the Merger, each outstanding Share, other than (i) Shares owned, directly or indirectly, by Parent or Purchaser or held by Aerosonic, all of which were cancelled and cease to exist, and (ii) Shares held by Aerosonic’s stockholders who properly exercise their appraisal rights under Section 262 of the Delaware General Corporation Law, was converted into the right to receive an amount of cash equal to the Offer Price, without interest (less any applicable withholding tax).

On June 11, 2013, the NYSE MKT filed with the SEC a Form 25, Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to delist and deregister the Shares.  Upon effectiveness of such Form 25, Aerosonic intends to file with the SEC a Certification on Form 15 under the Exchange Act to suspend Aerosonic’s remaining reporting obligations under the Exchange Act.

Our working capital at May 3, 2013 was $7,560,000 compared to $9,084,000 at January 31, 2013. This decrease in working capital of $1,524,000 as of May 3, 2013 relates, in part, to (a) a reduction in accounts receivable of $1,856,000, (b) a reclassification of $311,000 of long-term debt from non-current liabilities to current liabilities as the Equipment Credit Line Note matures on May 1, 2014, (c) an increase in accounts payable of $285,000 due to pending merger costs and (d) an increase in accrued expenses of $229,000 also due primarily to pending merger costs. These decreases to working capital are offset, in part, by (a) an increase in prepaid expenses, due primarily to the financing of insurance premiums, (b) a decrease to accrued compensation and benefits of $283,000, due primarily to the payout of bonus’ and (c) an increase to deferred income taxes of $243,000 due to the fiscal year 2014 first quarter operating loss.