Note 10 – Segment Information

In accordance with FASB ASC 280, “Disclosures about Segments of an Enterprise and related information”, the Company determined it has two reportable segments - avionics government and avionics commercial. There are no inter-segment revenues.

The Company is organized primarily on the basis of its avionics products. The avionics government segment consists primarily of the design, manufacture, and sale of test equipment to the U.S. and foreign governments and militaries either directly or through distributors. The avionics commercial segment consists of design, manufacture, and sale of test equipment to domestic and foreign airlines, directly or through commercial distributors, and to general aviation repair and maintenance shops. The Company develops and designs test equipment for the avionics industry and as such, the Company’s products and designs cross segments.

Management evaluates the performance of its segments and allocates resources to them based on gross margin. The Company’s general and administrative costs and sales and marketing expenses, and engineering costs are not segment specific. As a result, all operating expenses are not managed on a segment basis. Net interest includes expenses on debt and income earned on cash balances, both maintained at the corporate level. 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.

The table below presents information about reportable segments within the avionics business for the three month periods ending June 30, 2017 and 2016:

Three Months Ended June 30, 2017	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	2,972,326	$	569,751	$	3,542,077	$	-		$	3,542,077
Cost of sales		1,815,153		485,634		2,300,787		-			2,300,787
Gross margin		1,157,173		84,117		1,241,290		-			1,241,290

Engineering, research, and development						615,273		-			615,273
Selling, general and administrative						358,667		347,619			706,286
Litigation costs								382,512			382,512
Amortization of deferred financing costs						-		1,357			1,357
Change in fair value of common stock warrants						-		(95,000	)		(95,000	)
Proceeds from life insurance								(92,678	)		(92,678	)
Interest expense, net						-		9,631			9,631
Total expenses						973,940		553,441			1,527,381
Income (loss) before income taxes					$	267,350	$	(553,441	)	$	(286,091	)

Three Months Ended June 30, 2016	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	4,871,620	$	470,749	$	5,342,369	$	-		$	5,342,369
Cost of sales		3,104,918		360,798		3,465,716		-			3,465,716
Gross margin		1,766,702		109,951		1,876,653		-			1,876,653

Engineering, research, and development						584,877		-			584,877
Selling, general and administrative						343,882		424,348			768,230
Litigation costs								143,514			143,514
Amortization of deferred financing costs						-		1,356			1,356
Change in fair value of common stock warrants						-		(217,203	)		(217,203	)
Interest expense, net						-		17,826			17,826
Total expenses						928,759		369,841			1,298,600
Income (loss) before income taxes					$	947,894	$	(369,841	)	$	578,053