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 September 30, 2017 and 2016:

Three Months Ended September 30, 2017	Avionics Government		Avionics Commercial		Avionics Total			Corporate Items			Total
Net sales	$	1,028,693	$	758,472	$	1,787,165		$	-		$	1,787,165
Cost of sales		660,589		726,706		1,387,295			-			1,387,295
Gross margin		368,104		31,766		399,870			-			399,870

Engineering, research, and development						529,667			-			529,667
Selling, general and administrative						277,518			348,877			626,395
Litigation costs									43,333			43,333
Legal damages									2,100,000			2,100,000
Amortization of deferred financing costs						-			1,357			1,357
Change in fair value of common stock warrants						-			5,000			5,000
Proceeds from life insurance									-			-
Interest expense, net						-			14,707			14,707
Total expenses						807,185			2,513,274			3,320,459
Income (loss) before income taxes					$	(407,315	)	$	(2,513,274	)	$	(2,920,589	)

Three Months Ended September 30, 2016	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	4,338,764	$	737,265	$	5,076,029	$	-		$	5,076,029
Cost of sales		2,665,561		584,880		3,250,441		-			3,250,441
Gross margin		1,673,203		152,385		1,825,588		-			1,825,588

Engineering, research, and development						583,771		-			583,771
Selling, general and administrative						346,108		340,905			687,013
Litigation costs								188,125			188,125
Amortization of deferred financing costs						-		1,357			1,357
Change in fair value of common stock warrants						-		(34,000	)		(34,000	)
Interest expense, net						-		17,507			17,507
Total expenses						929,879		513,894			1,443,773
Income (loss) before income taxes					$	895,709	$	(513,894	)	$	381,815

Six Months Ended September 30, 2017	Avionics Government		Avionics Commercial		Avionics Total			Corporate Items			Total
Net sales	$	4,001,019	$	1,328,223	$	5,329,242		$	-		$	5,329,242
Cost of sales		2,475,742		1,212,340		3,688,082			-			3,688,082
Gross margin		1,525,277		115,883		1,641,160			-			1,641,160

Engineering, research, and development						1,144,940			-			1,144,940
Selling, general and administrative						636,185			696,496			1,332,681
Litigation costs									425,845			425,845
Legal damages									2,100,000			2,100,000
Amortization of deferred financing costs						-			2,714			2,714
Change in fair value of common stock warrants						-			(90,000	)		(90,000	)
Proceeds from life insurance									(92,678	)		(92,678	)
Interest expense, net						-			24,338			24,338
Total expenses						1,781,125			3,066,715			4,847,840
Income (loss) before income taxes					$	(139,965	)	$	(3,066,715	)	$	(3,206,680	)

Six Months Ended September 30, 2016	Avionics Government		Avionics Commercial		Avionics Total		Corporate Items			Total
Net sales	$	9,210,384	$	1,208,014	$	10,418,398	$	-		$	10,418,398
Cost of sales		5,770,479		945,678		6,716,157		-			6,716,157
Gross margin		3,439,905		262,336		3,702,241		-			3,702,241

Engineering, research, and development						1,168,648		-			1,168,648
Selling, general and administrative						689,990		770,052			1,460,042
Litigation expenses								326,840			326,840
Amortization of deferred financing costs						-		2,713			2,713
Change in fair value of common stock warrants						-		(251,203	)		(251,203	)
Interest expense, net						-		35,333			35,333
Total expenses						1,858,638		883,735			2,742,373
Income (loss) before income taxes					$	1,843,603	$	(883,735	)	$	959,868