Note 11 – 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.

The table below presents information about reportable segments within the avionics business for the three month periods ending June 30, 2018 and 2017:

Three Months Ended June 30, 2018	Avionics Government		Avionics Commercial		Avionics Total			Corporate Items			Total
Net sales	$	1,092,582	$	721,632	$	1,814,214		$	-		$	1,814,214
Cost of sales		761,254		571,647		1,332,901			-			1,332,901
Gross margin		331,328		149,985		481,313			-			481,313

Engineering, research, and development						517,323			-			517,323
Selling, general and administrative						217,128			349,397			566,525
Litigation costs									39,271			39,271
Interest income									(998	)		(998	)
Interest expense - judgment									71,220			71,220
Interest expense						-			34,045			34,045
Total expenses						734,451			492,935			1,227,386
Loss before income taxes					$	(253,138	)	$	(492,935	)	$	(746,073	)

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	)