XML 20 R9.htm IDEA: XBRL DOCUMENT

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventory Valuation

For annual periods, the Company values inventory at the lower of cost on a first-in-first-out basis or estimated net realizable value. The Company does not take physical inventories at interim quarterly reporting periods. Historically, substantially all of the inventory value has been estimated using a gross profit percentage based on gross profit percentages of previous periods as applied to the net sales of the current period. During the three months ended June 30, 2020, the Company determined that its gross profits by segment were below its 2019 gross profit percentages and has adjusted margins accordingly. Adjustments to reconcile the annual physical inventory to the Company's books are treated as changes in accounting estimates and are recorded in the fourth quarter.

Credit and Concentration Risks

There were two customers that represented 71.9% and three customers that represented 75.6% of total net sales for the three months ended June 30, 2020 and 2019, respectively. This is set forth in the table below.

Customer	Percentage of Sales
	June 30, 2020		June 30, 2019
	(Unaudited)		(Unaudited)
1		38.6		30.0
2		33.3		35.1
3		*		10.5

Customer was less than 10% of total net sales for the three months ended June 30, 2020.

There were two customers that represented 69.3% and three customers that represented 74.7% of total net sales for the six months ended June 30, 2020 and 2019, respectively. This is set forth in the table below.

Customer	Percentage of Sales
	June 30, 2020		June 30, 2019
	(Unaudited)		(Unaudited)
1		37.1		29.4
2		32.2		33.2
3		*		12.1

Customer was less than 10% of total net sales for the six months ended June 30, 2020.

There was one customer that represented 49.7% of gross accounts receivable at June 30, 2020 and three customers that represented 67.8% of gross accounts receivable at December 31, 2019, respectively. This is set forth in the table below.

Customer	Percentage of Receivables
	June 30, 2020		December 31, 2019
	(Unaudited)
1		49.7		32.7
2		*		25.1
3		*		10.0

Customer was less than 10% of Gross Accounts Receivable at June 30, 2020.

Cash and Cash Equivalents

During the year, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced any losses on these accounts.

Major Suppliers

The Company has several key sole-source suppliers of various parts that are important for one or more of its products. These suppliers are its only source for such parts and, therefore, in the event any of them were to go out of business or be unable to provide parts for any reason, its business could be severely harmed.

Leases

The Company accounts for leases under ASC 842, "Leases." All leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of- use asset is recorded in operating expenses and an implied interest component is recorded in interest expense.

Earnings (Loss) per share

Basic earnings (loss) per share ("EPS") is computed by dividing the net income (loss) applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

For purposes of calculating diluted earnings per common share, the numerator includes net income plus interest on convertible notes payable assumed converted as of the first day of the period. The denominator includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method.

The following is a reconciliation of the denominators of basic and diluted earnings per share for discontinued operations computations:

	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Discontinued Operations	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Weighted average shares outstanding used to compute basic earnings per share		30,552,147		28,770,983		30,476,289		28,686,187
Effect of dilutive stock options and warrants		-		-		-		49,410
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share		30,552,147		28,770,983		30,476,289		28,735,597

The following securities have been excluded from the calculation as the exercise price was greater than the average market price of the common shares:

	Three and Six Months Ended
	June 30, 2020		June 30, 2019
	(Unaudited)		(Unaudited)
Stock Options		216,000		861,000
Warrants		1,423,000		2,183,000
		1,639,000		3,044,000

The following securities have been excluded from the calculation even though the exercise price was less than the average market price of the common shares because the effect of including these potential shares was anti-dilutive due to the net loss incurred during that period:

	Three and Six Months Ended
	June 30, 2020		June 30, 2019
	(Unaudited)		(Unaudited)
Stock Options		1,696,000		515,000
Warrants		760,000		-
Convertible notes payable		5,045,000		5,934,000
		7,501,000		6,449,000

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC 718, "Compensation – Stock Compensation." Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model. Stock based compensation expense for employees amounted to $74,000 and $93,000 for the three months ended June 30, 2020 and 2019, respectively, and $214,000 and $326,000 for the six months ended June 30, 2020 and 2019, respectively. Stock compensation expense for directors amounted to $46,000 and $0 for the three months ended June 30, 2020 and 2019, respectively and $101,000 and $131,000 for the six months ended June 30, 2020 and 2019, respectively. Stock compensation expense for employees and directors was included in operating expenses on the accompanying Condensed Consolidated Statements of Operations.

Goodwill

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $163,000 at both June 30, 2020 and December 31, 2019 relates to the acquisition of NTW.

Goodwill is not amortized, but is tested at least annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount.

The COVID-19 pandemic was a triggering event for testing whether goodwill has been impaired. The Company performed a qualitative assessment and determined it is more likely than not that the fair value exceeds the carrying value of $163,000 as of June 30, 2020. The Company will continue to monitor the impacts of the COVID-19 pandemic in future quarters. Changes in the Company's forecasts or further decreases in the value of its common stock could cause book values to exceed fair values which may result in goodwill impairment charges in future periods.

The Company has determined that there has been no impairment of goodwill at June 30, 2020 and December 31, 2019.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.

The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed consolidated financial statements.