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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2020
Accounting Policies [Abstract] |
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, in each period, substantially all of the inventory value has been estimated using a gross profit percentage based on annual gross profit percentages of the immediately preceding year as applied to the net sales of the current period. During the three months ended September 30, 2020, the Company determined that its gross profits by segment were below its 2019 gross profit percentages and accordingly has adjusted margins to less than those of 2019. Adjustments to reconcile the annual physical inventory to the Company's books are recorded in the fourth quarter. Credit and Concentration Risks There were three customers that represented 70.6% and two customers that represented 61.7% of total net sales for the three months ended September 30, 2020 and 2019, respectively. This is set forth in the table below.
Customer |  | Percentage of Sales |
|  | September 30, 2020 |  |  | September 30, 2019 |
|  | (Unaudited) |  |  | (Unaudited) |
1 |  |  | 25.8 |  |  |  | 35.0 |
2 |  |  | 23.2 |  |  |  | 26.7 |
3 |  |  | 21.6 |  |  |  | * |
| * | Customer was less than 10% of sales for the three months ended September 30, 2019.
There were three customers that represented 74.2% and 73.4% of total sales for the nine months ended September 30, 2020 and 2019, respectively. This is set forth in the table below.
Customer |  | Percentage of Sales |
|  | September 30, 2020 |  |  | September 30, 2019 |
|  | (Unaudited) |  |  | (Unaudited) |
1 |  |  | 32.1 |  |  |  | 31.1 |
2 |  |  | 28.2 |  |  |  | 31.0 |
3 |  |  | 13.9 |  |  |  | * |
4 |  |  | * |  |  |  | 11.3 |
| * | Customer was less than 10% of sales for the nine months ended September 30, 2020 and 2019.
There were two customers that represented 63.6% and three customers that represented 67.8% of gross accounts receivable at September 30, 2020 and December 31, 2019, respectively. This is set forth in the table below.
Customer |  | Percentage of Receivables |
|  | September 30, 2020 |  |  | December 31, 2019 |
|  | (Unaudited) |  |  |  |
1 |  |  | 34.6 |  |  |  | 32.7 |
2 |  |  | 29.0 |  |  |  | 10.0 |
3 |  |  | * |  |  |  | 25.1 |
| * | Customer was less than 10% of accounts receivable sales at September 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 insurance 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 or unwilling 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 the calculation of net (loss) income applicable to common stockholders utilized to calculate the EPS:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | Sept 30, 2020 |  |  | Sept 30, 2019 |  |  | Sept 30, 2020 |  |  | Sept 30, 2019 |
Continuing Operations |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Income (loss) from continuing operations |  | $ | (477,000 | ) |  | $ | 398,000 |  |  | $ | (1,003,000 | ) |  | $ | (1,332,000 | )
Add: Convertible Note Interest for Potential Note Conversion |  |  | - |  |  |  | 120,000 |  |  |  | - |  |  |  | - |
Income (loss) used to calculate earnings per share |  | $ | (477,000 | ) |  | $ | 518,000 |  |  | $ | (1,003,000 | ) |  | $ | (1,332,000 | )
The following is a reconciliation of the denominators of basic and diluted earnings per share computations:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2020 |  |  | September 30, 2019 |  |  | September 30, 2020 |  |  | September 30, 2019 |
Continuing Operations |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Weighted average shares outstanding used to compute basic earnings per share |  |  | 30,620,990 |  |  |  | 28,909,072 |  |  |  | 30,524,874 |  |  |  | 28,774,041 |
Effect of dilutive stock options and warrants |  |  | - |  |  |  | 131,458 |  |  |  | - |  |  |  | - |
Effect of dilutive convertible notes payable |  |  | - |  |  |  | 6,005,485 |  |  |  | - |  |  |  | - |
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share |  |  | 30,620,990 |  |  |  | 35,046,015 |  |  |  | 30,524,874 |  |  |  | 28,774,041 |
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 Nine Months Ended |
|  | September 30, 2020 |  |  | September 30, 2019 |
|  | (Unaudited) |  |  | (Unaudited) |
Stock Options |  |  | 163,000 |  |  |  | 852,000 |
Warrants |  |  | 1,423,000 |  |  |  | 2,183,000 |
|  |  | 1,586,000 |  |  |  | 3,035,000 |
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 during the periods set forth below because the effect of including these potential shares was anti-dilutive due to the net loss incurred during these periods:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2020 |  |  | September 30, 2019 |  |  | September 30, 2020 |  |  | September 30, 2019 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Stock Options |  |  | 1,696,000 |  |  |  | - |  |  |  | 1,696,000 |  |  |  | 500,000 |
Warrants |  |  | 760,000 |  |  |  | - |  |  |  | 760,000 |  |  |  | - |
Convertible notes payable |  |  | 5,092,000 |  |  |  | - |  |  |  | 5,092,000 |  |  |  | 6,005,000 |
|  |  | 7,548,000 |  |  |  | - |  |  |  | 7,548,000 |  |  |  | 6,505,000 |
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 $52,000 and $25,000 for the three months ended September 30, 2020 and 2019, respectively, and $266,000 and $351,000 for the nine months ended September 30, 2020 and 2019, respectively. Stock compensation expense for directors amounted to $58,000 and $56,000 for the three months ended September 30, 2020 and 2019, respectively and $159,000 and $187,000 for the nine months ended September 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 September 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 September 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. Recently Issued Accounting Pronouncements In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06"), which is intended to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis of feedback from financial statement users. ASU 2020-06 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the effect of adopting this new accounting guidance on its financial statements. 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.

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