XML 20 R8.htm IDEA: XBRL DOCUMENT
v3.21.2

Summary of Significant Accounting Policies | 6 Months Ended
--- | ---
Jun. 30, 2021
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 2. 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. For interim periods, 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 and six months ended June 30, 2021, the Company increased its estimate of its gross profit percentage for its Complex Machining segment based on increased sales and the better absorption of Manufacturing Overhead, and accordingly has adjusted margins to reflect such change. 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 76.2% and two customers that represented 71.9% of total net sales for the three months ended June 30, 2021 and 2020, respectively. This is set forth in the table below.
|  | Percentage of Sales |
Customer |  | June 30, 2021 |  |  | June 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |
1 |  |  | 41.3 | % |  |  | 33.3 | %
2 |  |  | 20.8 | % |  |  | 38.6 | %
3 |  |  | 14.1 | % |  |  | * |
| * | Customer was less than 10% of total net sales for the three months ended June 30, 2020.
There were three customers that represented 77.0% and two customers that represented 69.3% of total net sales for the six months ended June 30, 2021 and 2020, respectively. This is set forth in the table below.
|  | Percentage of Sales |
Customer |  | June 30, 2021 |  |  | June 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |
1 |  |  | 34.4 | % |  |  | 32.2 | %
2 |  |  | 26.9 | % |  |  | 37.1 | %
3 |  |  | 15.7 | % |  |  | * |
| * | Customer was less than 10% of total net sales for the six months ended June 30, 2020.
There were three customers that represented 85.0% of gross accounts receivable at June 30, 2021 and three customers that represented 80.3% of gross accounts receivable at December 31, 2020, respectively. This is set forth in the table below.
|  | Percentage of Receivables |
Customer |  | June 30, 2021 |  |  | December 31, 2020 |
|  | (Unaudited) |  |  |  |
1 |  |  | 60.4 | % |  |  | 57.1 | %
2 |  |  | 12.6 | % |  |  | * |
3 |  |  | 12.0 | % |  |  | 12.0 | %
4 |  |  | ** |  |  |  | 11.2 | %
| * | Customer was less than 10% of Gross Accounts Receivable at December 31, 2020.
| ** | Customer was less than 10% of Gross Accounts Receivable at June 30, 2021.
Cash and Cash Equivalents During the period, 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. See Note 4. 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 income (loss) applicable to common stockholders utilized to calculate EPS:
|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, 2021 |  |  | June 30, 2020 |  |  | June 30, 2021 |  |  | June 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Net income (Loss) per condensed consolidated statements of operations |  | $ | 239,000 |  |  | $ | (1,584,000 | ) |  | $ | 87,000 |  |  | $ | (526,000 | )
Add: Convertible Note Interest for Potential Note Conversion |  |  | 77,000 |  |  |  | - |  |  |  | 155,000 |  |  |  |  |
Income (loss) used to calculate diluted earnings per share |  | $ | 316,000 |  |  | $ | (1,584,000 | ) |  | $ | 242,000 |  |  | $ | (526,000 | )
The following is a reconciliation of the denominators of basic and diluted earnings per share computations:
|  | Three Months Ended |  |  | Six Months Ended |
|  | June 30, 2021 |  |  | June 30, 2020 |  |  | June 30, 2021 |  |  | June 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Weighted average shares outstanding used to compute basic |  |  |  |  |  |  |  |  |  |  |  |
earnings per share |  |  | 32,021,522 |  |  |  | 30,552,147 |  |  |  | 31,996,859 |  |  |  | 30,476,289 |
Effect of dilutive stock options and warrants |  |  | 1,912,500 |  |  |  | - |  |  |  | 2,750,500 |  |  |  | - |
Effect of dilutive convertible notes payable |  |  | 4,057,892 |  |  |  | - |  |  |  | 4,057,892 |  |  |  | - |
Weighted average shares outstanding and dilutive securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
used to compute dilutive earnings per share |  |  | 37,991,914 |  |  |  | 30,552,147 |  |  |  | 38,805,251 |  |  |  | 30,476,289 |
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 Months Ended |  |  | Six Months Ended |
|  | June 30, 2021 |  |  | June 30, 2020 |  |  | June 30, 2021 |  |  | June 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Stock options |  |  | 456,000 |  |  |  | 216,000 |  |  |  | 98,000 |  |  |  | 216,000 |
Warrants |  |  | 1,903,000 |  |  |  | 1,423,000 |  |  |  | 1,423,000 |  |  |  | 1,423,000 |
|  |  | 2,359,000 |  |  |  | 1,639,000 |  |  |  | 1,521,000 |  |  |  | 1,639,000 |
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, 2021 |  |  | June 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |
Stock options |  |  | - |  |  |  | 1,696,000 |
Warrants |  |  | - |  |  |  | 760,000 |
Convertible notes payable |  |  | - |  |  |  | 5,045,000 |
|  |  | - |  |  |  | 7,501,000 |
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 $57,000 and $74,000 for the three months ended June 30, 2021 and 2020, respectively, and $214,000 for both the six months ended June 30, 2021 and 2020. Stock compensation expense for directors amounted to $52,000 and $46,000 for the three months ended June 30, 2021 and 2020, respectively and $104,000 and $101,000 for the six months ended June 30, 2021 and 2020, 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, 2021 and December 31, 2020 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 Company has determined that there has been no impairment of goodwill at June 30, 2021 and December 31, 2020. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016- 13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies. Early adoption is permitted. The Company will evaluate the impact of ASU 2016-13 on the Company’s consolidated financial statements in a future period closer to the date of adoption. 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 in 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 with those fiscal years. The Company is evaluating the effect of adopting this new accounting guidance on its financial statements. On January 1, 2021, the Company adopted 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. The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements. On January 1, 2021, the Company adopted ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope: which clarified the scope of ASU 2020-04. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of these ASU’s did not have a material impact on the Company’s condensed consolidated financial statements. In March 2021, the FASB issued ASU No. 2021-03, Intangibles—Goodwill and Other (Topic 350): Accounting Alternative for Evaluating Triggering Events, an amendment of the FASB Accounting Standards Codification. The amendments in this ASU allow companies to elect not to monitor for goodwill impairment triggering events during the reporting period and instead, to evaluate the facts and circumstances as of the end of the reporting period to determine whether it is more likely than not that goodwill is impaired. This aligns the triggering event evaluation date with the reporting date, whether that date is an interim or annual reporting date. This ASU is effective on a prospective basis for fiscal years beginning after December 15, 2019, with early adoption permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of March 30, 2021. The Company does not expect this guidance to have a material impact to its consolidated financial statements or related disclosures. In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which will clarify and reduce diversity in practice. Specifically, the new standard includes a recognition model comprising four categories of transactions and corresponding accounting treatment for each category. The category that would apply to a modification or an exchange of an equity-classified warrant would depend on the substance of the modification transaction (e.g. a financing transaction to raise equity versus one to raise debt). This recognition model is premised on the idea that the accounting for the transaction should not differ from what it would have been had the issuer of the warrants paid cash instead of modifying the warrants. ASU 2021-04 will be effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. Early adoption is permitted. This ASU will be applied prospectively to modifications or exchanges occurring on or after the effective date of the ASU. The Company is currently evaluating the impact this new guidance will have on its condensed consolidated financial statements. 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.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=123372394&loc=d3e18726-107790 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
Name: | us-gaap_SignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration