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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 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 nine months ended September 30, 2021, the Company increased its estimate of its gross profit percentage from the percentage for the prior year based on the better absorption of Manufacturing Overhead which results from increased sales. Adjustments to reconcile the annual physical inventory to the Company’s records are recorded in the fourth quarter. Credit and Concentration Risks There were two customers that represented 67.7% and three customers that represented 70.6% of total net sales for the three months ended September 30, 2021 and 2020, respectively. This is set forth in the table below.
Customer |  | Percentage of Sales |
|  | September 30, 2021 |  |  | September 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |
1 |  |  | 41.6 | % |  |  | 23.2 | %
2 |  |  | 26.1 | % |  |  | 25.8 | %
3 |  |  | * |  |  |  | 21.6 | %
| * | Customer was less than 10% of sales for the three months ended September 30, 2021.
There were three customers that represented 75.5% and 74.2% of total sales for the nine months ended September 30, 2021 and 2020, respectively. This is set forth in the table below.
Customer |  | Percentage of Sales |
|  | September 30, 2021 |  |  | September 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |
1 |  |  | 36.8 | % |  |  | 28.2 | %
2 |  |  | 26.2 | % |  |  | 32.1 | %
3 |  |  | 12.5 | % |  |  | 13.9 | %
There were two customers that represented 68.9% and three customers that represented 80.3% of gross accounts receivable at September 30, 2021 and December 31, 2020, respectively. This is set forth in the table below.
|  | Percentage of Receivables |
Customer |  | September 30, 2021 |  |  | December 31, 2020 |
|  | (Unaudited) |  |  |  |
1 |  |  | 53.5 | % |  |  | 57.1 | %
2 |  |  | 15.4 | % |  |  | * |
3 |  |  | ** |  |  |  | 12.0 | %
4 |  |  | ** |  |  |  | 11.2 | %
| * | Customer was less than 10% of accounts receivable at December 31, 2020.
| ** | Customer was less than 10% of accounts receivable at September 30, 2021.
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. To date, global supply chain constraints that have been impacting the aerospace and defense industry have not materially impacted our ability to source parts or operate our business. 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 (loss) income applicable to common stockholders utilized to calculate the EPS:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  |  | September 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Net (Loss) Income per statement of operations |  | $ | (66,000 | ) |  | $ | (477,000 | ) |  | $ | 21,000 |  |  | $ | (1,003,000 | )
Add: Convertible Note Interest for Potential Note Conversion |  |  | - |  |  |  | - |  |  |  | 232,000 |  |  |  | - |
(Loss) Income used to calculate diluted earnings per share |  | $ | (66,000 | ) |  | $ | (477,000 | ) |  | $ | 253,000 |  |  | $ | (1,003,000 | )
The following is a reconciliation of the denominators of basic and diluted earnings per share computations:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  |  | September 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Weighted average shares outstanding used to compute basic earnings per share |  |  | 32,074,053 |  |  |  | 30,620,990 |  |  |  | 32,022,873 |  |  |  | 30,524,874 |
Effect of dilutive stock options and warrants |  |  | - |  |  |  | - |  |  |  | 2,663,000 |  |  |  | - |
Effect of dilutive convertible notes payable |  |  | - |  |  |  | - |  |  |  | 4,057,892 |  |  |  | - |
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share |  |  | 32,074,053 |  |  |  | 30,620,990 |  |  |  | 38,743,765 |  |  |  | 30,524,874 |
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 |  |  | Nine Months Ended |
|  | September 30, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  |  | September 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Stock Options |  |  | 1,178,000 |  |  |  | 163,000 |  |  |  | 186,000 |  |  |  | 163,000 |
Warrants |  |  | 1,828,000 |  |  |  | 1,423,000 |  |  |  | 1,068,000 |  |  |  | 1,423,000 |
|  |  | 3,006,000 |  |  |  | 1,586,000 |  |  |  | 1,254,000 |  |  |  | 1,586,000 |
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, 2021 |  |  | September 30, 2020 |  |  | September 30, 2021 |  |  | September 30, 2020 |
|  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |  |  | (Unaudited) |
Stock Options |  |  | 1,330,000 |  |  |  | 1,696,000 |  |  |  | - |  |  |  | 1,696,000 |
Warrants |  |  | - |  |  |  | 760,000 |  |  |  | - |  |  |  | 760,000 |
Convertible notes payable |  |  | 5,092,000 |  |  |  | 5,092,000 |  |  |  | - |  |  |  | 5,092,000 |
|  |  | 6,422,000 |  |  |  | 7,548,000 |  |  |  | - |  |  |  | 7,548,000 |
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 $147,000 and $52,000 for the three months ended September 30, 2021 and 2020, respectively, and $361,000 and $266,000 for the nine months ended September 30, 2021 and 2020, respectively. Stock compensation expense for directors amounted to $52,000 and $58,000 for the three months ended September 30, 2021 and 2020, respectively and $156,000 and $159,000 for the nine months ended September 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 September 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 will test Goodwill for impairment at December 31, 2021, and has determined that there has been no impairment of goodwill as of 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 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.

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