| Significant Accounting Policies | 2. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. The most significant estimates and assumptions relate to revenue
recognition and related sales incentives, accounts receivable allowances, inventory valuations, goodwill valuation, product liability
reserve, stock-based compensation valuations and accounting for income taxes. Actual amounts could differ significantly from these
estimates. Revenue Recognition Effective January 1, 2018,
the Company adopted the requirements of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) The guidance permits two
methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with
the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective
approach). The Company selected the modified retrospective approach however there was no material impact which required a cumulative
effect adjustment. The principle of Topic
606 was achieved through applying the following five-step approach:
● Identification of the contract, or contracts, with a customer —
● Identification of the performance obligations in the contract —
● Determination of the transaction price
● Allocation of the transaction price to the performance obligations in the contract
● Recognition of revenue when, or as, the Company satisfies a performance obligation
● The Company has a present right to payment
● The customer has legal title to the goods
● The Company has transferred physical possession of the goods
● The customer has the significant risks and rewards of ownership of the goods
● The customer has accepted the goods It is important
to note that the indicators are not a set of conditions that must be met before the Company can conclude that control of the goods
has transferred to the customer. The indicators are a list of factors that are often present if a customer has control of the goods. The Company
has typical, unmodified FOB shipping point terms. As the seller, the Company can determine that the shipped goods meet the agreed-upon
specifications in the contract or customer purchase order (e.g. items, quantities, and prices) with the buyer, so customer acceptance
would be deemed a formality, as noted in ASC 606-10-55-86. As a result, the Company has a legal right to payment upon shipment
of the goods. Based upon
the above, the Company has concluded that transfer of control substantively transfers to the customer upon shipment. Other considerations of
Topic 606 include the following:
● Contract Costs -
● Warranties
● Returned Goods
● Volume Rebates (Promotional Incentives)
● The amount of consideration is highly susceptible to factors outside the company’s influence.
● The uncertainty about the amount of consideration is not expected to be resolved for a long period of time.
● The Company’s experience with similar types of contracts is limited.
● The contract has a large number and broad range of possible consideration amounts. If it was concluded
that the above factors were in place for the Company, it would support the probability of a significant reversal of revenue. However,
as none of the four factors apply to the Company, promotional incentives are recorded as a reduction of revenue based upon estimates
of the products expected to be sold. Regarding disaggregated
revenue disclosures, as previously noted, the Company’s business is controlled as a single operating segment that consists
of the manufacture and sale of flexible metal hose. Most of the Company’s transactions are very similar in nature, contract,
terms, timing, and transfer of control of goods. As indicated within Note 2, under the caption “Significant Concentration”,
the majority of the Company’s sales were geographically contained within North America, with the remainder scattered internationally.
All performance assessments and resource allocations are generally based upon the review of the results of the Company as a whole. Cash Equivalents The Company considers all
highly liquid investments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents
include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes and bonds, and/or repurchase
agreements, backed by such obligations. Carrying value approximates fair value. Cash and cash equivalents are deposited at various
area banks, which at times may exceed federally insured limits. The Company monitors the viability of the banking institutions
carrying its assets on a regular basis, and has the ability to transfer cash to various institutions during times of risk. The
Company has not experienced any losses related to these cash balances, and believes its credit risk to be minimal. Accounts Receivable and Provision for
Doubtful Accounts Accounts receivable are
reduced by an allowance for amounts that may become uncollectible in the future. The estimated allowance for uncollectible amounts
is based primarily on specific analysis of accounts in the receivable portfolio and historical write-off experience. While management
believes the allowance to be adequate, if the financial condition of the Company’s customers were to deteriorate, resulting
in their inability to make payments, additional allowances may be required. The allowance for doubtful
accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the
allowance based on any known collection issues, historical experience, and other currently available evidence. The reserve for
future credits, discounts, and doubtful accounts was $918,000 and $920,000 as of March 31, 2018 and December 31, 2017, respectively.
In regards to identifying uncollectible accounts, the Company reviews an aging report on a consistent basis to determine past due
accounts, and utilizes a well-established credit rating agency. The Company charges off those accounts that are deemed uncollectible
once all collection efforts have been exhausted. Inventories Inventories are valued
at the lower of cost or market. The cost of inventories is determined by the first-in, first-out (FIFO) method. The Company generally
considers inventory quantities beyond two-years usage, measured on a historical usage basis, to be excess inventory and reduces
the carrying value of inventory accordingly. Property and Equipment Property and equipment
are carried at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives
of the assets or, for leasehold improvements, the life of the lease, if shorter. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in
other income or expense for the period. The cost of maintenance and repairs is expensed as incurred; significant improvements are
capitalized. Goodwill In accordance with Financial
Accounting Standards Board (FASB) ASC Topic 350, Intangibles – Goodwill and Other, the Company performed an annual impairment
test in accordance with this guidance as of December 31, 2017. This analyses did not indicate any impairment of goodwill. There
were no circumstances that indicate that goodwill might be impaired at March 31, 2018. Stock-Based Compensation Plans In 2006, the Company adopted
a Phantom Stock Plan (the “Plan”), which allows the Company to grant phantom stock units (“Units”) to certain
key employees, officers or directors. The Units each represent a contractual right to payment of compensation in the future based
upon the market value of the Company’s common stock. The Units follow a vesting schedule of three years from the grant date,
and are then paid upon maturity. In accordance with FASB ASC Topic 718, Stock Compensation, the Company uses the Black-Scholes
option pricing model as its method for determining the fair value of the Units. Further details of the Plan are provided in Note
6. Product Liability Reserves Product liability reserves
represent the estimated unpaid amounts under the Company’s insurance policies with respect to existing claims. The Company
uses the most current available data to estimate claims. As explained more fully under Note 5, Commitments and Contingencies, for
various product liability claims covered under the Company’s general liability insurance policies, the Company must pay certain
defense and settlement costs within its deductible or self-insured retention limits, ranging primarily from $25,000 to $1,000,000
per claim, depending on the terms of the policy in the applicable policy year, up to an aggregate amount. The Company is vigorously
defending against all known claims. Fair Value of Financial and Nonfinancial
Instruments The Company measures financial
instruments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures. The accounting standard defines fair
value, establishes a framework for measuring fair value under GAAP, and enhances disclosures about fair value measurements. Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable
inputs. The standard creates a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value
into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly; and Level 3 inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions
market participants would use in pricing the asset or liability. The Company relies on its actively traded share value –
a Level 1 input – in determining the fair value of the reporting unit in its annual impairment test as described in the FASB
ASC Topic 350, Intangibles - Goodwill and Other. Earnings per Common Share Basic earnings per share
have been computed using the weighted-average number of common shares outstanding. For the periods presented, there are no dilutive
securities. Consequently, basic and dilutive earnings per share are the same. Currency Translation Assets and liabilities
denominated in foreign currencies, most of which relate to our United Kingdom subsidiary whose functional currency is British pound
sterling, are translated into U.S. dollars at exchange rates prevailing on the balance sheet dates. The statements of income are
translated into U.S. dollars at average exchange rates for the period. Adjustments resulting from the translation of financial
statements are excluded from the determination of income and are accumulated in a separate component of shareholders’ equity.
Exchange gains and losses resulting from foreign currency transactions are included in the statements of income (other expense)
in the period in which they occur. Income Taxes The Company accounts for
tax liabilities in accordance with the FASB ASC Topic 740, Income Taxes. Under this method the Company recorded tax expense, related
deferred taxes and tax benefits, and uncertainties in tax positions. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not that
these items will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. The FASB ASC Topic 740,
Income Taxes, clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position
to be recognized in a company’s financial statements. This guidance prescribes a recognition threshold of more-likely than-not,
and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions
to be recognized in the financial statements. The Company follows the
provisions of ASC 740-10 relative to accounting for uncertainties in tax positions. These provisions provide guidance on the recognition,
de-recognition and measurement of potential tax benefits associated with tax positions. The Company reflected
the effects of the Tax Cuts and Jobs Act (The Act), in its 2017 financial statements. This included the effects of the change in
the US Corporate tax rate from 35% to 21% on deferred tax assets and liabilities, and a provision related to previously deferred
taxes on earnings of the Company’s foreign subsidiary. The Company’s tax expense for the period ended March 31, 2018
includes the continuing effect of the reduction in the U.S. federal tax rate from 35% to 21%, effective for the Company’s
2018 tax year. The Company’s tax provision also reflects other changes as a result of the Act, including the impact of the
Global Intangible Low Taxed Income provisions, and changes effecting the deductibility of certain executive compensation. Other Comprehensive Income For the quarters ended
March 31, 2018 and 2017, respectively, the components of other comprehensive income consisted solely of foreign currency translation
adjustments. Significant Concentration At March 31, 2018, the
Company has one significant customer who represented more than 10% of the Company’s Accounts Receivable and more than 10%
of the Company’s total Net Sales for the quarter ending March 31, 2018. At December 31, 2017, that same customer also represented
more than 10% of the Company’s Accounts Receivable balance, and more than 10% of Net Sales for the first quarter of 2017.
Geographically, the Company has a significant amount of sales in the United States versus internationally. These concentrations
are consistent with those discussed in detail in the Company’s December 31, 2017 Form 10-K. Subsequent Events The Company evaluates all
events or transactions through the date of the related filing that may have a material impact on its condensed consolidated financial
statements. Refer to Note 9 of the condensed consolidated financial statements. Recent Accounting Pronouncements In May 2014, the FASB issued
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) In February 2016, the
FASB issued ASU 2016-02, Leases (Topic 842) |
