| 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, investment valuations, 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 (“ASU”) 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 Accounting Standards Codification (“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 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 the Company’s 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 $975,000 and $985,000 as of March 31, 2019 and December 31, 2018,
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. Investments The Company invests excess
funds in liquid interest earning instruments including US Treasury bills and bank time deposits. These investments are stated at
fair value, which approximates amortized cost, and are classified as available-for-sale in accordance with ASC 320, Investments
– Debt and Equity Securities Inventories Inventories are valued
at the lower of cost or net realizable value. 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 initially recorded 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 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, Compensation - Stock Compensation 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. Leases Effective January 1, 2019,
the Company adopted the requirements of FASB ASU 2016-02, Leases
1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
2. The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
3. The lease term is for the major part of the remaining economic life of the underlying asset.
4. The present value of the sum of lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.
5. The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. For any leases that do
not meet the criteria identified above for finance leases, the Company treats such leases as operating leases. As of March 31,
2019, each of the Company’s leases are classified as operating leases. Under the new guidance,
both finance and operating leases are reflected on the balance sheet as lease or “right-of-use” assets and lease liabilities.
It should be noted that under previous guidance operating leases (non-capital leases) were not required to be recorded as an asset
on the balance sheet. There are some exceptions,
which the Company has elected in its accounting policies. For leases with terms of twelve months or less, or below the Company’s
general capitalization policy threshold, the Company elects an accounting policy to not recognize lease assets and lease liabilities
for all asset classes. The Company recognizes lease expense for such leases generally on a straight-line basis over the lease term. The Company determines
if a contract is a lease at the inception of the arrangement. The Company reviews all options to extend, terminate, or purchase
its right-of-use assets at the inception of the lease and accounts for these options when they are reasonably certain to be exercised.
Certain leases contain non-lease components, such as common area maintenance, which are generally accounted for separately. In
general, the Company will assess if non-lease components are fixed and determinable, or variable, when determining if the component
should be included in the lease liability. For purposes of calculating the present value of the lease obligations, the Company
utilizes the implicit interest rate within the lease agreement when known and/or determinable, and otherwise utilizes its incremental
borrowing rate at the time of the lease agreement. As permitted under ASU
2018-11, the Company elected the optional transition method to adopt the new leases standard. Under this new transition method,
the Company initially applied the new leases standard at the adoption date of January 1, 2019 and would have recognized a cumulative-effect
adjustment, if appropriate, to the opening balance of retained earnings in the period of adoption. No cumulative-effect adjustment
was recognized. The Company’s reporting for the comparative periods prior to 2019 in the financial statements will be presented
in accordance with existing GAAP in effect for 2018 and earlier (ASC Topic 840, Leases The impact of the adoption
of this new standard resulted in an increase to the Company’s operating lease assets and liabilities on January 1, 2019 of
approximately $800,000. The implementation did not have a material impact on our consolidated statements of income and statements
of cash flows. Fair Value of Financial and Nonfinancial
Instruments The Company measures financial
instruments in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures 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 the Company’s 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 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 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 financial statements during the 2017 enactment period. 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 periods ended March 31, 2019 and 2018 included the continuing effect of the reduction in the U.S. federal tax rate from 35%
to 21%, effective for those respective tax years. 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 (“GILTI”) provisions, and changes effecting
the deductibility of certain executive compensation. Other Comprehensive Income For the quarters ended
March 31, 2019 and 2018, respectively, the components of other comprehensive income consisted solely of foreign currency translation
adjustments. Significant Concentration The Company has one significant
customer which represented more than 10% of the Company’s Accounts Receivable at March 31, 2019 and December 31, 2018. That
same customer represented more than 10% of the Company’s total Net Sales for the first quarter of 2019 and 2018. 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, 2018 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 10 of the condensed consolidated financial statements. Recent Accounting Pronouncements In January 2017, the FASB
amended ASC Topic 350, Intangibles – Goodwill and Other |
