| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates in the Preparation of Financial
Statements. Debt Issuance Costs Simplifying
the Presentation of Debt Issuance Costs Deferred Taxes Balance
Sheet Classification of Deferred Taxes ( Fair Value Measurement Fair Value Measurements and Disclosures Level 1 - Quoted prices are available in active markets
for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid
and actively traded instruments with quoted prices, such as equity securities listed on the New York Stock Exchange. Level 2 - Pricing inputs are other than quoted prices
in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level
2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs. Level 3 - Significant inputs to pricing that are unobservable
as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management
judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission
rights. Cash and Cash Equivalents. Fair Value of Financial Instruments. Concentration of Credit Risk. We have no significant off-balance sheet concentrations
of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Accounts Receivable
Years Ended December 31 2020 2019
Balance, beginning of year $ 30,000 $ 30,000
Provision for estimated losses 25,042 4,898
Recovery (write-off) of uncollectible accounts (1,042 ) (4,898 )
Balance, end of year $ 54,000 $ 30,000 The net accounts
receivable balance at December 31, 2020 of $523,603 included an account from one customer of $182,510 (35%), $67,183 from a second customer
(13%), and no more than 10% from any other single customer. The net accounts receivable balance at December 31, 2019 of $641,239
included an account from one customer of $194,043 (30%), $93,962 from a second customer (15%), and no more than 10% from any other single
customer. Inventories.
2020 2019
Raw materials & deposits $ 2,116,389 $ 1,601,354
Work-in-process 16,862 32,006
Finished goods 524,875 492,939
Total gross inventories 2,658,126 2,126,299
Less reserve for obsolescence (160,000 ) (140,000 )
Total net inventories $ 2,498,126 $ 1,986,299 A summary of the activity in our inventory reserve
for obsolescence is as follows:
Years Ended December 31 2020 2019
Balance, beginning of year $ 140,000 $ 120,000
Provision for estimated obsolescence 64,753 73,440
Write-off of obsolete inventory (44,753 ) (53,440 )
Balance, end of year $ 160,000 $ 140,000 Property and Equipment. Long-Lived Assets. Patents.
2020 2019
Patents issued $ 190,508 $ 200,008
Patent applications 28,296 6,750
Accumulated amortization (74,102 ) (61,435 )
Total net patents $ 144,702 $ 145,323
Deposits and Other Assets Accrued Expenses
2020 2019
Compensation $ 165,686 $ 167,027
Property and other taxes 69,109 72,868
Rebates 31,471 30,500
Federal income tax — 20,063
$ 266,266 $ 290,458 Product Warranty Reserve
Years Ended December 31 2020 2019
Balance, beginning of year $ 45,000 $ 40,000
Provision for estimated warranty claims 27,279 41,643
Claims made (25,779 ) (36,643 )
Balance, end of year $ 46,500 $ 45,000 Income Taxes. Accounting for Income Taxes ASC 740 prescribes a comprehensive model for how
companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions taken or expected to
be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely
than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be
measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with
the tax authority assuming full knowledge of the position and relevant facts. For the years ended December 31, 2020 and 2019,
we did not have any interest or penalties or any significant uncertain tax positions. Revenue Recognition. Revenue from
Contracts with Customers (Topic 606). Revenue from product sales and supplies is generally
recorded when we ship the product and title has passed to the customer, or when agreed milestones are met in the case of product developments,
provided that we have evidence of a customer arrangement and can conclude that collection is probable. The prices at which
we sell our products are fixed and determinable at the time we accept a customer's order. We recognize revenue from sales to stocking
distributors when there is no right of return, other than for normal warranty claims, and generally have no ongoing obligations related
to product sales, except for normal warranty. The sales of licenses to our training courses are
recognized as revenue at the time of sale. Training and certification revenues are recognized at the time the training and certification occurs.
Data recording revenue is recognized based on each day’s usage of enrolled devices. Revenues arising from extended warranty contracts
are booked as sales over their life on a straight-line basis. We have discontinued arranging for customer financing and leasing through
unrelated third parties and instead are providing for customer financing and leasing ourselves, which we recognize as revenue over the
applicable lease term. Occasionally, we rent used equipment to customers, and in those cases, we recognize the revenues as
they are earned over the life of the contract. Royalty income is recognized in accordance with agreed
upon terms, when performance obligations are satisfied, the amount is fixed or determinable and collectability is reasonably assured. Rental income from space leased to our tenants is
recognized in the month in which it is due, which approximates if it were recognized on a straight-line basis over the term of the related
lease. On occasion we receive customer deposits for future
product orders and product developments. Customer deposits are initially recorded as a liability and recognized as revenue
when the product is shipped and title has passed to the customer, or when agreed milestones are met in the case of product developments. Topic 606 requires the disaggregation of revenue into
broad categories, which we have defined as shown below.
Year Ended December 31,
Product sales: 2020 2019
Product sales and supplies $ 5,509,424 $ 7,499,094
Training, certification and data recording 541,580 647,734
Service plans and equipment rental 71,344 104,742
Product sales subtotal 6,122,348 8,251,570
Royalties 148,398 411,111
Rental income 85,956 89,142
Total revenues $ 6,356,702 $ 8,751,823 Deferred Revenue. Grants Paycheck Protection Loan Rebates. Recent Accounting Pronouncements Leases
(Topic 842) Research and Development Expenses Stock-Based Compensation Compensation – Stock Compensation ASC 718 requires companies to estimate the fair value
of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that
is ultimately expected to vest is recognized as expense over the requisite service periods in the accompanying statement of income. Stock-based compensation expense recognized during
the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. We
used the Black-Scholes option-pricing model ("Black-Scholes model") to determine fair value. Our determination of fair value
of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions
regarding a number of highly complex and subjective variables. These variables include but are not limited to our expected stock price
volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Although the fair value of
employee stock options is determined in accordance with ASC 718 using an option-pricing model, that value may not be indicative of the
fair value observed in a willing buyer/willing seller market transaction. Stock-based compensation expense recognized under
ASC 718 for years 2020 and 2019 was $30,351 and $5,658 respectively. Stock-based compensation expense related to employee stock
options under ASC 718 is allocated to General and Administrative Expense when incurred. Segment Reporting. Basic and Diluted Income and Loss per Common Share. Earnings Per Share |
