Note 2 - Summary of Significant Accounting Policies | Note 2 - Summary of Significant Accounting Policies Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as of March 31, 2019, and December 31, 2018. Significant intercompany balances and transactions have been eliminated. Basis of presentation The accompanying financial statements present the balance sheets, statements of operations, stockholders' deficit and cash flows of the Company. The financial statements have been prepared in accordance with U.S. GAAP. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates. Reclassification Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position. Advertising Advertising costs are expensed when incurred. All advertising takes place at the time of expense. We have no long-term contracts for advertising. Advertising expense for all periods presented were not significant. Cash Cash and cash equivalents consist of cash and short-term investments with original maturities of less than 90 days. As of March 31, 2019, and December 31, 2018, the Company had no cash equivalents. The following table provides a reconciliation of cash and restricted cash reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows. March 31, December 31, 2019 2018 Cash $ 189,728 $ 207,205 Restricted cash included in other non-current assets 207,311 207,311 Total cash and restricted cash shown in the consolidated statements of cash flows $ 397,039 $ 414,516 Major Customers The Company had two customers that made up 20% and 11%, respectively, of accounts receivable as of March 31, 2019. The Company had two customers that made up 29 % and 27% , respectively, of accounts receivable as of December 31, 2018. For the three months ended March 31, 2019, the Company had two customers that made up 24% and 10%, respectively, of total revenues. For the three months ended March 31, 2018, the Company had two customers that made up 22% and 15%, respectively, of total revenues. Accounts Receivable The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Reserves are recorded primarily on a specific identification basis. As of March 31, 2019, and December 31, 2018, allowance for bad debt was $0 and $0, respectively. Inventory Inventory is valued at the lower of the inventory's cost (weighted average basis) or net realizable value. Management compares the cost of inventory with its net realizable value and an allowance is made to write down inventory to net realizable value, if lower. Inventory is segregated into three areas, raw materials, WIP and finished goods. Below is a breakdown of how much inventory was in each area as of March 31, 2019 and December 31, 2018: March 31, December 31, 2019 2018 Raw materials $ 1,200,513 $ 676,621 WIP 11,441 - Finished goods 1,816,351 1,499,174 $ 3,028,305 $ 2,175,795 Property and Equipment Property and equipment are carried at cost less depreciation. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets, which range from ten years to 39 years as follows: Automobiles & Trucks 10 to 20 years Buildings 39 years Leasehold Improvements 15 years or time remaining on lease (whichever is shorter) Equipment 10 years Maintenance and repair costs are charged against income as incurred. Significant improvements or betterments are capitalized and depreciated over the estimated life of the asset. Property and equipment consisted of the following as of March 31, 2019 and December 31, 2018: March 31, December 31, 2019 2018 Automobiles and trucks $ 155,179 $ 155,179 Machinery and equipment 3,666,202 2,548,855 Office furniture and fixtures 111,338 109,619 Building 9,062,000 5,795,000 Leasehold improvements 270,924 261,608 Less: Accumulated depreciation (1,124,816) (879,705) $ 12,140,827 $ 7,990,556 Purchased Intangibles and Other Long-Lived Assets The Company amortizes intangible assets with finite lives over their estimated useful lives, which range between five and fifteen years as follows: Customer List 15 years Non-compete agreements 15 years Software development 5 years Intangible assets consisted of the following as of March 31, 2019 and December 31, 2018: March 31, December 31, 2019 2018 Software $ 278,474 $ 278,474 Noncompete 100,000 100,000 Customer lists 531,187 531,187 Less: Accumulated amortization (251,304) (232,451) $ 658,357 $ 677,210 Expected amortization expense of intangible assets over the next 5 years and thereafter is as follows. Twelve Months Ending March 31, 2020 79,960 2021 79,960 2022 79,960 2023 46,361 2024 46,361 Thereafter 325,755 Total 658,357 Other long-term assets consisted of the following as of March 31, 2019 and December 31, 2018: March 31, December 31, 2019 2018 Restricted Cash $ 207,311 $ 207,311 Deposits 105,927 50,927 Other 33,417 32,000 $ 346,655 $ 290,238 Restricted cash consists of deposit account collateralizing letters of credit in favor of the counterparty in our lease financing obligation. Impairment of Long-Lived Assets The Company accounts for long-lived assets in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 360, Accounting for the Impairment of Long-Lived Assets Goodwill In financial reporting, goodwill is not amortized, but is tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events that result in an impairment review include significant changes in the business climate, declines in our operating results, or an expectation that the carrying amount may not be recoverable. We assess potential impairment by considering present economic conditions as well as future expectations. All assessments of goodwill impairment are conducted at the individual reporting unit level. As of March 31, 2019, and December 31, 2018, the reporting units with goodwill were QCA, APF The Company used qualitative factors according to ASC 350-20-35-3 to determine whether it is more likely than not that the fair value of goodwill is less than its carrying amount. Based on the qualitative criteria the company believes there not to be any triggers for potential impairment of goodwill and therefore the Company has recorded no impairment of goodwill in any period presented. Fair Value Measurement The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, convertible notes, notes payable and lines of credit. The carrying amounts of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements. For additional information, please see Note 11 – Derivative Liabilities and Fair Value Measurements. Revenue Recognition On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers The Company recorded a net increase to its opening accumulated deficit of $178,202 as of January 1, 2018 due to the cumulative impact of adopting ASC Topic 606, with the impact related to recognition of revenue and costs relating to the sales of the 6th Sense Auto service. Under the new revenue standard, sales of the Company’s 6th Sense Auto service, which includes a hardware and a monthly subscription component, are required to be treated as a single performance obligation and recognized over time. As a result, the deferred revenue increased by $279,736 and capitalized contract costs increased by $101,534. The impact to the consolidated statement of operations for the year ended December 31, 2018 was a net increase of $279,736 to revenue and a net increase of $101,534 to cost of revenue as a result of applying ASC Topic 606. Revenues under ASC Topic 606 are recognized when the promised goods or services are transferred to customers, in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those goods or services. The following is a summary of the revenue recognition policy for each of the Company’s subsidiaries. ALTIA Revenues recorded by ALTIA relate primarily to the Company’s 6 th Sense Auto service. The Company accounts for its revenue by deferring the total contract amount and recognizing the amounts over the monthly subscription period, ranging from 12 to 36 months. QCA QCA is a contract manufacturer and recognizes revenue when the products have been built and control has been transferred to the customer. If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed. For all periods presented, management determined that the warranty and returns would be immaterial. APF APF is a contract manufacturer and recognizes revenue when the products have been built and control has been transferred to the customer. If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed. For all periods presented, management determined that the warranty and returns would be immaterial. Morris Morris is a contract manufacturer and recognizes revenue when the products have been built and control has been transferred to the customer. If a deposit for product or service is received prior to completion, the payment is recorded to deferred revenue until such point the product or services meets our revenue recognition policy. Management assesses the materiality and likelihood of warranty work and returns, and records reserves as needed. For all periods presented, management determined that the warranty and returns would be immaterial. Earnings (loss) per share Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. The only potentially dilutive securities outstanding during the periods presented were the convertible debentures, but they are anti-dilutive due to the net loss from continuing operations incurred. Stock-based compensation The Company accounts for equity instruments issued in exchange for the receipt of goods or services in accordance with ASC 718-10, Compensation – Stock Compensation. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. Income taxes The Company records income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and attributable to operating loss and tax credit carry forwards. Accounting standards regarding income taxes requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed at each reporting period based on a more-likely-than-not realization threshold. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, the Company's experience with operating loss and tax credit carry forwards not expiring unused, and tax planning alternatives. The Company recorded valuation allowances on the net deferred tax assets. Management will reassess the realization of deferred tax assets based on the accounting standards for income taxes each reporting period. To the extent that the financial results of operations improve, and it becomes more likely than not that the deferred tax assets are realizable, the Company will be able to reduce the valuation allowance. Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. Accounting standards regarding uncertainty in income taxes provides a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely, based solely on the technical merits, of being sustained on examinations. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments, and which may not accurately anticipate actual outcomes. Embedded Conversion Features The Company evaluates embedded conversion features within convertible debt under ASC 815 Derivatives and Hedging Debt with Conversion and Other Options Related Party Disclosure ASC 850, Related Party Disclosures Recent Accounting Pronouncements In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. The adoption of this ASU did not have any impact on the Company’s financial statements and disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) Leases Leases Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future financial statements. |