| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from these estimates. Our significant estimates and assumptions include depreciation and the fair value of our stock, stock-based compensation, debt discount and the valuation allowance relating to the Company’s deferred tax assets. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less at the date of purchase. Cash and cash equivalents are carried at cost, which approximates fair value. Accounts Receivable The Company extends credit to its customers in the normal course of business and performs on-going credit evaluations of its customers. All accounts, or portions thereof, that are deemed uncollectible are written off to bad debt expense, as incurred. In addition, most sales orders are not accepted without a substantial deposit. As of June 30, 2023, the balance of collectible accounts was $1,404,956. This balance is net of $200,730 recognized as Bad Debt Expense during the six months ended June 30, 2023. Therein, $639 was recognized as Bad Debt Expense in the second quarter. Inventory Inventories are stated at the lower of cost or net realizable value using the first-in first-out (FIFO) method. The Company has four principal categories of inventory: Sales demonstration inventory Equipment parts inventory Work in process inventory - Finished goods inventory At June 30, 2023 and December 31, 2022, respectively, our inventory consisted of the following: June 30, 2023 December 31, 2022 Inventory Equipment Parts Inventory $ 798,839 $ 759,930 Finished Goods Inventory 549,699 254,656 Sales Demo Inventory 699,035 647,790 Work in Process Inventory 168,480 31,434 Total Inventory $ 2,216,052 $ 1,693,810 Fixed Assets – Property, Plant and Equipment Property, plant and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Machinery and Equipment Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows: Category Economic Useful Life Office furniture and fixtures 3-5 years Machinery and equipment 5-7 years Intangible Assets 7-12 years June 30, 2023 December 31, 2022 Equipment and Furniture Machinery & Equipment $ 799,094 $ 797,695 Office Furniture and Computer Equipment 200,325 80,909 R&D Equipment 37,973 37,973 Vehicles 73,115 9,989 Accumulated Depreciation (368,448 ) (298,718 ) Total Property, Plant and Equipment $ 742,059 $ 627,848 Intangible Assets Intangible assets consist primarily of capitalized equipment design documentation, software costs for equipment manufactured for sale, research and development, as well as certain patent, trademark and license costs. Capitalized software and equipment design documentation development costs are recorded in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,” with costs amortized using the straight-line method over a ten-year period. Patent, trademark and license costs are amortized using the straight-line method over their estimated useful lives of 12 years. On an ongoing basis, management reviews the valuation of intangible assets to determine if there has been impairment by comparing the related assets’ carrying value to the undiscounted estimated future cash flows and/or operating income from related operations. June 30, 2023 December 31, 2022 Intangible Assets Equipment Design Documentation $ 2,675,000 $ 2,675,000 Operational Software & Website 311,669 305,470 Trademarks 216,800 216,800 Customer Relationships 211,000 211,000 Accumulated Amortization (583,583 ) (469,229 ) Total Intangible Assets $ 2,830,886 $ 2,939,041 Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment is measured by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from use of the assets and their ultimate disposition. In instances where impairment is determined to exist, the Company will write down the asset to its fair value based on the present value of estimated future cash flows. Leases Our leases consist of operating leases only related to our two facilities located in Orlando, Florida. The operating leases for our facilities are non-cancelable operating leases and are included in Operating lease right-of-use (“ROU”) asset, Lease liability, and Lease liability – less current portion in our balance sheets. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Three Months Ending June 30, Six Months Ending June 30, 2023 2022 2023 2022 Operating Lease Expense $ 91,062 $ 45,289 $ 181,670 $ 90,578 The increase in Lease Expense from the 2022 to 2023 interim periods is related to the addition of a second leased facility for use by Sales and Marketing group as part of our strategic plan in an effort to improve market reach and growth. Current Liabilities Our current liabilities consist of accounts payable, accrued liabilities, sales tax payable, current portion of operating lease payable. Liquidity and Capital Resources For the six months ended June 30, 2023, our liquidity needs were met through cash on hand. The following is a summary of our cash flows provided by (used in) operating, investing and financing activities: Six Months Ending June 30, 2023 2022 Net cash provided by (used in) Operating Activities $ (3,153,366 ) $ 507,559 Net cash used in Investing Activities (190,140 ) (4,195 ) Net cash provided by (used in) Financing Activities 1,046,250 (579,012 ) Net Change in Cash $ (2,297,256 ) $ (75,648 ) As of June 30, 2023, the Company had $9,884,543 in cash, $3,953,025 in current assets (without cash and cash equivalents) and $640,362 in current liabilities. As a result, on June 30, 2023, the Company had $13,197,206 in total working capital, compared to $13,579,732 of total working capital at December 31, 2022. Stock-Based Compensation Our directors, officers, key employees and key suppliers are granted stock-based compensation through our 2019 Stock Incentive Plan (the “Plan”). Such stock-based compensation may include, among other things, incentive stock options, non-qualified stock options, and restricted stock awards. The Plan is administered by the Compensation Committee of the Board of Directors. The Company’s executive officers are eligible to earn incentive compensation consisting of equity-based awards, as well as cash bonuses, based on the achievement of certain individual and/or Company performance goals set by the Compensation Committee. The stock-based compensation expense is based primarily on the fair value of the award as of the grant date and is recognized as an expense over the requisite service period. During the three months ended March 31, 2023, we granted 25,000 shares to a former employee and held stock warrants of 350,000 shares for a suppler granted during our IPO in 2022. These awards were valued at the fair market value as of March 31, 2023, resulting additional accrued Selling, General and Administrative (“SG&A”) expenses of $921,750 during the three month ended March 31, 2023. These awards were exercised on April 17, 2023 at lower price decreased by $705,000 total. As such, the profit and loss statements for the three months ended June 30, 2023 includes the reversal of SG&A. Net Earnings/Loss per Share Basic Earnings/Loss per share is calculated by dividing the Earnings/Loss Revenue Recognition Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Revenue of our products is generally recognized free on board origin (“FOB Origin”) basis, when our products have been manufactured, crated and placed in the collection warehouse for the customer pick up in accordance with Customer Quote and Company Terms and Conditions of Sale. At this stage the title on manufactured equipment is transferred to the customer, and the customer is responsible for transportation expenses, insurance and any transport related damage to the equipment in transit. Accordingly, we do not hold any obligations to deliver beyond the collection warehouse, and the customers are contractually required to ensure their goods reach their final destination. Refunds and returns, which are minimal, are recorded as a reduction of revenue. Payments received by customers prior to our satisfying the above criteria are recorded as unearned income in the combined balance sheets. As of June 30, 2023, there is no balance in unearned income. All revenues were reported net of any sales discounts or taxes. Long Term Liabilities The Company has no interest-bearing liabilities. The Company’s entire Long-Term Liability $305,892, at June 30, 2023, involves the lease obligations beyond the one-year threshold. Fair Value of Financial Instruments The Company applies the accounting guidance under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from m selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The guidance also establishes a fair value hierarchy for measurements of fair value as follows: ☐ Level 1 - quoted market prices in active markets for identical assets or liabilities. ☐ Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. ☐ Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The carrying amount of our financial instruments approximates their fair value as of June 30, 2023, due to the short-term nature of these instruments. Related Party Transactions ICT Investments is providing to the Company accounting services at a cost of $5,690 per month and various management services as needed bases. For the three months ended June 30, 2023 and for the six months ended June 30, 2023, pursuant to an arrangement with ICT Investment, the Company paid in total $12,205 and $45,586, respectively, for various accounting services and management resources. Tax Loss Carryforwards The Company recognizes deferred tax assets and liabilities for the tax effects of differences between the financial statement and tax basis of assets and liabilities. A valuation allowance is established to reduce the deferred tax assets if it is more likely than not that a deferred tax asset will not be realized. Based upon assessment as of December 31, 2022, and as of June 30, 2023, no deferred tax asset has been recorded. Off-Balance Sheet Arrangements During the six months ended June 30, 2023, the Company did not engage in any off-balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation S-K. The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Recent Accounting Pronouncements All newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable. |
