| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Description of Business: The Company designs, develops and manufactures printed circuit
connectors for high performance applications. We have also developed a high performance plastic circular connector line. All of
our connectors utilize the HYPERBOLOID contact design, a rugged, high-reliability contact system ideally suited for high-stress
environments. We believe we are the only independent producer of HYPERBOLOID printed circuit board connectors in the United States. Our customers consist of OEM’s (Original Equipment
Manufacturers), companies manufacturing medical equipment and distributors who resell our products to OEMs. We sell our products
directly and through regional representatives and distributors located in all regions of the United States, Canada, Israel, India,
various Pacific Rim countries, South Korea and the European Union. The customers we service are in the Military, Aerospace,
Space, Medical, Oil & Gas, Industrial, Test Equipment and Commercial Electronics markets. We appear on the Military Qualified
Product Listing “QPL” to MIL-DTL-55302 and supply customer requested modifications to this specification. Sales to
the commercial electronic (inclusive of aerospace, space, oil & gas, medical & miscellaneous) and military markets were
49.9% and 50.1%, respectively, of the Company’s net sales for the year ended March 29, 2019. Our offering of “QPL”
items has recently been expanded to include additional products. In order to remain competitive, the Company has an internal
program to upgrade, add and maintain machinery, review material costs and increase labor force productivity. During the fiscal
year ended March 29, 2019, the Company purchased several machines to increase the productivity of certain processes. This will
help the Company meet this goal. Business New Product Development: The Company created many new products that are innovative
designs and employ new technologies. The Company continues to be successful because of its ability to assist its customers and
create a new design, including engineering drawing packages, in a relatively short period of time. The Company will continue to
support its customers to the best of its ability. The standard printed circuit board connectors we produce
are continually being expanded and utilized in many of the military programs being built today. We have recently received approval
for additional products that the Company can offer under the Military Qualified Product Listing “QPL.” Accounting Period: The Company maintains an accounting period based upon a
52-53 week year, which ends on the nearest Friday in business days to March 31. The year ended March 29, 2019 was comprised of
52 weeks. The current fiscal year, ending on March 27, 2020, will be comprised of 52 weeks. Revenue Recognition: In May 2014, the Financial Accounting Standards Board issued
ASC 606 “Revenue from Contracts with Customers” that, as amended on August 12, 2015, became effective for annual report
periods beginning after December 15, 2017. The core principle underlying ASC 606, is to recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.” ASC 606-10-05-4 sets out the following steps for an entity
to follow when applying the core principle to its revenue -generating transactions:
· Identify the contract with a customer
· Identify the performance obligations in the contract
· Determine the transaction price
· Allocate the transaction price to the performance obligations
· Recognize revenue when (or as) each performance obligation is satisfied The Company designs, develops and manufactures printed circuit
board connectors and custom interconnects for high performance applications. All of our connectors utilize the HYPERBOLOID contact
design, a rugged, high-reliability contact system ideally suited for high-stress environments. The customers we service are in the Military, Aerospace,
Space, Medical, Oil and Gas, Industrial, Test Equipment and Commercial Electronics markets. The Company’s disaggregated revenue, as of September
27, 2019 and September 28, 2018, respectively, by geographical location is as follows:
Three Months Ended Three Months Ended Six Months Ended Six Months ended
September 27, 2019 September 28, 2018 September 27, 2019 September 28, 2018
Domestic $ 6,169,481 $ 6,004,067 $ 12,352,045 $ 14,233,476
International 1,381,903 593,809 2,766,737 $ 1,407,706
Total $ 7,551,384 $ 6,597,876 $ 15,118,782 $ 15,641,182
The Company does not offer any discounts, credits or other
sales incentives. Historically, the Company has not had an issue with uncollectible accounts receivable. The Company will accept a return of defective products within
one year from shipment for repair or replacement at the Company’s option. If the product is repairable, the Company at its
own cost, will repair and return it to the customer. If unrepairable, the Company will either offer an allowance against payment
or will reimburse the customer for the total cost of product. The Company provides engineering services as part of the
relationship with its customers in developing custom products. The Company is not obligated to provide such engineering service
to its customers. The Company does not invoice its customers separately for these services. Inventories: Inventories are stated at an average cost on a first-in,
first-out basis, which does not exceed net realizable value. The Company manufactures products pursuant to specific technical
and contractual requirements. The Company historically purchases material in excess of
its requirements to avail itself of favorable pricing as well as the possibility of receiving additional orders from customers.
This excess may result in material not being used in subsequent periods, which may result in this material being deemed obsolete. The Company annually reviews its purchase and usage
activity of its inventory of parts as well as work in process and finished goods to determine which items of inventory have
become obsolete within the framework of current and anticipated orders. The Company, based upon historical experience, has
determined that if a part has not been used and purchased or an item of finished goods has not been sold in three years, it
is deemed to be obsolete. The Company estimates which materials may be obsolete and which products in work in process or
finished goods may be sold at less than cost. A periodic adjustment, based upon historical experience, is made to inventory
in recognition of this impairment. The Company recognized $108,000 for the six months ended September 27, 2019 and September
28, 2018, respectively, as a reduction of inventory due to obsolescence. Concentration of Credit Risk: Financial instruments which potentially subject the Company
to concentrations of credit risk consist primarily of cash and accounts receivable. Under the provisions of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, the Federal Deposit Insurance Corporation (FDIC) will permanently insure all accounts maintained with
each financial institution up to $250,000 in the aggregate. The Company does maintain cash balances in excess of insured limits. Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. The Company provides for depreciation and amortization using the Double Declining Balance method
over the estimated useful lives (5-7 years) of the related assets. Maintenance and repair expenditures are charged to operations,
and renewals and betterments are capitalized. Items of property, plant and equipment, which are sold, retired or otherwise disposed
of, are removed from the asset and accumulated depreciation or amortization accounts. Any gain or loss thereon is either credited
or charged to operations. Earnings Per Share: The Company accounts for earnings per share pursuant to
ASC Topic 260, “Earnings per Share”, which requires disclosure on the Financial Statements of “basic” and
“diluted” earnings per share. Basic earnings per share are computed by dividing net income by the weighted average
number of common shares outstanding for the year. Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options for each year.
As the Company reported net income for both the three months and six months ended September 27, 2019 and September 28, 2018, respectively,
basic and diluted income per share are calculated separately as follows:
Three months Three months Six months Six months
NET INCOME $ 1,328,678 $ 946,304 $ 2,238,211 $ 3,205,589
BASIC EARNINGS PER COMMON SHARE $ .57 $ .41 $ .96 $ 1.38
FULLY DILUTED EARNINGS PER SHARE $ .54 $ .39 $ .92 $ 1.34
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC 2,328,423 2,323,468 2,325,959 2,319,206
DILUTIVE EFFECT OF OPTIONS GRANTED 118,462 88,134 117,343 77,893
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING- 2,446,885 2,411,602 2,443,302 2,397,099 Fair Value of Financial Instruments: The carrying value of the Company’s financial instruments
approximate their fair value due to the relatively short maturity of these instruments. 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, revenues
and expenses, and disclosure of contingent assets and liabilities at the date of the financial statements. The Company utilizes
estimates with respect to determining the useful lives of fixed assets as well as in the calculation of inventory obsolescence.
Actual amounts could differ from those estimates. Impairment of Long-Lived Assets: The Company has adopted the provisions of ASC Topic 360,
“Property, Plant and Equipment-Impairment or Disposal of Long Lived Assets,” and requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. There were no long-lived asset impairments recognized by
the Company for the six months ended September 27, 2019 and September 28, 2018, respectively, and currently all assets are being
utilized. Stock-Based Compensation Plan: Compensation expense for stock options granted to directors,
officers and key employees is based on the fair value of the award on the measurement date, which is the date of the grant. The
expense is recognized ratably over the service period of the award. The fair value of stock options is estimated using a Black-Scholes
valuation model. The fair value of any other non-vested stock awards is generally the market price of the Company’s common
stock on the date of the grant. Leases: ASC 2016-02 Leases (Topic 842) – In February 2016,
the FASB issued ASC 2016-02, which requires lessees to recognize all leases on their balance sheet as a right-of-use asset and
a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating
leases or finance leases. The classification is based on criteria that are largely similar to those applied in current lease accounting,
but without explicit bright lines. Accordingly, we have adopted ASC 2016-2 as of March 30, 2019. On our balance sheet operating leases are reported as operating
lease right-of-use (“ROU”) assets and deferred lease liabilities. ROU assets represent our right to use an underlying
asset for the lease term and deferred lease liabilities represent our obligation to make lease payments over time arising from
the lease. Operating lease ROU assets and deferred lease liabilities are recognized at the commencement date based on the present
value of lease payments over the lease term. As our contracted leases do not provide an implicit rate, we do use an incremental
borrowing rate based on the information available at the transition date and commencement date in determining the present value
of lease payments. This is the rate that we would have to pay if borrowing on a collateralized basis over a similar term to each
lease. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease
payments is recognized on a straight-line basis over the lease term. The Company leases space for its corporate offices and its
manufacturing facility located at 140 58 th Presented below are the balances of ROU asset and the corresponding
deferred lease liability and resultant amortization as of March 30, 2019 and September 27, 2019. The present value was calculated
using an interest rate of six (6%) percent.
ROU Deferred Amortization
March 30, 2019 $ 301,957 $ 301,957 —
September 27, 2019 206,541 210,711 95,416 Future lease commitments to be paid
by us as of September 27, 2019 were as follows:
Payments
Fiscal year Operating Leases Interest Total
2020(a) $ 88,832 $ 4,828 $ 93,660
2021 121,879 3,001 124,880
Total lease commitments $ 210,711 $ 7,829 $ 218,540 (a) Represents the remainder of fiscal
year 2020 which excludes the six months ended September 27, 2019. |
