| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: | 2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES : Revenue Recognition On May 28, 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) Based on a review of its customer contracts,
the Company has determined that revenue on the majority of its customer contracts will continue to be recognized at a point in
time, generally upon shipment of products, consistent with the Company’s historical revenue recognition model. The core principle of the guidance in Topic 606
is that an entity should 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. To achieve that core principle, the Company applied
the following steps: 1. Identify the contract(s) with a customer. The Company designs, manufactures and distributes
various types of microelectronic circuits, optoelectronics, and sensors and displays. The Company’s products are used as
components and assemblies in a broad range of military, space and industrial systems, including aircraft instrumentation and navigation
systems, satellite systems, power supplies, electronic controls, computers, medical devices, and high-temperature (200 o The Company’s revenues are from purchase
orders and/or contracts with customers associated with manufacture of products. We account for a contract when it has approval
and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial
substance and collectability of consideration is probable. 2. Identify the performance obligations in the
contract. The majority of the Company’s purchase
orders or contracts with customers contain a single performance obligation, the shipment of products. 3. Determine the transaction price. The transaction price reflects the Company’s
expectations about the consideration it will be entitled to receive from the customer at a fixed price per unit shipped based on
the terms of the contract or purchase order with the customer. To the extent our actual costs vary
from the fixed price that was negotiated, we will generate more or less profit or could incur a loss. 4. Allocate the transaction price to the performance
obligations in the contract. 5. Recognize revenue when (or as) the Company
satisfies a performance obligation. This performance obligation is satisfied when
control of the product is transferred to the customer, which occurs upon shipment or delivery. The Company receives purchase orders
for products to be delivered over multiple dates that may extend across reporting periods. The
Company accounting policy treats shipping and handling activities as a fulfillment cost. For certain contracts under which the Company
produces products with no alternative use and for which the Company has an enforceable right to payment during the production cycle,
the Company recognizes revenue for the cost incurred of work in process plus a margin at the end of each period and records a contract
asset (unbilled receivable). The majority of these products are shipped weekly and monthly to the customer and the contract require
us to manage and limit the level of work in process to meet the scheduled delivery dates. In addition, the Company may have a contract
or purchase order to provide a non-recurring engineering service to a customer. These contracts are reviewed and performance obligations
are determined and we recognize revenue at the point in time in which each performance obligation
is fully satisfied Effective as of the beginning of the
first quarter of fiscal 2019, we adopted Topic 606 using the modified retrospective method and recognized a cumulative effect adjustment
to retained earnings based on any open contracts at that time for which revenue recognition has changed from a point-in-time recognition
model to an over-time recognition model. While the impact to net sales and net income was not material to our results of operations,
the future impact of Topic 606 is dependent on the mix and nature of specific customer contracts. Upon adoption, we recognized an increase
in retained earnings of $55,000. The details of the adjustment to retained earnings upon adoption as well as the effects of the
balance sheet are as follows:
Balance at Balance at
Assets November 30, 2018 Adjustment due to Topic 606 December 1, 2018
Contract assets $ 0 $ 242 $ 242
Work in process $ 1,985 $ (173) $ 1,812
Deferred income tax net $ 57 $ (15) $ 42
Shareholder equity
Retained Earnings $ 24,800 $ 55 $ 24,855
The following table summarize the effects of the new standard
on selected line items within the Company’s Condensed Statement of Operations for three months and year ended November 30,
2019. Three months ended November 30,
2019
As Reported Balance
without adoption of Topic
606 Effect of change
Net sales $ 7,484 $ 7,515 $ 31
Cost of goods sold $ (3,615) $ (3,597) $ (18)
Income before taxes $ 1,829 $ 1,842 $ 13
Income tax $ 362 $ 365 $ 3
Net Income $ 1,468 $ 1,478 $ 10 Year ended November 30, 2019
As Reported Balance
without adoption of Topic
606 Effect of change
Net sales $ 25,450 $ 24,931 $ (519)
Cost of goods sold $ 13,753 $ 14,105 $ 352
Income before taxes $ 4,439 $ 4,272 $ (167)
Income tax $ 726 $ 691 $ (35)
Net Income $ 3,713 $ 3,581 $ (132) Disaggregation of Revenue The following table summarizes the Company’s net
sales by product line.
Nov. 30, 2019 Nov. 30, 2018
Microelectronics $ 8,037 $ 5,395
Optoelectronics 6,356 5,419
Sensors and Displays 11,057 10,153
$ 25,450 $ 20,967
Timing of revenue recognition
Recognized at a point in time $ 24,931 $ 20,967
Recognized over time 519 —
Total Revenue $ 25,450 $ 20,967 The following table summarizes the Company’s net
sales by major market.
2019 Sales by Major Market
Military Space Medical Commercial Total
Domestic Direct 6,517 1,777 4,220 1,730 14,244
Domestic Distribution 7,705 210 120 471 8,507
International 358 2,003 — 338 2,699
14,580 3,990 4,341 2,539 25,450
2018 Sales by Major Market
Military
Space
Medical
Commercial
Total
Domestic Direct 8,024 2,285 1,881 1,360 13,550
Domestic Distribution 4,964 178 — 254 5,396
International 535 1,383 — 103 2,021
13,523 3,846 1,881 1,717 20,967 Receivables, net, Contract
Assets and Contract Liabilities The timing of revenue recognition, billings and cash collections
results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities)
on the Consolidated Balance Sheet. Receivables, net, contract assets
and contract liabilities were as follows:
November 30, 2019 November 30, 2018
Receivables, net 3,382 3,772
Contract assets 519 243
Deferred Revenue 390 1,238 Revenue recognized in 2019 that was included in
the deferred revenue liability balance at the beginning of the year was $1,024,000. Contract costs The Company does not have material incremental costs to obtain a contract in
the form of sales commissions or bonuses. The Company incurs other immaterial costs to obtain and fulfill a contract; however,
the Company has elected the practical expedient under ASC 340-40-24-4 to recognize all incremental costs to obtain a contract as
an expense when incurred if the amortization period is one year or less. Short-Term Investments The Company has $2,089,000 and $2,058,000 in
short-term investments at November 30, 2019 and 2018, respectively. Short-term investments consist of certificates of deposits
with maturities greater than 90 days. These investments are reported at historical cost, which approximates fair value. All highly
liquid investments with maturities of 90 days or less are classified as cash equivalents. All short-term investments are securities
which the Company has the ability and intent to hold to maturity and mature within one year. Inventories Inventories are stated at lower of cost or net
realizable value and include material, labor and manufacturing overhead. All inventories are valued using the FIFO (first-in, first-out)
method of inventory valuation. The Company determines the need to write inventory down to the lower of cost or net realizable value
via an analysis based on the usage of inventory over a three year period and projected usage based on current backlog. Income Taxes The Company accounts for income taxes using the
asset and liability method. Under this method the Company records deferred income taxes for the temporary differences between the
financial reporting basis and the tax basis of assets and liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled. The resulting deferred tax liabilities and assets are adjusted to reflect changes in tax law or rates
in the period that includes the enactment date. The Company records a liability for an unrecognized
tax benefit for a tax position that is not “more-likely-than-not” to be sustained. The Company did not record
any liability for uncertain tax positions as of November 30, 2019. On December 22, 2017, the Tax Cuts and Jobs Act
(the “Tax Act”) was signed into United States tax law, which among other provisions lowered the corporate tax rate
to 21%. In December 2017, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") 118 to provide guidance for companies that allows for a measurement period of up to
one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts under ASC 740. In accordance
with SAB 118, a company must reflect the income tax effect of those aspects of the Tax Act for which the accounting under ASC 740
is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able
to determine a reasonable estimate, the company must record a provisional estimate in the financial statements. ASC 740 requires the effects of changes in tax
rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of
the date of enactment, and during the twelve months ended November 30, 2018, we revalued all deferred tax assets and liabilities
at the newly enacted Federal corporate US income tax rate. This revaluation as of enactment resulted in a non-cash provisional
estimate of $77,000 to income tax expense and a corresponding reduction in the net deferred tax asset. Property, Plant, and Equipment Property, plant, and equipment are carried at
cost, and depreciation is provided using the straight-line method at rates based upon the following estimated useful lives (in
years) of the assets: Buildings..........................................................................................................................................................................
15 Facility
improvements................................................................................................................................................
8-15 Machinery and
equipment.........................................................................................................................................
5-10 Furniture and fixtures.................................................................................................................................................... 5-8 The Company assesses long-lived assets for impairment
in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) ASC 360-10-35, Property,
Plant and Equipment – Subsequent Measurement Repairs and maintenance are expensed as incurred.
Improvements which extend the useful lives of property, plant, and equipment are capitalized. Research and Development Costs Costs for the design and development of new products
are expensed as incurred. Basic and Diluted Earnings Per Share Basic and diluted earnings per share are computed
based upon the weighted average number of shares outstanding during the year. Diluted earnings per share gives effect to all dilutive
potential common shares. During 2019 and 2018, the Company had no dilutive potential common stock. Use of Estimates The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. |
