Annual report pursuant to Section 13 and 15(d)

Significant Accounting Policies (Policies)

v3.19.3
Significant Accounting Policies (Policies)
12 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Revenue [Policy Text Block]
Revenue Recognition:
Effective
October 1, 2018,
we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2014
-
09,
Revenue from Contracts with Customers (Topic
606
)
, and all related amendments. ASU
2014
-
09
supersedes the revenue recognition requirements in ASC
605,
Revenue Recognition,
and is based on the principle that revenue is recognized to depict the transfer of 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. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The adoption of ASU
2014
-
09,
using the modified retrospective approach, had
no
material impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized at a point in time for our product sales when products are delivered to or picked up by the customer and revenue for shipping and handling charges continues to be recognized when products are delivered to or picked up by the customer. Additional information and disclosures required by this new standard are contained in Note E, “Concentrations.”
 
Our revenue is comprised of the sale of our products to customers and is recognized when the Company satisfies its performance obligations under the contract. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. The majority of our contracts have a single performance obligation and are short term in nature. We recognize revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time when the customer obtains control of the products. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenue) basis.
Cash and Cash Equivalents, Policy [Policy Text Block]
Cash and Cash Equivalents:
The Company considers all highly liquid investments with original maturities of
three
months or less to be cash equivalents. Cash equivalents as of
September 30, 2019
and
2018
consist entirely of short-term money market accounts.
 
The Company maintains cash balances at several financial institutions, and at times, such balances exceed insured limits. The Company has
not
experienced any losses in such accounts and believes it is
not
exposed to any significant credit risk on cash and cash equivalents.
Investment, Policy [Policy Text Block]
Investments:
The Company currently invests its excess cash in bank certificates of deposit (“CDs”) that are fully insured by the Federal Deposit Insurance Corporation (“FDIC”) and Unites States Treasury securities with terms of
not
more than
five
years, as well as money market accounts. CDs and Treasuries with original maturities of more than
three
months are reported as held-to-maturity investments and are recorded at amortized cost, which approximates fair value due to the negligible risk of changes in value due to interest rates. The maturity dates of the Company’s investments are as follows:
 
    September 30,
2019
  September 30,
2018
Less than one year   $
13,524,270
    $
8,930,225
 
1-5 years    
23,902,000
     
17,974,000
 
Total   $
37,426,270
    $
26,904,225
 
Fair Value of Financial Instruments, Policy [Policy Text Block]
Fair Value of Financial Instruments:
The financial statements include the following financial instruments: cash and cash equivalents, short-term investments, long-term investments, accounts receivable, accounts payable and accrued expenses. Other than long-term investments, all financial instruments’ carrying values approximate fair values because of the short-term nature of the instruments. Long-term investments’ carrying value approximates fair value due to the negligible risk of changes in value due to interest rates.
Receivable [Policy Text Block]
Accounts Receivable:
Credit is extended based on the evaluation of a customer’s financial condition and collateral is generally
not
required. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company does
not
charge interest on past due receivables. The Company determines its allowance by considering a number of factors, including the length of time trade receivables are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as whole. The Company writes off accounts receivable when they become uncollectible; payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
 
The allowance for doubtful accounts activity for the years ended
September 30, 2019,
2018,
and
2017
is as follows:
 
Year Ended   Balance at
Beginning
of Year
  Additions
Charged to
Costs and
Expenses
  Less
Write-offs
  Balance
at End
of Year
September 30, 2019   $
79,085
    $
210,000
    $
-
    $
289,085
 
September 30, 2018    
79,085
     
-
     
-
     
79,085
 
September 30, 2017    
93,473
     
-
     
(14,338
)    
79,085
 
Inventory, Policy [Policy Text Block]
Inventories:
Inventories consist of finished goods, raw materials and work-in-process and are stated at the lower of average cost (which approximates
first
-in,
first
-out) or net realizable value. Inventory is valued using material costs, labor charges, and allocated factory overhead charges and consists of the following:
 
    September 30,
2019
  September 30,
2018
Raw materials   $
7,115,298
    $
6,013,166
 
Work-in-process    
540,962
     
560,988
 
Finished goods    
1,356,720
     
3,475,981
 
Inventories, net   $
9,012,980
    $
10,050,135
 
 
On a regular basis, the Company reviews its inventory and identifies that which is excess, slow moving, and obsolete by considering factors such as inventory levels, expected product life, and forecasted sales demand. Any identified excess, slow moving, and obsolete inventory is written down to its net realizable value through a charge to cost of sales. It is possible that additional inventory write-down charges
may
be required in the future if there is a significant decline in demand for the Company’s products and the Company does
not
adjust its manufacturing production accordingly or if new products are
not
accepted by the market.
 
Also during the year ended
September 30, 2018,
the Company adopted Accounting Standards Update (“ASU”)
2015
-
11,
 
Inventory (Topic
330
) Related to Simplifying the Measurement of Inventory
which applies to all inventory except inventory that is measured using last-in,
first
-out or the retail inventory method. This adoption had
no
effect on the financial statements and was applied prospectively. Therefore, prior periods were
not
retrospectively adjusted.
Property, Plant and Equipment, Policy [Policy Text Block]
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. Significant additions or improvements extending asset lives are capitalized, while repairs and maintenance are charged to expense when incurred. Depreciation is provided in amounts sufficient to relate the cost of assets to operations over their estimated useful lives. Leasehold improvements are amortized over the shorter of the remaining term of the lease or estimated life of the asset.
Estimated useful lives of the assets are as follows:
 
    Years
Equipment    
3
7
Leasehold improvements    
7
-
10 or life of lease
Vehicles    
 
3
 
 
Property, plant and equipment consist of the following:
 
    September 30,
2019
  September 30,
2018
Manufacturing equipment   $
7,106,041
    $
5,202,532
 
Office equipment    
3,996,251
     
3,809,614
 
Leasehold improvements    
2,436,346
     
2,417,786
 
Vehicles    
245,903
     
226,221
 
Construction in progress    
8,921
     
-
 
Property, plant and equipment, gross    
13,793,462
     
11,656,153
 
Less accumulated depreciation    
8,380,221
     
6,911,569
 
Property, plant and equipment, net   $
5,413,241
    $
4,744,584
 
 
Depreciation expense for the years ended
September 30, 2019,
2018,
and
2017
were
$1,705,583,
$1,748,945,
and
$1,614,272,
respectively.
Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]
Goodwill and Intangible Assets:
The Company operates as
one
reporting unit and reviews the carrying amount of goodwill annually in the
fourth
quarter of each fiscal year and more frequently if events or changes in circumstances indicate that the carrying amount of the assets
may
not
be recoverable. The Company determines its fair value for goodwill impairment testing purposes by calculating its market capitalization and comparing that to the Company’s carrying value. The Company’s goodwill impairment test for the years ended
September 30, 2019,
2018,
and
2017
resulted in excess fair value over carrying value and therefore,
no
adjustments were made to goodwill. During the years ended
September 30, 2019,
and
2018,
there were
no
triggering events that indicated goodwill could be impaired.
 
A significant reduction in our market capitalization or in the carrying amount of net assets of a reporting unit could result in an impairment charge. If the carrying amount of a reporting unit exceeds its fair value, the Company would measure the possible goodwill impairment loss based on an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit's recorded goodwill exceeds the implied fair value of goodwill. An impairment loss would be based on significant estimates and judgments, and if the facts and circumstances change, a potential impairment could have a material impact on the Company’s financial statements.
 
No
impairment of goodwill has occurred during the years ended
September 30, 2019,
or
2018,
respectively.
 
The Company capitalizes legal costs incurred to obtain patents. Once accepted by either the U.S. Patent Office or the equivalent office of a foreign country, these legal costs are amortized using the straight-line method over the remaining estimated lives,
not
exceeding
20
years. As of
September 30, 2019,
the Company has
19
patents granted and multiple pending applications both inside and outside the United States.
 
In addition, the Company has various finite life intangible assets, most of which were acquired as a result of the acquisition of a portfolio of Telcordia certified outdoor active cabinet products from Calix, Inc. (“Calix”) during fiscal year
2018
as described in Note F in greater detail below. Finite life intangible assets as of
September 30, 2019
and
2018
are as follows:
 
    September 30, 2019
    Years   Gross Carrying
Amount
  Accumulated
Amortization
  Net Book Value
Amount
Customer relationships    
15
    $
3,742,000
    $
405,384
    $
3,336,616
 
Certifications    
8
     
1,068,000
     
216,937
     
851,063
 
Trademarks    
8
     
563,000
     
114,359
     
448,641
 
Patents    
20
     
530,409
     
38,247
     
492,162
 
Other    
5
     
31,091
     
12,438
     
18,653
 
Totals    
 
    $
5,934,500
    $
787,365
    $
5,147,135
 
 
    September 30, 2018
    Years   Gross Carrying
Amount
  Accumulated
Amortization
  Net Book Value
Amount
Customer relationships    
15
    $
3,742,000
    $
155,917
    $
3,586,083
 
Certifications    
8
     
1,068,000
     
83,437
     
984,563
 
Trademarks    
8
     
563,000
     
43,984
     
519,016
 
Patents    
20
    $
393,002
    $
24,981
    $
368,021
 
Other    
5
     
31,091
     
6,219
     
24,872
 
Totals    
 
    $
5,797,093
    $
314,538
    $
5,482,555
 
 
Amortization expense related to these assets for the years ended
September 30, 2019,
2018,
and
2017
were
$472,827,
$298,801,
and
$7,822,
respectively.
Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]
Impairment of Long-Lived Assets:
The Company assesses potential impairments to its long-lived assets or asset groups when there is evidence that events occur or changes in circumstances indicate that the carrying amount of an asset or asset group
may
not
be recovered. An impairment loss is recognized when the carrying amount of the long-lived asset or asset group is
not
recoverable and exceeds its fair value. The carrying amount of a long-lived asset or asset group is
not
recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group.
 
Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset or asset group exceeds its fair value and is recorded as a reduction in the carrying value of the related asset or asset group and a charge to operating results. During the year ended
September 30, 2017,
the Company incurred an impairment charge on long-lived assets of
$643,604
which was charged to selling, general, and administrative expenses. This impairment was related to the cancellation of an enterprise resource planning software implementation.
No
impairment of long-lived assets occurred during the years ended
September 30, 2019
or
2018,
respectively.
Income Tax, Policy [Policy Text Block]
Income Taxes:
The Company records income taxes in accordance with the liability method of accounting. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law. The Company establishes a valuation allowance to reduce the deferred tax assets when it is more likely than
not
that a deferred tax asset will
not
be realizable. Changes in tax rates are reflected in the tax provision as they occur.
 
In accounting for uncertainty in income taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than
not
sustain the position following an audit. For tax positions meeting the more likely than
not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than
50
percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
As of both
September 30, 2019
and
September 30, 2018,
the Company did
not
have any unrecognized tax benefits. The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We do
not
expect any material changes in our unrecognized tax benefits over the next
12
months.
Share-based Payment Arrangement [Policy Text Block]
Stock-Based Compensation
: We measure and recognize compensation expense for all stock-based awards at fair value over the requisite service period. We use the Black-Scholes option pricing model to determine the weighted average fair value of options. For restricted stock grants, fair value is determined as the average price of the Company’s stock on the date of grant. Equity-based compensation expense is broken out between cost of sales and selling, general and administrative expenses based on the classification of the employee. The determination of fair value of stock-based awards on the date of grant using an option-pricing model is affected by our stock price as well as by assumptions regarding a number of subjective variables. These variables include, but are
not
limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
 
The expected terms of the options are based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at grant date. Volatility is based on historical and expected future volatility of the Company’s stock. The Company has
not
historically issued any dividends and does
not
expect to in the future. Forfeitures for both option and restricted stock grants are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from estimates.
 
If factors change and we employ different assumptions in the determination of the fair value of grants in future periods, the related compensation expense that we record
may
differ significantly from what we have recorded in the current periods.
Research and Development Expense, Policy [Policy Text Block]
Research and Development Costs
: Research and development costs amounted to
$1,089,637,
$787,364,
and
$865,568,
for the years ended
September 30, 2019,
2018,
and
2017,
respectively, and are charged to expense when incurred.
Advertising Cost [Policy Text Block]
Advertising Costs
: Advertising costs amounted to
$278,057,
$365,859,
and
$378,217,
for the years ended
September 30, 2019,
2018,
and
2017,
respectively, and are charged to expense when incurred.
Earnings Per Share, Policy [Policy Text Block]
Net Income Per Share:
Basic and diluted net income per share is computed by dividing net income by the weighted average number of common shares outstanding and the weighted average number of dilutive shares outstanding, respectively.
 
Weighted average common shares outstanding for the years ended
September 30, 2019,
2018,
and
2017
were as follows:
 
Year ended September 30,   2019   2018   2017
Net income   $
4,566,156
    $
4,274,547
    $
3,847,839
 
Weighted average common shares    
13,442,871
     
13,429,232
     
13,532,375
 
Dilutive potential common shares    
8,343
     
23,628
     
128,431
 
Weighted average dilutive common shares outstanding    
13,451,214
     
13,452,860
     
13,660,806
 
Earnings per share:                        
Basic   $
0.34
    $
0.32
    $
0.28
 
Diluted   $
0.34
    $
0.32
    $
0.28
 
 
There were
268,000
and
108,000
shares for the years ended
September 30, 2019
and
2018,
respectively, that were excluded from the above calculation as they were considered antidilutive in nature.
No
shares were considered antidilutive for the year ended
September 30, 2017.
Use of Estimates, Policy [Policy Text Block]
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, related revenues and expenses and disclosure about contingent assets and liabilities at the date of the financial statements. Significant estimates include the rebates related to revenue recognition, stock based compensation and the valuation of inventory, long-lived assets, finite lived intangible assets and goodwill. Actual results
may
differ materially from these estimates.
New Accounting Pronouncements, Policy [Policy Text Block]
Recently Issued Accounting Pronouncements:
In
February 2016,
the FASB issued ASU
2016
-
02,
Leases
. There have been further amendments, including practical expedients, with the issuance of ASU
2018
-
01
in
January 2018,
ASU
2018
-
11
in
July 
2018
and ASU
2018
-
20
in
December 2018.
The amended guidance requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after
December 15, 2018,
including interim periods within those reporting periods, with early adoption permitted. The guidance will be applied on a modified retrospective basis with the earliest period presented. Based on the effective date, this guidance will apply beginning
October 1, 2019.
The adoption of ASU
2016
-
02
will have
no
impact to retained earnings or net income.  Upon adoption of ASU
2016
-
02
on
October 1, 2019,
we anticipate recording a right-of-use asset and an offsetting lease liability of approximately
$2.3
to
$2.9
million.  
 
In
January 2017,
the FASB issued ASU
2017
-
04
Intangibles-Goodwill,
which offers amended guidance to simplify the accounting for goodwill impairment by removing Step
2
of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. This guidance is to be applied on a prospective basis effective for the Company’s interim and annual periods beginning after
January 1, 2020,
with early adoption permitted for any impairment tests performed after
January 1, 2017.
The Company does
not
believe the adoption of this ASU will have a material impact on our financial statements.
 
In
June 2016,
the FASB issued ASU
2016
-
13,
Measurement of Credit Losses on Financial Instruments
. In
November 2018,
the FASB issued update ASU
2018
-
19
that clarifies the scope of the standard in the amendments in ASU
2016
-
13.
This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted include accounts receivable, trade receivables, other financial assets measured at amortized cost and other off-balance sheet credit exposures. The new guidance is effective for the Company beginning in the
first
quarter of fiscal
2021,
with early adoption permitted. The Company is evaluating the impact of the adoption of ASU
2016
-
13
on our financial statements.