The Company and its Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Cash and Cash Equivalents, Policy [Policy Text Block]

[1] Cash equivalents: The Company considers all highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

[2] Accounts Receivable: Accounts receivable consists of mainly trade receivables due from customers for the sale of our products. Payment terms vary on a customer-by-customer basis, and currently range from cash on delivery to net 60 days. Receivables are considered past due when they have exceeded their payment terms. Accounts receivable have been reduced by an estimated allowance for doubtful accounts. The Company estimates its allowance for doubtful accounts based on facts, circumstances and judgments regarding each receivable. Customer payment history and patterns, historical losses, economic and political conditions, trends and individual circumstances are among the items considered when evaluating the collectability of the receivables. Accounts are reviewed regularly for collectability and those deemed uncollectible are written off. At December 31, 2016 and December 31, 2015 the Company had an allowance for doubtful accounts of $49,000 and $50,000, respectively.

Inventory, Policy [Policy Text Block]

[3] Inventory: Inventory is stated at the lower of cost or market. Work in process and finished goods are comprised of labor, overhead and raw material costs. Labor and overhead costs are determined on a rolling average cost basis and raw materials are determined on an average cost basis. At December 31, 2016 and December 31, 2015, the Company established an allowance for slow moving and obsolete inventory of $449,000 and $432,000, respectively.

Income Tax, Policy [Policy Text Block]

[4] Income taxes: The Company follows ASC 740 “Income Taxes” (“ASC 740”) which prescribes the asset and liability method whereby deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted laws and tax rates that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits that are not expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. Under ASC 740, tax benefits are recorded only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

Depreciation, Depletion, and Amortization [Policy Text Block]

[5] Depreciation and amortization: Property, plant and equipment are depreciated on the straight-line method over their estimated useful lives; generally 3-5 years for equipment and 30 years for buildings. Leasehold improvements and capitalized lease assets are amortized by the straight-line method over the shorter of their estimated useful lives or the term of the lease. Intangible assets include the cost of patent applications, which are deferred and charged to operations over 19 years. The accumulated amortization of patents is $171,000 and $166,000 at December 31, 2016 and December 31, 2015, respectively. Annual amortization expense of such intangible assets is expected to be $6,000 per year for the next 5 years.

Revenue Recognition, Policy [Policy Text Block]

[6] Revenue recognition: The Company recognizes revenue when title transfers upon shipment. Sales are recorded net of estimated discounts and returns. All buyers have economic substance apart from the Company and the Company does not have any obligation for customer acceptance. The Company's price is fixed and determinable at the date of sale. The buyer has paid the Company or is obligated to pay the Company or, in the case of a distributor, the obligation is not contingent on the resale of the product, nor does the Company have any obligation to bring about the resale of the product. The buyer's obligation would not be changed in the event of theft or physical destruction or damage to the product. All distributors have economic substance apart from the Company and their own customers and payment terms are not conditional. The transactions with distributors are on terms similar to those given to the Company's other customers. No agreements exist with the distributors that offer a right of return.

Shipping and Handling Cost, Policy [Policy Text Block]

[7] Shipping and handling: Shipping and handling fees charged to customers are included in net sales, and shipping and handling costs incurred by the Company, to the extent of those costs charged to customers, are included in cost of sales.

Research and Development Expense, Policy [Policy Text Block]

[8] Research and development: Research and development (“R&D”) costs are charged to operations when incurred. These costs include salaries, benefits, travel, costs associated with regulatory applications, supplies, depreciation of R&D equipment and other miscellaneous expenses.

Earnings Per Share, Policy [Policy Text Block]

[9] Net loss per common share: Basic loss per common share is calculated by dividing net loss by the weighted average number of outstanding common shares during the period.

Potential common shares outstanding as of December 31, 2016 and 2015:

	December 31, 2016		December 31, 2015
Warrants		2,060,000		2,385,000
Options		2,107,000		1,435,000
Total		4,167,000		3,280,000

For Fiscal 2016 and Fiscal 2015, the number of securities not included in the diluted loss per share was 4,167,000 and 3,820,000, respectively, as their effect was anti-dilutive due to net loss in each year.

Use of Estimates, Policy [Policy Text Block]

[10] 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. Our management believes the major estimates and assumptions impacting our financial statements are the following:

⋅

estimates of the fair value of stock options and warrants at date of grant; and

⋅

estimates of the inventory reserves; and

⋅

deferred tax valuation

The fair value of stock options and warrants issued to employees, members of our Board of Directors, and consultants in connection with debt financings is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment.

As a result, if factors change and the Company uses different assumptions, the Company's equity-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company's forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding.

If the Company's actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the equity-based compensation expense could be significantly different from what we have recorded in the current period.

Actual results may differ from estimates and assumptions of future events.

Impairment of long-lived assets [Policy Text Block]

11] Impairment of long-lived assets: The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.

Financial Instruments, Policy [Policy Text Block]

[12] Financial Instruments: The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other liabilities approximate their fair value based on the short term nature of those items.

Estimated fair value of financial instruments is determined using available market information. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts.

Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange.

ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC Topic 820”) establishes a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC Topic 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices are observable for the asset or liability.

Level 3: Unobservable inputs for the asset or liability.

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents—The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value due to the short-term maturity of these instruments.

Line of Credit and Long-Term Debt—The carrying amounts of the Company’s borrowings under its line of credit agreement and other long-term debt approximates fair value, based upon current interest rates, some of which are variable interest rates.

Accounting For Share Based Payments And Stock Warrants [Policy Text Block]

[13] Accounting for share-based payments and stock warrants: In accordance with the provisions of ASC Topic 718, “Accounting for Stock Based Compensation”, the Company recognizes share-based payment expense for stock options and warrants. The weighted average fair value of options issued and outstanding in Fiscal 2016 and Fiscal 2015 was $0.13 and $0.14, respectively. (See Note H [2] – Stockholders’ Equity)

The Company accounts for derivative instruments in accordance with ASC Topic 815 “Derivatives and Hedging” (“ASC Topic 815”). The guidance within ASC Topic 815 requires the Company to recognize all derivatives as either assets or liabilities on the statement of financial position unless the contract, including common stock warrants, settles in the Company’s own stock and qualifies as an equity instrument. A contract designated as an equity instrument is included in equity at its fair value, with no further fair value adjustments required; and if designated as an asset or liability is carried at fair value with any changes in fair value recorded in the results of operations. The weighted average fair value of warrants issued and outstanding was $0.18 in Fiscal 2016 and $0.17 in Fiscal 2015. (See Note H [3] – Stockholders’ Equity)

Concentration Risk, Credit Risk, Policy [Policy Text Block]

[14] Concentration of credit risk: The Company sells products primarily to United States customers and distributors. Credit is extended based on an evaluation of the customer’s financial condition.

At December 31, 2016, one customer accounted for 28.9% of the Company’s net accounts receivable. A substantial portion of this balance was collected in the first quarter of the year ending December 31, 2017. Due to the longstanding nature of our relationship with this customer and contractual obligations, the Company is confident it will recover these amounts.

At December 31, 2015, one customer accounted for 25.4% of the Company’s net accounts receivable. These amounts were collected in Fiscal 2016.

The Company has established an allowance for doubtful accounts of $49,000 and $50,000 at December 31, 2016 and December 31, 2015, respectively, based on factors surrounding the credit risk of our customers and other information.

Two of the Company’s customers accounted for 30.9% and 15.5% of net sales of the Company in Fiscal 2016.

Two of the Company’s customers accounted for 26.0% and 15.4% of net sales of the Company in Fiscal 2015.

The Company maintains certain cash balances at financial institutions that are federally insured and at times the balances have exceeded federally insured limits.

Reporting comprehensive Income, Policy [Policy Text Block]

[15] Reporting comprehensive income: The Company reports comprehensive income in accordance with the provisions of ASC Topic 220, “Reporting Comprehensive Income” (“ASC Topic 220”). The provisions of ASC Topic 220 require the Company to report the change in the Company's equity during the period from transactions and events other than those resulting from investments by, and distributions to, the shareholders. For Fiscal 2016 and Fiscal 2015, comprehensive income was the same as net income.

Reclassification, Policy [Policy Text Block]

[16] Reclassifications: Certain items have been reclassified from the prior years to conform to the current year presentation. More specifically, certain debt issuance costs and deferred finance costs were reclassified from an asset to a reduction against the long-term liability (as a result of the adoption of ASU No. 2015-03).

New Accounting Pronouncements, Policy [Policy Text Block]

[17] New accounting pronouncements:

In the year ended December 31, 2016, we adopted the following accounting standards:

ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. ASU 2014-15 was issued in August 2014. Prior to the issuance of ASU 201-15, there was no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern, or to provide related footnote disclosures. ASU 2014-15 provides guidance in GAAP about management’s responsibilities and guidance related to footnote disclosures. ASU 2014-15 was also expected to reduce diversity in the timing and content of footnote disclosures. ASU 2014-15 applies to all entities and is effective for the annual period ending after December 15, 2016, and for annual reports and interim periods thereafter. The Company adopted ASU 2015-14 in the fourth quarter of the year ended December 31, 2016 and it did not have any impact on our financial position or result of operations.

ASU 2015-01, “Income Statement – Extraordinary and Unusual Items”. ASU 2015-01 was issued in January 2015 and part of its initiative was to reduce complexity in the account standards by eliminating the concept of extraordinary items from GAAP. The amendments in ASU 2015-01 eliminate the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary, however, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently is retained and is expanded to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 applies to all entities and was effective for fiscal years, and interim periods within the fiscal year, beginning after December 15, 2015. The Company adopted ASU 2015-01 in the first quarter of Fiscal 2016, and it did not have any impact on its financial position or results of operations.

ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. ASU 2015-03 was issued in April 2015 and part of its initiative was to reduce complexity in accounting standards (the Simplification Initiative). The FASB received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards (IFRS), which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, Elements of Financial Statements, which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. Concepts Statement 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. For public business entities, the amendments in ASU 2015-03 were effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted ASU 2015-03 in the first quarter of Fiscal 2016. With the adoption of ASU No. 2015-03, transaction costs (with the exception of the interest expense) related to the Cherokee LSA are now being deducted from the balance on the Cherokee LSA, and are being amortized over the term of the debt.

ASU 2015-15, “Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements”. ASU 2015-15 was issued in August 2015 and it clarified guidance on the presentation and subsequent measurements of debt issuance costs associated with line of credit arrangements. The Company adopted ASU 2015-15 in the first quarter of Fiscal 2016, and it did not have any impact on its financial position or results of operations.

ASU 2016-19, “Technical Corrections and Improvements”. ASU 2016-19 was issued in December 2016. ASU 2016-19 covers a wide range of topics in the Accounting Standards Codification. ASU 2016-19 includes amendments related to differences between original guidance and the Accounting Standards Codification, guidance clarification and reference corrections, simplifications to the Accounting Standards Codification, and minor improvements to the guidance. Most of the amendments do not require transition guidance and are effective upon issuance of ASU 2016-19. However, six amendments clarify guidance or correct references in the Accounting Standards Codification that could potentially result in changes in current practice because of either misapplication or misunderstanding of current guidance. Early adoption is permitted for the amendments that require transition guidance. The Company adopted ASU 2016-19 in Fiscal 2016, and it did not have a material effect on the Company’s financial position or results of operations.

The following accounting standards did not require adoption as of the year ended December 31, 2016:

ASU 2016-02, “Leases”. ASU 2016-02 was issued in February 2016 and it requires a lessee to recognize a lease liability and a right-of-use asset on its balance sheet for all leases, including operating leases, with a term greater than 12 months. Lease classification will determine whether a lease is reported as a financing transaction in the income statement and statement of cash flows. ASU 2016-02 does not substantially change lessor accounting, but it does make certain changes related to leases for which collectability of the lease payments is uncertain or there are significant variable payments. Additionally, ASU 2016-02 makes several other targeted amendments including a) revising the definition of lease payments to include fixed payments by the lessee to cover lessor costs related to ownership of the underlying asset such as for property taxes or insurance; b) narrowing the definition of initial direct costs which an entity is permitted to capitalize to include only those incremental costs of a lease that would not have been incurred if the lease had not been obtained; c) requiring seller-lessees in a sale-leaseback transaction to recognize the entire gain from the sale of the underlying asset at the time of sale rather than over the leaseback term; and d) expanding disclosures to provide quantitative and qualitative information about lease transactions. ASU 2016-02 is effective for all annual and interim periods beginning January 1, 2019 and is required to be applied retrospectively to the earliest period presented at the date of initial application, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-02.

ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations”. ASU 2016-08 was issued in March 2016 and it clarifies certain aspects of the principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments in ASU 2016-08 also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent.

ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing”. ASU 2016-10 was issued in April 2016 and it clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments in ASU 2016-10 also clarify when a promised good or service is separately identifiable (i.e. distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract.

ASU 2016-12, “Revenue from Contracts with Customers”. ASU 2016-12 was issued in May 2016 and it amends the new revenue recognition guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The amendments in ASU 2016-12 also clarify how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard's contract criteria.

ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. ASU 2016-20 was issued in December 2016 and it provides updates to clarify narrow aspects of the ASU 2014-09 guidance (see below). The amendments in ASU 2016-20 include, but are not limited to, corrections or improvements to: loan guarantee fees, contract costs (impairment testing, interaction of impairment testing with guidance in other topics), provisions for losses on construction or production-type contracts, scope of Topic 606, disclosure of remaining performance obligations, disclosure of prior-period performance obligations, contract modifications, contract asset versus receivable, refund liability and advertising costs.

The four updates above were issued subsequent to ASU 2014-09, “Revenue from Contracts with Customers” which was issued in May 2014. ASU 2014-09 provides guidance for revenue recognition. The core principle of ASU 2014-09 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. Examples of the use of judgments and estimates may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The update also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 provides for two transition methods to the new guidance: a retrospective approach and a modified retrospective approach. In August 2015, ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date” was issued as a revision to ASU 2014-09. ASU 2015-14 revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e. the original adoption date per ASU No. 2014-09). The Company is currently evaluating the transition methods and the impact of adopting this ASU.

ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 was issued in March 2016 and it simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods. Early adoption is permitted. An entity that elects early adoption of the amendment under ASU 2016-09 must adopt all aspects of the amendment in the same period. The Company does not expect the adoption of ASU 2016-09 to have a material effect on its financial position or results of operations.

ASU 2016-15, “Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”. ASU 2016-15 was issued in August 2016 and it addresses specific cash flow items with the objective of reducing existing diversity in practice, including the treatment of distributions received from equity method investees. The amendments in ASU 2016-15 will be effective for the Company on January 1, 2018 and must be applied retrospectively to all periods presented; early adoption is permitted. The Company does not expect the adoption of ASU 2016-15 to have a material effect on its financial position or results of operations.

Any other new accounting pronouncements recently issued, but not yet effective, have been reviewed and determined to be not applicable. As a result, the adoption of such new accounting pronouncements, when effective, is not expected to have a material effect on the Company’s financial position or results of operations.