NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Since the date of the Annual Report on Form 10-K for the year ended December 31, 2019, there have been no material changes to the Company’s significant accounting policies, except as disclosed in this note.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. A significant portion of the Company’s cash is held at one major financial institution. The Company has not experienced any losses in such accounts. Cash held in US bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. There was an uninsured balance of $2,559,656 as of September 30, 2020 and no uninsured cash balances as of December 31, 2019.

Customer and Revenue Concentrations

The Company had certain customers whose revenue individually represented 10% or more of the Company's total revenue, or whose accounts receivable balances individually represented 10% or more of the Company's total accounts receivable, as follows:


	Revenues								Accounts Receivable
	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,				As of		As of
	2020		2019		2020		2019		September 30, 2020		December 31, 2019

Customer A	*		67	%	*		46	%	*		*
Customer B	*		14	%	*		10	%	23	%	*
Customer C	*		*		*		*		*		33	%
Customer D	*		*		*		*		*		17	%
Customer E	*		*		*		*		*		20	%
Customer F	*		*		*		*		*		19	%
Customer G	35	%	*		44	%	*		*		*
Customer H	*		*		*		15	%	*		*
Customer I	26	%	*		*		*		56	%	*
Customer J	*		*		12	%	*		*		*
Customer K	12	%	*		*		*		10	%	*
All other customers	27	%	19	%	44	%	29	%	11	%	11	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

*Less than 10%

There is no assurance the Company will continue to receive significant revenues from any of these customers. Any reduction or delay in operating activity from any of the Company’s significant customers, or a delay or default in payment by any significant customer, or termination of agreements with significant customers, could materially harm the Company’s business and prospects. As a result of the Company’s significant customer concentrations, its gross profit and results from operations could fluctuate significantly due to changes in political, environmental, or economic conditions, or the loss of, reduction of business from, or less favorable terms with any of the Company’s significant customers.

Vendor Concentrations

As of September 30, 2020 and December 31, 2019, certain vendors represented 10% or more of the Company's total accounts payable, as follows:


	Accounts Payable
	As of		As of
	September 30, 2020		December 31, 2019

Vendor A	*		15	%
Vendor B	*		16	%
Vendor C	*		17	%
Vendor D	*		12	%
Vendor E	47	%	*
Vendor F	10	%	*
All other vendors	43	%	40	%
	100	%	100	%

*Less than 10%

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of 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. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process, including 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 following five steps are applied to achieve that core principle:

Step 1: Identify the contract with the customer;

Step 2: Identify the performance obligations in the contract;

Step 3: Determine the transaction price;

Step 4: Allocate the transaction price to the performance obligations in the contract; and

Step 5: Recognize revenue when the company satisfies a performance obligation.

The Company recognizes revenue primarily from the following different types of contracts:

Product sales – Revenue is recognized at the point in time the customer obtains control of the goods and the Company satisfies its performance obligation, which is generally at the time it ships the product to the customer.

Contract services – Revenue is recognized at the point in time that the Company satisfies its performance obligation under the contract, which is generally at the time the services are fulfilled and/or accepted by the customer.

The following table summarizes the revenue recognized in the unaudited condensed consolidated statements of operations:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019

Product sales	$	136,849	$	464,772	$	235,979	$	686,522
Contract services		—		61,950		179,498		91,462
Total revenue	$	136,849	$	526,722	$	415,477	$	777,984

As of September 30, 2020, and December 31, 2019, the Company had $36,600 and $15,000, respectively, of deferred revenue, from contracts with customers. The contract liabilities represent payments received from customers for which the Company had not yet satisfied its performance obligation under the contract, or the customers have not officially accepted the goods or services provided under the contract. During the nine months ended September 30, 2020, the Company recognized $15,000 of revenues that were included in deferred revenue as of December 31, 2019.

Sequencing Policy

Under ASC 815-40-35 (“ASC 815”), the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities as compensation in a share-based payment arrangement are not subject to the sequencing policy.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus the impact of common shares, if dilutive, resulting from the exercise of outstanding stock options and warrants and the conversion of convertible instruments.

The following shares were excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:


	As of
	September 30,
	2020	2019

Series B Convertible Preferred Stock	698,600	724,350
Series C Convertible Preferred Stock	189,000	206,800
Options	395,000	400,000
Warrants	210,025	201,700
Total	1,492,625	1,532,850

Reclassifications

Certain prior period balances have been reclassified in order to conform to the current period presentation. These reclassifications have no effect on previously reported results of operations or loss per share.