Note 3 - Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Note 3 – Significant Accounting Policies

Revenue Recognition

The Company is engaged in research and development contracts with the federal government to develop certain technology to be utilized by the US Department of Defense. The contracts are cost plus fixed fee contracts and revenue is recognized based on the extent of progress towards completion of the long term contract.

Revenues are recognized as costs are incurred and include estimated earned fees, or profit, calculated on the basis of the relationship between costs incurred and total estimated costs at completion.  Under the terms of certain contracts, fixed fees are not recognized until the receipt of full payment has become unconditional, that is, when the product has been delivered and accepted by the federal government.  Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed.  The Company’s backlog primarily consists of future engineering services for the ADEPT Distance Support Sense Suite system and ADEPT units to be developed and delivered to the federal government.  

Unbilled revenue reflects work performed, but not billed at the time, per contractual requirements. As of September 30, 2013 and December 31, 2012, the Company had unbilled revenues of $16,130 and $0, respectively, and are included in accounts receivable.  Billings to customers in excess of revenue earned are classified as advanced billings, and shown as a liability.  As of September 30, 2013 and December 31, 2012, the Company had no advanced billings.  As of September 30, 2013, the Company had six ADEPT units remaining to be delivered under the Indefinite-Delivery, Indefinite-Quantity (“IDIQ”) agreement. During October 2013, the Company delivered four of these units, with the remaining two units expected to be delivered prior to the end of 2013.

Warranty Expense

The Company provides a limited warranty, as defined by the related warranty agreements, for its production units.  The Company’s warranties require the Company to repair or replace defective products during such warranty period. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company’s warranty liability include the number of units sold, expected and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. The Company reversed warranty expense of $3,901 and $24,500 for the three months ended September 30, 2013 and 2012, respectively. The Company recognized warranty expense of $13,894 for the nine months ended September 30, 2013. For the nine months ended September 30, 2012, the Company reversed $32,400 of warranty expense. Since the inception of the IDIQ contract in March 2010, the Company has delivered 116 ADEPT units.  As of September 30, 2013, there are 71 ADEPT units that remain under the limited warranty coverage.  As of September 30, 2013 and December 31, 2012, the Company had an accrued warranty expense of $83,549 and $69,655, respectively.

Research and Development Costs

Research and Development expenditures for research and development of the Company's products are expensed when incurred, and are included in general and administrative expenses. The Company recognized research and development costs of $3,188 and $21,809 for the three months ended September 30, 2013 and 2012, respectively, and $78,672 and $49,547 for the nine months ended September 30, 2013 and 2012, respectively.