Business Description And Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Note 1 - Business Description And Summary Of Significant Accounting Policies

Business Description - Gyrotron Technology, Inc. (the "Company") is incorporated under the business laws of Delaware. The Company develops and seeks to license unique industrial technologies primarily to the glass, semiconductor, food, footwear, adhesives and plastics industries, providing a novel method for heating for industrial processing. It also develops, licenses, and sells autoclave-free laminating systems. The Company is organized and managed as a single operating segment.

Liquidity and Management Plans - As shown in the accompanying financial statements, the Company incurred a net loss for the years ended December 31, 2015 and 2014 of $720,783 and $916,203 , respectively, had negative working capital of $1,653,863 and stockholders' deficiency of $8,694,723 at December 31, 2015. Further, cash used in operating activities during the year ended December 31, 2015 amounted to $294,678. The Company is expected to continue to incur losses throughout 2016. These factors raise substantial doubt as to the ability of the Company to continue as a going concern.

The Company's business strategy is to overcome these losses through commercialization and continued development of (i) applications for the gyrotron beam which will be marketed and monetized through licensing, engineering consulting and servicing and (ii) the lamination system.

The Company's management and Board of Directors have obtained additional funding of approximately $198,000 through stockholder advances and loans and the sale of equity securities (see Notes 6 and 13) and intends to obtain additional funding for general working capital needs and professional fees through private placement of its equity securities. The Company will continually evaluate funding options including additional offerings of its securities to investors. There can be no assurance as to the availability or terms upon which such financing alternatives might be available.

Accounts Receivable - The Company grants credit to substantially all of its customers, and carries its accounts receivable at original invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on history of past write-offs, collections, and current credit conditions. The allowance for doubtful accounts amounted to $3,218 at December 31, 2015 and 2014.

Machinery and Equipment - Machinery and equipment are stated at cost net of accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using straight-line and accelerated methods for both financial statement and income tax reporting purposes. Maintenance and repairs are charged to operations as incurred; significant betterments are capitalized.

Patents - The Company capitalizes costs relative to patent applications. Patents are recorded at acquired cost and amortized over their estimated useful economic life of 15 years, beginning at the date of issuance. Costs incurred to renew or extend the term of recognized patents, including annuities and fees, are expensed as incurred.

Impairment of Long-Lived Assets - Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future cash flows of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined based on discounted cash flow or appraised values, depending on the nature of the assets. During the year ended December 31, 2015 there was an impairment of a patent in the amount of $6,168 included in operating expenses in the accompanying statement of operations. During the year ended December 31, 2014 there was no impairment of long-lived assets.

Income Taxes - The Company recognizes estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense.

Share-Based Payments - The Company accounts for stock option awards granted in accordance with Share-Based Payments Topic of the FASB Accounting Standards Codification (ASC) 718. Under ASC 718, compensation expense related to stock based payments is recorded over the requisite service period based on the grant date fair value of the awards. The Corporation uses the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of stock-based awards, including the option's expected term and the price volatility of the underlying stock.

Treasury Stock - The Company accounts for treasury stock under the cost method, which requires the Company to record the shares as a reduction to equity at the purchased amount.

Revenue Recognition - In accordance with Revenue Recognition Topic of the FASB Accounting Standards Codification (ASC) 605, the Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the Company's price to the customer is fixed or determinate, and collectability is reasonably assured.

Research and Development Expenses - Research and development expenses are charged to operations as incurred. Customer funded research and development is included within operating expenses in the accompanying statement of operations as a reduction of research and development expense.

Loss Per Common Share - Basic loss per common share is computed using the weighted average number of common shares outstanding. Diluted loss per common share gives effect to dilutive convertible preferred stock, options and warrants outstanding during the period. Shares to be issued upon the exercise of these instruments have not been included in the computation of diluted loss per share as their effect is anti-dilutive based on the net loss incurred.

As of December 31, 2015, after giving effect to the payment default on the Series B-1 redeemable convertible preferred described in Note 8, there were the following common shares underlying securities that could potentially dilute future earnings:

Preferred A stock			1,637,903
Preferred A-1 stock			232,163
Preferred A-2 stock			86,938
Preferred B stock			1,410,315
Preferred B-1 stock			2,391,173
Preferred B-2 stock			25,000
Warrants expiring 3/31/16			1,938,950
Warrants expiring 12/15/16			65,875
Warrants expiring 10/01/18			60,000
Stock options			60,000
			7,908,317

Accounting Estimates - The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of 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. Accordingly, actual results may differ from estimated amounts.

Fair Value of Financial Instruments - The carrying amount of cash, receivables, loans, advances, accounts payable and accrued expenses and other liabilities are reasonable estimates of their fair value due to their short maturity.

Redeemable Convertible Preferred Stock - The Company classifies conditionally redeemable convertible preferred shares, which includes preferred shares subject to redemption upon the occurrence of uncertain events not solely within control of the Company, as temporary equity in the mezzanine section of the balance sheet, in accordance with the guidance enumerated in FASB ASC No. 480-10 "Distinguishing Liabilities from Equity", FASB ASC No. 210-10 "Balance Sheet" and Rule 5-02.27 of Regulation S-X, when determining the classification and measurement of preferred stock.

The Company evaluated the detachable warrants in accordance with FASB ASC No. 470-20, "Debt with Conversion and Other Options" and FASB ASC 815, "Derivatives and Hedging" and determined they were not considered a liability. As a result, proceeds from the preferred stock are allocated to the detachable stock purchase warrants based on the relative fair value of the preferred stock and warrants at issuance and recorded as additional paid-in capital.

The Company evaluated the conversion feature of the convertible preferred shares in accordance with FASB ASC No. 470-20, "Debt with Conversion and Other Options". A convertible financial instrument includes a Beneficial Conversion Feature ("BCF") when the fair market value of the preferred stock is lower than the value of common stock when the preferred stock converts to common stock at the issuance date. The BCF shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in capital.

Redeemable securities initially are recorded at their fair value minus the detachable warrants, BCF and preferred stock issuance costs. The Company recognizes discounts from the redemption value of the preferred stock immediately as they occur and adjusts the carrying amount to equal redemption value at the end of each reporting period. The Company recognizes accumulated dividends as an increase to preferred stock in the mezzanine section of the balance sheet and increase of stockholders' deficiency.

Recent Accounting Pronouncements Not Yet Adopted - In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, subsequently extended to December 15, 2017. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures.

In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern." The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company is currently evaluating the effect that the updated standard will have on its financial statements and related disclosures.

In February 2016, the FASB issued an accounting standard update ASU 2016-02, "Leases", which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company has not yet evaluated nor has it determined the effect of the standard on its ongoing financial reporting.

GYROTRON TECHNOLOGY INC 10-K