1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair representation have been included. Operating results for the three months and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. These financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission.

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 certain estimates and assumptions. These estimates and assumptions affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates.

Pre-Contract and Pre-Production Costs under Long-Term Supply Contracts

The accounting policies remain consistent with the disclosure in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010. This disclosure is to add clarification to the revenue recognition and pre-production costs accounting policies.

The Company accounts for certain long-term contracts utilizing the contract accounting method. Under this guidance, the Company capitalizes costs associated with its performance under these executed contracts, which generally include design and development costs. In certain circumstances, the Company capitalizes costs incurred prior to the execution of the contract with the customer. These circumstances are limited to instances in which the Company has substantially negotiated the terms and conditions of the anticipated contract with its customers and concluded that their recoverability from the anticipated contract is probable. As these costs are directly associated with a specific anticipated contract and they are concluded to be recoverable under that anticipated contract, the Company has capitalized these amounts.

The Company may incur design and development costs prior to the production phase of contracts that are outside the scope of the contract accounting method. These pre-production costs are generally related to costs the Company incurs to design and build tooling that is owned by the customer and design and engineering services. The Company receives the non-cancellable right to use these tools to build the parts as specified in a contractual agreement and therefore has capitalized these costs. In certain instances, the Company enters into agreements with its customers that provide it a contractual guarantee for reimbursement of design and engineering services incurred prior to the production phase of a contract. Due to the contractual guarantee, the Company capitalizes the costs of these services. The pre-production costs are amortized to cost of sales over the life of the contractual agreement.

Reclassifications

Certain reclassifications have been made to the prior period cash flow statement in order to conform to current period presentation.

Revisions

During the third quarter of 2010, the Company identified certain costs that were improperly presented in the cost of service revenue line item in the Condensed Consolidated Statement of Operations that should have been presented in the cost of product sales line item for three and six months ended June 30, 2010. The three and six month periods ended June 30, 2011 appropriately reflects those costs in the line items. This revision had no impact on total cost of sales, consolidated gross profit, income from operations or net income for the periods affected. Furthermore, the revision had no impact to the Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Cash Flows, the Notes to the Condensed Consolidated Financial Statements, or Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Form 10-Q for the period ending June 30, 2010. The Company assessed the impact of the adjustment on the Company's financial statements for this period and concluded that they are not materially misstated. The following table illustrates the changes that have been made to the Company's Condensed Consolidated Statement of Operations for the three and six month periods ended June 30, 2010:

	For the three months ended				For the six months ended
	ended June 30, 2010				ended June 30, 2010
	As Previously		As		As Previously		As
	Presented		Revised		Presented		Revised
Sales and service revenue
Product sales	$	36,657	$	36,657	$	76,901	$	76,901
Service revenue		19,288		19,288		39,459		39,459
Net sales		55,945		55,945		116,360		116,360
Cost of sales and service revenue
Cost of product sales		25,021		27,030		52,797		56,546
Cost of service revenue		17,699		15,690		35,932		32,183
Cost of sales		42,720		42,720		88,729		88,729
Gross profit	$	13,225	$	13,225	$	27,631	$	27,631

Recent Accounting Standards

In May 2011, an update was made by the Financial Accounting Standards Board (“FASB”) to achieve common fair value measurement and disclosure requirements in U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). It provides amendments to the definition of fair value and the market participant concept, grants an exception for the measurement of financial instruments held in a portfolio with certain offsetting risks, and modifies most disclosures. The changes in disclosures include, for all Level 3 fair value measurements, quantitative information about significant unobservable inputs used and a description of the valuation processes in place. The new guidance also requires disclosure of the highest and best use of a nonfinancial asset. This standard will be effective prospectively during interim and for annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The adoption is not expected to have a significant impact on the Company's consolidated financial statements.