NOTE

– REVENUE RECOGNITION

Effective

January 1, 2018,

the Company adopted a new accounting standard with regard to revenue from customers. The Company elected the modified retrospective approach for adoption of this new standard, as is allowed by the standard. The Company did

not

have any significant impact from this standard as of the date of the adoption.

Revenue Recognized from Contracts with Customers

100%

of the Company’s revenue is due to contracts with its customers. These contracts typically take the form of invoices for purchase of materials from the Company. The performance obligation is the delivery of these materials to customer control. Nearly

97%

of the Company’s current revenue is produced from the sale of carpet, resilient flooring and related products (TacTiles installation materials, etc.) and the revenue from sales of these products is recognized upon shipment, or in certain cases upon delivery to the customer. The transaction price for these sales is readily identifiable.

The remaining revenue generated by the Company is for contracts to sell and install carpet and related products at customer locations. For projects underway, the Company recognized installation revenue over time as the customer simultaneously received and consumed the benefit of the services. The installation of the carpet and related products is a separate performance obligation from the sale of carpet. The majority of these projects are completed within

days of the start of installation. The transaction price for these sale and installation contracts is readily determinable between flooring material and installation services and is specifically identified in the contract with the customer.

The Company has utilized the portfolio approach to its contracts with customers, as its contracts with customers have similar characteristics and it is reasonable to expect that the effects from applying this approach are

not

materially different from applying the accounting standard to individual contracts.

The Company does

not

have any other significant revenue streams outside of these sales of flooring material, and the sale and installation of flooring material, as described above.

Impairment Losses

The Company does

not

recognize any impairment losses related to its revenue contracts due primarily to the short-term and straightforward nature of these contracts.

Disaggregation of Revenue

For the

first

nine

months ended

September 30, 2018,

revenue from the Company’s customers is broken down by geography as follows:

Geography	Percentage of Net Sales
Americas		58.7%
Europe		26.2%
Asia-Pacific		15.1%

Revenue from sales of carpet, modular resilient flooring, rubber flooring, and other flooring-related material was approximately

97%

of total revenue for the

nine

months ended

September 30, 2018.

The remaining

of revenue was generated from the installation of carpet and other flooring-related material.

Performance Obligations

As noted above, the Company primarily generates revenue through the sale of flooring material to end users either upon shipment or upon arrival of the product at its destination. In these instances, there typically is

other obligation to the customers other than the delivery of flooring material with the exception of warranty. The Company does offer a warranty to its customers which guarantees certain on-floor performance characteristics and warrants against manufacturing defects. The warranty is

not

a service warranty, and there is

ability to separate the warranty obligation from the sale of the carpet or purchase them separately. The Company’s incidence of warranty claims is extremely low, with approximately

0.2%

of revenue in claims on an annual basis for the last

three

fiscal years. Given the nature of the warranty as well as the financial impact, the Company has determined that there is

need to identify this warranty as a separate performance obligation and the Company will continue to account for warranty on an accrual basis.

For the Company’s installation business, the sales of carpet and other flooring materials and installation services are separate deliverables which under the revenue recognition requirements should be characterized as separate performance obligations. The Company historically has

not

separated these obligations and has accounted for these installation projects on a completed contract basis. The nature of the installation projects is such that the vast majority – an amount in excess of

90%

of these installation projects – are completed in less than

days. The Company’s largest installation customers are retail and corporate customers, and these are on a project-by-project basis and are short term installations. The impact of bifurcating the carpet sale from the installation sale is

not

considered to be material to the total Company. The Company has, however, evaluated these projects at the end of the reporting period and recorded revenue in accordance with the accounting standards for projects which were underway as of the end of the

third

quarter of

2018.

Costs to Obtain Contracts

The Company pays sales commissions to many of its sales personnel based upon their selling activity. These are direct costs associated with obtaining the contracts. Under the accounting standard, these costs should be expensed as the revenue is earned. As these commissions become payable upon shipment (or in certain cases delivery) of product, the commission is earned as the revenue is recognized. Due to this fact pattern, there is

change to the Company’s accounting for these selling commissions. There are

other material costs the Company incurs as part of obtaining the sales contract.