NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2013

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Principles of Consolidation

        The consolidated financial statements include the accounts of our wholly owned subsidiary, Manufacturing Assembly Solutions of Monterrey, Inc. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, allowance for doubtful accounts and realizability of deferred tax assets. Actual results could differ from those estimates.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

        We grant credit to customers in the normal course of business. Accounts receivable are unsecured and are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts was $138,000 and $157,000 at December 31, 2013 and 2012, respectively. We determine our allowance by considering a number of factors, including the length of time accounts receivable are past due, our previous loss history, the customers' current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for uncollectible accounts.

Inventories

Inventories

        Inventories are stated at the lower of cost (first-in, first-out method) or market (based on the lower of replacement cost or net realizable value). Costs include material, labor, and overhead required in the warehousing and production of our products. Inventory reserves are maintained for inventories that may have a lower value than stated or quantities in excess of future production needs.

        Inventories are as follows:

	2013			2012
Raw materials	$	12,282,902		$	13,325,525
Work in process		3,317,573			2,704,653
Finished goods		2,926,512			3,108,839
Reserves		(1,099,517	)		(1,474,155	)
Total	$	17,427,470		$	17,664,862

Property, Equipment and Depreciation

Property, Equipment and Depreciation

        Property and equipment are stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized, while maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operations. Leasehold improvements are depreciated over the shorter of their estimated useful lives or their remaining lease terms. All other property and equipment are depreciated by the straight-line method over their estimated useful lives, as follows:

Buildings	39 Years
Leasehold improvements	3-15 Years
Manufacturing equipment	3-7 Years
Office and other equipment	3-7 Years

        Property and equipment at December 31, 2013 and 2012:

	2013			2012
Land	$	375,000		$	375,000
Building and Leasehold Improvements		9,116,429			8,997,813
Manufacturing Equipment		15,953,227			15,065,683
Office and Other Equipment		4,535,897			4,539,291
Accumulated Depreciation		(18,943,393	)		(17,411,472	)
Net Property and Equipment	$	11,037,160		$	11,566,315

Other Assets

Other Assets

        Assets held for sale consisted of property related to closed facilities that are currently being marketed for disposal. Assets held for sale are reported at the lower of their carrying value or estimated fair value less costs to sell and are no longer being depreciated.

        At December 31, 2012, land of $12,500 and one building, net of accumulated depreciation, of $117,003 were classified as held for sale and shown in Other Assets on the balance sheet. These assets were sold in 2013.

        Other Assets also include capitalized bond issue costs. The amortized cost of this asset is $39,687 and $44,978 at December 31, 2013 and 2012, respectively. Related amortization expense for 2013 and 2012 was $5,291 and $16,569, respectively. Estimated future annual amortization expense for the asset is approximately $5,000 per year through 2021 when the related bond matures.

Impairment Analysis

Impairment Analysis

        We evaluate long-lived assets, primarily property and equipment, as well as the related depreciation periods, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value. Assets held for sale are reported at the lower of the carrying amount or fair value less costs to dispose. We recorded impairment charges in 2013 and 2012 of $74,000 and $127,000, respectively, related to assets held for sale. Impairment charges have been included in general and administrative expenses in the consolidated statements of income.

Preferred Stock

Preferred Stock

        Preferred stock issued is non-cumulative and nonconvertible. The holders of the preferred stock are entitled to a non-cumulative dividend of 12% when and as declared. In liquidation, holders of preferred stock have preference to the extent of $1.00 per share plus dividends accrued but unpaid. No preferred stock dividends were declared or paid during the years ended December 31, 2013 and 2012.

Revenue Recognition

Revenue Recognition

        We recognize revenue upon shipment of manufactured products to customers, when title has passed, all contractual obligations have been satisfied and collection of the resulting receivable is reasonably assured. We also provide engineering services separate from the manufacture of a product. Revenue for engineering services is generally recognized upon completion of the engineering process, providing standalone fair value to our customers. In addition, we have another separate source of revenue that comes from short-term repair services, which are recognized upon completion of the repairs, and the repaired products are shipped back to the customer. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold.

Product Warranties

Product Warranties

        We provide limited warranty for the replacement or repair of defective product within a specified time period after the sale at no cost to our customers. We make no other guarantees or warranties, expressed or implied, of any nature whatsoever as to the goods including, without limitation, warranties to merchantability, fit for a particular purpose or non-infringement of patent or the like unless agreed upon in writing. We estimate the costs that may be incurred under our limited warranty and provide a reserve based on actual historical warranty claims coupled with an analysis of unfulfilled claims at the balance sheet date. Our warranty claim costs are not material given the nature of our products and services.

Advertising

Advertising

        Advertising costs are charged to operations as incurred. The total amount charged to expense was $146,000 and $219,000 for the years ended December 31, 2013 and 2012, respectively.

Income Taxes

Income Taxes

        We account for income taxes under the asset and liability method. Deferred income tax assets and liabilities are recognized annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Stock-Based Compensation

Stock-Based Compensation

        We account for stock-based compensation in accordance with ASC Topic 718, Compensation—Stock Compensation. Stock-based compensation expense was approximately $13,000 for 2013 and $0 for 2012. See Note 6 for additional information.

Net Income Per Common Share

Net Income Per Common Share

        Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Dilutive net income per common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average number of common shares outstanding, unless their effect is antidilutive. For the year ended December 31, 2013, 189,250 option shares were excluded because their inclusion would be antidilutive. For the year ended December 31, 2012, no outstanding options were included in the computation of dilutive per-share amounts as the effect of all outstanding stock-based awards were antidilutive.

        A reconciliation of basic and diluted share amounts for the years ended December 31, 2013 and 2012 is as follows:

	2013		2012
Basic weighted average common shares outstanding		2,742,992		2,742,992
Weighted average common stock equivalents from assumed exercise of stock options		1,144		—
Diluted weighted average common shares outstanding		2,744,136		2,742,992

Enterprise-Wide Disclosures

Enterprise-Wide Disclosures

        Our results of operations for the years ended December 31, 2013 and 2012 represent a single reportable segment referred to as Contract Manufacturing within the Electronic Manufacturing Services (EMS) industry. We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers' requirements. We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and all corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources.

        Export sales represent approximately 12% and 7% of consolidated net sales for the years ended December 31, 2013 and 2012, respectively.

        Net sales by our major EMS industry markets for the years ended December 31, 2013 and 2012 are as follows:

(in thousands)	2013		2012
Aerospace and Defense	$	19,879	$	15,698
Medical		35,429		32,532
Industrial		55,750		58,707
Total Net Sales	$	111,058	$	106,937

        Noncurrent assets, excluding deferred taxes, by country are as follows:

	United States		Mexico		Total
2013
Net property and equipment	$	10,560,184	$	476,976	$	11,037,160
Other assets		114,693		7,726		122,419
2012
Net property and equipment	$	11,177,694	$	388,621	$	11,566,315
Other assets		249,487		7,726		257,213

Foreign Currency Transactions

Foreign Currency Transactions

        Foreign exchange transaction gains and losses attributable to exchange rate movements related to transactions made in the local currency and on intercompany receivables and payables not deemed to be of a long-term investment nature are recorded in other income (expense).

Recent Accounting Pronouncements

Recent Accounting Pronouncements

        In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists", which states that entities should present the unrecognized tax benefit as a reduction of the deferred tax asset for a net operating loss ("NOL") or similar tax loss or tax credit carryforward rather than as a liability when the uncertain tax position would reduce the NOL or other carryforward under the tax law. We will be required to adopt this new standard on a prospective basis in the first interim reporting period of fiscal 2014. We are currently evaluating the impact, if any, that this new standard will have on its Consolidated Financial Statements.