NOTE

REVENUE

Revenue recognition

Our revenue is comprised of product, engineering services and repair services. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation, as the promise to transfer products or services is

not

separately identifiable from other promises in the contract and, therefore,

not

distinct.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances and customer discounts. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.

The majority of our revenue is derived from the transfer of goods produced under contract manufacturing agreements which have

alternative use and we have an enforceable right to payment for our performance completed to date. Our performance obligations within our contract manufacturing agreements are generally satisfied over time as the goods are produced based on customer specifications and we have an enforceable right to payment for the goods produced. If these requirements are

not

met, the revenue is recognized at a point in time, generally upon shipment. Revenue under contract manufacturing agreements that was recognized over time accounted for approximately

91%

of our revenue for both the

three

and

six

months ended

June 30, 2019.

Revenues under these agreements are generally recognized over time using an input measure based upon the proportion of actual costs incurred.

Accounting for contract manufacturing agreements involves the use of various techniques to estimate total revenue and costs. We estimate profit on these agreements as the difference between total estimated revenue and expected costs to complete the performance obligation within the terms of the agreement and recognize the respective profit as the goods are produced. The estimates to determine the profit earned on the performance obligation are based on anticipated selling prices and historical cost of goods sold and represent our best judgement at the time. Changes in judgements on these above estimates could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated profit.

On occasion our customers provide materials to be used in the manufacturing process and the fair value of the materials is included in revenue as noncash consideration at the point in time when the manufacturing process commences along with the same corresponding amount recorded as cost of goods sold. The inclusion of noncash consideration has

impact on overall profitability.

Contract Assets

Contract assets, recorded as such in the Condensed Consolidated Balance Sheet, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the

three

and

six

months ended

June 30, 2019

was as follows (in thousands):

Six Months Ended June 30, 2019
Outstanding at January 1, 2019	$	6,431
Increase (decrease) attributed to:
Transferred to receivables from contract assets recognized		(4,985	)
Product transferred over time		5,782
Outstanding at June 30, 2019	$	7,228

We expect substantially all the remaining performance obligations for the contract assets recorded as of

June 30, 2019,

to be transferred to receivables within

days, with any remaining amounts to be transferred within

180

days. We bill our customers upon shipment with payment terms of up to

120

days.

The following tables summarize our net sales by market for the

three

and

six

months ended

June 30, 2019 (

in thousands):

	Three Months Ended June 30, 2019
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration		Total Net Sales by Market
Aerospace and Defense	$	4,155	$	222	$	205	$	4,582
Medical		13,145		218		661		14,024
Industrial		7,428		878		380		8,686
Total net sales	$	24,728	$	1,318	$	1,246	$	27,292

	Six Months Ended June 30, 2019
	Product/ Service Transferred Over Time		Product Transferred at Point in Time		Noncash Consideration		Total Net Sales by Market
Aerospace and Defense	$	8,258	$	242	$	327	$	8,827
Medical		27,640		253		1,070		28,963
Industrial		15,568		1,475		624		17,667
Total net sales	$	51,466	$	1,970	$	2,021	$	55,457