| REVENUES: ADOPTION OF ASC 606 | NOTE 2: REVENUES: ADOPTION OF ASC 606, “REVENUE FROM CONTRACTS WITH CUSTOMERS” On January 1, 2018, we adopted ASC Topic 606
(“ASC 606”) using the modified retrospective method applied to those contracts which were not completed as of January
1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts
are not adjusted and continue to be reported in accordance with our historic accounting under Revenue Recognition ASC Topic 605. There was no significant impact upon the adoption
of ASC 606. We did not record any adjustments to opening retained earnings as of January 1, 2018 because the Company’s revenue
recognition methodologies for both fixed price contracts (over time using cost to cost as an input measure of performance) and
for service contracts (over time as services are incurred) do not materially change by the adoption of the new standard. Revenues are recognized when control of the
promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled
to in exchange for those goods or services. To determine the proper revenue recognition method for our customer contracts, we evaluate
whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract
should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision
to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change
the amount of revenue and profit recorded in a given period. For most of our fixed price contracts, the customer contracts with
us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even
if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance
obligation. We account for a contract when it has approval
and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial
substance and collectability of consideration is probable. Disaggregation of Revenue The following table presents our revenues disaggregated
by revenue sources of fixed price and service contracts. Sales taxes are excluded from revenues. Three Months Ended June 30, 2018 Compared
to Three Months Ended June 30, 2017
June 30, 2018 June 30, 2017
Fixed Price Contracts $ 1,090 $ 749
Service Contracts 3,014 4,630
Total $ 4,104 $ 5,379 Six Months Ended June 30, 2018 Compared to
Six Months Ended June 30, 2017
June 30, 2018 June 30, 2017
Fixed Price Contracts $ 2,933 $ 2,419
Service Contracts 4,877 8,568
Total $ 7,810 $ 10,987 Fixed price contracts For fixed price contracts, we generally recognize
revenue over time as we perform because of continuous transfer of control to the customer. This continuous transfer of control
to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience,
pay us for costs incurred plus a reasonable profit and take control of any work in process. Additionally, in other fixed price
contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our
rights to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative
use to the Company. Because of control transferring over time, revenue
is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to
measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We
generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer
which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion
is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.
Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Contracts are often modified to account for
changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates
new, or changes the existing, enforceable rights and obligations. Most of our contract modifications are for goods or services
that are not distinct from the existing contract due to the significant integration service provided in the context of the contract
and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction
price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue
(either as an increase in or a reduction of revenue) on a cumulative catch-up basis. We have a companywide standard and disciplined
quarterly estimate at completion (EAC) process in which management reviews the progress and execution of our performance obligations.
As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress
towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of
revenues and costs. Changes in estimates of net sales, cost of sales and the related impact to operating income are recognized
quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current
and prior periods based on a performance obligation’s percentage of completion. A significant change in one or more of these
estimates could affect the profitability of one or more of our performance obligations. When estimates of total costs to be incurred
exceed total estimates of revenue to be earned on a performance obligation related to fixed price contracts, a provision for the
entire loss on the performance obligation is recognized in the period the loss is estimated. Service Contracts We recognize revenue for service contracts measuring
progress toward satisfying the performance obligation in a manner that best depicts the transfer of goods or services to the customer.
The control over services is transferred over time when the services are rendered to the customer on a daily basis. Specifically,
we recognize revenue as the services are provided as we have the right to invoice the customer for the services performed. Services
are billed and paid on a monthly basis. Payment terms for services are usually 30 days from invoice receipt. Contract balances Costs and estimated earnings in excess of billings
on uncompleted contracts arise when revenues are recorded on a percentage-of-completion basis but cannot be invoiced under the
terms of the contract. Such amounts are invoiced upon completion of contractual milestones. Billings in excess of costs and estimated
earnings on uncompleted contracts arise when milestone billings are permissible under the contract, but the related costs have
not yet been incurred. All contract costs are recognized currently on jobs formally approved by the customer and contracts are
not shown as complete until virtually all anticipated costs have been incurred and the risk of loss has passed to the customer. Assets related to costs and estimated earnings
in excess of billings on uncompleted contracts, as well as liabilities related to billings in excess of costs and estimated earnings
on uncompleted contracts, have been classified as current. The contract cycle for certain long-term contracts may extend beyond
one year, thus complete collection of amounts related to these contracts may extend beyond one year, though such long-term contracts
include contractual milestone billings as discussed above. As of June 30, 2018, we had no contracts whose term extended beyond
one year. The following table summarizes our contract
assets, which are “Costs and estimated earnings in excess of billings on uncompleted contracts” and our contract liabilities,
which are “Billings in excess of costs and estimated earnings on uncompleted contracts”.
June 30, 2018 December 31, 2017
Costs incurred on uncompleted contracts $ 8,749 $ 9,564
Estimated earnings on uncompleted contracts 9,019 10,741
17,768 20,305
Less: Billings to date on uncompleted contracts (17,356 ) (19,992 )
$ 412 $ 313
Included in the accompanying unaudited condensed consolidated
balance sheets under the following captions:
Contract Assets $ 653 $ 925
Contract Liabilities (241 ) (612 )
$ 412 $ 313 The balance in contract assets at June 30, 2018
and December 31, 2017 consisted primarily of earned but unbilled revenues related to fixed-price contracts. The balance in contract liabilities at June
30, 2018 and December 31, 2017 consisted primarily of unearned billings related to fixed-price contracts. Remaining Performance Obligations Remaining performance obligations represent
the transaction price of firm orders for which work has not been performed and excludes unexercised contract options and potential
orders and also any remaining performance obligations for any sales arrangements that had not fully satisfied the criteria to be
considered a contract with a customer pursuant to the requirements of ASC 606. As of June 30, 2018, all of our fixed price
contracts are short-term in nature with a contract term of one year or less. Practical Expedients and Exemptions We generally expense sales commissions when
incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and
administrative expenses. Many of our services contracts are short-term
in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14
exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance
obligation is part of a contract that has an original expected duration of one year or less. Additionally, our payment terms are short-term
in nature with settlements of one year or less. We have, therefore, utilized the practical expedient in ASC 606-10-32-18 exempting
the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that
the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good
or service will be one year or less. Further, in many of our service contracts we
have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance
completed to date (for example, a service contract in which we bill a fixed amount for each hour of service provided). For those
contracts, we have utilized the practical expedient in ASC 606-10-55-18, which allows us to recognize revenue in the amount for
which we have the right to invoice. Accordingly, we do not disclose the value of
unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for
which we recognize revenue at the amount to which we have the right to invoice for services performed. |
