Effective April 1, 2018, the Company adopted the requirements of ASU 2014-09, which provides a single revenue recognition model for the transfer of promised goods or services in a manner reflective of the consideration we are entitled to in exchange for those goods or services. The Company applied the new revenue guidance retrospectively with a cumulative effect adjustment to retained earnings at April 1, 2018 for initial application of the guidance (modified retrospective method). Results for reporting periods beginning after April 1, 2018, are presented under ASC 606, while prior period amounts are not adjusted and are reported in accordance with the Company's historic accounting practices under ASC 605.

With the adoption of ASC 606 the Company changed its revenue recognition model to reflect recognition of revenue at a point in time, or over time using an inputs based methodology that recognizes revenue on cost incurred and labor hours expended, which is different than the units of delivery methodology previously utilized under ASC 605. The Company also modified and expanded its disclosures as they relate to revenues and contract balances under ASC 606.

In conformity with the new revenue guidelines, unbilled accounts receivable are classified as contract assets and advance payments and billings in excess of revenue are classified as contract liabilities as of September 30, 2018 and March 31, 2018.

The adoption of ASC 606 resulted in a cumulative increase to retained earnings of $19,647, net of $7,385 of tax expense, as of April 1, 2018, driven by changes in contract assets and liabilities. For the three and six months ended September 30, 2018, net sales increased by approximately $1.4 million and $3.8 million, respectively, due to the change in revenue recognition when compared to ASC 605. Under ASC 605 the Company did not recognize revenue prior to delivery if payment, title, risk of loss was tied to delivery. The new guidance has been applied to all incomplete contracts at the date of initial application. The following table compares the opening and closing balances for inventories, contract assets and contract liabilities:

The following tables summarize the impact of the adoption of ASC 606 on the condensed consolidated financial statements. The adjustments are the result of timing differences between the recognition of revenue under ASC 606 and ASC 605. Under ASC 605 the Company did not recognize revenue prior to delivery if payment, title, or risk of loss was tied to delivery. Under ASC 606, the Company generally recognizes revenue over time prior to delivery, as control over the promised goods and services transfers to the customer.

Condensed Consolidated Balance Sheet:	September 30, 2018
ASSETS	As reported		Adjustments			ASC 605
Contract assets	$	5,557,489	$	(5,557,489	)	$	—
Inventories	$	2,119,496	$	2,007,272		$	4,126,768
Deferred tax assets	$	2,346,141	$	462,137		$	2,808,278
LIABILITIES
Contract liabilities	$	2,393,881	$	(1,864,483	)	$	529,398
Accrued expenses	$	787,676	$	13,022		$	800,698
SHAREHOLDERS’ EQUITY
Retained earnings	$	237,763	$	(1,236,618	)	$	(998,855	)

Condensed Consolidated Statement of Operations:	Three months ended September 30, 2018
	As reported		Adjustments			ASC 605
Net sales	$	3,621,185	$	(1,381,990	)	$	2,239,195
Cost of sales	$	2,526,085	$	(624,601	)	$	1,901,484
Selling, general and administrative	$	751,037	$	(512	)	$	750,525
Income (loss) before income taxes	$	258,089	$	(756,875	)	$	(498,786	)
Income tax provision (benefit)	$	77,374	$	(210,502	)	$	(133,128	)
Net income (loss)	$	180,715	$	(546,374	)	$	(365,659	)
Net income (loss) per share – basic	$	0.01	$	(0.02	)	$	(0.01	)
Net income (loss) per share – diluted	$	0.01	$	(0.02	)	$	(0.01	)

Condensed Consolidated Statement of Operations:	Six months ended September 30, 2018
	As reported		Adjustments			ASC 605
Net sales	$	7,720,008	$	(3,848,971	)	$	3,871,037
Cost of sales	$	5,572,384	$	(2,175,821	)	$	3,396,563
Selling, general and administrative	$	1,481,502	$	(1,426	)	$	1,480,076
Income (loss) before income taxes	$	487,503	$	(1,671,723	)	$	(1,184,220	)
Income tax provision (benefit)	$	142,403	$	(454,752	)	$	(312,349	)
Net income (loss)	$	345,100	$	(1,216,972	)	$	(871,872	)
Net income (loss) per share – basic	$	0.01	$	(0.04	)	$	(0.03	)
Net income (loss) per share – diluted	$	0.01	$	(0.04	)	$	(0.03	)

Condensed Consolidated Statement of Cash Flows:	Six months ended September 30, 2018
	As reported			Adjustments			ASC 605
Net income	$	345,100		$	(1,216,972	)	$	(871,872	)
Adjustments to reconcile net income to net cash used in operating activities:
Change in contract loss provision	$	15,255		$	34,509		$	49,764
Deferred income taxes	$	142,403		$	(462,137	)	$	(319,734	)
Changes in operating assets and liabilities:
Inventories	$	(1,142,803	)	$	(2,007,272	)	$	(3,150,075	)
Contract assets	$	(3,501,075	)	$	5,557,489		$	2,056,414
Accrued expenses	$	121,343		$	(41,134	)	$	80,209
Contract liabilities	$	1,503,079		$	(1,864,483	)	$	(361,404	)

Effective April 1, 2018, the Company adopted ASU 2016-16,

Income Taxes (Topic 740): Intra Entity Transfers of Assets Other Than Inventory

. The guidance in ASU 2016-16 requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. As such, the Company was required to remeasure an unrecognized deferred tax asset created from the repurchase of land and building from a certain variable interest entity in 2010. The modified retrospective approach was used to transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. The adoption of ASU 2016-16 resulted in a cumulative increase to retained earnings of $0.4 million as of April 1, 2018.

In July 2018, the

Financial Accounting Standards Board, or

FASB, issued ASU 2018-11,

Leases (Topic 842): Targeted Improvements

. This amendment provides entities with an additional and optional transition method to adopt the new leases standard. Under the new transition method, an entity can initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 840,

Leases

). ASU 2018-11 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early application permitted. We are currently evaluating the impact ASU 2018-11 will have on our financial statements and disclosures.

In June 2018, the FASB issued ASU 2018-07,

Compensation – Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting.

This guidance expands the scope of accounting for share-based payment arrangements to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating our adoption timing and the impact ASU 2018-07 will have on our financial statements.

In February 2016, the FASB issued ASU 2016-02,

Leases (Topic 842)

. Under this amendment, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early application permitted. We are currently evaluating the impact ASU 2016-02 will have on our financial statements and disclosures.