NOTE

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Income Recognition

January 1, 2018,

we adopted accounting standard ASC

606,

Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts

not

yet completed as of the adoption date. Results for reporting periods beginning

January 1, 2018

are presented under ASC

606,

while prior period amounts were

not

adjusted.

The adoption of ASC

606

did

not

have a significant impact on our Consolidated Financial Statements as of and for the

three

month period ended

March 31, 2018

and, as a result, comparisons of revenues and operating profits performance between periods are

not

affected by the adoption of this ASU.

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within

three

eighteen

months from commencement of order acceptance. The Company recognizes revenue over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

“Contract assets,” include unbilled amounts typically resulting from sales under contracts when revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amount

may

not

exceed their estimated net realizable value. Contract assets are classified as current based on our contract operating cycle.

“Contract liabilities,” include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current liabilities based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

For outright sales of products, revenue is recognized when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC

606.

Research

and

Development

Research and development costs are expensed as incurred. Due to the highly technical nature of our projects, we use our technical staff in a dual role, and based on their contribution to the customer or research and development projects, their costs are charged accordingly to either cost of goods sold or research and development.

Recent Accounting Pronouncements

February 2018,

the FASB issued ASU

2018

02,

Income Statement-R

eporting Comprehensive Income (Topic

220

): Reclassification of Certain Tax Effe

ts from Accumulated Other Comprehensive Income

. The ASU permits companies to elect a reclassification of disproportionate tax effects in accumulated other comprehensive income (AOCI) caused by the Tax Cuts and Jobs Act of

2017

to retained earnings. The ASU also requires additional disclosures. This update is effective for fiscal years beginning after

December 15, 2018

and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the effect of this ASU on our consolidated financial statements.

June 2016,

the FASB issued ASU

2016

13,

inancial Instruments – Credit Losses (Topic

326

)

, which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this update are effective for fiscal years beginning after

December 15, 2019

and interim periods within those annual periods. Early adoption for fiscal years beginning after

December 15, 2018

is permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

February 2016,

the FASB issued ASU

2016

02,

Leases (Topic

842

)

, which supersedes ASC

840,

Leases

, and creates a new topic, ASC

842,

Leases

. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than

months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. The accounting for lessors does

not

fundamentally change except for changes to conform and align guidance to the lessee guidance as well as to the new revenue recognition guidance in ASU

2014

09.

This update is effective for fiscal years beginning after

December 15, 2018

and interim periods within those fiscal years. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements, however we do

not

expect ASC

842

to have a material effect on either our consolidated statement of operations or consolidated statement of cash flow.

We believe there is

additional new accounting guidance adopted, but

not

yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted,

may

have a significant impact on our financial reporting.