REVENUE RECOGNITION

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." This new standard replaced most existing revenue recognition guidance in U.S. GAAP and codified guidance under FASB ASC Topic 606 Revenue from Contracts with Customers ("ASC 606"). The underlying principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services.

The Company adopted ASU No. 2014-09 as of January 1, 2018 using the modified retrospective method. Under this method, results for the reporting period beginning after January 1, 2018 are presented under ASC 606, while prior period amounts continue to be reported in accordance with the Company's historic accounting practices under FASB ASC Topic 605, Revenue Recognition ("ASC 605").

In accordance with the new guidance, the Company recognizes revenue at an amount that reflects the consideration that the Company expects to be entitled to receive in exchange for transferring goods or services to its customers. The Company's policy is to record revenue when control of the goods transfers to the customer. Net sales are comprised of gross revenues from sales of products less trade discounts and rebates.

The Company's historic accounting practice under ASC 605 was to apply the percentage of completion method. Percentage of completion is determined using a units-of-production methodology based on modules delivered in accordance with the terms of the contract (KBS) and cost-to-cost method with cost determined based on costs incurred to date related to each performance obligation identified in the wall panel (EBGL) contracts. Under ASC 606, it was determined that since the Company does not meet the criteria to recognize revenue over time, point in time revenue recognition should be applied. While the Company had previously recognized revenue upon delivery, it had also applied the uncompleted construction contract accounting to record a "Costs" and estimated profit in excess of billings and a "Billings" in excess of costs and estimated profit amount each reporting period. With the adoption of ASC 606, recording estimates of completion by specific contract activity will no longer be required.

The Company’s contracts do not offer a right to return any of the products sold unless covered under the assurance-type warranty offered. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation. The Company does not offer additional service-type warranties for its products.

Costs incurred to obtain a customer contract are not material to the Company for the KBS or EBGL revenue streams. The Company elected to apply the practical expedient to not capitalize costs to obtain contracts with a duration of one year or less, which are expensed and included within Cost of sales in the Condensed Consolidated Statements of Operations.

The Company generally requires deposits prior to the start of production of customer orders. The Company will not finance any part of the sale. The full balance is due upon delivery. Below is a summary of deposits utilized during the year by operating segment:



	Modular Home Manufacturing			Structured Wall Panel Manufacturing			Total
(in thousands)
June 30, 2018	$	682		$	300		$	982
Revenue recognized that was included in deposit at beginning of period	(682		)	(300		)	(982		)
Increase due to cash received, excluding amounts recognized as revenue during the period	290			4			294
September 30, 2018	$	290		$	4		$	294

The Company has expanded its financial statement disclosures as required by this new standard. See Note 17, "Operating Segments" for additional disclosures provided as a result of this ASU.

A summary of the amount by which each financial statement line item was affected in the current reporting period by ASC 606 as compared with the guidance that was in effect prior to adoption is set forth in the tables below:



	Impact of ASC 606 Adoption on Condensed Consolidated Balance Sheet as of September 30, 2018
(in thousands)	As reported under ASC 606		Adjustments			Balances without adoption of ASC 606
Inventory	$	1,730	$	(493	)	$	1,237
Costs and estimated profit in excess of billings	—		734			734
Billings in excess of costs and estimated profit	—		408			408
Customer deposits	294		(294		)	—



	Impact of ASC 606 Adoption on Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018
(in thousands)	As reported under ASC 606			Adjustments			Balances without adoption of ASC 606
Inventory	$	(445	)	$	493		$	48
Costs and estimated profit in excess of billings	565			(734		)	(169		)
Billings in excess of costs and estimated profit	(983		)	(408		)	(1,391		)
Customer deposits	294			294			—