2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014

- Revenue from Contracts with Customers (ASC

606

), which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of ASU

2014

09,

the FASB clarified the new guidance through several additional ASUs; hereinafter the collection of revenue guidance is referred to as “ASC

606.”

ASC

606

is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and any assets recognized from costs incurred to fulfill a contract. The Company adopted the guidance effective

January 1, 2018

using the modified retrospective approach for all contracts

not

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

January

2018

are presented under ASC

606,

while prior period amounts were

not

adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC

605,

Revenue Recognition.

We recorded a net decrease to beginning accumulated deficit of

$170,000

as of

January 1, 2018,

for the cumulative impact of adopting the new guidance. The impact primarily arises from a change in how we account for certain federally funded programs within Sypris Electronics where we transfer control of the products to the customer as they are produced (i.e., a change from recognizing revenue at a point in time to recognizing revenue over time, resulting in revenue being recognized earlier in the process of completing the performance obligation).

The following table summarizes the cumulative effect of the changes to our unaudited consolidated balance sheet as of

January

2018

from the adoption of ASC

606:

							Opening
	Balance at			ASC 606			Balance at
	Dec. 31, 2017			Adjustments			Jan. 1, 2018
Assets
Inventories – net	$	17,641		$	(655	)	$	16,986
Contract assets		0			825			825

Liabilities and Equity
Accumulated deficit	$	(111,591	)	$	170		$	(111,421	)

Under the modified retrospective method of adoption, we are also required to disclose in the

first

year of adoption the hypothetical impact to our financial statements if we had continued to follow our accounting policies under ASC

605

during the period. We estimate that the impact to revenue for the

three

and

six

months ended

July

2018

would have been a decrease of approximately

$519,000

and

$1,026,000

representing the amount of revenue recognized over time versus at a point in time under ASC

606.

Additionally, the adoption of ASC

606

decreased our operating loss and net loss by

$80,000,

$0.01

per share and

$186,000,

$0.01

per share, for the

three

and

six

months ended

July 1, 2018,

respectively.

The following table summarizes the effect of adopting ASC

606

on our unaudited consolidated statement of operations for the

three

months ended

July

2018:

	As Reported			Impact of		Legacy GAAP
	July 1 , 201 8			ASC 606		July 1, 2018
Net revenue	$	22,971		$	519	$	22,452
Cost of sales		20,037			439		19,598
Gross profit		2,934			80		2,854

Selling, general and administrative		3,171			0		3,171
Severance, equipment relocation and other costs		305			0		305
Operating loss		(542	)		80		(622	)

Interest expense, net		221			0		221
Other (income), net		(1,623	)		0		(1,623	)
Income before taxes		860			80		780

Income tax expense		46			0		46

Net income	$	814		$	80	$	734

The following table summarizes the effect of adopting ASC

606

on our unaudited consolidated statement of operations for the

six

months ended

July

2018:

	As Reported			Impact of		Legacy GAAP
	July 1, 2018			ASC 606		July 1, 2018

Net revenue	$	42,913		$	1,026	$	41,887
Cost of sales		37,948			840		37,108
Gross profit		4,965			186		4,779

Selling, general and administrative		6,319			0		6,319
Severance, equipment relocation and other costs		814			0		814
Operating loss		(2,168	)		186		(2,354	)

Interest expense, net		434			0		434
Other (income), net		(1,707	)		0		(1,707	)
Loss before taxes		(895	)		186		(1,081	)

Income tax expense		86			0		86

Net loss	$	(981	)	$	186	$	(1,167	)

The following table summarizes the cumulative effect of the changes to our unaudited consolidated balance sheets as of

July

2018

from the adoption of ASC

606:

	As Reported			Impact of		Legacy GAAP
	July 1, 2018			ASC 606		July 1, 2018

Assets
Inventories – net	$	17,555		$	1,495	$	19,050
Contract assets		1,851			1,851		0

Liabilities and Equity
Accumulated deficit	$	(112,402	)	$	356	$	(112,758	)

February 2016,

the FASB issued ASU

No.

2016

02,

Leases (ASC

842

). The new standard was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This standard affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this update supersedes FASB Accounting Standards Codification (“ASC”)

840,

Leases. The amendments in this ASU are effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. The Company is currently assessing the impact of adopting this ASU on its consolidated financial statements and related disclosures. We believe the adoption of the standard will likely have a material impact to our consolidated balance sheets for the recognition of certain operating leases as right-of-use assets and lease liabilities. We are in the process of analyzing our lease portfolio and evaluating systems to comply with the standard’s retrospective adoption requirements.

March 2017,

the FASB issued ASU

No.

2017

07,

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU

2017

). The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. The income statement guidance requires application on a retrospective basis. The Company adopted the ASU on

January 1, 2018,

and as a result operating income increased

$199,000

and other income decreased by

$199,000

for the

six

months ended

July

2017.

The Company used the practical expedient provided in ASU

2017

that permits the use of the amounts disclosed in its benefit plans notes for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. These changes in presentation do

not

result in any changes to net loss or loss per share. Details of the components of net periodic benefit costs are provided in Note

17.

February 2018,

the FASB issued ASU

No.

2018

02,

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU

2018

). Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU

2018

allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of

2017

(the “Tax Act”). The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance is effective for fiscal years beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption in any period is permitted. The Company is currently evaluating the timing and impact of adopting ASU

2018

02.