Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | May. 20, 2016 | Jun. 30, 2015 | |
Document And Entity Information | |||
Entity Registrant Name | PRECISION AEROSPACE COMPONENTS, INC. AND SUBSIDIARIES | ||
Entity Central Index Key | 936,446 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | No | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 137,400 | ||
Entity Common Stock, Shares Outstanding | 99,501,998 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,015 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash | $ 81,941 | $ 65,613 |
Accounts receivable (net of allowance for doubtful accounts of $129,357 and $129,357 as of December 31, 2015 and 2014 respectively) | 2,121,771 | 1,920,249 |
Inventories (net of reserve for obsolesence of $5,185,820 and $4,133,189 as of December 31, 2015 and 2014 respectively) | 9,706,458 | 9,639,107 |
Other current assets | 143,946 | 200,890 |
Total Current Assets | 12,054,116 | 11,825,859 |
Property and equipment - net | 15,741 | 38,065 |
Other assets | 7,298 | 7,298 |
Total | 12,077,155 | 11,871,222 |
Current liabilities: | ||
Line of credit | 5,737,473 | 7,144,827 |
Accounts payable and accrued expenses | $ 3,203,885 | 3,922,641 |
Current portion of term loan | 729,167 | |
Income taxes payable | $ 127,735 | $ 80,807 |
Put option | 565,342 | |
Loans from shareholder | 122,790 | $ 535,000 |
Total current liabilities | 9,757,225 | $ 12,412,442 |
Long-term liabilities: | ||
Notes payable | 3,768,076 | |
Total liabilities | 13,525,301 | $ 12,412,442 |
Stockholders' equity (deficiency): | ||
Common stock, $.001 par value; 100,000,000 shares authorized at December 31, 2015 and 2014; 99,501,998 and 4,471,349 shares issued and outstanding, respectively | 99,502 | 4,472 |
Additional paid-in capital | 11,894,047 | 11,507,209 |
Accumulated deficit | (13,441,695) | (12,058,846) |
Total stockholders' deficiency | (1,448,146) | (541,220) |
Total liabilities and stockholders' deficiency | $ 12,077,155 | 11,871,222 |
Preferred Stock A [Member] | ||
Stockholders' equity (deficiency): | ||
Preferred Stock | $ 1,337 | |
Preferred Stock B [Member] | ||
Stockholders' equity (deficiency): | ||
Preferred Stock | ||
Preferred Stock C [Member] | ||
Stockholders' equity (deficiency): | ||
Preferred Stock | $ 4,608 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Net of allowance for doubtful accounts | $ 129,357 | $ 129,357 |
Net of reserve for obsolesence | $ 5,185,820 | $ 4,133,189 |
Stockholders Equity | ||
Common Stock Par Value | $ .001 | $ 0.001 |
Common Stock Authorized | 100,000,000 | 100,000,000 |
Common Stock Issued | 99,501,998 | 4,471,349 |
Common Stock Outstanding | 99,501,998 | 4,471,349 |
Preferred Stock A [Member] | ||
Stockholders Equity | ||
Preferred Stock Par Value | $ 0.001 | $ 0.001 |
Preferred Stock Shares Authorized | 1,400,000 | 1,400,000 |
Preferred Stock Shares Issued | 0 | 1,336,703 |
Preferred Stock Shares Outstanding | 0 | 1,336,703 |
Preferred Stock Liquidation preference | $ 0.735 | $ 0.735 |
Preferred Stock B [Member] | ||
Stockholders Equity | ||
Preferred Stock Par Value | $ .001 | $ .001 |
Preferred Stock Shares Authorized | 2,900,000 | 2,900,000 |
Preferred Stock Shares Issued | 0 | 0 |
Preferred Stock Shares Outstanding | 0 | 0 |
Preferred Stock C [Member] | ||
Stockholders Equity | ||
Preferred Stock Par Value | $ .001 | $ .001 |
Preferred Stock Shares Authorized | 4,825,000 | 4,825,000 |
Preferred Stock Shares Issued | 0 | 4,608,675 |
Preferred Stock Shares Outstanding | 0 | 4,608,675 |
Preferred Stock Liquidation preference | $ 0.735 | $ 0.735 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Consolidated Statements Of Operations | ||
Net revenue | $ 26,951,628 | $ 26,326,124 |
Cost of goods sold | 21,682,727 | 20,138,350 |
Gross profit | 5,268,901 | 6,187,774 |
Operating expenses: | ||
General and administrative expenses | 4,215,601 | 5,280,519 |
Professional and consulting fees | 285,083 | 489,067 |
Depreciation and amortization | 27,782 | 18,107 |
Total operating expenses | 4,528,466 | 5,787,693 |
Income before other income (expense) | 740,435 | 400,081 |
Other income (expense) | ||
Interest expense - net | (1,669,910) | $ (927,253) |
Change in fair value put option | (399,692) | |
Other income | 2,359 | |
Total | (2,067,243) | $ (927,253) |
Loss before provision for income taxes | (1,326,808) | (527,172) |
Provision for income taxes | (56,041) | (93,653) |
Net loss applicable to common stockholders | $ (1,382,849) | $ (620,825) |
Net loss per share applicable to common shareholders basic and diluted | $ (0.01) | $ (0.14) |
Weighted average shares outstanding basic and diluted | 95,607,299 | 4,388,746 |
CONSOLIDATED STATEMENT OF STOCK
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (Deficit) - USD ($) | Preferred Stock-Series A | Preferred Stock-Series C | Common Stock | Additional Paid-In Capital | Accumulated (Deficit) | Total |
Beginning Balance, Amount at Dec. 31, 2013 | $ 1,337 | $ 4,608 | $ 4,283 | $ 11,491,901 | $ (11,438,021) | $ 64,108 |
Beginning Balance, Shares at Dec. 31, 2013 | 1,336,703 | 4,608,675 | 4,282,849 | |||
Stock issued for compensation, Amount | $ 189 | $ 15,308 | 15,497 | |||
Stock issued for compensation, Shares | 188,500 | |||||
Net loss | $ (620,825) | (620,825) | ||||
Ending Balance, Amount at Dec. 31, 2014 | $ 1,337 | $ 4,608 | $ 4,472 | $ 11,507,209 | $ (12,058,846) | $ (541,220) |
Ending Balance, Shares at Dec. 31, 2014 | 1,336,703 | 4,608,675 | 4,471,349 | |||
Conversion of preferred shares, Amount | $ (1,337) | $ (4,608) | $ 9,238 | (3,293) | ||
Conversion of preferred shares, Shares | (1,336,703) | (4,608,675) | 9,239,115 | |||
Stock issued in connection with notes payable, Amount | $ 8,000 | 36,000 | $ 44,000 | |||
Stock issued in connection with notes payable, Shares | 8,000,000 | |||||
Issuance of common stock, Amount | $ 77,792 | $ 354,131 | 431,923 | |||
Issuance of common stock, Shares | 77,791,534 | |||||
Net loss | $ (1,382,849) | (1,382,849) | ||||
Ending Balance, Amount at Dec. 31, 2015 | $ 99,502 | $ 11,894,047 | $ (13,441,695) | $ (1,448,146) | ||
Ending Balance, Shares at Dec. 31, 2015 | 99,501,998 |
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net loss | $ (1,382,849) | $ (620,825) |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 27,782 | $ 18,107 |
Writeoff of deferred financing costs | $ 422,785 | |
Stock based compensation | $ 15,497 | |
Change in fair value put option | $ 399,692 | |
Inventory writedown and reserve | $ 1,052,631 | $ 899,599 |
Change in allowance for doubtful accounts | 57,840 | |
Changes in assets and liabilities: | ||
(Increase) decrease in accounts receivable | $ (201,522) | 11,991 |
Increase in inventory | (1,119,982) | (1,617,701) |
Decrease (increase) in other current assets | 56,944 | (42,840) |
Increase in income taxes payable | $ 46,928 | 80,807 |
Decrease in other assets | (729) | |
(Decrease) increase in accounts payable and accrued expenses | $ (718,756) | 713,796 |
Net cash used in operating activities | (1,416,347) | (484,458) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Purchase of property and equipment | (5,642) | (2,034) |
Net cash used in investing activities | (5,642) | (2,034) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Net (payments) proceeds on line of credit | (1,407,354) | $ 483,327 |
Payments on term loan payable | (729,167) | |
Net proceeds from notes payable | 3,555,125 | |
Payments on shareholders loans | (412,210) | |
Proceeds from issuance of common stock | 431,923 | |
Net cash provided by financing activities | 1,438,317 | $ 483,327 |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 16,328 | (3,165) |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 65,613 | 68,778 |
CASH AND CASH EQUIVALENTS - END OF PERIOD | 81,941 | 65,613 |
Cash paid during the period for: | ||
Interest | 1,255,507 | 663,071 |
Income taxes | 21,365 | $ 52,922 |
Non-cash investing and financing activities: | ||
Issuance of common stock for closing costs | 44,000 | |
Shareholder put option | $ 165,650 |
SUMMARY OF BUSINESS
SUMMARY OF BUSINESS | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
1. SUMMARY OF BUSINESS | Precision Aerospace Components, Inc. and Subsidiaries (the "Company") distributes high-quality, predominantly domestically-manufactured, technically complex, nut and bolt products and a proprietary locking washer product that are used primarily for aerospace and military applications and for industrial/commercial applications that require a high level of certified and assured quality. The Company's operations are carried out through its wholly-owned distribution subsidiaries Aero-Missile Components, Inc. ("Aero-Missile") and Freundlich Supply Company, Inc. ("Freundlich"), both of whom have Stocking Distributor relationships with a number of United States fastener manufacturers and who sell high technology, specially engineered fasteners - nuts and bolts - predominantly to all levels of the aviation industries (original equipment manufacturers, maintenance and repair organizations, and other distributors as well as to the United States Department of Defense ("Department of Defense"). Creative Assembly Systems, Inc. ("Creative Assembly") is a value added distributor of proprietary and specialty fasteners primarily serving the heavy truck, automotive, transportation, and infrastructure industries. Tiger-Tight Corp. ("Tiger-Tight") was the exclusive North American master distributor of the Tiger-Tight locking washer. The Company cancelled the master distribution agreement due to lack of sales in the first quarter of 2015. The Company's products are manufactured, by others, to exacting specifications and are made from materials that provide the strength and reliability required for their aerospace and industrial applications. On May 25, 2012, the Company acquired the assets of Fastener Distribution and Marketing Company, Inc., which included Aero-Missile and Creative Assembly. The Company paid for the acquisition with a new credit facility consisting of a $2.5 million term loan and a $10 million revolving loan with Newstar Business Credit, LLC. On January 16, 2015, Precision Group Holdings LLC ("PGH" or "Holdings") and C3 Capital Partners III, L.P. ("C3") refinanced the outstanding debt of the Company and purchased approximately 85,791,534 newly issued shares of restricted Common Stock of the Company representing approximately 86.22% of the outstanding shares of Common Stock of the Company. The Company will increase its authorized shares of Common Stock from 100,000,000 shares to 800,000,000 so as to be able to issue the additional shares of Common Stock to PGH and C3. Upon the additional issuance of common stock subsequent to the filing of this annual report on Form 10-K, PGH and C3 will collectively own 98.1% of the shares of Common Stock of the Company. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company accounts have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The significant estimates are the useful lives of tangible and intangible assets, reserves for inventory and the valuation of intangible assets. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded net of reserves for sales returns and allowances and net of provisions for doubtful accounts. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable. The amount of the allowance is based on an analysis of the Company's prior collection experience, customer credit worthiness, and current economic trends. Based on management's review of accounts receivable, the Company carries an allowance for doubtful accounts of approximately $129,357 as of December 31, 2015 and 2014. The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables. Inventory Inventories are carried at the lower of cost on an average cost basis, or market. When necessary, management records an inventory reserve for estimated obsolescence or unmarketable inventory based upon knowledge of future demand of inventory on hand as well as other market conditions and events. As of December 31, 2015 and 2014 the inventory reserve was $5,185,820 and $4,133,189, respectively. For the years 2015 and 2014, the Company wrote off $0 and $18,603, respectively. Management believes that the longer a part sits on the shelf the higher the likelihood that it will not sell in the future. This belief is not unique to the fastener industry. While management constantly assesses viability of a part within the customer base, it also believes that a reserve should be carried to reflect product that is aging out, as opposed to product that management identified based on a specific event. At the end of 2015, the Company had more than 40,000 unique part numbers on hand that had carrying value. Management believes that the two methods, specific identification and reserve based on age, to analyzing inventory will reflect the appropriate balance sheet value. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets acquired as follows: Leasehold improvements 5 years ** Furniture and fixtures 7 years Equipment and other 3-5 years ** Shorter of life or lease term. The carrying amount of all long-lived assets is evaluated periodically to determine whether adjustment to the useful life or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets. Income Taxes The Company provides for income taxes under ASC Topic 740-10. ASC Topic 740-10 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Temporary differences relate primarily to different accounting methods used for depreciation and amortization of property and equipment and deferred compensation. ASC Topic 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. ASC Topic 740-10 clarifies the accounting for uncertainty in income tax positions, as defined. It requires, among other matters, that the Company recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company analyzes the filing positions in all of the federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. As of December 31, 2015, the Company did not record any unrecognized tax benefits. The Company's policy, if it had unrecognized benefits, is to recognize accrued interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively. Revenue Recognition Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable and collectability is reasonably assured. The Company recognizes revenue when product is shipped or when it is received by the customer, depending on the contractual terms. Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheet for cash, certificates of deposit, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of the financial instruments. The Company believes that its indebtedness approximates fair value based on current yields for debt instruments with similar terms. Shipping Costs Shipping costs relating to sales were approximately $86,000 and $103,000 for the years ended December 31, 2015 and 2014, respectively, and are included in general and administrative expenses in the accompanying Consolidated Statements of Operations. Fair Value of Financial Assets and Liabilities In accordance with the authoritative guidance for fair value measurements and the fair value election for financial assets and financial liabilities, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy was established that draws a distinction between market participant assumptions based on the following: i) observable inputs such as quoted prices in active markets (Level 1) ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company's assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. Recent Accounting Pronouncements There have been no accounting pronouncements that have been issued but not yet implemented that the Company believes will materially impact the financial statements. Stock Based Compensation Policy During the year 2014 the Company issued shares to employees as compensation for work performed. During the year 2015, the Company did not issue shares to employees as compensation for work performed. The Company accounts for stock-based awards to recipients in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, to be measured and recognized in the financial statements based on a grant date fair value. Long Lived Assets Impairment Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. When it becomes apparent that indicators such as a significant decrease in the market value of the long-lived asset group or if material differences between operating results and the Company's forecasted expectations occur, then an impairment analysis is performed. If indicators arise, an initial determination of recoverability is performed based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its eventual disposition compared with the carrying value. If the carrying value of the asset group exceeds the undiscounted cash flows, a measurement of an impairment loss for long-lived assets is performed. The impairment charge is the excess of the carrying value of the asset group over the fair value, as determined utilizing appropriate valuation techniques. Concentration of Credit Risk Sales to two customers totaled greater than 10% during 2015. The United States Department of Defense ("DOD") represented approximately 17.9% and 11% of the Company's total sales for the year ending December 31, 2015 and 2014, respectively. PACCAR Inc represented approximately 20.1% and 21% of the Company's total sales for the year ending December 31, 2015 and 2014, respectively. No other customer accounted for greater than 10% of the Company's total sales and the Company has no substantial concentrations of credit risk in its trade receivables. Concentration of Suppliers The Company's top twenty suppliers represented approximately 76% and 66% of product distributed for the year end December 31, 2015 and 2014, respectively. The Company's two largest suppliers, SPS Technologies and AVK, represented approximately 43.6% and 35% of product distributed for the year end December 31, 2015 and 2014. For nearly all suppliers, the Company looks to have secondary supply outlets. However, manufacturing issues with any supplier could cause temporary disruptions to the Company. Earnings (Loss) per Common Share Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. Basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same. |
REFINANCING COSTS
REFINANCING COSTS | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
3. REFINANCING COSTS | During 2015 and 2014, the Company attempted to refinance the Newstar Facility, as well as raise additional capital to provide the Company financial stability. Due Diligence Expenses In 2014, in an attempt to refinance the Newstar Facility and raise additional capital, the Company spent approximately $105,000 for the year ending December 31, 2014 for due diligence expenses for potential lenders. These expenses were recognized in interest expense. Variant Capital Pursuant to certain requirements contained in the Eighth Amendment to the Newstar Facility, the Company retained Variant on May 13, 2014 as the Company's investment bank. Pursuant to the engagement letter executed between the Company and Variant, the Company, starting in June 2014 owed Variant a retainer of $10,000 per month. In addition, Variant was owed a transaction fee equal to 5% of the value of any recapitalization or refinancing transaction. In 2015, the Company paid $400,000 in total compensation to Variant in complete satisfaction of all amounts owed by the Company to Variant. |
TERM LOAN, NOTE PAYABLE, LOAN F
TERM LOAN, NOTE PAYABLE, LOAN FROM SHAREHOLDER AND LINE OF CREDIT | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
4. TERM LOAN, NOTE PAYABLE, LOAN FROM SHAREHOLDER AND LINE OF CREDIT | Term Loan On May 25, 2012, in conjunction with the closing of the FDMC Acquisition, the Company entered into the $2.5 million Newstar Term Loan, with payments of interest only during the first year. The principal amount of the Newstar Term Loan was intended to be amortized over the last two years of the loan. The NewstarTerm Loan bore interest, at the Company's election, at a rate tied to one of the following rates, in each case plus a specified margin: (i) the prime lending rate, but not less than 3.25%, plus a margin of 5.60% to 6.10% or (ii) adjusted one-month LIBOR, but not less than 1.5%, plus a margin of 7.10% to 7.60%. The interest margin for each such type of borrowing varies depending on the Company's Fixed Charge Coverage Ratio. As of December 31, 2014, $729,166 was outstanding at an interest rate of 11.1%. The term loan was refinanced in the emergency refinancing section as described below. Loan From Shareholder During April 2013, our former primary shareholder and former CEO entered into a short term agreement to make a loan to the Company (the "Prince Note"). The outstanding balance for the loan is approximately $0.535 million with an original maturity date of October 14, 2013. The loan had a stated interest rate of 10%. These funds were used in order to satisfy certain vendor obligations. The loans were to be collateralized by certain inventory purchases to be held by the shareholder. The inventory would be available to be sold by the Company in the normal course of business. . All amounts borrowed by the Company are considered loans for accounting purposes and are repayable on demand from available operating funds. These loans were approved by Newstar. On the Effective Date, the Company paid $250,000 due and payable on the Prince Note. In addition, the Company and Mr. Prince agreed to amend the Prince Note to have an outstanding balance of $285,000 with an interest rate of one-half percent (0.50%) per annum with interest payable monthly. Beginning in February 2015, the Company agreed to pay 0.7% of its aggregate gross sales on the Prince Note until the Prince Note is repaid. If aggregate gross sales exceed $30,000,000 for calendar year 2015, the Company will make a one-time payment of $130,000 for interest recoupment. If aggregate gross sales do not exceed $30,000,000 for calendar year 2015 but exceed $34,000,000 for calendar year 2016, the Company will make a one-time payment of $130,000 for interest recoupment. On December 31, 2015, the Prince Note had a principal balance of $122,790 remaining. On June 26, 2015, the Company entered into a short term agreement with C3 and PGH (both related parties) to provide $250,000 in the form of two $125,000 draws. The intent of the note was to provide short term financing to bridge the Company's cash flow needs. Prior to December 31, 2015, the entire note was repaid. Revolving Funding Facility During the years of 2015 and 2014, the Company had a revolving funding facility with Newstar pursuant to which it could draw up to $10,000,000 against eligible assets. The facility allowed for draws of up to eighty-five (85) percent of eligible accounts receivable or to eighty-five (85) percent of eligible inventory up to a maximum inventory advance amount of six million five hundred thousand dollars ($6,500,000); however the outstanding amount against eligible inventory was further limited to, an amount equal to 2.015 times the amount which could be drawn against the eligible accounts receivable. Eligible accounts receivable were, generally, those domestic accounts not outstanding for more than ninety (90) days or, for government accounts one hundred twenty (120) days and eligible inventory was inventory as determined by Newstar. Newstar used the net orderly liquidation value of the inventory as its determinant of the value of eligible inventory. The loan balance was secured by a first lien position on all of the Company's assets. The loan balance bore interest, at the Company's election, at a rate tied to one of the following rates, in each case plus a specified margin: (i) the prime lending rate, but not less than 3.25%, plus a margin of 1.50% to 2.00%, or (ii) adjusted one-month LIBOR but not less than 1.5%, plus a margin of 3.00% to 3.50%. The interest margin for each such type of borrowing varied depending on the Company's Fixed Charge Coverage Ratio. The facility was due May 25, 2015. The Facility was first amended on July 27, 2012. Subsequent amendments occurred on September 28, 2012 (Second Amendment), March 27, 2013 (Third Amendment), April 26, 2013 (Fourth Amendment), August 6, 2013 (Fifth Amendment), January 13, 2014 (Sixth Amendment), March 18, 2014 (Seventh Amendment), May 1, 2014 (Eighth Amendment), July 7, 2014 (Ninth Amendment), October 1, 2014 (Tenth Amendment), and October 28, 2014 (Eleventh Amendment). As of December 31, 2014, approximately $7,144,827 million was outstanding at an interest rate of 8%. The revolving funding facility was refinanced in the emergency refinancing section as described below. On January 5, 2014, Newstar sold the Newstar Facility to Banyan Crest Capital LLC ("Banyan"). Immediately preceding the sale of the Newstar Facility, Banyan Crest Capital LLC become the administrative agent. On January 7, 2015, Banyan mailed a notice of foreclosure pursuant to Article 9 of the Uniform Commercial Code. On January 16, 2015, the Company paid Banyan the full amount due under the Newstar Revolving Funding Facility and the Newstar term loan. As a result of the payoff the foreclosure auction was cancelled. Emergency Refinancing On January 16, 2015, the Company and its Subsidiaries entered into a Securities Purchase Agreement (the "Securities Purchase Agreement) with C3, pursuant to which the Company and its Subsidiaries authorized the issuance and sale to C3 of (1) a Senior Secured Note issued by the Subsidiaries in the amount of $5,500,000 ("Note A"), (2) a Subordinated Secured Note issued by the Subsidiaries in the amount of $3,500,000 ("Note B"), and (3) 8 million shares of unregistered Common Stock for a loan from C3. Note A will accrue at 11% interest per annum, with 10% payable monthly and 1% accruing to the outstanding balance of Note A, payable at maturity. Note A has a Maturity Date of January 16, 2020. If Note A principal is prepaid from a recapitalization of outside capital, a prepayment penalty will apply on the following schedule: (1) 5% of the amount prepaid until the first anniversary of Note A, (2) 4% of the amount prepaid after the first anniversary until the second anniversary of Note A, (3) 3% of the amount prepaid after the second anniversary of Note A until the third anniversary of Note A, (4) 2% of the amount prepaid after third anniversary of Note A until the fourth anniversary of Note A, and (5) 1% of the amount prepaid after the fourth anniversary of Note A until the Maturity Date. Note A is secured against all of the assets of the Company and its Subsidiaries. Note B will accrue at 14% interest per annum. Note B has a Maturity Date of January 16, 2020. If Note B principal is prepaid from a recapitalization of outside capital, a prepayment penalty will apply on the following schedule: (1) 3% of the amount prepaid until the first anniversary of Note B, (2) 2% of the amount prepaid after the first anniversary until the second anniversary of Note B, and (3) 1% of the amount prepaid after the second anniversary of Note A until the third anniversary of Note B. Note B is secured against all of the assets of the Company and its Subsidiaries. The Company incurred approximately $631,000 in costs to obtain Note A and Note B. These costs have been accounted for as debt discount and are being accreted over the term of the notes. During 2015 the Company recognized approximately $103,000 of accretion reflected in interest expense on the accompanying consolidated statement of operations. On the January 16, 2015, the Company paid the full amounts due under the Newstar Revolving Funding Facility and the Newstar term loan. Under the Securities Purchase Agreement, so long as Note A remains outstanding, C3 will have the right to control the Company's board of directors, which will be limited to no more than five (5) members during this time. Once Note A is paid in full and for so long as Note B remains outstanding, C3 will have the right to elect and control one (1) member seat of the Company's board. The Securities Purchase Agreement also contains customary covenants, representations and warranties of the parties, including, among others, (1) the grant by the Company to C3 of a lien on all of the assets of the Company and its Subsidiaries, (2) a pledge with respect to all of the issued and outstanding equity interests of the Company and its Subsidiaries to secure the obligations under the Securities Purchase Agreement of the Company and its Subsidiaries, (3) an unconditional and irrevocable guarantee by the Company of the performance of the obligations under the Securities Purchase Agreement of the Company and its Subsidiaries, (3) non-compete agreements with certain executive officers of the Company, and (4) the assignment to C3 of key-man life insurance policies for certain of the Company's executive officers. In addition, until all amounts under Note A and Note B are paid in full, the Company has also agreed to comply with certain financial covenants that require the Company to meet pre-established financial ratios. C3 requires the company to maintain a fixed charge coverage ratio of 1.5 to 1, and a net debt to EBITDA ratio of 3 to 1 for the year of 2015, dropping to 2.75 to 1 for the year 2016. For the purposes of calculating EBITDA, the Company makes certain adjustments and add backs for expenses that are deemed one time. As of December 31, 2015 the Company was in compliance with its financial covenants with the exception that net debt to EBITDA exceeded the ratio of 3 to 1 for all quarters of 2015. C3 has waived this covenant default for the entire year of 2015. The Company is also required to conduct its business in the ordinary course and take certain actions only with C3's prior consent. In conjunction with the Securities Purchase Agreement, the parties entered into other Transaction Agreements on the Effective Date, including a Security Agreement and Subordination Agreement, whereby (1) C3 was granted a security interest in all existing and future property of the Company and its Subsidiaries to secure the performance by the Company and its Subsidiaries of their Obligations under the Securities Purchase Agreement and (2) all current and future debt owed to certain of the Company creditors became subordinate and subject in right and time of payment to the prior payment in full of all current and future indebtedness owed to C3. As of December 31, 2015, Note A had a principal balance of $500,000. Principal is due January 16, 2020. As of December 31, 2015, Note B had a principal balance of $3,500,000. Principal is due January 16, 2020. Refinancing with Webster Business Credit Corporation On August 25, 2015, the Company established a new revolving credit facility in an aggregate principal amount of up to $7.5 million (the "WBCC Revolving Loan") by entering into a Credit Agreement (the "WBCC Credit Agreement") with Webster Business Credit Corporation, as Lender ("WBCC"). The Company's wholly owned subsidiaries, Freundlich Supply Company, Inc., Tiger-Tight Corp., Aero-Missile Components, Inc., and Creative Assembly Systems serve as guarantors of the WBCC Revolving. Borrowings under the WBCC Revolving Loan may be used to finance working capital and other general corporate purposes. On August 25, 2015, pursuant to the WBCC Credit Agreement, the Company used an initial advance of $5,125,000 under the Revolving Loan to repay $5,000,000 of principal on Note A issued by the Subsidiaries in favor of C3 Capital Partners III, L.P. in the amount of $5,500,000 on January 16, 2015. Pursuant to the partial repayment to C3, the Company incurred a $250,000 prepayment penalty, of which $150,000 was paid to C3, with the remaining $100,000 accrued as of December 31, 2015. The Company wrote off approximately $308,000 of debt discount to interest expense relating to the paydown of Note A. In 2015, the Company spent $109,500 in due diligence, pre- closing, and closing costs related to establishing a line of credit with Webster Business Credit ("WBCC"), which is accounted for as debt discount and will be accreted over the term of the agreement. During 2015 the Company recognized approximately $12,000 of accretion reflected in interest expense on the accompanying consolidated statement of operations. Borrowings under the WBCC Credit Agreement bear interest, at the Company's election, at a rate tied to one of the following rates: (i) the prime lending rate plus 1.25% or (ii) the adjusted daily LIBOR rate plus 2.75%. Borrowings under the WBCC Credit Agreement are senior to Note A and Note B. The outstanding principal amount of any borrowings under the WBCC Revolving Loan will be due and payable on August 25, 2018, subject to an earlier maturity date upon an event of default. The WBCC Credit Agreement contains usual and customary covenants for financings of this type, including, among other things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on indebtedness; (iii) restrictions on dividends, distributions and redemptions of equity and repayment of subordinated indebtedness; (iv) restrictions on liens; (v) restrictions on making certain payments; (vi) restrictions on investments; (vii) restrictions on asset dispositions and other fundamental changes; and (viii) restrictions on transactions with affiliates. The WBCC Credit Agreement contains certain financial covenants, including a minimum fixed charge coverage ratio. As of the current date, the Company was in compliance with these metrics. Additionally, the WBCC Credit Agreement contained a covenant which required the Company to have implemented a new inventory management and accounting system by December 31, 2015. As of the current date, the Company was not in compliance with this covenant. As of the current date, the Company has begun implementation of the new system and WBCC has taken no action. The Company anticipates completing implementation of the new system by June 30, 2016. The obligations of the Company and its Subsidiaries under the WBCC Credit Agreement are secured by liens and security interests on all assets of the Company and its Subsidiaries, including a pledge of 100% of the equity of the Subsidiaries. Under the WBCC Credit Agreement, the Company is dependent upon its line of credit to maintain appropriate liquidity. All of the Company's cash flow from operations is required to be swept to its line of credit. The availability from its line is dependent upon accounts receivable and inventory. Under the WBCC Credit Agreement, the Company's interest rate for the WBCC Revolving Loan is linked to indices. Changes in the indices would cause an increase in interest expense. The Company's interest rate on Note A and Note B with C3 is fixed and not linked to indices. On December 31, 2015, the Revolving Loan had a principal balance of $5,737,473. |
VARIOUS RELATED PARTY MATTERS
VARIOUS RELATED PARTY MATTERS | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
5. VARIOUS RELATED PARTY MATTERS | Management Services Agreement On January 16, 2015, the Company and Polymathes Capital, LLC, an affiliate of Holdings, ("Consultant"), entered into a Management Services Agreement whereby the Company engaged the Consultant to provide financing and management consulting services to the Company and its Subsidiaries on a month-to-month basis. The consulting fee is $100,000 per annum, payable in monthly increments. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
6. COMMITMENTS AND CONTINGENCIES | Operating Leases The Company has six facilities, which are primarily office and warehouse space. These facilities are all leased under operating leases, that are either month-to-month or less than one year in duration. In some cases the Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. Litigation The Company is subject to the possibility of claims and lawsuits arising in the normal course of business. In the opinion of management, the Company liability, if any, under existing claims, asserted or unasserted, would not have a material adverse effect on the Company's consolidated financial position or results of operations. Employment Agreements During 2010, the Company entered into an employment agreement with Andrew Prince, its former President and Chief Executive Officer. In the event of the termination of the agreement under certain circumstances the Company could be liable for up to twelve months' salary. During 2014, Andrew Prince earned approximately $210,000. On January 16, 2015, Andrew Prince resigned as President and Chief Executive Officer. In consideration for his resignation without termination payments, the Company entered into a two-year financial consulting agreement with Mr. Prince that entitles him to a minimum of $100,000 in consulting fees payable by January 16, 2017. There are various terms, conditions, and standard obligations related to this arrangement. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
7. INCOME TAXES | Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due. Significant components of the income tax provision are as follows: For the years ended December 31, 2015 2014 Current income tax Federal $ - $ - State 56,041 93,653 City - - Total Current income tax 56,041 93,653 Non current income tax Federal - State - - City - - Total non current income tax - - Total income tax $ 56,041 $ 93,653 The Company has an accumulated deficit of approximately $12.0 million and there are approximately $1,312,500 and $1,015,500 of net operating losses available to be used against Federal and state taxable income, respectively. A reconciliation of the statutory tax rate to the effective tax rate is as follows: For the years ended December 31, 2015 2014 Expected federal statutory rate (34.00 )% (34.00 )% Increase (decrease) in taxes resulting from: State and local income taxes, net of federal benefit (4.2 )% (17.8 )% Permanent difference - amortization and disallowable expenses (34.7 )% (20.0 )% Change in valuation allowance 76.1 % 78.3 % Other 1.0 % 11.3 % Effective income tax rate 4.2 % 17.8 % The Company's deferred tax assets and liability relates to a temporary timing difference in long-term assets. With the deferred tax asset for December 31, 2015 and 2014 consisting of: Deferred Tax Assets: December 31, 2015 Depreciation and amortization 2,698,300 42 % 1,133,300 Decrease in inventory value 5,185,800 42 % 2,178,000 Federal and state NOL 1,359,000 42 % 570,800 Total 8,110,400 3,882,100 Less valuation allowance (3,882,100 ) Net Deferred Tax Assets $ - December 31, 2014 Depreciation and amortization 2,102,700 42 % 883,100 Decrease in inventory value 4,749,100 42 % 1,737,100 Federal and state NOL 1,258,600 42 % 528,600 Total 7,217,700 3,029,300 Less valuation allowance (3,029,300 ) Net Deferred Tax Assets $ - There were no significant uncertain tax positions taken, or expected to be taken, in a tax return that would be determined to be an unrecognized tax benefit taken or expected to be taken in a tax return that should have been recorded on the Company's consolidated financial statements for the year ended December 31, 2014. Additionally, there were no interest or penalties outstanding as of or for each of the fiscal years ended December 31, 2014 and 2013. The federal and state tax returns for the years ending December 31, 2011, 2012, and 2013 are currently open to audit by tax authorities under the statute of limitations for relevant federal and state jurisdictions. |
EARNINGS PER SHARE
EARNINGS PER SHARE | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
8. EARNINGS PER SHARE | The following table shows the amounts used in computing earnings per share (EPS) and the effect on income and the weighted average number of shares of dilutive potential common stock. December 31, 2015 2014 Net income (loss) available to common stockholders used in basic EPS and diluted EPS $ (1,382,849 ) $ (620,825 ) Weighted average number of common shares used in basic EPS 95,607,299 4,388,746 EPS Basic (0.01 ) (0.14 ) Diluted (0.01 ) (0.14 ) ** Weighted average number of common shares and dilutive potential common stock used in diluted EPS (When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same). |
STOCK OPTIONS
STOCK OPTIONS | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
9. STOCK OPTIONS | The Precision Aerospace Components, Inc. 2011 Omnibus Incentive Plan (the "2011 Plan"), approved as of April 10, 2011 made the greater of 550,000 shares or twenty percent of the highest total number of the Company's common shares at any time outstanding available for future equity awards. Under the 2011 Plan, the term of the Option shall be specified in the applicable Award Agreement which shall not exceed ten years from the date of grant. The price at which shares of Stock may be purchased under an Option (the "Option Price") shall not be less than one hundred percent (100%) of the Fair Market Value of the shares of Stock on the date the Option is granted. No awards have been made pursuant to the 2011 Plan. |
STOCKHOLDERS EQUITY
STOCKHOLDERS EQUITY | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
10. STOCKHOLDERS EQUITY | Conversion of Preferred Stock to Common Stock On January 16, 2015, the majority of shareholders of the Company's Series A Convertible Preferred Stock agreed to amend the Statements of Designation to automatically convert all of the outstanding shares of the Company's Series A Convertible Preferred Stock into shares of common stock at a fixed ratio of 1.554. On January 16, 2015, the majority of shareholders of the Company's Series C Convertible Preferred Stock agreed to amend the Statements of Designation to automatically convert all of the outstanding shares of the Company's Series C Convertible Preferred Stock into shares of common stock at a fixed ratio of 1.554. As a result of this transaction, the Company recorded the transfer between the two equity instruments on its financial statements as this transaction was intended to be a value for value exchange. In addition, as a result of this transaction, there are no shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred Stock issued or outstanding. Share based payments In 2012, the Board approved the issuance of approximately 460,500 shares of the Company's Common Stock to one of its employees to be vested over the course of three years. In 2015, no members of the Board of Directors received shares in compensation. In 2014, various members of the Board of Directors received a total of 15,000 shares as compensation. In 2015 and 2014, $0 and $15,497 was recognized in conjunction with these issuances. Securities Purchase Agreement On the Effective Date, the Company and its Subsidiaries entered into a Securities Purchase Agreement (the "Securities Purchase Agreement) with C3, pursuant to which the Company and its Subsidiaries authorized the issuance and sale to C3 of (1) a Senior Secured Note issued by the Subsidiaries in the amount of $5,500,000 ("Note A"), (2) a Subordinated Secured Note issued by the Subsidiaries in the amount of $3,500,000 ("Note B"), and (3) 8 million shares of unregistered Common Stock for a loan from C3. In addition, in partial consideration for providing the two loans the Company will issue an additional number of shares of unregistered Common Stock to C3 at the Second Closing that, together with the initial issuance of 8 million shares, will cause C3 to have received 8% of the total Common Stock of Precision after the Second Closing (collectively, the "Granted Equity"). In addition, the Company issued C3 shares of unregistered Common Stock pursuant to the Stock Purchase Agreement (see below) (the "Purchased Equity").The issuance and sale of the Granted Equity was a private placement exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The Company has granted C3 a put right under the Securities Purchase Agreement for the Common Stock C3 has received (whether by purchase or grant) at any time after the earlier to occur of (1) the fifth (5th) anniversary of the closing of the Securities Purchase Agreement for Common Stock (for Granted Equity), (2) the seventh (7th) anniversary of the closing of the Securities Purchase Agreement (for Purchased Equity), (3) payment in full of the amounts owed under Note A and Note B, or (4) upon an Event of Default, as defined in the Securities Purchase Agreement. The put right may be exercised by C3 for all or a portion of the Common Stock at an agreed upon valuation of the Company. Stock Purchase Agreement On the Effective Date as noted above, concurrently with the execution of the Securities Purchase Agreement, the Company entered into a Stock Purchase Agreement by and among Andrew S. Prince, Donald Barger, and David Walters (the "Precision Shareholders"), and C3 and Holdings (the "Stock Purchase Agreement"). Pursuant to the Stock Purchase Agreement, Holdings and C3 agreed to purchase a total of 673,780,414 restricted shares of Common Stock for an aggregate purchase price of $500,000 in two installments. The First Closing occurred on the Effective Date resulting in an issuance of 21,003,714 shares of restricted Common Stock to C3 for a purchase price of $116,571 and 56,787,820 shares of restricted Common Stock to Holdings for a purchase price of $315,172. The Second Closing is to occur between 20 and 22 calendar days from the date the necessary disclosures are distributed to Company shareholders in connection with the Certificate Amendment (described below). Upon the Second Closing, the Company shall issue the number of shares of restricted Common Stock to C3 and Holdings to cause C3 and Holdings to collectively own 90.1% of the outstanding shares of Common Stock on a fully diluted basis for a purchase price equal to $68,257. The issuance and sale of the restricted shares of Common Stock in each installment was, or will be in the case of the second installment, a private placement exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. In order to effect the second installment of restricted Common Stock, the Company must amend its certificate of incorporation ("Certificate Amendment") to increase the authorized shares of Common Stock from 100,000,000 shares to 800,000,000 shares. The Certificate Amendment was approved by the Company's Shareholders on the Effective Date and will become effective immediately prior to the Second Closing after the necessary information statement is filed with the SEC pursuant to Section 14(c) of the Exchange Act and distributed to Company shareholders. The Company has agreed to indemnify C3 and Holdings for all damages, costs, obligations, liabilities, losses, expenses, and fees arising out of a breach of any of the Company's representations, warranties, covenants, or other agreements contained in the Stock Purchase Agreement. The Stock Purchase Agreement also contains customary covenants, representations and warranties of the parties. Shareholder Agreement On January 16, 2015, the Company, Holdings, and C3 entered into a Shareholder Agreement setting forth the relative rights of the parties with regard to, among other things, the transfer or other disposition of securities of the Company, capital calls, and the governance of the Company. Under the Shareholder Agreement, C3 and Holdings may transfer shares subject to certain rights of first refusal, and tag along-take along rights of the other shareholder. C3 will be permitted to elect one (1) director of the Company and each of its subsidiaries for so long as C3 owns shares of Common Stock and allowed to designate two (2) observers to attend all meetings of the Company's board of directors and one (1) observer for each of the Company's subsidiaries. Certain Company actions including, amongst others, amendments to the Company's organizational documents, bankruptcy filings or other similar liquidation events, the redemption or repurchase of shares of Common Stock, the payment of dividends or other distributions, the issuance of additional shares of Common Stock, incurring indebtedness in excess of $100,000 or entering into a transaction with Company affiliates will require C3's prior written consent. C3 Put C3, our subordinated lender, maintains their right to force the Company to repurchase its shares upon certain triggering events. The Company maintains a liability on its balance sheet that reflects the fair value of the put option. To arrive at this liability the Company performed a valuation based on comparable company metrics. This technique would be considered a Level 3 fair market value approach. The Company performed its valuation in accordance with FASB's "ASC 820 Fair Value Measurements." The technique used was a multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA"). The Company subtracted the total outstanding debt and added back the available cash to arrive at the fair value of the put option. The Company made certain customary adjustments to EBITDA in order to provide a more accurate representation in regards to the Company's financial situation. The Company recorded debt discount of $165,650 based on the C3 Put's fair value at issuance on January 16, 2015. This amount will be amortized over the life of the Company's five year subordinated notes. As of December 31, 2015, the Company's valuation for the C3 Put was $565,342. The table below sets forth a summary of changes in the fair value of the Company's Level 3 financial liabilities: December 31, 2015 Beginning balance $ 0 Issuance of put $ 165,650 Mark to market adjustment $ 399,692 Ending balance $ 565,342 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2015 | |
Notes to Financial Statements | |
11. SUBSEQUENT EVENTS | On April 1, 2016, the Company announced Victor Mondo as the new Chief Executive Officer of the Company and as President of Aero-Missile Components, Inc., one of the Company's subsidiaries. Mr. Mondo will become the Chief Executive Officer of the Company upon the Company completing the filing of this Annual Report for 2015 with the Securities and Exchange Commission. John F. Wachter will remain the interim Chief Executive Officer until such filing is completed. Mr. Mondo has assumed the role of President of Aero-Missile Components, Inc. as of April 1, 2016. On or about January 21, 2016, Freundlich Supply Company, Inc., a wholly-owned subsidiary of the Company was merged into Aero-Missile Components, Inc. another wholly owned subsidiary of the Company. The Company intends to keep using the Freundlich trade name. On or about March 3, 2016, Tiger-Tight Corp., a wholly-owned subsidiary of the Company was merged into Creative Assembly Systems, Inc. another wholly-owned subsidiary of the Company. The Company intends to keep using the Tiger-Tight trade name. |
SUMMARY OF SIGNIFICANT ACCOUN18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Summary Of Significant Accounting Policies Policies | |
Principles of Consolidation and Basis of Presentation | The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company accounts have been eliminated. |
Use of Estimates | The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The significant estimates are the useful lives of tangible and intangible assets, reserves for inventory and the valuation of intangible assets. |
Cash and Cash Equivalents | For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable are recorded net of reserves for sales returns and allowances and net of provisions for doubtful accounts. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable. The amount of the allowance is based on an analysis of the Company's prior collection experience, customer credit worthiness, and current economic trends. Based on management's review of accounts receivable, the Company carries an allowance for doubtful accounts of approximately $129,357 as of December 31, 2015 and 2014. The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables. |
Inventory | Inventories are carried at the lower of cost on an average cost basis, or market. When necessary, management records an inventory reserve for estimated obsolescence or unmarketable inventory based upon knowledge of future demand of inventory on hand as well as other market conditions and events. As of December 31, 2015 and 2014 the inventory reserve was $5,185,820 and $4,133,189, respectively. For the years 2015 and 2014, the Company wrote off $0 and $18,603, respectively. Management believes that the longer a part sits on the shelf the higher the likelihood that it will not sell in the future. This belief is not unique to the fastener industry. While management constantly assesses viability of a part within the customer base, it also believes that a reserve should be carried to reflect product that is aging out, as opposed to product that management identified based on a specific event. At the end of 2015, the Company had more than 40,000 unique part numbers on hand that had carrying value. Management believes that the two methods, specific identification and reserve based on age, to analyzing inventory will reflect the appropriate balance sheet value. |
Property and Equipment | Property and equipment are stated at cost less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets acquired as follows: Leasehold improvements 5 years ** Furniture and fixtures 7 years Equipment and other 3-5 years ** Shorter of life or lease term. The carrying amount of all long-lived assets is evaluated periodically to determine whether adjustment to the useful life or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets. |
Income Taxes | The Company provides for income taxes under ASC Topic 740-10. ASC Topic 740-10 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Temporary differences relate primarily to different accounting methods used for depreciation and amortization of property and equipment and deferred compensation. ASC Topic 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. ASC Topic 740-10 clarifies the accounting for uncertainty in income tax positions, as defined. It requires, among other matters, that the Company recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company analyzes the filing positions in all of the federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. As of December 31, 2015, the Company did not record any unrecognized tax benefits. The Company's policy, if it had unrecognized benefits, is to recognize accrued interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively. |
Revenue Recognition | Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable and collectability is reasonably assured. The Company recognizes revenue when product is shipped or when it is received by the customer, depending on the contractual terms. |
Fair Value of Financial Instruments | The carrying amounts reported in the consolidated balance sheet for cash, certificates of deposit, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of the financial instruments. The Company believes that its indebtedness approximates fair value based on current yields for debt instruments with similar terms. |
Shipping Costs | Shipping costs relating to sales were approximately $86,000 and $103,000 for the years ended December 31, 2015 and 2014, respectively, and are included in general and administrative expenses in the accompanying Consolidated Statements of Operations. |
Fair Value of Financial Assets and Liabilities | In accordance with the authoritative guidance for fair value measurements and the fair value election for financial assets and financial liabilities, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy was established that draws a distinction between market participant assumptions based on the following: i) observable inputs such as quoted prices in active markets (Level 1) ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company's assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. |
Recent Accounting Pronouncements | There have been no accounting pronouncements that have been issued but not yet implemented that the Company believes will materially impact the financial statements. |
Stock based compensation policy | During the year 2014 the Company issued shares to employees as compensation for work performed. During the year 2015, the Company did not issue shares to employees as compensation for work performed. The Company accounts for stock-based awards to recipients in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, to be measured and recognized in the financial statements based on a grant date fair value. |
Long Lived Assets Impairment | Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. When it becomes apparent that indicators such as a significant decrease in the market value of the long-lived asset group or if material differences between operating results and the Company's forecasted expectations occur, then an impairment analysis is performed. If indicators arise, an initial determination of recoverability is performed based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its eventual disposition compared with the carrying value. If the carrying value of the asset group exceeds the undiscounted cash flows, a measurement of an impairment loss for long-lived assets is performed. The impairment charge is the excess of the carrying value of the asset group over the fair value, as determined utilizing appropriate valuation techniques. |
Concentration of Credit Risk | Sales to two customers totaled greater than 10% during 2015. The United States Department of Defense ("DOD") represented approximately 17.9% and 11% of the Company's total sales for the year ending December 31, 2015 and 2014, respectively. PACCAR Inc represented approximately 20.1% and 21% of the Company's total sales for the year ending December 31, 2015 and 2014, respectively. No other customer accounted for greater than 10% of the Company's total sales and the Company has no substantial concentrations of credit risk in its trade receivables. |
Concentration of Suppliers | The Company's top twenty suppliers represented approximately 76% and 66% of product distributed for the year end December 31, 2015 and 2014, respectively. The Company's two largest suppliers, SPS Technologies and AVK, represented approximately 43.6% and 35% of product distributed for the year end December 31, 2015 and 2014. For nearly all suppliers, the Company looks to have secondary supply outlets. However, manufacturing issues with any supplier could cause temporary disruptions to the Company. |
Earnings (Loss) per Common Share | Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. Basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same. |
SUMMARY OF SIGNIFICANT ACCOUN19
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Summary Of Significant Accounting Policies Tables | |
Estimated useful lives of the assets | Leasehold improvements 5 years ** Furniture and fixtures 7 years Equipment and other 3-5 years |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Income Taxes Tables | |
Schedule of Components of income tax provision | For the years ended December 31, 2015 2014 Current income tax Federal $ - $ - State 56,041 93,653 City - - Total Current income tax 56,041 93,653 Non current income tax Federal - State - - City - - Total non current income tax - - Total income tax $ 56,041 $ 93,653 |
Schedule of Effective Income Tax Rate Reconciliation | For the years ended December 31, 2015 2014 Expected federal statutory rate (34.00 )% (34.00 )% Increase (decrease) in taxes resulting from: State and local income taxes, net of federal benefit (4.2 )% (17.8 )% Permanent difference - amortization and disallowable expenses (34.7 )% (20.0 )% Change in valuation allowance 76.1 % 78.3 % Other 1.0 % 11.3 % Effective income tax rate 4.2 % 17.8 % |
Schedule of Deferred Tax Assets and Liabilities | December 31, 2015 Depreciation and amortization 2,698,300 42 % 1,133,300 Decrease in inventory value 5,185,800 42 % 2,178,000 Federal and state NOL 1,359,000 42 % 570,800 Total 8,110,400 3,882,100 Less valuation allowance (3,882,100 ) Net Deferred Tax Assets $ - December 31, 2014 Depreciation and amortization 2,102,700 42 % 883,100 Decrease in inventory value 4,749,100 42 % 1,737,100 Federal and state NOL 1,258,600 42 % 528,600 Total 7,217,700 3,029,300 Less valuation allowance (3,029,300 ) Net Deferred Tax Assets $ - |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Earnings Per Share Tables | |
Computation of earnings per share | December 31, 2015 2014 Net income (loss) available to common stockholders used in basic EPS and diluted EPS $ (1,382,849 ) $ (620,825 ) Weighted average number of common shares used in basic EPS 95,607,299 4,388,746 EPS Basic (0.01 ) (0.14 ) Diluted (0.01 ) (0.14 ) |
SUMMARY OF SIGNIFICANT ACCOUN22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 12 Months Ended |
Dec. 31, 2015 | |
Leasehold improvements | |
Estimated useful lives of the assets | 5 years |
Furniture and fixtures | |
Estimated useful lives of the assets | 7 years |
Equipment and other | |
Estimated useful lives of the assets | 3-5 years |
SUMMARY OF SIGNIFICANT ACCOUN23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Allowance for doubtful accounts | $ 129,357 | $ 129,357 |
Inventory Reserve | 5,185,820 | 4,133,189 |
Inventory wrote off | 0 | 18,603 |
Shipping Costs | $ 86,000 | $ 103,000 |
Concentration of suppliers, product distributed | 76.00% | 66.00% |
SPS Technologies and AVK [Member] | ||
Concentration of suppliers, product distributed | 43.60% | 35.00% |
DOD [Member] | ||
Concentration of credit risk, total sales | 17.90% | 11.00% |
PACCAR Inc [Member] | ||
Concentration of credit risk, total sales | 20.10% | 21.00% |
TERM LOAN, NOTE PAYABLE, LOAN24
TERM LOAN, NOTE PAYABLE, LOAN FROM SHAREHOLDER AND LINE OF CREDIT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Amount outstanding | $ 122,790 | |
Revolving funding facility | 10,000,000 | $ 10,000,000 |
Accretion interest expense | 103,000 | |
Webster Business Credit Corporation [Member] | ||
Accretion interest expense | 12,000 | |
Note A [Member] | ||
Amount outstanding | 500,000 | |
Note B [Member] | ||
Amount outstanding | 3,500,000 | |
WBCC Revolving Loan [Member] | ||
Amount outstanding | $ 5,737,473 | |
Term Loan [Member] | ||
Amount outstanding | $ 729,166 | |
Interest rate | 11.10% | |
Revolving Funding Facility [Member] | ||
Amount outstanding | $ 7,144,827 | |
Interest rate | 8.00% |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Current income tax | ||
Federal | ||
State | $ 56,041 | $ 93,653 |
City | ||
Total Current income tax | $ 56,041 | $ 93,653 |
Non current income tax | ||
Federal | ||
State | ||
City | ||
Total non current income tax | ||
Total income tax | $ 56,041 | $ 93,653 |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Income Taxes Details 1 | ||
Expected federal statutory rate | (34.00%) | (34.00%) |
Increase (decrease) in taxes resulting from: | ||
State and local income taxes, net of federal benefit | (4.20%) | (17.80%) |
Permanent difference - amortization and disallowable expenses | (34.70%) | (20.00%) |
Change in valuation allowance | 76.10% | 78.30% |
Other | 1.00% | 11.30% |
Effective income tax rate | 4.20% | 17.80% |
INCOME TAXES (Details 2)
INCOME TAXES (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Deferred Tax Assets: | ||
Depreciation and amortization | $ 27,782 | $ 18,107 |
Rate for calculation of deferred taxes | 42.00% | 42.00% |
Gross [Member] | ||
Deferred Tax Assets: | ||
Depreciation and amortization | $ 2,698,300 | $ 2,102,700 |
Decrease in inventory value | 5,185,800 | 4,749,100 |
Federal and State NOL | 1,359,000 | 1,258,600 |
Total | 8,110,400 | 7,217,700 |
Net [Member] | ||
Deferred Tax Assets: | ||
Depreciation and amortization | 1,133,300 | 883,100 |
Decrease in inventory value | 2,178,000 | 1,737,100 |
Federal and State NOL | 570,800 | 528,600 |
Total | 3,882,100 | 3,029,300 |
Less valuation allowance | $ (3,882,100) | $ (3,029,300) |
Net Deferred Tax Assets |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Earnings Per Share Details | ||
Net income (loss) available to common stockholders used in basic EPS and diluted EPS | $ (1,382,849) | $ (620,825) |
Weighted average number of common shares used in basic EPS | 95,607,299 | 4,388,746 |
EPS | ||
Basic | $ (0.01) | $ (0.14) |
Diluted | $ (0.01) | $ (0.14) |
STOCKHOLDERS EQUITY (Details)
STOCKHOLDERS EQUITY (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Stockholders Equity Details | ||
Beginning balance | ||
Issuance of put | $ 165,650 | |
Mark to market adjustment | 399,692 | |
Ending balance | $ 565,342 |
STOCKHOLDERS EQUITY (Details Na
STOCKHOLDERS EQUITY (Details Narrative) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Stockholders Equity Details Narrative | ||
Put option | $ 565,342 |