Amerinac Holding (PAOS) 10-Q 18 Jul 16 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Jul. 15, 2016
Document And Entity Information
Entity Registrant Name	Precision Aerospace Components, Inc.
Entity Central Index Key	936,446
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
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?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		747,315,989
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2,016

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash	$ 86,850	$ 81,941
Accounts receivable (net of allowance for doubtful accounts of $129,357 as of March 31, 2016 and December 31, 2015 respectively)	2,404,899	2,121,771
Inventories (net of reserve for obsolesence of $5,342,682 and $5,185,820 at March 31, 2016 and December 31, 2015, respectively).	9,801,969	9,706,458
Other current assets	198,835	143,946
Total Current Assets	12,492,553	12,054,116
Property and equipment - net	54,042	15,741
Other assets:	7,298	7,298
Total assets	12,553,893	12,077,155
Current liabilities:
Line of credit	5,892,274	5,737,473
Accounts payable and accrued expenses	3,275,668	3,203,885
Income taxes payable	167,317	127,735
Shareholder put option	411,192	565,342
Loan from shareholder	81,611	122,790
Total current liabilities	9,828,062	9,757,225
Long-term liabilities - notes payable	3,794,042	3,768,076
Total liabilities	13,622,104	13,525,301
Stockholders' deficiency:
Common stock, $.001 par value; 800,000,000 shares authorized at March 31, 2016 and December 31, 2015; 99,501,998 issued and outstanding, respectively.	99,502	99,502
Additional paid-in capital	11,894,047	11,894,047
Accumulated deficit	(13,061,760)	(13,441,695)
Total stockholders' deficiency	(1,068,211)	(1,448,146)
Total liabilities and stockholders' deficiency	$ 12,553,893	$ 12,077,155

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Condensed Consolidated Balance Sheets Parenthetical
Net of allowance for doubtful accounts	$ 129,357	$ 129,357
Net of reserve for obsolesence	$ 5,342,682	$ 5,185,820
Stockholders' deficiency:
Common Stock Par Value	$ .001	$ 0.001
Common Stock Authorized	800,000,000	800,000,000
Common Stock Issued	99,501,998	99,501,998
Common Stock Outstanding	99,501,998	99,501,998

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Condensed Consolidated Statements Of Operations
Net revenue	$ 5,909,412	$ 6,758,239
Cost of goods sold	4,401,149	5,228,804
Gross profit	1,508,263	1,529,435
Operating expenses:
General and administrative expenses	969,302	1,034,245
Professional and consulting fees	70,929	46,350
Depreciation and amortization	2,961	9,538
Total Operating Expenses	1,043,192	1,090,133
Income before other income (expense)	465,071	439,302
Other income (expense):
Interest	(199,704)	(302,980)
Change in fair value put option	154,150
Total other income (expense)	(45,554)	(302,980)
Income before provision for income taxes	419,517	136,322
Provision for income taxes	(39,582)	(26,130)
Net income applicable to common stockholders	$ 379,935	$ 110,192
Net income per share applicable to common stockholders basic and diluted	$ 0	$ 0
Weighted average shares outstanding basic and diluted	99,501,998	83,663,557

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 379,935	$ 110,192
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	2,961	9,538
Amortization of deferred financing fees	25,966	26,295
Change in fair value put option	(154,150)
Inventory writedown and reserve	156,862	193,182
Changes in assets and liabilities:
(Increase) decrease in accounts receivable	(283,128)	(1,182,847)
(Increase) in inventory	(252,373)	(143,378)
(Increase) in other current assets	(54,889)	(138,281)
Increase in income taxes payable	39,582	17,551
Increase in accounts payable and accrued expenses	74,053	253,801
Net cash used in operating activities	(65,181)	(853,947)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(43,532)	(2,385)
Net cash used in investing activities	(43,532)	(2,385)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) on line of credit	154,801	(7,144,827)
Net payments on term loan		(729,167)
Net proceeds from note payable		8,578,558
Payment on shareholder loan	(41,179)	(250,000)
Proceeds from issuance of stock		431,923
Net cash provided by financing activities	113,622	886,487
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	4,909	30,155
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	81,941	65,613
CASH AND CASH EQUIVALENTS - END OF PERIOD	86,850	95,768
Cash paid during the period for:
Interest	191,041	287,128
Income taxes
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	3 Months Ended
	Mar. 31, 2016
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"), Freundlich Supply Company, Inc. ("Freundlich"),Creative Assembly Systems, Inc. ("Creative Assembly") and Tiger-Tight Corp. ("Tiger-Tight"). Aero-Missile and Freundlich both have stocking distributor relationships with a number of United States fastener manufacturers and 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 was the exclusive North American master distributor of the Tiger-Tight locking washer.In the first quarter of 2015, the Company cancelled the master distribution agreement due to lack of sales. The Company will continue to evaluate opportunities to supply the product into production, but without the master distributor agreement. In the first quarter of 2016, Precision's wholly owned subsidiary, Freundlich, was merged into Aero-Missile and Tiger-Tight was merged into Creative Assembly. Precision will continue to use the Freundlich and Tiger-Tight trade names. 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 January 16, 2015, Precision Group Holdings LLC ("PGH") 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. On June 6, 2016 the shareholders of the Company approved a resolution to increase 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. On July 7, 2016, the Company issued 435,071,882 and 212,742,109 of restricted common stock to PGH and C3, respectively, dated June 30, 2016. Upon the additional issuance of common stock, PGH and C3 collectively own 98.1% of the shares of Common Stock of the Company. Also on June 6, 2016, the shareholders of the Company approved a resolution to deauthorize its Preferred A, B and C stock.

SUMMARY OF SIGNIFICANT ACCOUNTI

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Mar. 31, 2016
Notes to Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	Interim Consolidated Financial Statements The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in the Company's opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2016 are not necessarily indicative of the results that the Company will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2015 included in the Company's Annual Report on Form 10-K filed on May 24, 2016. Earnings (Loss) Per 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. 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. 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 March 31, 2016, the inventory reserve was $5,185,820 and $5,342,682, 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. As of March 31, 2016, 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. Concentration of Credit Risk For the three month period ending March 31, 2016, sales to the United States Department of Defense accounted for 19% of total sales, versus 12% of sales for the prior three month period ending March 31, 2015. For the three month period ending March 31, 2016 sales to PACCAR accounted for 19% of total sales, versus 22% of sales for the prior three month period ending March 31, 2015. Concentration of Suppliers The Company's top twenty suppliers represent approximately 75% of product distributed for the three months ending March 31, 2016. The Company's top twenty suppliers represent approximately 76% of product distributed for the three months ending March 31, 2015. The Company's two largest suppliers, SPS Technologies and AVK, represent approximately 40% of product distributed for the three months ending March 31, 2016. The Company's two largest suppliers, SPS Technologies and AVK, represent approximately 43% of product distributed for the three months ending March 31, 2015. 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. 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. 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 March 31, 2016, 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.

LONG-TERM DEBT AND LINE OF CRED

LONG-TERM DEBT AND LINE OF CREDIT	3 Months Ended
	Mar. 31, 2016
Notes to Financial Statements
3. LONG-TERM DEBT AND LINE OF CREDIT	Securities Purchase Agreement On the January 16, 2015, (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. 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. On March 31, 2016, Note A had a principal balance of $500,000. 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. On March 31, 2016 Note B had a principal balance of $3,500,000. 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 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. 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 lienon 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 ofkey-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 the current date 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, and the first quarter of 2016. The Company is currently in the process of amending the net debt to EBITDA covenant to allow for higher leverage. 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. 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 $5,125,000.00 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. A principal balance of $500,000 remains on Note A. Pursuant to the partial repayment to C3, the Company incurred a $250,000 prepayment penalty, of which $125,000 was paid to C3on August 25, 2015. The remaining $125,000 was due in installments during the fourth quarter of 2015 during which $25,000 was paid and the remainder was accrued. 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 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. As of March 31, 2016, the Revolving Loan had a principal balance of $5,892,274. 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. 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 March 31, 2016, the Company's valuation estimate for the C3 Put was $411,192. The table below sets forth a summary of changes in the fair value of the Company's Level 3 financial liabilities: March 31, 2016 Balance as of January 1, 2016 $ 565,342 Issuance of put $ - Mark to market adjustment $ (154,150 ) Balance as of March 31, 2016 $ 411,192

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	3 Months Ended
	Mar. 31, 2016
Notes to Financial Statements
4. 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 its 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. 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. On April 1, 2016, the Company appointed Victor Mondo as President of Aero-Missile. Mr. Mondo will become Chief Executive Officer of the Company upon the filing of this Quarterly Report. In connection with his appointment, the Company and Mr. Mondo entered into a written employment agreement (the "Employment Agreement") for an initial three-year term, which provides for the following compensation terms for Mr. Mondo. Pursuant to the Employment Agreement, Mr. Mondo will receive a base salary of $195,000 per year, subject to increase, but not decrease, at the discretion of the Board. Mr. Mondo is eligible for a cash bonus equal to 4% of Adjusted EBITDA over $2,000,000 at the end of each respective annual period. In addition, within 30 days following December 31, 2016, Mr. Mondo shall receive shares of the common stock of the Company equal to 3% of the total equity on a fully diluted basis, which will fully vest on December 31, 2018. Furthermore, Mr. Mondo is eligible to receive shares of common stock equal to up to 9% of the total equity on a fully diluted basis, subject to certain growth metrics for each annual period. In addition, the Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during the term of the Employment Agreement, his employment is terminated by the Company other than for "cause," death or disability or by Mr. Mondo for "good reason" (each as defined in the Employment Agreement), he would be entitled to (1) continuation of his base salary at the rate in effect immediately prior to the termination date for six (6) months following the termination date, and (2) any unpaid portion of any cash bonus for the annual period preceding the annual period in which such termination occurs that was earned but not paid. On or about April 29, 2016, Rich McVaugh resigned as President of Aero-Missile and became a third-party consultant to the Company. The consulting agreement provides for compensation of $1,000 per week for six months.

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS	3 Months Ended
	Mar. 31, 2016
Notes to Financial Statements
5. RELATED PARTY TRANSACTIONS	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 was 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. On the January 16, 2015, 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 $34,000,000 for calendar year 2016, the Company will make a one-time payment of $130,000 for interest recoupment. As of March 31, 2016, the Prince Note had a principal balance of $81,611 remaining.

SUMMARY OF SIGNIFICANT ACCOUN11

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Mar. 31, 2016
Summary Of Significant Accounting Policies Policies
Interim Consolidated Financial Statements	The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in the Company's opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three months ended March 31, 2016 are not necessarily indicative of the results that the Company will have for any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2015 included in the Company's Annual Report on Form 10-K filed on May 24, 2016.
Earnings (Loss) Per 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.
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.
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 March 31, 2016, the inventory reserve was $5,185,820 and $5,342,682, 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. As of March 31, 2016, 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.
Concentration of Credit Risk	For the three month period ending March 31, 2016, sales to the United States Department of Defense accounted for 19% of total sales, versus 12% of sales for the prior three month period ending March 31, 2015. For the three month period ending March 31, 2016 sales to PACCAR accounted for 19% of total sales, versus 22% of sales for the prior three month period ending March 31, 2015.
Concentration of Suppliers	The Company's top twenty suppliers represent approximately 75% of product distributed for the three months ending March 31, 2016. The Company's top twenty suppliers represent approximately 76% of product distributed for the three months ending March 31, 2015. The Company's two largest suppliers, SPS Technologies and AVK, represent approximately 40% of product distributed for the three months ending March 31, 2016. The Company's two largest suppliers, SPS Technologies and AVK, represent approximately 43% of product distributed for the three months ending March 31, 2015. 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.
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.
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 March 31, 2016, 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.

LONG-TERM DEBT AND LINE OF CR12

LONG-TERM DEBT AND LINE OF CREDIT (Tables)	3 Months Ended
	Mar. 31, 2016
Long-term Debt And Line Of Credit Tables
Summary of changes in the fair value of the Company's Level 3 financial liabilities	The table below sets forth a summary of changes in the fair value of the Company's Level 3 financial liabilities: March 31, 2016 Balance as of January 1, 2016 $ 565,342 Issuance of put $ - Mark to market adjustment $ (154,150 ) Balance as of March 31, 2016 $ 411,192

SUMMARY OF SIGNIFICANT ACCOUN13

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Concentration Risk [Line Items]
Inventory Reserve	$ 5,342,682		$ 5,185,820
SPS Technologies and AVK [Member]
Concentration Risk [Line Items]
Concentration of suppliers, product distributed	40.00%	43.00%
United States Department of Defense [Member]
Concentration Risk [Line Items]
Concentration of credit risk, total sales	19.00%	12.00%
PACCAR [Member]
Concentration Risk [Line Items]
Concentration of credit risk, total sales	19.00%	22.00%
Top Twenty Suppliers [Member]
Concentration Risk [Line Items]
Concentration of suppliers, product distributed	75.00%	76.00%

LONG-TERM DEBT AND LINE OF CR14

LONG-TERM DEBT AND LINE OF CREDIT (Details) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Long-term Debt And Line Of Credit Details
Balance as of January 1, 2016	$ 565,342
Issuance of put
Mark to market adjustment	(154,150)
Balance as of March 31, 2016	$ 411,192

LONG-TERM DEBT AND LINE OF CR15

LONG-TERM DEBT AND LINE OF CREDIT (Details Narrative) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Shareholder put option	$ 411,192	$ 565,342
WBCC Credit Agreement [Member]
Amount outstanding	5,892,274
Note A [Member]
Amount outstanding	500,000
Note B [Member]
Amount outstanding	$ 3,500,000

RELATED PARTY TRANSACTIONS (Det

RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Related Party Transactions Details Narrative
Loan from shareholder	$ 81,611	$ 122,790