Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Mar. 17, 2017 | Jun. 30, 2016 | |
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, 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 Public Float | $ 709,750 | ||
Entity Common Stock, Shares Outstanding | 298,867 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,016 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current assets: | ||
Cash | $ 83,391 | $ 81,941 |
Accounts receivable (net of allowance for doubtful accounts of $218,924 and $129,537 as of December 31, 2016 and 2015, respectively.) | 1,985,070 | 2,121,771 |
Inventories (net of reserve for obsolesence of $5,033,504 and $5,185,820 as of December 31, 2016 and 2015, respectively.) | 8,981,929 | 9,706,458 |
Other current assets | 101,240 | 143,946 |
Total Current Assets | 11,151,630 | 12,054,116 |
Property and equipment - net | 186,615 | 15,741 |
Other assets | 7,298 | 7,298 |
Total | 11,345,543 | 12,077,155 |
Current liabilities: | ||
Line of credit | 5,292,366 | 5,737,473 |
Accounts payable and accrued expenses | 2,663,411 | 3,203,885 |
Income taxes payable | 22,100 | 127,735 |
Shareholder put option | 687,000 | 565,342 |
Loans from shareholder | 122,790 | |
Total current liabilities | 8,664,877 | 9,757,225 |
Long-term liabilities - notes payable | 3,800,489 | 3,768,076 |
Total liabilities | 12,465,366 | 13,525,301 |
Stockholders' deficiency: | ||
Common stock, $.001 par value; 1,500,000 and 100,000,000 shares authorized and 298,867 and 39,801 issued and outstanding at December 31, 2016 and 2015, respectively. | 299 | 40 |
Additional paid-in capital | 12,070,996 | 11,993,509 |
Accumulated deficit | (13,191,118) | (13,441,695) |
Total stockholders' deficiency | (1,119,823) | (1,448,146) |
Total liabilities and stockholders' deficiency | $ 11,345,543 | $ 12,077,155 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Consolidated Balance Sheets Parenthetical | ||
Net of allowance for doubtful accounts | $ 218,924 | $ 129,537 |
Net of reserve for obsolesence | $ 5,033,504 | $ 5,185,820 |
Stockholders' deficiency: | ||
Common Stock Par Value | $ 0.001 | $ .001 |
Common Stock Authorized | 1,500,000 | 100,000,000 |
Common Stock Issued | 298,867 | 39,801 |
Common Stock Outstanding | 298,867 | 39,801 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Consolidated Statements Of Operations | ||
Net revenue | $ 22,608,024 | $ 26,951,628 |
Cost of goods sold | 17,479,599 | 21,682,727 |
Gross profit | 5,128,425 | 5,268,901 |
Operating expenses: | ||
General and administrative expenses | 3,591,249 | 4,215,601 |
Professional and consulting fees | 275,620 | 285,083 |
Depreciation and amortization | 24,624 | 27,782 |
Total operating expenses | 3,891,493 | 4,528,466 |
Income before other income (expense) | 1,236,932 | 740,435 |
Other income (expense) | ||
Interest | (908,146) | (1,669,910) |
Change in fair value put option | (121,658) | (399,692) |
Other income | 2,700 | 2,359 |
Total other income (expense) | (1,027,104) | (2,067,243) |
Income (loss) before provision for income taxes | 209,828 | (1,326,808) |
Benefit (provision) for income taxes | 40,749 | (56,041) |
Net loss applicable to common stockholders | $ 250,577 | $ (1,382,849) |
Net income (loss) per share applicable to common stockholders: | ||
Basic | $ 1.46 | $ (36.16) |
Diluted | $ 1.39 | $ (36.16) |
Weighted average shares outstanding: | ||
Basic | 171,118 | 38,243 |
Diluted | 180,088 | 38,243 |
CONSOLIDATED STATEMENT OF STOCK
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (Deficit) - USD ($) | Series A Preferred Stock [Member] | Preferred Stock C [Member] | Common Stock | Additional Paid-In Capital | Accumulated (Deficit) | Total |
Beginning Balance, Amount at Dec. 31, 2014 | $ 1,337 | $ 4,608 | $ 2 | $ 11,511,679 | $ (12,058,846) | $ (541,220) |
Beginning Balance, Shares at Dec. 31, 2014 | 1,336,703 | 4,608,675 | 1,789 | |||
Stock issued for compensation, Amount | $ 3 | 43,997 | 44,000 | |||
Stock issued for compensation, Shares | 3,200 | |||||
Conversion of preferred shares, Amount | $ (1,337) | $ (4,608) | $ 4 | 5,941 | ||
Conversion of preferred shares, Shares | (1,336,703) | (4,608,675) | 3,696 | |||
Issuance of common stock, Amount | $ 31 | 431,892 | ||||
Issuance of common stock, Shares | 31,116 | |||||
Net loss | (1,382,849) | (1,382,849) | ||||
Ending Balance, Amount at Dec. 31, 2015 | $ 40 | 11,993,509 | (13,441,695) | (1,448,146) | ||
Ending Balance, Shares at Dec. 31, 2015 | 39,801 | |||||
Issuance of common stock, Amount | $ 259 | 67,998 | 68,257 | |||
Issuance of common stock, Shares | 259,126 | |||||
Stock compensation | 9,489 | $ 9,489 | ||||
Cancellation of fractional shares | (60) | (60) | ||||
Net loss | 250,577 | $ 250,577 | ||||
Ending Balance, Amount at Dec. 31, 2016 | $ 299 | $ 12,070,996 | $ (13,191,118) | $ (1,119,823) | ||
Ending Balance, Shares at Dec. 31, 2016 | 298,867 |
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income (loss) | $ 250,577 | $ (1,382,849) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 24,624 | 27,782 |
Amortization of deferred financing fees | 68,913 | 422,785 |
Stock compensation | 9,489 | 0 |
Change in allowance for doubtful accounts | 89,387 | |
Change in fair value put option | 121,658 | 399,692 |
Inventory writedown and reserve | 382,338 | 1,052,631 |
Changes in assets and liabilities: | ||
Decrease (increase) in accounts receivable | 47,314 | (201,522) |
Decrease (increase) in inventory | 342,191 | (1,119,982) |
Decrease in other current assets | 42,706 | 56,944 |
(Decrease) increase in income taxes payable | (105,635) | 46,928 |
(Decrease) increase in accounts payable and accrued expenses | (540,474) | (718,756) |
Net cash provided by (used in) operating activities | 733,088 | (1,416,347) |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Purchase of property and equipment | (195,498) | (5,642) |
Net cash used in investing activities | (195,498) | (5,642) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Net payments on line of credit | (481,607) | (1,407,354) |
Net payments on term loan | (729,167) | |
Net proceeds from notes payable | 3,555,125 | |
Payments on shareholder loan | (122,790) | (412,210) |
Proceeds from issuance of stock | 68,257 | 431,923 |
Net cash (used in) provided by financing activities | (536,140) | 1,438,317 |
INCREASE IN CASH AND CASH EQUIVALENTS | 1,450 | 16,328 |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 81,941 | 65,613 |
CASH AND CASH EQUIVALENTS - END OF PERIOD | 83,391 | 81,941 |
Cash paid during the period for: | ||
Interest | 812,735 | 1,255,507 |
Income taxes | 4,195 | 21,365 |
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, 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 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, Precisions 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 Companys 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 October 18, 2016, the Company completed a 1-for-2500 reverse stock split. Amounts for the Companys historical (pre-reverse stock split) common stock including share and earnings per share amounts have been retroactively adjusted using the respective ratio of 1-for-2500 in these financial statements, unless otherwise disclosed and indicated. On January 16, 2015, Precision Group Holding, LLC (PGH or Holdings) and Capital Partners III L.P (C3) refinanced the outstanding debt of the Company and purchased approximately 31,116 shares of restricted Common Stock of the Company and C3 was granted 3,200 shares of restricted common stock of the Company, collectively 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. Also on June 6, 2016, the shareholders of the Company approved a resolution to deauthorize its Preferred A, B, and C stock. Effective June 30, 2016, the Company issued 174,028 shares and 85,096 shares of restricted common stock to PGH and C3, respectively, resulting in the collective ownership of 98.1%. On October 18, 2016, the Company completed a 1-for-2500 reverse stock split. No fractional shares were issued. Shareholders received $0.02 in consideration for each pre-split share of a fractional share. On November 22, 2016, the shareholders of the Company approved a resolution to decrease the number of authorized shares of common stock from 800,000,000, par value $0.001 per share to 1,500,000, par value $0.001 per share. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2016 | |
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 most significant estimates relate to the allowance for doubtful accounts, inventory valuation, valuation of shareholder put option, and cash flow assumptions regarding evaluations for impairment of long-lived assets and going concern considerations, and valuation allowances on deferred tax 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 Companys prior collection experience, customer credit worthiness, and current economic trends. Based on managements review of accounts receivable, the Company carries an allowance for doubtful accounts of $218,924 and $129,357 as of December 31, 2016 and 2015, respectively. 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, 2016 and 2015 the inventory reserve was $5,033,504 and $5,185,820, respectively. For the years 2016 and 2015, the Company wrote off approximately $535,000 and $0, respectively, of previously reserved for inventory. 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 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. 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, 2016, the Company did not record any unrecognized tax benefits. The Companys 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 $128,000 and $161,000 for the years ended December 31, 2016 and 2015, 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 Companys 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. Stock Based Compensation Policy 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 over the requisite service period. 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 Companys 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 2016 and 2015. The United States Department of Defense (DOD) represented approximately19.4% and 17.9% of the Companys total sales for the year ending December 31, 2016 and 2015, respectively. PACCAR Inc represented approximately 20.1% of the Companys total sales for each of the years ending December 31, 2016 and 2015. DOD and PACCAR represent 16% and 15% of outstanding accounts receivable at December 31, 2016, respectively. DOD and PACCAR outstanding accounts receivable at December 31, 2015, were 8.4% and 14.4%, respectively. No other customer accounted for greater than 10% of the Companys total sales for the years ending December 13, 2016 and 2015, or greater than 10% of outstanding accounts receivable as of each balance sheet date. Concentration of Suppliers The Companys top twenty suppliers represented more than 66% of product distributed for the year end December 31, 2016 and 76% for the year end December 31, 2015. The Companys two largest suppliers, SPS Technologies and AVK Industrial Products, represented approximately 42.0% and 43.6% of product distributed for the years ending December 31, 2016 and 2015, respectively. Amounts outstanding at December 31, 2016 and 2015 represent 37% and 32% of accounts payable, respectively. 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. Recent Accounting Pronouncements In August 2014, the FASB issued Accounting Standard Update 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. Management of public and private companies will be required to evaluate whether there are conditions and events that raise substantial doubt about the entitys ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. Management will be required to make this evaluation for both annual and interim reporting periods, if applicable. The standard is effective for annual periods ending after December 15, 2016 and interim periods ending after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. This adoption did not have a material impact on the Companys consolidated financial statements. In April 2015, the FASB issued Accounting Standards Update 2015-03: Simplifying the Presentation of Debt Issuance In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying performance obligations and licensing, In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classifications of Deferred Taxes In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory There have been no other accounting pronouncements that have been issued but not yet implemented that the Company believes will materially impact the financial statements. |
LONG-TERM DEBT AND LINE OF CRED
LONG-TERM DEBT AND LINE OF CREDIT | 12 Months Ended |
Dec. 31, 2016 | |
Debt Disclosure [Abstract] | |
3. LONG-TERM DEBT AND LINE OF CREDIT | Loans From Shareholders 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 $535,000 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. On 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. On December 31, 2016 and 2015, the Prince Note had a principal balance remaining of $0 and $122,790, respectively. 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. 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) 3,200 shares 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. 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, (4) non-compete agreements with certain executive officers of the Company, and (5) 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. On July 14, 2016, the Company and C3 amended the Securities Purchase Agreement to provide that the Company maintain a fixed charge coverage ratio of 1.1 to 1, and a net debt to EBITDA ratio of 4.25 to 1 for the year 2016 and 2017, and dropping to 2.0 to 1 in each fiscal quarter thereafter. 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, 2016 the Company was not in compliance with its financial covenant with C3 to maintain a net debt to EBITDA ratio of less than 4.25 to 1 for each quarter of 2016. C3 has waived this default. The Company is in compliance with all other financial covenants. 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, 2016 and 2015, Note A had a principal balance of $500,000. Principal is due January 16, 2020. As of December 31, 2016 and 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 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 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. 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). 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%. For the year ending December 31, 2016, the effective interest rate was 3.83%. 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. 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. On December 31, 2016 and 2015, the Revolving Loan had a principal balance of $5,339,199 and $5,820,805, which is $5,292,366 and $5,737,473, respectively, net of deferred financing costs. |
RELATED PARTY MATTERS
RELATED PARTY MATTERS | 12 Months Ended |
Dec. 31, 2016 | |
Related Party Transactions [Abstract] | |
4. 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, 2016 | |
Notes to Financial Statements | |
5. COMMITMENTS AND CONTINGENCIES | Operating Leases The Company has four 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 three years 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. Our Texas facility lease payments till expiration in February 2019 total $98,858. The annual payments for 2017, 2018, and 2019 are $42,400, $42,400, and $7,067. 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 Companys 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. 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. The agreement with Mr. Prince terminated on January 16, 2017 and currently, the Company no longer has any obligations or arrangements with Mr. Prince. On April 1, 2016, the Company appointed Victor Mondo as President of Aero-Missile. Mr. Mondo became Chief Executive Officer of the Company on July 18, 2016. 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 be awarded 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. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2016 | |
Notes to Financial Statements | |
6. 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, 2016 2015 Current income tax Federal $ (66,752 ) $ - State 26,003 56,041 City - - Total Current income tax (40,749 ) 56,041 Deferred income tax Federal - - State - - City - - Total deferred income tax - - Total income tax $ (40,749 ) $ 56,041 The Company has an accumulated deficit of approximately $13.0 million and there are approximately $724,444 and $1,569,281 of net operating losses available to be used against Federal and state taxable income, respectively, which are subject to certain Section 382 limitations as a result of the change in control in January 2015. Benefits for income taxes were due to carryback of Federal operating losses. A reconciliation of the statutory tax rate to the effective tax rate is as follows: For the years ended December 31, 2016 2015 Expected federal statutory rate 34.00 % (34.00 )% Increase (decrease) in taxes resulting from: State and local income taxes, net of federal benefit 7.9 % 4.2 % Permanent difference - amortization and disallowable expenses 62.6 % (43.1 )% Change in valuation allowance (128.7 )% 76.1 % Other 4.8 % 1.0 % Effective income tax rate (19.4 )% 4.2 % The Companys deferred tax assets and liability relates to a temporary timing difference in long-term assets. With the deferred tax asset for December 31, 2016 and 2015 consisting of: Deferred Tax Assets: December 31, 2016 Depreciation and amortization 1,275,513 42 % 535,700 Decrease in inventory value 5,033,500 42 % 2,114,100 Federal and state NOL 937,900 42 % 393,875 Total 7,246,900 3,043,675 Less valuation allowance (3,043,675 ) Net Deferred Tax Assets $ - December 31, 2015 Depreciation and amortization 1,637,000 42 % 687,540 Decrease in inventory value 5,185,800 42 % 2,178,036 Federal and state NOL 1,067,264 42 % 448,251 Total 7,731,300 3,313,827 Less valuation allowance (3,313,827 ) Net Deferred Tax Assets $ 0 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 Companys 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, 2013, 2014, and 2015 have been filed, but are still open to examination. |
EARNINGS PER SHARE
EARNINGS PER SHARE | 12 Months Ended |
Dec. 31, 2016 | |
Notes to Financial Statements | |
7. 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, 2016 2015 Net income (loss) available to common stockholders used in basic EPS and diluted EPS $ 250,577 $ (1,382,849 ) Weighted average number of common shares used in basic EPS 171,118 38,243 Weighted average number of Common shares used in dilutive EPS 180,088 38,243 EPS Basic 1.46 (36.16 ) Diluted 1.39 (36.16 ) __________ |
STOCK OPTIONS
STOCK OPTIONS | 12 Months Ended |
Dec. 31, 2016 | |
Notes to Financial Statements | |
8. STOCK OPTIONS | The Precision Aerospace Components, Inc. 2011 Omnibus Incentive Plan (the 2011 Plan), approved as of April 10, 2011 made the greater of 220 shares or twenty percent of the highest total number of the Companys 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, 2016 | |
Notes to Financial Statements | |
9. STOCKHOLDERS EQUITY | Conversion of Preferred Stock to Common Stock On January 16, 2015, the majority of shareholders of the Companys Series A Convertible Preferred Stock agreed to amend the Statements of Designation to automatically convert all of the outstanding shares of the Companys 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 Companys Series C Convertible Preferred Stock agreed to amend the Statements of Designation to automatically convert all of the outstanding shares of the Companys 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 and Series A, Series B and Series C Convertible Preferred Stock have all been deauthorized. Share based payments On April 1, 2016, Victor Mondo was hired as President of Aero-Missile. As part of Mr. Mondos employment agreement he was granted 8,970 restricted shares, which will fully vest on December 31, 2018. Total stock based compensation expense was $9,489 and $0 for the years ended December 31, 2016 and 2015, respectively. Securities Purchase Agreement On the January 16, 2015 (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) 3,200 shares of unregistered Common Stock for a loan from C3. In addition, in partial consideration for providing the two loans the Company issued 20,730 shares of unregistered Common Stock to C3 on July 6, 2016 (the Second Closing) that, together with the initial issuance of 3,200 shares, caused 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, 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 PGH (the Stock Purchase Agreement). Pursuant to the Stock Purchase Agreement, Holdings and C3 agreed to purchase a total of 269,512 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 8,401 shares of restricted Common Stock to C3 for a purchase price of $116,571 and 22,715 shares of restricted Common Stock to Holdings for a purchase price of $315,172. On July 7, 2016, pursuant to the Second Closing, the Company issued 85,096and 174,028 shares of restricted Common Stock to C3 and Holdings, respectively for a total purchase price equal to $68,257. The issuance and sale of the restricted shares of Common Stock in each installment was 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 shareholders of the Company approved a resolution to 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 Companys Shareholders on the June 6, 2016. 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 Companys 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, which can be found in Exhibit 10.2 to that amended Form 8-K/A, filed on August 18, 2015. 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, 2016 and 2015, the Company's valuation for the C3 Put was $687,000 and $565,342, respectively. The table below sets forth a summary of changes in the fair value of the Companys Level 3 financial liabilities: December 31, 2016 December 31, 2015 Beginning balance $ 565,342 $ - Issuance of put $ - $ 165,650 Mark to market adjustment $ 121,658 $ 399,692 Ending balance $ 687,000 $ 565,342 |
SUMMARY OF SIGNIFICANT ACCOUN16
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
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 most significant estimates relate to the allowance for doubtful accounts, inventory valuation, valuation of shareholder put option, and cash flow assumptions regarding evaluations for impairment of long-lived assets and going concern considerations, and valuation allowances on deferred tax 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 Companys prior collection experience, customer credit worthiness, and current economic trends. Based on managements review of accounts receivable, the Company carries an allowance for doubtful accounts of $218,924 and $129,357 as of December 31, 2016 and 2015, respectively. 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, 2016 and 2015 the inventory reserve was $5,033,504 and $5,185,820, respectively. For the years 2016 and 2015, the Company wrote off approximately $535,000 and $0, respectively, of previously reserved for inventory. 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 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. |
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, 2016, the Company did not record any unrecognized tax benefits. The Companys 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 $128,000 and $161,000 for the years ended December 31, 2016 and 2015, 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 Companys 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. |
Stock based compensation policy | 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 over the requisite service period. |
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 Companys 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 2016 and 2015. The United States Department of Defense (DOD) represented approximately19.4% and 17.9% of the Companys total sales for the year ending December 31, 2016 and 2015, respectively. PACCAR Inc represented approximately 20.1% of the Companys total sales for each of the years ending December 31, 2016 and 2015. DOD and PACCAR represent 16% and 15% of outstanding accounts receivable at December 31, 2016, respectively. DOD and PACCAR outstanding accounts receivable at December 31, 2015, were 8.4% and 14.4%, respectively. No other customer accounted for greater than 10% of the Companys total sales for the years ending December 13, 2016 and 2015, or greater than 10% of outstanding accounts receivable as of each balance sheet date. |
Concentration of Suppliers | The Companys top twenty suppliers represented more than 66% of product distributed for the year end December 31, 2016 and 76% for the year end December 31, 2015. The Companys two largest suppliers, SPS Technologies and AVK Industrial Products, represented approximately 42.0% and 43.6% of product distributed for the years ending December 31, 2016 and 2015, respectively. Amounts outstanding at December 31, 2016 and 2015 represent 37% and 32% of accounts payable, respectively. 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. |
Recent Accounting Pronouncements | In August 2014, the FASB issued Accounting Standard Update 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. Management of public and private companies will be required to evaluate whether there are conditions and events that raise substantial doubt about the entitys ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. Management will be required to make this evaluation for both annual and interim reporting periods, if applicable. The standard is effective for annual periods ending after December 15, 2016 and interim periods ending after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. This adoption did not have a material impact on the Companys consolidated financial statements. In April 2015, the FASB issued Accounting Standards Update 2015-03: Simplifying the Presentation of Debt Issuance In March 2016, the FASB issued ASU No. 2016-09, CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying performance obligations and licensing, In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classifications of Deferred Taxes In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory There have been no other accounting pronouncements that have been issued but not yet implemented that the Company believes will materially impact the financial statements. |
SUMMARY OF SIGNIFICANT ACCOUN17
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
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, 2016 | |
Income Taxes Tables | |
Schedule of Components of income tax provision | For the years ended December 31, 2016 2015 Current income tax Federal $ (66,752 ) $ - State 26,003 56,041 City - - Total Current income tax (40,749 ) 56,041 Deferred income tax Federal - - State - - City - - Total deferred income tax - - Total income tax $ (40,749 ) $ 56,041 |
Schedule of Effective Income Tax Rate Reconciliation | For the years ended December 31, 2016 2015 Expected federal statutory rate 34.00 % (34.00 )% Increase (decrease) in taxes resulting from: State and local income taxes, net of federal benefit 7.9 % 4.2 % Permanent difference - amortization and disallowable expenses 62.6 % (43.1 )% Change in valuation allowance (128.7 )% 76.1 % Other 4.8 % 1.0 % Effective income tax rate (19.4 )% 4.2 % |
Schedule of Deferred Tax Assets and Liabilities | Deferred Tax Assets: December 31, 2016 Depreciation and amortization 1,275,513 42 % 535,700 Decrease in inventory value 5,033,500 42 % 2,114,100 Federal and state NOL 937,900 42 % 393,875 Total 7,246,900 3,043,675 Less valuation allowance (3,043,675 ) Net Deferred Tax Assets $ - December 31, 2015 Depreciation and amortization 1,637,000 42 % 687,540 Decrease in inventory value 5,185,800 42 % 2,178,036 Federal and state NOL 1,067,264 42 % 448,251 Total 7,731,300 3,313,827 Less valuation allowance (3,313,827 ) Net Deferred Tax Assets $ 0 |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Earnings Per Share Tables | |
Computation of earnings per share | December 31, 2016 2015 Net income (loss) available to common stockholders used in basic EPS and diluted EPS $ 250,577 $ (1,382,849 ) Weighted average number of common shares used in basic EPS 171,118 38,243 Weighted average number of Common shares used in dilutive EPS 180,088 38,243 EPS Basic 1.46 (36.16 ) Diluted 1.39 (36.16 ) |
STOCKHOLDERS EQUITY (Tables)
STOCKHOLDERS EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Notes to Financial Statements | |
Schedule of changes in the fair value | December 31, 2016 December 31, 2015 Beginning balance $ 565,342 $ - Issuance of put $ - $ 165,650 Mark to market adjustment $ 121,658 $ 399,692 Ending balance $ 687,000 $ 565,342 |
SUMMARY OF BUSINESS (Details Na
SUMMARY OF BUSINESS (Details Narrative) - $ / shares | 1 Months Ended | ||||||
Oct. 18, 2016 | Jun. 30, 2016 | Jan. 16, 2015 | Dec. 31, 2016 | Nov. 22, 2016 | Jun. 06, 2016 | Dec. 31, 2015 | |
Reverse stock split | 1-for-2500 | ||||||
Common Stock Authorized | 100,000,000 | 1,500,000 | 1,500,000 | 800,000,000 | 100,000,000 | ||
Common Stock Issued | 298,867 | 174,028 | 39,801 | ||||
Shares Issued | $ 0.02 | ||||||
Common Stock Par Value | $ 0.001 | $ 0.001 | $ .001 | ||||
Precision Group Holding, LLC [Member] | |||||||
Common Stock restricted shares purchased | 31,116 | ||||||
Capital Partners III L.P [Member] | |||||||
Common Stock restricted shares purchased | 31,116 | ||||||
Common stock restricted shares grants | 3,200 | ||||||
Outstanding shares of common stock | 86.22% | ||||||
Common Stock restricted shares issued | 85,096 | ||||||
Sale of stock ownership transaction | 98.10% |
SUMMARY OF SIGNIFICANT ACCOUN22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 12 Months Ended |
Dec. 31, 2016 | |
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, 2016 | Dec. 31, 2015 | |
Allowance for doubtful accounts | $ 218,924 | $ 129,357 |
Inventory Reserve | 5,033,504 | 5,185,820 |
Inventory write off | 535,000 | 0 |
Shipping Costs | $ 128,000 | $ 161,000 |
Concentration of suppliers, product distributed | 66.00% | 76.00% |
SPS Technologies and AVK [Member] | ||
Concentration of suppliers, product distributed | 42.00% | 43.60% |
Outstanding accounts payable | 37.00% | 32.00% |
DOD [Member] | ||
Concentration of credit risk, total sales | 19.40% | 17.90% |
Outstanding accounts receivable | 16.00% | 8.40% |
PACCAR Inc [Member] | ||
Concentration of credit risk, total sales | 20.10% | 20.10% |
Outstanding accounts receivable | 15.00% | 1440.00% |
LONG-TERM DEBT AND LINE OF CR24
LONG-TERM DEBT AND LINE OF CREDIT (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended | |||
Aug. 25, 2015 | Jun. 26, 2015 | Jan. 16, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | |
Interest rate | 3.83% | ||||
Debt ratio discriptions | On July 14, 2016, the Company and C3 amended the Securities Purchase Agreement to provide that the Company maintain a fixed charge coverage ratio of 1.1 to 1, and a net debt to EBITDA ratio of 4.25 to 1 for the year 2016 and 2017, and dropping to 2.0 to 1 in each fiscal quarter thereafter. 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, 2016 the Company was not in compliance with its financial covenant with C3 to maintain a net debt to EBITDA ratio of less than 4.25 to 1 for each quarter of 2016. C3 has waived this default | ||||
Line of credit | $ 5,292,366 | $ 5,737,473 | |||
Initial advance | 122,790 | ||||
Prime lending rate | 1.25% | ||||
LIBOR rate plus | 2.75% | ||||
Equity subsidiaries | 100.00% | ||||
Revolving loan principal balance | $ 5,339,199 | 5,820,805 | |||
Revolving loan principal balance, net of deferred financing costs | 5,292,366 | 5,737,473 | |||
WBCC Credit Agreement [Member] | |||||
Line of credit | $ 7,500,000 | ||||
Initial advance | 5,125,000 | ||||
Repayment of loan | 5,000,000 | ||||
Prepayment penalty | $ 250,000 | ||||
Due diligence cost | 109,500 | ||||
Note A [Member] | |||||
Amount outstanding | 500,000 | 500,000 | |||
Note B [Member] | |||||
Amount outstanding | 3,500,000 | $ 3,500,000 | |||
Loans from Shareholders [Member] | |||||
Amount outstanding | $ 285,000 | $ 535,000 | |||
Maturity date | Oct. 14, 2013 | ||||
Interest rate | 0.50% | 10.00% | |||
Payable amount | $ 250,000 | ||||
Aggregate gross sales | 0.70% | ||||
Remaining principal balance | $ 122,790 | $ 0 | |||
Related parties | $ 250,000 | ||||
Draws amount | $ 125,000 | ||||
Refinancing [Member] | |||||
Subsidiaries amount | 5,500,000 | ||||
Subordinated subsidiaries amount | $ 3,500,000 | ||||
Refinancing [Member] | Note A [Member] | |||||
Maturity date | Jan. 16, 2020 | ||||
Interest rate | 11.00% | ||||
Interest rate monthly | 10.00% | ||||
Accrued interest rate | 1.00% | ||||
Prepaid amount until first anniversary | 5.00% | ||||
Prepaid amount after first anniversary | 4.00% | ||||
Prepaid amount after second anniversary | 3.00% | ||||
Prepaid amount after third anniversary | 2.00% | ||||
Prepaid amount after fourth anniversary | 1.00% | ||||
Refinancing [Member] | Note B [Member] | |||||
Maturity date | Jan. 16, 2020 | ||||
Interest rate | 14.00% | ||||
Prepaid amount until first anniversary | 3.00% | ||||
Prepaid amount after first anniversary | 2.00% | ||||
Prepaid amount after second anniversary | 1.00% | ||||
Refinancing [Member] | Unregistered [Member] | |||||
Common stock, shares | 3,200 |
RELATED PARTY MATTERS (Details
RELATED PARTY MATTERS (Details Narrative) | 1 Months Ended |
Jan. 16, 2015USD ($) | |
Related Party Matters Details Narrative | |
Consulting fees per annum | $ 100,000 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 1 Months Ended | 12 Months Ended |
Jan. 16, 2015 | Dec. 31, 2016 | |
Texas facility lease payment | $ 98,858 | |
Lease expiration date | Feb. 28, 2019 | |
Consulting fees per annum | $ 100,000 | |
Maturity date for agreement | Jan. 16, 2017 | |
Mr. Mondo [Member] | ||
Base salary | $ 195,000 | |
Percentage of cash bonus | 4.00% | |
EBITDA | $ 2,000,000 | |
Sahre based compensation description | Within 30 days following December 31, 2016, Mr. Mondo shall be awarded 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. | |
2,017 | ||
Annual payment for lease | $ 42,400 | |
2,018 | ||
Annual payment for lease | 42,400 | |
2,019 | ||
Annual payment for lease | $ 7,067 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Current income tax | ||
Federal | $ (66,752) | |
State | 26,003 | 56,041 |
City | ||
Total Current income tax | (40,749) | 56,041 |
Deferred income tax | ||
Federal | ||
State | ||
City | ||
Total deferred income tax | ||
Total income tax | $ (40,749) | $ 56,041 |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
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 | 7.90% | 4.20% |
Permanent difference - amortization and disallowable expenses | 62.60% | (43.10%) |
Change in valuation allowance | (128.70%) | 76.10% |
Other | 4.80% | 1.00% |
Effective income tax rate | (19.40%) | 4.20% |
INCOME TAXES (Details 2)
INCOME TAXES (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Deferred Tax Assets: | ||
Depreciation and amortization | $ 24,624 | $ 27,782 |
Rate for calculation of deferred taxes | 42.00% | 42.00% |
Gross [Member] | ||
Deferred Tax Assets: | ||
Depreciation and amortization | $ 1,275,513 | $ 1,637,000 |
Decrease in inventory value | 5,033,500 | 5,185,800 |
Federal and State NOL | 937,900 | 1,067,264 |
Total | 7,246,900 | 7,731,300 |
Less valuation allowance | ||
Net Deferred Tax Assets | ||
Net [Member] | ||
Deferred Tax Assets: | ||
Depreciation and amortization | 535,700 | 687,540 |
Decrease in inventory value | 2,114,100 | 2,178,036 |
Federal and State NOL | 393,875 | 448,251 |
Total | 3,043,675 | 3,313,827 |
Less valuation allowance | (3,043,675) | (3,313,827) |
Net Deferred Tax Assets | $ 0 |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Accumulated deficit | $ (13,191,118) | $ (13,441,695) |
Federal [Member] | ||
Net operating loss | 724,444 | |
State [Member] | ||
Net operating loss | $ 1,569,281 |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Earnings Per Share Details | ||
Net income (loss) available to common stockholders used in basic EPS and diluted EPS | $ 250,577 | $ (1,382,849) |
Weighted average number of common shares used in basic EPS | 171,118 | 38,243 |
Weighted average number of Common shares used in dilutive EPS | 180,088 | 38,243 |
EPS | ||
Basic | $ 1.46 | $ (36.16) |
Diluted | $ 1.39 | $ (36.16) |
STOCKHOLDERS EQUITY (Details)
STOCKHOLDERS EQUITY (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Stockholders Equity Details | ||
Beginning balance | $ 565,342 | |
Issuance of put | 165,650 | |
Mark to market adjustment | 121,658 | 399,692 |
Ending balance | $ 687,000 | $ 565,342 |
STOCKHOLDERS EQUITY (Details Na
STOCKHOLDERS EQUITY (Details Narrative) - USD ($) | Apr. 01, 2017 | Jul. 07, 2016 | Jan. 16, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Nov. 22, 2016 | Jun. 06, 2016 | Jan. 16, 2016 | Dec. 31, 2014 |
Put option | $ 687,000 | $ 565,342 | |||||||
Share based compensation | $ 9,489 | $ 0 | |||||||
Common Stock Authorized | 100,000,000 | 1,500,000 | 100,000,000 | 1,500,000 | 800,000,000 | ||||
Victor Mondo [Member] | |||||||||
Restricted stock units granted | 8,970 | ||||||||
Stock Purchase Agreement [Member] | |||||||||
Restricted shares of Common Stock | 269,512 | ||||||||
Aggregate purchase price of common stock | $ 500,000 | ||||||||
Restricted shares of common stock at first closing | 8,401 | ||||||||
Aggregate purchase price of common stock at first closing | $ 116,571 | ||||||||
Restricted common stock to holdings | 22,715 | ||||||||
Restricted common Stock to holdings for purchase price | $ 315,172 | ||||||||
C3 Put [Member] | |||||||||
Debt discount | $ 165,650 | ||||||||
Valuation for Put option | $ 687,000 | $ 565,342 | |||||||
Stock Purchase Agreement [Member] | |||||||||
Restricted shares of common stock at second closing | 85,096 | ||||||||
Aggregate common stock at second closing | 174,028 | ||||||||
Aggregate purchase price of common stock at second closing | $ 68,257 | ||||||||
Common Stock Authorized | 800,000,000 | 100,000,000 | |||||||
Indebtedness in excess due to issuance of additional common stock | $ 100,000 | ||||||||
Securities Purchase Agreement [Member] | |||||||||
Amount of Senior Secured Note issued by Subsidiaries | 5,500,000 | ||||||||
Amount of Subordinated Secured Note issued by Subsidiaries | $ 3,500,000 | ||||||||
Number of unregistered common stock issued for loan from C3 | 3,200 | ||||||||
Additionally number of unregistered common stock issued for loan from C3 | 20,730 | ||||||||
Percentage of common stock issued to C3 | 8.00% | ||||||||
Series A Preferred Stock [Member] | |||||||||
Issuance of common shares upon conversion of preferred stock | 1.554 | ||||||||
Series C Preferred Stock [Member] | |||||||||
Issuance of common shares upon conversion of preferred stock | 1.554 |