Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2020 | May 14, 2020 | |
Document And Entity Information | ||
Entity Registrant Name | Amerinac Holding Corp. | |
Entity Central Index Key | 0000936446 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Current Reporting Status | Yes | |
Document Period End Date | Mar. 31, 2020 | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2020 | |
Entity Common Stock Shares Outstanding | 311,636 | |
Entity Interactive Data Current | Yes |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Current assets: | ||
Cash | $ 821,681 | $ 57,419 |
Accounts receivable (net of allowance for doubtful accounts of $78,753 as of March 31, 2020 and December 31, 2019.) | 4,959,424 | 3,804,699 |
Unbilled receivables | 287,538 | 418,629 |
Inventories (net of reserve for obsolesence of $169,060 as of March 31, 2020 and December 31, 2019.) | 10,846,401 | 7,056,547 |
Other current assets | 422,061 | 155,037 |
Total current assets | 17,337,105 | 11,492,331 |
Property, land and equipment - net | 13,004,488 | 6,004,844 |
Other assets: | ||
Customer lists - net of amortization | 1,459,333 | 1,509,083 |
Right-of-use asset | 1,032,140 | 1,092,253 |
Deferred tax asset | 356,453 | |
Goodwill | 54,993 | 54,993 |
Other | 65,593 | 65,593 |
Total other assets | 2,612,059 | 3,078,375 |
Total | 32,953,652 | 20,575,550 |
Current liabilities: | ||
Lines of credit | 2,431,739 | 3,280,654 |
Accounts payable and accrued expenses | 6,584,425 | 3,283,856 |
Notes payable, net - short term | 650,441 | 600,000 |
Finance leases payable - short term | 57,137 | 49,662 |
Deferred revenue | 59,990 | |
Operating leases payable - short term | 259,595 | 255,533 |
Income taxes payable | 187,361 | 164,554 |
Total current liabilities | 10,230,688 | 7,634,259 |
Long-term liabilities: | ||
Notes payable, net of current portion | 9,677,444 | 3,539,671 |
Finance leases payable - net of current portion | 69,472 | 79,214 |
Deferred tax liability | 653,888 | |
Operating leases payable - net of current portion | 811,211 | 877,899 |
Total long-term liabilities | 11,212,015 | 4,496,784 |
Total liabilities | 21,442,703 | 12,131,043 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Common stock, $.001 par value; 1,500,000 shares authorized, 311,636 and 313,636 issued and outstanding at March 31, 2020 and December 31, 2019, respectively. | 311 | 313 |
Additional paid-in capital | 14,706,468 | 14,836,466 |
Accumulated deficit | (3,195,830) | (6,392,272) |
Total stockholders' equity | 11,510,949 | 8,444,507 |
Total liabilities and stockholders' equity | $ 32,953,652 | $ 20,575,550 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2020 | Dec. 31, 2019 |
Stockholders' equity | ||
Common stock, shares par value | $ .001 | $ .001 |
Common stock, shares authorized | 1,500,000 | 1,500,000 |
Common stock, shares issued | 311,636 | 313,636 |
Common stock, shares outstanding | 311,636 | 313,636 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
CONSOLIDATED STATEMENTS OF INCOME | ||
Net revenue | $ 11,306,442 | $ 12,504,968 |
Cost of goods sold | 9,309,015 | 9,916,377 |
Gross profit | 1,997,427 | 2,588,591 |
Operating expenses: | ||
General and administrative expenses | 1,234,776 | 1,330,661 |
Professional and consulting fees | 145,019 | 109,567 |
Total operating expenses | 1,379,795 | 1,440,228 |
Income before other income (expense) | 617,632 | 1,148,363 |
Other income (expense): | ||
Interest | (137,286) | (121,795) |
Bargain purchase gain | 3,818,686 | |
Total other income (expense) | 3,681,400 | (121,795) |
Income before provision for income taxes | 4,299,032 | 1,026,568 |
Income tax expense | (1,102,590) | (262,466) |
Net income | $ 3,196,442 | $ 764,102 |
Basic and diluted earnings per share applicable to common stockholders: | ||
Earnings per share | $ 10.24 | $ 2.43 |
Weighted average shares outstanding: | ||
Basic and diluted | 312,295 | 313,636 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Unaudited) - USD ($) | Total | Common Stock [Member] | Additional Paid-in Capital [Member] | Treasury Shares [Member] | Accumulated (Deficit) [Member] |
Balance, shares at Jan. 01, 2019 | 313,636 | ||||
Balance, amount at Jan. 01, 2019 | $ 8,306,258 | $ 313 | $ 16,383,599 | $ (8,077,654) | |
Net income | $ 764,102 | $ 764,102 | |||
Balance, shares at Mar. 31, 2019 | 313,636 | ||||
Balance, amount at Mar. 31, 2019 | $ 9,070,360 | $ 313 | $ 16,383,599 | $ (7,313,552) | |
Balance, shares at Jan. 01, 2020 | 8,444,507 | 313 | 14,836,466 | (6,392,272) | |
Balance, amount at Jan. 01, 2020 | $ 313,636 | ||||
Net income | 3,196,442 | 3,196,442 | |||
Purchase of treasury shares, shares | (2,000) | ||||
Purchase of treasury shares, amount | (130,000) | $ (130,000) | |||
Cancelled treasury shares, shares | (2,000) | 2,000 | |||
Cancelled treasury shares, amount | $ (2) | $ (129,998) | $ 130,000 | ||
Balance, shares at Mar. 31, 2020 | 313,636 | ||||
Balance, amount at Mar. 31, 2020 | $ 11,510,949 | $ 311 | $ 14,706,468 | $ (3,195,830) |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net income | $ 3,196,442 | $ 764,102 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 251,871 | 201,849 |
Amortization of deferred financing fees | 19,917 | 17,420 |
Non-cash lease expense | 60,113 | 15,334 |
Deferred income taxes | 1,010,341 | 190,018 |
Bargain purchase gain | (3,818,686) | |
Changes in assets and liabilities: | ||
Increase in accounts receivable | 110,200 | (1,632,156) |
Decrease in unbilled receivables | 131,091 | |
(Increase) decrease in inventory | (140,350) | 7,412 |
(Increase) decrease in other current assets | (9,778) | 19,320 |
Decrease in operating leases payable | (62,626) | (15,763) |
Increase in deferred revenue | 59,990 | |
Increase in income taxes payable | 22,807 | 72,448 |
Increase in accounts payable and accrued expenses | 1,083,740 | 1,121,708 |
Net cash provided by operating activities | 1,915,072 | 761,692 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Receipt of cash through acquisition | 177,553 | |
Purchase of property and equipment | (118,472) | (129,791) |
Net cash provided by (used in) investing activities | 59,081 | (129,791) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Net payments on lines of credit | (851,069) | (587,524) |
Debt issuance costs | (61,670) | |
Proceeds (payments) on notes payable | (150,000) | (150,000) |
Purchase of treasury stock | (130,000) | |
Payments on finance leases | (17,152) | (10,279) |
Net cash used in financing activities | (1,209,891) | (747,803) |
INCREASE (DECREASE) IN CASH | 764,262 | (115,902) |
CASH - BEGINNING OF PERIOD | 57,419 | 360,283 |
CASH - END OF PERIOD | 821,681 | 244,381 |
Cash paid during the period for: | ||
Interest | 122,440 | 106,384 |
Income taxes | 67,584 | |
Non-cash investing and financing activities: | ||
Operating lease asset obtained in exchange for operating lease obligation | 251,735 | |
Note payable issued through acquisition in current year | 6,167,000 | |
Total assets acquired through acquisition | 12,254,970 | |
Debt assumed through acquisition | $ 2,446,837 |
SUMMARY OF BUSINESS
SUMMARY OF BUSINESS | 3 Months Ended |
Mar. 31, 2020 | |
SUMMARY OF BUSINESS | |
1. SUMMARY OF BUSINESS | Amerinac Holding Corp. and Subsidiaries (the “Company”) distributes high-quality, predominantly domestically-manufactured, technically complex, nut and bolt products that are for industrial and commercial applications that require a high level of certified and assured quality. The Company manufactures specialty stainless steel, and related products for steel mills, steel forging operations, and various metal fabrication facilities. The Company is also engaged in the manufacture of precision aluminum castings. The Company’s operations are carried out through its wholly-owned distribution subsidiary Creative Assembly Systems, Inc (“Creative Assembly”), its wholly-owned manufacturing subsidiary, Prime Metals Acquisition LLC, a Delaware limited liability company (“PMAL”), its wholly-owned manufacturing subsidiary, USAC Ross LLC (“USAC Ross”) and its wholly-owned manufacturing subsidiary, USAC WA LLC (“USAC WA”). USAC Ross and USAC WA were formed as wholly-owned single member limited liability companies by the Company on March 3, 2020 and had no operations prior to the March 20, 2020 acquisition discussed in Note 4. Creative Assembly is a value-added distributor of proprietary and specialty fasteners primarily serving the heavy truck, automotive, transportation, and infrastructure industries. PMAL manufactures specialty ingot and electrode products which are supplied for investment castings, forging, ring rolling, and plate production. PMAL also manufactures shot products and master alloys which are sold to other melt shops, and provides manufacturing support services. The flexible manufacturing operations at PMAL enable the Company to offer a wide range of product grades in customer specific order quantities. The primary grade types include stainless steels, tool steels, nickel-based grades, cobalt based grades and some nonferrous alloys. The Company also offers toll conversion melting services. USAC Ross and USAC WA (collectively, “USAC”) are precision aluminum castings manufacturers. USAC offers multiple casting processes as well as in-house heat treating, machining, powder coating and non-destructive testing. The products are used in defense, aerospace, heavy truck, marine and commercial applications. COVID-19 In March 2020, President Donald Trump declared the coronavirus disease 2019 (“COVID-19”) pandemic as a national public health emergency. COVID-19 is the disease caused by a novel strain of a coronavirus that originated from Wuhan, China in November 2019. Several of the Company’s customers have reduced or shutdown production in response to COVID-19. This has temporarily affected the Company’s sales. As of the date of this report, the Company has not experienced any long-term disruptions with suppliers. As noted below, the Company applied for and received loans under the Cares Act to aid with the financial impact of COVID-19. To augment an expected decline in operating cash flows caused by the reduced sales caused by the COVID-19 pandemic, the Company instituted the following measures: · terminated several employees with the anticipation of rehiring these employees after the public health emergency has passed; · reduced the number hours and overtime worked by hourly employees to compensate for declining sales; · reduced current inventory purchases to compensate for the short-term reduction in sales; · stopped paying salaries to Messrs. Wachter and Golden while accruing for payment of these salaries after the public health emergency has passed. On or about April 23, 2020, the Company’s operating subsidiaries received approval and funding of approximately $3 million under the Paycheck Protection Program of the CARES Act. These funds have enabled the Company to continue to employ a large percentage of its workforce. As of the release of this report, the Company does not know the extent and duration of the impact of COVID-19 on its businesses due to the uncertainty about the spread of the virus and when the Company’s customers will restart full production. The Company considers the COVID-19 pandemic as a triggering event in the assessment of recoverability of the goodwill, intangibles and long-lived tangible assets for its operating entities. The Company evaluated and assessed that while the COVID-19 pandemic will affect short and medium term sales numbers, it is not expected to affect the value of its intangibles and long-lived tangible assets. The Company will continue to evaluate the situation on an ongoing basis. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2020 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
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 unaudited condensed consolidated 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, 2020 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, 2019 included in the Company’s Annual Report on Form 10-K filed on March 30, 2020. Principles of Consolidation and Basis of Presentation The unaudited condensed 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 the unaudited condensed consolidated financial statements in conformity with GAAP 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 unaudited condensed consolidated 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 useful lives and impairment considerations of long-lived and intangible assets, reserves for inventory and accounts receivable, going concern considerations, discount rates in connection with right-of-use assets and estimates related to the purchase price allocation contained in Note 4. Cash and Cash Equivalents For purposes of the unaudited condensed consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. From time to time, cash balances may exceed the federal deposit insurance limits. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded net of provisions for doubtful accounts. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable. The amount of the allowance is based on an analysis of the Company’s prior collection experience, customer credit worthiness, and current economic trends. Based on management’s review of accounts receivable, the Company carried an allowance for doubtful accounts of $78,753 as of March 31, 2020 and December 31, 2019. 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. Accounts are written off against the allowance when deemed uncollectable. Unbilled Services The Company recognizes revenue on its tolling services as those services are performed. Unbilled services represent the revenue recognized but not yet invoiced. Inventory For the Company’s distribution subsidiary, Creative Assembly, inventories consist only of finished goods and are carried at the lower of cost on an average cost basis, or net realizable value. When necessary, management records an inventory reserve for estimated obsolescence or unmarketable inventory based upon the age of the respective part and the knowledge of future demand of inventory on hand as well as other market conditions and events. 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, 2020, the Company had more than 4,000 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. As of March 31, 2020 and December 31, 2019, the inventory reserve for Creative Assembly was $86,211. For the Company’s manufacturing subsidiary, PMAL, management believes volatility in the broader metal markets will have an impact on all aspects of raw material, work in process, and finished goods inventory. Management actively seeks to minimize inventory working capital, and increase inventory turns to eliminate any impacts from market fluctuations. As of March 31, 2020, the Company’s manufacturing subsidiary had more than 500 unique metal chemistries it produced, but keeps minimal finished inventory on hand. For PMAL, inventories are carried at the lower of cost on an average cost basis, or net realizable value. 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 other market conditions and events. As of March 31, 2020 and December 31, 2019, the inventory reserve for PMAL was $82,849. For USAC, management believes volatility in the aluminum markets will have an impact on all aspects of raw material, work in process, and finished goods inventory. Management actively seeks to minimize inventory working capital, and increase inventory turns to eliminate any impacts from market fluctuations. For USAC, inventories are carried at the lower of cost on an average cost basis, or net realizable value. 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 other market conditions and events. As of March 31, 2020, the combined inventory reserve for USAC Ross and USAC WA was $0 as the inventory was acquired at fair value as part of the March 20, 2020 acquisition discussed in Note 4. The Company’s inventory consists of the following: March 31, 2020 December 31, 2019 Raw materials $ 3,319,660 $ 2,407,962 Work in progress 1,616,982 206,067 Finished goods 6,078,819 4,611,578 Reserves (169,060 ) (169,060 ) Total $ 10,846,401 $ 7,056,547 Property, Land and Equipment Property, land 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 3-10 years Building 30 years ** Shorter of life or lease term. The carrying amount of all long-lived assets is evaluated when an indicator of impairment exists 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 Accounting Standards Codification (“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. 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 unaudited condensed consolidated 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, 2020, 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 The Company accounts for revenue recognition in accordance with ASC Topic 606 (“ASC 606”). The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes; (1) Identifying contracts with customers, (2) Identifying performance obligations within those contracts, (3) Determining the transaction price, (4) Allocating the transaction price to the performance obligations in the contract, which may include an estimate of variable consideration, and (5) Recognizing revenue when or as each performance obligation is satisfied. Revenue primarily consists of sales of fasteners, specialty ingot products, master alloys products, metal processing and tolling services, and specialty aluminum cast parts. We generate our revenue primarily from the sale of finished products and tolling services to customers, therefore, the significant majority of our contracts are short-term in nature and have a single performance obligation to deliver products or services, in which our performance obligation is satisfied when control of the product is transferred to the customer or the service is performed. Some contracts contain a combination of product sales and services which are distinct and accounted for as separate performance obligations. Our performance obligations for services are satisfied when the services are rendered within the arranged service period. Tolling revenue is recognized when the tolling service is completed. Revenue is recognized when control transfers to our customers via shipment of products or delivery of services. Shipping and handling costs are considered fulfillment activities and as such are not accounted for as separate performance obligations. We measure revenue as the amount of consideration we expect to be entitled to receive in exchange for those goods or services, net of any variable considerations (e.g., rights to return product, sales incentives, others) and any taxes collected from customers and subsequently remitted to governmental authorities. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components if the good or service is transferred and payment is received within one year. We estimate product returns based on historical experience and record them on a gross basis. Substantially all of Creative Assembly customer returns relate to products that are returned under warranty obligations underwritten by manufacturers. Substantially all of PMAL and USAC customer returns relate to products which do not meet customer requirements and are replaced by the Company. We occasionally receive advance payments to secure product to be delivered in future periods. These advance payments are recorded as deferred revenue, and revenue is recognized as our performance obligations are satisfied throughout the term of the applicable contract. We may also purchase metal on our customer’s behalf, sell the unprocessed metal to our customer, and then process and ship the material, charging a processing fee at the time of shipment. For these specific non-tolling arrangements in which we purchase metal for a customer, a single performance obligation exists, and as a result, amounts invoiced to our customers for the metal purchased on their behalf is recorded as deferred revenue until the metal is processed and shipped. The Company recorded deferred revenue of $59,990 and $0 as of March 31, 2020 and December 31, 2019, respectively. Fair Value Measurements 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 measurement. 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. Fair Value of Financial Instruments The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash, accounts receivable, accounts payable, accrued liabilities, unbilled receivables and deferred revenue 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. Stock Based Compensation 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 unaudited condensed consolidated 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 Company’s forecasted expectations occur, then an impairment analysis is performed. If indicators arise, an initial determination of recoverability is performed based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its eventual disposition compared with the carrying value. If the carrying value of the asset group exceeds the undiscounted cash flows, a measurement of an impairment loss for long-lived assets is performed. The impairment charge is the excess of the carrying value of the asset group over the fair value, as determined utilizing appropriate valuation techniques. The Company considers the COVID-19 pandemic as a triggering event in the assessment of recoverability of the goodwill, intangibles, long-lived intangibles and long-lived tangible assets for its operating entities. As of March 31, 2020, the Company concluded that there was no impairment on the long-lived assets for its operating entities. Goodwill and Intangible Assets We make estimates, assumptions, and judgments when valuing goodwill and other intangible assets such as customer lists in connection with the initial purchase price allocation of any acquired operations, as well as when evaluating the recoverability of our goodwill and other intangible assets on an ongoing basis. These estimates are based upon a number of factors, including historical experience, market conditions, and information obtained from the management of any acquired operations. Critical estimates in valuing certain intangible assets include, but are not limited to, historical and projected attrition rates, discount rates, anticipated growth in revenue from the acquired customers and acquired technology, and the expected use of the acquired assets. These factors are also considered in determining the useful life of acquired intangible assets. The amounts and useful lives assigned to identified intangible assets impact the amount and timing of future amortization expense. As of March 31, 2020, the Company concluded that there was no impairment on the goodwill and intangibles for its operating entities. Earnings Per Share Basic earnings 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 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. There were no dilutive shares as of March 31, 2020 and 2019. Recently Adopted Authoritative Pronouncements In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions intended to simplify the test for goodwill impairment. The standard was adopted on January 1, 2020 and did not have a material impact on the Company’s financial position and results of operations. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. In May 2019, the FASB issued ASU 2019-05, which is an update to ASU 2016-13, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision useful information. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted for public business entities for periods for which financial statements have not been issued. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period. The Company is still evaluating the impact of this ASU on the Company’s consolidated financial statements. |
CONCENTRATIONS
CONCENTRATIONS | 3 Months Ended |
Mar. 31, 2020 | |
CONCENTRATIONS | |
3. CONCENTRATIONS | Concentration of Credit Risk At March 31, 2020, Remelt Sources, Inc., AMG-Vanadium and Drive Automotive receivables were 20.8%, 10.3%, and 10.0% of total receivables, respectively. At December 31, 2019, Remelt Sources, Inc., Universal Stainless & Alloy Products, AMG-Vanadium, PACCAR, and Eastham Forge receivables were 19.8%, 16.2%, 14.9%, 13.3% and 11.7% of total receivables, respectively. For the three-month period ending March 31, 2020, Remelt Sources, Inc., AMG-Vanadium, and PACCAR accounted for 28.0%, 18.0%, and 12.3% of sales, respectively. For the three-month period ending March 31, 2019, Remelt Sources, Inc., AMG-Vanadium, PACCAR and Universal Stainless & Alloy Products accounted for 19.0%, 18.1%, 15.5% and 13.1% of sales, respectively. Concentration of Suppliers For the three-month period ending March 31, 2020, no supplier represented more than 10% of purchases. For the three-month period ending March 31, 2019, no supplier represented more than 10% of purchases. At March 31, 2020, no supplier represented more than 10% of accounts payable. At December 31, 2019, AVK represented approximately 11.9% of accounts payable. |
ACQUISITION AND BUSINESS COMBIN
ACQUISITION AND BUSINESS COMBINATION | 3 Months Ended |
Mar. 31, 2020 | |
ACQUISITION AND BUSINESS COMBINATION | |
4. ACQUISITION AND BUSINESS COMBINATION | On March 20, 2020, the Company, USAC Ross and USAC WA entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) by and among SummitBridge National Investments VI LLC (“SummitBridge VI”) and ABTV, in its capacity as court-appointed receiver ordered by the Court of Common Pleas of Chester County, Pennsylvania on March 6, 2020 in the Matter of SummitBridge National Investments VI LLC v. Advanced Metals Group, LLC et al., Case No. 2020-02461-MJ. USAC Ross and USAC WA were formed as wholly-owned single member limited liability companies by the Company on March 3, 2020 and had no operations prior to this transaction. Pursuant to the Purchase and Sale Agreement, USAC Ross purchased all the personal property of Advanced Metals Group, LLC, Advanced Aluminum Castings, LLC, Advanced Iron Castings, LLC, Ross Aluminum Castings, LLC, US Castings, LLC, PFRE Properties, LLC, BFRE Properties, LLC, Oberdorfer, LLC, Mabry Acquisition Company Ltd., MFRE Properties Ltd., USCRE Properties, LLC and RCRE, LLC (collectively, the “Debtors”) located in the State of Ohio, in addition to real property owned by RCRE, LLC in the State of Ohio. Pursuant to the Purchase and Sale Agreement, USAC WA purchased all of the personal property of the Debtors located in the State of Washington, in addition to real property owned by USCRE, Properties, LLC in the State Washington. The purchase price paid by USAC Ross and USAC WA was $6,167,000. The acquisition was accounted for as a business combination. The assets and liabilities of USAC Ross and USAC WA (collectively, the “USAC Assets”) were recorded at their estimated respective fair values as of the closing date of the acquisition, and the following table summarizes these values based on the balance sheet at March 20, 2020. Upon completion of an independent purchase price allocation and valuation, the allocation will be adjusted accordingly. The following summarizes the preliminary purchase price allocation: Purchase price $ 6,167,000 Cash $ 177,553 Accounts receivable 1,265,270 Inventory 3,649,504 Prepaid expenses 257,246 Property, land and equipment 7,082,950 Accounts payable (1,698,104 ) Accrued expenses (518,726 ) Long-term debt (230,007 ) Total net assets acquired $ 9,985,686 Bargain purchase gain $ 3,818,686 Debt issuance costs were approximately $61,000, which was recorded as debt discount and will amortized over the life of the loan. The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition occurred on January 1, 2019, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the three months ended March 31, 2020 and March 31, 2019 as if the acquisition had occurred on January 1, 2019. Three Months Ended Three Months Ended Pro Forma March 31, 2020 March 31, 2019 Net sales 14,657,251 17,455,895 Operating expenses 1,672,288 1,940,746 Income before taxes 3,935,887 1,140,221 Net income 2,833,297 877,755 The Company’s unaudited condensed consolidated financial statements for the three months ending March 31, 2020 include the actual results of USAC Ross and USAC WA since the date of the acquisition, March 20, 2020. The three months ended March 31, 2020, pro forma results above include three months of pro forma results for USAC Ross and USAC WA. For the period between March 20, 2020 and March 31, 2020, the USAC Ross and USAC WA operations had a net income before taxes of $60,289 that was included in the Company’s unaudited condensed consolidated statements of income, which consisted of approximately $560,462 in revenues, $440,122 in cost of goods sold and $60,051 in expenses. |
PROPERTY, LAND AND EQUIPMENT
PROPERTY, LAND AND EQUIPMENT | 3 Months Ended |
Mar. 31, 2020 | |
PROPERTY, LAND AND EQUIPMENT | |
5. PROPERTY, LAND AND EQUIPMENT | PMAL’s 220,000 square foot facility is located at 101 Innovation Drive, Homer City, PA. The facility is located on approximately 38 acres and was purchased in 2007. The facility houses the manufacturing operations of PMAL. Depreciation expense was $159,293 and $152,099 for the three months ended March 31, 2020 and 2019. USAC Ross’ 175,000 square foot facility is located at 815 Oak Avenue, Sidney, OH. The facility is located on approximately 7 acres and was purchased in 2020. The facility houses the manufacturing operations of USAC Ross. Depreciation expense was $15,662 for the period from March 20, 2020 to March 31, 2020. USAC WA’s 88,000 square foot facility is located at 14531 Shamel Street, Entiat, WA. The facility is located on approximately 5 acres and was purchased in 2020. The facility houses the manufacturing operations of USAC WA. Depreciation expense was $16,624 for the period from March 20, 2020 to March 31, 2020. March 31, 2020 December 31, 2019 Land, buildings and improvements $ 8,282,199 $ 3,419,779 Equipment 6,313,048 3,974,047 Total 14,595,247 7,393,826 Less accumulated depreciation (1,590,759 ) (1,388,982 ) Net property, land and equipment $ 13,004,488 $ 6,004,844 As described in Note 10, the Company has $12,951,205 in debt secured against the property, land and equipment. |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 3 Months Ended |
Mar. 31, 2020 | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | |
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Accounts payable and accrued expenses consists of the following as of March 31, 2020 and December 31, 2019: March 31, 2020 December 31, 2019 Accounts payable $ 5,463,063 $ 2,839,425 Interest 99,008 40,455 Salaries and bonus 898,620 357,976 Other 123,734 46,000 $ 6,584,425 $ 3,283,856 |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS | 3 Months Ended |
Mar. 31, 2020 | |
GOODWILL AND INTANGIBLE ASSETS | |
7. GOODWILL AND INTANGIBLE ASSETS | Information regarding our acquired intangible assets was as follows: Customer lists $ 1,990,000 Goodwill $ 54,993 The customer lists are estimated to have a useful life of 10 years. As of March 31, 2020 and December 31, 2019, the value, net of amortization, of the customer list was $1,459,333 and $1,509,083, respectively. Amortization expense for the years ended December 31, 2020 through 2027 will be $199,000 per year. Amortization expense was $49,750 for each of the three months ended March 31, 2020 and 2019. |
LEASES
LEASES | 3 Months Ended |
Mar. 31, 2020 | |
LEASES | |
8. LEASES | Operating Leases The Company determines if a contract contains a lease at inception. GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option will result in an economic penalty. All of the Company’s real estate leases are classified as operating leases. Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years. The exercise of lease renewal options is at the Company’s discretion. The Company evaluates renewal options at lease inception, and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. Lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants. Leases recorded on the unaudited condensed consolidated balance sheet consist of the following: Leases Classification on the Balance Sheet March 31, 2020 December 31, 2019 Assets Operating lease ROU assets Right-of-use asset $ 1,032,140 $ 1,092,253 Finance lease ROU assets Property, land and equipment, net $ 157,991 $ 153,307 Liabilities Current Operating Operating leases payable – short term $ 259,595 $ 255,533 Finance Finance leases payable – short term $ 57,137 $ 49,662 Noncurrent Operating Operating leases payable – net of current portion $ 811,211 $ 877,899 Finance Finance leases payable – net of current portion $ 69,472 $ 79,214 The Company’s leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date. The Company’s weighted average remaining lease term and weighted average discount rate for operating leases as of March 31, 2020 are: March 31, 2020 Weighted average remaining lease term 47.5 months Weighted average discount rate 5.62 % The components of lease expense, included in general and administrative expenses and interest expense on the unaudited condensed consolidated statements of income, are as follows: Three Months Ended March 31, 2020 Three Months ended March 31, 2019 Operating lease cost: Operating lease cost $ 75,765 $ 18,608 Finance lease cost: Amortization of ROU assets 7,556 6,682 Interest expense 1,769 1,891 Total lease cost $ 85,090 $ 27,181 Supplemental disclosures of cash flow information related to leases for the three months ended March 31, 2020 and 2019 were as follows: Cash paid for operating lease obligations was $78,279 and $19,250 for the three months ended March 31, 2020 and 2019, respectively. Operating lease asset obtained for operating lease obligation was $251,735 during the three months ended March 31, 2019. The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total operating lease liabilities recognized on the unaudited condensed consolidated balance sheets as of March 31, 2020: April 1, 2020 through December 31, 2020 $ 234,836 2021 313,115 2022 287,448 2023 236,115 2024 118,058 Total undiscounted future minimum lease payments 1,189,572 Less: Imputed interest 118,766 Present value of operating lease obligations $ 1,070,806 The Company has two leased facilities, which are office, manufacturing and warehouse space. In some cases the Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. Under the elected package of practical expedients, the Company does not separate non-lease components from the lease component. Therefore, all lease and non-lease components are combined and accounted for as single lease component. Finance Leases The below chart shows our obligations under finance leases: Finance Leases March 31, 2020 Finance Leases December 31, 2019 Obligations under finance and capital leases $ 126,609 $ 128,876 Less: current portion 57,137 49,662 Long-term portion $ 69,472 $ 79,214 Future minimum repayments The table below presents the future minimum repayments of finance lease obligations for the Company as of March 31, 2020: Years ending December 31, Finance lease obligations as of March 31, 2020 2020 (remaining nine months) $ 51,553 2021 53,661 2022 26,178 2023 2,789 Total future minimum repayments inclusive of interest 134,181 Interest 7,572 Total principal repayments $ 126,609 The table below presents the future minimum repayments of finance lease obligations for the Company as of December 31, 2019: Years ending December 31, Finance lease obligations as of December 31, 2019 2020 $ 54,981 2021 53,661 2022 26,178 2023 2,786 Total future minimum repayments inclusive of interest 137,606 Interest 8,730 Total principal repayments $ 128,876 The Company’s weighted average remaining lease term and weighted average discount rate for finance leases as of March 31, 2020 are: March 31, 2020 Weighted average remaining lease term 28 months Weighted average discount rate 5.00 % |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2020 | |
COMMITMENTS AND CONTINGENCIES | |
9. COMMITMENTS AND CONTINGENCIES | Employment Agreements On November 10, 2017, John Wachter was appointed Chief Executive Officer of the Company. In connection with his appointment, the Company and Mr. Wachter entered into a written employment agreement (the “Wachter Employment Agreement”) for an initial three-year term, which provides for the following compensation terms for Mr. Wachter. Pursuant to the Wachter Employment Agreement, Mr. Wachter will receive a base salary of $100,000 per year, subject to increase, but not decrease, at the discretion of the Board. Mr. Wachter is eligible for a cash and stock bonus equal to ten to twenty percent of the Company’s pre-tax profits over established pre-tax targets, at the end of each respective annual period. In addition, the Wachter 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 Wachter Employment Agreement, his employment is terminated by the Company other than for “cause,” by Mr. Wachter for “good reason” (each as defined in the Wachter Employment Agreement) or by failure by either party to renew the Wachter Employment Agreement after expiration of the employment term, he would be entitled to (1) a lump sum payment equal to two times his base salary at the rate in effect immediately prior to 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 November 10, 2017, William J. Golden was appointed Chief Financial Officer of the Company. Mr. Golden remains the Company’s General Counsel. In connection with his appointment, the Company and Mr. Golden entered into a written employment agreement (the “Golden Employment Agreement”) for an initial three-year term, which provides for the following compensation terms for Mr. Golden. Pursuant to the Golden Employment Agreement, Mr. Golden will receive a base salary of $100,000 per year, subject to increase, but not decrease, at the discretion of the Board. Mr. Golden is eligible for a cash and stock bonus equal to ten to twenty percent of the Company’s pre-tax profits over established pre-tax targets, at the end of each respective annual period. In addition, the Golden 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 Golden Employment Agreement, his employment is terminated by the Company other than for “cause,” by Mr. Golden for “good reason” (each as defined in the Golden Employment Agreement) or by failure by either party to renew the Golden Employment Agreement after expiration of the employment term, he would be entitled to (1) a lump sum payment equal to two times his base salary at the rate in effect immediately prior to 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. 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 unaudited condensed consolidated financial position or results of operations. |
LONG-TERM DEBT AND LINES OF CRE
LONG-TERM DEBT AND LINES OF CREDIT | 3 Months Ended |
Mar. 31, 2020 | |
LONG-TERM DEBT AND LINES OF CREDIT | |
10. LONG-TERM DEBT AND LINES OF CREDIT | Summit Bridge PMAL Loans On August, 17, 2017, PMAL purchased substantially all of the assets of Prime Metals & Alloys, Inc., a Delaware corporation, (“Prime Metals”) for $9.6 million in cash. To finance the purchase of the assets, PMAL entered into a credit agreement with SummitBridge National Investments V LLC (“Summit V”) pursuant to which Summit V made loans to PMAL: (1) a Term Loan in the amount of $4.5 million (“Summit Term Loan A”) and (2) a Term Loan in the amount of $3.5 million (“Summit Term Loan B”) (collectively, the “Summit Loans”). In addition, in consideration for Summit V making the loans, PMAL issued membership interests representing 25% ownership of PMAL to an affiliate of Summit V, SBN V PMA LLC (“SBN”) (the “SBN Membership Interests”). Pursuant to the terms of the Summit Loans and because PMAL repaid the Summit Loans within thirty-six (36) months of the origination of the Summit Loans, the SBN Membership Interests were reduced from 25% to 20% of PMAL as of September 1, 2018. Summit Term Loan A accrued each month at either 17.5% interest per annum (with 12.5% payable monthly and 5.0% accruing to the outstanding balance of Term Loan A, payable at maturity) or 17.0% interest per annum, payable monthly. Summit Term Loan A had a Maturity date of August 17, 2020. Summit Term Loan A was secured against all of the assets of PMAL. Summit Term Loan B accrued each month at either 17.5% interest per annum (with 14.0% payable monthly and 3.5% accruing to the outstanding balance of Term Loan B, payable at maturity) or 17.0% interest per annum, payable monthly. Term Loan B had a Maturity date of August 17, 2020. Summit Term Loan B was secured against all of the assets of PMAL. PMAL granted SBN a put right under the operating agreement for PMAL for the SBN Membership Interests. On August 31, 2018, the operating agreement for PMAL was amended to provide that on the earlier of November 30, 2021 or the date of a change in control of PMAL, SBN has the right but not the obligation to require PMAL to repurchase all of the SBN Membership Interests at market equity value (“Market Equity Value”). Market Equity Value shall be equal to the higher of (i) value of PMAL implied by a sale, (ii) 4.5 x EBITDA for the trailing twelve months plus cash, less all outstanding funded indebtedness or (iii) fair market value as determined by mutual agreement between PMAL and SBN, or failing that by an independent firm mutually agreed to. SBN has granted PMAL a call right under the operating agreement for PMAL for the SBN Membership Interests. On August 17, 2021, PMAL has the right but not the obligation to require SBN to sell all of the SBN Membership Interests at Market Equity Value. The Company accounted for this in accordance with ASC 480-10-55-59, as a redeemable non-controlling interest. At acquisition $400,000 was recorded as SBN’s PMAL equity ownership. This amount, plus SBN’s pro rata net income allocation was reflected before stockholders’ equity as Redeemable Non-Controlling interest. Due to the SBN Membership Interests, Summit was considered a related party of the Company for the purposes of these unaudited condensed consolidated financial statements. Pursuant to the terms of the Summit Loans and because PMAL repaid the Summit Loans within thirty-six (36) months of the origination of the Summit Loans, the SBN Membership Interests were reduced from 25% to 20% of PMAL as of September 1, 2018. SBN’s pro-rata net income allocation was made at a rate of 25% through August 31, 2018 and 20% commencing September 1, 2018 in accordance with the reduction in membership interests. Effective July 1, 2019, the Company and SBN entered into a Membership Interest Redemption Agreement pursuant to which the Company purchased the remaining SBN Membership Interests with a carrying value of $757,778 from SBN for a purchase price of $3,000,000 cash. SBN also waived its share of income for all of 2019. The Company adjusted additional paid-in capital downward by $1,547,133, net of deferred taxes of $695,089, to reflect the difference between the purchase price and the balance sheet value of the non-controlling interests. The Membership Interest Redemption Agreement contains a look-back provision that entitles SBN to receive additional compensation in the event the Company sells PMAL or its assets in a subsequent transaction within three hundred and sixty-five (365) days following the repurchase. Such additional compensation would be equal to the difference between what SBN received in the repurchase and what the SBN Membership Interests would be worth at the subsequent transaction date. The following table shows the value of the non-controlling interests (“NCI”) for the three months ended March 31, 2019: Value of NCI at January 1, 2019 $ 757,778 PMAL income from January 1, 2019 to March 31, 2019 attributable to NCI 169,293 Value of NCI at March 31, 2019 927,071 Transfer of PMAL income allocated to SBN to Amerinac Holding Corp. (169,293 ) Adjusted value of NCI at March 31, 2019 $ 757,778 PMAL Berkshire Loans On August 31, 2018, PMAL entered into a Loan and Security Agreement (the “PMAL Loan and Security Agreement”) with Berkshire Bank (“Berkshire Bank”) establishing: 1) a new revolving credit facility in an aggregate principal amount of up to $6.0 million (the “Berkshire Revolving Loan”), 2) a term loan in the amount of $3.5 million (“Berkshire Term Loan A”) and 3) a term loan in the amount of $1.5 million (“Berkshire Term Loan B”). Borrowings under the Berkshire Revolving Loan may be used to finance working capital and other general corporate purposes. The Berkshire Revolving Loan had a borrowing base of approximately $3.1 million on March 31, 2020 of which the Company had drawn $708,700. On August 31, 2018, pursuant to the PMAL Loan and Security Agreement, PMAL used an amount of $7,678,814 under the Loan and Security Agreement to fully repay the Summit Loans. On August 16, 2019, the PMAL Loan and Security Agreement was amended to permit a one-time cash distribution of $1.5 million which was used to partially fund the Company’s repurchase of the SBN Membership Interests. Borrowings under the Berkshire Revolving Loan bear interest at a rate equal to the Intercontinental Exchange Benchmark Administration Ltd. London Interbank Offered Rate (“ICE LIBOR”) rate plus 3.25%, which was 4.85% at March 31, 2020. Berkshire Term Loan A and Berkshire Term Loan B bear interest at ICE LIBOR rate plus 4.25%, which was 5.85% at March 31, 2020. The outstanding principal amount of any borrowings under the Berkshire Revolving Loan will be due and payable on August 21, 2021, subject to an earlier maturity date upon an event of default (the “Revolving Credit Maturity Date”). Berkshire Term Loan A has a maturity date the earlier of (i) August 31, 2023 or (ii) the Revolving Credit Maturity Date. Berkshire Term Loan B has a maturity date the earlier of (i) August 31, 2023 or (ii) the Revolving Credit Maturity Date. The principal balance of Berkshire Term Loan A shall be paid in equal monthly installments of $41,667 commencing on October 1, 2018. Any unpaid principal and interest shall be due on the maturity date. The principal balance of Berkshire Term Loan B shall be paid in equal monthly installments of $8,334 commencing on October 1, 2018. Any unpaid principal and interest shall be due on the maturity date. The PMAL Loan and Security 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 PMAL Loan and Security Agreement contains certain financial covenants, including a cash flow coverage ratio and a tangible net worth requirement. Under the cash flow coverage covenant, PMAL shall maintain a quarterly cash flow coverage ratio of not less than 1.20 to 1.00. Under the tangible net worth covenant, PMAL shall maintain a tangible net worth of no less than $4.1 million. The tangible net worth amount required shall increase annually on each June 30 by 50% of PMAL’s prior year’s undistributed net income. As of March 31, 2020, PMAL was in compliance with the covenants contained within the PMAL Loan and Security Agreement. The obligations of PMAL under the PMAL Loan and Security Agreement are secured by liens and security interests on all assets of PMAL. Amerinac is a secured guarantor of the PMAL Loan and Security Agreement, and has pledged its equity in PMAL. The table below represents the future minimum repayments of Berkshire Term Loan A and Berkshire Term Loan B as of March 31, 2020. Years ending December 31, Term Loans Minimum Amortization 2020 (remaining nine months) $ 450,000 2021 3,650,000 Total 4,100,000 Unamortized debt and financing cost (92,909 ) Total (net of unamortized debt and financing cost) $ 4,007,091 As of March 31, 2020, the principal balance of Term Loan A was $2,750,000 and the principal balance of Term Loan B was $1,350,000. As of December 31, 2019, the principal balance of Term Loan A was $2,875,000 and the principal balance of Term Loan B was $1,375,000. The total amount of unamortized debt financing cost was $92,909 and $110,329 at March 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2020, the Company amortized $17,420 in debt financing cost. CAS Berkshire Loan On July 15, 2019, CAS entered into a Loan and Security Agreement (the “CAS Loan and Security Agreement”) with Berkshire Bank establishing a new revolving credit facility in an aggregate principal amount of up to $6.0 million (the “CAS Revolving Loan”). Borrowings under the CAS Revolving Loan may be used to finance working capital and other general corporate purposes. The Berkshire Revolving Loan had a borrowing base of approximately $3 million on March 31, 2020 of which the Company had drawn $1,760,386. This amount is reflected net of an unamortized discount of $37,344 on the Company’s unaudited condensed consolidated balance sheet. For the three months ended March 31, 2020, the Company amortized $2,154 in debt financing cost. On August 16, 2019, the CAS Loan and Security Agreement was amended to permit a one-time cash distribution of $1.5 million which was used to partially fund the Company’s repurchase of the SBN Membership Interests. Borrowings under the CAS Revolving Loan bear interest at a rate equal to the ICE LIBOR rate plus 3.00%, which was 4.6% at March 31, 2020. The outstanding principal amount of any borrowings under the CAS Revolving Loan will be due and payable on July 15, 2022, subject to an earlier maturity date upon an event of default. Any unpaid principal and interest shall be due on the maturity date. The CAS Loan and Security 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 CAS Loan and Security Agreement contains certain financial covenants, including a cash flow coverage ratio and a tangible net worth requirement covenant. Under the cash flow coverage covenant, CAS shall maintain a quarterly cash flow coverage ratio of not less than 1.20 to 1.00. Under the tangible net worth covenant, CAS shall maintain a tangible net worth of no less than $1.0 million, as amended on August 16, 2019. The tangible net worth amount required shall increase annually on each June 30 by 50% of CAS’s prior years undistributed net income. As of March 31, 2020, the Company was in compliance will all covenants under the CAS Loan and Security Agreement. The obligations of CAS under the CAS Loan and Security Agreement are secured by liens and security interests on all assets of CAS. The Company is a secured guarantor of the CAS Loan and Security Agreement, and has pledged its equity in CAS. SummitBridge USAC Loans To finance the purchase of the USAC Assets, on March 20, 2020, USAC Ross and USAC WA entered into a Loan and Security Agreement (the “USAC Loan and Security Agreement”) with SummitBridge VI pursuant to which SummitBridge VI made a two year term loan in the amount of $6,167,000 to USAC Ross and USAC WA (the “USAC Term Loan”). The USAC Term Loan has a maturity date of March 20, 2022. The USAC Term Loan will begin amortizing on the thirteenth (13) month following March 20, 2020 (the “Effective Date”) pursuant to a seven (7) year amortization schedule with the balance due on the maturity date. The USAC Term Loan is secured against all of the assets of USAC Ross and USAC WA. The USAC Term Loan may be prepaid in whole or in part at any time without any fee, charge or penalty. The USAC Term Loan bears an interest rate of 9% interest per annum, payable monthly, beginning the first (1) month after the Effective Date. On the 16-month anniversary of the Effective Date, the interest rate on the USAC Term Loan will increase to 15% interest per annum, payable monthly. If the USAC Term Loan is prepaid in full on or before the nine (9) month anniversary of the Effective Date, the principal amount will be reduced by $500,000. If the USAC Term Loan is prepaid in full on or before the ten (10) month anniversary of the Effective Date, the principal amount will be reduced by $400,000. If the USAC Term Loan is prepaid in full on or before the eleven (11) month anniversary of the Effective Date, the principal amount will be reduced by $300,000. If the USAC Term Loan is prepaid in full before the twelve (12) month anniversary of the Effective Date, the principal amount will be reduced by $200,000. If the USAC Term Loan is prepaid in full on or before the sixteen (16) month anniversary of the Effective Date, the principal amount will be reduced by $100,000. The Company has guaranteed payment of the USAC Term Loan pursuant to a guaranty agreement made by the Company as of the Effective Date. The USAC Loan and Security Agreement also contains customary covenants, representations and warranties of the parties, including, among others (1) the grant by USAC Ross and USAC WA to SummitBridge VI of a security interest on all of the assets of USAC Ross and USAC WA, and (2) an unconditional and irrevocable guaranty by the Company of the performance by USAC Ross and USAC WA of the obligations under the USAC Loan and Security Agreement. In addition, until all amounts under the USAC Term Loan are paid in full, USAC Ross and USAC WA have agreed to comply with certain financial covenants commencing with the fiscal quarter ending June 30, 2020 that require USAC Ross and USAC WA to meet pre-established financial ratios. Debt issuance costs were approximately $61,000, which was recorded as debt discount and will amortized over the life of the loan. Debt Assumed Pursuant to Acquisition Pursuant to the March 20, 2020 transaction, USAC Ross and USAC WA assumed certain secured equipment loans in the aggregate amount of $230,007. LIBOR Rate To the extent that the PMAL Loan and Security Agreement and the CAS Loan and Security Agreement extend beyond 2021, the interest rates for these obligations might be subject to change based on recent regulatory changes. LIBOR, the London Interbank Offered Rate, is the basic rate of interest used in lending transactions between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. The interest rates for borrowings under the PMAL Loan and Security Agreement and the CAS Loan and Security Agreement are based on the ICE LIBOR rate. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear at that time whether LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed by Treasury securities. The future of LIBOR at this time is uncertain. If LIBOR ceases to exist, we may need to renegotiate any agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established, which may have an adverse effect on the Company. |
SEGMENT RESULTS
SEGMENT RESULTS | 3 Months Ended |
Mar. 31, 2020 | |
SEGMENT RESULTS | |
11. SEGMENT RESULTS | The Company manages its operations in three business segments which are defined as follows: · The Company’s Creative Assembly subsidiary, which includes all distribution of proprietary and specialty fasteners primarily serving the heavy truck, automotive, transportation, and infrastructure industries. · The Company’s PMAL subsidiary, which includes all our manufacturing of specialty ingot, electrode products, shot products, and master alloys in addition to toll conversion melting services. · The Company’s USAC Ross and USAC WA subsidiaries, which include all our manufacturing of precision aluminum castings, as well as in-house heat treating, machining, powder coating and non-destructive testing. Segment information for the three months ended March 31, 2020 is as follows: Creative Assembly PMAL USAC Net revenue $ 2,907,813 $ 7,838,167 $ 560,462 Cost of goods sold 2,447,468 6,421,425 440,122 Gross profit 460,345 1,416,742 120,340 Operating expenses: General and administrative expenses 495,320 558,730 33,090 Professional and consulting fees 25,894 69,072 26,961 Total operating expenses 521,214 627,802 60,051 Income before other income (expense) $ (60,869 ) $ 788,940 $ 60,289 Below is the Segment reconciliation to total net income Income from segments above $ 788,360 Non-allocated income (expense) Interest expense - net (137,286 ) General and administrative expenses (147,636 ) Professional and consulting fees (23,092 ) Other income – purchase gain 3,818,686 Total non-allocated income 3,510,672 Income before provision for income taxes $ 4,299,032 Segment information for the three months ended March 31, 2019 is as follows: Creative Assembly PMAL Net Revenue $ 4,317,829 $ 8,187,139 Cost of goods sold 3,515,256 6,401,121 Gross profit 802,573 1,786,018 Operating expenses: General and administrative expenses 466,445 728,735 Professional and consulting fees 12,367 89,202 Total operating expenses 478,812 817,937 Income before other income (expense) $ 323,761 $ 968,081 Below is the Segment reconciliation to total net income Income from segments above $ 1,291,842 Non-allocated expenses Interest expense - net (121,795 ) General and administrative expenses (135,481 ) Other income (7,998 ) Total (265,274 ) Income before provision for income taxes $ 1,026,568 Segment asset information for the Company is as follows: March 31, 2020 December 31, 2019 PMAL assets $ 13,674,719 $ 14,615,627 CAS assets 6,076,392 5,498,560 USAC assets 13,082,867 - Corporate assets 119,674 461,363 Total assets $ 32,953,652 $ 20,575,550 |
INCOME TAXES
INCOME TAXES | 3 Months Ended |
Mar. 31, 2020 | |
INCOME TAXES | |
12. INCOME TAXES | Income taxes are provided for the tax effects of transactions reported in the unaudited condensed consolidated financial statements and consist of taxes currently due. Tax information for the three-months ended March 30, 2020 and 2019 is as follows: For the three months ended March 31, 2020 2019 Current income tax Federal $ - $ - State 92,249 72,448 Total current income tax $ 92,249 $ 72,448 Deferred income tax Federal $ 879,354 $ 179,769 State 130,987 10,249 Total deferred income tax $ 1,010,341 $ 190,018 Total income tax expense $ 1,102,590 $ 262,466 The Company’s deferred tax assets and liability relates mainly to a temporary timing difference in long-term assets and net operating loss carryforwards. 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 that should have been recorded in the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2020 or 2019. Additionally, there were no interest or penalties outstanding as of or for each of the three months ended March 31, 2020 and 2019. The federal and state tax returns for the years ending December 31, 2016, 2017 and 2018 have been filed, but are still open to examination. Federal and state tax returns for the year ending December 31, 2019 have not been filed. |
RELATED PARTIES
RELATED PARTIES | 3 Months Ended |
Mar. 31, 2020 | |
RELATED PARTIES | |
13. RELATED PARTIES | Board and Executive Compensation The Compensation Committee adopted a 2017-2019 Amerinac Holding Corp. Executive Bonus Plan (the “Executive Bonus Plan”), which is subject to and governed by the terms of the 2017 Amerinac Holding Corp. 2017 Equity Incentive Plan (the “2017 Equity Plan”). The 2017 Equity Plan provides for an aggregate of 100,000 shares of common stock to be available for awards. Certain key employees will participate in the Executive Bonus Plan. The Executive Bonus Plan is designed to (i) offer variable compensation primarily in equity of the Company if executives achieve annual target growth amounts and (ii) align the incentives of executives and shareholders. The Board is currently evaluating extending the Executive Bonus Plan to cover 2020 and 2021. The Company will fund the annual corporate bonus pool with no more than 20% of the excess, if any, of the Company’s yearly earnings before taxes minus a threshold amount. For 2019, the threshold amount was $1,750,000. The Board is currently evaluating the threshold amounts for 2020 and 2021. Pursuant to the Executive Bonus Plan, awards are paid out in a mix of cash and equity, with no less than 60% of corporate bonus pool to be in the form of newly issued restricted common stock, subject to the discretion of the Compensation Committee of the Board. All awards will be subject to threshold performance and high-water marks. As of March 31, 2020 and December 31, 2019, the Company had accrued at total of $283,000 in bonus for Mssrs. Wachter and Golden, of which $193,000 was for bonuses earned in 2019. In return for their service during the 2019 term, Messrs. Lamb and Garruto are each set to receive $25,000 in stock during 2020, which has been accrued for as of March 31, 2020. On December 27, 2019, Mssrs. Lamb and Garruto were re-elected to the Board for an additional 1-year term under the same terms. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2020 | |
SUBSEQUENT EVENTS | |
14. SUBSEQUENT EVENTS | Paycheck Protection Program On April 23, 2020, CAS entered into a promissory note with Berkshire Bank, which provides for a loan in the amount of $227,800 (the “CAS PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CAS PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The CAS PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the CAS PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. CAS intends to use the entire CAS PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. The Company can provide no assurance that the loan will be forgiven despite the best efforts of the Company. On April 21, 2020, PMAL entered into a Promissory Note with Berkshire Bank, which provides for a loan in the amount of $1,074,700 (the “PMAL PPP Loan”) pursuant to the CARES Act. The PMAL PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PMAL PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PMAL PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. PMAL intends to use the entire PMAL PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. The Company can provide no assurance that the loan will be forgiven despite the best efforts of the Company. On April 23, 2020, USAC Ross entered into a promissory note with Berkshire Bank, which provides for a loan in the amount of $984,100 (the “USAC Ross PPP Loan”) pursuant to the CARES Act. The USAC Ross PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The USAC Ross PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the USAC Ross PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. USAC Ross intends to use the entire USAC Ross PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. The Company can provide no assurance that the loan will be forgiven despite the best efforts of the Company. On April 22, 2020, USAC WA entered into a promissory note with Berkshire Bank, which provides for a loan in the amount of $796,400 (the “USAC WA PPP Loan”) pursuant to the CARES Act. The USAC WA PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The USAC WA PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the USAC WA PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. USAC WA intends to use the entire USAC WA PPP Loan amount for qualifying expenses and to apply for forgiveness of the loan in accordance with the terms of the CARES Act. The Company can provide no assurance that the loan will be forgiven despite the best efforts of the Company. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
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 unaudited condensed consolidated 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, 2020 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, 2019 included in the Company’s Annual Report on Form 10-K filed on March 30, 2020. |
Principles of Consolidation and Basis of Presentation | The unaudited condensed 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 the unaudited condensed consolidated financial statements in conformity with GAAP 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 unaudited condensed consolidated 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 useful lives and impairment considerations of long-lived and intangible assets, reserves for inventory and accounts receivable, going concern considerations, discount rates in connection with right-of-use assets and estimates related to the purchase price allocation contained in Note 4. |
Cash and Cash Equivalents | For purposes of the unaudited condensed consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. From time to time, cash balances may exceed the federal deposit insurance limits. |
Accounts Receivable and Allowance for Doubtful Accounts | Accounts receivable are recorded net of provisions for doubtful accounts. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable. The amount of the allowance is based on an analysis of the Company’s prior collection experience, customer credit worthiness, and current economic trends. Based on management’s review of accounts receivable, the Company carried an allowance for doubtful accounts of $78,753 as of March 31, 2020 and December 31, 2019. 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. Accounts are written off against the allowance when deemed uncollectable. |
Unbilled Services | The Company recognizes revenue on its tolling services as those services are performed. Unbilled services represent the revenue recognized but not yet invoiced. |
Inventory | For the Company’s distribution subsidiary, Creative Assembly, inventories consist only of finished goods and are carried at the lower of cost on an average cost basis, or net realizable value. When necessary, management records an inventory reserve for estimated obsolescence or unmarketable inventory based upon the age of the respective part and the knowledge of future demand of inventory on hand as well as other market conditions and events. 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, 2020, the Company had more than 4,000 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. As of March 31, 2020 and December 31, 2019, the inventory reserve for Creative Assembly was $86,211. For the Company’s manufacturing subsidiary, PMAL, management believes volatility in the broader metal markets will have an impact on all aspects of raw material, work in process, and finished goods inventory. Management actively seeks to minimize inventory working capital, and increase inventory turns to eliminate any impacts from market fluctuations. As of March 31, 2020, the Company’s manufacturing subsidiary had more than 500 unique metal chemistries it produced, but keeps minimal finished inventory on hand. For PMAL, inventories are carried at the lower of cost on an average cost basis, or net realizable value. 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 other market conditions and events. As of March 31, 2020 and December 31, 2019, the inventory reserve for PMAL was $82,849. For USAC, management believes volatility in the aluminum markets will have an impact on all aspects of raw material, work in process, and finished goods inventory. Management actively seeks to minimize inventory working capital, and increase inventory turns to eliminate any impacts from market fluctuations. For USAC, inventories are carried at the lower of cost on an average cost basis, or net realizable value. 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 other market conditions and events. As of March 31, 2020, the combined inventory reserve for USAC Ross and USAC WA was $0 as the inventory was acquired at fair value as part of the March 20, 2020 acquisition discussed in Note 4. The Company’s inventory consists of the following: March 31, 2020 December 31, 2019 Raw materials $ 3,319,660 $ 2,407,962 Work in progress 1,616,982 206,067 Finished goods 6,078,819 4,611,578 Reserves (169,060 ) (169,060 ) Total $ 10,846,401 $ 7,056,547 |
Property, Land and Equipment | Property, land 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 3-10 years Building 30 years ** Shorter of life or lease term. The carrying amount of all long-lived assets is evaluated when an indicator of impairment exists 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 Accounting Standards Codification (“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. 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 unaudited condensed consolidated 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, 2020, 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 | The Company accounts for revenue recognition in accordance with ASC Topic 606 (“ASC 606”). The core principle of ASC 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC 606 defines a five-step process to achieve this core principle, which includes; (1) Identifying contracts with customers, (2) Identifying performance obligations within those contracts, (3) Determining the transaction price, (4) Allocating the transaction price to the performance obligations in the contract, which may include an estimate of variable consideration, and (5) Recognizing revenue when or as each performance obligation is satisfied. Revenue primarily consists of sales of fasteners, specialty ingot products, master alloys products, metal processing and tolling services, and specialty aluminum cast parts. We generate our revenue primarily from the sale of finished products and tolling services to customers, therefore, the significant majority of our contracts are short-term in nature and have a single performance obligation to deliver products or services, in which our performance obligation is satisfied when control of the product is transferred to the customer or the service is performed. Some contracts contain a combination of product sales and services which are distinct and accounted for as separate performance obligations. Our performance obligations for services are satisfied when the services are rendered within the arranged service period. Tolling revenue is recognized when the tolling service is completed. Revenue is recognized when control transfers to our customers via shipment of products or delivery of services. Shipping and handling costs are considered fulfillment activities and as such are not accounted for as separate performance obligations. We measure revenue as the amount of consideration we expect to be entitled to receive in exchange for those goods or services, net of any variable considerations (e.g., rights to return product, sales incentives, others) and any taxes collected from customers and subsequently remitted to governmental authorities. The Company applied the practical expedient available under ASC 606 to disregard determining significant financing components if the good or service is transferred and payment is received within one year. We estimate product returns based on historical experience and record them on a gross basis. Substantially all of Creative Assembly customer returns relate to products that are returned under warranty obligations underwritten by manufacturers. Substantially all of PMAL and USAC customer returns relate to products which do not meet customer requirements and are replaced by the Company. We occasionally receive advance payments to secure product to be delivered in future periods. These advance payments are recorded as deferred revenue, and revenue is recognized as our performance obligations are satisfied throughout the term of the applicable contract. We may also purchase metal on our customer’s behalf, sell the unprocessed metal to our customer, and then process and ship the material, charging a processing fee at the time of shipment. For these specific non-tolling arrangements in which we purchase metal for a customer, a single performance obligation exists, and as a result, amounts invoiced to our customers for the metal purchased on their behalf is recorded as deferred revenue until the metal is processed and shipped. The Company recorded deferred revenue of $59,990 and $0 as of March 31, 2020 and December 31, 2019, respectively. |
Fair Value Measurements | 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 measurement. 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. |
Fair Value of Financial Instruments | The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash, accounts receivable, accounts payable, accrued liabilities, unbilled receivables and deferred revenue 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. |
Stock Based Compensation | 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 unaudited condensed consolidated 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 Company’s forecasted expectations occur, then an impairment analysis is performed. If indicators arise, an initial determination of recoverability is performed based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its eventual disposition compared with the carrying value. If the carrying value of the asset group exceeds the undiscounted cash flows, a measurement of an impairment loss for long-lived assets is performed. The impairment charge is the excess of the carrying value of the asset group over the fair value, as determined utilizing appropriate valuation techniques. The Company considers the COVID-19 pandemic as a triggering event in the assessment of recoverability of the goodwill, intangibles, long-lived intangibles and long-lived tangible assets for its operating entities. As of March 31, 2020, the Company concluded that there was no impairment on the long-lived assets for its operating entities. |
Goodwill and Intangible Assets | We make estimates, assumptions, and judgments when valuing goodwill and other intangible assets such as customer lists in connection with the initial purchase price allocation of any acquired operations, as well as when evaluating the recoverability of our goodwill and other intangible assets on an ongoing basis. These estimates are based upon a number of factors, including historical experience, market conditions, and information obtained from the management of any acquired operations. Critical estimates in valuing certain intangible assets include, but are not limited to, historical and projected attrition rates, discount rates, anticipated growth in revenue from the acquired customers and acquired technology, and the expected use of the acquired assets. These factors are also considered in determining the useful life of acquired intangible assets. The amounts and useful lives assigned to identified intangible assets impact the amount and timing of future amortization expense. As of March 31, 2020, the Company concluded that there was no impairment on the goodwill and intangibles for its operating entities. |
Earnings Per Share | Basic earnings 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 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. There were no dilutive shares as of March 31, 2020 and 2019. |
Recently Adopted Authoritative Pronouncements | In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which includes provisions intended to simplify the test for goodwill impairment. The standard was adopted on January 1, 2020 and did not have a material impact on the Company’s financial position and results of operations. |
Recent Accounting Pronouncements | In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. In May 2019, the FASB issued ASU 2019-05, which is an update to ASU 2016-13, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision useful information. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation, (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments, and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax related guidance for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The ASU is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted for public business entities for periods for which financial statements have not been issued. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period. The Company is still evaluating the impact of this ASU on the Company’s consolidated financial statements. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Summary of inventory | March 31, 2020 December 31, 2019 Raw materials $ 3,319,660 $ 2,407,962 Work in progress 1,616,982 206,067 Finished goods 6,078,819 4,611,578 Reserves (169,060 ) (169,060 ) Total $ 10,846,401 $ 7,056,547 |
Estimated useful lives of the assets | Leasehold improvements 5 years ** Furniture and fixtures 7 years Equipment and other 3-10 years Building 30 years ____________ ** Shorter of life or lease term. |
ACQUISITION AND BUSINESS COMB_2
ACQUISITION AND BUSINESS COMBINATION (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
ACQUISITION AND BUSINESS COMBINATION (Tables) | |
Schedule of Preliminary purchase price | Purchase price $ 6,167,000 Cash $ 177,553 Accounts receivable 1,265,270 Inventory 3,649,504 Prepaid expenses 257,246 Property, land and equipment 7,082,950 Accounts payable (1,698,104 ) Accrued expenses (518,726 ) Long-term debt (230,007 ) Total net assets acquired $ 9,985,686 Bargain purchase gain $ 3,818,686 |
Schedule of preliminary and subject to additional review and change | Three Months Ended Three Months Ended Pro Forma March 31, 2020 March 31, 2019 Net sales 14,657,251 17,455,895 Operating expenses 1,672,288 1,940,746 Income before taxes 3,935,887 1,140,221 Net income 2,833,297 877,755 |
PROPERTY, LAND AND EQUIPMENT (T
PROPERTY, LAND AND EQUIPMENT (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
PROPERTY, LAND AND EQUIPMENT | |
Property, Land and Equipment | March 31, 2020 December 31, 2019 Land, buildings and improvements $ 8,282,199 $ 3,419,779 Equipment 6,313,048 3,974,047 Total 14,595,247 7,393,826 Less accumulated depreciation (1,590,759 ) (1,388,982 ) Net property, land and equipment $ 13,004,488 $ 6,004,844 |
ACCOUNTS PAYABLE AND ACCRUED _2
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | |
Accounts Payable And Accrued Expenses | March 31, 2020 December 31, 2019 Accounts payable $ 5,463,063 $ 2,839,425 Interest 99,008 40,455 Salaries and bonus 898,620 357,976 Other 123,734 46,000 $ 6,584,425 $ 3,283,856 |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
GOODWILL AND INTANGIBLE ASSETS | |
GOODWILL AND INTANGIBLE ASSETS | Customer lists $ 1,990,000 Goodwill $ 54,993 |
LEASES (Tables)
LEASES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
LEASES (Tables) | |
Schedule of operating leases recorded | Leases Classification on the Balance Sheet March 31, 2020 December 31, 2019 Assets Operating lease ROU assets Right-of-use asset $ 1,032,140 $ 1,092,253 Finance lease ROU assets Property, land and equipment, net $ 157,991 $ 153,307 Liabilities Current Operating Operating leases payable – short term $ 259,595 $ 255,533 Finance Finance leases payable – short term $ 57,137 $ 49,662 Noncurrent Operating Operating leases payable – net of current portion $ 811,211 $ 877,899 Finance Finance leases payable – net of current portion $ 69,472 $ 79,214 |
Schedule of weighted average discount rate for operating leases | March 31, 2020 Weighted average remaining lease term 47.5 months Weighted average discount rate 5.62 % |
Schedule of lease expense | Three Months Ended March 31, 2020 Three Months ended March 31, 2019 Operating lease cost: Operating lease cost $ 75,765 $ 18,608 Finance lease cost: Amortization of ROU assets 7,556 6,682 Interest expense 1,769 1,891 Total lease cost $ 85,090 $ 27,181 |
Schedule of future minimum rental payments for operating leases | April 1, 2020 through December 31, 2020 $ 234,836 2021 313,115 2022 287,448 2023 236,115 2024 118,058 Total undiscounted future minimum lease payments 1,189,572 Less: Imputed interest 118,766 Present value of operating lease obligations $ 1,070,806 |
Schedule of finance and Capital Leases | Finance Leases March 31, 2020 Finance Leases December 31, 2019 Obligations under finance and capital leases $ 126,609 $ 128,876 Less: current portion 57,137 49,662 Long-term portion $ 69,472 $ 79,214 |
Schedule of future minimum repayments of finance lease obligations | Years ending December 31, Finance lease obligations as of March 31, 2020 2020 (remaining nine months) $ 51,553 2021 53,661 2022 26,178 2023 2,789 Total future minimum repayments inclusive of interest 134,181 Interest 7,572 Total principal repayments $ 126,609 Years ending December 31, Finance lease obligations as of December 31, 2019 2020 $ 54,981 2021 53,661 2022 26,178 2023 2,786 Total future minimum repayments inclusive of interest 137,606 Interest 8,730 Total principal repayments $ 128,876 |
Schedule of weighted average discount rate for finance leases | March 31, 2020 Weighted average remaining lease term 28 months Weighted average discount rate 5.00 % |
LONG-TERM DEBT AND LINE OF CRED
LONG-TERM DEBT AND LINE OF CREDIT (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
LONG-TERM DEBT AND LINE OF CREDIT (Tables) | |
Schedule of of the non-controlling interests | Value of NCI at January 1, 2019 $ 757,778 PMAL income from January 1, 2019 to March 31, 2019 attributable to NCI 169,293 Value of NCI at March 31, 2019 927,071 Transfer of PMAL income allocated to SBN to Amerinac Holding Corp. (169,293 ) Adjusted value of NCI at March 31, 2019 $ 757,778 |
Repayments of Berkshire Terms Loan A and Berkshire Term Loan B | Years ending December 31, Term Loans Minimum Amortization 2020 (remaining nine months) $ 450,000 2021 3,650,000 Total 4,100,000 Unamortized debt and financing cost (92,909 ) Total (net of unamortized debt and financing cost) $ 4,007,091 |
SEGMENT RESULTS (Tables)
SEGMENT RESULTS (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
SEGMENT RESULTS (Tables) | |
Schedule of Segment Information | Segment information for the three months ended March 31, 2020 is as follows: Creative Assembly PMAL USAC Net revenue $ 2,907,813 $ 7,838,167 $ 560,462 Cost of goods sold 2,447,468 6,421,425 440,122 Gross profit 460,345 1,416,742 120,340 Operating expenses: General and administrative expenses 495,320 558,730 33,090 Professional and consulting fees 25,894 69,072 26,961 Total operating expenses 521,214 627,802 60,051 Income before other income (expense) $ (60,869 ) $ 788,940 $ 60,289 Below is the Segment reconciliation to total net income Income from segments above $ 788,360 Non-allocated income (expense) Interest expense - net (137,286 ) General and administrative expenses (147,636 ) Professional and consulting fees (23,092 ) Other income – purchase gain 3,818,686 Total non-allocated income 3,510,672 Income before provision for income taxes $ 4,299,032 Segment information for the three months ended March 31, 2019 is as follows: Creative Assembly PMAL Net Revenue $ 4,317,829 $ 8,187,139 Cost of goods sold 3,515,256 6,401,121 Gross profit 802,573 1,786,018 Operating expenses: General and administrative expenses 466,445 728,735 Professional and consulting fees 12,367 89,202 Total operating expenses 478,812 817,937 Income before other income (expense) $ 323,761 $ 968,081 Below is the Segment reconciliation to total net income Income from segments above $ 1,291,842 Non-allocated expenses Interest expense - net (121,795 ) General and administrative expenses (135,481 ) Other income (7,998 ) Total (265,274 ) Income before provision for income taxes $ 1,026,568 Segment asset information for the Company is as follows: March 31, 2020 December 31, 2019 PMAL assets $ 13,674,719 $ 14,615,627 CAS assets 6,076,392 5,498,560 USAC assets 13,082,867 - Corporate assets 119,674 461,363 Total assets $ 32,953,652 $ 20,575,550 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
INCOME TAXES (Tables) | |
Schedule of Components of income tax provision | For the three months ended March 31, 2020 2019 Current income tax Federal $ - $ - State 92,249 72,448 Total current income tax $ 92,249 $ 72,448 Deferred income tax Federal $ 879,354 $ 179,769 State 130,987 10,249 Total deferred income tax $ 1,010,341 $ 190,018 Total income tax expense $ 1,102,590 $ 262,466 |
SUMMARY OF BUSINESS (Details Na
SUMMARY OF BUSINESS (Details Narrative) | 1 Months Ended |
Apr. 23, 2020USD ($) | |
Subsequent Event [Member] | Paycheck Protection Program [Member] | |
Amount received by subsdiaries under the program | $ 3,000,000 |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
ACQUISITION AND BUSINESS COMBINATION (Tables) | ||
Raw Materials | $ 3,319,660 | $ 2,407,962 |
Work in progress | 1,616,982 | 206,067 |
Finished Goods | 6,078,819 | 4,611,578 |
Reserves | (169,060) | (169,060) |
Total | $ 10,846,401 | $ 7,056,547 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) | 3 Months Ended | |
Mar. 31, 2020 | ||
Leasehold improvements | ||
Estimated useful lives of the assets | 5 years | [1] |
Furniture and fixtures | ||
Estimated useful lives of the assets | 7 years | |
Equipment and other | Minimum [Member] | ||
Estimated useful lives of the assets | 3 years | |
Equipment and other | Maximum [Member] | ||
Estimated useful lives of the assets | 10 years | |
Building [Member] | ||
Estimated useful lives of the assets | 30 years | |
[1] | Shorter of life or lease term |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) | 3 Months Ended | |
Mar. 31, 2020USD ($)integer | Dec. 31, 2019USD ($) | |
Allowance for doubtful accounts | $ 78,753 | $ 78,753 |
Unique part in hand | integer | 4,000 | |
Deferred revenue | $ 59,990 | 0 |
Business Acquisition [Member] | USAC ROSS & USAC WA [Member] | ||
Inventory reserve | 0 | |
PMAL [Member] | ||
Inventory reserve | $ 82,849 | 82,849 |
Unique metal chemistries, description | The Company’s manufacturing subsidiary had more than 500 unique metal chemistries it produced | |
Creative Assembly [Member] | ||
Inventory reserve | $ 86,211 | $ 86,211 |
CONCENTRATIONS (Details Narrati
CONCENTRATIONS (Details Narrative) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
AVK [Member] | |||
Outstanding accounts payable | 11.90% | ||
Supplier Concentration Risk [Member] | Accounts Payable [Member] | |||
Concentration risk, description | No supplier represented more than10% of accounts payable | ||
Supplier Concentration Risk [Member] | Purchase [Member] | |||
Concentration risk, description | No supplier represented more than 10% of purchases. | No supplier represented more than 10% of purchases. | |
AMG-Vanadium [Member] | |||
Concentration of credit risk, total sales | 18.00% | 18.10% | |
Outstanding accounts receivable | 10.30% | 14.90% | |
Remelt Sources, Inc. [Member] | |||
Concentration of credit risk, total sales | 28.00% | 19.00% | |
Outstanding accounts receivable | 20.80% | 19.80% | |
Drive Automotivetrade [Member] | |||
Outstanding accounts receivable | 10.00% | ||
Universal Stainless & Alloy Products [Member] | |||
Concentration of credit risk, total sales | 13.10% | ||
Outstanding accounts receivable | 16.20% | ||
PACCAR [Member] | |||
Concentration of credit risk, total sales | 12.30% | 15.50% | |
Outstanding accounts receivable | 13.30% | ||
Eastham Forge [Member] | |||
Outstanding accounts receivable | 11.70% |
ACQUISITION AND BUSINESS COMB_3
ACQUISITION AND BUSINESS COMBINATION (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 | Mar. 31, 2019 | Dec. 31, 2018 |
Cash | $ 821,681 | $ 57,419 | $ 244,381 | $ 360,283 |
Account receivable | 4,959,424 | 3,804,699 | ||
Inventory | 10,846,401 | 7,056,547 | ||
Property, land and equipment | 13,004,488 | 6,004,844 | ||
Account payable | 5,463,063 | $ 2,839,425 | ||
Business Acquisition [Member] | USAC ROSS & USAC WA [Member] | ||||
Purchase price | 6,167,000 | |||
Cash | 177,553 | |||
Account receivable | 1,265,270 | |||
Inventory | 3,649,504 | |||
Prepaid expenses | 257,246 | |||
Property, land and equipment | 7,082,950 | |||
Account payable | (1,698,104) | |||
Accrued expenses | (518,726) | |||
Long term debt | (230,007) | |||
Total | 9,985,686 | |||
Bargain purchase gain | $ 3,818,686 |
ACQUISITION AND BUSINESS COMB_4
ACQUISITION AND BUSINESS COMBINATION (Details 1) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Proforma | ||
Net sales | $ 11,306,442 | $ 12,504,968 |
Operating expenses | 1,379,795 | 1,440,228 |
Income before tax | 4,299,032 | 1,026,568 |
Net income | 3,196,442 | 764,102 |
Unaudited consolidated pro forma [Member] | ||
Proforma | ||
Net sales | 14,657,251 | 17,455,895 |
Operating expenses | 1,672,288 | 1,940,746 |
Income before tax | 3,935,887 | 1,140,221 |
Net income | $ 2,833,297 | $ 877,755 |
ACQUISITION AND BUSINESS COMB_5
ACQUISITION AND BUSINESS COMBINATION (Details Narrative) - USD ($) | Mar. 31, 2020 | Mar. 20, 2020 | Mar. 31, 2020 | Mar. 31, 2019 |
Net income before tax | $ 4,299,032 | $ 1,026,568 | ||
USAC ROSS & USAC WA [Member] | Loan and Security Agreement [Member] | ||||
Net income before tax | $ 60,289 | |||
Debt issuance cost | $ 61,000 | |||
USAC ROSS & USAC WA [Member] | Cost Of Goods Sold [Member] | ||||
Net income before tax | 440,122 | |||
USAC ROSS & USAC WA [Member] | Operating Expenses [Member] | ||||
Net income before tax | 60,051 | |||
USAC ROSS & USAC WA [Member] | Renenue [Member] | ||||
Net income before tax | $ 560,462 | |||
USCRE, Properties, LLC [Member] | Purchase and Sale Agreement [Member] | ||||
Business combination, Purchase price paid by USAC Ross and USAC WA | 6,167,000 | |||
Debt issuance cost | $ 61,000 |
PROPERTY, LAND AND EQUIPMENT (D
PROPERTY, LAND AND EQUIPMENT (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
PROPERTY, LAND AND EQUIPMENT (Details) | ||
Land , buildings and improvements | $ 8,282,199 | $ 3,419,779 |
Equipment | 6,313,048 | 3,974,047 |
Total | 14,595,247 | 7,393,826 |
Less accumulated depreciation | (1,590,759) | (1,388,982) |
Net property, land and equipment | $ 13,004,488 | $ 6,004,844 |
PROPERTY, LAND AND EQUIPMENT _2
PROPERTY, LAND AND EQUIPMENT (Details Narrative) | Mar. 31, 2020USD ($)ft² | Mar. 31, 2020USD ($)ft² | Mar. 31, 2019USD ($) |
Property, Plant and Equipment [Member] | |||
Secured debt against property | $ 12,951,205 | $ 12,951,205 | |
USAC WA [Member] | |||
Company area | ft² | 88,000 | 88,000 | |
Depreciation expenses | $ 16,624 | ||
USAC Ross [Member] | |||
Company area | ft² | 175,000 | 175,000 | |
Depreciation expenses | $ 15,662 | ||
PMAL [Member] | |||
Company area | ft² | 220,000 | 220,000 | |
Depreciation expenses | $ 159,293 | $ 152,099 |
ACCOUNTS PAYABLE AND ACCRUED _3
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
ACQUISITION AND BUSINESS COMBINATION (Tables) | ||
Accounts payable | $ 5,463,063 | $ 2,839,425 |
Interest | 99,008 | 40,455 |
Salaries and bonus | 898,620 | 357,976 |
Other | 123,734 | 46,000 |
Accounts payable and accrued expenses | $ 6,584,425 | $ 3,283,856 |
GOODWILL AND INTANGIBLE ASSET_2
GOODWILL AND INTANGIBLE ASSETS (Details) | 3 Months Ended |
Mar. 31, 2020USD ($) | |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | |
Customer lists | $ 1,990,000 |
Goodwill | $ 54,993 |
GOODWILL AND INTANGIBLE ASSET_3
GOODWILL AND INTANGIBLE ASSETS (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2019 | |
Amortization expenses | $ 49,750 | $ 49,750 | |
2020 | 199,000 | ||
2021 | 199,000 | ||
2022 | 199,000 | ||
2023 | 199,000 | ||
2024 and thereafter untill 2027 | $ 199,000 | ||
Customer Lists [Member] | |||
Estimated useful life | 10 years | ||
Intangible assets, net | $ 1,459,333 | $ 1,509,083 |
LEASES (Details)
LEASES (Details) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Assets [Abstract] | ||
Right-of-use asset | $ 1,032,140 | $ 1,092,253 |
Property, land and equipment, net | 157,991 | 153,307 |
Operating leases payable - short term | 259,595 | 255,533 |
Finance leases payable - short term | 57,137 | 49,662 |
Operating leases payable - net of current portion | 811,211 | 877,899 |
Finance leases payable - net of current portion | $ 69,472 | $ 79,214 |
LEASES (Details 1)
LEASES (Details 1) | Mar. 31, 2020 |
LEASES (Details 1) | |
Weighted average remaining lease term | 47 months 15 days |
Weighted average discount rate | 5.62% |
LEASES (Details 2)
LEASES (Details 2) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Operating lease cost: | ||
Operating lease cost | $ 75,765 | $ 18,608 |
Finance lease cost: | ||
Amortization of ROU assets | 7,556 | 6,682 |
Interest expense | 1,769 | 1,891 |
Total lease cost | $ 85,090 | $ 27,181 |
LEASES (Details 3)
LEASES (Details 3) - Operating Leases [Member] | Mar. 31, 2020USD ($) |
April 1, 2020 through December 31, 2020 | $ 234,836 |
2021 | 313,115 |
2022 | 287,448 |
2023 | 236,115 |
2024 | 118,058 |
Total undiscounted future minimum lease payments | 1,189,572 |
Less: Imputed interest | 118,766 |
Present value of operating lease obligations | $ 1,070,806 |
LEASES (Details 4)
LEASES (Details 4) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Less: current portion | $ 57,137 | $ 49,662 |
Long-term portion | 69,472 | 79,214 |
Finance Leases [Member] | ||
Obligations under finance and capital leases | 126,609 | 128,876 |
Less: current portion | 57,137 | 49,662 |
Long-term portion | $ 69,472 | $ 79,214 |
LEASES (Details 5)
LEASES (Details 5) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
LEASES (Details 1) | ||
2020 | $ 51,553 | $ 54,981 |
2021 | 53,661 | 53,661 |
2022 | 26,178 | 26,178 |
2023 | 2,789 | 2,786 |
Total future minimum repayment inclusive of interest | 134,181 | 137,606 |
Interest | 7,572 | 8,730 |
Total principal repayment | $ 126,609 | $ 128,876 |
LEASES (Details 6)
LEASES (Details 6) | Mar. 31, 2020 |
Weighted average remaining lease term | 47 months 15 days |
Finance and Capital Leases [Member] | |
Weighted average remaining lease term | 28 months |
Weighted average discount rate | 5.00% |
LEASES (Details Narrative)
LEASES (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | Dec. 31, 2018 | |
LEASES | |||
Payments of operating lease obligations | $ 78,279 | $ 19,250 | |
Operating lease asset exchange for operating lease obligation | $ 251,735 | ||
Description for renewal term of operating lease | Most real estate leases include one or more options to renew, with renewal terms that generally can extend the lease term for an additional four to five years |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details Narrative) - Employment Agreements [Member] | Nov. 10, 2017USD ($) |
Mr. Wachter [Member] | |
Base salary, yearly | $ 100,000 |
Mr. Golden [Member] | |
Base salary, yearly | $ 100,000 |
LONG-TERM DEBT AND LINE OF CR_2
LONG-TERM DEBT AND LINE OF CREDIT (Details) | 3 Months Ended |
Mar. 31, 2019USD ($) | |
PMAL Income attributable to NCI | $ 169,293 |
Transfer of PMAL Income allocated to SBN to Amerinac Holding Corp | (169,293) |
At January 1, 2019 [Member] | |
Value of NCI | 757,778 |
At March 31, 2019 [Member] | |
Value of NCI | 927,071 |
Adjusted value of NCI | $ 757,778 |
LONG-TERM DEBT AND LINE OF CR_3
LONG-TERM DEBT AND LINE OF CREDIT (Detail 1 ) - Term Loan [Member] | Mar. 31, 2020USD ($) |
2020 | $ 450,000 |
2021 | 3,650,000 |
Total | 4,100,000 |
Unamortized debt and financing cost | (92,909) |
Total (net of unamortized debt and financing cost) | $ 4,007,091 |
LONG-TERM DEBT AND LINE OF CR_4
LONG-TERM DEBT AND LINE OF CREDIT (Details Narrative) - USD ($) | 1 Months Ended | 3 Months Ended | |||||
Mar. 20, 2020 | Aug. 16, 2019 | Aug. 31, 2018 | Aug. 17, 2017 | Mar. 31, 2020 | Dec. 31, 2019 | Jul. 15, 2019 | |
Repayment of summit loans by PMAL | |||||||
Deferred taxes net | $ 356,453 | ||||||
Term Loan [Member] | |||||||
Term loan principal balance | 2,750,000 | 2,875,000 | |||||
Term Loan B [Member] | |||||||
Term loan principal balance | 1,350,000 | 1,375,000 | |||||
Loan and Security Agreement [Member] | |||||||
Description for cash flow coverage ratio under agreement | PMAL shall maintain a quarterly cash flow coverage ratio of not less than 1.20 to 1.00 | ||||||
Description for tangible net worth under agreement | PMAL shall maintain the tangible net worth covenant, PMAL shall maintain a tangible net worth of no less than $4.1 million. The tangible net worth amount required shall increase annually on each June 30 by 50% of PMAL’s prior year’s undistributed net income. | ||||||
CAS Berkshire Loan [Member] | |||||||
Interest rate variable , description | Borrowings under the CAS Revolving Loan bear interest at a rate equal to the ICE LIBOR rate plus 3.00%, which was 4.6% at March 31, 2020 | ||||||
Unamortized debt financing cost | |||||||
Amortized debt financing cost | 2,154 | ||||||
Borrowing maximum capacity | 6,000,000 | ||||||
Company drawings | $ 1,760,386 | ||||||
Unamortized discount | 37,344 | ||||||
One-time cash distribution | $ 1,500,000 | ||||||
Description cash flow coverage ratio | CAS shall maintain a quarterly cash flow coverage ratio of not less than 1.20 to 1.00. Under the tangible net worth covenant, CAS shall maintain a tangible net worth of no less than $1.0 million, as amended on August 16, 2019. The tangible net worth amount required shall increase annually on each June 30 by 50% of CAS’s prior years undistributed net income. | ||||||
Borrowing base | $ 3,000,000 | ||||||
Summit Bridge Loans [Member] | Effective July 1, 2019 [Member] | |||||||
Repayment of related party debt, description | The terms of the Summit Loans and because PMAL repaid the Summit Loans within thirty-six (36) months of the origination of the Summit Loans, the SBN Membership Interests were reduced from 25% to 20% of PMAL as of September 1, 2018. | ||||||
Purchase price for membership interest | $ 3,000,000 | ||||||
Adjusted additional paid-in capital downward | 1,547,133 | ||||||
Long term debt carring value | 757,778 | ||||||
Deferred taxes net | 695,089 | ||||||
Summit Bridge Loans [Member] | PMAL [Member] | |||||||
Borrowing maximum capacity | $ 3,100,000 | ||||||
One-time cash distribution | 1,500,000 | ||||||
Borrowed amount | 808,700 | ||||||
SBN's PMAL equity ownership, amount at acquisition | $ 400,000 | ||||||
Withdraw amount | 7,678,814 | ||||||
Purchase price of Prime Metals | $ 9,600,000 | ||||||
Summit Bridge Loans [Member] | PMAL [Member] | Term Loan B [Member] | |||||||
Maturity date | Aug. 17, 2020 | ||||||
Interest rate description | Summit Term Loan B accrued each month at either 17.5% interest per annum (with 14.0% payable monthly and 3.5% accruing to the outstanding balance of Term Loan B, payable at maturity) or 17.0% interest per annum, payable monthly. | ||||||
Term loan principal balance | $ 4,500,000 | ||||||
Summit Bridge Loans [Member] | PMAL [Member] | Term Loan A & B [Member] | |||||||
Maturity date | Aug. 17, 2020 | ||||||
Interest rate description | Summit Term Loan A accrued each month at either 17.5% interest per annum (with 12.5% payable monthly and 5.0% accruing to the outstanding balance of Term Loan A, payable at maturity) or 17.0% interest per annum, payable monthly. | ||||||
Term loan principal balance | $ 3,500,000 | ||||||
USAC ROSS & USAC WA [Member] | Loan and Security Agreement [Member] | |||||||
Term loan, principal amount | $ 6,167,000 | ||||||
Long term debt | $ 230,007 | ||||||
Maturity date | Mar. 20, 2020 | ||||||
Interest rate | 9.00% | ||||||
Interest rate variable , description | On the 16-month anniversary of the Effective Date, the interest rate on the USAC Term Loan will increase to 15% interest per annum, payable monthly. | ||||||
Loan repayment, description | Term Loan is prepaid in full on or before the nine (9) month anniversary of the Effective Date, the principal amount will be reduced by $500,000. If the USAC Term Loan is prepaid in full on or before the ten (10) month anniversary of the Effective Date, the principal amount will be reduced by $400,000. If the USAC Term Loan is prepaid in full on or before the eleven (11) month anniversary of the Effective Date, the principal amount will be reduced by $300,000. If the USAC Term Loan is prepaid in full before the twelve (12) month anniversary of the Effective Date, the principal amount will be reduced by $200,000. If the USAC Term Loan is prepaid in full on or before the sixteen (16) month anniversary of the Effective Date, the principal amount will be reduced by $100,000 | ||||||
Debt issuance cost | $ 61,000 | ||||||
Berkshire Term Loan A and B [Member] | Loan and Security Agreement [Member] | |||||||
Interest rate description | Berkshire Term Loan B bear interest at ICE LIBOR rate plus 4.25%, which was 5.85% at March 31, 2020 | ||||||
Unamortized debt financing cost | $ 92,909 | 110,329 | |||||
Amortized debt financing cost | $ 17,420 | ||||||
Berkshire Bank [Member] | Loan and Security Agreement [Member] | |||||||
Interest rate description | Borrowings under the Berkshire Revolving Loan bear interest at a rate equal to the Intercontinental Exchange Benchmark Administration Ltd. London Interbank Offered Rate (“ICE LIBOR”) rate plus 3.25%, which was 4.85% | ||||||
Unamortized fees | |||||||
Berkshire Bank [Member] | Loan and Security Agreement [Member] | Revolving Credit Facility [Member] | |||||||
Borrowing maximum capacity | 6,000,000 | ||||||
Berkshire Term Loan B [Member] | Loan and Security Agreement [Member] | |||||||
Borrowing maximum capacity | $ 1,500,000 | ||||||
Maturity date description | Berkshire Term Loan B has a maturity date the earlier of (i) August 31, 2023 or (ii) the Revolving Credit Maturity Date. | ||||||
Debt instrument periodic payments | $ 8,334 | ||||||
Frequency of periodic payments | Monthly | ||||||
Berkshire Term Loan A [Member] | Loan and Security Agreement [Member] | |||||||
Maturity date description | Berkshire Term Loan A has a maturity date the earlier of (i) August 31, 2023 or (ii) the Revolving Credit Maturity Date. | ||||||
Debt instrument periodic payments | $ 41,667 | ||||||
Frequency of periodic payments | Monthly | ||||||
Credit facility, maximum borrowing capacity | $ 3,500,000 | ||||||
SBN [Member] | Summit Bridge Loans [Member] | |||||||
Description for pro-rata net income allocation | SBN's pro-rata net income allocation was made at a rate of 25% through August 31, 2018 and 20% commencing September 1, 2018 in accordance with the reduction in membership interests |
SEGMENT RESULTS (Details)
SEGMENT RESULTS (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Net Revenue | $ 11,306,442 | $ 12,504,968 |
Gross profit | 1,997,427 | 2,588,591 |
Operating expenses: | ||
General and administrative expenses | 1,234,776 | 1,330,661 |
Professional and consulting fees | 145,019 | 109,567 |
Total operating expenses | 1,379,795 | 1,440,228 |
Income before other income (expense) | 617,632 | 1,148,363 |
Non-allocated income (expense) | ||
Income before provision for income taxes | 3,681,400 | (121,795) |
USAC [Member] | ||
Net Revenue | 560,462 | |
Cost of goods sold | 440,122 | |
Gross profit | 120,340 | |
Operating expenses: | ||
General and administrative expenses | 33,090 | |
Professional and consulting fees | 26,961 | |
Total operating expenses | 60,051 | |
Income before other income (expense) | 60,289 | |
PMAL [Member] | ||
Net Revenue | 7,838,167 | 8,187,139 |
Cost of goods sold | 6,421,425 | 6,401,121 |
Gross profit | 1,416,742 | 1,786,018 |
Operating expenses: | ||
General and administrative expenses | 558,730 | 728,735 |
Professional and consulting fees | 69,072 | 89,202 |
Total operating expenses | 627,802 | 817,937 |
Income before other income (expense) | 788,940 | 968,081 |
Creative Assembly [Member] | ||
Net Revenue | 2,907,813 | 4,317,829 |
Cost of goods sold | 2,447,468 | 3,515,256 |
Gross profit | 460,345 | 802,573 |
Operating expenses: | ||
General and administrative expenses | 495,320 | 466,445 |
Professional and consulting fees | 25,894 | 12,367 |
Total operating expenses | 521,214 | 478,812 |
Income before other income (expense) | (60,869) | 323,761 |
Segment Reconciliation [Member] | ||
Operating expenses: | ||
Professional and consulting fees | (23,092) | |
Income from segments above | 788,360 | 1,291,842 |
Non-allocated income (expense) | ||
Interest expense - net | (137,286) | (121,795) |
General and administrative expenses | (147,636) | (135,481) |
Other income-purchase gain | 3,818,686 | (7,998) |
Total non-allocated expenses | 3,510,672 | (265,274) |
Income before provision for income taxes | $ 4,299,032 | $ 1,026,568 |
SEGMENT RESULTS (Details 1)
SEGMENT RESULTS (Details 1) - USD ($) | Mar. 31, 2020 | Dec. 31, 2019 |
Total | $ 32,953,652 | $ 20,575,550 |
Corporate [Member] | ||
Total | 119,764 | 461,363 |
PMAL [Member] | ||
Total | 13,674,719 | 14,615,627 |
CAS [Member] | ||
Total | 6,076,392 | 5,498,560 |
USAC [Member] | ||
Total | $ 13,082,867 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Current income tax | ||
Federal | ||
State | 92,249 | 72,448 |
Total Current income tax | 92,249 | 72,448 |
Deferred income tax | ||
Federal | 879,354 | 179,769 |
State | 130,987 | 10,249 |
Total deferred income tax | 1,010,341 | 190,018 |
Total income tax expense | $ 1,102,590 | $ 262,466 |
RELATED PARTIES (Details Narrat
RELATED PARTIES (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2020 | Dec. 31, 2019 | |
Common stock issued | 311,636 | 313,636 |
2017 Equity Plan [Member] | Mr. Wachter [Member] | ||
Bonus earned | $ 193,000 | |
Accrued bonus | $ 283,000 | 283,000 |
2017 Equity Plan [Member] | Mr. Golden [Member] | ||
Bonus earned | 193,000 | |
Accrued bonus | $ 283,000 | 283,000 |
Board and Executive Compensation [Member] | 2017 Equity Plan [Member] | ||
Common stock issued | 100,000 | |
Threshold amounts | $ 1,750,000 | |
Board and Executive Compensation [Member] | 2017 Equity Plan [Member] | Maximum [Member] | ||
Annual corporate bonus pool, percentage | 20.00% | |
Board and Executive Compensation [Member] | 2017 Equity Plan [Member] | Minimum [Member] | ||
Annual corporate bonus pool, percentage | 60.00% | |
Garruto [Member] | ||
Accrued stock value to be received for services | $ 25,000 | |
Messrs. Lamb [Member] | ||
Accrued stock value to be received for services | $ 25,000 |
SUBSEQUENT EVENTS (Details Narr
SUBSEQUENT EVENTS (Details Narrative) - Paycheck Protection Program [Member] - Berkshire Bank [Member] - Subsequent Event [Member] - USD ($) | 1 Months Ended | ||
Apr. 23, 2020 | Apr. 22, 2020 | Apr. 21, 2020 | |
Promissory Note Three [Member] | |||
Bank Loan | $ 796,400 | ||
Interest rate | 1.00% | ||
Term of bank loan | 2 years | ||
Promissory Note Two [Member] | |||
Bank Loan | $ 984,100 | ||
Interest rate | 1.00% | ||
Term of bank loan | 2 years | ||
Promissory Note One [Member] | |||
Bank Loan | $ 1,074,700 | ||
Interest rate | 1.00% | ||
Term of bank loan | 2 years | ||
Promissory Note [Member] | |||
Bank Loan | $ 227,800 | ||
Interest rate | 1.00% | ||
Term of bank loan | 2 years |