Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principal Business Activity

The Company, through its AIM subsidiary, is primarily engaged in manufacturing aircraft structural parts and assemblies for prime defense contractors in the aerospace industry in the United States. NTW is a manufacturer of aerospace components, principally landing gear for F-16 and F-18 fighter aircraft. Sterling manufactures components and provides services for jet engines and ground-power turbines. The Company’s customers consist mainly of publicly traded companies in the aerospace industry.

Inventory Valuation

For annual periods, the Company values inventory at the lower of cost on a first-in-first-out basis or estimated net realizable value. The Company does not take physical inventories at interim quarterly reporting periods. As such, substantially all of the inventory value at June 30, 2019 has been estimated using a gross profit percentage based on historical gross profit percentages of previous periods as applied to the net sales of the current period, as management believes that the gross profit percentage on these items are materially consistent from period to period. The remainder of the inventory value at June 30, 2019 is estimated based on the Company’s standard cost perpetual inventory system, as management believes the perpetual system computed value for these items provides a better estimate of value for that inventory. Adjustments to reconcile the annual physical inventory to the Company’s books are treated as changes in accounting estimates and are recorded in the fourth quarter.

Inventories consist of the following at:

	June 30,			December 31,
	2019			2018
	(Unaudited)
Raw Materials	$	4,218,000		$	4,622,000
Work In Progress		19,663,000			17,530,000
Finished Goods		10,374,000			10,915,000
Inventory Reserve		(4,092,000	)		(4,016,000	)
Total Inventory	$	30,163,000		$	29,051,000

Credit and Concentration Risks

There were three customers that represented 75.6% and 74.5% of total net sales for the three months ended June 30, 2019 and 2018, respectively. This is set forth in the table below.

Customer	Percentage of Sales
	June 30, 2019		June 30, 2018
	(Unaudited)		(Unaudited)
1		35.1		37.7
2		30.0		26.0
3		10.5		10.8

There were three customers that represented 74.7% and 73.8% of total sales for the six months ended June 30, 2019 and 2018, respectively. This is set forth in the table below.

Customer	Percentage of Sales
	June 30, 2019		June 30, 2018
	(Unaudited)		(Unaudited)
1		33.2		35.6
2		29.4		27.7
3		12.1		10.5

There were two customers that represented 58.9% and 64.5% of gross accounts receivable at June 30, 2019 and December 31, 2018, respectively. This is set forth in the table below.

Customer	Percentage of Receivables
	June 30, 2019		December 31, 2018
	(Unaudited)
1		30.5		38.3
2		28.4		26.2

During the year, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced any losses on these accounts.

The Company has several key sole-source suppliers of various parts that are important for one or more of its products. These suppliers are its only source for such parts and, therefore, in the event any of them were to go out of business or be unable to provide parts for any reason, its business could be severely harmed.

Earnings per share

Basic earnings per share is computed by dividing the net income applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Potentially dilutive shares, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.

The following is a reconciliation of the denominators of basic and diluted earnings per share computations:

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Continuing Operations	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Weighted average shares outstanding used to compute basic earnings per share		28,770,983		26,013,426		28,686,187		26,057,062
Effect of dilutive stock options and warrants		-		-		-		-
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share		28,770,983		26,013,426		28,686,187		26,057,062

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Discontinued Operations	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Weighted average shares outstanding used to compute basic earnings per share		28,770,983		26,013,426		28,686,187		26,057,062
Effect of dilutive stock options and warrants		-		65,951		49,410		65,951
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share		28,770,983		26,079,377		28,735,597		26,123,013

The following securities have been excluded from the calculation as the exercise price was greater than the average market price of the common shares:

	Six Months Ended
	June 30, 2019		June 30, 2018
	(Unaudited)		(Unaudited)
Stock Options		861,000		349,000
Warrants		2,183,000		1,480,000
		3,044,000		1,829,000

The following securities have been excluded from the calculation even though the exercise price was less than the average market price of the common shares because the effect of including these potential shares was anti-dilutive due to the net loss incurred during that period:

	June 30, 2019		June 30, 2018
	(Unaudited)		(Unaudited)
Stock Options		515,000		695,000
Warrants		—		480,000
		515,000		1,175,000

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation.” Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model. Stock based compensation expense for employees and directors amounted to $93,000 and $142,000 for the three months ended June 30, 2019 and 2018, respectively, and $326,000 and $225,000 for the six months ended June 30, 2019 and 2018, respectively, and was included in operating expenses on the accompanying Condensed Consolidated Statements of Operations.

Goodwill

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $163,000 at June 30, 2019 and December 31, 2018 relates to the acquisition of NTW.

Goodwill is not amortized, but is tested at least annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount.

The Company has determined that there has been no impairment of goodwill at June 30, 2019.

Recently Issued Accounting Pronouncements

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842) Codification Improvements, which removed the requirement for an entity to disclose in the interim periods after adoption, the effect of the change on income from continuing operations, net income, any other affected financial statement line item, and any affected per share amount. For lessors, the new leasing standard requires leases to be classified as a sales-type, direct financing or operating leases. These criteria focus on the transfer of control of the underlying lease asset. This standard and related updates were effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted ASU 2019-01 on January 1, 2019. See Note 1, Adoption of ASC 842, for disclosures related to this amended guidance.

In October 2018, the FASB issued ASU No. 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). This ASU reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE is an organization in which consolidation is not based on a majority of voting rights. The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-17 has no material impact on the Company’s condensed consolidated financial statements as of and for the three and six months ended June 30, 2019.

The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed consolidated financial statements.