UNITED STATES
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As
of June 30, 2022, the aggregate market value of our common stock held by non-affiliates was $
There were
DOCUMENTS IINCORPORATED BY REFERENCE: None
AIR INDUSTRIES GROUP
FORM 10-K
For the Fiscal Year Ended December 31, 2022
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Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements. Certain of the matters discussed herein concerning, among other items, our operations, cash flows, financial position and economic performance including, in particular, future sales, product demand, competition and the effect of economic conditions, include forward-looking statements.
Forward-looking statements are predictive in nature and can be identified by the fact that they do not relate strictly to historical or current facts and generally include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions. Although we believe that these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flow, research and development costs, working capital, capital expenditures, distribution channels, profitability, new products, adequacy of funds from operations, and general economic conditions, these statements and other projections contained herein expressing opinions about future outcomes and non-historical information, are subject to uncertainties and, therefore, there is no assurance that the outcomes expressed in these statements will be achieved.
Investors are cautioned that forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from the expectations expressed in forward-looking statements contained herein. Given these uncertainties, you should not place any reliance on these forward-looking statements which speak only as of the date hereof. See “Risk factors” for a discussion of factors that could cause our actual results to differ from those expressed or implied by forward-looking statements.
We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. You are advised, however, to consult any additional disclosures we make in our reports filed with the Securities and Exchange Commission (“SEC”).
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PART I
ITEM 1. BUSINESS
Introduction
As used in this report, unless otherwise stated or the context requires otherwise, the “Company” and terms such as “we,” “us” “our,” and “AIRI” refer to Air Industries Group, a Nevada corporation, and its wholly-owned subsidiaries.
We are a manufacturer of complex machined parts and assemblies for the Aerospace and Defense (“A&D”) market. Our products are used by Original Equipment Manufacturers (“OEM”) in the manufacture of fixed wing aircraft, helicopters jet turbine engines, and other complex sophisticated A&D products. We also manufacture parts for the ground power turbine industry and are in discussions to manufacture products for submarines.
We are a holding company with three legal subsidiaries, Air Industries Machining, (“AIM”) Nassau Tool Works (“NTW”) and Sterling Engineering Company (“SEC”). Our subsidiaries have been manufacturers of A&D product for decades; SEC began manufacturing aircraft components in 1941 – over 80-years ago – for use in World War II. NTW was formed in the early 1960’s and AIM has been in business since 1951. Collectively, our subsidiaries have over 200 years of manufacturing experience in the A&D market.
We operate our business using two main facilities. One is located in Long Island, New York, and the other is in Barkhamsted, Connecticut. We have over 150,000 square feet of manufacturing space, approximately 75,000 square feet in each location, and employ approximately 190 people.
Historically, we operated our businesses and reported their results as two separate segments, with AIM and NTW comprising our Complex Machining Segment (“CMS”) and our SEC as the Turbine & Engine Component Segment (“TEC”). Our CMS segment specializes in flight critical components including flight controls and landing gear. Our TEC segment focuses on manufacturing components for jet engines. Historically, each segment had different customers and utilized different production facilities.
In recent years the operations of our CMS and TEC segments have become increasingly integrated. In addition, we have made significant capital expenditures to modernize our manufacturing equipment and all of our operations now share the same manufacturing facilities and use most, if not all, of the same sales and marketing functions. We made these changes to take advantage of the long-term growth opportunities we see in the A&D market. In early fiscal 2022, we further changed our management approach and now make decisions regarding the allocation of resources and assess operating performance based on one integrated business rather than two reporting segments. As such, effective with our first quarter ended March 31, 2022, we began to present our operations as one reportable operating segment.
The A&D business is comprised of a small number of OEM’s relying on several “tiers” or layers of many more numerous smaller manufacturers supplying product. Each successive tier supplies increasingly larger, more complex product to the next higher tier and OEM companies. Air Industries is generally either a tier one manufacturer supplying product directly to an OEM, or a tier two manufacturer supplying product to a tier one supplier which delivers to an OEM.
Our business has evolved over the years, our products becoming increasing complex. Where once we manufactured smaller individual components for others to assemble into complex assemblies, we now manufacture those complex assemblies ourselves. For example, in the past we, along with other suppliers, manufactured individual components to be assembled into a landing gear by an OEM customer. Today we manufacture the entire landing gear, assembling over 200 individual parts, most manufactured internally, others sub-contracted or purchased into a complete landing gear delivered directly to an OEM, ready to be installed on an aircraft.
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We are predominately a supplier of military aviation product. Defense products were 82.6% and 87.7% of our business in 2022 and 2021 respectively. Our OEM customers in the defense sector include:
| ● | Raytheon Technologies Corporation (f/k/a United Technologies Corporation). We supply products for several units of Raytheon Technologies Corporation, including: |
| o | Goodrich Landing Systems – we manufacture landing gear components for the Northrop Grumman E2-D Hawkeye, airborne warning and control aircraft deployed with the US Navy and several foreign governments, the Lockheed F-35 Lightning II Joint Strike multi-role fighter aircraft used by all branches of the US military and multiple foreign militaries and for the F-15 Eagle fighter aircraft. |
Pratt & Whitney – we manufacture jet turbine engine components for several military and commercial jet engines.
| ● | Lockheed Martin Corporation. We supply products for the Sikorsky Aircraft unit of Lockheed primarily for the UH-60 BlackHawk multi-purpose helicopter used by the US and many foreign militaries. |
| ● | General Electric Corporation. We supply products used in General Electric jet turbine aircraft engines used by several military aircraft platforms. |
| ● | US Department of Defense. We supply landing gear product for the US Navy F-18 fighter aircraft directly to the Defense Department. |
| ● | Northrop Grumman Corporation. We supply product used on the E2-D Hawkeye, airborne warning and control aircraft. |
The balance of our business, comprising 17.4% and 12.3% of our business in 2022 and 2021 respectively, is in commercial aviation and to a minor degree in ground power electricity generation. Our OEM customers in the commercial sector include:
| ● | Rohr Inc., (a wholly owned subsidiary of Raytheon Technologies) We manufacture a component used in several versions of the Pratt & Whitney new geared turbine fan commercial jet turbine engine. |
| ● | General Electric Corporation. We supply products used in General Electric jet turbine aircraft engines used by several commercial aircraft platforms and ground power electricity generation. |
Our business is concentrated on five aircraft platforms which comprised 76.9% and 76.6% of our business in 2022 and 2021 respectively.
| ● | UH-60 BlackHawk. We have manufactured many components and assemblies for the BlackHawk and its many variants for more than 20 years. BlackHawk helicopters entered service in 1979 and remain in production today. It is the primary helicopter used by the US Army and other branches of the US military. The BlackHawk is also used by many foreign countries and militaries. Over 4,000 aircraft have been produced with many, perhaps as many as 3,000, remaining in use today and generating significant after-market demand. |
| ● | F-35 Lightning II. The F-35 Lightning also known as the Joint Strike Fighter is a new aircraft that will in coming years replace the US Air Force F-15 and the US Navy and Marine Corps F-18 fighters. Eight other nations have participated in the development of the aircraft and will be users of the aircraft, as will other international militaries. There are three variants of the aircraft, conventional take-off and landing F-35A, short take-off and vertical landing F-35B and a carrier based variant F-35C. The aircraft entered service with the US Marine Corps in 2015 and approximately 2,300 are expected to be produced. |
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| ● | F-18 Hornet. The F-18 Hornet currently is the primary fighter aircraft for the US Navy operating primarily from aircraft carriers. The F-18 is also in service internationally, notably Finland and Australia. We manufacture complete landing gear and landing gear components for the many variants of the aircraft. |
| ● | Northrop Grumman E2-D Advanced Hawkeye. The ED-D Hawkeye is a US Navy carrier-based aircraft used to provide airborne warning and control for carrier-based air operations. The aircraft’s role is to maintain control of the airspace surrounding an aircraft carrier for protection of the vessel and aircraft in operation. The “D” version, the most current of the E2 remains in production. The aircraft is also used by seven foreign militaries notably Japan. |
| ● | Pratt & Whitney Geared Turbo-Fan. The P&W Geared Turbo-Fan (“GTF”) is a next generation jet turbine engine used in commercial aviation. The GTF engine is widely acknowledged to deliver improved fuel economy and a lower noise footprint than existing jet engines. There are several versions of the GTF. Air Industries produces a component for the smaller versions of the engine used on the popular A-220 and Embraer narrow body aircraft. |
Our Market
The A&D industry has become very consolidated, now dominated by just a few very large prime contractors and OEM’s. These include Airbus, Boeing, General Electric, Lockheed Martin, Northrop Grumman, and Raytheon Technologies. Many if not most of the large prime contractors and OEM’s are our direct Tier One customers, and we also supply product as a Tier two supplier to many of their Tier one suppliers. We also sell directly to the US Department of Defense (“DOD”).
Our products are incorporated into many aircraft platforms, the majority of which remain in production today. The demand for after-market products for the maintenance, repair and overhaul (“MRO”) of aircraft can continue for many years, even decades, after the production line for new aircraft is shut-down.
We target products that are flight critical, whose flawless operation is essential to the safe operation of the aircraft. To qualify to produce these products a manufacturer needs to maintain various accreditations. Obtaining accreditation while not impossible is difficult, time consuming and thus a barrier to entry for competitors. Further, flight critical components are frequently replaced on aircraft on a flight time, or flight cycle basis. Thus, demand for these products arises from both production of new aircraft, and MRO demand based on the flight hours of existing fleets of aircraft.
For many of our products we are the sole or single source of product for our customers. Sole source product means that we are the only manufacturer of the product. Single source means that while other manufacturers could supply the product, we are the only producer currently in the market. Single or sole sourcing is more likely to occur with legacy aircraft. OEM’s generally prefer to have multiple sources of product to support a production line of new aircraft and avoid single point of failure issues, particularly in light of the supply chain disruptions caused by the outbreak of Covid-19.
Our market is predominately military. As such demand for our products is closely aligned with the budget of the DOD. We monitor two components of the DOD budget; procurement which affects demand resulting from new production and operations & maintenance which affects demand resulting from the maintaining of existing aircraft. For Fiscal Year 2022, procurement and operations and maintenance accounted for more than 50% of the entire defense budget.
Sales and Marketing
We are generally recognized as a Tier 1 or Tier 2 supplier in the A&D industry. We are also recognized as having extensive experience and accreditation to produce and assemble complex flight safety products.
Most of our contracts with our customers are in the form of a Long-Term Agreement (“LTA”). These LTA’s specify the number and price of products that the customer may order from us for a period of time. The quantity and price in any year may vary from other years within the LTA. Once awarded, the customer places orders against the LTA. These orders are called releases. Once released the order is a firm order. While a firm order may be cancelled the customer is subject to termination liability and must pay us for the cost of material, labor and other costs incurred up to the date of termination.
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Our sales cycle is highly variable, ranging from a few weeks to several years depending upon the complexity of the product and the number of steps necessary to complete manufacturing. Contracts for product can be very short, just a few months to as long as ten-years.
We obtain new or follow-on LTA’s through competitive bidding. We respond to a customer’s Request for Quotation (“RFQ”) with proposed prices based on quantities, sometimes varying quantities per year, for shipments over a number of years. There may be several rounds of submissions from us and from competitive suppliers, and a period of negotiation before an LTA is awarded. In addition to products sold pursuant to LTA’s there are also “spot buys” of product by customers.
LTA’s, particularly for defense products, may be extended or new orders placed without competitive bidding. In this instance and in some others our price for the product must be supported by an analysis or audit and approval of our costs by the customer or by the Government.
In 2021 and to a lesser extent in the first half of 2022 our sales and marketing efforts were negatively affected by Covid travel restrictions limiting our ability to visit customers and the reluctance of the employees of some of our customers to return to the office and attend trade shows, complicating our ability to contact them. As a result of these challenges our “book-to-bill” ratio (new orders booked divided by sales) was 0.75 to 1.00 and 0.9 to 1.00 for the years ended December 31, 2022 and 2021 respectively, below historic levels.
Our approach to sales and marketing can be best understood through the concept of customer alignment. The aerospace industry is dominated by a small number of large prime contractors and OEM’s. These customers rely heavily upon subcontractors to supply quality parts meeting specifications on a timely and cost effective basis. These customers and other customers we supply routinely rate their suppliers based on a variety of performance factors. One of our principal goals is to be highly rated and thus deemed reliable by all of our customers and throughout the industry.
The large prime contractors are increasingly seeking subcontractors who can supply and are qualified to integrate the fabrication of larger, more complex and more complete subassemblies. We seek to position ourselves within the supply chain of these contractors and manufacturers to be selected for subcontracted projects. Successful positioning requires that we qualify to be a preferred supplier by achieving and maintaining independent third party quality approval certifications, specific customer quality system approvals and top supplier ratings through strong performance on existing contracts.
During our sales and marketing efforts we let customers know that we have employees with the talent and experience to manage the manufacture of sections of aircraft structures to be delivered to the final assembly phase of the aircraft manufacturing cycle, and customers have now engaged us for these services.
Initial contracts are usually obtained through competitive bidding against other qualified subcontractors, while follow-on contracts are usually retained by successfully performing initial contracts. Our long term business generally benefits from barriers to entry resulting from investments, certifications, familiarization with the needs and systems of customers, and manufacturing techniques developed during the initial manufacturing phase. We endeavor to develop each of our relationships to one of a “partnership” where we participate in the resolution of pre-production design and build issues, and initial contracts are obtained as single source awards and follow-on pricing is determined through negotiations. In response to the impediments to traditional means of marketing our products and services encountered during 2020 and 2021 as a result of the cancellation of industry-wide events and the difficulties in scheduling meetings with our customers, we have adapted our business development efforts to increase our use of social media and online presentations, and will continue to look for new ways to interact with our customers.
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Our Backlog
The backlog we report consists solely of firm orders received from customers. We do not estimate possible or probable future orders pursuant to LTA’s or anticipated contract renewals. Our backlog exists due to the long lead times necessary to produce many of our products. Our production cycle from ordering raw material to delivering finished product can vary from several weeks to more than one year. Customers must place orders in light of these lead-times creating a back-log of future deliveries. The production cycle for jet engine products is much shorter and accordingly the backlog for jet engine products is much lower. Our total 18-Month firm backlog was $60.1 and $75.0 Million at December 31, 2022 and 2021, respectively.
Our backlog today is the result of purchase orders for the Sikorsky Black Hawk, the F-25 Joint Strike Fighter, the Northrop Grumman E2-D, the F-18 fighter aircraft and the Pratt & Whitney Geared Turbo-Fan jet engine.
Competition
Winning a new contract is highly competitive. We manufacture to customer design specifications. We compete against companies that have similar, or better manufacturing capabilities and often greater financial, physical and technical resources in the domestic and, to a lesser degree, in the global marketplace. Our ability to win new contracts requires providing quality products on a timely basis at competitive prices. This requires that we strive for continuous improvement in our capabilities to enhance our competitiveness. To accomplish this, we have made significant investments in new machinery and equipment totaling approximately $3,725,000; $1,364,000 and $2,361,000 in 2021 and 2022, respectively. This new equipment improves the productive capacity of our employees, increases efficiency and speed, while maintaining closer tolerances, and increasing the size of product we can manufacture with a larger working “envelope”. We anticipate spending an additional $1,750,000 to $2,500,000 in 2023 to continue to expand our productive capacity.
Our marketing strategy involves developing long-term working relationships with customers. These relationships enable us to develop barriers to entry to competitors by establishing and maintaining advanced quality approvals, certifications and tooling investments that are difficult and expensive to duplicate.
Among our competitors are: Monitor Aerospace, a division of Stellex Aerospace; Hydromil, a division of Triumph Aerospace Group; Heroux Aerospace and Ellanef Manufacturing, a division of Magellan Corporation.
Raw Materials and Replacement Parts
The manufacturing process for certain products, particularly those for which we serve as product integrator, requires significant purchases of raw materials, hardware and subcontracted details. As a result, much of our success in profitably meeting customer demand for these products requires efficient and effective subcontract management. Price and availability of many raw materials utilized in the aerospace industry are subject to volatile global markets and political conditions. Most suppliers of raw materials are unwilling to commit to long-term contracts at fixed prices. This is a substantial risk as our strategy often involves long term fixed price commitments to our customers.
Employees
As of May 1, 2023, we employed 185 people. Of these, 76 were in administration, 9 were in sales and procurement, and 100 were in manufacturing.
AIM is a party to a collective bargaining agreement (the “Agreement”) with the United Service Workers, IUJAT, Local 355 (the “Union”) with which we believe we maintain good relations. The Agreement was renewed as of December 31, 2021 and expires on December 31, 2024 and covers the majority of AIM’s personnel, approximately 130 individuals, which equates to approximately 70% of all of our employees.
AIM is required to make a monthly contribution to each of the Union’s United Welfare Fund and the United Services Worker’s Security Fund. This is the only pension benefit required by the Agreement and the Company is not obligated for any future defined benefit to retirees. The Agreement contains a “no-strike” clause, whereby, during the term of the Agreement, the Union will not strike and AIM will not lockout its employees.
All of our employees are covered under a co-employment agreement with Insperity Services, LLC, a professional employer organization that provides out-sourced human resource and payroll services.
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Regulations
Environmental Regulation; Employee Safety
We are subject to regulations administered by the United States Environmental Protection Agency, the Occupational Safety and Health Administration, various state agencies and county and local authorities acting in cooperation with federal and state authorities. Among other things, these regulatory bodies impose restrictions that require us to control air, soil and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use and release of certain hazardous chemicals and substances. The extensive regulatory framework imposes compliance burdens and financial and operating risks on us. Governmental authorities have the power to enforce compliance with these regulations and to obtain injunctions or impose civil and criminal fines in the case of violations.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) imposes strict, joint and several liabilities on the present and former owners and operators of facilities that release hazardous substances into the environment. The Resource Conservation and Recovery Act of 1976 (“RCRA”) regulates the generation, transportation, treatment, storage and disposal of hazardous waste. New York and Connecticut, the states where our production facilities are located, also have stringent laws and regulations governing the handling, storage and disposal of hazardous substances, counterparts of CERCLA and RCRA. In addition, the Occupational Safety and Health Act, which requires employers to provide a place of employment that is free from recognized and preventable hazards that are likely to cause serious physical harm to employees, obligates employers to provide notice to employees regarding the presence of hazardous chemicals and to train employees in the use of such substances.
Federal Aviation Administration
We are subject to regulation by the Federal Aviation Administration (“FAA”) under the provisions of the Federal Aviation Act of 1958, as amended. The FAA prescribes standards and licensing requirements for aircraft and aircraft components. We are subject to inspections by the FAA and may be subjected to fines and other penalties (including orders to cease production) for noncompliance with FAA regulations. Our failure to comply with applicable regulations could result in the termination of or our disqualification from some of our contracts, which could have a material adverse effect on our operations. We have never been subject to such fines or disqualifications.
Government Contract Compliance
Our government contracts and those of many of our customers are subject to the procurement rules and regulations of the United States government, including the Federal Acquisition Regulations. Many of the contract terms are dictated by these rules and regulations. During and after the fulfillment of a government contract, we may be audited in respect of the direct and allocated indirect costs attributed to the project. These audits may result in adjustments to our contract costs. Additionally, we may be subject to U.S. government inquiries and investigations because of our participation in government procurement. Any inquiry or investigation can result in fines or limitations on our ability to continue to bid for government contracts and fulfill existing contracts.
We believe that we are in compliance with all federal, state and local laws and regulations governing our operations and have obtained all material licenses and permits required for the operation of our business.
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ITEM 1A. RISK FACTORS
The purchase of our common stock involves a very high degree of risk.
In evaluating our common stock and our business, you should carefully consider the risks and uncertainties described below and the other information and our consolidated financial statements and related notes included herein. If any of the events described in the risks below actually occurs, our financial condition or operating results may be materially and adversely affected, the price of our common stock may decline, perhaps significantly, and you could lose all or a part of your investment.
The risks below can be characterized into four groups:
| 1) | Risks related to disruptive global events such as a widespread public health crisis, the outbreak of an international conflict, a terrorist event or a banking crisis, such as Covid-19 and the war in Ukraine, and responses to such events; | |
| 2) | Risks related to our business, including risks specific to the defense and aerospace industry; | |
| 3) | Risks arising from our indebtedness; and | |
| 4) | Risks related to our common stock. |
The financial statements contained in this Report, as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the result of operations as of December 31, 2022.
Risks Related to Global Events
Disruptive national and international events, such as the outbreak of a public health crisis, an international conflict, a terrorist event, a banking crisis, the possibility of default by the United States on its obligations due to its debt ceiling or the actuality of such an event, and the response of the United States, other countries and the public to such events, and the resulting macroeconomic disruption to the financial markets and the businesses of our customers and suppliers, could have a negative impact on our results of operation and financial condition.
The outbreak of the Covid-19 pandemic, the invasion of Ukraine by the Russian Federation and the measures adopted by various governments and agencies, as well as the decision by many individuals and businesses to voluntarily shut down or self-quarantine and work from home in response to the outbreak of Covid-19 had serious adverse impacts on domestic and foreign economies, the financial markets and our ability, as well as the ability of some of our customers and suppliers, to operate in the ordinary course. While we continued to operate substantially in the normal course of business since the outbreak of Covid-19, we were forced to adjust our sales and marketing practices due to difficulties encountered in contacting our customers to maintain existing programs and win new orders and did not receive new contracts during 2021 and 2022 at a rate consistent with historical levels. Although business has substantially returned to pre-Covid-19 operating levels and our ability to win new orders appears to be returning to historical levels, there is no assurance that there will not be another event, such as a public health crisis, an international conflict, a terrorist event, a banking crisis or the possibility of a default by the United States on its obligations due to its debt ceiling or the actuality of such an event, which will have a material adverse impact on our industry, operations or financial condition. Moreover, although our industry appears to be operating in the normal course, employees of certain customers continue to work from home impacting our ability to communicate with them and the future economic impact of changes in business practices which resulted from Covid-19 or which might result from a future event, cannot be predicted with certainty. Covid-19 caused significant disruption to the commercial travel and aerospace industries. Although air travel has increased, it may take several years for overall economic conditions to return to normal, particularly in the aerospace industry, for air travel and the resulting demand for new and refurbished aircraft to return to normal. If conditions do not improve, or if they worsen, it could make it difficult for us to access debt and equity capital on attractive terms, or at all, and impact our ability to fund business activities and repay debt on a timely basis.
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Russia’s invasion of Ukraine, continued tensions between the US and the European Union with China and Russia, may alter countries’ willingness to rely on others as the source of certain products and material.
Historically, prime contractors and OEMs in the United States A & D industry have relied upon suppliers outside the United States for products and raw materials, including suppliers in Russia and China. Supply chain disruptions resulting from China’s initial response to Covid-19, Russia’s invasion of Ukraine and the economic disruption resulting from retaliatory measures, continued tensions between the US and other countries, may cause many companies in the A&D industry and the governments of the countries in which they are located, including the United States, to rethink these strategies and seek or mandate that such companies obtain more reliable sources of supply. To the extent they do so, it could disrupt the markets for raw materials and supplies, our ability and the ability of our suppliers to obtain raw materials and supplies and the market for the skilled laborers we need to manufacture our products.
We cannot forecast with any certainty whether such disruptions, restrictions imposed by various governments in response thereto and resulting changes in business practices, may materially impact our ability and the ability of our suppliers to obtain necessary raw material, our business and our consolidated financial position, results of operations, and cash flows.
In reading the remaining risk factors set forth below, in each case, consider the additional uncertainties caused by the potential for disruptive global events such as a widespread public health crisis, the outbreak of an international conflict, terrorist event or banking crisis and continued rivalries between various countries.
Risks Related to Our Business
We may need additional financing.
We may need to obtain additional financing to fund acquisitions of capital items necessary for our growth and to upgrade equipment to remain competitive. We may also need to obtain the agreement of holders of portions of our debt to extend or otherwise refinance such debt. We may need to offer these holders increases in the rates of interest they receive or otherwise compensate them through payments of cash or issuances of our equity securities. Future financings or refinancings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. Additional funding may not be available to us on reasonable terms, if at all. If we are able to consummate such financings or re-financings, the trading price of our common stock could be adversely affected and the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.
A reduction in government spending on defense could materially adversely impact our revenues, results of operations and financial condition.
A large percentage of our revenue is derived from products for US military aviation. There are risks associated with programs that are subject to appropriation by Congress, which could be potential targets for reductions in funding. Reductions in United States Government spending on defense or future changes in the mix of defense products required by United States Government agencies could limit demand for our products and may have a materially adverse effect on our operating results and financial condition. For the past several years, our operations have been impacted by volatility in government procurement cycles and spending patterns. There can be no assurance that our financial condition and results of operations will not be materially adversely impacted by future volatility in defense spending or a change in the mix of products purchased by defense departments in the United States or other countries, or the perception on the part of our customers that such changes are about to occur.
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We depend on revenues from a few significant relationships. Any loss, cancellation, reduction, or interruption in these relationships could harm our business.
We derive most of our revenues from a small number of customers. Four customers represented approximately 77% and three customers represented 75% of total sales for the years ended December 31, 2022 and 2021, respectively. The markets in which we sell our products are dominated by a relatively small number of customers which have contracts with United States governmental agencies, thereby limiting the number of potential customers. Our success depends on our ability to develop and manage relationships with significant customers. We cannot be sure that we will be able to retain our largest customers or that we will be able to attract additional customers, or that our customers will continue to buy our products in the same amounts as in prior years. The loss of one or more of our largest customers, any reduction or interruption in sales to these customers, our inability to successfully develop relationships with additional customers or future price concessions that we may have to make, could significantly harm our business.
We depend on revenues from components for a few aircraft platforms and the cancellation or reduction of either production or use of these aircraft platforms could harm our business.
We derive a significant portion of our revenues from components for a few aircraft platforms, specifically the Sikorsky BlackHawk helicopter, the Northrop Grumman E-2 Hawkeye naval aircraft, the F-18 Hornet and the Pratt & Whitney Geared TurboFan Jet engine. A reduction in demand for our products as a result of either a reduction in the production of new aircraft or a reduction in the use of existing aircraft in the fleet (reducing after-market demand) would have a material adverse effect on our operating results and financial condition.
Intense competition in our markets may lead to a reduction in our revenues and market share.
The defense and aerospace component manufacturing market is highly competitive and we expect that competition will increase and perhaps intensify. In particular, we anticipate that manufacturers which have historically operated predominately in the commercial sector may seek to increase the revenue derived in the defense aerospace market to utilize excess capacity. Many competitors have significantly greater technical, manufacturing, financial and marketing resources than we do. We may not be able to compete successfully against either current or future competitors. Increased competition could result in reduced revenue, lower margins or loss of market share, any of which could significantly harm our business, our operating results and financial condition.
We may lose sales if we fail to timely meet the needs of any of our customers.
Our customers incorporate our products into larger aircraft assemblies or completed aircraft. They rely upon us to deliver products meeting their specifications on a timely basis to ensure smooth operation of their assembly lines. If a customer were to conclude that it could not rely upon us for timely delivery of quality products, it could look to dual source a product or rely upon another party altogether. A customer could reach such a conclusion even if our failure to timely deliver product was the result of events beyond our control, such as the failure of the customer to place an order for a long lead time product on a timely basis or supply us with agreed upon raw materials for processing. Any decision by a customer to rely upon an alternate supplier for some or all of its needs could significantly harm our business, our operating results and our financial condition.
We may lose sales if our suppliers fail to meet our needs or shipments of raw materials are not timely made.
Although we procure most of our raw materials, parts and components from multiple sources and rely upon a number of subcontractors to perform detailed services, or believe that these materials, components and services are readily available from numerous sources, certain materials, components and services are available only from a sole or limited number of sources and often need to be sourced by our customer. While we believe that substitute supplies, components or assemblies and subcontractors could be obtained, use of substitutes would require development of new suppliers or would require us to re-engineer our products, or both, which could delay shipment of our products and could have a materially adverse effect on our operating results and financial condition. Any delays in the shipment of raw materials or the performance of subcontracted services could significantly harm our business, our operating results and our financial condition.
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A reduction in our revenues could have a disproportionate effect on our gross profit as a percentage of sales.
Our operations have a large percentage of fixed factory overhead relative to our overall expenses. As a result, our gross profit as a percentage of sales is highly linked with sales volume. Any reduction in our sales volume causes us to absorb the fixed overhead costs over a smaller base of sales, likely causing our profit margin to decrease. Any reduction in our profit margin adversely impacts our reported performance and would have a material adverse impact on results of operation and consolidated financial position.
There are risks associated with the bidding processes in which we compete.
We obtain many contracts through a competitive bidding process. We must devote substantial time and resources to prepare bids and proposals and may not have contracts awarded to us. Even if we win contracts, there can be no assurance that the prices that we have bid will be sufficient to allow us to generate a profit from any particular contract. There are significant costs involved with producing a small number of initial units of any new product and it may not be possible to recoup such costs on later production runs.
Due to fixed contract pricing, increasing contract costs expose us to reduced profitability and the potential loss of future business.
The cost estimation process requires significant judgment and expertise. Reasons for cost growth may include unavailability and productivity of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in performance, availability and timing of funding from the customer, natural disasters, and the inability to recover any claims included in the estimates to complete. A significant change in cost estimates on one or more programs could have a material effect on our consolidated financial position or results of operations.
The prices of raw materials we use are volatile.
The prices of raw materials used in our manufacturing processes are volatile. Our contracts generally allow us to increase our prices due to increases in the price of raw materials. Many contracts, however, require that we absorb all or a portion of the increase in expense resulting from inflation before passing the increase on to the customer. If the prices of raw materials rise, we may not be able to pass along all of such increases to our customers and this could have an adverse impact on our consolidated financial position and results of operations. It is possible that some of the raw materials we use might become subject to new or increased tariffs. Significant increases in the prices of raw materials could adversely impact our customers’ demand for certain products which could lead to a reduction in our revenues and have a material adverse impact on our revenues and on our consolidated financial position and results of operations.
Some of the products we produce have long lead times.
Some of the products we produce require months to produce and we sometimes produce products in excess of the number ordered intending to sell the excess as spares when orders arise. As a result, our inventory turns slowly and ties up our working capital. Our inventory represented approximately 60% of our assets as of December 31, 2022. Any requirement to write down the value of our inventory due to obsolescence, excess and slow moving, or a drop in the price of materials could have a material adverse effect on our consolidated financial position, results of operations and could result in a breach of the financial covenants in our Loan Facility with Webster Bank (“Webster”).
We do not own the intellectual property rights to products we produce.
Nearly all the parts and subassemblies we produce are built to customer specifications and the customer owns the intellectual property, if any, related to the product. Consequently, if a customer desires to use another manufacturer to fabricate its part or subassembly, it would be free to do so, which could have a material adverse effect on our business, our operating results and financial condition.
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There are risks associated with new programs.
New programs typically carry risks associated with design changes, acquisition of new production tools, funding commitments, imprecise or changing specifications, timing delays and the accuracy of cost estimates associated with such programs. In addition, any new program may experience delays for a variety of reasons after significant expenditures are made. If we were unable to perform under new programs to the customers’ satisfaction or if a new program in which we had made a significant investment was terminated or experienced weak demand, delays or other problems, then our business, financial condition and results of operations could be materially adversely affected. This could result in low margin or forward loss contracts, and the risk of having to write-off costs and estimated earnings in excess of billings on uncompleted contracts if it were deemed to be unrecoverable over the life of the program.
To perform on new programs, we may be required to incur material up-front costs which may not have been separately negotiated and may not be recoverable. Such charges and the loss of up-front costs could have a material impact on our liquidity.
The need to control our expenses will place a significant strain on our management and operational resources. If we are unable to control our expenses effectively, our business, results of operations and financial condition may be adversely affected.
There are risks associated with offering new services.
To reduce our dependence on subcontractors we may offer new services to our customers, such as painting and finishing products we manufacture. There are risks associated with offering new services and even if such services are performed timely and correctly, it is likely that our margins will be low in the initial phases when volume is low.
Attracting and retaining executive talent and other key personnel is an essential element of our future success.
Our future success depends to a significant extent upon our ability to attract executive talent, as well as the continued service of our existing executive officers and other key management and technical personnel. Experienced management and technical, marketing and support personnel in the defense and aerospace industries are in demand and competition for their talents is intense. Our failure to attract executive talent, or retain our existing executive officers and key personnel, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to intense competition for the skilled machinists necessary to manufacture our products.
We are subject to intense competition for the services of skilled machinists necessary to manufacture our products and those of other companies in the A & D industry. Since the outbreak of COVID-19, the competition for skilled employees has intensified. Moreover, certain large employers in our industry in the Northeast are currently seeking to hire a large number of skilled technicians. We are currently seeking to hire machinists for our Long Island and Connecticut manufacturing facilities to expand our business. The demand for these individuals may increase as other manufacturers seek to bring to the United States manufacturing processes currently outsourced overseas. If the United States economy undergoes a period of inflation, our labor costs may increase which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to strict governmental regulations relating to the environment, which could result in fines and remediation expense in the event of non-compliance.
We are required to comply with extensive and frequently changing environmental regulations at the federal, state and local levels. Among other things, these regulatory bodies impose restrictions to control air, soil and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use and release of certain hazardous substances into the environment. This extensive regulatory framework imposes significant compliance burdens and risks on us. In addition, these regulations may impose liability for the cost of removal or remediation of certain hazardous substances released on or in our facilities without regard to whether we knew of, or caused, the release of such substances. Furthermore, we are required to provide a place of employment that is free from recognized and preventable hazards that are likely to cause serious physical harm to employees, provide notice to employees regarding the presence of hazardous chemicals and to train employees in the use of such substances. Our operations require the use of chemicals and other materials for painting and cleaning that are classified under applicable laws as hazardous chemicals and substances. If we are found to be in violation of any of these rules, regulations or permits, we may be subject to fines, remediation expenses and the obligation to change our business practice, any of which could result in substantial costs that would adversely impact our business operations and financial condition.
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We may be subject to fines and disqualification for non-compliance with Federal Aviation Administration regulations.
We are subject to regulation by the FAA under the provisions of the Federal Aviation Act of 1958, as amended. The FAA prescribes standards and licensing requirements for aircraft and aircraft components. We are subject to inspections by the FAA and may be subjected to fines and other penalties (including orders to cease production) for noncompliance with FAA regulations. Our failure to comply with applicable regulations could result in the termination of or our disqualification from some of our contracts, which could have a material adverse effect on our operations. We have never been subject to such fines or disqualification.
Cyber security attacks, internal system or service failures may adversely impact our business and operations.
Any system or service disruptions, including those caused by projects to improve our information technology systems, if not anticipated and appropriately mitigated, could disrupt our business and impair our ability to effectively provide products and related services to our customers and could have a material adverse effect on our business. We could also be subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages or terrorist attacks. Cyber security threats are evolving and include, but are not limited to, malicious software, unauthorized attempts to gain access to sensitive, confidential or otherwise protected information related to us or our products, customers or suppliers, or other acts that could lead to disruptions in our business. Any such failures could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs or require us to pay ransom to a hacker which takes over our systems, or subject us to claims and damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption which would adversely affect our business, results of operations and financial condition. Moreover, expenditures incurred in implementing cyber security and other procedures and controls could adversely affect our results of operations and financial condition.
Terrorist acts and acts of war may seriously harm our business, results of operations and financial condition.
United States and global responses to actual or potential military conflicts such as Russia’s invasion of Ukraine, terrorism, perceived nuclear, biological and chemical threats and other global political crises increase uncertainties with respect to the U.S. and other business and financial markets. Several factors associated, directly or indirectly, with actual or potential military conflicts, terrorism, perceived nuclear, biological and chemical and cyber threats, and other global political crises and responses thereto, may adversely affect the mix of products purchased by defense departments in the United States or other countries to platforms not serviced by us. A shift in defense budgets to product lines we do not produce could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Indebtedness
Our indebtedness may have a material adverse effect on our operations.
We have substantial indebtedness under our loan facility with Webster (“Loan Facility”). As of December 31, 2022, we had approximately $18,748,000 of indebtedness outstanding under the Loan Facility. All of our indebtedness under the Loan Facility is secured by substantially all of our assets.
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We also have approximately $6,162,000 of indebtedness outstanding in the form of subordinated notes payable on July 1, 2026. These notes are held by related parties, specifically Michael N. Taglich (our Chairman) and Robert F. Taglich (a Director), and their affiliates.
Notes with a principal value of approximately $2,732,000 carry an interest rate of 6% per annum and are convertible into approximately 182,000 shares of common stock at a conversion price of $15.00 per share. Notes with a principal value of approximately $2,080,000 carry an interest rate of 7% per annum and are convertible into approximately 224,000 shares of common stock at a conversion price of $9.30 per share.
If we are unable to pay amounts due under our Loan Facility or the subordinated notes when due, our operations may be materially and adversely affected. We may need to offer the holders of this debt increases in the rates of interest they receive or otherwise compensate them through payments of cash or issuances of our equity securities. Future financings or re-financings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. If we are able to consummate such financings or re-financings, the terms of such financings may adversely affect the trading price of our common stock and the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.
Our leverage may adversely affect our ability to finance future operations and capital needs, may limit our ability to pursue business opportunities and may make our results of operations more susceptible to adverse economic conditions.
The interest rate associated with portions of our current debt may increase.
Under the terms of the Webster Facility, amounts due to Webster bear interest at a per annum rate equal to the greater of (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum. Consequently, the rate of interest we paid under the Facility did not increase despite the initial increases in the target rates set by the Federal Reserve, though the more recent increases have resulted increases in the interest rate we pay under the Webster Facility. The weighted average interest rate paid during the year-ended December 31, 2022 was 4.50%. Given current interest rates, the interest rate we pay under the Webster Facility will increase as the Federal Reserve continues to increase its target rate of interest. In addition, under the terms of the Webster Facility we are required to maintain a defined Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each fiscal quarter. If we were to fail to meet such covenant, Webster would have the right to increase the rate of interest payable on amounts outstanding under the Facility. The Company was in compliance with the covenant at December 31, 2022. The Company was in default of its covenant to provide its audited financial statements to Webster bank within ninety (90) days of its fiscal year end. The Company has subsequently received a waiver from the bank for this default. Any increase in the rate of interest payable under the Webster Facility would increase our interest expense and have a material adverse impact on our on our consolidated financial position and results of operations.
Our indebtedness may limit our ability to pay dividends in the future.
We currently do not pay dividends and the terms of our Loan Facility require that we maintain certain financial covenants. In the future should we decide to pay dividends, we would need to seek covenant changes or a waiver under our Loan Facility. There can be no assurance our lenders would agree to covenant changes or waivers acceptable to us or at all. In addition, we may in the future incur indebtedness or otherwise become subject to agreements whose terms restrict our ability to pay dividends in the future. Even if our lender would agree to allow us to pay a dividend, our Board of Directors may choose to use the amount which could be paid as a dividend to reduce our outstanding indebtedness.
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Risks Related to our common stock
The price of our common stock can fluctuate.
The financial markets have been impacted in various ways by the reactions to the outbreak of the COVID-19 pandemic and government stimulus programs adopted in response to the pandemic, and Russia’s invasion of Ukraine and government responses thereto. The price of our common stock has and is expected to continue to be volatile. We cannot forecast with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic, Russia’s invasion of Ukraine and reactions thereto will continue to adversely impact financial markets and the impact to our common stock. Likewise, we cannot state with certainty the degree to which financial markets were supported by government stimulus programs and whether such support will continue as governments elect not to adopt similar measures in the future.
The ownership of our common stock is highly concentrated, and your interests may conflict with the interests of our existing stockholders.
Two of our directors, Michael N. Taglich and Robert F. Taglich, and their affiliates own a significant number of shares of our outstanding common stock as well as a significant amount of debt convertible into our common stock, which together with their position as directors of our Company, give them significant influence over the outcome of corporate actions, including those requiring stockholder approval and the terms on which we complete transactions with their affiliates. The interests of these directors may be different from the interests of other stockholders on these and other matters. This concentration of ownership could also have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common stock.
We can provide no assurance that our common stock will continue to meet NYSE American listing requirements. If we fail to comply with the continuing listing standards of the NYSE American, our common stock could be delisted.
If we fail to satisfy the continued listing requirements of the NYSE American, the NYSE American may take steps to delist our common stock. The delisting of our common stock would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase common stock when you wish to do so.
There is only a limited public market for our common stock.
Our common stock is listed on the NYSE American. However, there is only a limited number of our shares available in the public float and the market capitalization of the shares in our public float is relatively small. The trading volume for our common stock has been limited and a more active public market for our common stock may not develop or be sustained over time. The lack of a robust market may impair a stockholder’s ability to sell shares of our common stock. In the absence of a more active trading market, any attempt to sell our shares could result in a decrease in the price of our stock. Specifically, you may not be able to resell your shares of common stock at or above the price you paid for such shares or at all.
Moreover, sales of our common stock in the public market, or the perception that such sales could occur, could negatively impact the price of our common stock. As a result, you may not be able to sell your shares of our common stock in short time periods, or possibly at all, and the price per share of our common stock may fluctuate significantly.
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If we fail to meet the expectations of securities analysts or investors, our stock price could decline significantly.
Our quarterly and annual operating results fluctuate significantly due to a variety of factors, some of which are outside our control. Accordingly, we believe period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indications of future performance. Some of the factors that could cause quarterly or annual operating results to fluctuate include conditions inherent in government contracting and our business such as the timing of cost and expense recognition for contracts, the United States Government contracting and budget cycles, introduction of new government regulations and standards, contract closeouts, variations in manufacturing efficiencies, our ability to obtain components and subassemblies from contract manufacturers and suppliers, general economic conditions and economic conditions specific to the defense market and disruptions caused by global events such as COVID-19 and Russia’s invasion of Ukraine. Because we base our operating expenses on anticipated revenue trends and a high percentage of our expenses are fixed in the short term, any delay in generating or recognizing forecasted revenues could significantly harm our business.
Fluctuations in quarterly results or announcements of extraordinary events such as an award of a new contract, acquisitions or litigation, may cause earnings to fall below the expectations of securities analysts and investors. In this event, the trading price of our common stock could significantly decline. These fluctuations, as well as general economic and market conditions, may adversely affect the future market price of our common stock, as well as our overall operating results. Consequently, our share price may experience significant volatility and may not necessarily reflect the value of our expected performance.
Future financings or acquisitions may adversely affect the market price of our common stock.
Future sales or issuances of our common stock, including upon conversion of our outstanding convertible notes, upon exercise of our outstanding warrants and options, or as part of future financings or acquisitions, would be substantially dilutive to the outstanding shares of common stock. Any dilution or potential dilution may cause our stockholders to sell their shares, which would contribute to a downward movement in the price of common stock.
We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance requirements, including establishing and maintaining internal controls over financial reporting, and we may be exposed to potential risks if we are unable to comply with these requirements.
As a public company, we incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002, together with rules implemented by the Securities and Exchange Commission and applicable market regulators. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costlier.
The Sarbanes-Oxley Act, among other things, requires that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.
If we are unable to effectively maintain a system of internal control over financial reporting, we may not be able to accurately or timely report our financial results and our stock price could be adversely affected.
Our management determined that as of December 31, 2022, our disclosure controls and procedures and internal control over financial reporting were not effective due to certain material weaknesses in our internal control over financial reporting related to our review controls related to the preparation of our income tax provision, appropriate segregation of duties with respect to and validation of data produced by certain portions of our financial IT systems and the establishment of appropriate inventory reserves. Any failure to maintain our controls or operation of these controls, could harm our operations, decrease the reliability of our financial reporting, and cause us to fail to meet our financial reporting obligations, which could adversely affect our business and reduce our stock price.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease a 5.4-acre corporate campus in Bay Shore, New York, which houses our executive offices and a majority of our operations. This lease expires in September 2026. We also maintain a warehouse lease nearby in Bohemia, New York. That lease term commenced on April 1, 2020 and expires on May 31, 2025.
The balance of our operations are conducted in a 74,923 square foot facility in Barkhamsted, Connecticut, which we own.
ITEM 3. LEGAL PROCEEDINGS
On October 2, 2018, Contract Pharmacal Corp. (“Contract Pharmacal”) commenced an action, relating to a Sublease entered into between us and Contract Pharmacal in May 2018 with respect to the property formerly occupied by our subsidiary Welding Metallurgy, Inc. (“WMI”), at 110 Plant Avenue, Hauppauge, New York. In the action, Contract Pharmacal sought damages for an amount in excess of $1,000,000 for our failure to make the entire premises available by the Sublease commencement date. On July 8, 2021, the Court denied Contract Phamacal’s motion for summary judgement. In the Order, the court granted Contract Pharmacal’s Motions to drop its claim for specific performance and to amend its Complaint to reduce its claim for damages to $700,000. Subsequently, Contract Phamacal moved to amend its Complaint. We opposed and the Court denied the request to amend the Complaint. Contract Pharmacal filed a Motion to reargue which the Court denied on November 30, 2021. On March 10, 2022, Contract Pharmacal filed an appeal to the Court’s decision with the Appellate Division which we have opposed. We dispute the validity of the claims asserted by Contract Pharmacal, continue to believe we have a meritorious defense to those claims and intend to dispute the validity of the claim asserted by Contract Pharmacal.
From time to time we may be engaged in various lawsuits and legal proceedings in the ordinary course of our business. We are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or operating results. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder of our common stock, is an adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Our Common Stock
Our common stock is listed on the NYSE American under the symbol “AIRI.”
Holders
On May 10, 2023, there were 70 stockholders of record of our common stock. The number of record holders does not include persons who held our Common Stock in nominee or “street name” accounts through brokers.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes shares of our Common Stock to be issued upon exercise of options and warrants, the weighted-average exercise price of outstanding options and warrants and options available for future issuance pursuant to our equity compensation plans as of December 31, 2022:
| Plan Category | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price Of Outstanding Options, Warrants and Rights | Number of Remaining Shares Available for Future Securities Issuance Under Equity Compensation Plans | |||||||||
| Equity compensation plans approved by security holders | 267,000 | $ | 20.10 | 55,150 | ||||||||
| Equity compensation plans not approved by security holders | 218,290 | 29.00 | None | |||||||||
| Total | 485,290 | 55,150 | ||||||||||
The provisions of each of our equity compensation plans provide that shares covered by an award that is forfeited, expires or is settled in cash, and shares that are retained by us upon exercise of an award to satisfy the exercise price of such award or withholding taxes due in respect of such award, are available for future issuance under such plan provided the plan has not been terminated or expired. We anticipate that a portion of the option awards that have been granted will expire or be forfeited without having been exercised and will increase the number of shares remaining for issuance under our equity compensation plans.
Recent Sales of Unregistered Equity Securities
Except as previously reported in our periodic reports filed under the Exchange Act, we did not issue any unregistered equity securities during the fiscal year ended December 31, 2022.
Purchases of Our Equity Securities
No repurchases of our common stock were made during the fiscal year ended December 31, 2022.
ITEM 6. [RESERVED]
Not required.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements for the years ended December 31, 2022 and 2021 and the notes to those statements included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in this report that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Business Overview
Air Industries Group is a holding company with three legal subsidiaries, AIM, NTW and SEC. SEC began manufacturing aircraft components in 1941 – over 80-years ago – for use in World War II. NTW was formed in the early 1960’s and AIM has been in business since 1971. We became a public company in 2005.
We manufacture aerospace components primarily for the defense industry. AIM and NTW, manufacture structural parts and assemblies focusing on flight safety, including aircraft landing gear, arresting gear, engine mounts, flight controls, throttle quadrants, and other components. SEC makes components and provides services for aircraft jet engines and ground-power turbines.
Products of AIM and NTW are currently deployed on a wide range of high-profile military and commercial aircraft including the Sikorsky UH-60 Blackhawk, Lockheed Martin F-35 Joint Strike Fighter, Northrop Grumman E2D Hawkeye, the US Navy F-18 and USAF F-16 and F-15 fighter aircraft. They also make a critical component for the Pratt & Whitney Geared TurboFan (“GTF”) aircraft engine used on commercial airliners. SEC makes products used in jet engines that are used on military and commercial aircraft including the USAF F-15 and F-16, the Airbus A-330 and the Boeing 777, and others, and in addition, a number of ground-power turbine applications.
The aerospace market is highly competitive in both the defense and commercial sectors and we face intense competition in all areas of our business. Nearly all of our revenues are derived by producing products to customer specifications after being awarded a contract through a competitive bidding process. As the commercial aerospace and defense industries continue to consolidate and major contractors seek to streamline supply chains by buying more complete sub-assemblies from fewer suppliers, we have sought to remain competitive not only by providing cost-effective world class products and service but also by increasing our ability to produce more complex and complete assemblies for our customers.
We are focused on maintaining profitability and positive cash flows from operating activities. We remain resolute on meeting customers’ needs. To take advantage of the long-term growth opportunities we see in our markets, we have made significant capital investments in new equipment in recent years. We believe these investments will increase the velocity and efficiency of production, increase the size of product we can make and allow us to offer additional services to our customers. Some of our investment expands our capabilities allowing us to internally process product that was previously outsourced to third party suppliers. We are pleased with the positive responses from our customers about these initiatives.
Our ability to operate profitably and generate positive cash flows from operating activities is determined by our ability to win new or renewal contracts and fulfilling these contracts on a timely and cost effective basis. Winning a contract generally requires that we submit a bid containing fixed prices for the product or products covered by the contract for an agreed upon period of time, sometimes for five-years or longer, with negotiated increases to reflect a portion of the impact of inflation. Thus, when submitting bids, we are required to estimate our future costs of production and, since we often rely upon subcontractors, the prices we can obtain from our subcontractors.
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While our revenues are largely determined by the number of contracts we are awarded, the volume of product delivered and price of product under each contract, our costs are determined by a number of factors. The principal factors impacting our variable costs are the cost of materials and supplies, labor, financing and the efficiency at which we can produce our products. The cost of materials used in the aerospace industry is highly volatile. The invasion of the Ukraine by the Russian Federation and retaliatory measures imposed by the United States, United Kingdom, the European Union and other countries, and the responses of Russia to such measures, have negatively impacted the availability and market price of certain minerals, such as titanium, for which Russia was a source of supply. To obtain necessary raw materials at prices deemed acceptable, we are working with those of our larger customers which have access to sources of metals necessary to manufacture their products not readily available to us or other companies of our size. Nevertheless, there can be no assurance that disruptions in the markets for metals will not adversely impact our ability to timely meet the needs of our customers.
In addition, the market for the skilled labor we require to operate our plants is highly competitive. Changes in the available pool of labor caused by Covid-19 and life-style changes in response to Covid-19 have not materially adversely impacted our ability to meet our production schedules. Nevertheless, as we seek to grow our business, there can be no assurance that the skilled labor we need to operate our machinery will be available to us or that the costs incurred to maintain our current labor force and those we seek to bring on will not increase.
The profit margin of the various products we sell varies based upon a number of factors, including the complexity of the product, the intensity of the competition for such product and, in some cases, the ability to deliver replacement parts on short notice. Thus, in assessing our performance from one period to another, a reader must understand that changes in profit margin can be the result of shifts in the mix of products sold. Our operations have a large percentage of fixed factory overhead. As a result, our profit margins are also highly variable with sales volumes as under-absorption of factory overhead decreases profits.
Our revenues are principally determined by orders from our customers for the delivery of product – which we call releases – against LTA’s with those customers. These long-term agreements generally have fixed prices for product with negotiated increases to reflect a portion of the impact of inflation, though over the term of a LTA prices often increase and not all of the increase is covered b agreed upon price protection clauses in our agreements. Our direct costs of production include costs for material, labor, and factory overhead; all of these costs may vary based on the efficiency of our factory operations. Our gross profit is highly variable due to the mix of products sold, and by sales volume, which can lead to the over absorption or under absorption of factory overhead costs.
Beyond these direct costs of production, we incur general and administrative costs termed Operating Expenses and financing costs for borrowed money, income taxes and miscellaneous income and expense.
A very large percentage of the products we produce are used on military as opposed to civilian aircraft. These products can be replacements for aircraft already in the fleet of the armed services or for the production of new aircraft. Reductions to the Defense Department budget and decreased usage of aircraft reduces the demand for both new production and replacement spares and could adversely impact our business and our revenue.
RESULTS OF OPERATIONS
Years ended December 31, 2022 and 2021:
Selected Financial Information:
| 2022 | 2021 | |||||||
| Net sales | $ | 53,238,000 | $ | 58,939,000 | ||||
| Cost of sales | 45,786,000 | 48,686,000 | ||||||
| Gross profit | 7,452,000 | 10,253,000 | ||||||
| Operating expenses | 7,646,000 | 7,766,000 | ||||||
| Interest and financing costs | 1,338,000 | 1,265,000 | ||||||
| Other income, net | 139,000 | 405,000 | ||||||
| Gain on write-off of accounts payable | 317,000 | - | ||||||
| Provision/(Benefit) from income taxes | - | - | ||||||
| Net (loss) income | $ | (1,076,000 | ) | $ | 1,627,000 | |||
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Balance Sheet Data:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Cash | $ | 281,000 | $ | 627,000 | ||||
| Working capital | $ | 18,600,000 | $ | 17,478,000 | ||||
| Total assets | $ | 53,814,000 | $ | 53,425,000 | ||||
| Total stockholders’ equity | $ | 16,839,000 | $ | 17,389,000 | ||||
Net Sales:
Consolidated net sales for the year ended December 31, 2022 were $53,238,000, a decrease of $5,701,000, or 9.7%, compared with $58,939,000 for the year ended December 31, 2021. The decrease in sales resulted principally from the sale of products with lower selling prices and from contracts that expired in 2021 that were not renewed in 2022.
As indicated in the table below, four customers represented 76.5% and three customers represented 75.4% of total sales for the years ended December 31, 2022 and 2021, respectively.
| Customer | Percentage of Sales | |||||||
| 2022 | 2021 | |||||||
| Goodrich Landing Gear Systems | 29.3 | % | 37.2 | % | ||||
| Sikorsky Aircraft | 21.4 | % | 25.7 | % | ||||
| United States Department of Defense | 14.3 | % | 12.5 | % | ||||
| Rohr | 11.5 | % | * | |||||
| * | Customer was less than 10% of sales for the year-ended December 31, 2021 |
As indicated in the table below, three customers represented 70.3% and three customers represented 74.7% of gross accounts receivable at December 31, 2022 and 2021, respectively.
| Customer | Percentage of Receivables | |||||||
| 2022 | 2021 | |||||||
| Goodrich Landing Gear Systems | 33.1 | % | 50.3 | % | ||||
| Rohr | 23.6 | % | 12.7 | % | ||||
| Sikorsky | 13.6 | % | ** | |||||
| United States Department of Defense | * | 11.7 | % | |||||
| * | Customer was less than 10% of accounts receivable at December 31, 2022 |
| ** | Customer was less than 10% of accounts receivable at December 31, 2021 |
Gross Profit:
Consolidated gross profit from operations for the year ended December 31, 2022 was $7,452,000, a decrease of $2,801,000, or 27.3%, as compared to gross profit of $10,253,000 for the year ended December 31, 2021. Consolidated gross profit as a percentage of sales was 14.0% and 17.4% for the years ended December 31, 2022 and 2021, respectively. These decreases were attributable to lower sales and the mix of products sold during 2022 as compared to 2021. The Company also corrected its policy for determining the reserve for slow-moving and excess inventory which led to an increase in the reserve, further decreasing the gross profit and gross profit percentage.
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Operating Expenses
Consolidated operating expenses were $7,646,000 and $7,766,000 for fiscal 2022 and 2021, respectively, representing a decrease of $120,000 or 1.5%. As a percentage of consolidated net sales, operating expenses were 14.4% and 13.2% for fiscal 2022 and 2021, respectively. There were increase in cost related to employment costs, including employee health benefits which were not passed on to the employees, increases in investor relations and increased travel costs resulting from the resumption of travel to customers as Covid-19 restrictions eased. The increased costs were primarily offset by reductions in expenses related to information technology and the recovery of bad debt.
Gain on write-off of Accounts Payable
During the year ending December 31, 2022, the Company, reviewed all old outstanding payables that were not paid and based on the statute of limitations, a claim would no longer be enforceable. The Company determined that approximately $317,000 of old payables fell into this category. This adjustment is recorded as Write-off of accounts payable on the accompanying Statement of Operations.
Interest and Financing Costs
Our interest and financing costs for the year ended December 31, 2022 totaled $1,338,000, an increase of $73,000 or 5.8% from $1,265,000 in 2021, as a result of higher interest rates on our Loan Facility during 2022. The average interest rate charged was 4.50% and 3.50% for the years ended December 31, 2022 and 2021, respectively.
Net (Loss) Income
Net loss for the year ended December 31, 2022 was $1,076,000, compared to net income of $1,627,000 for the year ended December 31, 2021, for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Our material cash requirements are for debt service, capital expenditures and funding working capital/operating costs.
As of December 31, 2022, we have debt service requirements related to:
| 1) | Our Webster Facility of $18,748,000 consisting of a Revolving Loan of $13,352,000 and a term loan in the amount of $5,396,000. |
| 2) | Related party debt consisting of convertible subordinated note payables of $4,812,000 and subordinated note payables of $1,350,000. This debt is not due until July 1, 2026. We are permitted to make principal payments against this debt in the amount of $250,000 per quarter pursuant to the Third Amendment to the Loan and Security Agreement with Webster, as long as certain conditions are met. On July 14, 2022, a principal payment in the amount of $250,000 was made as the conditions for such payment were met for the first quarter of 2022. |
| 3) | Various equipment leases and contractual obligations related to our normal business. |
We have historically met our cash requirements with funds provided by a combination of cash generated from operating activities and cash generated from equity and debt financing transactions. Based on our current revenue visibility and strength of our backlog, we believe that we have sufficient liquidity to meet our short-term cash requirements over the next twelve months. On May 17, 2022, we entered into the Fourth Amendment to the Loan and Security Agreement with Webster. The purpose of the amendment was to increase the Term Loan to $5,000,000, reduce the monthly principal installments to be made in respect to the term loan and establish a capital expenditure line of credit in the amount of $2,000,000 which we can draw upon from time to time to finance purchases of machinery and equipment, thereby increasing the amount of capital expenditures we may make each year. During December 2022 we borrowed $878,000 for a capital expenditure and again in January 2023 we borrowed $739,500 for an additional capital expenditure.
For so long as the Webster term loan remains outstanding, if Excess Cash Flow (as defined) is a positive amount for any Fiscal Year, we are obligated to pay Webster an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow and (ii) the outstanding principal balance of the term loan. Such payment shall be made to Webster and applied to the outstanding principal balance of the term loan, on or prior to the April 15 immediately following such Fiscal Year. As required, we provided the calculation for the Excess Cash Flow payment of $208,000 for fiscal year ended December 31, 2022 to Webster prior to the April 15, 2023 deadline for such payment. Additionally, we authorized such payment to be made from the Revolving Loan. As of the date of this filing, such payment has not been processed by Webster.
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Because we believe that our sales in 2023 will be comparable to those of 2022, we believe our liquidity will remain stable, though our borrowing costs would increase if prevailing interest rates increased or we failed to meet our covenant in the Webster Facility. As a result of recent increases in the federal funds borrowing rate, interest rates and related expense under our Webster Facility are expected to increase from current levels, which could be significant. However, such increases are not expected to materially impact our liquidity. Nevertheless, our liquidity may be adversely impacted by various risks and uncertainties, including, but not limited to future and current impacts of global events such as a widespread health crisis, the continuation of the war in the Ukraine, the outbreak of another conflict and the ongoing tensions between the United States and China, increases in inflation, disruptions in the labor market and other risks detailed in Part 1, Item 1A of this Annual Report.
In addition to our loan with Webster and Subordinated Notes, we have various equipment leases and contractual obligations of an ongoing nature which we service in the ordinary course out of our cash flow from operations. Substantially all of these obligations are described in the notes to our financial statements included in this report
Changes in our cash flow during fiscal 2022 are discussed further below.
Cash Flow
The following table summarizes our net cash flow from operating, investing and financing activities for the periods indicated (in thousands):
| Year Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash provided by (used in) | ||||||||
| Operating activities | $ | 448 | $ | 4,064 | ||||
| Investing activities | (2,361 | ) | (1,364 | ) | ||||
| Financing activities | 1,567 | (4,578 | ) | |||||
| Net (decrease) increase in cash and cash equivalents | $ | (346 | ) | $ | (1,878 | ) | ||
Cash Provided By Operating Activities
Cash provided by or used in operating activities reflects our net income adjusted for certain non-cash items and changes to working capital items.
For the year ended December 31, 2022, net loss of $(1,076,000) and $3,094,000 of non-cash items, consisting primarily of employee and director stock-based compensation of $526,000, amortization of right-of-use assets of $545,000, depreciation of property and equipment of $2,522,000 and Impairment of Goodwill of $163,000 were partially offset by non-cash other income recognized in the amount of $94,000, a reduction in bad debt expense in the amount of $313,000 and accounts payable write-offs in the amount of $317,000. Operating assets and liabilities used cash in the net amount of $1,570,000, consisting primarily of the net increases in inventory, deposits and other assets and prepaid expenses, taxes and other current assets of $2,289,000, $194,000 and $87,000, respectively, and net decreases in operating lease liabilities, customer deposits and deferred payroll tax expense-CARES ACT in the amounts of $686,000, $439,000 and $314,000, which were partially offset by a decrease in accounts receivable of $1,303,000 and an increase in accounts payable in the amount of $1,136,000.
Cash Used In Investing Activities
Cash used in investing activities consists of cash used for capital expenditures for property and equipment.
For the year ended December 31, 2022, cash used in investing activities was $2,361,000. This was primarily for the purchase of state-of-the-art machinery.
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Cash Provided by Financing Activities
Cash provided by financing activities consists of the borrowings and repayments under our credit facilities with our senior lender, Webster, increases in and repayments of finance lease obligations and other notes payable.
For the year ended December 31, 2022, cash provided by financing activities was $1,567,000. This was comprised of net borrowings of $916,000 on our Webster revolving loan, increased borrowings of $2,823,000 under the Webster term loan, offset by repayments of $1,609,000 on our Webster term loan, and payments on our financed lease obligations, related party notes and our financed asset note payables in the amounts of $284,000, $250,000 and $9,000, respectively.
CONTRACTUAL OBLIGATIONS
For a discussion of our contractual obligations see “Item 8. Financial Statements and Supplementary Data” – “Note 8. Debt” and “Note 9. Operating Lease Liabilities”.
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All applicable U.S. GAAP accounting standards effective as of December 31, 2022 have been taken into consideration in preparing the consolidated financial statements. The preparation of consolidated financial statements requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Some of those estimates are subjective and complex, and consequently, actual results could differ from those estimates. The following accounting policies and estimates have been highlighted as significant because changes to certain judgements and assumptions inherent in these policies could affect our consolidated financial statements:
| ● | Inventory Valuation, which includes the estimates and methodology used in accounting for the transition of production costs to inventory costs. In our financial statements, inventory is reflected at the lower of cost or net realizable value including write-downs for obsolescence, slow moving and excess inventory; and | |
| ● | Income Taxes, which includes the determination of the valuation allowance for deferred tax assets. |
See Note 2 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a more complete description of our significant accounting policies.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
No disclosure is required in response to this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements
The financial statements required by this item begin on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was conducted under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”), our principal executive officer, and Chief Financial Officer (“CFO”), our principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, as of December 31, 2022. Based on that evaluation, the CEO and CFO concluded for the reasons discussed below that our disclosure controls and procedures were not effective as of December 31, 2022, to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the required time periods, and that such information is accumulated and communicated to our management to allow timely decisions regarding required.
Management’s Report on Internal Control over Financial Reporting
Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal controls over financial reporting and include in this Annual Report, as term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act, and include in this Form 10-K a report on management’s assessment of the effectiveness of our internal controls over financial reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal controls over financial reporting refers to those policies, procedures and processes that pertain to the maintenance of records that accurately and fairly reflect transactions with respect to our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are made only in accordance with authorizations of our management; and provide reasonable assurance regarding the prevention and timely detection of unauthorized transactions with respect to our assets that could have a material effect on our financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our management relies upon the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in designing a system intended to meet the needs of our Company and provide reasonable assurance for its assessment.
In connection with their review of our internal controls over financial reporting for the fiscal year ended December 31, 2022, our Chief Executive Officer and Chief Financial Officer have concluded that our internal controls over financial reporting were not effective as of December 31, 2022, as a result of certain material weaknesses discovered during the course of their review.
In particular, we have outsourced certain IT related functions to a third-party vendor and have identified a material weakness with respect to our IT systems in that we did not design and/or implement primary user access controls and program change management systems over key information technology systems to validate that data produced by the relevant IT systems were complete and accurate and to ensure appropriate segregation of duties to adequately restrict user and privileged access to the financially relevant systems and data to the Company’s personnel. Further, we have identified a material weakness with respect to the activities of such vendor in connection with the design and operation of our IT systems in that because this vendor is unable to provide a SOC 1 (Standard Operating Control) Report, we are unable to verify and validate the effectiveness of the vendor’s control procedures when implementing changes to our IT systems, including systems affecting our financial IT applications and underlying data account records. We also identified a material weakness related to the effectiveness of management’s review controls over the determination if the methodology used in determining the appropriate reserves to be taken with respect to certain excess quantities and slow moving inventory was operating at a level to prevent or detect a potential material misstatement. The Company determined that the estimates used in prior periods could not be substantiated by actual results and updated it methodology. We have also identified a material weakness relating to the effectiveness of management's review controls over the income tax provision in our financial footnotes, such that management's review procedures were not operating at a level of precision to prevent or detect a potential material misstatement in our consolidated financial statements.
We are currently assessing the actions that need to be taken to remedy each of the material weaknesses identified above. With respect to those weaknesses related to the calculation of our inventory reserve and the review of our tax management provision, we intend to promptly establish written controls and operating procedures to address the issue. With respect to the material weaknesses related to our IT systems, we intend to meet with the third-party vendor to determine the actions to be taken to address each of the weaknesses and consider what actions need to be taken if the issues cannot be adequately addressed. Each of the material weaknesses noted will only be deemed to have been remediated after the new controls and procedures have been in place for a sufficient period and management has concluded through appropriate testing that the controls are operating effectively.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. The rules of the Securities and Exchange Commission do not require an attestation of the Management’s report by our registered public accounting firm in this annual report.
Change in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter ended December 31, 2022 which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not Applicable
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors and executive officers are:
| Name: | Age | Position | |||
| Luciano (Lou) Melluzzo | 58 | President and Chief Executive Officer | |||
| Michael E. Recca | 72 | Chief Financial Officer | |||
| Michael N. Taglich | 57 | Chairman of the Board | |||
| Robert F. Taglich | 56 | Director | |||
| David J. Buonanno | 67 | Director | |||
| Peter D. Rettaliata | 72 | Director | |||
| Michael Brand | 65 | Director | |||
| Michael D. Porcelain | 54 | Director |
Luciano (Lou) Melluzzo has been our President and Chief Executive Officer since November 15, 2017. He joined our company on September 11, 2017 as Chief Executive Officer. From November 2003 to September 2011, Mr. Melluzzo was employed in various capacities by EDAC Technologies Corporation (“EDAC”) rising to the level of Chief Operating Officer in 2005. EDAC is a designer, manufacturer and distributor of precision aerospace components and assemblies, precision spindles and complex fixturing, tooling and gauging with design and build capabilities, whose shares were then listed on the Nasdaq Capital Market. From September 2011 to November 2015, Mr. Melluzzo was self-employed in the residential real estate redevelopment industry. From November 2015 to January 2017, he was general manager of Polar Corporation, a privately-held company specializing in computer numeric controlled milling and turning of small hardware components for the aerospace industry.
Michael E. Recca has been our Chief Financial Officer since October 1, 2016. Mr. Recca has been engaged by us since September 2008 in a variety of positions related to our capital finance and acquisition programs. Most recently he served as Chief of Corporate Development & Capital Markets, a position in which he directed our acquisition program and coordinated with our lenders. Mr. Recca received a Bachelor of Arts degree from the SUNY Stony Brook and an MBA from Columbia University.
Michael N. Taglich has been Chairman of our Board of Directors since September 22, 2008. He is Chairman and President of Taglich Brothers, a New York City based securities firm which he co-founded in 1992. Mr. Taglich is currently Chairman of the Board of Mare Island Dry Dock LLC, a company engaged in ship repair services, He also serves as a Director of two other public companies, Bridgeline Digital Inc. and Decision Point Systems Inc., as well as a number of private companies.
Robert F. Taglich has been a director of our Company since 2008. He is a Managing Director of Taglich Brothers, which he co-founded in 1992. Prior to founding Taglich Brothers, Mr. Taglich was a Vice President at Weatherly Securities. Mr. Taglich has served in various positions in the securities brokerage industry for the past 25 years Mr. Taglich holds a Bachelor’s degree from New York University.
David J. Buonanno has been a director of our Company since 2008. He is the Founder and President of Buonanno Enterprises Consulting, providing strategic management, supply chain/operations and recruitment services to aerospace and defense industry clients. Mr. Buonanno has extensive experience in manufacturing, supply management and operations. He was employed by Sikorsky Aircraft, Inc., a subsidiary of United Technologies Corporation, as Vice President, Supply Management and International Offset (from January 1997 to July 2006) and as Director, Systems Subcontracts (from November 1992 to January 1997). From May 1987 to November 1992, he was employed by General Electric Company serving as Operations Manager and Manager, Program Materials Management of GE’s Astro-Space Division. From June 1977 to May 1987, he was employed by RCA and affiliated companies. Mr. Buonanno attended Lehigh University College of Electrical Engineering and holds a B.S. in Business Administration from Rutgers University. He completed the Program for Management Development at Harvard Business School in 1996.
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Peter D. Rettaliata has been a director of our Company since 2005. He served as our Acting President and Chief Executive Officer from March 2, 2017 to November 15, 2017 and served as our President and Chief Executive Officer from November 30, 2005 to December 31, 2014. He also served as the President of our wholly-owned subsidiary, AIM, from 1994 to 2008. Prior to his involvement at AIM, Mr. Rettaliata was employed by Grumman Aerospace Corporation for twenty-two years, as the Senior Procurement Officer. Professionally, Mr. Rettaliata has served as the Chairman of “ADDAPT”, an organization of regional aerospace companies, as a member of the Board of Governors of the Aerospace Industries Association, and as a member of the Executive Committee of the AIA Supplier Council. He is a graduate of Niagara University where he received a B.A. in History and Harvard Business School where he completed the PMD Program.
Michael Brand has been a director of our Company since 2012. He enjoyed a successful 32-year career in aerospace manufacturing primarily focused on jet engines and landing gear. In 2005, he joined Goodrich as President of Goodrich Landing Gear. Prior to joining Goodrich, he had senior management roles at GE Aircraft Engines and Teleflex Aerospace. Mr. Brand has a BS from Clarkson University, with advanced degrees and certificates from Xavier University and the Wharton School.
Michael Porcelain has been a director of our Company since October 23, 2017. Mr. Porcelain has been a CPA since 1996 and is currently the President and CEO of The Independent Adviser Corporation, a privately held company which operates various internet websites including TheAdviser.com, 1800ADVISER.com and IRSADVISER.com, all of which relate to the financial planning and advisory industries. From 2006 through 2022, Mr. Porcelain served in several executive positions including service as a member of the Board of Directors of Comtech Telecommunications Corp., (“Comtech”) a publicly traded company and a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies. He was appointed Chief Executive Officer of Comtech in January 2022 and President of Comtech in January 2020. He also served as Comtech Chief Operating Officer from October 2018 to January 2022. Prior to holding these positions, he served as Comtech’s Chief Financial Officer from 2006 through 2018, and from 2002 to March 2006, he served as Comtech’s Vice President of Finance and Internal Audit.
From 1998 to 2002, Mr. Porcelain was Director of Corporate Profit and Business Planning for Symbol Technologies, a mobile wireless information solutions company. Previously, he spent five years in public accounting holding various positions, including Manager in the Transaction Advisory Services Group of PricewaterhouseCoopers. In March 2021, Mr. Porcelain was elected to the Board of Directors of The Fund for Modern Court, an independent court reform organization that advocates for the improvements of the New York State Court system to ensure a diverse, highly qualified, and independent judiciary. Since 1998, he has owned and operated The Independent Adviser Corporation, a privately held company which holds the rights to use certain intellectual properties and trademarks (including various Internet websites) related to the financial planning and advisory industry.
Mr. Porcelain has served as an Adjunct Professor at St. John’s University located in New York where he taught graduate level accounting courses. Mr. Porcelain has a B.S. in Business Economics from State University of Oneonta, New York, a M.S. in Accounting and an M.B.A. degree from Binghamton University.
Michael N. Taglich and Robert F. Taglich are brothers.
All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services as directors. Non-employee directors are entitled to receive compensation for serving as directors and may receive option or stock grants from our company.
Information Concerning the Board of Directors
Board Leadership Structure and Risk Oversight
The Board does not have a policy requiring separation of the roles of Chief Executive Officer and Chairman of the Board. The Board has determined that a non-employee director serving as Chairman is in the best interests of our stockholders at this time. This structure ensures a greater role of non-employee Directors in the active oversight of our business, including risk management oversight, and in setting agendas and establishing Board priorities and procedures. This structure also allows the Chief Executive Officer to focus to a greater extent on the management of our day-to-day operations.
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The Board of Directors as a whole is responsible for consideration and oversight of the risks we face and is responsible for ensuring that material risks are identified and managed appropriately. Certain risks are overseen by committees of the Board of Directors and these committees make reports to the full Board of Directors, including reports on noteworthy risk-management issues. Members of the Company’s senior management team regularly report to the full Board about their areas of responsibility and a component of these reports is the risks within their areas of responsibility and the steps management has taken to monitor and control such exposures. Additional review or reporting on risks is conducted as needed or as requested by the Board or one of its committees.
Board Independence
Our Board of Directors has determined that David Buonanno, Peter Rettaliata, Michael Brand and Michael Porcelain are “independent directors” within the meaning of NYSE American Rule 803A(2).
Director Compensation
Non-employee Directors are entitled to receive compensation for serving as directors and may receive option grants from our company. Each Director also is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our Board of Directors or committees of our Board of Directors or stockholder meetings or otherwise in connection with the discharge of his duties as a Director. The compensation committee will assist the directors in reviewing and approving the compensation structure for our directors.
The following table sets forth certain information regarding the compensation paid to, earned by or accrued for, our directors during the fiscal year ended December 31, 2022.
| DIRECTOR COMPENSATION | ||||||||||||||||||||||||||||
| Name | Fees Earned or Paid In Cash ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Michael Taglich | — | 63,254 | 3,763 | — | — | — | 67,017 | |||||||||||||||||||||
| Robert Taglich | — | 63,254 | 3,763 | — | — | — | 67,017 | |||||||||||||||||||||
| David Buonanno | 34,093 | — | 3,763 | — | — | — | 37,856 | |||||||||||||||||||||
| Michael Brand | 34,093 | — | 3,763 | — | — | — | 37,856 | |||||||||||||||||||||
| Michael Porcelain | — | 52,021 | 3,763 | — | — | — | 55,784 | |||||||||||||||||||||
| Peter Rettaliata | — | 37,501 | 3,763 | — | — | — | 41,264 | |||||||||||||||||||||
| (1) | Director fees paid in shares. |
Board Meetings; Committees and Membership
The Board of Directors held four meetings during the fiscal year ended December 31, 2022 and each of the directors attended more than 75% of the aggregate of (i) the number of meetings of the Board of Directors and (ii) the number of meetings of all committees of the Board on which such director served.
We maintain the following committees of the Board of Directors: the Audit Committee, the Compensation Committee and the Nominating Committee. Each committee is comprised entirely of directors who are “independent” within the meaning of NYSE American Rule 803A(2). Each committee acts pursuant to a separate written charter, and each such charter has been adopted and approved by the Board of Directors. Copies of the committee charters are available on our website at airindustriesgroup.com under the heading “Investor Relations.”
Audit Committee. Messrs. Porcelain, Brand and Buonanno are members of the Audit Committee. Mr. Porcelain serves as Chairman of the Audit Committee and also qualifies as an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K. The Board has determined that each member of our Audit Committee meets the financial literacy requirements under the Sarbanes-Oxley Act and SEC rules and the independence requirements under NYSE American Rule 803A(2).
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Our Audit Committee is responsible for preparing reports, statements and charters of audit committees required by the federal securities laws, as well as:
| ● | overseeing and monitoring the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters, and our internal accounting and financial controls; |
| ● | preparing the report that SEC rules require be included in our annual proxy statement; |
| ● | overseeing and monitoring our independent registered public accounting firm’s qualifications, independence and performance; |
| ● | providing the Board with the results of its monitoring and its recommendations; and |
| ● |
providing to the Board additional information and materials as it deems necessary to make the Board aware of significant financial matters that require the attention of the Board.
The Audit Committee held four meetings during fiscal 2022. |
Compensation Committee. Our Compensation Committee is composed of Messrs. Rettaliata, Brand and Buonanno.
The Compensation Committee is responsible for:
| ● | establishing our company’s general compensation policy, in consultation with senior management, and overseeing the development and implementation of compensation programs; |
| ● | reviewing and approving corporate goals and objectives relevant to the compensation of the CEO, and evaluating the performance of the CEO at least annually in light of those goals and objectives and communicating the results of such evaluation to the CEO and the Board, and determining the CEO’s compensation level based on this evaluation, subject to ratification by the independent directors on the Board. In determining the incentive component of CEO compensation, the Committee will consider, among other factors, the performance of our company and relative stockholder return, the value of similar incentive awards to CEOs at comparable companies, the awards given to the CEO in past years, and such other factors as the Committee may determine to be appropriate; |
| ● | reviewing and approving the compensation of all other executive officers of our company, such other managers as may be directed by the Board, and the directors of our company; |
| ● | overseeing the Board’s benefit and equity compensation plans, overseeing the activities of the individuals and committees responsible for administering these plans, and discharging any responsibilities imposed on the Committee by any of these plans; |
| ● | approving issuances under, or any material amendments to, any stock option or other similar plan pursuant to which a person not previously an employee or director of our company, as an inducement material to the individual’s entering into employment with our company, will acquire stock or options; |
| ● | in consultation with management, overseeing regulatory compliance with respect to compensation matters, including overseeing the company’s policies on structuring compensation programs to preserve related tax objectives; |
| ● | reviewing and approving any severance or similar termination payments proposed to be made to any current or former officer of our company; and |
| ● |
preparing an annual report on executive compensation for inclusion in our proxy statement for the election of directors, if required under the applicable SEC rules. |
The Compensation Committee held two meetings during fiscal 2022.
Nominating Committee. Our Nominating Committee is composed of Messrs. Rettaliata, Brand and Porcelain. The purpose of the Nominating Committee is to seek and nominate qualified candidates for election or appointment to our Board of Directors. The Nominating Committee held one meeting during fiscal 2022.
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The Nominating Committee will seek candidates for election and appointment that possess the integrity, leadership skills and competency required to direct and oversee the Company’s management in the best interests of its stockholders, customers, employees, communities it serves and other affected parties.
A candidate must be willing to regularly attend Committee and Board of Directors meetings, to develop a strong understanding of our company, its businesses and its requirements, to contribute his or her time and knowledge to our company and to be prepared to exercise his or her duties with skill and care. In addition, each candidate should have an understanding of all corporate governance concepts and the legal duties of a director of a public company.
Stockholders may contact the Nominating Committee Chairman, the Chairman of the Board or the Corporate Secretary in writing when proposing a nominee. This correspondence should include a detailed description of the proposed nominee’s qualifications and a method to contact that nominee if the Nominating Committee so chooses.
Stockholder Communications
Any stockholder who desires to contact any of our Directors can write to Air Industries Group, 1460 Fifth Avenue, Bay Shore, New York 11706, Attention: Stockholder Relations. Your letter should indicate that you are an Air Industries Group stockholder. Depending on the subject matter, our stockholder relations personnel will:
| ● | forward the communication to the Director(s) to whom it is addressed; |
| ● | forward the communication to the appropriate management personnel; |
| ● | attempt to handle the inquiry directly, for example where it is a request for information about the Company, or it is a stock-related matter; or |
| ● | not forward the communication if it is primarily commercial in nature or if it relates to an improper or irrelevant topic. |
Code of Ethics
We have adopted a written code of ethics that applies to our principal executive officers, senior financial officers and persons performing similar functions. Our code of ethics is available on our website and upon written request to our corporate secretary, we will provide you with a copy, without cost.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table shows, for the periods indicated, information regarding the compensation awarded to, earned by or paid to each individual that served as our principal executive officer during the fiscal year ended December 31, 2022 and each other executive officer whose compensation for the 2022 fiscal year exceeded $100,000 for all services rendered in all capacities to our company and its subsidiaries. The individuals listed in the following table are referred to herein collectively as our “Named Executive Officers.”
Summary Compensation Table
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock awards ($) | Option awards ($) | Non-equity Incentive Plan Information ($) | Nonqualified deferred compensation earnings ($) | All other compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Luciano Melluzzo | 2022 | 352,692 | — | — | 79,600 | 101,500 | — | 10,800 | (1) | 544,592 | ||||||||||||||||||||||||||
| President and CEO | 2021 | 350,000 | — | — | 207,000 | 148,750 | — | 10,800 | (1) | 716,550 | ||||||||||||||||||||||||||
| Michael Recca | 2022 | 251,921 | — | 39,800 | 43,500 | — | 5,400 | (1) | 340,621 | |||||||||||||||||||||||||||
| CFO | 2021 | 249,998 | — | — | 124,000 | 67,750 | — | 5,400 | (1) | 447,148 | ||||||||||||||||||||||||||
| (1) | Represents car allowance. |
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Our executive officers named in the above table do not have employment agreements providing for a fixed term of employment. Both are employees at will, terminable at any time without any severance, other than that payable to employees generally.
Executive Compensation Policies as They Relate to Risk Management
The Compensation Committee and management have considered whether our compensation policies might encourage inappropriate risk taking by the Company’s executive officers and other employees. The Compensation Committee has determined that the current compensation structure aligns the interests of the executive officers with those of the Company without providing rewards for excessive risk taking by awarding a mix of fixed and performance based or discretionary bonuses with the performance-based compensation focused on profits as opposed to revenue growth.
The Compensation Committee working with management adopts a plan each year intended to award members of our management including executive officers for meeting or exceeding targeted goals, The Committee believes the amounts to be paid to Messrs. Melluzzo and Recca for services rendered in fiscal 2022 are appropriate in light of the significant improvement in our financial performance 2022.
Equity Awards – 2022
The following table shows the grant of stock option awards to the Named Executive Officers during 2022.
| GRANT OF PLAN-BASED AWARDS | ||||||||||
| All Other Option Awards: Number of | Grant Date Fair Value | |||||||||
| Securities Underlying | of Stock and Option | |||||||||
| Name | Grant Date | Options (#) | Awards ($) | |||||||
| Luciano Melluzzo | 4/11/2022 | 20,000 | (1) | $ | 79,600 | |||||
| Michael Recca | 4/11/2022 | 10,000 | (1) | $ | 39,800 | |||||
Each named executive officer was granted options to purchase the number of shares indicated at a price of $8.30 per share during a period ended March 31, 2027.
Outstanding Equity Awards at 2022 Year-End
The following table shows certain information regarding outstanding equity awards held by our Named Executive Officers as of December 31, 2022.
| Option Awards | Stock Awards | |||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | ||||||||||||||||
| Luciano Melluzzo | 6,666 | 13,334 | $ | 8.30 | 3/31/2027 | — | — | |||||||||||||||
| 18,000 | 6,000 | 12.20 | 7/31/2026 | — | — | |||||||||||||||||
| 15,000 | 5,000 | 13.90 | 3/31/2026 | — | — | |||||||||||||||||
20,000 20,000 27,000 | — — — | 10.30 8.80 15.00 | 3/31/2025 1/31/2024 9/30/2024 | — — — | — — — | |||||||||||||||||
| Michael Recca | 3,333 12,500 7,500 10,000 | 6,667 4,166 2,500 — | 8.30 12.20 13.90 10.30 | 3/31/2027 7/31/2026 3/31/2026 3/31/2025 | — — — — | — — — — | ||||||||||||||||
| 9,000 | — | 8.80 | 1/31/2024 | — | — | |||||||||||||||||
| 5,000 | — | 14.20 | 7/24/2024 | — | — | |||||||||||||||||
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Equity Incentive Plans
We have five equity incentive plans all of which are substantially identical except as to the number of awards which may be granted, pursuant to which we can grant awards with respect to an aggregate of 350,000 shares of our common stock. We have the right to grant awards pursuant to each plan until the tenth anniversary of the date on which it was approved by our stockholders. The 2022 Equity Incentive Plan authorizes grants as to 100,000 shares and was approved by our stockholders approved in June 22, 2022; the 2017 Equity Incentive Plan authorizes grants as to 120,000 shares and was approved by our stockholders in October 3, 2017; the 2016 Equity Incentive Plan authorizes grants as to 35,000 shares and was approved by our stockholders in November 2016, the 2015 Equity Incentive Plan authorizes grants as to 35,000 shares and was approved by our stockholders in June 2015, and the 2013 Equity Incentive Plan authorizes grants as to 60,000 shares and was approved by our stockholders approved in July 2013.
The Plans permit the Company to grant stock awards and non-qualified and incentive stock options to employees, directors and consultants. The Plans are administered by the Compensation Committee of the Board and each has a term of ten years from the date it was adopted by the Board.
We adopted the Plans to provide a means by which employees, directors, and consultants of our Company and those of our subsidiaries and other designated affiliates, which we refer to together as our affiliates, may be given an opportunity to purchase our common stock, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for our success and the success of our affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information known to us regarding beneficial ownership of our Common Stock as of May 10, 2023 by (i) each person known by us to own beneficially more than 5% of our outstanding Common Stock, (ii) each of our directors, (iii) our chief executive officer and the other Named Executive Officers, and (iii) all of our directors and executive officers as a group.
Except as otherwise indicated, we believe, based on information provided by each of the individuals named in the table below, that such individuals have sole investment and voting power with respect to such shares, subject to community property laws, where applicable. As of May 10, 2023, we had outstanding 3,259,367 shares of Common Stock. Except as stated in the table, the address of the holder is c/o our company, 1460 Fifth Avenue, Bay Shore, New York 11706
Directors and Executive Officers: | Number of Shares Beneficially Owned | Percent | ||||||
| Michael N. Taglich | 678,642 | (1) | 19.37 | % | ||||
| Robert F. Taglich | 464,240 | (2) | 13.45 | % | ||||
| Peter D. Rettaliata | 31,954 | (3) | * | |||||
| David Buonanno | 10,203 | (4) | * | |||||
| Michael Brand | 16,651 | (5) | * | |||||
| Michael Porcelain | 29,483 | (6) | * | |||||
| Luciano Melluzzo, President and CEO | 117,334 | (7) | 3.49 | % | ||||
| Michael Recca, CFO | 46,500 | (8) | 1.41 | % | ||||
| All Directors and Executive Officers as a group (8 persons owning shares) | 1,369,262 | (9) | 35.29 | % | ||||
| Beneficial Ownership of More Than 5% of Shares: | ||||||||
| Richmond Brothers, Inc. | 224,238 | (10) | 6.88 | %(10) | ||||
| David S. Richman | 315,396 | (10) | 9.50 | %(10) | ||||
| Matthew J. Curfman | 232,273 | (10) | 7.06 | %(10) | ||||
| * | Less than 1% |
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| (1) | Includes 410,690 shares owned by Mr. Taglich, 23,995 shares owned by Taglich Brothers, 236,907 shares he may acquire upon conversion of convertible notes (including 17,228 shares which may be acquired by Taglich Brothers), but excluding shares for accrued interest thereon, 1,750 shares he may acquire upon exercise of warrants (including 1,750 shares which may be acquired by Taglich Brothers) and 5,300 shares he may acquire upon exercise of options, in each case exercisable within 60 days. |
| (2) | Includes 242,584 shares owned by Mr. Taglich, 23,995 shares owned by Taglich Brothers, 4,476 shares owned by custodial accounts for the benefit of his children under the NY UGMA, 186,135 shares he may acquire upon conversion of convertible notes (including 17,228 shares that may be acquired by Taglich Brothers), but excluding shares for accrued interest thereon, 1,750 shares he may acquire upon exercise of warrants (including 1,750 shares which may be acquired by Taglich Brothers, and 5,300 shares he may acquire upon exercise of options, in each case exercisable within 60 days. |
| (3) | Includes 10,100 shares he may acquire upon exercise of options exercisable within 60 days. |
| (4) | Includes 5,400 shares he may acquire upon exercise of options exercisable within 60 days. |
| (5) | Includes 10,400 shares he may acquire upon exercise of options exercisable within 60 days. |
|
(6)
(7) |
Includes 5,400 shares he may acquire upon exercise of options exercisable within 60 days.
Includes 107,334 shares he may acquire upon exercise of options exercisable within 60 days. |
| (8) | Represents shares he may acquire upon exercise of options exercisable within 60 days. |
| (9) | Includes 423,042 shares that may be acquired upon conversion of convertible notes, 1,750 shares that may be acquired upon exercise of warrants and 195,734 shares that may be acquired upon exercise of options, in each case exercisable within 60 days. |
| (10) | The information set forth below is based on the amended Schedule 13D filed with the SEC and the Company on October 22, 2021 reflecting ownership as of that date. By virtue of their Joint Filing Agreement, dated October 9, 2018, the persons and entities affirm their membership in a group under SEC Rule 13d-5(b) and the group is deemed to beneficially own all of the shares beneficially owned by the group members. The beneficial ownership of each of the group members was disclosed as follows, based upon 3,259,367 shares outstanding: |
| Sole Voting Power |
Shared Voting Power |
Sole Dispositive Power |
Shared Dispositive Power |
Total | Percent | ||||||||||||||||||||
| Richmond Brothers, Inc.(a) | — | — | — | 224,238 | # | 224,238 | # | 6.88 | % | ||||||||||||||||
| RBI Private Investment II, LLC | 1,534 | — | 1,534 | — | 1,534 | * | |||||||||||||||||||
| RBI Private Investment III, LLC | 82,506 | + | — | 82,506 | + | — | 82,506 | + | 2.53 | % | |||||||||||||||
| RBI PI Manager, LLC(b) | 84,040 | + | — | 84,040 | + | — | 84,040 | + | 2.58 | % | |||||||||||||||
| Richmond Brothers 401(k) Profit Sharing Plan | 7,120 | — | 7,120 | — | 7,120 | * | |||||||||||||||||||
| David S. Richmond(c) | 84,040 | + | 7,120 | 84,040 | + | 224,238 | # | 315,396 | +# | 9.68 | % | ||||||||||||||
| Matthew J. Curfman(d) | 916 | 7,120 | 916 | 224,238 | # | 232,273 | # | 7.13 | % | ||||||||||||||||
| (a) | Held as investment advisor to certain separately managed accounts. |
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| (b) | Includes the shares owned by RBI Private Investment II, LLC and RBI Private Investment III, LLC. |
| (c) | Sole voting and dispositive power includes shares owned by Mr. Richmond directly and by RBI Private Investment II, LLC and RBI Private Investment III, LLC. Shared voting and dispositive power includes shares owned by Richmond Brothers, Inc. and the Profit Sharing Plan. |
| (d) | Sole voting and dispositive power includes shares owned by Mr. Curfman. Shared voting and dispositive power includes shares owned by Richmond Brothers, Inc. and the Profit Sharing Plan. |
| # | Includes 31,200 shares which may be acquired upon exercise of warrants. |
| + | Includes 28,000 shares which may be acquired upon exercise of warrants. |
| * | Less than 1 percent |
The address for Richmond Brothers, Inc., RBI Private Investment I, LLC, RBI Private Investment II, LLC, RBI PI Manager, LLC, Richmond Brothers 401(k) Profit Sharing Plan, David S. Richmond and Matthew J. Curfman is 3568 Wildwood Avenue, Jackson, Michigan 49202.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Our Policy Concerning Transactions with Related Persons
Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.
We recognize that transactions between us and any of our Directors or Executives or with a third party in which one of our officers, directors or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and stockholders.
The Audit Committee of the Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions, as reported or disclosed to the Committee by the independent auditors, employees, officers, members of the Board of Directors or otherwise, and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party.
There were no transactions completed by us since January 1, 2022, in which the amount involved exceeded $120,000 and in which any related person has a direct or indirect material interest, except that during 2022 we paid $250,000 to Michael Taglich in respect of amounts due Mr. Taglich pursuant to a subordinated note. There are no transactions currently proposed by us in which a related party has a direct or indirect financial interest in which the amount involved exceeds $120,000.
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Board Independence
Our Board of Directors has determined that David Buonanno, Peter Rettaliata, Michael Brand and Michael Porcelain are “independent directors” within the meaning of NYSE American Rule 803A(2).
Item 14. Principal Accountant Fees and Services
As required by our Audit Committee charter, our Audit Committee pre-approved the engagement of Marcum LLP for all audit and permissible non-audit services. The Audit Committee annually reviews the audit and permissible non-audit services performed by our principal accounting firm and reviews and approves the fees charged by our principal accounting firm. The Audit Committee considered the role of Rotenberg Meril Solomon Bertiger & Guttilla, P.C. in providing tax and audit services and other permissible non-audit services to us while it was serving as our auditor and concluded that the provision of such services, if any, was compatible with the maintenance of such firm’s independence in the conduct of its auditing functions.
On March 28, 2022, we reported that Rotenberg Meril Solomon Bertiger & Guttilla, P.C., Certified Public Accountants (“Rotenberg”) which had served as our independent registered public accounting firm since 2008, combined with Marcum LLP (“Marcum”) and became a wholly-owned subsidiary of Marcum. We engaged Marcum to serve as our independent registered public accounting firm for the year ended December 31, 2022, and it began serving as our independent registered public accounting firm beginning with the review of our Report on Form 10-Q for the quarter ending June 30, 2022.
During fiscal year 2022, the aggregate fees which we were billed by Marcum for professional services were as follows:
| Year Ended December 31, 2022 | ||||
| Audit Fees(1) | $ | 340,000 | ||
| Audit Related Fees(2) | 21,000 | |||
| Tax Fees(3) | 67,000 | |||
| $ | 428,000 | |||
During fiscal year 2021 and the first quarter of fiscal year 2022, the aggregate fees which we were billed by Rotenberg for professional services were as follows:
Year Ended December 31, | Year Ended December 31, | |||||||
| 2022 | 2021 | |||||||
| Audit Fees(1) | $ | 45,000 | $ | 344,000 | ||||
| Audit Related Fees(2) | - | 3,000 | ||||||
| Tax Fees(3) | - | 65,000 | ||||||
| $ | 45,000 | $ | 412,000 | |||||
| (1) | Fees for services to perform our annual audit of financial statements, review of financial statements included in our quarterly filings included in Form 10-Q, and fees for services that are normally provided by the accountant for statutory and regulatory filings. This category includes fees for services rendered that only the auditor reasonably can provide, including comfort letters, consents, assistance with and review of documents filed with the SEC and accounting and financial reporting consultations billed as audit services. The annual audit fee included in this category was $250,000 and $250,000 for 2022 and 2021, respectively. The balance of the fees in this category were for the reviews of our quarterly financial statements. |
| (2) | Fees for assurance and related services that are traditionally performed by our independent registered public accounting firm, such as due diligence services related to mergers and acquisitions, accounting consultation and audits in connections with acquisitions, consultation concerning financial accounting and reporting standards not classified as audit fees and attest services not required by statute or regulation. |
| (3) | Fees for tax compliance, tax advice and planning. Tax compliance generally involves preparation of original and amended tax returns, claims for refunds and tax payment-planning services. Tax planning and tax advice encompass a diverse range of services, including assistance with tax audits and appeals, tax advice related to mergers and acquisitions and requests for rulings or technical advice from taxing authorities. |
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | Consolidated Financial Statements of Air Industries Group for the Year ended December 31, 2022 and 2021. |
| (b) | The following exhibits are included as part of this report. References to “the Company” in this Exhibit List mean Air Industries Group, a Nevada Corporation. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 16, 2023
| AIR INDUSTRIES GROUP | ||
| By: | /s/ Luciano Melluzzo | |
| Luciano
Melluzzo President and Chief Executive Officer (principal executive officer) | ||
| By: | /s/ Michael E. Recca | |
| Michael
E. Recca Chief Financial Officer (principal financial and accounting officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on May 16, 2023 in the capacities indicated.
| Signature | Capacity | |
| /s/ Luciano Melluzzo | President and CEO | |
| Luciano Melluzzo | (principal executive officer) | |
| /s/ Michael E. Recca | Chief Financial Officer | |
| Michael E. Recca | (principal financial and accounting officer) | |
| /s/ Michael N. Taglich | Chairman of the Board | |
| Michael N. Taglich | ||
| /s/ Peter D. Rettaliata | Director | |
| Peter D. Rettaliata | ||
| /s/ Robert F. Taglich | Director | |
| Robert F. Taglich | ||
| /s/ David J. Buonanno | Director | |
| David J. Buonanno | ||
| /s/ Michael Brand | Director | |
| Michael Brand | ||
| /s/ Michael Porcelain | Director | |
| Michael Porcelain |
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AIR INDUSTRIES GROUP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Air Industries Group
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Air Industries Group (the “Company”) as of December 31, 2022, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in conformity with the accounting principles generally accepted in the United States of America.
As discussed in Note 16 to the financial statements, the 2021 financial statements have been revised to correct certain previously issued disclosures related to the reconciliation of the Company’s income tax rate for the year ended December 31, 2021 and the components of the Company’s deferred tax assets and liabilities and valuation allowance as of December 31, 2021 and 2020. The financial statements of the Company for the year ended December 31, 2021, before the effects of the adjustments to correct the errors discussed in Note 16 to the financial statements, were audited by other auditors whose report, dated March 25, 2022, expressed an unqualified opinion on those statements. We have also audited the adjustments described in Note 16 that were applied to revise the 2021 financial statements to correct the errors. In our opinion, such adjustments are appropriate and have been properly applied. Except for the corrections to revise the tax footnote we were not engaged to audit, review, or apply any procedures to the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, other than stated above and, accordingly, we do not express an opinion or any other form of assurance on the 2021 financial statements taken as a whole.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Revenue Recognition
Description of the Matter
The Company’s revenue from contracts with customers is recognized at a point in time when the customer obtains control of the product, which is generally upon the delivery and acceptance by the customer. If the contracts, with customers in which the Company satisfies its promise to the customer to provide a service or product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company would be required to recognize revenue over time as it satisfies the performance obligation.
The Company evaluates each revenue generating contract to determine whether or not they are entitled to a profit should the contract be terminated, whether or not there is an alternative use for the product upon contract termination and whether or not there are any contractual restrictions which would prohibit the Company from selling the product elsewhere (alternative use) upon contract termination.
How We Addressed the Matter in Our Audit
Auditing management’s evaluation of contracts with customers required extensive audit effort due to the judgment required to analyze the terms and conditions of the Company’s various customer contracts given that such terms and conditions may be nonstandard. This included the identification and determination of the performance obligations and the assessment of whether a product has alternative use.
Our audit procedures included obtaining an understanding of the Company’s revenue recognition process which included an analysis of the distinct performance obligations and a review of the conclusion as to whether revenue from such performance obligations should be recognized over time or at a point in time.
We performed procedures to test the identification and determination of the performance obligations and the timing of revenue recognition which included, among others, reading a sample of executed contracts and purchase orders to understand the contract and performing an independent assessment of the identification of distinct performance obligations.
We performed procedures to test whether or not the Company is entitled to a profit should the contract be terminated, whether or not there is an alternative use for the product upon contract termination and whether or not there are any contractual restrictions which would prohibit the Company from selling the product elsewhere (alternative use) upon contract termination.
Inventory Valuation Reserve
Description of the Matter
As described in Note 4 to the financial statements, the Company’s net inventory balance of approximately $31.8 million included a reserve for obsolete and excess inventory of approximately $4.0 million at December 31, 2022. The Company maintains a reserve for inventory based on estimated losses that result from inventory that becomes obsolete or for which the Company has excess inventory levels. In determining this estimate, the Company performs an analysis on current demand and usage for each inventory item over historical time periods. Based on that analysis, the Company reserves a percentage of the inventory amount within each time period based on historical demand and usage patterns of specific items in inventory. This requires management to make significant estimates and assumptions in order to estimate the amount necessary to adjust to net realizable value as a result of obsolescence or slow-moving inventory. Changes in the assumptions could have a significant impact on the valuation of inventory.
How We Addressed the Matter in Our Audit
Auditing management’s inventory valuation process including its impairment procedures required extensive auditor effort due to the judgment required to analyze the Company’s methodology in determining excess quantities and slow-moving goods.
Our audit procedures included obtaining an understanding of the Company’s inventory valuation process including the identification of excess quantities and slow-moving goods and the potential impairment to net realizable value.
We performed procedures to test the identification and determination of excess quantities and slow-moving goods. We traced the movement of a sample of goods to the respective transaction history detail reports of such goods to ensure that excess quantities and slow-moving goods were properly identified and potentially impaired. We tested the completeness and accuracy of the Company’s inventory reserve reports specifically related to the identification and determination of excess quantities and slow-moving goods and impairment.
We have served as the Company’s auditor since 2008 (such date takes into account the acquisition of Rotenberg Meril Solomon Bertiger &Guttilla, P.C., by Marcum LLP effective February 1, 2022).
/s/ Marcum LLP
Marcum LLP
Saddle Brook, New Jersey
May 16, 2023
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Air Industries Group
Opinion on the Financial Statements
We have audited, before the effects of the adjustment for the correction of the errors described in Note 16, the accompanying consolidated balance sheet of Air Industries Group and subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, except for the errors described in Note 16, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the errors described in Note 16, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Marcum LLP.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities law and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company’s auditors from 2008 to 2022.
/s/
Rotenberg Meril Solomon Bertiger & Guttilla, P.C.
March 25, 2022
F-4
AIR INDUSTRIES GROUP
Consolidated Balance Sheets
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable, Net of Allowance for Doubtful Accounts of $ | ||||||||
| Inventory | ||||||||
| Prepaid Expenses and Other Current Assets | ||||||||
| Contract Costs Receivable | ||||||||
| Prepaid Taxes | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Operating Lease Right-Of-Use-Assets | ||||||||
| Deferred Financing Costs, Net, Deposits and Other Assets | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Debt - Current Portion | $ | $ | ||||||
| Accounts Payable and Accrued Expenses | ||||||||
| Operating Lease Liabilities - Current Portion | ||||||||
| Deferred Gain on Sale - Current Portion | ||||||||
| Customer Deposits | ||||||||
| Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary | ||||||||
| Deferred payroll tax liability - CARES Act | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities | ||||||||
| Debt - Net of Current Portion | ||||||||
| Subordinated Notes Payable - Related Party | ||||||||
| Operating Lease Liabilities - Net of Current Portion | ||||||||
| Deferred Gain on Sale - Net of Current Portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingency (see Note 13) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, par value $ | ||||||||
| Common Stock - Par Value $ | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See Notes to Consolidated Financial Statements
F-5
AIR INDUSTRIES GROUP
Consolidated Statements of Operations
For the Years Ended December 31,
| 2022 | 2021 | |||||||
| Net Sales | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| (Loss) Income from Operations | ( |
) | ||||||
| Interest and Financing Costs | ( |
) | ( |
) | ||||
| Interest Expense - Related Parties | ( |
) | ( |
) | ||||
| Other Income, Net | ||||||||
| Gain on write-off of accounts payable | ||||||||
(Loss) Income before Provision for Income Taxes |
( |
) | ||||||
Provision for Income Taxes |
||||||||
| Net (Loss) Income | $ | ( |
) | $ | ||||
| (Loss) Income per share – Basic | $ | ( |
) | $ | ||||
| (Loss) Income per share – Diluted | $ | ( |
) | $ | ||||
| Weighted Average Shares Outstanding – basic | ||||||||
| Weighted Average Shares Outstanding – diluted | ||||||||
See Notes to Consolidated Financial Statements
F-6
AIR INDUSTRIES GROUP
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31, 2022 and 2021
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock issued for directors fees | ||||||||||||||||||||
| Stock Options exercised | ||||||||||||||||||||
| Stock Compensation Expense | - | |||||||||||||||||||
| Net Income | - | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock issued for directors fees | ||||||||||||||||||||
| Common Stock issued in conjunction with reverse split | ||||||||||||||||||||
| Stock Compensation Expense | - | |||||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See Notes to Consolidated Financial Statements
F-7
AIR INDUSTRIES GROUP
Consolidated Statements of Cash Flows For the Years Ended December 31,
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities | ||||||||
| Depreciation of property and equipment | ||||||||
| Non-cash employee compensation expense | ||||||||
| Non-cash directors compensation | ||||||||
| Non-cash other income recognized | ( | ) | ( | ) | ||||
| Non-cash interest expense | ||||||||
| Non-cash gain on accounts payable write-off | ( | ) | - | |||||
| Amortization of Right-of-Use Assets | ||||||||
| Deferred gain on sale of real estate | ( | ) | ( | ) | ||||
| Bad debt recovery | ( | ) | ( | ) | ||||
| Loss on impairment of goodwill | ||||||||
| Amortization of deferred financing costs | ||||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) Decrease in Operating Assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Prepaid taxes | ( | ) | ( | ) | ||||
| Deposits and other assets | ( | ) | ( | ) | ||||
| Increase (Decrease) in Operating Liabilities: | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Customer deposits | ( | ) | ||||||
| Deferred payroll tax liability - CARES Act | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net proceeds from (payments for) revolving loan - Webster Bank | ( | ) | ||||||
| Proceeds from note payable - term note - Webster Bank | ||||||||
| Payments of term note - Webster Bank | ( | ) | ( | ) | ||||
| Payment of deferred finance costs | ( | ) | ||||||
| Payment of subordinated notes payable - related party | ( | ) | ||||||
| Payments of finance lease obligations | ( | ) | ( | ) | ||||
| Payments of loan payable - financed asset | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | ( | ) | ||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF YEAR | ||||||||
| CASH AT END OF YEAR | $ | $ | ||||||
See Notes to Consolidated Financial Statements
F-8
AIR INDUSTRIES GROUP
Consolidated Statements of Cash Flows For the Years Ended December 31, (Continued)
| 2022 | 2021 | |||||||
| Supplemental cash flow information | ||||||||
| Cash paid during the year for interest | $ | $ | ||||||
| Cash paid during the year for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Acquisition of financed lease asset | $ | $ | ||||||
| Capitalization of related party note interest to principal | $ | $ | ||||||
See Notes to Consolidated Financial Statements
F-9
AIR INDUSTRIES GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Air Industries Group is a Nevada corporation (“AIRI”). As of and for the year ended December 31, 2022 and 2021, the accompanying consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries; Air Industries Machining Corp. (“AIM”), Nassau Tool Works, Inc. (“NTW”), and the Sterling Engineering Corporation (“Sterling”), (together, the “Company”).
Principal Business Activity
The Company is a Tier 1 or Tier 2 manufacturer of precision assemblies and components for mission-critical aerospace and defense applications and a prime contractor to the U.S. Department of Defense. The Company’s AIM and NTW subsidiaries manufacture flight critical or flight safety aircraft components including landing gear, arresting gear, flight controls, primarily for military aircraft, including the UH-60 Helicopter, the E2-D, and F-35, F-18 fighter aircraft, and the Pratt & Whitney Geared Turbofan jet engine. Sterling manufactures components used in jet engines of military and commercial aircraft and ground power turbine engines. The Company’s primary customers are large publicly traded companies including the four largest suppliers to the US Department of Defense.
Basis of Presentation
The accompanying consolidated financial statements of the Company included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission.
Historically the Company operated its businesses and reported its results as two separate segments with AIM and NTW comprising the Complex Machining segment (“CMS”) and Sterling as the Turbine & Engine Component segment (“TEC”). The CMS segment specialized in flight critical components including flight controls and landing gear. The TEC segment focused on manufacturing components for jet engines. Along with its operating subsidiaries, the Company reported the results of its corporate division as an independent segment.
In recent years the Company integrated and consolidated
the business of AIM and NTW into one facility on Long Island and the operations of its CMS and TEC segments have become increasingly
integrated. The Company also made significant capital expenditures and all of its operations now share the same manufacturing facilities
and use most, if not all, of the same sales and marketing functions. The Company made these changes to take advantage of the long-term
growth opportunities it sees in the aerospace and defense market. In early fiscal 2022, the Company further changed its management approach
and is now making decisions about resources to be allocated and assesses performance based on one integrated business rather than two
reporting segments. As such, effective with the fiscal quarter ended March 31, 2022, the Company is presenting its operations as
Liquidity
At each reporting period, management evaluates
whether there are conditions or events that raise any substantial doubt about the Company’s ability to continue as a going concern
within
The global outbreak of COVID-19 negatively impacted the Company’s revenues, earnings and operating cash flows in 2020. While operations substantially returned to normal in fiscal 2021 and 2022, there remains some substantial issues and problems receiving raw materials and prompt processing of its products.
With fiscal 2022 now completed and the Company continuing to see the
benefits from its recent investments in machinery and equipment, management believes the Company will continue to improve its liquidity.
During 2022, the Company generated $
F-10
Reverse Stock Split
On October 4, 2022, the Company announced a reverse stock split of its authorized, issued and outstanding shares of common stock at a ratio of 1-for-10. The reverse stock split was effective on October 18, 2022, and its common stock began trading on a post-split-adjusted basis at that time. All share and per share amounts of its common stock presented have been retroactively adjusted to reflect the 1-for-10 reverse stock split. As result of the reverse stock split there were no fractional shares issued and all holders were rounded up to the next whole share. See Note 11 – Stockholders’ Equity for more information.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.
Inventory Valuation
The Company values inventory at the lower of cost on a first-in-first-out basis or an estimated net realizable value.
The Company generally purchases raw materials and supplies uniquely suited to the production of larger more complex parts, such as landing gear, only when non-cancellable contracts for orders have been received for finished goods. It occasionally produces larger more complex products, such as landing gear, in excess of purchase order quantities in anticipation of future purchase order demand, when it is economically advantageous to do so, since historically this excess has been used in fulfilling future purchase orders. The Company purchases supplies and materials useful in a variety of products as deemed necessary even though orders have not been received. The Company periodically evaluates inventory items that are not secured by purchase orders and establishes write-downs to estimated net realizable value. The Company writes-down inventory to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for other impairments of value.
F-11
Property and Equipment
Property and equipment are carried at cost net
of accumulated depreciation and amortization. Repair and maintenance charges are expensed as incurred. Property, equipment, and improvements
are depreciated using the straight-line method over the estimated useful lives of the assets or the particular improvements. Expenditures
for repairs and improvements in excess of $
Long-Lived and Intangible Assets
Identifiable intangible assets are amortized using the straight-line method over the period of expected benefit.
Long-lived assets and intangible assets subject to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired. The Company records an impairment loss if the undiscounted future cash flows are found to be less than the carrying amount of the asset. If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to fair value.
Deferred Financing Costs
Costs incurred with obtaining and executing revolving debt arrangements are capitalized and recorded in other current assets and amortized using the effective interest method over the term of the related debt. Costs incurred with obtaining and executing other debt arrangements are presented as a direct deduction from the carrying value of the associated debt and also amortized using the effective interest method over the term of the related debt. The amortization of financing costs is included in interest and financing costs in the Consolidated Statements of Operations.
Contract Costs Receivable
Contract costs receivable represent costs to be
reimbursed from a terminated contract. The Company expects to collect the receivable in the next twelve months. Contract costs receivable
totals $
Revenue Recognition
The Company recognizes revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.
Revenue is recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). In evaluating our contracts with our customers, we have determined that there is no future performance obligation once delivery has occurred.
Our revenue is generated from fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price, which we estimate during the bidding process before the contract is awarded. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.
We evaluate the products promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Our contracts are typically accounted for as one performance obligation. We classify net sales as products on our consolidated statements of operations based on the predominant attributes of the performance obligations.
F-12
We determine the transaction price for each contract based on the consideration we expect to receive for the products being provided under the contract.
At the inception of a contract, we estimate the transaction price based on our current rights and do not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts can be subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts are not distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract. Therefore, such modifications are accounted for as if they were part of the existing contract and recognized as a cumulative adjustment to revenue.
We recognize revenue at the point in time in which the performance obligation is fully satisfied. This is fully satisfied when the product has shipped, which is the point in time the customer obtains control of the product and we no longer maintain control of the product.
The Company’s rights to payments for goods transferred to customers are conditional only on the passage of time and not on any other criteria. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 75 days.
Payments received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized. The Terms and Conditions contained in our customer purchase orders often provide for liquidated damages in the event that a stop work or contract termination order is issued prior to final delivery. While the products we manufacture are specific to the type of aircraft that they are used on, there are alternate customers that can acquire and utilize these products. The Company utilizes a Returned Merchandise Authorization or RMA process for determining whether to accept returned products. Customer requests to return products are reviewed by the contracts department and if the request is approved, a credit is issued upon receipt of the product. Net sales represent gross sales less these returns and allowances.
Customer Deposits
The Company receives advance payments on certain contracts with the remainder of the contract balance due upon the shipment of the final product once the customer inspects and approves the product for shipment. At that time, the entire amount will be recognized as revenue and the deposit will be applied to the customer’s invoice.
At December 31, 2022 and 2021, customer deposits
were $
Backlog
Backlog represents executed non-cancellable contracts
that represent firm purchase orders that are deliverable over the next 18-month period. As of December 31, 2022, backlog relating to remaining
performance obligations in contracts was approximately $
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. The more significant management estimates are the allowance for doubtful accounts, useful lives of property and equipment, provisions for obsolescence, excess and slow moving inventory, accrued expenses and income taxes, which includes the determination of the valuation allowance for deferred tax assets. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.
F-13
Credit and Concentration Risks
A large percentage of the Company’s revenues are derived from a small number of customers for U.S. Military Aviation.
There were four customers that represented
| Customer | Percentage of Sales | |||||||
| 2022 | 2021 | |||||||
| 1 | % | % | ||||||
| 2 | % | % | ||||||
| 3 | % | % | ||||||
| 4 | % | |||||||
| * |
There were three customers that represented
| Percentage of Receivables | ||||||||
| December 31, | December 31, | |||||||
| Customer | 2022 | 2021 | ||||||
| 1 | % | % | ||||||
| 2 | % | % | ||||||
| 3 | % | |||||||
| 4 | % | |||||||
| * |
| ** |
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the years ended December 31, 2022 and 2021:
| Product | December 31, 2022 | December 31, 2021 | ||||||
| Military | $ | $ | ||||||
| Commercial | ||||||||
| Total | $ | $ | ||||||
Cash
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.
F-14
Major Suppliers
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.
Income Taxes
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse.
The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate, on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.
The Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740 which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Subtopic provides guidance on the de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Earnings (Loss) per share
Basic earnings (loss) per share (“EPS”) 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.
For purposes of calculating diluted earnings (loss) per common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first day of the period. The denominator includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method.
F-15
The following is the calculation of income applicable to common stockholders utilized to calculate the numerator for EPS:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Net (Loss) Income – Basic | $ | ( | ) | $ | ||||
| Add: Convertible Note Interest for Potential Note Conversion | ||||||||
| Add: Convertible Note debt discount for Potential Note Conversion | ||||||||
| Net (Loss) Income used to calculate diluted earnings per share | $ | ( | ) | $ | ||||
The following is a reconciliation of the denominators of basic and diluted EPS computations:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Weighted average shares outstanding used to compute basic earnings per share | ||||||||
| Effect of dilutive stock options and warrants | ||||||||
| Effect of dilutive convertible notes payable | ||||||||
| Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share | ||||||||
| Per share amount – basic | $ | ( | ) | $ | ||||
| Per share amount – diluted | $ | ( | ) | $ | ||||
The following securities have been excluded from the calculation as the exercise price was greater than the average market price of the common shares:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Stock Options | ||||||||
| Warrants | ||||||||
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 and stock grants at their closing
reported market value. Stock compensation expense for employees amounted to $
F-16
Goodwill
Goodwill represented the excess of the acquisition
cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $
The Company accounts for the impairment of goodwill under the provisions of ASU 2017-04 (“ASU 2017-04”), “Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
The Company performed impairment testing for goodwill annually, or more frequently when indicators of impairment existed.
The Company determined that the goodwill was
fully impaired at December 31, 2022. The impairment charge of $
Freight Out
Freight out is included in operating expenses
and amounted to $
Leases
In accordance with FASB ASC 842, “Leases” (“ASC 842”), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classifies them as either operating or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of- use asset is recorded in operating expenses and an implied interest component is recorded in interest expense.
At the inception of an arrangement, the Company
determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of
the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially
all the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset. Leases with
a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease
liabilities. The Company has elected not to recognize on the balance sheet leases with terms of
Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.
An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option.
F-17
Recently Issued Accounting Pronouncements
Effective January 1, 2022, the Company adopted ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06), which is intended to address issues identified as a result of the complexity associated with applying accounting principles generally accepted in the United States of America for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis of feedback from financial statement users. The adoption of ASU 2020-06 did not have a material effect on the Company’s financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.
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 consolidated financial statements.
Note 3. ACCOUNTS RECEIVABLE
The components of accounts receivable at December 31, are detailed as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| Accounts Receivable Gross | $ | $ | ||||||
| Allowance for Doubtful Accounts | ( | ) | ( | ) | ||||
| Accounts Receivable Net | $ | $ | ||||||
The allowance for doubtful accounts for the years ended December 31, 2022 and 2021 is as follows:
| Balance at | Charged to | Deductions | Balance at | |||||||||||||
| Beginning of | Costs and | from | End of | |||||||||||||
| Year | Expenses | Reserves | Year | |||||||||||||
| Year ended December 31, 2022 Allowance for Doubtful Accounts | $ | $ | $ | $ | ||||||||||||
| Year ended December 31, 2021 Allowance for Doubtful Accounts | $ | $ | $ | $ | ||||||||||||
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Note 4. INVENTORY
The components of inventory at December 31, consisted of the following:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw Materials | $ | $ | ||||||
| Work In Progress | ||||||||
| Finished Goods | ||||||||
| Reserve | ( | ) | ( | ) | ||||
| Total Inventory | $ | $ | ||||||
Note 5. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, consisted of the following:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Land | $ | $ | ||||||
| Buildings and Improvements | ||||||||
| Machinery and Equipment | ||||||||
| Finance Lease ROU Assets - Machinery and Equipment | ||||||||
| Tools and Instruments | ||||||||
| Automotive Equipment | ||||||||
| Furniture and Fixtures | ||||||||
| Leasehold Improvements | ||||||||
| Computers and Software | ||||||||
| Total Property and Equipment | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Property and Equipment, net | $ | $ | ||||||
Depreciation expense for the years ended December
31, 2022 and 2021 was approximately $
Note 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses at December 31, are detailed as follows:
| December 31, 2022 | December 31, 2021 | |||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Payroll | ||||||||
| Accrued Expenses - other | ||||||||
| Accounts Payable and accrued expenses | $ | $ | ||||||
During the year ending December 31, 2022, the Company, reviewed all
old outstanding payables that were not paid and based on the statute of limitations, a claim would no longer be enforceable. The Company
determined that approximately $
F-19
Note 7. SALE AND LEASEBACK TRANSACTION
On October 24, 2006, the Company consummated
a Sale - Leaseback Arrangement, whereby the Company sold the buildings and real property located in Bay Shore, New York (the “Bay
Shore Property”) for a purchase price of $
The Company accounted for these transactions under the provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions.”
Simultaneous with the closing of the sale of
the Bay Shore Property, the Company entered into a
Note 8. Debt
Debt consists of the following:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Revolving loan to Webster Bank (“Webster”) | $ | $ | ||||||
| Term loan, Webster | ||||||||
| Finance lease obligations | ||||||||
| Loans payable - financed assets | ||||||||
| Related party notes payable | ||||||||
| Subtotal | ||||||||
| Less: Current portion | ( | ) | ( | ) | ||||
| Long Term Portion | $ | $ | ||||||
Webster Bank (F/K/A Sterling National Bank) (“Webster”)
The Company has a loan facility (“Webster Facility”) with Webster
Bank that expires on
F-20
As of December 31, 2022, there was $
| For the year ending | Amount | |||
| December 31, 2023 | $ | |||
| December 31, 2024 | ||||
| December 31, 2025 | ||||
| Webster Term Loan payable | ||||
| Less: debt issuance costs | ( | ) | ||
| Total Webster Term Loan payable, net of debt issuance costs | ||||
| Less: Current portion of Webster Term Loan payable | ( | ) | ||
| Total long-term portion of Webster Term Loan payable | $ | |||
As of December 31, 2022, our debt to Webster in the amount of $
Interest expense related to the Webster Facility
amounted to approximately $
The below summarizes historical amendments to the Webster Facility and various terms:
In 2020, the Company entered into the First Amendment
to the Webster Facility which increased the Term Loan to $
In June 2021, the Company entered into the Second
Amendment to the Webster Facility, which clarified the definition and calculation of Excess Cash Flow, and to confirm the due date of
the required payment of the Excess Cash Flow. For so long as the Webster term loan remains outstanding, if Excess Cash Flow (as defined)
is a positive number for any fiscal year the Company shall pay to Webster an amount equal to the lesser of (i) twenty-five percent (
On December 7, 2021, the Company entered into
the Third Amendment to the Webster Facility (“Third Amendment”). The purpose of the amendment was to provide a maturity date
for the Webster Facility of December 30, 2025 as compared to the original maturity date of December 30, 2022. Such amendment also increased
the Revolving Line of Credit to its current limit of $
On May 17, 2022, the Company entered into the
Fourth Amendment to the Webster Facility (“Fourth Amendment”). The purpose of the amendment was to increase the Term Loan
to $
On December 15, 2022, the Company made a draw
against the capital expenditure line of credit in the amount of $
On January 4, 2023, the Company made an additional
draw against the capital expenditure line of credit in the amount of $
F-21
Under the terms of the Webster Facility, both
the Webster revolving line of credit and the Webster term loan will bear an interest rate equal to the greater of
Amendment fees paid in connection with the Webster Facility are included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying Condensed Consolidated Balance Sheets and are amortized over the term of the loan.
In connection with the Webster Facility, the Company is required to maintain a defined Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each Fiscal Quarter. The Webster Facility limits the amount of Capital Expenditures and dividends the Company can pay to its stockholders. Substantially all of the Company’s assets are pledged as collateral under the Webster Facility.
As of December 31, 2022, the Company was in compliance with all financial loan covenants. However, the Company was in default of its covenant to provide its audited financial statements to Webster bank within ninety (90) days of its fiscal year end. The Company has subsequently received a waiver from the bank for this default.
Finance Lease Obligations
The Company entered into a finance lease in November of 2022 for the
purchase of new manufacturing equipment. The obligation for the finance lease totaled $
The Company entered into a finance lease in December of 2021 for the
purchase of new manufacturing equipment. The obligation for the finance lease totaled $
| Year Ended | Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Finance Lease cost: | ||||||||
| Amortization of ROU assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total Lease Costs | $ | $ | ||||||
| Other Information: | ||||||||
| Cash Paid for amounts included in the measurement lease liabilities: | ||||||||
| Financing cash flow from finance lease obligations | $ | $ | ||||||
| Supplemental disclosure of non-cash activity | ||||||||
| Acquisition of finance lease ROU asset | $ | $ | ||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Weighted Average Remaining Lease Term - in years | ||||||||
| Weighted Average Discount rate - % | % | % | ||||||
As of December 31, 2022, the aggregate future minimum Finance lease payment, including imputed interest are as follows:
| For the year ending | Amount | |||
| December 31, 2023 | $ | |||
| December 31, 2024 | ||||
| December 31, 2025 | ||||
| December 31, 2026 | ||||
| Total future minimum finance lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Less: Current portion | ( | ) | ||
| Long-term portion | $ | |||
F-22
Loans Payable – Financed Assets
The Company financed the purchase a delivery
vehicle in July 2020. The loan obligation totaled $
Annual maturities of this loan are as follows:
| For the year ending | Amount | |||
| December 31, 2023 | $ | |||
| December 31, 2024 | ||||
| December 31, 2025 | ||||
| December 31, 2026 | ||||
| Loans Payable - financed assets | ||||
| Less: Current portion | ( | ) | ||
| Long-term portion | $ | |||
Related Party Notes Payable
Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich.
Taglich Brothers, Inc. has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for their services.
From 2016 through 2020, the Company entered into
various subordinated notes payable and convertible subordinated notes payable with Michael and Robert Taglich. These notes resulted in
proceeds to the Company totaling $
On January 1, 2021, the related party subordinated
notes due to Michael and Robert Taglich and Taglich Brothers, Inc., were amended to include all accrued interest through December 31,
2020 in the principal balance of the notes. Per the terms of the Webster Facility, these notes remain subordinate to the Webster Facility
and are due on July 1, 2026. Approximately $
During the year ended December 31, 2022, a principal
payment of $
The note holders and the principal balance of the notes of December 31, 2022 are shown below:
| Michael Taglich, | Robert Taglich, | Taglich Brothers, | ||||||||||||||
| Chairman | Director | Inc. | Total | |||||||||||||
| Convertible Subordinated Notes | $ | $ | $ | $ | ||||||||||||
| Subordinated Notes | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Interest expense for the years ended December
31, 2022 and 2021 on all related party notes payable was $
F-23
Note 9. OPERATING LEASE LIABILITIES
The Company has operating leases for leased office
and manufacturing facilities. The leases have remaining lease terms of
| Year Ended | Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Operating lease cost: | $ | $ | ||||||
| Total lease cost | $ | $ | ||||||
| Other Information | ||||||||
| Cash paid for amounts included in the measurement lease liability: | ||||||||
| Operating cash flow from operating leases | $ | $ | ||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Weighted Average Remaining Lease Term - in years | ||||||||
| Weighted Average discount rate - % | % | % | ||||||
The aggregate undiscounted cash flows of operating lease payments, with remaining terms greater than one year are as follows:
| Amount | ||||
| December 31, 2023 | $ | |||
| December 31, 2024 | ||||
| December 31, 2025 | ||||
| December 31, 2026 | ||||
| Total future minimum lease payments | ||||
| Less: discount | ( | ) | ||
| Total operating lease maturities | ||||
| Less: current portion of operating lease liabilities | ( | ) | ||
| Total long term portion of operating lease maturities | $ | |||
Note 10. LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM DISPOSITION OF SUBSIDIARY
In connection with the sale of the Company’s
wholly-owned subsidiary, AMK Welding, Inc. (“AMK”) to Meyer Tool, Inc., (“Meyer”) in 2017, Meyer was obligated
to pay the Company within 30 days after the end of each calendar quarter, commencing April 1, 2017, an amount equal to five (
In order to increase liquidity, on January 15,
2019, the Company entered into a “Purchase Agreement” with 15 accredited investors (the “Purchasers”), including
Michael and Robert Taglich, pursuant to which the Company assigned to the Purchasers all of its rights, title and interest to the remaining
$
F-24
The Company recognized $
The table below shows the activity within the liability account for the years ended December 31, 2022 and 2021:
| December 31, 2022 | December 31, 2021 | |||||||
| Liabilities related to sale of future proceeds from disposition of subsidiaries - beginning balance | $ | $ | ||||||
| Non-Cash other income recognized | ( | ) | ( | ) | ||||
| Non-Cash interest expense recognized | ||||||||
| Liabilities related to sale of future proceeds from disposition of subsidiary - ending balance | ||||||||
| Less: unamortized transaction costs | ( | ) | ||||||
| Liability related to sale of future proceeds from disposition of subsidiary, net | $ | $ | ||||||
Note 11. STOCKHOLDERS’ EQUITY
On October 4, 2022 the Company announced a reverse
stock split of its authorized, issued and outstanding shares of common stock at a ratio of 1-for-10. The reverse stock split was effective
on October 18, 2022, and its common stock began trading on a post-split-adjusted basis at that time. As result of the reverse stock split
there were no fractional shares issued and all holders were rounded up to the next whole share. An additional
Common Stock – Issuances of Securities
The Company issued
During the first quarter of 2023, the Company
issued
F-25
Note 12. EMPLOYEE BENEFITS PLANS
The Company employs both union and non-union employees and maintains several benefit plans.
Union
Substantially the entire workforce at AIM is
subject to a union contract with the United Service Workers Union TUJAT Local 355, EIN 11-1772919 (the “Union”). The Agreement
was renewed as of December 31, 2021 and expires on December 31, 2024 and covers all of AIM’s production personnel, of which there
are approximately 131 people. AIM is required to make a monthly contribution to each of the Union’s United Welfare Fund and the
United Services Worker’s Security Fund. This is the only pension benefit required by the Agreement and the Company is not obligated
for any future defined benefit to retirees. The Agreement contains a “no-strike” clause, whereby, during the term of the
Agreement, the Union will not strike and AIM will not lockout its employees. Medical benefits for union employees are provided through
a policy with Insperity Services, Inc. (“Insperity”), the costs of which are substantially borne by the Company. In addition,
the Company is obligated to make contributions for union dues and a security fund (defined contribution plan) for the benefit of each
union employee. Contributions to the security fund amounted to $
The Union’s retirement plan is a defined contribution plan. As such, the Company is not responsible for the obligations of other companies in the Union’s retirement plan.
Others
All of the Company’s employees are covered under a co-employment agreement with Insperity, a professional employer organization that provides out-sourced human resource services.
The Company has defined contribution plans under Section 401(k) of the Internal Revenue Code (the “Plans”). Pursuant to the Plans, qualified employees may contribute a percentage of their pre-tax eligible compensation to the Plan. The Company does not match any contributions that employees may make to the Plans.
Note 13. CONTINGENCY
On October 2, 2018, Contract Pharmacal Corp. (“Contract
Pharmacal”) commenced an action, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with
respect to the property that was formerly occupied by the Company’s former subsidiary WMI, at 110 Plant Avenue, Hauppauge, New York.
In the action Contract Pharmacal sought damages for an amount in excess of $
From time to time the Company may be engaged in various lawsuits and legal proceedings in the ordinary course of business. The Company is currently not aware of any legal proceedings the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business, financial condition or operating results. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest.
F-26
Note 14. INCOME TAXES
The provision for income taxes for the years ended December 31, 2022 and 2021, is set forth below:
| Current and Deferred | Year
Ended | Year
Ended | ||||||
| Federal | $ | $ | ||||||
| States | ||||||||
| Total Provision for Income Taxes | $ | $ |
The following is a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate for the years ended December 31, 2022 and 2021 is set forth below:
| Year Ended December 31, 2022 | Year Ended December 31, 2021 As Revised | |||||||
| U.S. statutory income tax rate | % | % | ||||||
| State taxes, net of federal benefit | % | % | ||||||
| Permanent difference, overaccruals, and non-deductible items | ( | )% | % | |||||
| Change in state rate | % | % | ||||||
| Deferred tax valuation allowance | ( | )% | ( | )% | ||||
| Other | ( | )% | ( | )% | ||||
| Total | % | % | ||||||
The components of net deferred tax assets at December 31, are set forth below:
| December 31, | ||||||||
| December 31, 2022 | 2021 As Revised | |||||||
| Deferred tax assets: | ||||||||
| Current: | ||||||||
| Net operating loss | $ | $ | ||||||
| Allowance for doubtful accounts | ||||||||
| Inventory - IRC 263A adjustment | ||||||||
| Stock based compensation - options and restricted stock | ||||||||
| Capitalized engineering costs | ||||||||
| Amortization - NTW Transaction | ||||||||
| Inventory reserve | ||||||||
| Deferred gain on sale of real estate | ||||||||
| Accrued expenses | ||||||||
| Disallowed interest | ||||||||
| Operating lease liabilities | ||||||||
| Total deferred tax asset before valuation allowance | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax asset after valuation allowance | ||||||||
| Deferred tax liabilities: | ||||||||
| Property and equipment | ( | ) | ( | ) | ||||
| Operating Lease ROU assets | ( | ) | ( | ) | ||||
| Total deferred tax liabilities | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
During the year ended December 31, 2022, the Company determined that certain attributes of Deferred Tax Assets and Liabilities were incorrect for December 31, 2021 and 2020. See Note 16 for further information.
F-27
During the years ended December 31, 2022 and 2021, the Company recorded
a valuation allowance equal to its net deferred tax assets. The Company determined that due to a recent history of net losses, at this
time sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. If, in
the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances
will be reduced or eliminated. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a
corresponding change in the valuation allowance. At December 31, 2022 and 2021, the Company provided a valuation allowance on its net
deferred tax assets of $
As of December 31, 2022, the Company had a
Federal net operating loss carry forward of approximately $
At December 31, 2022 and 2021, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in interest expense. As of December 31, 2022, and 2021, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.
In certain cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations. The 2019 through 2022 tax years generally remain subject to examination by federal and state tax authorities.
In August 2022, the Inflation Reduction Act of
2022, (the “IRA”), was signed into law which includes a stock buyback excise tax of
Note 15. STOCK OPTIONS AND WARRANTS
Stock-Based Compensation
Stock Options
In June 2022, the shareholders of the Company
approved the adoption of the Company’s 2022 Equity Incentive Plan (“2022 Plan”) which authorized the grant of rights
with respect to up to
During the years ended December 31, 2022 and 2021, the Company granted
options to purchase
The Company recorded stock based compensation expense
of $
The fair values of stock options granted were estimated using the Black-Sholes option-pricing model with the following assumptions for the years ended December 31:
| 2022 | 2021 | |||||||
| Risk-free interest rates | % | % | ||||||
| Expected life (in years) | ||||||||
| Expected volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
| Weighted-average grant date fair value per share | $ | $ | ||||||
The expected life is the number of years that the Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. In addition to the inputs referenced above regarding the option pricing model, the Company adjusts the stock-based compensation expense for estimated forfeiture rates that are revised prospectively according to forfeiture experience. The stock volatility factor is based on the Company’s experience.
F-28
A summary of the status of the Company’s stock options as of December 31, 2022 and 2021, and changes during the two years then ended are presented below.
| Wtd. Avg. | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| Balance, January 1, 2021 | $ | |||||||
| Granted during the year | ||||||||
| Exercised during the year | ( | ) | ||||||
| Terminated/Expired during the year | ( | ) | ||||||
| Balance, December 31, 2021 | $ | |||||||
| Granted during the year | ||||||||
| Exercised during the year | ||||||||
| Terminated/Expired during the year | ( | ) | ||||||
| Balance, December 31, 2022 | $ | |||||||
| Exercisable at December 31, 2022 | $ | |||||||
Issuance of Stock Options
Issued in 2022
On January 31, 2022, the Company granted certain
employees, stock options to purchase an aggregate of
On April 6, 2022, the Company granted to its directors,
stock options to purchase an aggregate of
On April 11, 2022, the Company granted to certain
members of management and certain employees, stock options to purchase an aggregate of
Issued in 2021
On January 11, 2021, the Company granted to its
directors, stock options to purchase an aggregate of
On March 24, 2021, the Company granted to certain
members of management and certain employees, stock options to purchase an aggregate of
On July 30, 2021, the Company granted to certain
members of management and certain employees, stock options to purchase an aggregate of
On January 11, 2021, the Company granted to its
directors, stock options to purchase an aggregate of
The following table summarizes information about outstanding stock options at December 31, 2022:
| Range of Exercise Price | Number Outstanding | Wtd. Avg, Life | Wtd. Avg. Exercise Price | |||||||||
| $ | $ | |||||||||||
F-29
The following table summarizes information about exercisable stock options at December 31, 2022:
| Range of Exercise Price | Number Exercisable | Wtd. Avg, Life | Wtd. Avg. Exercise Price | |||||||||
| $ | $ | |||||||||||
As of December 31, 2022, there was $
The aggregate intrinsic value at December 31,
2022 was based on the Company’s closing stock price of $
The weighted average fair value of options granted
during the years ended December 31, 2022 and 2021 was $
Warrants
During both the years ended December 31, 2022 and 2021, the Company did not issue any warrants.
The following tables summarize the Company’s outstanding warrants as of December 31, 2022 and changes during the two years then ended:
| Wtd. Avg. | ||||||||||||
| Wtd. Avg. | Remaining | |||||||||||
| Exercise | Contractual | |||||||||||
| Warrants | Price | Life (years) | ||||||||||
| Balance, January 1, 2021 | $ | |||||||||||
| Granted during the period | ||||||||||||
| Terminated/Expired during the period | ( | ) | ||||||||||
| Balance, December 31, 2021 | $ | |||||||||||
| Granted during the period | ||||||||||||
| Terminated/Expired during the period | ( | ) | $ | |||||||||
| Balance, December 31, 2022 | $ | |||||||||||
| Exercisable at December 31, 2022 | $ | |||||||||||
The aggregate intrinsic value at both December
31, 2022 and 2021 was $
Note 16. Revision of Previously Issued Consolidated Financial Statement
Due to errors discovered in the Company’s 2020 tax return, the Company revised certain previously issued disclosures related to the components of its deferred tax assets and liabilities and valuation allowance as of December 31, 2021 and 2020. Additionally, the Company has revised the reconciliation of its income tax rate computed using the federal statutory rate for the year ended December 31, 2021. The errors related primarily to the misapplication of the carryback of net operating losses under the CARES Act provision and mathematical errors related to the Company’s inventory reserve. Since the Company provided a full valuation allowance on its net deferred tax assets, there was no impact to the Consolidated Balance Sheet as of December 31, 2021 and the Consolidated Statements of Operations, Cash Flows and Stockholders’ Equity for the year ended December 31, 2021. As a result of the errors, the Company will be amending its 2020 and 2021 income tax returns.
The Company had previously disclosed that its net operating loss carry
forward as of December 31, 2021 was $
F-30
The below table summarizes the revisions to the reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate for the year ended December 31, 2021:
| Year Ended December 31, | Year Ended December 31, | |||||||||||
| 2021 As Reported | Adjustment | 2021 As Revised | ||||||||||
| U.S. statutory income tax rate | % | % | % | |||||||||
| State taxes, net of federal benefit | % | ( | )% | % | ||||||||
| Permanent difference, overaccruals, and non-deductible items | ( | )% | % | % | ||||||||
| Change in state rate | % | % | % | |||||||||
| Deferred tax valuation allowance | % | ( | )% | ( | )% | |||||||
| Other | % | ( | )% | ( | )% | |||||||
| Total | % | % | % | |||||||||
The table below summarizes the revisions to the attributes of the Deferred Tax Assets as of December 31, 2021:
| December 31, | December 31, | |||||||||||
2021 As Reported | Adjustment | 2021 As Revised | ||||||||||
| Deferred tax assets: | ||||||||||||
| Net operating loss | $ | $ | ( | ) | $ | |||||||
| Allowance for doubtful accounts | ( | ) | ||||||||||
| Inventory - IRC 263A adjustment | ( | ) | ||||||||||
| Stock based compensation - options and restricted stock | ( | ) | ||||||||||
| Capitalized engineering costs | ( | ) | ||||||||||
| Amortization - NTW Transaction | ||||||||||||
| Inventory reserve | ( | ) | ||||||||||
| Deferred gain on sale of real estate | ( | ) | ||||||||||
| Accrued expenses | ( | ) | ||||||||||
| Disallowed interest | ||||||||||||
| Operating lease liability | ||||||||||||
| Capital loss carryforward | ( | ) | ||||||||||
| Total non-current deferred tax asset before valuation allowance | ( | ) | ||||||||||
| Valuation allowance | ( | ) | ( | ) | ||||||||
| Total non-current deferred tax asset after valuation allowance | ||||||||||||
| Deferred tax liabilities: | ||||||||||||
| Property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Operating lease ROU assets | ( | ) | ( | ) | ||||||||
| Total deferred tax liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net deferred tax asset | $ | $ | $ | |||||||||
F-31
The table below summarizes the revisions to the attributes of the Deferred Tax Assets as of December 31, 2020:
| December 31, | December 31, | |||||||||||
| 2020 As Reported | Adjustment | 2020 As Revised | ||||||||||
| Deferred tax assets: | ||||||||||||
| Net operating loss | $ | $ | ( | ) | $ | |||||||
| Allowance for doubtful accounts | ( | ) | ||||||||||
| Inventory - IRC 263A adjustment | ( | ) | ||||||||||
| Stock based compensation - options and restricted stock | ( | ) | ||||||||||
| Capitalized engineering costs | ||||||||||||
| Deferred Rent | ||||||||||||
| Amortization - NTW Transaction | ( | ) | ||||||||||
| Inventory reserve | ( | ) | ||||||||||
| Deferred gain on sale of real estate | ( | ) | ||||||||||
| Accrued expenses | ( | ) | - | |||||||||
| Disallowed interest | ( | ) | ||||||||||
| Operating lease liability | ||||||||||||
| Total non-current deferred tax asset before valuation allowance | ( | ) | ||||||||||
| Valuation allowance | ( | ) | ( | ) | ||||||||
| Total non-current deferred tax asset after valuation allowance | ||||||||||||
| Deferred tax liabilities: | ||||||||||||
| Property and equipment | ( | ) | ( | ) | ||||||||
| Operating lease ROU assets | - | ( | ) | ( | ) | |||||||
| Other | ( | ) | ||||||||||
| Total deferred tax liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net deferred tax asset | $ | $ | $ | - | ||||||||
Note 17. Subsequent Events
On April 18, 2023, we received a notice from NYSE American (the “Exchange”) stating that the Company is not in compliance with the continued listing standards of the Exchange under the timely filing criteria included in Section 1007 of the NYSE American Company Guide because the Company failed to file by the extended due date of April 17, 2023, its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”).
In accordance with Section 1007 of the Company Guide, the Company will have six months from the date of the filing delinquency, or until October 17, 2023 (the “Initial Cure Period”), to file the Form 10-K with the Securities and Exchange Commission. If the Company fails to file the Form 10-K during the Initial Cure Period, the Exchange may, in its sole discretion, provide an additional six-month cure period depending on the Company’s specific circumstances.
Upon filing of the Form 10-K the Company will cure this delinquency.
F-32
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Air Industries Group and Subsidiaries (the “Company”) on Form S-8 (Registration Nos. 333-264738, 333-191560, 333-206341, 333-217393 and 333-219487) of our report dated May 16, 2023 with respect to our audit of the consolidated financial statements of the Company as of December 31, 2022 and for the year then ended, which report is included in this Annual Report on Form 10-K of the Company for the year ended December 31, 2022.
Our report on the consolidated financial statements contain an explanatory paragraph regarding adjustments described in Note 16 to the consolidated financial statements that were applied to restate the 2021 financial statements to correct errors. We were not engaged to audit, review, or apply any procedures to the 2021 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2021 financial statements taken as a whole.
/s/ Marcum llp
Marcum LLP
Saddle Brook, New Jersey
May 16, 2023
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference of our report dated March 25, 2022 on our audit of the consolidated financial statements of Air Industries Group and Subsidiaries (the “Company”) as of and for the year ended December 31, 2021, which report was included in the Annual Report on Form 10-K of the Company filed May 16, 2023, in the Company’s Registration Statements on Form S-8 (Registration Nos. 333-264738, 333-191560, 333-206341, 333-217393 and 333-219487).
Our report on the 2021 consolidated financial statements indicates that we were not engaged to audit, review, or apply any procedures to the adjustments for the correction of the errors described in Note 16 to the financial statements, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Marcum LLP.
/s/ Rotenberg Meril Solomon Bertiger & Guttilla, P.C.
Rotenberg Meril Solomon Bertiger & Guttilla, P.C.
Certified Public Accountants
Saddle Brook, New Jersey
May 16, 2023
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Luciano Melluzzo, certify that:
1. I have reviewed this annual report on Form 10-K of Air Industries Group;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: May 16, 2023
| /s/ Luciano Melluzzo | |
| Luciano Melluzzo | |
| Chief Executive Officer | |
| Principal Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Michael E. Recca, certify that:
1. I have reviewed this annual report on Form 10-K of Air Industries Group;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated: May 16, 2023
| /s/ Michael Recca | |
| Michael Recca | |
| Chief Financial Officer | |
| Principal Financial Officer |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Air Industries Group, a Nevada corporation (the “Company”), on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “Report”), Luciano Melluzzo, Chief Executive Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Dated: May 16, 2023
| /s/ Luciano Melluzzo | |
| Luciano Melluzzo | |
| Chief Executive Officer | |
| Principal Executive Officer |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Annual Report of Air Industries Group, a Nevada corporation (the “Company”), on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “Report”), Michael E. Recca, Chief Financial Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| /s/ Michael Recca | |
| Michael Recca | |
| Chief Financial Officer | |
| Principal Financial Officer |
Dated: May 16, 2023
[A signed original of this written statement required by Section 906 has been provided to Air Industries Group and will be retained by Air Industries Group and furnished to the Securities and Exchange Commission or its staff upon request.]
Consolidated Balance Sheets (Parentheticals) - USD ($) |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance for doubtful accounts (in Dollars) | $ 281,000 | $ 594,000 |
| Preferred stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 3,000,000 | 3,000,000 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 6,000,000 | 6,000,000 |
| Common stock, shares issued | 3,247,937 | 3,212,801 |
| Common stock, shares outstanding | 3,247,937 | 3,212,801 |
Consolidated Statements of Operations - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Income Statement [Abstract] | ||
| Net Sales | $ 53,238,000 | $ 58,939,000 |
| Cost of Sales | 45,786,000 | 48,686,000 |
| Gross Profit | 7,452,000 | 10,253,000 |
| Operating Expenses | 7,646,000 | 7,766,000 |
| (Loss) Income from Operations | (194,000) | 2,487,000 |
| Interest and Financing Costs | (851,000) | (805,000) |
| Interest Expense - Related Parties | (487,000) | (460,000) |
| Other Income, Net | 139,000 | 405,000 |
| Gain on write-off of accounts payable | 317,000 | |
| (Loss) Income before Provision for Income Taxes | (1,076,000) | 1,627,000 |
| Provision for Income Taxes | ||
| Net (Loss) Income | $ (1,076,000) | $ 1,627,000 |
| (Loss) Income per share – Basic (in Dollars per share) | $ (0.33) | $ 0.51 |
| (Loss) Income per share – Diluted (in Dollars per share) | $ (0.33) | $ 0.45 |
| Weighted Average Shares Outstanding – basic (in Shares) | 3,227,116 | 3,204,937 |
| Weighted Average Shares Outstanding – diluted (in Shares) | 3,227,116 | 3,642,418 |
Organization and Basis of Presentation |
12 Months Ended |
|---|---|
Dec. 31, 2022 | |
| Formation and Basis of Presentation [Abstract] | |
| ORGANIZATION AND BASIS OF PRESENTATION | Note 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Air Industries Group is a Nevada corporation (“AIRI”). As of and for the year ended December 31, 2022 and 2021, the accompanying consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries; Air Industries Machining Corp. (“AIM”), Nassau Tool Works, Inc. (“NTW”), and the Sterling Engineering Corporation (“Sterling”), (together, the “Company”).
Principal Business Activity
The Company is a Tier 1 or Tier 2 manufacturer of precision assemblies and components for mission-critical aerospace and defense applications and a prime contractor to the U.S. Department of Defense. The Company’s AIM and NTW subsidiaries manufacture flight critical or flight safety aircraft components including landing gear, arresting gear, flight controls, primarily for military aircraft, including the UH-60 Helicopter, the E2-D, and F-35, F-18 fighter aircraft, and the Pratt & Whitney Geared Turbofan jet engine. Sterling manufactures components used in jet engines of military and commercial aircraft and ground power turbine engines. The Company’s primary customers are large publicly traded companies including the four largest suppliers to the US Department of Defense.
Basis of Presentation
The accompanying consolidated financial statements of the Company included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission.
Historically the Company operated its businesses and reported its results as two separate segments with AIM and NTW comprising the Complex Machining segment (“CMS”) and Sterling as the Turbine & Engine Component segment (“TEC”). The CMS segment specialized in flight critical components including flight controls and landing gear. The TEC segment focused on manufacturing components for jet engines. Along with its operating subsidiaries, the Company reported the results of its corporate division as an independent segment.
In recent years the Company integrated and consolidated the business of AIM and NTW into one facility on Long Island and the operations of its CMS and TEC segments have become increasingly integrated. The Company also made significant capital expenditures and all of its operations now share the same manufacturing facilities and use most, if not all, of the same sales and marketing functions. The Company made these changes to take advantage of the long-term growth opportunities it sees in the aerospace and defense market. In early fiscal 2022, the Company further changed its management approach and is now making decisions about resources to be allocated and assesses performance based on one integrated business rather than two reporting segments. As such, effective with the fiscal quarter ended March 31, 2022, the Company is presenting its operations as one reportable operating segment.
Liquidity
At each reporting period, management evaluates whether there are conditions or events that raise any substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company is required to make certain additional disclosures if management concludes that if substantial doubt exists about the Company’s ability to continue as a going concern provided that such doubt is not alleviated by the Company’s plans or when the Company’s plans alleviate substantial doubt about its ability to continue as a going concern. This evaluation entails analyzing prospective operating budgets and forecasts for expectations regarding cash needs and comparing those needs to the current cash and cash equivalent balance and expectations regarding cash to be generated over the following year.
The global outbreak of COVID-19 negatively impacted the Company’s revenues, earnings and operating cash flows in 2020. While operations substantially returned to normal in fiscal 2021 and 2022, there remains some substantial issues and problems receiving raw materials and prompt processing of its products.
With fiscal 2022 now completed and the Company continuing to see the benefits from its recent investments in machinery and equipment, management believes the Company will continue to improve its liquidity. During 2022, the Company generated $448,000 of cash from operating activities. Based on the Company’s current best estimates of fiscal 2023 and first half of fiscal 2024 sales, confirmed orders from existing backlog and expected orders from existing and new customers expected timing of future cash receipts and expenditures and the Company’s ability to access additional liquidity, if needed, the Company firmly believes it will have adequate cash to support operations through at least one year from the date of the accompanying financial statements are issued.
Reverse Stock Split
On October 4, 2022, the Company announced a reverse stock split of its authorized, issued and outstanding shares of common stock at a ratio of 1-for-10. The reverse stock split was effective on October 18, 2022, and its common stock began trading on a post-split-adjusted basis at that time. All share and per share amounts of its common stock presented have been retroactively adjusted to reflect the 1-for-10 reverse stock split. As result of the reverse stock split there were no fractional shares issued and all holders were rounded up to the next whole share. See Note 11 – Stockholders’ Equity for more information. |
Summary of Significant Accounting Policies |
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| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.
Inventory Valuation
The Company values inventory at the lower of cost on a first-in-first-out basis or an estimated net realizable value.
The Company generally purchases raw materials and supplies uniquely suited to the production of larger more complex parts, such as landing gear, only when non-cancellable contracts for orders have been received for finished goods. It occasionally produces larger more complex products, such as landing gear, in excess of purchase order quantities in anticipation of future purchase order demand, when it is economically advantageous to do so, since historically this excess has been used in fulfilling future purchase orders. The Company purchases supplies and materials useful in a variety of products as deemed necessary even though orders have not been received. The Company periodically evaluates inventory items that are not secured by purchase orders and establishes write-downs to estimated net realizable value. The Company writes-down inventory to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for other impairments of value.
Property and Equipment
Property and equipment are carried at cost net of accumulated depreciation and amortization. Repair and maintenance charges are expensed as incurred. Property, equipment, and improvements are depreciated using the straight-line method over the estimated useful lives of the assets or the particular improvements. Expenditures for repairs and improvements in excess of $10,000 that add to the productive capacity or extend the useful life of an asset are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in earnings.
Long-Lived and Intangible Assets
Identifiable intangible assets are amortized using the straight-line method over the period of expected benefit.
Long-lived assets and intangible assets subject to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired. The Company records an impairment loss if the undiscounted future cash flows are found to be less than the carrying amount of the asset. If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to fair value.
Deferred Financing Costs
Costs incurred with obtaining and executing revolving debt arrangements are capitalized and recorded in other current assets and amortized using the effective interest method over the term of the related debt. Costs incurred with obtaining and executing other debt arrangements are presented as a direct deduction from the carrying value of the associated debt and also amortized using the effective interest method over the term of the related debt. The amortization of financing costs is included in interest and financing costs in the Consolidated Statements of Operations.
Contract Costs Receivable
Contract costs receivable represent costs to be reimbursed from a terminated contract. The Company expects to collect the receivable in the next twelve months. Contract costs receivable totals $296,000 and $0 as of December 31, 2022 and 2021, respectively.
Revenue Recognition
The Company recognizes revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.
Revenue is recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). In evaluating our contracts with our customers, we have determined that there is no future performance obligation once delivery has occurred.
Our revenue is generated from fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price, which we estimate during the bidding process before the contract is awarded. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.
We evaluate the products promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Our contracts are typically accounted for as one performance obligation. We classify net sales as products on our consolidated statements of operations based on the predominant attributes of the performance obligations.
We determine the transaction price for each contract based on the consideration we expect to receive for the products being provided under the contract.
At the inception of a contract, we estimate the transaction price based on our current rights and do not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts can be subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts are not distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract. Therefore, such modifications are accounted for as if they were part of the existing contract and recognized as a cumulative adjustment to revenue.
We recognize revenue at the point in time in which the performance obligation is fully satisfied. This is fully satisfied when the product has shipped, which is the point in time the customer obtains control of the product and we no longer maintain control of the product.
The Company’s rights to payments for goods transferred to customers are conditional only on the passage of time and not on any other criteria. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 75 days.
Payments received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized. The Terms and Conditions contained in our customer purchase orders often provide for liquidated damages in the event that a stop work or contract termination order is issued prior to final delivery. While the products we manufacture are specific to the type of aircraft that they are used on, there are alternate customers that can acquire and utilize these products. The Company utilizes a Returned Merchandise Authorization or RMA process for determining whether to accept returned products. Customer requests to return products are reviewed by the contracts department and if the request is approved, a credit is issued upon receipt of the product. Net sales represent gross sales less these returns and allowances.
Customer Deposits
The Company receives advance payments on certain contracts with the remainder of the contract balance due upon the shipment of the final product once the customer inspects and approves the product for shipment. At that time, the entire amount will be recognized as revenue and the deposit will be applied to the customer’s invoice.
At December 31, 2022 and 2021, customer deposits were $781,000 and $1,470,000 respectively. The Company recognized revenue of $440,000 during year ended December 31, 2022, that was included in the customer deposits balance as of December 31, 2021. The Company recognized revenue of $507,000 during the year ended December 31, 2021, that was included in the customer deposits balance of $917,000 as of December 31, 2020.
Backlog
Backlog represents executed non-cancellable contracts that represent firm purchase orders that are deliverable over the next 18-month period. As of December 31, 2022, backlog relating to remaining performance obligations in contracts was approximately $60,000,000. The Company expects to recognize revenue amounts in future periods related to these remaining performance obligations as follows: approximately $22,500,000 to $26,500,000 from January 1, 2023 - June 30, 2023, and approximately $15,000,000 to $18,000,000 from July 1, 2023 through December 31, 2023. This expectation assumes that raw material suppliers and outsourced processing is completed and delivered on-time and that the Company’s customers will accept delivery as scheduled. The Company anticipates that sales during the aforementioned periods will also include sales pursuant to contracts that are not currently in backlog.
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. The more significant management estimates are the allowance for doubtful accounts, useful lives of property and equipment, provisions for obsolescence, excess and slow moving inventory, accrued expenses and income taxes, which includes the determination of the valuation allowance for deferred tax assets. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.
Credit and Concentration Risks
A large percentage of the Company’s revenues are derived from a small number of customers for U.S. Military Aviation.
There were four customers that represented 76.5% of total sales, and three customers that represented 75.4% of total sales for the years ended December 31, 2022 and 2021, respectively. This is set forth in the table below.
There were three customers that represented 70.3% of gross accounts receivable and three customers that represented 74.7% of gross accounts receivable at December 31, 2022 and 2021, respectively. This is set forth in the table below.
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the years ended December 31, 2022 and 2021:
Cash
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.
Major Suppliers
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.
Income Taxes
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse.
The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate, on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.
The Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740 which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Subtopic provides guidance on the de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Earnings (Loss) per share
Basic earnings (loss) per share (“EPS”) 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.
For purposes of calculating diluted earnings (loss) per common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first day of the period. The denominator includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method.
The following is the calculation of income applicable to common stockholders utilized to calculate the numerator for EPS:
The following is a reconciliation of the denominators of basic and diluted EPS computations:
The following securities have been excluded from the calculation as the exercise price was greater than the average market price of the common shares:
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 and stock grants at their closing reported market value. Stock compensation expense for employees amounted to $310,000 and $443,000 for the years ended December 31, 2022 and 2021, respectively. Stock compensation expense for directors amounted to $216,000 and $210,000 for the years ended December 31, 2022 and 2021, respectively. Stock compensation expenses for employees and directors were included in operating expenses in the accompanying Consolidated Statements of Operations.
Goodwill
Goodwill represented 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 December 31, 2021 related to the acquisition of NTW.
The Company accounts for the impairment of goodwill under the provisions of ASU 2017-04 (“ASU 2017-04”), “Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
The Company performed impairment testing for goodwill annually, or more frequently when indicators of impairment existed.
The Company determined that the goodwill was fully impaired at December 31, 2022. The impairment charge of $163,000 is included in operating expenses in the Consolidated Statement of Operations.
Freight Out
Freight out is included in operating expenses and amounted to $162,000 and $135,000 for the years ended December 31, 2022 and 2021, respectively.
Leases
In accordance with FASB ASC 842, “Leases” (“ASC 842”), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classifies them as either operating or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of- use asset is recorded in operating expenses and an implied interest component is recorded in interest expense.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component.
Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.
An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option.
Recently Issued Accounting Pronouncements
Effective January 1, 2022, the Company adopted ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06), which is intended to address issues identified as a result of the complexity associated with applying accounting principles generally accepted in the United States of America for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis of feedback from financial statement users. The adoption of ASU 2020-06 did not have a material effect on the Company’s financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.
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 consolidated financial statements. |
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Accounts Receivable |
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| ACCOUNTS RECEIVABLE | Note 3. ACCOUNTS RECEIVABLE
The components of accounts receivable at December 31, are detailed as follows:
The allowance for doubtful accounts for the years ended December 31, 2022 and 2021 is as follows:
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Inventory |
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| INVENTORY | Note 4. INVENTORY
The components of inventory at December 31, consisted of the following:
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Property and Equipment |
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| PROPERTY AND EQUIPMENT | Note 5. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, consisted of the following:
Depreciation expense for the years ended December 31, 2022 and 2021 was approximately $2,522,000 and $2,803,000, respectively. Assets held under finance lease obligations are depreciated over the shorter of their related lease terms or their estimated productive lives. Depreciation of assets under finance leases is included in depreciation expense for 2022 and 2021. Accumulated depreciation on these assets was approximately $0 and $36,000 as of December 31, 2022 and 2021, respectively. |
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Accounts Payable and Accrued Expenses |
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| ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Note 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses at December 31, are detailed as follows:
During the year ending December 31, 2022, the Company, reviewed all old outstanding payables that were not paid and based on the statute of limitations, a claim would no longer be enforceable. The Company determined that approximately $317,000 of old payables fell into this category. This adjustment is recorded as Write-off of accounts payable on the accompanying Statement of Operations. |
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Sale and Leaseback Transaction |
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| SALE AND LEASEBACK TRANSACTION | Note 7. SALE AND LEASEBACK TRANSACTION
On October 24, 2006, the Company consummated a Sale - Leaseback Arrangement, whereby the Company sold the buildings and real property located in Bay Shore, New York (the “Bay Shore Property”) for a purchase price of $6,200,000. The Company realized a gain on the sale of $1,051,000 of which $300,000 was recognized during the year ended December 31, 2006. The remaining $751,000 is being recognized ratably over the remaining term of the twenty - year lease at approximately $38,000 per year. The gain is included in Other Income in the accompanying Consolidated Statements of Operations. The unrecognized portion of the gain in the amount of $143,000 and $181,000 as of December 31, 2022 and 2021, respectively, is classified as Deferred Gain on Sale in the accompanying Consolidated Balance Sheets.
The Company accounted for these transactions under the provisions of FASB ASC 840-40, “Leases-Sale-Leaseback Transactions.”
Simultaneous with the closing of the sale of the Bay Shore Property, the Company entered into a 20-year triple- net lease (the “Lease”) expiring in September 2026 with the purchaser for the property. Base annual rent is approximately $540,000 for the first five years, $560,000 for the sixth year, and thereafter increases 3% per year. The Lease grants the Company an option to renew the Lease for an additional period of five years. The Company has on deposit with the purchaser $89,000 as security for the performance of its obligations under the Lease. In addition, at December 31, 2021, the Company had on deposit $150,000 with the purchaser as security for the completion of certain repairs and upgrades to the Bay Shore Property. In 2020, the landlord utilized the amounts on deposit to install air conditioning throughout the manufacturing facility. At December 31, 2022, this amount was included in the caption Deferred Finance costs, Net, Deposit and Other Assets in the accompanying Consolidated Balance Sheets. Pursuant to the terms of the Lease, the Company is required to pay all of the costs associated with the operation of the facilities, including, without limitation, insurance, taxes and maintenance. The lease also contains customary representations, warranties, obligations, conditions and indemnification provisions and grants the purchaser customary remedies upon a breach of the lease by the Company, including the right to terminate the Lease and hold the Company liable for any deficiency in future rent. See Note 9 – Operating Lease Liabilities. |
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| DEBT | Note 8. Debt
Debt consists of the following:
Webster Bank (F/K/A Sterling National Bank) (“Webster”)
The Company has a loan facility (“Webster Facility”) with Webster Bank that expires on December 30, 2025. The Webster Facility, which was entered into on December 31, 2019, was amended several times, and now provides for a $20,000,000 revolving loan (“Revolving Line of Credit”), a $5,000,000 term loan (“Term Loan”) and a $2,000,000 Equipment Line of Credit, which as it is drawn upon is added to the balance of the Term Loan.
As of December 31, 2022, there was $1,122,000 remaining available under the equipment line of credit. The below table shows the timing of payments due under the Term Loan:
As of December 31, 2022, our debt to Webster in the amount of $18,748,000 consisted of the Webster Revolving Loan in the amount of $13,352,000 and the Webster term loan in the amount of $5,396,000 which includes $878,000 of what was drawn on the equipment line of credit.
Interest expense related to the Webster Facility amounted to approximately $780,000 and $704,000 for the years ended December 31, 2022 and 2021, respectively.
The below summarizes historical amendments to the Webster Facility and various terms:
In 2020, the Company entered into the First Amendment to the Webster Facility which increased the Term Loan to $5,685,000 and required the Company to make monthly principal installments in the amount of $67,679 beginning on December 1, 2020. Other minor modifications were made and the Company paid an amendment fee of $20,000.
In June 2021, the Company entered into the Second Amendment to the Webster Facility, which clarified the definition and calculation of Excess Cash Flow, and to confirm the due date of the required payment of the Excess Cash Flow. For so long as the Webster term loan remains outstanding, if Excess Cash Flow (as defined) is a positive number for any fiscal year the Company shall pay to Webster an amount equal to the lesser of (i) twenty-five percent (25%) of the Excess Cash Flow for such fiscal year and (ii) the outstanding principal balance of the term loan. Such payment shall be made to Webster and applied to the outstanding principal balance of the term loan, on or prior to the April 15 immediately following such fiscal year. In connection with these changes, the Company paid an amendment fee of $10,000. The Company made Excess Cash Flow payments of $558,750 in 2021 (for the fiscal year ended December 31, 2020) and $854,000 in April 2022 (for fiscal year ended December 31, 2021). As required, the Company provided the calculation for the Excess Cash Flow payment of $208,000 for fiscal year ended December 31, 2022 to Webster prior to the April 15, 2023 deadline for such payment. Additionally, the Company authorized such payment to be made from the Revolving Loan. As of the date of this filing such payment has not been processed by Webster.
On December 7, 2021, the Company entered into the Third Amendment to the Webster Facility (“Third Amendment”). The purpose of the amendment was to provide a maturity date for the Webster Facility of December 30, 2025 as compared to the original maturity date of December 30, 2022. Such amendment also increased the Revolving Line of Credit to its current limit of $20,000,000 (up from the original $16,000,000) and also provided for a similar increase in the inventory sublimit to $14,000,000 (up from the original $11,000,000). The Third Amendment, also allows the Company, subject to certain limitations, to begin amortizing $250,000 of its related party subordinated notes payable each quarter as long as certain conditions are met. In connection with these changes, the Company paid an amendment fee of $75,000.
On May 17, 2022, the Company entered into the Fourth Amendment to the Webster Facility (“Fourth Amendment”). The purpose of the amendment was to increase the Term Loan to $5,000,000, generating proceeds of $1,945,000, reduce the monthly principal installments to be made in respect to the term loan, and establish a capital expenditure line of credit in the amount of $2,000,000 which the Company can draw upon from time to time to finance purchases of machinery and equipment, thereby increasing the amount of capital expenditures that the Company may make each year. The principal payments are $59,524 per month commencing in June 2022 with a balloon payment due on December 30, 2025. In connection with these changes, the Company paid an amendment fee of $20,000.
On December 15, 2022, the Company made a draw against the capital expenditure line of credit in the amount of $877,913. The principal payments are $10,451 per month commencing in February 2023 with a balloon payment due on December 30, 2025.
On January 4, 2023, the Company made an additional draw against the capital expenditure line of credit in the amount of $739,500. The principal payments are $8,804 per month commencing in March 2023 with a balloon payment due on December 30, 2025.
Under the terms of the Webster Facility, both the Webster revolving line of credit and the Webster term loan will bear an interest rate equal to the greater of (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum. The average interest rate charged was 4.50% and 3.50% for the years ended December 31, 2022 and 2021, respectively.
Amendment fees paid in connection with the Webster Facility are included in Deferred Financing Costs, Net, Deposits and Other Assets, in the accompanying Condensed Consolidated Balance Sheets and are amortized over the term of the loan.
In connection with the Webster Facility, the Company is required to maintain a defined Fixed Charge Coverage Ratio of 1.25 to 1.00 at the end of each Fiscal Quarter. The Webster Facility limits the amount of Capital Expenditures and dividends the Company can pay to its stockholders. Substantially all of the Company’s assets are pledged as collateral under the Webster Facility.
As of December 31, 2022, the Company was in compliance with all financial loan covenants. However, the Company was in default of its covenant to provide its audited financial statements to Webster bank within ninety (90) days of its fiscal year end. The Company has subsequently received a waiver from the bank for this default.
Finance Lease Obligations
The Company entered into a finance lease in November of 2022 for the purchase of new manufacturing equipment. The obligation for the finance lease totaled $328,000 as of December 31, 2022. The lease has an imputed interest rate of 7.48% per annum and is payable monthly with the final payment due in September of 2026.
The Company entered into a finance lease in December of 2021 for the purchase of new manufacturing equipment. The obligation for the finance lease totaled $0 and $263,000 as of December 31, 2022 and 2021, respectively. The lease had an imputed interest rate of 4.2% per annum and was payable monthly with the final payment due on December 17, 2026. In connection with the Fourth Amendment to the Webster Facility, this finance lease was paid in full.
As of December 31, 2022, the aggregate future minimum Finance lease payment, including imputed interest are as follows:
Loans Payable – Financed Assets
The Company financed the purchase a delivery vehicle in July 2020. The loan obligation totaled $30,000 and $39,000 as of December 31, 2022 and 2021, respectively. The loan bears no interest and a final payment is due and payable for all unpaid principal on July 20, 2026.
Annual maturities of this loan are as follows:
Related Party Notes Payable
Taglich Brothers, Inc. is a corporation co-founded by two directors of the Company, Michael and Robert Taglich.
Taglich Brothers, Inc. has acted as placement agent for various debt and equity financing transactions and has received cash and equity compensation for their services.
From 2016 through 2020, the Company entered into various subordinated notes payable and convertible subordinated notes payable with Michael and Robert Taglich. These notes resulted in proceeds to the Company totaling $6,550,000. In connection with these notes, Michael and Robert were issued a total of 35,508 shares of common stock and Taglich Brothers, Inc. was issued promissory notes totaling $554,000 for placement agency fees. At December 31, 2020, related party notes payable totaled $6,012,000 and accrued interest totaled $400,000.
On January 1, 2021, the related party subordinated notes due to Michael and Robert Taglich and Taglich Brothers, Inc., were amended to include all accrued interest through December 31, 2020 in the principal balance of the notes. Per the terms of the Webster Facility, these notes remain subordinate to the Webster Facility and are due on July 1, 2026. Approximately $2,732,000 of the related party convertible subordinated notes can be converted at the option of the holder into Common Stock of the Company at $15.00 per share, while the remaining $2,080,000 of the related party convertible subordinated notes can be converted at the option of the holder into common stock of the Company at $9.30 per share. There are no principal payments due on these notes. Under the terms of the Third Amendment to the Webster Facility, the Company is now allowed, subject to certain limitations, to make principal payments of $250,000 per quarter of this subordinated debt.
During the year ended December 31, 2022, a principal payment of $250,000 was made against the Subordinated Notes due to Michael Taglich. This payment was made pursuant to the conditions set forth in the Third Amendment to the Webster Facility.
The note holders and the principal balance of the notes of December 31, 2022 are shown below:
Interest expense for the years ended December 31, 2022 and 2021 on all related party notes payable was $487,000 and $460,000, respectively. Approximately $2,732,000 of these notes have an annual rate of interest of 6%, $2,080,000 have an annual interest rate of 7% and $1,600,000 have an annual interest rate of 12%. |
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Operating Lease Liabilities |
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| Operating Lease Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPERATING LEASE LIABILITIES | Note 9. OPERATING LEASE LIABILITIES
The Company has operating leases for leased office and manufacturing facilities. The leases have remaining lease terms of one to five years, some of which include options to extend or terminate the leases.
The aggregate undiscounted cash flows of operating lease payments, with remaining terms greater than one year are as follows:
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Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary |
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| Liability Related to Sale of Future Proceeds from Disposition of Subsidiary [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM DISPOSITION OF SUBSIDIARY | Note 10. LIABILITY RELATED TO THE SALE OF FUTURE PROCEEDS FROM DISPOSITION OF SUBSIDIARY
In connection with the sale of the Company’s wholly-owned subsidiary, AMK Welding, Inc. (“AMK”) to Meyer Tool, Inc., (“Meyer”) in 2017, Meyer was obligated to pay the Company within 30 days after the end of each calendar quarter, commencing April 1, 2017, an amount equal to five (5%) percent of the net sales of AMK for that quarter until the aggregate payments made to the Company (the “Meyer Agreement”) equals $1,500,000 (the “Maximum Amount”).
In order to increase liquidity, on January 15, 2019, the Company entered into a “Purchase Agreement” with 15 accredited investors (the “Purchasers”), including Michael and Robert Taglich, pursuant to which the Company assigned to the Purchasers all of its rights, title and interest to the remaining $1,137,000 of the $1,500,000 in payments due from Meyer for the sale of AMK (the “Remaining Amount”) for an immediate payment of $800,000, including $100,000 from each of Michael and Robert Taglich, and $75,000 for the benefit of the children of Michael Taglich. The timing of the payments is based upon the net sales of AMK.
The Company recognized $94,000 and $326,000 of non-cash income for the years ended December 31, 2022 and 2021, respectively, reflected in “other income, net” on the Consolidated Statements of Operations and recorded $35,000 and $98,000 of related non-cash interest expense related to the Purchase Agreement for the years ended December 31, 2022 and 2021, respectively.
The table below shows the activity within the liability account for the years ended December 31, 2022 and 2021:
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Stockholders' Equity |
12 Months Ended |
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Dec. 31, 2022 | |
| Stockholders' Equity [Abstract] | |
| STOCKHOLDERS' EQUITY | Note 11. STOCKHOLDERS’ EQUITY
On October 4, 2022 the Company announced a reverse stock split of its authorized, issued and outstanding shares of common stock at a ratio of 1-for-10. The reverse stock split was effective on October 18, 2022, and its common stock began trading on a post-split-adjusted basis at that time. As result of the reverse stock split there were no fractional shares issued and all holders were rounded up to the next whole share. An additional 7,287 shares were issued to account for this. As such all references to shares and per share price has been adjusted to retrospectively account for this transaction.
Common Stock – Issuances of Securities
The Company issued 27,849 and 16,981 shares totaling $216,000 and $210,000 for the years ended December 31, 2022 and 2021, respectively. Additionally, the Company issued 5,122 shares of common stock upon the cashless exercise of stock options during the year ended December 30, 2022.
During the first quarter of 2023, the Company issued 12,331 shares of common stock in payment of directors’ fees totaling $54,000. |
Employee Benefits Plans |
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Dec. 31, 2022 | |
| Retirement Benefits [Abstract] | |
| EMPLOYEE BENEFITS PLANS | Note 12. EMPLOYEE BENEFITS PLANS
The Company employs both union and non-union employees and maintains several benefit plans.
Union
Substantially the entire workforce at AIM is subject to a union contract with the United Service Workers Union TUJAT Local 355, EIN 11-1772919 (the “Union”). The Agreement was renewed as of December 31, 2021 and expires on December 31, 2024 and covers all of AIM’s production personnel, of which there are approximately 131 people. AIM is required to make a monthly contribution to each of the Union’s United Welfare Fund and the United Services Worker’s Security Fund. This is the only pension benefit required by the Agreement and the Company is not obligated for any future defined benefit to retirees. The Agreement contains a “no-strike” clause, whereby, during the term of the Agreement, the Union will not strike and AIM will not lockout its employees. Medical benefits for union employees are provided through a policy with Insperity Services, Inc. (“Insperity”), the costs of which are substantially borne by the Company. In addition, the Company is obligated to make contributions for union dues and a security fund (defined contribution plan) for the benefit of each union employee. Contributions to the security fund amounted to $155,000 and $147,000 for the years ended December 31, 2022 and 2021, respectively.
The Union’s retirement plan is a defined contribution plan. As such, the Company is not responsible for the obligations of other companies in the Union’s retirement plan.
Others
All of the Company’s employees are covered under a co-employment agreement with Insperity, a professional employer organization that provides out-sourced human resource services.
The Company has defined contribution plans under Section 401(k) of the Internal Revenue Code (the “Plans”). Pursuant to the Plans, qualified employees may contribute a percentage of their pre-tax eligible compensation to the Plan. The Company does not match any contributions that employees may make to the Plans. |
Contingency |
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Dec. 31, 2022 | |
| Contingencies [Abstract] | |
| CONTINGENCY | Note 13. CONTINGENCY
On October 2, 2018, Contract Pharmacal Corp. (“Contract Pharmacal”) commenced an action, relating to a Sublease entered into between the Company and Contract Pharmacal in May 2018 with respect to the property that was formerly occupied by the Company’s former subsidiary WMI, at 110 Plant Avenue, Hauppauge, New York. In the action Contract Pharmacal sought damages for an amount in excess of $1,000,000 for the Company’s failure to make the entire premises available by the Sublease commencement date. On July 8, 2021, the Court denied Contract Phamacal’s motion for summary judgement. In the Order, the court granted Contract Pharmacal’s Motions to drop its claim for specific performance and to amend its Complaint to reduce its claim for damages to $700,000. Subsequently, Contact Pharmacal moved to amend its Complaint. The Company opposed this and the Court denied the request to amend the Complaint. Contract Pharmacal filed a Motion to reargue which the Court denied on November 30, 2021. On March 10, 2022, Contract Pharmacal filed an appeal to the Court’s decision with the Appellate Division which the Company has opposed. The Company disputes the validity of the claims asserted by Contract Pharmacal and intends contest them vigorously.
From time to time the Company may be engaged in various lawsuits and legal proceedings in the ordinary course of business. The Company is currently not aware of any legal proceedings the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business, financial condition or operating results. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder of its common stock, is an adverse party or has a material interest adverse to our interest. |
Income Taxes |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES | Note 14. INCOME TAXES
The provision for income taxes for the years ended December 31, 2022 and 2021, is set forth below:
The following is a reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate for the years ended December 31, 2022 and 2021 is set forth below:
The components of net deferred tax assets at December 31, are set forth below:
During the year ended December 31, 2022, the Company determined that certain attributes of Deferred Tax Assets and Liabilities were incorrect for December 31, 2021 and 2020. See Note 16 for further information.
During the years ended December 31, 2022 and 2021, the Company recorded a valuation allowance equal to its net deferred tax assets. The Company determined that due to a recent history of net losses, at this time sufficient uncertainty exists regarding the future realization of these deferred tax assets through future taxable income. If, in the future, the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reduced or eliminated. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance. At December 31, 2022 and 2021, the Company provided a valuation allowance on its net deferred tax assets of $7,701,000 and $7,503,000, respectively.
As of December 31, 2022, the Company had a Federal net operating loss carry forward of approximately $22,420,000, of which approximately $12,220,000 expires from 2023 through 2037 and $10,200,000 does not expire. In addition, the Company has net operating loss carry forwards from various states of approximately $22,600,000 which expire from 2035 through 2042.
At December 31, 2022 and 2021, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in interest expense. As of December 31, 2022, and 2021, the Company has not recorded any provisions for accrued interest and penalties related to uncertain tax positions.
In certain cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. The Company files federal and state income tax returns in jurisdictions with varying statutes of limitations. The 2019 through 2022 tax years generally remain subject to examination by federal and state tax authorities.
In August 2022, the Inflation Reduction Act of 2022, (the “IRA”), was signed into law which includes a stock buyback excise tax of 1% on share repurchases, which will apply to net stock buybacks after December 31, 2022. We do not expect this to have a material impact if and when share repurchases occur. |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK OPTIONS AND WARRANTS | Note 15. STOCK OPTIONS AND WARRANTS
Stock-Based Compensation
Stock Options
In June 2022, the shareholders of the Company approved the adoption of the Company’s 2022 Equity Incentive Plan (“2022 Plan”) which authorized the grant of rights with respect to up to 100,000 shares.
During the years ended December 31, 2022 and 2021, the Company granted options to purchase 62,000 and 84,750 shares of common stock, respectively, to certain of its employees and directors.
The Company recorded stock based compensation expense of $310,000 and $443,000 in its Consolidated Statements of Operations for the years ended December 31, 2022 and 2021, respectively, and such amounts were included as a component of operating expenses.
The fair values of stock options granted were estimated using the Black-Sholes option-pricing model with the following assumptions for the years ended December 31:
The expected life is the number of years that the Company estimates, based upon history, that the options will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. In addition to the inputs referenced above regarding the option pricing model, the Company adjusts the stock-based compensation expense for estimated forfeiture rates that are revised prospectively according to forfeiture experience. The stock volatility factor is based on the Company’s experience.
A summary of the status of the Company’s stock options as of December 31, 2022 and 2021, and changes during the two years then ended are presented below.
Issuance of Stock Options
Issued in 2022
On January 31, 2022, the Company granted certain employees, stock options to purchase an aggregate of 3,000 shares of the Company’s common stock at a price of $8.50 per share. The options expire on the fifth anniversary of the grant date and vest over a term of three years.
On April 6, 2022, the Company granted to its directors, stock options to purchase an aggregate of 6,000 shares of the Company’s common stock at a price of $8.40 per share. The options expire on the fifth anniversary of the grant date and vest over a term of one year.
On April 11, 2022, the Company granted to certain members of management and certain employees, stock options to purchase an aggregate of 53,000 shares of the Company’s common stock at a price of $8.40 per share. The options expire on the fifth anniversary of the grant date and vest over a term of three years.
Issued in 2021
On January 11, 2021, the Company granted to its directors, stock options to purchase an aggregate of 7,000 shares of the Company’s common stock at a price of $13.20 per share. The options expire on the seventh anniversary of the grant date and vested over a term of one year.
On March 24, 2021, the Company granted to certain members of management and certain employees, stock options to purchase an aggregate of 32,750 shares of the Company’s common stock at a price of $13.90 per share. The options expire on the fifth anniversary of the grant date and vest over a term of three years.
On July 30, 2021, the Company granted to certain members of management and certain employees, stock options to purchase an aggregate of 41,500 shares of the Company’s common stock at a price of $12.20 per share. The options expire on the fifth anniversary of the grant date and vest over a term of one to three years.
On January 11, 2021, the Company granted to its directors, stock options to purchase an aggregate of 7,000 shares of the Company’s common stock at a price of $13.20 per share. The options expire on the seventh anniversary of the grant date and vested over a term of one year.
The following table summarizes information about outstanding stock options at December 31, 2022:
The following table summarizes information about exercisable stock options at December 31, 2022:
As of December 31, 2022, there was $95,000 of unrecognized compensation cost related to non-vested stock option awards, which is to be recognized over the remaining weighted average vesting period of 1.3 years.
The aggregate intrinsic value at December 31, 2022 was based on the Company’s closing stock price of $4.25 was $0. The aggregate intrinsic value at December 31, 2021 was based on the Company’s closing stock price of $9.10 was approximately $12,000. The aggregate intrinsic value was calculated based on the positive difference between the closing market price of the Company’s Common Stock and the exercise prices of the underlying options.
The weighted average fair value of options granted during the years ended December 31, 2022 and 2021 was $8.40 and $6.00 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $0 and $100,000 respectively. The total fair value of shares vested during the years ended December 31, 2022 and 2021 was $316,000 and $339,000, respectively.
Warrants
During both the years ended December 31, 2022 and 2021, the Company did not issue any warrants.
The following tables summarize the Company’s outstanding warrants as of December 31, 2022 and changes during the two years then ended:
The aggregate intrinsic value at both December 31, 2022 and 2021 was $0 based on the Company’s closing stock price of $4.15 and $9.10, respectively. |
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Revision of Previously Issued Consolidated Financial Statement |
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| Disclosure of Revision of Previously Issued Financial Statement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revision of Previously Issued Consolidated Financial Statement | Note 16. Revision of Previously Issued Consolidated Financial Statement
Due to errors discovered in the Company’s 2020 tax return, the Company revised certain previously issued disclosures related to the components of its deferred tax assets and liabilities and valuation allowance as of December 31, 2021 and 2020. Additionally, the Company has revised the reconciliation of its income tax rate computed using the federal statutory rate for the year ended December 31, 2021. The errors related primarily to the misapplication of the carryback of net operating losses under the CARES Act provision and mathematical errors related to the Company’s inventory reserve. Since the Company provided a full valuation allowance on its net deferred tax assets, there was no impact to the Consolidated Balance Sheet as of December 31, 2021 and the Consolidated Statements of Operations, Cash Flows and Stockholders’ Equity for the year ended December 31, 2021. As a result of the errors, the Company will be amending its 2020 and 2021 income tax returns.
The Company had previously disclosed that its net operating loss carry forward as of December 31, 2021 was $29,100,000. The proper amount that should have been disclosed was $21,971,000. Along with this finding, the Company further reviewed its disclosure of the rate reconciliation and deferred tax calculation along with the valuation allowance of its net deferred tax assets. Other items that were corrected in the disclosure included disallowed interest, stock based compensation and operating lease liability along with the associated operating lease ROU assets.
The below table summarizes the revisions to the reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate for the year ended December 31, 2021:
The table below summarizes the revisions to the attributes of the Deferred Tax Assets as of December 31, 2021:
The table below summarizes the revisions to the attributes of the Deferred Tax Assets as of December 31, 2020:
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Subsequent Events |
12 Months Ended |
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Dec. 31, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 17. Subsequent Events
On April 18, 2023, we received a notice from NYSE American (the “Exchange”) stating that the Company is not in compliance with the continued listing standards of the Exchange under the timely filing criteria included in Section 1007 of the NYSE American Company Guide because the Company failed to file by the extended due date of April 17, 2023, its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”).
In accordance with Section 1007 of the Company Guide, the Company will have six months from the date of the filing delinquency, or until October 17, 2023 (the “Initial Cure Period”), to file the Form 10-K with the Securities and Exchange Commission. If the Company fails to file the Form 10-K during the Initial Cure Period, the Exchange may, in its sole discretion, provide an additional six-month cure period depending on the Company’s specific circumstances.
Upon filing of the Form 10-K the Company will cure this delinquency. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation | Principles of Consolidation
The accompanying consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
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| Accounts Receivable | Accounts Receivable
Accounts receivable are reported at their outstanding unpaid principal balances net of allowances for uncollectible accounts. The Company provides for allowances for uncollectible receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance is determined to be uncollectible.
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| Inventory Valuation | Inventory Valuation
The Company values inventory at the lower of cost on a first-in-first-out basis or an estimated net realizable value.
The Company generally purchases raw materials and supplies uniquely suited to the production of larger more complex parts, such as landing gear, only when non-cancellable contracts for orders have been received for finished goods. It occasionally produces larger more complex products, such as landing gear, in excess of purchase order quantities in anticipation of future purchase order demand, when it is economically advantageous to do so, since historically this excess has been used in fulfilling future purchase orders. The Company purchases supplies and materials useful in a variety of products as deemed necessary even though orders have not been received. The Company periodically evaluates inventory items that are not secured by purchase orders and establishes write-downs to estimated net realizable value. The Company writes-down inventory to estimated net realizable value for excess quantities, slow-moving goods, obsolescence and for other impairments of value.
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| Property and Equipment | Property and Equipment
Property and equipment are carried at cost net of accumulated depreciation and amortization. Repair and maintenance charges are expensed as incurred. Property, equipment, and improvements are depreciated using the straight-line method over the estimated useful lives of the assets or the particular improvements. Expenditures for repairs and improvements in excess of $10,000 that add to the productive capacity or extend the useful life of an asset are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in earnings.
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| Long-Lived and Intangible Assets | Long-Lived and Intangible Assets
Identifiable intangible assets are amortized using the straight-line method over the period of expected benefit.
Long-lived assets and intangible assets subject to amortization to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may be impaired. The Company records an impairment loss if the undiscounted future cash flows are found to be less than the carrying amount of the asset. If an impairment loss has occurred, a charge is recorded to reduce the carrying amount of the asset to fair value.
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| Deferred Financing Costs | Deferred Financing Costs
Costs incurred with obtaining and executing revolving debt arrangements are capitalized and recorded in other current assets and amortized using the effective interest method over the term of the related debt. Costs incurred with obtaining and executing other debt arrangements are presented as a direct deduction from the carrying value of the associated debt and also amortized using the effective interest method over the term of the related debt. The amortization of financing costs is included in interest and financing costs in the Consolidated Statements of Operations.
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| Contract Costs Receivable | Contract Costs Receivable
Contract costs receivable represent costs to be reimbursed from a terminated contract. The Company expects to collect the receivable in the next twelve months. Contract costs receivable totals $296,000 and $0 as of December 31, 2022 and 2021, respectively.
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| Revenue Recognition | Revenue Recognition
The Company recognizes revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods.
Revenue is recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). In evaluating our contracts with our customers, we have determined that there is no future performance obligation once delivery has occurred.
Our revenue is generated from fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price, which we estimate during the bidding process before the contract is awarded. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss.
We evaluate the products promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Our contracts are typically accounted for as one performance obligation. We classify net sales as products on our consolidated statements of operations based on the predominant attributes of the performance obligations.
We determine the transaction price for each contract based on the consideration we expect to receive for the products being provided under the contract.
At the inception of a contract, we estimate the transaction price based on our current rights and do not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Contracts can be subsequently modified to include changes in specifications, requirements or price, which may create new or change existing enforceable rights and obligations. Depending on the nature of the modification, we consider whether to account for the modification as an adjustment to the existing contract or as a separate contract. Generally, modifications to our contracts are not distinct from the existing contract due to the significant integration and interrelated tasks provided in the context of the contract. Therefore, such modifications are accounted for as if they were part of the existing contract and recognized as a cumulative adjustment to revenue.
We recognize revenue at the point in time in which the performance obligation is fully satisfied. This is fully satisfied when the product has shipped, which is the point in time the customer obtains control of the product and we no longer maintain control of the product.
The Company’s rights to payments for goods transferred to customers are conditional only on the passage of time and not on any other criteria. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 75 days.
Payments received in advance from customers are recorded as customer deposits until earned, at which time revenue is recognized. The Terms and Conditions contained in our customer purchase orders often provide for liquidated damages in the event that a stop work or contract termination order is issued prior to final delivery. While the products we manufacture are specific to the type of aircraft that they are used on, there are alternate customers that can acquire and utilize these products. The Company utilizes a Returned Merchandise Authorization or RMA process for determining whether to accept returned products. Customer requests to return products are reviewed by the contracts department and if the request is approved, a credit is issued upon receipt of the product. Net sales represent gross sales less these returns and allowances.
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| Customer Deposits | Customer Deposits
The Company receives advance payments on certain contracts with the remainder of the contract balance due upon the shipment of the final product once the customer inspects and approves the product for shipment. At that time, the entire amount will be recognized as revenue and the deposit will be applied to the customer’s invoice.
At December 31, 2022 and 2021, customer deposits were $781,000 and $1,470,000 respectively. The Company recognized revenue of $440,000 during year ended December 31, 2022, that was included in the customer deposits balance as of December 31, 2021. The Company recognized revenue of $507,000 during the year ended December 31, 2021, that was included in the customer deposits balance of $917,000 as of December 31, 2020.
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| Backlog | Backlog
Backlog represents executed non-cancellable contracts that represent firm purchase orders that are deliverable over the next 18-month period. As of December 31, 2022, backlog relating to remaining performance obligations in contracts was approximately $60,000,000. The Company expects to recognize revenue amounts in future periods related to these remaining performance obligations as follows: approximately $22,500,000 to $26,500,000 from January 1, 2023 - June 30, 2023, and approximately $15,000,000 to $18,000,000 from July 1, 2023 through December 31, 2023. This expectation assumes that raw material suppliers and outsourced processing is completed and delivered on-time and that the Company’s customers will accept delivery as scheduled. The Company anticipates that sales during the aforementioned periods will also include sales pursuant to contracts that are not currently in backlog.
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| Use of Estimates | Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. The more significant management estimates are the allowance for doubtful accounts, useful lives of property and equipment, provisions for obsolescence, excess and slow moving inventory, accrued expenses and income taxes, which includes the determination of the valuation allowance for deferred tax assets. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which are recorded in the period in which they become known.
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| Credit and Concentration Risks | Credit and Concentration Risks
A large percentage of the Company’s revenues are derived from a small number of customers for U.S. Military Aviation.
There were four customers that represented 76.5% of total sales, and three customers that represented 75.4% of total sales for the years ended December 31, 2022 and 2021, respectively. This is set forth in the table below.
There were three customers that represented 70.3% of gross accounts receivable and three customers that represented 74.7% of gross accounts receivable at December 31, 2022 and 2021, respectively. This is set forth in the table below.
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| Disaggregation of Revenue | Disaggregation of Revenue
The following table summarizes revenue from contracts with customers for the years ended December 31, 2022 and 2021:
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| Cash | Cash
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.
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| Major Suppliers | Major Suppliers
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.
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| Income Taxes | Income Taxes
The Company accounts for income taxes in accordance with accounting guidance now codified as FASB ASC 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse.
The provision for, or benefit from, income taxes includes deferred taxes resulting from the temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from the differences in the carrying value of assets and liabilities. Future realization of deferred income tax assets requires sufficient taxable income within the carryback, carryforward period available under tax law. We evaluate, on a quarterly basis whether, based on all available evidence, it is probable that the deferred income tax assets are realizable. Valuation allowances are established when it is more likely than not that the tax benefit of the deferred tax asset will not be realized. The evaluation, as prescribed by ASC 740-10, “Income Taxes,” includes the consideration of all available evidence, both positive and negative, regarding historical operating results including recent years with reported losses, the estimated timing of future reversals of existing taxable temporary differences, estimated future taxable income exclusive of reversing temporary differences and carryforwards, and potential tax planning strategies which may be employed to prevent an operating loss or tax credit carryforward from expiring unused.
The Company accounts for uncertainties in income taxes under the provisions of FASB ASC 740 which clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Subtopic provides guidance on the de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
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| Earnings (Loss) per share | Earnings (Loss) per share
Basic earnings (loss) per share (“EPS”) 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.
For purposes of calculating diluted earnings (loss) per common share, the numerator includes net income (loss) plus interest on convertible notes payable assumed converted as of the first day of the period. The denominator includes both the weighted-average number of shares of common stock outstanding during the period and the number of common stock equivalents if the inclusion of such common stock equivalents is dilutive. Dilutive common stock equivalents potentially include stock options and warrants using the treasury stock method and convertible notes payable using the if-converted method.
The following is the calculation of income applicable to common stockholders utilized to calculate the numerator for EPS:
The following is a reconciliation of the denominators of basic and diluted EPS computations:
The following securities have been excluded from the calculation as the exercise price was greater than the average market price of the common shares:
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| Stock-Based Compensation | 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 and stock grants at their closing reported market value. Stock compensation expense for employees amounted to $310,000 and $443,000 for the years ended December 31, 2022 and 2021, respectively. Stock compensation expense for directors amounted to $216,000 and $210,000 for the years ended December 31, 2022 and 2021, respectively. Stock compensation expenses for employees and directors were included in operating expenses in the accompanying Consolidated Statements of Operations.
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| Goodwill | Goodwill
Goodwill represented 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 December 31, 2021 related to the acquisition of NTW.
The Company accounts for the impairment of goodwill under the provisions of ASU 2017-04 (“ASU 2017-04”), “Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
The Company performed impairment testing for goodwill annually, or more frequently when indicators of impairment existed.
The Company determined that the goodwill was fully impaired at December 31, 2022. The impairment charge of $163,000 is included in operating expenses in the Consolidated Statement of Operations.
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| Freight Out | Freight Out
Freight out is included in operating expenses and amounted to $162,000 and $135,000 for the years ended December 31, 2022 and 2021, respectively.
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| Leases | Leases
In accordance with FASB ASC 842, “Leases” (“ASC 842”), the Company records a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classifies them as either operating or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease charges are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the right-of- use asset is recorded in operating expenses and an implied interest component is recorded in interest expense.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether the Company obtains the right to substantially all the economic benefit from the use of the asset, and whether the Company has the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient. For contracts with lease and non-lease components, the Company has elected not to allocate the contract consideration, and to account for the lease and non-lease components as a single lease component.
Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate, adjusted for various factors including level of collateralization, term and currency to align with the terms of the lease. The operating lease ROU asset also includes any lease prepayments, offset by lease incentives.
An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option. An option to terminate is considered unless it is reasonably certain we will not exercise the option.
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| Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements
Effective January 1, 2022, the Company adopted ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06), which is intended to address issues identified as a result of the complexity associated with applying accounting principles generally accepted in the United States of America for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share guidance on the basis of feedback from financial statement users. The adoption of ASU 2020-06 did not have a material effect on the Company’s financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables under ASU 2016-13. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.
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 consolidated financial statements. |
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Summary of Significant Accounting Policies (Tables) |
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of customers that represented |
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| Schedule of revenue from contracts with customers |
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| Schedule of income applicable to common stockholders |
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| Schedule of basic and diluted EPS computations |
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| Schedule of average market price of the common shares |
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Accounts Receivable (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Receivables [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accounts receivable |
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| Schedule of allowance for doubtful accounts |
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Inventory (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of inventory |
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Property and Equipment (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of property and equipment |
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Accounts Payable and Accrued Expenses (Tables) |
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable and Accrued Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accounts payable |
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Debt (Tables) |
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of debt |
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| Schedule of payments due under the term loan |
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| Schedule of finance lease paid |
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| Schedule of components of lease term and discount rate |
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| Schedule of aggregate future minimum finance lease payment |
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| Schedule of note holders and the principal balance |
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Operating Lease Liabilities (Tables) |
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Disclosure Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of remaining lease terms |
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| Schedule of operating and finance leases |
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| Schedule of aggregate undiscounted cash flows of operating lease payments |
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Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liability Related to Sale of Future Proceeds from Disposition of Subsidiary [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of activity within the liability account |
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Income Taxes (Tables) |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of provision for income taxes |
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| Schedule of reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate |
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| Schedule of net deferred tax assets |
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Stock Options and Warrants (Tables) |
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| Schedule of fair values of stock options granted |
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| Schedule of company's stock option and warrants |
|
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| Schedule of stock options |
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Revision of Previously Issued Consolidated Financial Statement (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Disclosure of Revision of Previously Issued Financial Statement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of deferred tax assets |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Basis of Presentation (Details) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2022
USD ($)
|
|
| Accounting Policies [Abstract] | ||
| Reporting segments | 1 | |
| Operating segment | 1 | |
| Operating activities (in Dollars) | $ 448,000 |
Summary of Significant Accounting Policies (Details) - Schedule of revenue from contracts with customers - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Disaggregation of Revenue [Line Items] | ||
| Total | $ 53,238,000 | $ 58,939,000 |
| Military [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total | 43,993,000 | 51,559,000 |
| Commercial [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total | $ 9,245,000 | $ 7,380,000 |
Summary of Significant Accounting Policies (Details) - Schedule of income applicable to common stockholders - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule Of Income Applicable To Common Stockholders Abstract | ||
| Net (Loss) Income - Basic | $ (1,076,000) | $ 1,627,000 |
| Add: Convertible Note Interest for Potential Note Conversion | 322,000 | |
| Add: Convertible Note debt discount for Potential Note Conversion | ||
| Net (Loss) Income used to calculate diluted earnings per share | $ (1,076,000) | $ 1,949,000 |
Summary of Significant Accounting Policies (Details) - Schedule of basic and diluted EPS computations - Earnings (Loss) per share [Member] - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Summary of Significant Accounting Policies (Details) - Schedule of basic and diluted EPS computations [Line Items] | ||
| Weighted average shares outstanding used to compute basic earnings per share | 3,227,116 | 3,204,937 |
| Effect of dilutive stock options and warrants | $ 31,737 | |
| Effect of dilutive convertible notes payable | $ 405,743 | |
| Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share | 3,227,116 | 3,642,417 |
| Per share amount - basic | $ (0.33) | $ 0.51 |
| Per share amount - diluted | $ (0.33) | $ 0.45 |
Summary of Significant Accounting Policies (Details) - Schedule of average market price of the common shares - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Maximum [Member] | ||
| Summary of Significant Accounting Policies (Details) - Schedule of average market price of the common shares [Line Items] | ||
| Stock Options | $ 245,466 | $ 118,350 |
| Warrants | 28,000 | 122,721 |
| Minimum [Member] | Antidilutive Securities [Member] | ||
| Summary of Significant Accounting Policies (Details) - Schedule of average market price of the common shares [Line Items] | ||
| Total | $ 273,466 | $ 241,071 |
Accounts Receivable (Details) - Schedule of accounts receivable - USD ($) |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Accounts Receivable [Abstract] | ||
| Accounts Receivable Gross | $ 9,764,000 | $ 11,067,000 |
| Allowance for Doubtful Accounts | (281,000) | (594,000) |
| Accounts Receivable Net | $ 9,483,000 | $ 10,473,000 |
Accounts Receivable (Details) - Schedule of allowance for doubtful accounts - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule of Allowance for Doubtful Accounts [Abstract] | ||
| Balance at Beginning of Year | $ 594,000 | $ 964,000 |
| Charged to Costs and Expenses | 16,000 | 134,000 |
| Deductions from Reserves | 329,000 | 504,000 |
| Balance at End of Year | $ 281,000 | $ 594,000 |
Inventory (Details) - Schedule of inventory - USD ($) |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of inventory [Abstract] | ||
| Raw Materials | $ 4,198,000 | $ 3,410,000 |
| Work In Progress | 20,848,000 | 20,926,000 |
| Finished Goods | 10,748,000 | 8,350,000 |
| Reserve | (3,973,000) | (3,154,000) |
| Total Inventory | $ 31,821,000 | $ 29,532,000 |
Property and Equipment (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Property and Equipment (Details) [Line Items] | ||
| Depreciation expense | $ 2,522,000 | $ 2,803,000 |
| Property, Plant and Equipment [Member] | ||
| Property and Equipment (Details) [Line Items] | ||
| Accumulated depreciation | $ 0 | $ 36,000 |
Property and Equipment (Details) - Schedule of property and equipment - USD ($) |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | $ 41,875,000 | $ 39,232,000 |
| Less: Accumulated Depreciation | (33,282,000) | (30,828,000) |
| Property and Equipment, net | 8,593,000 | 8,404,000 |
| Land [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 300,000 | 300,000 |
| Buildings and Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 1,789,000 | 1,723,000 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 23,566,000 | 22,013,000 |
| Finance Lease ROU Assets - Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 375,000 | 375,000 |
| Tools and Instruments [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 13,744,000 | 12,866,000 |
| Automotive Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 266,000 | 200,000 |
| Furniture and Fixtures [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 290,000 | 290,000 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | 941,000 | 882,000 |
| Computers and Software [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total Property and Equipment | $ 604,000 | $ 583,000 |
Accounts Payable and Accrued Expenses (Details) |
Dec. 31, 2022
USD ($)
|
|---|---|
| Accounts Payable and Accrued Expenses [Abstract] | |
| Old payables | $ 317,000 |
Accounts Payable and Accrued Expenses (Details) - Schedule of accounts payable - Accounts Payable and Accrued Expenses [Member] - USD ($) |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Accounts Payable [Abstract] | ||
| Accounts Payable | $ 6,442,000 | $ 5,460,000 |
| Accrued Payroll | 674,000 | 852,000 |
| Accrued Expenses - other | 426,000 | 411,000 |
| Accounts Payable and accrued expenses | $ 7,542,000 | $ 6,723,000 |
Sale and Leaseback Transaction (Details) - USD ($) |
1 Months Ended | 12 Months Ended | |
|---|---|---|---|
Oct. 24, 2006 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Disclosure Of Sale And Leaseback Transaction Abstract | |||
| Purchase price | $ 6,200,000 | ||
| Gain on sale | 1,051,000 | ||
| Recognized amount | 300,000 | ||
| Remaining recognized ratably | $ 751,000 | ||
| Remaining term | 20 years | ||
| Lease amount | $ 38,000 | ||
| Unrecognized gain amount | $ 143,000 | $ 181,000 | |
| Net lease term | 20 years | ||
| Annual rent for first five years | $ 540,000 | ||
| Annual rent for sixth year | $ 560,000 | ||
| Rent percentage | 3.00% | ||
| Lease renew term | 5 years | ||
| Deposit purchaser security | $ 89,000 | $ 150,000 | |
Debt (Details) - USD ($) |
1 Months Ended | 12 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jan. 04, 2023 |
Dec. 15, 2022 |
Dec. 07, 2021 |
Jan. 01, 2021 |
Mar. 31, 2023 |
Feb. 28, 2023 |
May 17, 2022 |
Jun. 30, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Debt (Details) [Line Items] | |||||||||||||
| Expires date | Dec. 30, 2025 | ||||||||||||
| Revolving line of credit loan | $ 20,000,000 | ||||||||||||
| Term loan | 5,000,000 | ||||||||||||
| Equipment Line of Credit | $ 2,000,000 | ||||||||||||
| Equipment line of credit remaining available | $ 1,122,000 | ||||||||||||
| Withdrawn amount | 878,000 | ||||||||||||
| Interest expense | 780,000 | $ 704,000 | |||||||||||
| Term loan | $ 5,000,000 | $ 5,685,000 | |||||||||||
| Principal installments amount | 59,524 | 67,679 | |||||||||||
| Amendment fee | $ 75,000 | $ 10,000 | 20,000 | ||||||||||
| Excess cash flow percentage | 25.00% | ||||||||||||
| Excess cash flow payments | $ 208,000 | ||||||||||||
| Revolving line of credit, current | 20,000,000 | ||||||||||||
| Revolving loan | 16,000,000 | ||||||||||||
| Increase in inventory sublimit | 14,000,000 | ||||||||||||
| Original inventory | 11,000,000 | ||||||||||||
| Amortizing amount of related party | $ 250,000 | ||||||||||||
| Generating proceeds | 1,945,000 | ||||||||||||
| Capital expenditure line of credit | 2,000,000 | ||||||||||||
| Amendment fee paid | $ 20,000 | ||||||||||||
| Line of credit amount | $ 877,913 | ||||||||||||
| Due date | Dec. 30, 2025 | ||||||||||||
| Webster facility, description | (i) 3.50% and (ii) a rate per annum equal to the rate per annum published from time to time in the “Money Rates” table of the Wall Street Journal (or such other presentation within The Wall Street Journal as may be adopted hereafter for such information) as the base or prime rate for corporate loans at the nation’s largest commercial bank, less sixty-five hundredths (-0.65%) of one percent per annum. | ||||||||||||
| Average interest rate | 4.50% | 3.50% | 3.50% | ||||||||||
| Loan obligation | $ 30,000 | $ 39,000 | $ 39,000 | ||||||||||
| Notes proceeds | $ 6,550,000 | ||||||||||||
| Common stock, shares issued (in Shares) | 35,508 | ||||||||||||
| Promissory notes | $ 554,000 | ||||||||||||
| Notes payable | 6,012,000 | ||||||||||||
| Accrued interest | $ 400,000 | ||||||||||||
| Related party convertible amount | $ 2,732,000 | ||||||||||||
| Subordinated debt | 250,000 | ||||||||||||
| Principal payment | 250,000 | ||||||||||||
| Interest expense | $ 487,000 | 460,000 | |||||||||||
| Annual rate of interest description | Approximately $2,732,000 of these notes have an annual rate of interest of 6%, $2,080,000 have an annual interest rate of 7% and $1,600,000 have an annual interest rate of 12%. | ||||||||||||
| Common Stock [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Price per share (in Dollars per share) | $ 15 | ||||||||||||
| Subsequent Event [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Line of credit amount | $ 739,500 | ||||||||||||
| Principal payments | $ 8,804 | $ 10,451 | |||||||||||
| Due date | Dec. 30, 2025 | ||||||||||||
| April 2021 [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Excess cash flow payments | $ 558,750 | ||||||||||||
| April 2022 [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Excess cash flow payments | $ 854,000 | ||||||||||||
| November 2022 [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Finance lease | $ 328,000 | ||||||||||||
| Imputed interest rate | 7.48% | ||||||||||||
| December 2021 [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Finance lease | $ 0 | $ 263,000 | |||||||||||
| Interest rate | 4.20% | ||||||||||||
| Related Party [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Related party convertible amount | $ 2,080,000 | ||||||||||||
| Price per share (in Dollars per share) | $ 9.3 | ||||||||||||
| Webster Facility [Member] | |||||||||||||
| Debt (Details) [Line Items] | |||||||||||||
| Debt | $ 18,748,000 | ||||||||||||
| Revolving loan | 13,352,000 | ||||||||||||
| Loan amount | $ 5,396,000 | ||||||||||||
Debt (Details) - Schedule of debt - USD ($) |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Notes Payable Related Party Notes Payable and Finance Lease Obligations [Abstract] | ||
| Revolving loan to Webster Bank (“Webster”) | $ 13,352,000 | $ 12,456,000 |
| Term loan, Webster | 5,396,000 | 4,192,000 |
| Finance lease obligations | 328,000 | 263,000 |
| Loans payable - financed assets | 30,000 | 39,000 |
| Related party notes payable | 6,162,000 | 6,412,000 |
| Subtotal | 25,268,000 | 23,362,000 |
| Less: Current portion | (14,477,000) | (14,112,000) |
| Long Term Portion | $ 10,791,000 | $ 9,250,000 |
Debt (Details) - Schedule of payments due under the term loan |
Dec. 31, 2022
USD ($)
|
|---|---|
| Schedule Of Payments Due Under The Term Loan Abstract | |
| December 31, 2023 | $ 1,037,000 |
| December 31, 2024 | 840,000 |
| December 31, 2025 | 3,584,000 |
| Webster Term Loan payable | 5,461,000 |
| Less: debt issuance costs | (65,000) |
| Total Webster Term Loan payable, net of debt issuance costs | 5,396,000 |
| Less: Current portion of Webster Term Loan payable | (1,037,000) |
| Total long-term portion of Webster Term Loan payable | $ 4,359,000 |
Debt (Details) - Schedule of finance lease paid - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Finance Lease cost: | ||
| Amortization of ROU assets | $ 36,000 | |
| Interest on lease liabilities | 2,182 | |
| Total Lease Costs | 2,182 | 36,000 |
| Cash Paid for amounts included in the measurement lease liabilities: | ||
| Financing cash flow from finance lease obligations | 284,000 | 5,000 |
| Supplemental disclosure of non-cash activity | ||
| Acquisition of finance lease ROU asset | $ 350,000 | |
Debt (Details) - Schedule of components of lease term and discount rate |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule Of Components Of Lease Term And Discount Rate Abstract | ||
| Weighted Average Remaining Lease Term - in years | 3 years 10 months 24 days | 5 years |
| Weighted Average Discount rate - % | 7.48% | 4.20% |
Debt (Details) - Schedule of aggregate future minimum finance lease payment - USD ($) |
Dec. 31, 2022 |
Dec. 31, 2020 |
|---|---|---|
| Debt (Details) - Schedule of aggregate future minimum finance lease payment [Line Items] | ||
| Loans Payable - financed assets | $ 6,012,000 | |
| Loans Payable – Financed Assets [Member] | ||
| Debt (Details) - Schedule of aggregate future minimum finance lease payment [Line Items] | ||
| December 31, 2023 | $ 9,000 | |
| December 31, 2024 | 9,000 | |
| December 31, 2025 | 9,000 | |
| December 31, 2026 | 3,000 | |
| Loans Payable - financed assets | 30,000 | |
| Less: Current portion | (9,000) | |
| Long-term portion | 21,000 | |
| Finance Lease Obligations [Member] | ||
| Debt (Details) - Schedule of aggregate future minimum finance lease payment [Line Items] | ||
| December 31, 2023 | 100,000 | |
| December 31, 2024 | 100,000 | |
| December 31, 2025 | 100,000 | |
| December 31, 2026 | 77,000 | |
| Total future minimum finance lease payments | 377,000 | |
| Less: imputed interest | (49,000) | |
| Less: Current portion | (79,000) | |
| Long-term portion | $ 249,000 |
Debt (Details) - Schedule of note holders and the principal balance |
Dec. 31, 2022
USD ($)
|
|---|---|
| Debt (Details) - Schedule of note holders and the principal balance [Line Items] | |
| Convertible Subordinated Notes | $ 4,812,000 |
| Subordinated Notes | 1,350,000 |
| Total | 6,162,000 |
| Michael Taglich, Chairman [Member] | |
| Debt (Details) - Schedule of note holders and the principal balance [Line Items] | |
| Convertible Subordinated Notes | 2,666,000 |
| Subordinated Notes | 1,000,000 |
| Total | 3,666,000 |
| Robert Taglich, Director [Member] | |
| Debt (Details) - Schedule of note holders and the principal balance [Line Items] | |
| Convertible Subordinated Notes | 1,905,000 |
| Subordinated Notes | 350,000 |
| Total | 2,255,000 |
| Taglich Brothers, Inc. [Member] | |
| Debt (Details) - Schedule of note holders and the principal balance [Line Items] | |
| Convertible Subordinated Notes | 241,000 |
| Subordinated Notes | |
| Total | $ 241,000 |
Operating Lease Liabilities (Details) |
Dec. 31, 2022 |
|---|---|
| Minimum [Member] | |
| Operating Lease Liabilities (Details) [Line Items] | |
| Lease terms | 1 year |
| Maximum [Member] | |
| Operating Lease Liabilities (Details) [Line Items] | |
| Lease terms | 5 years |
Operating Lease Liabilities (Details) - Schedule of remaining lease terms - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule Of Remaining Lease Terms Abstract | ||
| Operating lease cost: | $ 972,000 | $ 1,069,000 |
| Total lease cost | 972,000 | 1,069,000 |
| Cash paid for amounts included in the measurement lease liability: | ||
| Operating cash flow from operating leases | $ 1,006,000 | $ 977,000 |
Operating Lease Liabilities (Details) - Schedule of operating and finance leases |
Dec. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Schedule of Operating and Finance Leases [Abstract] | ||
| Weighted Average Remaining Lease Term - in years | 3 years 7 months 20 days | 4 years 6 months 10 days |
| Weighted Average discount rate - % | 8.89% | 8.89% |
Operating Lease Liabilities (Details) - Schedule of aggregate undiscounted cash flows of operating lease payments |
Dec. 31, 2022
USD ($)
|
|---|---|
| Schedule of Aggregate Undiscounted Cash Flows of Operating Lease Payments [Abstract] | |
| December 31, 2023 | $ 1,038,000 |
| December 31, 2024 | 1,070,000 |
| December 31, 2025 | 992,000 |
| December 31, 2026 | 729,000 |
| Total future minimum lease payments | 3,829,000 |
| Less: discount | (588,000) |
| Total operating lease maturities | 3,241,000 |
| Less: current portion of operating lease liabilities | (778,000) |
| Total long term portion of operating lease maturities | $ 2,463,000 |
Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Details) - USD ($) |
12 Months Ended | |||
|---|---|---|---|---|
Jan. 15, 2019 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Apr. 01, 2017 |
|
| Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Details) [Line Items] | ||||
| Net sales percentage | 5.00% | |||
| Maximum aggregate payments | $ 1,500,000 | |||
| Immediate payment | $ 800,000 | |||
| Non-cash income | $ 94,000 | $ 326,000 | ||
| Non-cash interest expense | $ 35,000 | $ 98,000 | ||
| Minimum [Member] | ||||
| Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Details) [Line Items] | ||||
| Interest paid | 1,137,000 | |||
| Maximum [Member] | ||||
| Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Details) [Line Items] | ||||
| Interest paid | 1,500,000 | |||
| Michael Taglich, and Robert [Member] | ||||
| Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Details) [Line Items] | ||||
| Immediate payment | 100,000 | |||
| Michael Taglich [Member] | ||||
| Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Details) [Line Items] | ||||
| Immediate payment | $ 75,000 | |||
Liability Related to the Sale of Future Proceeds from Disposition of Subsidiary (Details) - Schedule of activity within the liability account - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule of Activity within the Liability Account [Abstract] | ||
| Liabilities related to sale of future proceeds from disposition of subsidiaries - beginning balance | $ 59,000 | $ 322,000 |
| Non-Cash other income recognized | (94,000) | (360,000) |
| Non-Cash interest expense recognized | 35,000 | 97,000 |
| Liabilities related to sale of future proceeds from disposition of subsidiary - ending balance | 59,000 | |
| Less: unamortized transaction costs | (3,000) | |
| Liability related to sale of future proceeds from disposition of subsidiary, net | $ 56,000 | |
Stockholders' Equity (Details) - USD ($) |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Oct. 04, 2022 |
Mar. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Stockholders' Equity (Details) [Line Items] | ||||
| Shares issued | 7,287 | |||
| Shares issued of common stock for cashless exercise of stock options | 5,122 | |||
| Common stock shares issued | 3,247,937 | 3,212,801 | ||
| Common Stock [Member] | ||||
| Stockholders' Equity (Details) [Line Items] | ||||
| Shares issued | 27,849 | 16,981 | ||
| Director fees (in Dollars) | $ 216,000 | $ 210,000 | ||
| Subsequent Event [Member] | ||||
| Stockholders' Equity (Details) [Line Items] | ||||
| Common stock shares issued | 12,331 | |||
| Directors fees totaling (in Dollars) | $ 54,000 | |||
Employee Benefits Plans (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Retirement Benefits [Abstract] | ||
| Security fund amount | $ 155,000 | $ 147,000 |
Contingency (Details) - USD ($) |
Jul. 08, 2021 |
Oct. 02, 2018 |
|---|---|---|
| Contingencies [Abstract] | ||
| Damages amount | $ 1,000,000 | |
| Damages claim | $ 700,000 |
Income Taxes (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Income Tax Disclosure [Abstract] | ||
| Valuation allowance deferred tax assets | $ 7,701,000 | $ 7,503,000 |
| Federal net operating loss carry forward | 22,420,000 | |
| Federal net operating loss carry forward expired amount through 2037 | 12,220,000 | |
| Federal net operating loss carry forward not expired | 10,200,000 | |
| State net operating carry forwards | $ 22,600,000 | |
| Percentage of excise tax price | 1.00% |
Income Taxes (Details) - Schedule of provision for income taxes - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule of Provision for (Benefit from) Income Taxes [Abstract] | ||
| Federal | ||
| States | ||
| Total Provision for Income Taxes | ||
Income Taxes (Details) - Schedule of reconciliation of our income tax rate computed using the federal statutory rate to our actual income tax rate |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule of Reconciliation of Our Income Tax Rate Computed Using the Federal Statutory Rate to Our Actual Income Tax Rate [Abstract] | ||
| U.S. statutory income tax rate | 21.00% | 21.00% |
| State taxes | 4.10% | 4.10% |
| Permanent difference, overaccruals, and non-deductible items | (6.90%) | 6.30% |
| Change in state rate | 0.70% | 8.30% |
| Deferred tax valuation allowance | (18.40%) | (38.70%) |
| Other | (0.50%) | (1.00%) |
| Total | 0.00% | 0.00% |
Income Taxes (Details) - Schedule of net deferred tax assets - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Current: | ||
| Net operating loss | $ 5,075,000 | $ 4,959,000 |
| Allowance for doubtful accounts | 71,000 | 149,000 |
| Inventory - IRC 263A adjustment | 411,000 | 377,000 |
| Stock based compensation - options and restricted stock | 183,000 | 183,000 |
| Capitalized engineering costs | 331,000 | 430,000 |
| Amortization - NTW Transaction | 359,000 | 445,000 |
| Inventory reserve | 932,000 | 790,000 |
| Deferred gain on sale of real estate | 36,000 | 45,000 |
| Accrued expenses | 30,000 | 18,000 |
| Disallowed interest | 1,663,000 | 1,576,000 |
| Operating lease liabilities | 814,000 | 984,000 |
| Total deferred tax asset before valuation allowance | 9,905,000 | 9,956,000 |
| Valuation allowance | (7,701,000) | (7,503,000) |
| Total deferred tax asset after valuation allowance | 2,204,000 | 2,453,000 |
| Deferred tax liabilities: | ||
| Property and equipment | (1,583,000) | (1,697,000) |
| Operating Lease ROU assets | (621,000) | (756,000) |
| Total deferred tax liabilities | (2,204,000) | (2,453,000) |
| Net deferred tax asset | ||
Stock Options and Warrants (Details) - USD ($) |
1 Months Ended | 12 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Apr. 11, 2022 |
Apr. 06, 2022 |
Jan. 11, 2021 |
Jan. 31, 2022 |
Jun. 30, 2021 |
Mar. 24, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Jun. 30, 2022 |
|
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Authorized shares under new plan (in Shares) | 100,000 | ||||||||
| Granted during period (in Shares) | 62,000 | 84,750 | |||||||
| Stock based compensation expense | $ 310,000 | $ 443,000 | |||||||
| Aggregate of stock options (in Shares) | 53,000 | 6,000 | 3,000 | ||||||
| Common stock price per share (in Dollars per share) | $ 8.4 | $ 8.4 | $ 8.5 | ||||||
| Vest term | 3 years | 1 year | 3 years | ||||||
| Unrecognized compensation cost | $ 95,000 | ||||||||
| Remaining weighted average vesting period | 1 year 3 months 18 days | ||||||||
| Closing stock price (in Dollars per share) | $ 4.25 | $ 9.1 | |||||||
| Aggregate intrinsic value | $ 0 | $ 12,000 | |||||||
| Weighted average fair value of options granted (in Dollars per share) | $ 8.4 | $ 6 | |||||||
| Total intrinsic value of options exercised | $ 0 | $ 100,000 | |||||||
| Total fair value of shares vested | 316,000 | 339,000 | |||||||
| Warrant [Member] | |||||||||
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Aggregate intrinsic value | 0 | ||||||||
| Minimum [Member] | Warrant [Member] | |||||||||
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Aggregate intrinsic value | $ 4.15 | ||||||||
| Maximum [Member] | Warrant [Member] | |||||||||
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Aggregate intrinsic value | $ 9.1 | ||||||||
| Issuance of Stock Options [Member] | |||||||||
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Aggregate of stock options (in Shares) | 7,000 | 41,500 | 32,750 | ||||||
| Common stock price per share (in Dollars per share) | $ 13.2 | $ 12.2 | $ 13.9 | ||||||
| Vest term | 1 year | 3 years | |||||||
| Issuance of Stock Options [Member] | Minimum [Member] | |||||||||
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Vest term | 1 year | ||||||||
| Issuance of Stock Options [Member] | Maximum [Member] | |||||||||
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Vest term | 3 years | ||||||||
| Issuance of Stock Options [Member] | Director [Member] | |||||||||
| Stock Options and Warrants (Details) [Line Items] | |||||||||
| Aggregate of stock options (in Shares) | 7,000 | ||||||||
| Common stock price per share (in Dollars per share) | $ 13.2 | ||||||||
| Vest term | 1 year | ||||||||
Stock Options and Warrants (Details) - Schedule of fair values of stock options granted - $ / shares |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule of Fair Values of Stock Options Granted [Abstract] | ||
| Dividend yield | 0.00% | 0.00% |
| Weighted-average grant date fair value per share (in Dollars per share) | $ 3.97 | $ 6.01 |
| Minimum [Member] | ||
| Schedule of Fair Values of Stock Options Granted [Abstract] | ||
| Risk-free interest rates | 1.38% | 0.31% |
| Expected life (in years) | 2 years 6 months | 2 years 6 months |
| Expected volatility | 71.60% | 73.20% |
| Maximum [Member] | ||
| Schedule of Fair Values of Stock Options Granted [Abstract] | ||
| Risk-free interest rates | 2.73% | 0.83% |
| Expected life (in years) | 4 years | 4 years |
| Expected volatility | 72.00% | 75.20% |
Stock Options and Warrants (Details) - Schedule of company's stock option and warrants - $ / shares |
12 Months Ended | |
|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Schedule of Company's Stock Options [Abstract] | ||
| Options, Beginning balance | 246,850 | 185,900 |
| Wtd. Avg. Exercise Price, Beginning balance | $ 12.54 | $ 15.6 |
| Options, Granted | 62,000 | 84,750 |
| Wtd. Avg. Exercise Price, Granted | $ 8.4 | $ 13 |
| Options, Exercised during the period | (11,000) | |
| Wtd. Avg. Exercise Price, Exercised during the period | $ 10.41 | |
| Options, Terminated/Expired during the period | (5,800) | (12,800) |
| Wtd. Avg. Exercise Price, Terminated/Expired during the period | $ 12.04 | $ 61.7 |
| Options, Ending balance | 303,050 | 246,850 |
| Wtd. Avg. Exercise Price, Ending balance | $ 11.7 | $ 12.54 |
| Options, Exercisable | 245,466 | |
| Wtd. Avg. Exercise Price, Exercisable | $ 12.07 | |
| Warrants, Beginning balance | 150,721 | 218,290 |
| Wtd. Avg. Exercise Price, Beginning balance | $ 21.94 | $ 29 |
| Wtd. Avg. Remaining Contractual Life (years), Beginning balance | 1 year 5 months 4 days | |
| Warrants, Granted | ||
| Wtd. Avg. Exercise Price, Granted | ||
| Wtd. Avg. Remaining Contractual Life (years), Granted | ||
| Warrants, Terminated/Expired during the period | (122,721) | (67,569) |
| Wtd. Avg. Exercise Price, Terminated/Expired during the period | $ 23.75 | |
| Wtd. Avg. Remaining Contractual Life (years), Terminated/Expired during the period | ||
| Warrants, Ending balance | 28,000 | 150,721 |
| Wtd. Avg. Exercise Price, Ending balance | $ 14 | $ 21.94 |
| Wtd. Avg. Remaining Contractual Life (years), Ending balance | 9 months | 9 months |
| Warrants, Exercisable | 28,000 | |
| Wtd. Avg. Exercise Price, Exercisable | $ 14 | |
| Wtd. Avg. Remaining Contractual Life (years), Exercisable | 9 months | |
Stock Options and Warrants (Details) - Schedule of stock options |
12 Months Ended |
|---|---|
|
Dec. 31, 2022
$ / shares
shares
| |
| Outstanding Stock Option [Member] | |
| Schedule of Stock Options [Abstract] | |
| Number Outstanding (in Shares) | shares | 303,050 |
| Wtd. Avg, Life | 2 years 8 months 12 days |
| Wtd. Avg. Exercise Price | $ 11.7 |
| Outstanding Stock Option [Member] | Minimum [Member] | |
| Schedule of Stock Options [Abstract] | |
| Range of Exercise Price | 8.4 |
| Outstanding Stock Option [Member] | Maximum [Member] | |
| Schedule of Stock Options [Abstract] | |
| Range of Exercise Price | $ 15.6 |
| Exercisable Stock Option [Member] | |
| Schedule of Stock Options [Abstract] | |
| Number Outstanding (in Shares) | shares | 246,466 |
| Wtd. Avg, Life | 2 years 4 months 24 days |
| Wtd. Avg. Exercise Price | $ 12.07 |
| Exercisable Stock Option [Member] | Minimum [Member] | |
| Schedule of Stock Options [Abstract] | |
| Range of Exercise Price | 8.4 |
| Exercisable Stock Option [Member] | Maximum [Member] | |
| Schedule of Stock Options [Abstract] | |
| Range of Exercise Price | $ 15.6 |
Revision of Previously Issued Consolidated Financial Statement (Details) |
Dec. 31, 2021
USD ($)
|
|---|---|
| Disclosure of Revision of Previously Issued Financial Statement [Abstract] | |
| Net operating loss forward | $ 29,100,000 |
| Proper amount | $ 21,971,000 |
Revision of Previously Issued Consolidated Financial Statement (Details) - Schedule of deferred tax assets - USD ($) |
12 Months Ended | |
|---|---|---|
Dec. 31, 2021 |
Dec. 31, 2020 |
|
| Previously Reported [Member] | ||
| Revision of Previously Issued Consolidated Financial Statement (Details) - Schedule of deferred tax assets [Line Items] | ||
| U.S. statutory income tax rate | 21.00% | |
| State taxes, net of federal benefit | 5.10% | |
| Permanent difference, overaccruals, and non-deductible items | (40.40%) | |
| Change in state rate | 0.00% | |
| Deferred tax valuation allowance | 14.30% | |
| Other | 0.00% | |
| Total | 0.00% | |
| Net operating loss | $ 6,737,000 | $ 6,594,000 |
| Allowance for doubtful accounts | 155,000 | 252,000 |
| Inventory - IRC 263A adjustment | 394,000 | 341,000 |
| Stock based compensation - options and restricted stock | 393,000 | 277,000 |
| Capitalized engineering costs | 449,000 | 336,000 |
| Deferred Rent | 4,000 | |
| Amortization - NTW Transaction | 442,000 | 495,000 |
| Inventory reserve | 824,000 | 1,250,000 |
| Deferred gain on sale of real estate | 47,000 | 132,000 |
| Accrued expenses | 204,000 | 158,000 |
| Disallowed interest | 1,286,000 | 1,813,000 |
| Operating lease liability | 235,000 | 292,000 |
| Capital loss carryforward | 88,000 | |
| Total non-current deferred tax asset before valuation allowance | 11,254,000 | 11,944,000 |
| Valuation allowance | (9,628,000) | (9,394,000) |
| Total non-current deferred tax asset after valuation allowance | 1,626,000 | 2,550,000 |
| Property and equipment | (1,626,000) | (2,150,000) |
| Other | (400,000) | |
| Operating lease ROU assets | ||
| Total deferred tax liabilities | (1,626,000) | (2,550,000) |
| Net deferred tax asset | ||
| Revision of Prior Period, Adjustment [Member] | ||
| Revision of Previously Issued Consolidated Financial Statement (Details) - Schedule of deferred tax assets [Line Items] | ||
| U.S. statutory income tax rate | 0.00% | |
| State taxes, net of federal benefit | (1.00%) | |
| Permanent difference, overaccruals, and non-deductible items | 46.70% | |
| Change in state rate | 8.30% | |
| Deferred tax valuation allowance | (53.00%) | |
| Other | (1.00%) | |
| Total | 0.00% | |
| Net operating loss | $ (1,778,000) | (1,422,000) |
| Allowance for doubtful accounts | (6,000) | (3,000) |
| Inventory - IRC 263A adjustment | (17,000) | (3,000) |
| Stock based compensation - options and restricted stock | (210,000) | (73,000) |
| Capitalized engineering costs | (19,000) | 228,000 |
| Deferred Rent | ||
| Amortization - NTW Transaction | 3,000 | (73,000) |
| Inventory reserve | (34,000) | (579,000) |
| Deferred gain on sale of real estate | (2,000) | (1,000) |
| Accrued expenses | (186,000) | (158,000) |
| Disallowed interest | 290,000 | (18,000) |
| Operating lease liability | 749,000 | 905,000 |
| Capital loss carryforward | (88,000) | |
| Total non-current deferred tax asset before valuation allowance | (1,298,000) | (1,197,000) |
| Valuation allowance | 2,125,000 | 1,262,000 |
| Total non-current deferred tax asset after valuation allowance | 827,000 | 65,000 |
| Property and equipment | (71,000) | 443,000 |
| Operating lease ROU assets | (908,000) | |
| Other | 400,000 | |
| Operating lease ROU assets | (756,000) | |
| Total deferred tax liabilities | (827,000) | (65,000) |
| Net deferred tax asset | ||
| As restated [Member] | ||
| Revision of Previously Issued Consolidated Financial Statement (Details) - Schedule of deferred tax assets [Line Items] | ||
| U.S. statutory income tax rate | 21.00% | |
| State taxes, net of federal benefit | 4.10% | |
| Permanent difference, overaccruals, and non-deductible items | 6.30% | |
| Change in state rate | 8.30% | |
| Deferred tax valuation allowance | (38.70%) | |
| Other | (1.00%) | |
| Total | 0.00% | |
| Net operating loss | $ 4,959,000 | 5,172,000 |
| Allowance for doubtful accounts | 149,000 | 249,000 |
| Inventory - IRC 263A adjustment | 377,000 | 338,000 |
| Stock based compensation - options and restricted stock | 183,000 | 204,000 |
| Capitalized engineering costs | 430,000 | 564,000 |
| Deferred Rent | 4,000 | |
| Amortization - NTW Transaction | 445,000 | 422,000 |
| Inventory reserve | 790,000 | 671,000 |
| Deferred gain on sale of real estate | 45,000 | 131,000 |
| Accrued expenses | 18,000 | |
| Disallowed interest | 1,576,000 | 1,795,000 |
| Operating lease liability | 984,000 | 1,197,000 |
| Capital loss carryforward | ||
| Total non-current deferred tax asset before valuation allowance | 9,956,000 | 10,747,000 |
| Valuation allowance | (7,503,000) | (8,132,000) |
| Total non-current deferred tax asset after valuation allowance | 2,453,000 | 2,615,000 |
| Property and equipment | (1,697,000) | (1,707,000) |
| Operating lease ROU assets | (908,000) | |
| Other | ||
| Operating lease ROU assets | (756,000) | |
| Total deferred tax liabilities | (2,453,000) | $ (2,615,000) |
| Net deferred tax asset | ||