Attached files
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EXCEL - IDEA: XBRL DOCUMENT - AIR INDUSTRIES GROUP | Financial_Report.xls |
EX-32.2 - AIR INDUSTRIES GROUP | e612614_ex32-2.htm |
EX-31.1 - AIR INDUSTRIES GROUP | e612614_ex31-1.htm |
EX-32.1 - AIR INDUSTRIES GROUP | e612614_ex32-1.htm |
EX-31.2 - AIR INDUSTRIES GROUP | e612614_ex31-2.htm |
FORM 10-Q
(Mark One)
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2014
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OR
o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ________.
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Commission file number 001-35927
Air Industries Group
(Exact name of Registrant as specified in its charter)
Nevada
(State or other jurisdiction of
incorporation or organization)
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80-0948413
(IRS Employer
Identification No.)
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1479 N. Clinton Avenue Bay Shore, New York 11706
(Address of principal executive offices)
(631) 968-5000
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of "accelerated filer." "large accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer (do not check if smaller reporting company) o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso No x
As of August 11, 2014, the registrant had outstanding 7,096,242 shares of common stock.
Page No.
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PART I. FINANCIAL INFORMATION
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1
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22
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35
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PART II. OTHER INFORMATION
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36
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36
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37
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Exchange Act. 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. 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.
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. Factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013 and elsewhere in this report and the risks discussed in our other filings with the SEC.
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 the securities laws of the United States.
PART I
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Item 1. Financial statements
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Page No.
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Condensed Consolidated Financial Statements:
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Condensed Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013
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2
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Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2014 and 2013 (unaudited)
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3
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)
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4
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Notes to Condensed Consolidated Financial Statements
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5
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AIR INDUSTRIES GROUP
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||||||||
Condensed Consolidated Balance Sheets
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June 30,
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December 31,
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|||||||
2014
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2013
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|||||||
ASSETS
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(Unaudited)
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|||||||
Current Assets
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||||||||
Cash and Cash Equivalents
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$ | 1,169,000 | $ | 561,000 | ||||
Accounts Receivable, Net of Allowance for Doubtful Accounts
of $889,000 and $783,000
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9,474,000 | 8,584,000 | ||||||
Inventory
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29,268,000 | 26,222,000 | ||||||
Deferred Tax Asset
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1,220,000 | 1,051,000 | ||||||
Prepaid Expenses and Other Current Assets
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465,000 | 510,000 | ||||||
Total Current Assets
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41,596,000 | 36,928,000 | ||||||
Property and Equipment, net
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6,095,000 | 6,523,000 | ||||||
Capitalized Engineering Costs - net of Accumulated Amortization
of $4,093,000 and $3,879,000
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666,000 | 752,000 | ||||||
Deferred Financing Costs, net, deposit and other assets
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630,000 | 605,000 | ||||||
Intangible Assets, net
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4,144,000 | 4,726,000 | ||||||
Deferred Tax Asset
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762,000 | 185,000 | ||||||
Goodwill
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4,514,000 | 453,000 | ||||||
TOTAL ASSETS
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$ | 58,407,000 | $ | 50,172,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
Current liabilities
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||||||||
Notes Payable and Capitalized Lease Obligations - Current Portion
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$ | 11,840,000 | $ | 14,969,000 | ||||
Accounts Payable and Accrued Expenses
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7,780,000 | 6,855,000 | ||||||
Lease Impairment - Current
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64,000 | 71,000 | ||||||
Deferred Gain on Sale - Current Portion
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38,000 | 38,000 | ||||||
Customer Deposit
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174,000 | 251,000 | ||||||
Dividends Payable
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1,064,000 | 717,000 | ||||||
Income Taxes Payable
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1,770,000 | 1,496,000 | ||||||
Total Current Liabilities
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22,730,000 | 24,397,000 | ||||||
Long-term liabilities
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||||||||
Notes Payable and Capitalized Lease Obligation - Net of Current Portion
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3,388,000 | 2,527,000 | ||||||
Lease Impairment - Net of Current Portion
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25,000 | 56,000 | ||||||
Deferred Gain on Sale - Net of Current Portion
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428,000 | 447,000 | ||||||
Deferred Rent
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1,170,000 | 1,132,000 | ||||||
TOTAL LIABILITIES
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27,741,000 | 28,559,000 | ||||||
Stockholders' Equity
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||||||||
Preferred Stock Par Value $.001-Authorized 1,000,000 shares at June 30, 2014 and December 31, 2013, respectively, none issued and outstanding at June 30, 2014 and December 31, 2013, respectively
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- | - | ||||||
Common Stock - Par Value $.001- Authorized 25,000,000 shares at June 30, 2014 and December 31, 2013, respectively,
7,096,242 and 5,862,346 Shares Issued and Outstanding as of
June 30, 2014 and December 31, 2013, respectively
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7,000 | 6,000 | ||||||
Additional Paid-In Capital
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44,894,000 | 36,799,000 | ||||||
Accumulated Deficit
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(14,235,000 | ) | (15,192,000 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY
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30,666,000 | 21,613,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 58,407,000 | $ | 50,172,000 |
See notes to condensed consolidated financial statements
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AIR INDUSTRIES GROUP
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Condensed Consolidated Statements of Income
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(Unaudited)
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Three Months Ended
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Six Months Ended
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|||||||||||||||
June 30,
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June 30,
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|||||||||||||||
2014
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2013
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2014
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2013
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|||||||||||||
Net Sales
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$ | 13,360,000 | $ | 14,639,000 | $ | 28,813,000 | $ | 28,965,000 | ||||||||
Cost of Sales
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10,007,000 | 11,009,000 | 21,415,000 | 21,687,000 | ||||||||||||
Gross Profit
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3,353,000 | 3,630,000 | 7,398,000 | 7,278,000 | ||||||||||||
Operating Expenses
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3,096,000 | 2,552,000 | 5,912,000 | 5,021,000 | ||||||||||||
Income from operations
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257,000 | 1,078,000 | 1,486,000 | 2,257,000 | ||||||||||||
Interest and financing costs
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(304,000 | ) | (393,000 | ) | (607,000 | ) | (775,000 | ) | ||||||||
Other (expense) income, net
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(62,000 | ) | (29,000 | ) | (63,000 | ) | (58,000 | ) | ||||||||
(Loss) Income before (benefit from) provision for income taxes
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(109,000 | ) | 656,000 | 816,000 | 1,424,000 | |||||||||||
(Benefit from) provision for income taxes
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(725,000 | ) | 430,000 | (141,000 | ) | 919,000 | ||||||||||
Net income
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$ | 616,000 | $ | 226,000 | $ | 957,000 | $ | 505,000 | ||||||||
Income per share - basic
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$ | 0.10 | $ | 0.04 | $ | 0.16 | $ | 0.09 | ||||||||
Income per share - diluted
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$ | 0.09 | $ | 0.04 | $ | 0.15 | $ | 0.09 | ||||||||
Weighted average shares outstanding - basic
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6,276,481 | 5,711,093 | 6,071,163 | 5,711,093 | ||||||||||||
Weighted average shares outstanding - diluted
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6,597,804 | 5,789,157 | 6,370,588 | 5,799,374 |
See notes to condensed consolidated financial statements
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AIR INDUSTRIES GROUP
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||||||||
Condensed Consolidated Statements of Cash Flows For the Six months Ended June 30,
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||||||||
(Unaudited)
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2014
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2013
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|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
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||||||||
Net Income
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$ | 957,000 | $ | 505,000 | ||||
Adjustments to Reconcile Net Income to Net
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||||||||
Cash (used in) provided by Operating Activities
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||||||||
Depreciation of property and equipment
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1,168,000 | 801,000 | ||||||
Amortization of intangible assets
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582,000 | 582,000 | ||||||
Amortization of capitalized engineering costs
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214,000 | 203,000 | ||||||
Bad debt expense
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189,000 | 91,000 | ||||||
Non-cash compensation expense
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15,000 | 6,000 | ||||||
Amortization of deferred financing costs
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23,000 | 30,000 | ||||||
Gain on sale of real estate
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(19,000 | ) | (19,000 | ) | ||||
Deferred Income Taxes
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(746,000 | ) | - | |||||
Changes in Operating Assets and Liabilities
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||||||||
(Increase) Decrease in Operating Assets:
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||||||||
Accounts Receivable
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(789,000 | ) | 2,530,000 | |||||
Inventory
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(2,920,000 | ) | (1,508,000 | ) | ||||
Prepaid Expenses and Other Current Assets
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72,000 | 189,000 | ||||||
Deposits
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(1,000 | ) | 117,000 | |||||
Other Assets
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(23,000 | ) | 10,000 | |||||
Increase (Decrease) in Operating Liabilities:
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||||||||
Accounts payable and accrued expenses
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659,000 | 334,000 | ||||||
Deferred Rent
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38,000 | 38,000 | ||||||
Income Taxes payable
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274,000 | 952,000 | ||||||
Customer Deposits
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(77,000 | ) | - | |||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
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(384,000 | ) | 4,861,000 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES
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||||||||
Cash paid for acquisitions
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(4,190,000 | ) | - | |||||
Capitalized engineering costs
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(128,000 | ) | (214,000 | ) | ||||
Purchase of property and equipment
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(302,000 | ) | (46,000 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES
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(4,620,000 | ) | (260,000 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES
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||||||||
Proceeds from Registered Offering
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9,530,000 | - | ||||||
Costs to raise capital
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(968,000 | ) | - | |||||
Notes payable - Sellers
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(339,000 | ) | (317,000 | ) | ||||
Capital lease obligations
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(172,000 | ) | (374,000 | ) | ||||
Note payable - Revolver
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(1,422,000 | ) | (2,132,000 | ) | ||||
Proceeds from note payable - Term Loan
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1,328,000 | - | ||||||
Payments of note payable - Term Loan
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(664,000 | ) | (900,000 | ) | ||||
Cash paid for deferred financing costs
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(25,000 | ) | (10,000 | ) | ||||
Payments related to Lease Impairment
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(38,000 | ) | (45,000 | ) | ||||
Dividends Paid
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(1,618,000 | ) | (358,000 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
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5,612,000 | (4,136,000 | ) | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
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608,000 | 465,000 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
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561,000 | 490,000 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD
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$ | 1,169,000 | $ | 955,000 | ||||
Supplemental cash flow information
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||||||||
Cash paid during the period for interest
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$ | 539,000 | $ | 333,000 | ||||
Supplemental cash flow information
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||||||||
Cash paid during the period for income taxes
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$ | 344,000 | $ | - | ||||
Supplemental schedule of non-cash investing and financing activities
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||||||||
Dividends payable
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$ | 1,064,000 | $ | 358,000 | ||||
Conversion of Junior Subordinated Notes
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$ | 1,000,000 | $ | - | ||||
Purchase of stock of Woodbine Products
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||||||||
Fair Value of Tangible Assets acquired
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$ | 472,000 | ||||||
Goodwill
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2,402,000 | |||||||
Liabilities assumed
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(19,000 | ) | ||||||
Common Stock issued
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(290,000 | ) | ||||||
Cash paid for acquisition
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$ | 2,565,000 | ||||||
Purchase of stock of Eur-Pac Corporation
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||||||||
Fair Value of Tangible Assets acquired
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$ | 409,000 | ||||||
Goodwill
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1,659,000 | |||||||
Liabilities assumed
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(170,000 | ) | ||||||
Due to Seller of Eur-Pac
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(78,000 | ) | ||||||
Common Stock issued
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(195,000 | ) | ||||||
Cash paid for acquisition
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$ | 1,625,000 |
See notes to condensed consolidated financial statements
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AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. FORMATION AND BASIS OF PRESENTATION
Organization
On August 30, 2013, Air Industries Group, Inc. (“Air Industries Delaware”) changed its state of incorporation from Delaware to Nevada as a result of a merger with and into its wholly-owned subsidiary, Air Industries Group, a Nevada corporation (“Air Industries Nevada” or “AIRI”) and the surviving entity, pursuant to an Agreement and Plan of Merger. The reincorporation was approved by the stockholders of Air Industries Delaware at its 2013 Annual Meeting of Stockholders. Air Industries Nevada is deemed to be the successor.
The accompanying condensed consolidated financial statements presented are those of AIRI, and its wholly-owned subsidiaries; Air Industries Machining Corporation (“AIM”), Welding Metallurgy, Inc. ("WMI" or “Welding”), Miller Stuart, Inc. (“Miller Stuart”), a wholly-owned subsidiary of WMI, Woodbine Products, Inc. (“Woodbine”), a wholly-owned subsidiary of WMI, Eur-Pac Corporation (“Eur-Pac”) and Nassau Tool Works, Inc. (“NTW”) (together, the “Company”).
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission.
Note 2. ACQUISITION
On April 1, 2014, the Company, through its wholly-owned subsidiary Welding, acquired all of the common stock of Woodbine for $2.4 million and 30,000 shares of the common stock of AIRI. The common stock was valued at $9.68 per share, which was the closing share price on April 1, 2014. Additionally, a working capital adjustment in the amount of $165,000 was paid to the former stockholders of Woodbine during June of 2014. The Company financed the acquisition of Woodbine by increasing its borrowings on its existing revolving loan and term loan facilities (see Note 7).
Woodbine is a long established manufacturer of aerospace components whose customers include major aircraft component suppliers. Woodbine specializes in welded and brazed chassis structures housing electronics in aircraft. Woodbine’s products and customers are very complementary to those of Decimal Industries, Inc., which was acquired in July 2013.
The acquisition of Woodbine was accounted for under FASB ASC 805, “Business Combinations” (“ASC 805”). The purchase price allocation is set forth below.
Fair Value of Tangible Assets acquired
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$ | 472,000 | ||
Goodwill
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2,402,000 | |||
Liabilities assumed
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(19,000 | ) | ||
Total
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$ | 2,855,000 |
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On June 1, 2014, the Company acquired all of the common stock of Eur-Pac for $1.6 million and 20,000 shares of the common stock of AIRI. The common stock was valued at $9.78 per share, which was the closing share price on that date. Additionally, a working capital adjustment has been calculated in the amount of $78,000 and will be paid in August 2014. This amount is reflected in the Company’s Condensed Consolidated Balance Sheet under the caption Accounts Payable and Accrued Expenses. The Company financed the acquisition of Eur-Pac with the proceeds of its Registered Direct Offering (see Note 8).
Eur-Pac specializes in military packaging and supplies. Eur-Pac’s primary business is “kitting” of supplies for all branches of the United States Defense Department including ordnance parts, hose assemblies, hydraulic, mechanical and electrical assemblies.
The acquisition of Eur-Pac was accounted for under ASC 805. The purchase price allocation is set forth below.
Fair Value of Tangible Assets acquired
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$ | 409,000 | ||
Goodwill
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1,659,000 | |||
Liabilities assumed
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(170,000 | ) | ||
Total
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$ | 1,898,000 |
Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principal Business Activities
The Company, through AIM, is primarily engaged in manufacturing aircraft structural parts, and assemblies for prime defense contractors in the aerospace industry in the United States. Welding is a specialty welding and products provider whose significant customers include the world's largest aircraft manufacturers, subcontractors, and original equipment manufacturers. NTW is a manufacturer of aerospace components, principally landing gear for F-16 and F-18 fighter aircraft. The Company's customers consist mainly of publicly-traded companies in the aerospace industry. Eur-Pac, as discussed above, specializes in military packaging and supplies.
Inventory Valuation
Inventory at June 30, 2014 and 2013 was computed based on a “gross profit” method.
The Company valued inventory at December 31, 2013 at the lower of cost on a first-in-first-out basis or market.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Credit and Concentration Risks
There were three customers that represented 58.3% and 59.0% of total sales for the three months ended June 30, 2014 and 2013, respectively. This is set forth in the table below.
Customer
|
Percentage of Sales
|
||||||
2014
|
2013
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
1 | 29.3 | 30.2 | |||||
2 | 18.4 | 17.1 | |||||
3 | 10.6 | ** | |||||
4 | * | 11.7 | |||||
* Customer was less than 10% of sales for the quarter ended June 30, 2014
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|||||||
** Customer was less than 10% of sales for the quarter ended June 30, 2013
|
There were three customers that represented 55.9% and 59.2% of total sales for the six months ended June 30, 2014 and 2013, respectively. This is set forth in the table below.
Customer
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Percentage of Sales
|
||||||
2014
|
2013
|
||||||
(Unaudited)
|
(Unaudited)
|
||||||
1 | 30.8 | 28.0 | |||||
2 | 12.8 | 17.7 | |||||
3 | 12.3 | ** | |||||
4 | * | 13.5 | |||||
* Customer was less than 10% of sales for the six months ended June 30, 2014
|
|||||||
** Customer was less than 10% of sales for the six months ended June 30, 2013
|
There were three customers that represented 47.8% and 42.9% of gross accounts receivable at June 30, 2014 and December 31, 2013, respectively. This is set forth in the table below.
June
|
December
|
||||||
2014
|
2013
|
||||||
(Unaudited)
|
|||||||
1 | 19.4 | 22.8 | |||||
2 | 16.2 | 20.1 | |||||
3 | 12.2 | * | |||||
* Customer was less than 10% of receivables at December 31, 2013
|
The Company has 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.
AIM has several sole-source suppliers of various parts that are used in one or more of its products. If any of these sole source suppliers were to go out of business or be unable to provide it parts for any reason, AIM would be required to develop new suppliers or to re-engineer its products, or both, which could delay shipment of products and have a material adverse effect on its operating results.
Earnings per share
Basic earnings per share is computed by dividing the net income applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Potentially dilutive shares, using the treasury stock method, are included in the diluted per-share calculation for all periods when the effect of their inclusion is dilutive.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of the denominators of basic and diluted earnings per share computations:
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2014
|
2013
|
2014
|
2013
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Weighted average shares outstanding used to compute basic earning per share
|
6,276,481 | 5,711,093 | 6,071,163 | 5,711,093 | ||||||||||||
Effect of dilutive stock options and warrants
|
321,323 | 78,064 | 299,425 | 88,281 | ||||||||||||
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share
|
6,597,804 | 5,789,157 | 6,370,588 | 5,799,374 |
The following securities have been excluded from the calculation as their effect would be anti-dilutive:
Three and Six Months Ended | ||||||||
June 30,
|
June 30,
|
|||||||
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Stock Options
|
17,048 | 12,548 | ||||||
Warrants
|
46,800 | 118,835 | ||||||
63,848 | 131,383 |
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with FASB ASC 718, "Compensation – Stock Compensation." Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model. Stock-based compensation amounted to $12,000 and $6,000 for the three months ended June 30, 2014 and 2013, respectively, and $15,000 and $6,000 for the six months ended June 30, 2014 and 2013 respectively, and was included in operating expenses on the accompanying Condensed Consolidated Statement of Income.
Goodwill
Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $4,514,000 relates to the acquisition of WMI ($291,000), NTW acquisition ($162,000), Woodbine ($2,402,000) and Eur-Pac ($1,659,000). Goodwill is not amortized, but is tested at least annually for impairment, or if circumstances occur that more likely than not will reduce the fair value of the reporting unit below its carrying amount.
The Company has determined that there has been no impairment of goodwill at June 30, 2014 and December 31, 2013.
Recently Issued Accounting Pronouncements
Effective January 1, 2014, the Company adopted Accounting Standards Update No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. This guidance is effective prospectively for the Company for annual and interim periods beginning January 1, 2014. The adoption of ASU 2013-11 did not have a material effect on the Company's financial position, results of operations or cash flows.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In January 2014, the FASB issued Accounting Standards Update No. 2014-02, "Intangibles – Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council)" (ASU 2014-02). ASU 2014-02 allows an accounting alternative for the subsequent measurement of goodwill. An entity within the scope of the amendment that elects the accounting alternative in ASU 2014-02 should amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate. As the Company is a public company, this standard does not apply.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The amendments in ASU 2014-09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC 605, “Revenue Recognition” and most industry-specific guidance and creates ASC 606, “Revenue from Contracts with Customers.”
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the effects of the adoption of ASU 2014-09 on its consolidated financial statements.
In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU No. 2014-12”). ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should recognize compensation cost in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. ASU 2014-12 becomes effective for interim and annual periods beginning on or after December 15, 2015. Early adoption is permitted. The adoption of ASU 2014-12 is not expected to have a significant impact on the Company’s 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.
Subsequent Events
Management has evaluated subsequent events through the date of this filing.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. ACCOUNTS RECEIVABLE
The components of accounts receivable are detailed as follows:
June 30,
|
December 31,
|
|||||||
2014
|
2013
|
|||||||
(Unaudited)
|
||||||||
Accounts Receivable Gross
|
$ | 10,449,000 | $ | 9,367,000 | ||||
Allowance for Doubtful Accounts
|
(975,000 | ) | (783,000 | ) | ||||
Accounts Receivable Net
|
$ | 9,474,000 | $ | 8,584,000 |
Note 5. PROPERTY AND EQUIPMENT
The components of property and equipment at June 30, 2014 and December 31, 2013 consisted of the following:
June 30,
|
December 31,
|
|||||||||
2014
|
2013
|
|||||||||
(Unaudited)
|
||||||||||
Machinery and Equipment
|
$ | 6,507,000 | $ | 6,251,000 |
5 - 8 years
|
|||||
Capital Lease Machinery and Equipment
|
5,261,000 | 5,261,000 |
5 - 8 years
|
|||||||
Tools and Instruments
|
5,408,000 | 5,009,000 |
1.5 - 7 years
|
|||||||
Automotive Equipment
|
96,000 | 59,000 |
5 years
|
|||||||
Furniture and Fixtures
|
257,000 | 257,000 |
5 - 8 years
|
|||||||
Leasehold Improvements
|
646,000 | 646,000 |
Term of Lease
|
|||||||
Computers and Software
|
368,000 | 357,000 |
4-6 years
|
|||||||
Total Property and Equipment
|
18,543,000 | 17,840,000 | ||||||||
Less: Accumulated Depreciation
|
(12,448,000 | ) | (11,317,000 | ) | ||||||
Property and Equipment, net
|
$ | 6,095,000 | $ | 6,523,000 |
Depreciation expense for the three months ended June 30, 2014 and 2013 was approximately $616,000 and $398,000, respectively. Depreciation expense for the six months ended June 30, 2014 and 2013 was approximately $1,168,000 and $801,000, respectively.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. INTANGIBLE ASSETS
The components of intangible assets consisted of the following:
June 30,
|
December 31,
|
|||||||||
2014
|
2013
|
|||||||||
(Unaudited)
|
||||||||||
Customer Relationships
|
$ | 5,815,000 | $ | 5,815,000 |
5 to 14 years
|
|||||
Trade Names
|
770,000 | 770,000 |
20 years
|
|||||||
Technical Know-how
|
660,000 | 660,000 |
10 years
|
|||||||
Non-Compete
|
50,000 | 50,000 |
5 years
|
|||||||
Professional Certifications
|
15,000 | 15,000 |
.25 to 2 years
|
|||||||
Total Intangible Assets
|
7,310,000 | 7,310,000 | ||||||||
Less: Accumulated Amortization
|
(3,166,000 | ) | (2,584,000 | ) | ||||||
Intangible Assets, net
|
$ | 4,144,000 | $ | 4,726,000 |
Amortization expense for the three months ended June 30, 2014 and 2013 was approximately $291,000 and $291,000, respectively. Amortization expense for the six months ended June 30, 2014 and 2013 was approximately $582,000 and $582,000, respectively.
Note 7. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations consist of the following:
June 30,
|
December 31,
|
|||||||
2014
|
2013
|
|||||||
(Unaudited)
|
||||||||
Revolving credit note payable to PNC Bank N.A. ("PNC")
|
$ | 10,608,000 | $ | 12,029,000 | ||||
Term loan, PNC
|
2,613,000 | 1,948,000 | ||||||
Capital lease obligations
|
1,615,000 | 1,787,000 | ||||||
Notes payable to sellers of WMI
|
392,000 | 732,000 | ||||||
Junior subordinated notes
|
- | 1,000,000 | ||||||
Subtotal
|
15,228,000 | 17,496,000 | ||||||
Less: Current portion of notes and capital obligations
|
(11,840,000 | ) | (14,969,000 | ) | ||||
Notes payable and capital lease obligations, net of current portion
|
$ | 3,388,000 | $ | 2,527,000 |
PNC Bank N.A. ("PNC")
The Company has a loan facility with PNC (the “Loan Facility”) secured by substantially all of its assets.
On April 1, 2014, the Loan Facility was amended and the Company paid a loan amendment fee of $15,000. These amendments added Woodbine as a borrower on the Loan Facility and increased the maximum borrowings to $22,676,000 less repayments of the Term Loan made on or after the closing date. The maximum borrowings consist of the following:
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(i)
|
a $20,000,000 revolving loan (includes inventory sub-limit of $12,500,000) and
|
(ii)
|
a $2,676,000 term loan.
|
On June 9, 2014, the Loan Facility was further amended. These amendments added Eur-Pac as a borrower on the Loan Facility and increased the maximum borrowings to $25,613,000 less repayments of the Term Loan made on or after the closing date. The maximum borrowings consist of the following:
(i)
|
a $23,000,000 revolving loan (includes inventory sub-limit of $15,000,000) and
|
(ii)
|
a $2,613,000 term loan.
|
Under the terms of the Loan Facility the revolving credit note bears interest at (a) the sum of the Alternate Base Rate plus three quarters of one percent (0.75%) with respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and one half of one percent (2.50%) with respect to Eurodollar Rate Loans. The revolving credit note had an interest rate of 4.0 % per annum at both June 30, 2014 and December 31, 2013, and an outstanding balance of $10,608,000 and $12,029,000, respectively. The maturity date of the revolving credit note is November 30, 2016.
Each day, the Company's cash collections are swept directly by the bank to reduce the revolving loan and the Company then borrows according to a borrowing base. As such, the Company generally has no cash on hand. Because the revolving loan contains a subjective acceleration clause which could permit PNC to require repayment prior to maturity, the loans are classified with the current portion of notes and capital lease obligations.
Under the terms of the Loan Facility prior to the amendment discussed below, the maturity date of the term loan was the first business day (as defined) of January 2015. The term loan bore interest equal to (a) the sum of the Alternate Base Rate plus one and three quarters of one percent (1.75%) with respect to Domestic Rate Loans or (b) the sum of the Eurodollar Rate plus three percent (3.00%) with respect to Eurodollar Rate Loans. Repayment under the term loan consisted of 19 consecutive monthly principal installments, the first 18 of which were $150,000 commencing on the first business day of July 2013, with the 19th and final payment of any unpaid balance of principal and interest payable on the first business day of January 2015. Additionally, upon a request from PNC no later than the last day of any applicable fiscal quarter, there was a prepayment equal to 50% of Excess Cash Flow (as defined) for each fiscal quarter commencing with the fiscal quarter ended June 30, 2013 (formerly September 30, 2012), payable upon the delivery of the financial statements for such fiscal period to PNC, but no later than 45 days after the end of the fiscal quarter.
On April 1, 2014, the Company borrowed an additional $1,328,000. The repayment of the Term Loan was amended on that date to thirty-two consecutive monthly principal installments, the first thirty-one of which shall be in the amount of $31,859 commencing on the first business day of May 2014, and continuing on the first business day of each month thereafter, with a thirty-second and final payment of any unpaid balance of principal and interest on the last business day of November 2016. The term loan bears interest equal to (a) the sum of the Alternate Base Rate plus one and three quarters of one percent (1.75%) with respect to Domestic Rate Loans or (b) the sum of the Eurodollar Rate plus three percent (3.00%) with respect to Eurodollar Rate Loans. At June 30, 2014 and December 31, 2013, the balance due under the term loan was $2,613,000 and $1,948,000, respectively.
To the extent that the Company disposes of collateral used to secure the Loan Facility, other than inventory, the Company must promptly repay the draws on the credit facility in an amount equal to the net proceeds of such sale.
The terms of the Loan Facility require that, among other things, the Company maintain a specified Fixed Charge Coverage Ratio. In addition, the Company is limited in the amount of Capital Expenditures it can make. The Company is also limited to the amount of Dividends it can pay its shareholders as defined in the Loan Facility. As of both June 30, 2014 and December 31, 2013, the Company was in compliance with all terms of the Loan Facility.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company's receivables are payable directly into a lockbox controlled by PNC (subject to the terms of the Loan Facility). PNC may use some elements of subjective business judgment in determining whether a material adverse change has occurred in the Company's condition, results of operations, assets, business, properties or prospects allowing it to demand repayment of the Loan Facility.
As of June 30, 2014 the future minimum principal payments for the term loan as amended are as follows:
For the twelve months ending
|
Amount
|
|||
June 30, 2015
|
$ | 382,000 | ||
June 30, 2016
|
382,000 | |||
June 30, 2017
|
1,849,000 | |||
PNC Term Loan Payable
|
2,613,000 | |||
Less: Current portion
|
(382,000 | ) | ||
Long-term portion
|
$ | 2,231,000 |
Interest expense related to the Loan Facilities amounted to approximately $225,000 and $272,000 for the three months ended June 30, 2014 and 2013, respectively, and $411,000 and $540,000 for the six months ended June 30, 2014 and 2013, respectively.
Capital Leases Payable – Equipment
The Company is committed under several capital leases for manufacturing and computer equipment. All leases have bargain purchase options exercisable at the termination of each lease. Capital lease obligations totaled $1,615,000 and $1,787,000 as of June 30, 2014 and December 31, 2013, respectively, with various interest rates ranging from 7.0% to 9.5%.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2014, the aggregate future minimum lease payments, including imputed interest, with remaining terms of greater than one year are as follows:
For the twelve months ending
|
Amount
|
|||
June 30, 2015
|
$ | 576,000 | ||
June 30, 2016
|
576,000 | |||
June 30, 2017
|
368,000 | |||
June 30, 2018
|
237,000 | |||
June 30, 2019
|
64,000 | |||
Thereafter
|
5,000 | |||
Total future minimum lease payments
|
1,826,000 | |||
Less: imputed interest
|
(211,000 | ) | ||
Less: current portion
|
(458,000 | ) | ||
Total Long Term Portion
|
$ | 1,157,000 |
Notes Payable – Sellers of WMI
As of June 30, 2014 and December 31, 2013, the balance owed to the sellers of WMI is $392,000 and $732,000, respectively.
June 30,
|
December 31,
|
|||||||
2014
|
2013
|
|||||||
(Unaudited)
|
||||||||
Former Welding Stockholders
|
$ | 392,000 | $ | 732,000 | ||||
Less: Current Portion
|
(392,000 | ) | (691,000 | ) | ||||
Total long-term portion
|
$ | - | $ | 41,000 |
In connection with the acquisition of WMI on August 24, 2007, the Company incurred a note payable (“Note”) to the former stockholders of WMI. The obligation under the Note is subordinate to the Company’s indebtedness to PNC.
The Note and payment terms have been adjusted and/or amended several times. On October 1, 2010, the Company entered into a letter agreement with the former stockholders of WMI making the new balance of the note $2,397,967. Payments on the note began on October 1, 2010. It was further agreed that payments would be made according to the following schedule: equal monthly installments of $40,000 on the first business day of each month until December 31, 2011, followed by equal monthly installments of $60,000 on the first business day of each month commencing on January 1, 2012 and continuing until the entire principal amount of the obligation is paid in full, which is estimated to be in January 2015. Interest shall accrue at the rate of 7% per annum, and each payment will first apply to interest and then to principal. At June 30, 2014 and December 31, 2013, the balance owed under the note was $392,000 and $732,000, respectively.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2014, the future minimum payments for the note payable to the former stockholders of WMI are as follows:
For the twelve months ended | Amount | |||
June 30, 2015 | $ | 392,000 | ||
Former WMI Stockholders Notes Payable
|
$ | 392,000 | ||
Less: Current Portion
|
$ | (392,000 | ) | |
Total long-term portion
|
$ | - |
Interest expense related to notes payable to the former stockholders of WMI was $9,000 and $31,000 for the three months ended June 30, 2014 and 2013, respectively, and $21,000 and $44,000 for the six months ended June 30, 2014 and 2013, respectively.
Junior Subordinated Notes
In 2008 and 2009, the Company sold in a series of private placements to accredited investors $5,990,000 of principal amount in Junior Subordinated Notes. The notes bear interest at the rate of 1% per month (or 12% per annum).
In connection with the offering of the Company's Junior Subordinated Notes, the Company issued to Taglich Brothers, Inc. ("Taglich Brothers"), as placement agent, a Junior Subordinated Note in the principal amount of $510,000. The terms of the note issued to Taglich Brothers are identical to the notes. In connection with the amounts raised in 2009, the Company issued to Taglich Brothers a Junior Subordinated Note on the same terms as the Junior Subordinated Notes referred to above for commission of $44,500.
In conjunction with the Private Placement of our common stock to raise money for the NTW Acquisition, the Company solicited the holders of our Junior Subordinated Notes to convert their notes to Common Stock at a price of $6.00 per share. On June 29, 2012, the Company issued 867,461 shares of its Common Stock in exchange for approximately $5,204,000 of its Junior Subordinated Notes. On July 26, 2012, the Company repaid $115,000 of our Junior Subordinated Notes along with the accrued interest thereon of approximately $1,000.
On June 3, 2014, in conjunction with our Registered Direct Offering (see Note 8), the holders of our remaining Junior Subordinated Notes converted their notes to Common Stock at a price of $9.00 per share. On the same date, the Company paid the remaining accrued interest of $1,000 that was due to the holders.
The balance owed on the Junior Subordinated Notes at June 30, 2014 was $0 and at December 31, 2013 amounted to $1,000,000. Interest expense on the Junior Subordinated Notes amounted to $31,000 and $30,000 for the three months ended June 30, 2014 and 2013, respectively and $61,000 and $60,000 for the six months ended June 30, 2014 and 2013, respectively.
Note 8. STOCKHOLDERS' EQUITY
Common Stock Issuances
During the six months ended June 30, 2014, the Company issued 4,439 shares of its common stock pursuant to the cashless exercise of Warrants and 5,177 share of its common stock pursuant to the cashless exercise of Stock Options.
On April 1, 2014, in connection with the acquisition of Woodbine, the Company issued 30,000 shares of its common stock to the former stockholders of Woodbine.
On June 3, 2014, in connection with its Registered Direct Offering (“the Offering”), the Company issued 1,170,000 shares of its common stock. These securities were offered pursuant to the Company’s effective “shelf” registration statement on Form S-3 (File NO. 333-191748), which was declared effective by the Securities and Exchange Commission on December 11, 2013. Taglich Brothers acted as the exclusive placement agent for the offering (see Note 10). The gross proceeds of the offering were $10,530,000 comprised of $9,530,000 in cash and $1,000,000 in the conversion of our Junior Subordinated Notes (see Note 7). The Company paid to Taglich Brothers a commission of approximately $842,000 and warrants to purchase up to 46,800 shares of common stock at a price per share of $11.25. Additionally, the Company paid legal fees on behalf of Taglich Brothers in the amount of $75,000 and paid a qualified independent underwriter approximately $50,000 for its services. The Company netted cash of approximately $8,562,000 from the Offering. A portion of these funds were used to finance the acquisition of Eur-Pac Corporation (see Note 1).
On June 4, 2014, in connection with the acquisition of Eur-Pac, the Company issued 20,000 share of its common stock to the former stockholders of Eur-Pac.
Dividends
On June 19, 2014, the Board of Directors approved and the Company announced a quarterly dividend of $0.15 per common share paid on July 10, 2014 to all shareholders of record as of the close of business on June 30, 2014. The approximate amount of the dividend was $1,064,000.
On March 26, 2014, the Board of Directors approved and the Company announced a quarterly dividend of $0.15 per common share paid on April 22, 2014 to all shareholders of record as of the close of business on April 15, 2014. The approximate amount of the dividend was $885,000.
Stock Options
On June 3, 2013, the Board of Directors adopted the Company’s 2013 Equity Incentive Plan (“2013 Plan”). The 2013 plan is virtually identical to and is intended to replace, the Company’s 2010 Equity Incentive Plan. The proposal to approve the 2013 Plan was approved by the affirmative vote of the Company’s stockholders on July 29, 2013.
Warrants
As discussed above, the Company issued Taglich Brothers warrants to purchase up to 46,800 shares of Common Stock at a per share price of $11.25. The warrants are exercisable for cash or on a cashless basis commencing on June 2, 2015 and expiring on June 2, 2019.
Derivative Liability
In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative liability instruments under the provisions of FASB ASC 815, “Derivatives and Hedging.”
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9. INCOME TAXES
The provision for income taxes as at June 30, are set forth below:
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Current
|
||||||||
Federal
|
$ | 871,000 | $ | 707,000 | ||||
State
|
14,000 | 212,000 | ||||||
Prior year (over) under accruals
|
||||||||
Federal
|
10,000 | - | ||||||
State
|
(290,000 | ) | - | |||||
Total Current Expense
|
605,000 | 919,000 | ||||||
Deferred Tax Benefit
|
(746,000 | ) | - | |||||
Net (Benefit) Expense for Income Taxes
|
$ | (141,000 | ) | $ | 919,000 |
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The components of net deferred tax assets as of June 30, 2014 and December 31, 2013 are set forth below:
June 30,
|
December 31,
|
|||||||
2014
|
2013
|
|||||||
(Unaudited)
|
||||||||
Deferred tax assets:
|
||||||||
Current:
|
||||||||
Bad debts
|
390,000 | 313,000 | ||||||
Inventory - 263A adjustment
|
821,000 | 729,000 | ||||||
Account payable, accrued expenses and reserves
|
9,000 | 9,000 | ||||||
Total current deferred tax assets
|
$ | 1,220,000 | $ | 1,051,000 | ||||
Non- Current:
|
||||||||
Capital loss carry forwards
|
$ | 1,088,000 | $ | 1,088,000 | ||||
Section 1231 loss carry forward
|
4,000 | 4,000 | ||||||
Stock based compensation - options and restricted stock
|
507,000 | 521,000 | ||||||
Capitalized engineering costs
|
526,000 | 503,000 | ||||||
Deferred rent
|
468,000 | 453,000 | ||||||
Amortization - NTW Transaction
|
530,000 | 475,000 | ||||||
Lease Impairment
|
36,000 | 51,000 | ||||||
Deferred gain on sale of real estate
|
186,000 | 194,000 | ||||||
Total non-current deferred tax assets before valuation allowance
|
3,345,000 | 3,289,000 | ||||||
Valuation allowance
|
(1,092,000 | ) | (1,092,000 | ) | ||||
Total non-current deferred tax assets after valuation allowance
|
2,253,000 | 2,197,000 | ||||||
Deferred tax liabilities:
|
||||||||
Property and equipment
|
(1,007,000 | ) | (1,497,000 | ) | ||||
Goodwill - NTW Transaction
|
(9,000 | ) | (7,000 | ) | ||||
Amortization - Welding Transaction
|
(475,000 | ) | (508,000 | ) | ||||
Total Deferred Tax Liability
|
(1,491,000 | ) | (2,012,000 | ) | ||||
Net non-current deferred tax assets
|
$ | 762,000 | $ | 185,000 |
During the year ended December 31, 2013, the Company determined that it no longer needed to provide a valuation allowance on the net deferred tax assets except for the capital loss and section 1231 loss carryforwards. This was based upon the fact that management believes that the net deferred tax assets is more likely than not to be realized. The valuation allowance at both June 30, 2014 and December 31, 2013 was $1,092,000.
The Company has a capital loss carry forward from the sale of Sigma Metals, Inc., the Company’s former subsidiary, of $2,719,000, which will expire in fiscal 2015.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 10. RELATED PARTY TRANSACTIONS
The Company’s chairman of the board and a second director are principals of Taglich Brothers. As discussed above, Taglich Brothers acted as the exclusive placement agent for the Offering.
Note 11. SEGMENT REPORTING
In accordance with FASB ASC 280, “Segment Reporting”, the Company discloses financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company is operating in four segments. AIM manufactures components and subassemblies for the defense and aerospace industry. NTW is a manufacturer of aerospace components, principally landing gear for F-16 and F-18 fighter aircraft. WMI provides specialty welding services and metal fabrications to the defense and commercial aerospace industry and the results of Woodbine are included within the WMI segment beginning on April 1, 2014, the date it was acquired. Eur-Pac’s primary business is “kitting” of supplies for all branches of the United States Defense Department including ordnance parts, hose assemblies, hydraulic, mechanical and electrical assemblies. The results of Eur-Pac are included from its date of acquisition. While each of these segments service the same industries and a similar customer base, we evaluate the performance of each segment separately in deciding how to allocate resources and in accessing profitability.
Beginning on January 1, 2013, the Company began to allocate all of the corporate selling and general and administrative costs of AIRI to each of its three subsidiaries. For both 2014 and 2013, these are allocated 50% to AIM and 25% to each of WMI and NTW. There was no corporate allocation made to Eur-Pac during 2014.
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial information about the Company's operating segments for the three months ended June 30, 2014 and 2013 are as follows:
Three Months Ended June 30,
|
||||||||
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
AIM
|
||||||||
Net Sales
|
$ | 7,135,000 | $ | 8,188,000 | ||||
Gross Profit
|
1,285,000 | 1,599,000 | ||||||
Pre Tax Income
|
157,000 | 594,000 | ||||||
Assets
|
22,243,000 | 23,645,000 | ||||||
WMI
|
||||||||
Net Sales
|
3,763,000 | 3,307,000 | ||||||
Gross Profit
|
1,108,000 | 894,000 | ||||||
Pre Tax (Loss) Income
|
(202,000 | ) | 7,000 | |||||
Assets
|
18,375,000 | 9,477,000 | ||||||
NTW
|
||||||||
Net Sales
|
2,185,000 | 3,144,000 | ||||||
Gross Profit
|
819,000 | 1,137,000 | ||||||
Pre Tax (Loss) Income
|
(73,000 | ) | 228,000 | |||||
Assets
|
11,597,000 | 13,247,000 | ||||||
Eur-Pac
|
||||||||
Net Sales
|
277,000 | - | ||||||
Gross Profit
|
141,000 | - | ||||||
Pre Tax Income
|
91,000 | - | ||||||
Assets
|
2,252,000 | - | ||||||
Corporate
|
||||||||
Net Sales
|
- | - | ||||||
Gross Profit
|
- | - | ||||||
Pre Tax Loss
|
(82,000 | ) | (173,000 | ) | ||||
Assets
|
17,254,000 | 11,074,000 | ||||||
Consolidated
|
||||||||
Net Sales
|
13,360,000 | 14,639,000 | ||||||
Gross Profit
|
3,353,000 | 3,630,000 | ||||||
Pre Tax (Loss) Income
|
(109,000 | ) | 656,000 | |||||
(Benefit from) Provision for Taxes
|
(725,000 | ) | 430,000 | |||||
Net Income
|
616,000 | 226,000 | ||||||
Elimination of Assets
|
(13,314,000 | ) | (6,596,000 | ) | ||||
Assets
|
58,407,000 | 50,847,000 |
AIR INDUSTRIES GROUP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial information about the Company's operating segments for the six months ended June 30, 2014 and 2013 are as follows:
Six Months Ended June 30,
|
||||||||
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
AIM
|
||||||||
Net Sales
|
$ | 14,266,000 | $ | 15,666,000 | ||||
Gross Profit
|
2,571,000 | 3,059,000 | ||||||
Pre Tax Income
|
485,000 | 1,088,000 | ||||||
Assets
|
22,243,000 | 23,645,000 | ||||||
WMI
|
||||||||
Net Sales
|
7,076,000 | 6,446,000 | ||||||
Gross Profit
|
1,945,000 | 1,743,000 | ||||||
Pre Tax Loss
|
(533,000 | ) | (5,000 | ) | ||||
Assets
|
18,375,000 | 9,477,000 | ||||||
NTW
|
||||||||
Net Sales
|
7,194,000 | 6,853,000 | ||||||
Gross Profit
|
2,741,000 | 2,476,000 | ||||||
Pre Tax Income
|
946,000 | 721,000 | ||||||
Assets
|
11,597,000 | 13,247,000 | ||||||
Eur-Pac
|
||||||||
Net Sales
|
277,000 | - | ||||||
Gross Profit
|
141,000 | - | ||||||
Pre Tax Income
|
91,000 | - | ||||||
Assets
|
2,252,000 | - | ||||||
Corporate
|
||||||||
Net Sales
|
- | - | ||||||
Gross Profit
|
- | - | ||||||
Pre Tax Loss
|
(173,000 | ) | (380,000 | ) | ||||
Assets
|
17,254,000 | 11,074,000 | ||||||
Consolidated
|
||||||||
Net Sales
|
28,813,000 | 28,965,000 | ||||||
Gross Profit
|
7,398,000 | 7,278,000 | ||||||
Pre Tax Income
|
816,000 | 1,424,000 | ||||||
(Benefit from) Provision for Taxes
|
(141,000 | ) | 919,000 | |||||
Net Income
|
957,000 | 505,000 | ||||||
Elimination of Assets
|
(13,314,000 | ) | (6,596,000 | ) | ||||
Assets
|
58,407,000 | 50,847,000 |
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes to those statements included elsewhere in this Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risks identified in our Form 10-K for the year ended December 31, 2013, which was filed on March 25, 2014, that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Business Overview
We are an aerospace company operating primarily in the defense industry, though the proportion of our business represented by the commercial sector is increasing. We design and manufacture structural parts and assemblies that focus on flight safety, including landing gear, arresting gear, engine mounts, flight controls, Nacelle Struts, which transmit the thrust of a jet engine to the body of the aircraft, and other components. We also provide sheet metal fabrication of aerostructures, tube bending and welding services. Our products are currently deployed on a wide range of high profile military and commercial aircraft including Sikorsky's UH-60 Blackhawk helicopter, Lockheed Martin's F-35 Joint Strike Fighter, Northrop Grumman's E2D Hawkeye, Pratt & Whitney’s Geared fan jet engine, the US Navy F-18 and USAF F-16 fighter aircraft, and in the commercial sector, Boeing's 777, Airbus' 380 commercial airliners, and other commercial airliners.
We acquired the business and operations of Decimal Industries, Inc. (“Decimal”) in an asset acquisition on July 1, 2013 (the “Decimal Transaction”). On November 6, 2013, we acquired 100% of the stock of Miller Stuart Inc., (“MSI”). For the immediate future, MSI will continue to be operated as a separate business unit. On April 1, 2014, we acquired 100% of the stock of Woodbine Products, Inc. ("WPI"). We are now in the process of incorporating the operations of WPI into our subsidiary, Welding Metallurgy, Inc. (“WMI”). On June 1, 2014, we acquired 100% of the stock of Eur-Pac Corporation (“EPC”) of Waterbury, Connecticut, which will be operated as a separate subsidiary. Consequently, during the second quarter of 2014, we had five operating subsidiaries – Air Industries Machining Corp. (“AIM”), WMI, Nassau Tool Works, Inc. (“NTW”), MSI and EPC which we divide into four operating segments.
AIM has manufactured components and subassemblies for the defense and commercial aerospace industry for over 40 years. WMI has provided specialty welding services and metal fabrications to the defense and commercial aerospace industry since 1979. Decimal, now part of WMI, was founded in 1968 and its principal business is the fabrication of precision sheet metal assemblies for the aerospace industry. WPI, now part of WMI, was founded in 1954 and its principal business is the fabrication of precision sheet metal assemblies for the aerospace industry. The predecessor of our subsidiary, NTW was founded in 1959 and its principal business is the fabrication and assembly of landing gear components and complete landing gear for fighter aircraft for the US and foreign governments. MSI was founded in 1966 and is a manufacturer of aerospace components whose customers include major aircraft manufacturers and the US Military. MSI specializes in electromechanical systems, harness and cable assemblies, electronic equipment and printed circuit boards. EPC was founded in 1947 and specializes in military packaging and supplies all branches of the United States Defense Department with ordnance parts and kits, hose assemblies, hydraulic, mechanical and electrical assemblies.
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 their 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 service but also by increasing our ability to produce more complex and complete assemblies for our customers
Our ability to operate profitably is determined by our ability to win new contracts and renewals of existing contracts, and then fulfill these contracts on a timely basis at costs that enable us to generate a profit based upon the agreed upon contract price. Winning a contract generally requires that we submit a bid containing a fixed price for the product or products covered by the contract for an agreed upon period of time. 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.
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 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. In addition, the market for the skilled labor we require to operate our plants is highly competitive. 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 are the result of shifts in the mix of products sold.
A very large percentage of the products we produce are used on military as opposed to civilian aircraft. These products can be replacement spare parts for aircraft already in the fleet of the armed services, or for the production of new aircraft. Recent reductions to the Defense Department budget have reduced the demand for both production and replacement spares. This reduced demand has reduced our sales. The impact has been felt most severely at AIM and NTW and, to a lesser degree, at our other subsidiaries. In response to the reduction in military sales, we are focusing greater efforts on the civilian aircraft market. We were awarded a multi-year contract by a leading aerostructures manufacturer to provide nacelle thrust struts. The contract is valued at $39 million and these components will be used in a new geared turbofan jet engine manufactured by one of the world’s leading providers of aircraft engines. This engine is also expected to be used on several new commercial jetliners. Based on projections of sales from our customers, we expect that the majority of revenue from this contract will be in calendar 2016 and beyond.
Results of Operations
The following discussion of our results of operations constitutes management’s review of the factors that affected our financial and operating performance for the three months ended June 30, 2014 and June 30, 2013. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report.
For the three and six months ended June 30, 2014, we had four operating segments, AIM, WMI (including MSI and WPI) NTW, and EPC and separately reported our corporate overhead. For the three and six months ended June 30, 2013, we had three operating segments, AIM, WMI (not including MSI and WPI) and NTW and separately reported our corporate overhead. The results of operations of Decimal, MSI, WPI and EPC have been reflected within our financial reports since the dates of their acquisition, July 1, 2013, November 6, 2013, April 1, 2014 and June 1, 2014, respectively.
Results of Operations
Three months ended June 30, 2014 and 2013:
Selected Financial Information:
Statement of Operations Data (Unaudited)
2014
|
2013
|
|||||||
Net sales
|
$ | 13,360,000 | $ | 14,639,000 | ||||
Cost of sales
|
10,007,000 | 11,009,000 | ||||||
Gross profit
|
3,353,000 | 3,630,000 | ||||||
Operating and interest costs
|
3,400,000 | 2,945,000 | ||||||
Other income (expense) net
|
(62,000 | ) | (29,000 | ) | ||||
Income taxes (Benefit)
|
(725,000 | ) | 430,000 | |||||
Net Income
|
$ | 616,000 | $ | 226,000 | ||||
Balance Sheet Data
|
||||||||
June 30, 2014
|
December 31, 2013
|
|||||||
(Unaudited)
|
||||||||
Cash and cash equivalents
|
$ | 1,169,000 | $ | 561,000 | ||||
Working capital
|
18,866,000 | 12,531,000 | ||||||
Total assets
|
58,407,000 | 50,172,000 | ||||||
Total stockholders' equity
|
30,666,000 | 21,613,000 |
The following sets forth the results of operations for each of our segments individually and on a consolidated basis for the periods indicated.
Three Months Ended June 30,
|
||||||||
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
AIM
|
||||||||
Net Sales
|
$ | 7,135,000 | $ | 8,188,000 | ||||
Gross Profit
|
1,285,000 | 1,599,000 | ||||||
Pre Tax Income
|
157,000 | 594,000 | ||||||
Assets
|
22,243,000 | 23,645,000 | ||||||
WMI
|
||||||||
Net Sales
|
3,763,000 | 3,307,000 | ||||||
Gross Profit
|
1,108,000 | 894,000 | ||||||
Pre Tax (Loss) Income
|
(202,000 | ) | 7,000 | |||||
Assets
|
18,375,000 | 9,477,000 | ||||||
NTW
|
||||||||
Net Sales
|
2,185,000 | 3,144,000 | ||||||
Gross Profit
|
819,000 | 1,137,000 | ||||||
Pre Tax (Loss) Income
|
(73,000 | ) | 228,000 | |||||
Assets
|
11,597,000 | 13,247,000 | ||||||
EPC
|
||||||||
Net Sales
|
277,000 | - | ||||||
Gross Profit
|
141,000 | - | ||||||
Pre Tax Income
|
91,000 | - | ||||||
Assets
|
2,252,000 | - | ||||||
Corporate
|
||||||||
Net Sales
|
- | - | ||||||
Gross Profit
|
- | - | ||||||
Pre Tax Loss
|
(82,000 | ) | (173,000 | ) | ||||
Assets
|
17,254,000 | 11,074,000 | ||||||
Consolidated
|
||||||||
Net Sales
|
13,360,000 | 14,639,000 | ||||||
Gross Profit
|
3,353,000 | 3,630,000 | ||||||
Pre Tax (Loss) Income
|
(109,000 | ) | 656,000 | |||||
(Benefit from) Provision for Taxes
|
(725,000 | ) | 430,000 | |||||
Net Income
|
616,000 | 226,000 | ||||||
Elimination of Assets
|
(13,314,000 | ) | (6,596,000 | ) | ||||
Assets
|
58,407,000 | 50,847,000 |
Consolidated net sales from operations for the three months ended June 30, 2014 were approximately $13,360,000, a decrease of $(1,279,000) or (8.7 %) compared with $14,639,000 for the three months ended June 30, 2013.
·
|
Net sales at AIM for the three months ended June 30, 2014 were $7,135,000, a decrease of approximately $(1,053,000) or (12.9%) compared with $8,188,000 for the three months ended June 30, 2013. The decrease in sales at AIM results from continuing reductions in defense spending and continued delays in manufacturing landing gear product for the Navy’s E2-D aircraft due to late shipments from various suppliers and defective raw materials. Our backlog indicates and we anticipate a stronger third and fourth quarter.
|
·
|
Net sales at WMI for the three months ended June 30, 2014 were $3,763,000, an increase of approximately $456,000 or13.8% compared with $3,307,000 for the three months ended June 30, 2013. Net sales at WMI for 2014 included sales of $598,000 from our new acquisitions. Of these sales, $59,000 related to MSI, which was acquired in 2013 and $539,000 related to WPI, which was acquired on April 1, 2014.
|
·
|
Net sales at NTW for the three months ended June 30, 2014 were $2,185,000, a decrease of $(959,000) or (31%) compared with net sales of $3,144,000 for the three months ended June 30, 2013. This decline was anticipated due to a delay in receiving an expected order for the US Navy relating to landing gear for F-18 aircraft. We have begun to receive these orders and expect a return to higher sales in the fourth quarter of 2014 and though 2015.
|
·
|
Net sales at EPC were $277,000 for the three months ended June 30, 2014. EPC was acquired on June 1, 2014. Sales at EPC are expected to be approximately $2,000,000 for the second half of calendar year 2014. Sales in July were approximately $400,000.
|
As indicated in the table below, three customers represented 58.3% and 59.0%, respectively, of total sales for the three months ended June 30, 2014 and 2013, respectively.
Customer
|
Percentage of Sales
|
|||||||
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Sikorsky Aircraft
|
29.3 | 30.2 | ||||||
Goodrich Landing Gear Systems
|
18.4 | 17.1 | ||||||
GKN Aerospace
|
10.6 | ** | ||||||
United States Department of Defense
|
* | 11.7 | ||||||
* Customer was less than 10% of sales for the quarter ended June 30, 2014
|
||||||||
** Customer was less than 10% of sales for the quarter ended June 30, 2013
|
Gross Profit:
Air Industries Group calculates gross profit for each operating subsidiary using a gross profit percentage method, using the gross profit percentage for the prior year as the percentage for the subsequent year. The gross profit percentage used is different for each subsidiary. Consolidated gross profit will be disproportionately affected, positively or negatively, by increased or decreased sales among the subsidiaries.
●
|
Consolidated: Gross profit from operations for the three months ended June 30, 2014 decreased by approximately $(277,000) or (7.6%), to approximately $3,353,000 as compared to gross profit of $3,630,000 for the comparable period in 2013. For the three months ended June 30, 2014, gross profit as a percentage of sales was 25.1% and was comparable to the 24.8% for the prior year.
|
|
●
|
AIM: Gross profit for three months ended June 30, 2014 at AIM decreased by approximately $(314,000) or (19.6%) to $1,285,000 as compared to $1,599,000 for the comparable period in 2013. The decrease in gross margin is disproportionate to the decrease in net sales as the decrease in sales was compounded by a reduction in the gross profit margin at AIM from 19.5% of sales in 2013 to 18.0% of sales in 2014.
|
|
●
|
WMI: Gross profit at WMI for three months ended June 30, 2014 increased by approximately $214,000 or 23.9% to $1,108,000 for 2014, compared to $894,000 for the comparable period in 2013. Gross margin increased disproportionately to sales due to the inclusion of WPI in 2014. The products of WPI are generally sold at a higher gross profit margin than WMI’s traditional products. For the three months ended June 30, 2014, the gross profit as a percentage of sales was 29.4% as compared to 27.0% for the prior year. As indicated above this is related to setting the gross profit based on the prior year, and also due to the inclusion of WPI.
|
|
●
|
NTW: Gross profit for three months ended June 30, 2014 decreased by approximately $(318,000) or (28%) to $819,000 compared to $1,137,000 for the comparable period in 2013. The decrease in gross profit results from decreased sales offset to some degree by a slight increase in gross margin percentage. For the three months ended June 2014, gross profit as a percentage of sales was 37.4% as compared to 36.2% for the prior year.
|
|
● |
EPC: Gross profit for the three months ended June 30, 2014 was $141,000 or approximately 51% of sales. EPC was acquired on June 1, 2014.
|
Selling, General & Administrative (“SG&A”):
●
|
Consolidated SG&A costs for the three months ended June 30, 2014 totaled $3,096,000 and increased by $544,000 or 21.3% compared to $2,552,000 for the three months ended June 30, 2013. An increase in SG&A costs at WMI, principally as a result of the Decimal and MSI acquisitions in 2013 and the WPI acquisition on April 1, 2014, accounted for substantially all of the increase. The principal components of SG&A costs were:
|
O
|
AIM: SG&A costs for the three months ended June 30, 2014 totaled approximately $863,000, an increase of $76,000 or 9.7% compared to $787,000 for the comparable period 2013.
|
|||
O
|
WMI: SG&A costs for the three months ended June 30, 2014 totaled approximately $1,291,000, an increase of $436,000 or approximately 51.0% compared to $855,000 for the comparable period in 2013. The increase in SG&A costs at WMI reflects the additions of the operations of Decimal, MSI and WPI. These increases were expected as a result of the effort to consolidate the operations of these businesses. As we begin to fully integrate all of these operations into one cohesive operating unit, we anticipate a reduction of these costs.
|
|||
O
|
NTW: SG&A costs totaled approximately $893,000 for the three months ended June 30, 2014 a decrease of $(17,000) or approximately (1.9%) compared to $910, 000 for the comparable period in 2013. | |||
O
|
EPC: SG&A costs totaled $ 49,000. EPC was acquired on June 1, 2014.
|
Interest and financing costs were approximately $304,000 for the three months ended June 30, 2014, a decrease of approximately $(89,000) or (22.6%) as compared to $393,000 for the comparable period in 2013. Interest expense decreased primarily as a result of lower loan balances and, to a lesser degree, lower interest rates.
Income taxes were a benefit of approximately $(725,000) for the three months ended June 30, 2014 and an expense of $430,000 for the three months ended June 30, 2013. The income tax benefit resulted from a reversal of over accruals of income tax expense from fiscal 2013 and the reduction of deferred tax liabilities primarily related to property and equipment.
Income before tax declined by $(765,000) to a loss of $(109,000) for the three months ended June 30, 2014 as compared to income of $656,000 for the three months ended June 30, 2013. Net income for the three months ended June 30, 2014 was $616,000, an increase of $390,000 or 172.6% compared to net income of $226,000 for the comparable period in 2013.
Six months ended June 30, 2014 and 2013:
Selected Financial Information:
Statement of Operations Data (Unaudited)
|
||||||||
2014
|
2013
|
|||||||
Net sales
|
$ | 28,813,000 | $ | 28,965,000 | ||||
Cost of sales
|
21,415,000 | 21,687,000 | ||||||
Gross profit
|
7,398,000 | 7,278,000 | ||||||
Operating and interest costs
|
6,519,000 | 5,796,000 | ||||||
Other income (expense) net
|
(63,000 | ) | (58,000 | ) | ||||
Income taxes (Benefit)
|
(141,000 | ) | 919,000 | |||||
Net Income
|
$ | 957,000 | $ | 505,000 | ||||
Balance Sheet Data
|
||||||||
June 30, 2014
|
December 31, 2013
|
|||||||
(Unaudited)
|
||||||||
Cash and cash equivalents
|
$ | 1,169,000 | $ | 561,000 | ||||
Working capital
|
18,866,000 | 12,531,000 | ||||||
Total assets
|
58,407,000 | 50,172,000 | ||||||
Total stockholders' equity
|
30,666,000 | 21,613,000 |
The following sets forth the results of operations for each of our segments individually and on a consolidated basis for the periods indicated.
Six Months Ended June 30,
|
||||||||
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
AIM
|
||||||||
Net Sales
|
$ | 14,266,000 | $ | 15,666,000 | ||||
Gross Profit
|
2,571,000 | 3,059,000 | ||||||
Pre Tax Income
|
485,000 | 1,088,000 | ||||||
Assets
|
22,243,000 | 23,645,000 | ||||||
WMI
|
||||||||
Net Sales
|
7,076,000 | 6,446,000 | ||||||
Gross Profit
|
1,945,000 | 1,743,000 | ||||||
Pre Tax Loss
|
(533,000 | ) | (5,000 | ) | ||||
Assets
|
18,375,000 | 9,477,000 | ||||||
NTW
|
||||||||
Net Sales
|
7,194,000 | 6,853,000 | ||||||
Gross Profit
|
2,741,000 | 2,476,000 | ||||||
Pre Tax Income
|
946,000 | 721,000 | ||||||
Assets
|
11,597,000 | 13,247,000 | ||||||
EPC
|
||||||||
Net Sales
|
277,000 | - | ||||||
Gross Profit
|
141,000 | - | ||||||
Pre Tax Income
|
91,000 | - | ||||||
Assets
|
2,252,000 | - | ||||||
Corporate
|
||||||||
Net Sales
|
- | - | ||||||
Gross Profit
|
- | - | ||||||
Pre Tax Loss
|
(173,000 | ) | (380,000 | ) | ||||
Assets
|
17,254,000 | 11,074,000 | ||||||
Consolidated
|
||||||||
Net Sales
|
28,813,000 | 28,965,000 | ||||||
Gross Profit
|
7,398,000 | 7,278,000 | ||||||
Pre Tax Income
|
816,000 | 1,424,000 | ||||||
(Benefit from) Provision for Taxes
|
(141,000 | ) | 919,000 | |||||
Net Income
|
957,000 | 505,000 | ||||||
Elimination of Assets
|
(13,314,000 | ) | (6,596,000 | ) | ||||
Assets
|
58,407,000 | 50,847,000 |
Consolidated net sales from operations for the six months ended June 30, 2014 were approximately $ 28,813,000, a decrease of $(152,000) or (0.5 %) compared with $28,965,000 for the six months ended June 30, 2013.
·
|
Net sales at AIM for the six months ended June 30, 2014 were $14,266,000, a decrease of approximately $(1,400,000) or (8.9%) compared with $15,666,000 for the six months ended June 30, 2013. The decrease in sales at AIM results from continuing reductions in defense spending and continued delays in manufacturing landing gear product for the Navy’s E2-D aircraft due to late shipments from various suppliers and defective raw materials. Our backlog indicates and we anticipate a stronger third and fourth quarter.
|
·
|
Net sales at WMI for the six months ended June 30, 2014 were $7,076,000, an increase of approximately $630,000 or 9.7% compared with $6,446,000 for the six months ended June 30, 2013. Net sales at WMI for 2014 included sales of $639,000 from our new acquisitions. Of these new sales, $100,000 were attributable to MSI which was acquired in 2013 and $539,000 related to WPI which was acquired on April 1, 2014.
|
·
|
Net sales at NTW for the six months ended June 30, 2014 were $7,194,000, an increase of $341,000 or 5% compared with net sales of $6,853,000 for the six months ended June 30, 2013. These amounts were fairly consistent with previous results. We anticipate a slower third quarter due to the delay in receiving our contract award from the Navy. We have begun to receive these awards and anticipate a slower third quarter before we return to higher sales in the fourth quarter of 2014 and though 2015.
|
·
|
Net sales at EPC were $277,000 for the six months ended June 30, 2014. EPC was acquired on June 1, 2014. Sales at EPC are expected to be approximately $2,000,000 for the second half of calendar 2014. Sales in July were approximately $400,000.
|
As indicated in the table below, three customers represented 55.9% and 59.2%, respectively, of total sales for the six months ended June 30, 2014 and 2013, respectively.
Customer
|
Percentage of Sales
|
|||||||
2014
|
2013
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Sikorsky Aircraft
|
30.8 | 28.0 | ||||||
Goodrich Landing Gear Systems
|
12.8 | 17.7 | ||||||
Associated Aircraft Manufacturing
|
12.3 | ** | ||||||
United States Department of Defense
|
* | 13.5 | ||||||
* Customer was less than 10% of sales for the six months ended June 30, 2014
|
||||||||
** Customer was less than 10% of sales for the six months ended June 30, 2013
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Gross Profit:
Air Industries Group calculates gross profit for each operating subsidiary using a gross profit percentage method, using the gross profit percentage for the prior year as the percentage for the subsequent year. The gross profit percentage used is different for each subsidiary. Consolidated gross profit will be disproportionately affected, positively or negatively, by increased or decreased sales among the subsidiaries.
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Consolidated: Gross profit from operations for the six months ended June 30, 2014 increased by approximately $120,000 or 1.7%, to approximately $7,398,000 as compared to gross profit of $7,278,000 for the comparable period in 2013. For the six months ended June 30, 1014 gross profit as a percentage of sales was 25.7% as compared to 25.1% for the prior year.
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AIM: Gross profit for six months ended June 30, 2014 at AIM decreased by approximately $(488,000) or (15.9%) to $2,571,000 as compared to $3,059,000 for the comparable period in 2013. The decrease in gross margin is disproportionate to the decrease in net sales. The gross profit margin at AIM decreased from 19.5% of sales in 2013 to 18.0% of sales in 2014.
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WMI: Gross profit at WMI for six months ended June 30, 2014 increased by approximately $202,000 or 11.6% to $1,945,000 compared to $1,743,000 for the comparable period in 2013. Gross margin increased disproportionately to sales due to inclusion of sales of WPI products in 2014 which have higher gross profit margins than WMI’s traditional products. The gross profit margin as a percentage of sales for the six months ended June 30, 2014 was 27.5% as compared to 27.0% for the same period in 2013.
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NTW: Gross profit for the six months ended June 30, 2014 increased by approximately $265,000 or 10.7% to $2,741,000 compared to $2,476,000 for the comparable period in 2013. The increase in gross profit results from increased sales and to some degree by a slight in |