Notes
to Consolidated Financial Statements
March
31, 2017 and 2016
1.
Business Description and Summary of Accounting Policies
The
following is a description of the principal business activities and significant accounting policies employed by Command Security
Corporation. In this discussion, the words “Company”, “we”, “our” and “us” refer
to Command Security Corporation.
Principal
Business Activities
We
are a security services company which principally provides uniformed security officers and aviation security services to commercial,
financial, industrial, aviation and governmental customers throughout the United States. We provide our security services to our
customers through Command Security, our security division, and our aviation security services through our Aviation Safeguards
division. The Company has operations in California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois,
Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York,
North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia
and Wisconsin.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Command Security Corporation and its consolidated subsidiary. All intercompany
balances and transactions are eliminated upon consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial
statements, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the
reporting period. The estimates that we make include allowances for doubtful accounts, depreciation and amortization, income tax
assets and insurance reserves. Estimates are based on historical experience, where applicable or other assumptions that our management
believes are reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, our actual results
may differ from those estimates under different assumptions or conditions.
Revenue
Recognition
We
record revenue as services are provided to our customers. Revenue relates primarily to the provision of aviation and security
services, which are typically billed at hourly rates. These rates may vary depending on base, overtime and holiday time worked.
Revenue is reported net of applicable taxes.
Cash
and Cash Equivalents
We
define cash and cash equivalents as operating cash (non-restricted) and highly liquid investments with maturities of ninety (90)
days or less at the date of purchase. The carrying amounts of our cash equivalents approximate their fair values.
Accounts
Receivable
We
periodically evaluate the requirement for providing for billing adjustments and/or reflect the extent to which we will be able
to collect our accounts receivable. We provide for billing adjustments where management determines that there is a likelihood
of a significant adjustment for disputed billings. Criteria used by management to evaluate the adequacy of the allowance for doubtful
accounts include, among others, the creditworthiness of the customer, current trends, prior payment performance, the age of the
receivables and our overall historical loss experience. Individual accounts are charged off against the allowance as management
deems them to be uncollectible.
Minority
Investment in Unconsolidated Affiliate
The Company including its consolidated
subsidiary, OPS LLC, uses the equity method to account for its investment in OPSA. Equity method investments are recorded
at original cost and adjusted periodically to recognize: (i) our proportionate share of investees’ net income or losses
after the date of the investment; (ii) additional contributions made or distributions received; and (iii) impairment losses resulting
from adjustments to net realizable value. The Company reviews its investment accounted for under the equity method of accounting
for impairment whenever events or changes in circumstances indicate a loss in the value of the investment may be other than temporary.
Furniture
and Equipment
Furniture
and equipment are stated at cost. Depreciation is generally recorded using the straight-line method over estimated useful lives
of the equipment ranging from three to seven years.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
Intangible
Assets
Intangible
assets are stated at cost and consist primarily of customer lists that are being amortized on a straight-line basis over a period
of ten years, and goodwill, which is reviewed annually for impairment. The life assigned to customer lists acquired is based on
management’s estimate of our expected customer attrition rate. The attrition rate is estimated based on historical contract
longevity and management’s operating experience. We test for impairment annually or when events and circumstances warrant
such a review, if earlier. Any potential impairment is evaluated based on anticipated undiscounted future cash flows and actual
customer attrition in accordance with FASB ASC 360,
Property, Plant and Equipment
.
Insurance
Reserves
General
liability estimated accrued liabilities are calculated on an undiscounted basis based on actual claim data and estimates of incurred
but not reported claims developed utilizing historical claim trends. Projected settlements and incurred but not reported claims
are estimated based on pending claims, historical trends and related data.
Workers’
compensation annual costs are comprised of premiums as well as incurred losses as determined at the end of the coverage period,
subject to minimum and maximum amounts. Workers’ compensation insurance claims and reserves include accruals of estimated
settlements for known claims, as well as accruals of estimates for claims incurred but not yet reported as provided by a third
party. In estimating these accruals, we consider historical loss experience and make judgments about the expected levels of costs
per claim. We believe our estimates of future liability are reasonable based upon our methodology; however, changes in health
care costs, accident frequency and severity and other factors could materially affect the estimate for these liabilities. The
Company continually monitors changes in claim type and incident and evaluates the workers’ compensation insurance accrual,
making necessary adjustments based on the evaluation of these qualitative data points.
The
Company is self-insured up to certain stop loss amounts for worker’s compensation claims. The Company has purchased stop
loss coverage that insures individual claims that exceed $500,000. Additionally, the Company has purchased stop loss coverage
that insures claims in the aggregate that exceed $6.5 million and $6.2 million for the policy years ended September 30, 2017 and
2016 respectively.
The
Company’s workers’ compensation insurance premiums (including loss fund deposits, surcharges, assessments, broker’s
fees and excluding loss fund handling charges) were $3.27 million and $3.25 million for the policy years ended September 30, 2017
and 2016, respectively. Related loss handling charges for the policy year ended September 30, 2017 as of March 31, 2017 were approximately
$40,000, as compared with loss handling charges of approximately $45,000 for the full policy year ended September 30, 2016. Since
October 1, 2015, the Company has utilized the services of a third party administrator to manage workers’ compensation claims.
Income
Taxes
Income
taxes are based on income (loss) for financial reporting purposes and reflect a current tax liability (asset) for the estimated
taxes payable (recoverable) in the current year tax return and changes in deferred taxes. Deferred tax assets or liabilities are
determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted
tax laws and rates. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not
that the asset will not be realized.
We
recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income
tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which the change in judgment occurs. In the event that interest and/or penalties are
assessed in connection with our tax filings, interest will be recorded as interest expense and penalties as selling, general and
administrative expense. We did not have any unrecognized tax benefits as of March 31, 2017 and 2016.
Income
(Loss) per Share
Under
the requirements of FASB ASC 260,
Earnings per Share
, the dilutive effect of potential common shares, if any, is excluded
from the calculation for basic earnings per share. Diluted earnings per share are presented for the fiscal years ended March 31,
2017 and 2016 because of the effect the assumed issuance of common shares would have if the outstanding stock options were exercised.
For
the fiscal years ended March 31, 2017 and 2016, the Company reported net loss and, accordingly, potential common shares that would
cause dilution, such as employee stock options, have been excluded from the diluted share count because their inclusion would
have been anti-dilutive.
Stock-Based
Compensation
FASB
ASC 718,
Stock Compensation
, requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values at grant date and the recognition of the related expense
over the period in which the share-based compensation vests. We use the modified-prospective transition method. Under the modified-prospective
transition method, we recognize compensation expense in our financial statements issued subsequent to the date of adoption for
all share-based payments granted, modified or settled.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, prepaid expenses, checks issued in advance of deposits, accounts payable and accrued
expenses are reasonable estimates of the fair values because of their short-term maturity. The fair value of the Company’s
debt is based on the borrowing rates currently available to the Company for loans and leases with similar terms and average maturities.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
FASB
ASC 820,
Fair Value Measurements and Disclosures
, defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability between a willing buyer and seller in an orderly transaction, it establishes a framework
for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value
measurements. FASB ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value. These tiers include:
|
●
|
Level
1, defined as observable inputs such as quoted prices in active markets for identical assets;
|
|
●
|
Level
2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities; and
|
|
●
|
Level
3, defined as unobservable inputs in which little or no market data exists; therefore requiring an entity to develop its own
assumptions.
|
Reclassifications
Certain amounts previously reported
for prior periods have been reclassified to conform to the current year presentation in the accompanying consolidated financial
statements. Such reclassifications had no effect on the results of operations or shareholders’ equity as previously recorded.
Recent
Accounting Pronouncements
In
May 2014, the FASB and the International Accounting Standards Board (IASB) issued, ASU 2014-09
(Topic 606) Revenue from Contracts
with Customers
. The guidance substantially converges final standards on revenue recognition between the FASB and IASB providing
a framework on addressing revenue recognition issues and, upon its effective date, replaces almost all existing revenue recognition
guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles. In July 2015, the FASB
issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”, which
deferred the effective date of ASU No. 2014-09 by one year, making it effective for the Company’s fiscal year ending March
31, 2019. Subsequently, the FASB also issued a series of amendments to the new revenue standards. The new revenue standards may
be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date
of adoption. The new revenue standards are not expected to have a material impact on the amount and timing of revenue recognized
in the Company’s consolidated financial statements.
In
November 2015, the FASB issued ASU 2015-17, “
Balance Sheet Classification of Deferred Taxes
”. ASU 2015-17 simplifies
the presentation of deferred taxes by requiring deferred tax assets and liabilities to be classified as non-current on the balance
sheet. ASU 2015-17 is effective for the Company’s fiscal year ending March 31, 2018. The guidance may be adopted prospectively
or retrospectively and early adoption is permitted. Other than the reclassification of the current deferred tax asset to long
term assets, the adoption of this guidance is not expected to have a material impact on the Company’s financial position,
results of operations, or cash flows.
In
February 2016, the FASB issued ASU No. 2016-02, “
Leases (Topic 842)
”, which requires lessees to recognize a
lease liability and a right-to-use asset on the balance sheet for all leases, except certain short-term leases. ASU 2016-02 is
effective beginning with the Company’s fiscal year ending March 31, 2020, with early adoption permitted, and must be implemented
using a modified retrospective approach for all leases existing at, or entered into after the beginning of the earliest comparative
period that is presented in the financial statements. The Company is currently evaluating the impact of ASU 2016-02 on its consolidated
financial statements. The adoption of this guidance is expected to result in a significant increase in assets and liabilities
on the Company’s consolidated balance sheet, with no material impact on the consolidated statements of operations. However,
the ultimate impact of adopting ASU 2016-02 will depend on the Company’s lease portfolio as of the adoption date.
In
March 2016, the FASB issued ASU No. 2016-09, “
Improvements to Employee Share-Based Payment Accounting
”, which
simplifies accounting and presentation of share-based payments, primarily relating to the recognition and classification of excess
tax benefits, accounting for forfeitures and tax withholding requirements. ASU 2016-09 is effective beginning with the Company’s
fiscal year ending March 31, 2018, with early adoption permitted. Currently, excess tax benefits or deficiencies from the Company’s
equity awards are recorded as additional paid-in capital in its balance sheets. Upon adoption, the Company will record any excess
tax benefits or deficiencies from its equity awards in its consolidated statements of operations in the reporting periods in which
the benefit or deficiency is realized. As a result, subsequent to adoption the Company’s income tax expense and associated
effective tax rate will be impacted by fluctuations in stock price between the grant dates and exercise dates of equity awards.
In
August 2016, the FASB issued new guidance on cash flow statement presentation ASU 2016-15,
Statement of Cash Flows (Topic 230);
Classification of Certain Cash Receipts and Cash Payments
. This ASU addresses diversity in how certain cash receipts and cash
payments are presented and classified in the statement of cash flows. The new guidance is effective beginning with the Company’s
fiscal year ending March 31, 2019, with early adoption permitted. The adoption of ASU 2016-15 is not expected to have a material
impact on the Company’s consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-04 “
Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment
”, which eliminates Step 2 from the goodwill impairment test. Instead, an entity should perform its
annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed
the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for annual or any interim goodwill tests
in fiscal years beginning after December 15, 2019. The adoption is not expected to have a material impact on the consolidated
financial statements.
In
May 2017, the FASB issued ASU 2017-09 (ASU 2017-09), “
Compensation – Stock Compensation (Topic 718) Scope of Modification
Accounting
”. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting in Topic 718. The adoption of ASU 2017-09 which will become effective
for annual periods beginning after December 15, 2017 is not expected to have a material impact on the Company’s consolidated
financial statements.
2.
Furniture and Equipment
Furniture
and equipment at March 31, 2017 and 2016 consist of the following:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Transportation equipment
|
|
$
|
232,954
|
|
|
$
|
232,954
|
|
Security equipment
|
|
|
1,347,003
|
|
|
|
1,347,003
|
|
Office furniture and equipment
|
|
|
2,785,052
|
|
|
|
2,774,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,365,009
|
|
|
|
4,354,615
|
|
Accumulated depreciation
|
|
|
(4,218,664
|
)
|
|
|
(4,096,458
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
146,345
|
|
|
$
|
258,157
|
|
Depreciation
expense for the fiscal years ended March 31, 2017 and 2016 was $122,206 and $178,186, respectively.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
3.
Intangible Assets
Intangible
assets at March 31, 2017 and 2016 consist of the following:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Customer Lists
|
|
$
|
4,274,915
|
|
|
$
|
4,274,915
|
|
Goodwill
|
|
|
895,258
|
|
|
|
895,258
|
|
|
|
|
5,170,173
|
|
|
|
5,170,173
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(4,141,591
|
)
|
|
|
(3,805,207
|
)
|
Total
|
|
$
|
1,028,582
|
|
|
$
|
1,364,966
|
|
Included
in intangible assets for the fiscal years ended March 31, 2017 and 2016 is goodwill of $895,258 that is not subject to amortization.
Amortization expense for the fiscal years ended March 31, 2017 and 2016 was $336,384 and $398,839, respectively. Amortization
expense for the years ending March 31, 2018 and 2019 for the intangible assets noted above will be $106,680 and $26,644 respectively.
4.
Minority Investment in Unconsolidated Affiliate
In 2014, the Company made a 20%
minority investment in Ocean Protection Services LLC, a Delaware limited liability company (“OPS LLC”), who
holds a 30% interest in an entity that specializes in maritime security, risk management and risk analysis. The Company
purchased 2,000 Class A Common Units of OPS LLC for a purchase price of $2.125 million and funded the purchase price
through borrowings under the Company’s existing line of credit. The excess of the carrying value of the Company’s
investment in OPS LLC and the Company’s proportionate share of the net assets of OPSA and OPS LLC
is largely attributable to goodwill. Since the Company’s initial investment, there have been no additional capital
contributions made or distributions received.
In September 2016, the majority owner
of OPS LLC consented to a restructuring transaction pursuant to which the majority owner of OPS LLC transferred its 80%
interest in OPS LLC to the Company for no consideration resulting in OPS LLC becoming a wholly-owned subsidiary
of the Company.
During
the past three fiscal years ended December 31, 2016, OPSA has experienced a decline in revenues and net income from
continuing operations. Specifically, for the year ended December 31, 2016, revenues declined 29% from the year ended December
31, 2015, and revenues for the year ended December 31, 2015 declined 16% from the year ended December 31, 2014. For the same periods
gross profits declined by 32% and 10%, respectively, and net income from continuing operations declined from $1.6 million for
the year ended December 31, 2014 to $1.1 million for the year ended December 31, 2015 to a net loss from continuing operations
of $.4 million for the year ended December 31, 2016. During the three years ended December 31, 2016, gross profit as a
percent of revenues were 31.4%, 32.8% and 30.6%, respectively.
During
the past three years the decline in revenues has been driven by several factors including an overall reduction in world-wide shipping
activity, reduced demand for security personnel as a result of declines in attempted and successful piracy attacks, lower insurance
rates and lower oil prices allowing operators the option of longer routes through lower risk areas further leading to a decline
in demand for security services. The maturing of this industry has also led to price competition further compressing revenues
and margins.
The
decline in revenues and certain increased operating costs has resulted in net operating losses for the year ending March 31, 2017,
and accordingly, the Company has recorded its proportionate share of these losses totaling $82,000.
The
above-mentioned long-term decline in revenues has resulted in a significant reduction in liquidity which has more recently led
to the inability of OPSA to remain current in its obligations under its senior debt. In light of the above-mentioned factors
the Company has performed an assessment of the fair value of its 30% investment in OPSA and has determined that the book
value of investment exceeded its fair value and further concluded that this decline in value was other than temporary. The company
based its assessment, in part on the calculations reported by a valuation consultant retained by OPSA. The consultant’s
valuation was based on the net present value of estimated future cash flows developed from forecasts provided by OPSA
to the valuation consultant. Accordingly, the Company has recorded a $2.1 million non-cash charge during the quarter
ended March 31, 2017 in order to reflect the fair value of the Company’s investment in OPSA of $.5 million.
This charge was reported as an impairment of an equity method investment in the consolidated statements of operations.
Our
investment in OPSA which is included in minority investment in unconsolidated affiliate in our balance sheet consists
of the following:
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
$
|
2,125,000
|
|
|
$
|
2,125,000
|
|
Cumulative share of income
|
|
|
488,291
|
|
|
|
570,291
|
|
Impairment of equity method investment
|
|
|
(2,100,000
|
)
|
|
|
-
|
|
Investment balance
|
|
$
|
513,291
|
|
|
$
|
2,695,291
|
|
The
following summarizes the combined assets, liabilities and equity, and combined results of operations of our equity method investment
in OPSA as of December 31, 2016 and December 31, 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
1,492,360
|
|
|
$
|
2,415,252
|
|
Goodwill
|
|
|
9,941,946
|
|
|
|
10,441,941
|
|
Other non-current assets
|
|
|
97,340
|
|
|
|
236,066
|
|
Total assets
|
|
$
|
11,531,646
|
|
|
$
|
13,093,259
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
6,411,313
|
|
|
$
|
4,349,785
|
|
Non-current liabilities
|
|
|
1,430,819
|
|
|
|
4,459,298
|
|
Shareholders’ equity
|
|
|
3,689,514
|
|
|
|
4,284,176
|
|
Total liabilities and shareholders’ equity
|
|
$
|
11,531,646
|
|
|
$
|
13,093,259
|
|
Condensed
consolidated statement of operations for the year ended December 31, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
Net operating revenues
|
|
$
|
8,948,531
|
|
|
$
|
12,571,572
|
|
Gross profit
|
|
$
|
2,812,742
|
|
|
$
|
4,117,222
|
|
Operating expenses
|
|
$
|
1,985,822
|
|
|
$
|
2,638,364
|
|
Net income (loss) from continuing operations
|
|
$
|
(368,194
|
)
|
|
$
|
1,086,486
|
|
5.
Fair Value Measurements
The
Company is required to measure certain assets such as goodwill; intangibles, not subject to amortization; and long-lived assets
with carrying values which may be in excess of their implied fair value or not fully recoverable based upon estimated future cash
flows on a non-recurring basis.
Asset
groups containing values measured, and presented on a non-recurring fair value basis at March 31, 2017 are as follows:
Description
|
|
Value
|
|
|
Level 3
|
|
|
Impairment
|
|
Equity Method Investment
|
|
$
|
513,291
|
|
|
$
|
513,291
|
|
|
$
|
2,100,000
|
|
The
significant inputs used in the fair value measurements for Level 3 assets measured at fair value on a non-recurring basis are
disclosed in Note 4.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
6
. Other Assets
Other
assets at March 31, 2017 and 2016 consist of the following:
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Workers’ compensation insurance
|
|
$
|
2,804,341
|
|
|
$
|
1,258,066
|
|
Other receivables
|
|
|
16,831
|
|
|
|
44,958
|
|
Security deposits
|
|
|
138,171
|
|
|
|
140,019
|
|
Deferred tax asset
|
|
|
5,115,775
|
|
|
|
5,153,464
|
|
|
|
|
8,075,118
|
|
|
|
6,596,507
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(3,991,584
|
)
|
|
|
(2,184,465
|
)
|
|
|
|
|
|
|
|
|
|
Total non-current portion
|
|
$
|
4,083,534
|
|
|
$
|
4,412,042
|
|
The
other asset workers’ compensation insurance represents the net amount of the payments made to cover the workers’ compensation
insurance premium against the actual premium due as well as the difference in the amount deposited to the loss fund less the estimated
workers’ compensation claims and reserves related to the historical loss claims as well as the estimates related to the
incurred but not reported claims. There is no offsetting claim liability reported as the Company has determined that there is
a sufficient amount deposited into the loss funds to cover the estimated claims reserve as well as the estimate related to the
incurred but not reported claims.
7
.
Accrued Expenses and Other Liabilities
Accrued
expenses and other liabilities at March 31, 2017 and 2016 consist of the following:
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Payroll and related expenses
|
|
$
|
8,076,807
|
|
|
$
|
5,530,554
|
|
Taxes and fees payable
|
|
|
325,763
|
|
|
|
320,333
|
|
Accrued interest payable
|
|
|
13,508
|
|
|
|
4,756
|
|
Other
|
|
|
3,087,396
|
|
|
|
2,465,654
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,503,474
|
|
|
$
|
8,321,297
|
|
8
.
Borrowings
Short-term
borrowings at March 31, 2017 and 2016 consist of the following:
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Line of credit
|
|
$
|
12,228,679
|
|
|
$
|
7,011,743
|
|
On
February 12, 2009, we entered into a $20.0 million, credit facility (the “Credit Agreement”) with Wells Fargo Bank,
National Association (“Wells Fargo”) which was most recently amended in March 2017 (see below), matures in March 2020,
contains customary affirmative and negative covenants, including, among other things, covenants requiring us to maintain certain
financial ratios and is collateralized by customer accounts receivable and certain other assets of the Company as defined in the
Credit Agreement.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
The
Credit Agreement provides for a letter of credit sub-line in an aggregate amount of up to $1.5 million. The Credit Agreement also
provides for interest to be calculated on the outstanding principal balance of the revolving loans at the prime rate (as defined
in the Credit Agreement) plus 1.50%. For LIBOR loans, interest will be calculated on the outstanding principal balance of the
LIBOR loans at the LIBOR rate (as defined in the Credit Agreement) plus 1.75%.
On
November 13, 2015, we entered into a fifth amendment (the “Fifth Amendment”) to our Credit Agreement. The Fifth Amendment
amended a financial covenant of the Credit Agreement to allow for certain legal settlement costs associated with the Company’s
settlement of a class action lawsuit (Leal v. Command Security Corporation).
On
March 30, 2017, we entered into an eighth amendment (the “Eighth Amendment”) to our Credit Agreement). The Eighth
Amendment extended the Credit Agreement from March 31, 2017 to March 31, 2020, increased the revolving line of credit from $20.0
million to $27.5 million, amended the terms of the “Minimum Excess Availability” covenant and redefined the term “Borrowing
Base”.
Under
the Credit Agreement, as of March 31, 2017, the interest rate was 2.75% for LIBOR loans and 3.00% for revolving loans. At March
31, 2017, we had approximately $1.0 million of cash on hand. We also had $8.0 million in LIBOR loans outstanding, $4.2 million
of revolving loans outstanding and $0.5 million outstanding under our letters of credit sub-line under the Credit Agreement, representing
72.4% of the maximum borrowing capacity under the Credit Agreement based on our “eligible accounts receivable” (as
defined in the Credit Agreement) as of such date.
9
.
Income (Loss) per Share
FASB
ASC 718,
Stock Compensation
, requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values at grant date and the recognition of the related expense
over the period in which the share-based compensation vests. We use the modified-prospective transition method. Under the modified-prospective
transition method, we recognize compensation expense in our financial statements issued subsequent to the date of adoption for
all share-based payments granted, modified or settled. Non-cash charges of approximately $18,000 and $104,000 for stock based
compensation have been recorded for the years ended March 31, 2017 and 2016, respectively.
The
following is a reconciliation of the numerators and the denominators of the basic and diluted per-share computations for net income
(loss) for the fiscal years ended March 31, 2017 and 2016:
|
|
Loss
|
|
|
Shares
|
|
|
Per-Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
Year ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
|
$
|
(2,324,589
|
)
|
|
|
9,824,763
|
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted EPS
|
|
$
|
(2,656,323
|
)
|
|
|
9,771,578
|
|
|
$
|
(0.27
|
)
|
For
the fiscal years ended March 31, 2017 and 2016, the Company reported net loss and, accordingly, potential common shares that would
cause dilution, such as employee stock options, have been excluded from the diluted share count because their inclusion would
have been anti-dilutive. For the fiscal years ended March 31, 2017 and 2016, the fully diluted shares would have been 10,216,594
and 10,020,208, respectively.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
10
.
Retirement Plans
In November 1999, we adopted a qualified retirement
plan providing for elective employee deferrals and discretionary employer contributions to non-highly compensated participants.
The plan allows for employer contributions for certain employees working under specific customer contracts, as
defined. Our expense under this plan for the fiscal years ended March 31, 2017 and 2016 was approximately $640,000 and $218,000,
respectively.
11
.
Concentrations of Credit Risk and Significant Customers
Geographic
concentrations of credit risk with respect to trade receivables are primarily in the New York Metropolitan area with approximately
30% and 43% of total receivables as of March 31, 2017 and 2016, and in California with approximately 14% and 30% of total receivables
as of March 31, 2017 and 2016, respectively. The remaining trade receivables consist of a large number of customers dispersed
across many different geographic regions. During the fiscal years ended March 31, 2017 and 2016 we generated 36% and 45%, respectively,
of our revenue from aviation and related services. Accounts receivable due from the commercial airline industry comprised 21%
and 55% of net receivables as of March 31, 2017 and 2016. Our remaining customers are not concentrated in any specific industry.
In the fiscal year ended March 31, 2017, the Company had six customers, who represented approximately 52% of the Company’s
total revenue in the aggregate. Two of these customers each represented 13% of total revenue. These customers include one domestic
and one international airline, the U.S. Postal Service, a transportation company, an online retailer and web services provider
and a northeast U.S. based healthcare facility. While the Company’s cost structure is highly variable and largely identifiable
to the delivery of services for any specific contract, a loss of business with one or more of these customers could have a material
adverse effect on our business, financial condition and results of operation.In the fiscal year ended March 31, 2016, the Company
had six customers who represented approximately 45% of the Company’s total revenue in the aggregate, with two of those customers
representing 14% and 13% of total revenue, respectively. These customers included one domestic and one international airline,
a major transportation company, a northeast U.S. based healthcare facility and two airline consortiums. We maintain our cash in
bank deposit accounts, which at times may exceed federally insured limits. We have not experienced any losses in such accounts.
Company management believes the risk of loss associated with these accounts to be remote.
12
.
Insurance Reserves
We
have an insurance policy covering workers’ compensation claims in states where we perform services. Estimated accrued liabilities
are based on our historical loss experience and the ratio of claims paid to our historical payout profiles. Charges for estimated
workers’ compensation related losses incurred and included in cost of sales were $3.1 million and $4.6 million, for the
fiscal years ended March 31, 2017 and 2016, respectively.
The
nature of our business also subjects us to claims or litigation alleging that we are liable for damages as a result of the conduct
of our employees or others. We insure against such claims and suits through general liability policies with third-party insurance
companies.
Our
insurance coverage limits are currently $1.0 million per occurrence for non-aviation related business (with additional first and
second layer excess liability policies of $5.0 million and $10.0 million, respectively) and $30.0 million per occurrence for aviation
related business. We retain the risk for the first $25,000 of general liability non-aviation related operations. The aviation
related deductible is $5,000 per occurrence, with the exception of $50,000 for airport wheelchair and electric cart operations,
$25,000 for damage to aircraft and $100,000 for skycap operations. Estimated accrued liabilities are based on specific reserves
in connection with existing claims as determined by third party risk management consultants and actuarial factors and the timing
of reported claims. These are all factored into estimated losses incurred but not yet reported to us.
Cumulative
amounts estimated to be payable by us with respect to pending and potential claims for all years in which we are liable under
our general liability retention and workers’ compensation policies have been accrued as liabilities. Such accrued liabilities
are necessarily based on estimates; accordingly, our ultimate liability may exceed or be less than the amounts accrued. The methods
of making such estimates and establishing the resultant accrued liability are reviewed continually and any adjustments resulting
therefrom are reflected in our current results of operations.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
13
.
Contingencies
The
nature of our business is such that there is a significant volume of routine claims and lawsuits that are made against us, the
vast majority of which never lead to the award of substantial damages. We maintain general liability and workers’ compensation
insurance coverage that we believe is appropriate to the relevant level of risk and potential liability that we face relating
to these matters. Some of the claims brought against us could result in significant payments; however, the exposure to us under
general liability non-aviation related operations is limited to the first $25,000 per occurrence. The aviation related deductible
is $5,000 per occurrence, with the exception of $50,000 for airport wheelchair and electric cart operations, $25,000 for damage
to aircraft and $100,000 for skycap operations. Any punitive damage award would not be covered by the general liability insurance
policy. The only other potential impact would be on future premiums, which may be adversely affected by an unfavorable claims
history.
In
March 2012, the California Service Employees Health and Welfare Trust Fund filed a suit in U.S. District Court for the Northern
District of California against the Company seeking to maintain the payment of monthly health insurance contributions, which were
stopped by the Company following the termination of the collective bargaining agreement. Venue was subsequently transferred to
the U.S. District Court for the Central District of California. On July 31, 2014 the Court denied the plaintiffs’ motion
for summary judgment and granted partial summary judgment in favor of the Company. While the parties stipulated to a proposed
judgment, the plaintiffs’ appealed the judgment before the Judge had issued a final Order, pending the outcome of the companion
case filed in July 2012. In that case, the Service Employee International Union (SEIU) filed a lawsuit in U.S. District Court
for the Northern District of California against the Company seeking the restoration of the collective bargaining agreement between
SEIU and the Company following a majority vote of Aviation Safeguards employees in December 2011 to withdraw recognition of the
union. On February 20, 2014, the U.S. District Court, Central District of California, ruled in favor of the Company and granted
our motion for summary judgment in full, denied the plaintiffs’ motion for summary judgment and terminated the case. The
plaintiffs filed their Notice of Appeal to the U.S. Court of Appeals for the Ninth Circuit on March 18, 2014 and both parties
have subsequently filed appellate briefs. Oral arguments were held in March 2016 in the Ninth Circuit Court of Appeals.
On
September 14, 2016, the U.S. Court of Appeals issued its Opinion which overturned the lower Court rulings. In the interim, the
Company and the plaintiffs engaged in settlement discussions and successfully negotiated settlement in June 2017, subject to final
court approval. The settlement, among other things, includes cash payments aggregating $249,000 to the Trust Fund, the SEIU, and
the three claimants. In addition, as part of this settlement the Company has agreed to increase hourly pay rates to a defined
group of employees for a period over the earlier of the next five years or, their remaining period of employment with the Company.
On
April 29, 2014, the California Superior Court granted a plaintiff’s motion (Leal v. Command Security Corporation) to certify
a class consisting of all persons who were employed by the Company in a non-exempt security officer position within the State
of California at any time since May 2, 2007 through the date of trial who agreed to and signed an on-duty meal period agreement
at the time of their employment. The case is a certified class action involving allegations that the Company violated certain
California state laws relating to on-duty meal and rest breaks. The parties agreed to a settlement, which was approved by the
Court in November 2016. Our first payment in the amount of $725,704 was made on December 13, 2016. Our second and final payment
of the same amount is due no later than December 31, 2017. The $51,408 increase in the total settlement amount was recorded in
the quarter ended December 31, 2016.
In
addition to such cases, we have been named as a defendant in several uninsured employment related claims that are pending before
various courts, the Equal Employment Opportunities Commission or various state and local agencies. We have instituted policies
to minimize these occurrences and monitor those that do occur. At this time, we are unable to determine the impact on the financial
position and results of operations that these claims may have, should the investigations conclude that they are valid.
We
have employment agreements with certain of our officers and key employees with varying terms. The agreements generally provide
for annual salaries and for salary continuation for a specified number of months under certain circumstances, including a change
in control of the Company.
Approximately 59% of our workforce is not
subject to a labor union. The remaining 41% of our workforce, including in particular, a number of employees based in our New
York City security services office and at our airport offices at John F. Kennedy International and LaGuardia airports either subject
to collective bargaining agreements or a recognition agreement with SEIU 32BJ. Three of the agreements, covering approximately
19% of our employees, expired on October 31, 2016, February 28, 2017 and March 31, 2017. We are currently involved in negotiations
to renew the expired agreements. One other collective bargaining agreement, covering approximately 2% of our employees,
is set to expire in June 2017. The remaining seven agreements are set to expire in September 2018 and thereafter.
14
.
Commitments
Leases
We
are obligated under various operating lease agreements for office space, equipment and auto rentals. Rent expense under operating
lease agreements approximated $2.5 million and $2.4 million, for the fiscal years ended March 31, 2017 and 2016, respectively.
There
are no future minimum payments under long-term non-cancelable capital lease agreements. The future minimum payments under long-term
non-cancelable operating lease agreements are as follows:
|
|
Operating
|
|
|
|
Leases
|
|
|
|
|
|
Year ending: March 31, 2018
|
|
$
|
1,416,000
|
|
March 31, 2019
|
|
|
1,130,000
|
|
March 31, 2020
|
|
|
737,000
|
|
March 31, 2021
|
|
|
539,000
|
|
March 31, 2022
|
|
|
524,000
|
Thereafter
|
|
|
988,000
|
|
Total
|
|
$
|
5,334,000
|
|
15
.
Stock Option Plans and Warrants
In
November 2000, the Company’s Board of Directors and stockholders approved the adoption of a qualified stock option plan.
Under the stock option plan, substantially all employees are eligible to receive options to purchase up to an aggregate of 500,000
shares at an exercise price that cannot be less than the fair market value of the shares on the date the options are granted.
In May 2010, options to purchase 205,000 shares of the Company’s common stock were issued. No options may be granted under
this plan after 2010. During the fiscal year ended March 31, 2017, 4,200 options were forfeited. During the fiscal years
ended March 31, 2017 and 2016, no options were exercised under this plan. The remaining 51,400 outstanding options are exercisable
at any time before May 26, 2020 at $2.40 per share.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
In
September 2005, the Company’s Board of Directors and stockholders approved the adoption of a qualified stock incentive plan.
Under the stock incentive plan, substantially all employees of and consultants to, the Company, are eligible to receive options
to purchase up to an aggregate of 1,000,000 shares of the Company’s common stock at an exercise price that cannot be less
than the fair market value of the shares on the date the options are granted. In September and April 2007, options to purchase
80,000 and 65,000 shares of the Company’s common stock were issued. No options may be granted under this plan after July
29, 2015. During the fiscal year ended March 31, 2016, the company received proceeds of approximately $75,000 in connection with
the exercise of stock options to purchase 61,054 shares of the Company’s common stock at an exercise price of $1.23. During
the fiscal year ended March 31, 2017, the company received proceeds of approximately $27,000 in connection with the exercise of
stock options to purchase 10,000 shares of the Company’s common stock at an exercise price of $2.67 per share. The vested
outstanding options are exercisable as follows:
Options
Outstanding
|
|
|
Exercise
Price
|
|
|
Expiration Date
|
|
15,000
|
|
|
|
3.00
|
|
|
April 11, 2017
|
|
10,000
|
|
|
|
3.19
|
|
|
September 19, 2017
|
|
13,753
|
|
|
|
3.36
|
|
|
September 17, 2018
|
|
500,000
|
|
|
|
3.37
|
|
|
September 28, 2018
|
|
14,233
|
|
|
|
3.08
|
|
|
December 30, 2018
|
In
September 2009, the Company’s Board of Directors and stockholders approved the adoption of a qualified stock incentive plan.
Under the stock incentive plan, substantially all employees of and consultants to, the Company, are eligible to receive options
to purchase up to an aggregate of 2,250,000 shares of the Company’s common stock at an exercise price that cannot be less
than the fair market value of the shares on the date the options are granted. In April, May, July and October 2010, options to
purchase 116,283, 120,000, 31,624 and 74,616 shares of the Company’s common stock were issued, respectively. In March, June
and September 2011, options to purchase 169,683, 109,553 and 120,000 shares of the Company’s common stock were issued. In
January, April, August and November 2012, options to purchase 928,817 shares of the Company’s common stock were issued.
In June and July 2013, options to purchase 120,000 shares of the Company’s common stock were issued. In July and December
2014, options to purchase 370,000 shares of the Company’s common stock were issued. During the fiscal year ended March 31,
2015, the Company received proceeds of $28,587 in connection with the exercise of stock options to purchase 17,867 shares of the
Company’s common stock at an exercise price of $1.60 per share. During the fiscal year ended March 31, 2017, the Company
received proceeds of approximately $69,000 in connection with the exercise of stock options to purchase 45,568 shares of the Company’s
common stock at an exercise price of $1.52 per share. The vested outstanding options are exercisable as follows:
Options
Outstanding
|
|
|
Exercise
Price
|
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
18,425
|
|
|
$
|
3.08
|
|
|
December 30, 2018
|
|
35,000
|
|
|
|
2.40
|
|
|
May 26, 2020
|
|
50,000
|
|
|
|
2.01
|
|
|
October 20, 2020
|
|
50,000
|
|
|
|
1.50
|
|
|
June 8, 2021
|
|
95,000
|
|
|
|
1.42
|
|
|
September 12, 2021
|
|
240,000
|
|
|
|
1.64
|
|
|
January 2, 2022
|
|
180,000
|
|
|
|
2.30
|
|
|
January 2, 2022
|
|
180,000
|
|
|
|
3.00
|
|
|
January 2, 2022
|
|
95,000
|
|
|
|
1.28
|
|
|
April 4, 2022
|
|
113,922
|
|
|
|
1.52
|
|
|
November 26, 2022
|
|
165,000
|
|
|
|
1.91
|
|
|
January 16, 2023
|
|
70,000
|
|
|
|
1.61
|
|
|
June 2, 2023
|
|
50,000
|
|
|
|
1.43
|
|
|
July 21, 2023
|
|
120,000
|
|
|
|
1.80
|
|
|
July 16, 2024
|
|
120,000
|
|
|
|
3.25
|
|
|
December 15, 2024
|
|
30,000
|
|
|
|
1.92
|
|
|
December 15, 2024
|
|
100,000
|
|
|
|
1.79
|
|
|
December 22, 2024
|
|
16,500
|
|
|
|
1.65
|
|
|
August 16, 2025
|
|
3,360
|
|
|
|
2.66
|
|
|
March 6, 2027
|
Certain
of the option and warrant agreements contain anti-dilution adjustment clauses.
A
summary of activity related to all Company stock option activity for the years ended March 31, 2017 and 2016, is as follows:
|
|
Options
|
|
|
|
Exercise
|
|
|
Number of
|
|
|
|
Price
|
|
|
Shares
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2015
|
|
$
|
1.21 - 3.37
|
|
|
|
2,481,208
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
$
|
1.65
|
|
|
|
50,000
|
|
Exercised
|
|
$
|
1.23
|
|
|
|
(61,054
|
)
|
Repurchased
|
|
$
|
1.52
|
|
|
|
(28,643
|
)
|
Forfeited
|
|
$
|
1.21 - 2.40
|
|
|
|
(15,010
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
$
|
1.28 - 3.37
|
|
|
|
2,426,501
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
$
|
2.66
|
|
|
|
50,000
|
|
Exercised
|
|
$
|
1.52 - 2.67
|
|
|
|
(55,568
|
)
|
Forfeited
|
|
$
|
2.40
|
|
|
|
(4,200
|
)
|
Outstanding at March 31, 2017
|
|
$
|
1.28 - 3.37
|
|
|
|
2,416,733
|
|
At
March 31, 2017 there were 2,336,233 options outstanding and exercisable at prices ranging from $1.28 to $3.37 and 2,563,898
shares reserved for issuance under all stock arrangements. At March 31, 2017, there was $70,350 of total unrecognized compensation
expense from stock-based compensation granted under the plans, which is related to non-vested options. The compensation expense
is expected to be recognized over a weighted average vesting period of approximately 12 months.
Significant
option groups outstanding and exercisable at March 31, 2017 and the related weighted average exercise price and life information
are as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Range of
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Remaining
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Price
|
|
|
Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.28 - $3.37
|
|
|
|
2,416,733
|
|
|
|
2,336,233
|
|
|
$
|
2.33
|
|
|
|
4.5
|
|
The
total intrinsic value of options outstanding as of March 31, 2017 was approximately $1,143,546.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
The
weighted average estimated value of stock options granted during fiscal 2017 was $1.30. The weighted average estimated value
of stock options granted during fiscal 2016 was $0.46. The weighted average assumptions used in the Black-Scholes option-pricing
model were as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
2.02
|
%
|
|
|
1.37
|
%
|
Years until exercise
|
|
|
5.00
|
|
|
|
5.00
|
|
Volatility
|
|
|
55.3
|
%
|
|
|
28.7
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Termination rate
|
|
|
n/a
|
|
|
|
n/a
|
|
FASB
ASC 718,
Stock Compensation
, requires all share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values at grant date and the recognition of the related expense
over the period in which the share-based compensation vest. The Company uses the modified-prospective transition method. Under
the modified-prospective method, the Company recognizes compensation expense in the financial statements for all share-based payments
granted, modified or settled.
The
Company recorded total stock based compensation costs of $17,915 and $103,793 for the fiscal years ended March 31, 2017 and 2016,
respectively.
16
.
Income Taxes
Net
provision for (benefit from) income taxes for the fiscal years ended March 31 consists of the following:
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(70,267
|
)
|
|
$
|
182,479
|
|
State and local
|
|
|
(23,422
|
)
|
|
|
91,083
|
|
|
|
|
(93,689
|
)
|
|
|
273,562
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(52,132
|
)
|
|
|
(1,560,459
|
)
|
State and local
|
|
|
89,821
|
|
|
|
(353,103
|
)
|
|
|
|
37,689
|
|
|
|
(1,913,562
|
)
|
|
|
|
|
|
|
|
|
|
Net provision for (benefit from) income taxes
|
|
$
|
(56,000
|
)
|
|
$
|
(1,640,000
|
)
|
The
differences (expressed as a percentage of pretax income (loss)) between the statutory federal income tax rate and the effective
income tax rate as reflected in the accompanying statements of operations are as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Statutory federal income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State and local income taxes
|
|
|
6.8
|
%
|
|
|
7.3
|
%
|
Permanent differences
|
|
|
(5.0
|
)%
|
|
|
(2.9
|
)%
|
Minority investment in unconsolidated affiliate
|
|
|
(35.1
|
)%
|
|
|
1.1
|
%
|
Other
|
|
|
1.7
|
%
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
2.4
|
%
|
|
|
38.2
|
%
|
The
Company is unable to determine if the earnings from the minority investment in the unconsolidated affiliate are permanently invested
outside of the United States. Therefore, the Company has recognized income taxes and the related foreign tax credits on the foreign
operations of these earnings. The earnings on the foreign operations of the minority investment in the unconsolidated affiliate
will become taxable in the United States only to the extent that distributions are received by the Company.
The
permanent differences in our reconciliation of the effective tax rate for the years ended March 31, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Customer Lists
|
|
$
|
219,696
|
|
|
|
(3.8
|
)%
|
|
$
|
219,471
|
|
|
|
(2.1
|
)%
|
Other non-deductible expenses
|
|
|
73,361
|
|
|
|
(1.2
|
)%
|
|
|
75,879
|
|
|
|
(0.8
|
)%
|
Total
|
|
$
|
293,057
|
|
|
|
(5.0
|
)%
|
|
$
|
295,350
|
|
|
|
(2.9
|
)%
|
The
permanent difference for amortization of customer lists arose through the acquisition of a business structured as a stock purchase.
The Company amortizes the value of these customer lists for financial statement purposes, but is not allowed to deduct amortization
of the customer lists for tax purposes. Other nondeductible expenses include meals, entertainment and penalties.
During the year ended March 31,
2017, the Company recorded a $2.1 million impairment charge in connection with its investment in OPSA. Any capital
loss when and if the investment is sold is not expected to be deductible because the Company does not expect to have capital gains
to utilize the capital loss if ultimately recognized.
Command
Security Corporation
Notes
to Consolidated Financial Statements, Continued March 31, 2017 and 2016
The
significant components of deferred tax assets and liabilities as of March 31, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Current deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
651,793
|
|
|
$
|
324,338
|
|
Litigation settlement
|
|
|
297,295
|
|
|
|
288,820
|
|
Accounts receivable
|
|
|
221,325
|
|
|
|
268,283
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
$
|
1,170,413
|
|
|
$
|
881,441
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Workers’ compensation reserve
|
|
$
|
3,022,916
|
|
|
$
|
3,083,094
|
|
Employee stock compensation
|
|
|
439,805
|
|
|
|
444,842
|
|
Intangible assets
|
|
|
307,268
|
|
|
|
325,532
|
|
Litigation settlement
|
|
|
-
|
|
|
|
288,820
|
|
Insurance reserves
|
|
|
149,453
|
|
|
|
252,702
|
|
Accrued expenses
|
|
|
70,050
|
|
|
|
66,230
|
|
Capital loss carry-forward
|
|
|
-
|
|
|
|
54,672
|
|
Impairment of minority investment in unconsolidated affiliate
|
|
|
856,758
|
|
|
|
(93,400
|
)
|
Equipment
|
|
|
(44,130
|
)
|
|
|
(95,797
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets
|
|
$
|
4,802,120
|
|
|
$
|
4,326,695
|
|
|
|
|
|
|
|
|
|
|
Allowance for deferred tax asset related to capital loss carry-forward
|
|
|
-
|
|
|
|
(54,672
|
)
|
Allowance for deferred tax asset related to minority investment in unconsolidated affiliate
|
|
|
(856,758
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
5,115,775
|
|
|
$
|
5,153,464
|
|
As
of March 31, 2016, we had fully reserved for a capital loss carry-forward in the amount of $132,500 which did not reverse before
the carry-forward expired unused in fiscal 2017.
As
of March 31, 2017, we have fully reserved for a deferred tax asset in the amount of $856,758 related to impairment of our minority
investment in an unconsolidated affiliate.
Fiscal
years 2014 through 2017 remain subject to examination by federal and state taxing authorities with certain states having open
tax years beginning in fiscal 2013.
17
.
Issuer Purchases of Equity Securities
Under
active stock repurchase programs, we may repurchase up to $4,000,000 of our common stock on the open market. Common stock repurchases
are recorded as treasury stock, at cost. Shares repurchased during December 2011 have been retired. Shares repurchased during
February 2012 and December 2012 are being held in treasury. The program does not have a prescribed expiration date.
During
the fiscal years ended March 31, 2017 and 2016 the Company did not repurchase any shares under these programs. The number and
average price of shares purchased to date under these programs is as set forth in the table below:
|
|
|
|
|
|
|
|
Total Amount
Purchased
|
|
|
Maximum
Amount that
|
|
|
|
Total Number
|
|
|
|
|
|
as part of
Publicly
|
|
|
may yet be
Purchased
|
|
Period
|
|
of Shares
Purchased
|
|
|
Average Price
Paid Per Share
|
|
|
Announced
Program
|
|
|
under the
Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 8 - 16, 2011
|
|
|
136,600
|
|
|
$
|
1.52
|
|
|
$
|
208,363
|
|
|
$
|
1,791,637
|
|
February 13 - 21, 2012
|
|
|
1,075,000
|
|
|
$
|
1.64
|
|
|
$
|
1,975,353
|
|
|
$
|
24,647
|
|
December 1 - 31, 2012
|
|
|
677,200
|
|
|
$
|
1.60
|
|
|
$
|
3,058,873
|
|
|
$
|
941,127
|
|
|
|
|
1,888,800
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|