The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
1. SUMMARY OF BUSINESS
Amerinac Holding Corp. and Subsidiaries (the “Company”) distributes high-quality, predominantly domestically-manufactured, technically complex, nut and bolt products and a proprietary locking washer product that are used primarily for industrial/commercial applications that require a high level of certified and assured quality. Additionally, the Company manufactures specialty stainless steel, and related products for steel mills, steel forging operations, and various metal fabrication facilities. The Company’s products are manufactured, by others, to exacting specifications and are made from materials that provide the strength and reliability required for their industrial applications.
The Company’s operations are carried out through its wholly-owned distribution subsidiary Creative Assembly Systems, Inc (“Creative Assembly” or “CAS”) and its majority-owned subsidiary, Prime Metals Acquisition LLC, a Delaware limited liability company (“PMAL”). Until April 28, 2017, the Company’s operations were also carried out through its wholly-owned distribution subsidiary, Aero-Missile Components, Inc. (“Aero-Missile”). Creative Assembly is a value-added distributor of proprietary and specialty fasteners primarily serving the heavy truck, automotive, transportation, and infrastructure industries. Aero-Missile had stocking distributor relationships with a number of United States fastener manufacturers. Aero-Missile predominantly sold to all levels of the aviation industry original equipment manufacturers, maintenance and repair organizations, and other distributors, as well as to the United States Department of Defense (“Department of Defense”).
PMAL manufactures specialty ingot and electrode products which are supplied for investment castings, forging, ring rolling, and plate production. PMAL also manufactures shot products and master alloys which are sold to other melt shops, and provides manufacturing support services. The flexible manufacturing operations at PMAL enable the Company to offer a wide range of product grades in customer specific order quantities. The primary grade types include stainless steels, tool steels, nickel-based grades, cobalt based grades and some nonferrous alloys. The Company also offers toll conversion melting services.
On April 28, 2017, the Company and Aero-Missile entered into an Asset Purchase Agreement (the “Aero-Missile Asset Purchase Agreement”) with Apollo Aerospace LLC (“Apollo”) pursuant to which Aero-Missile sold substantially all of its assets to Apollo and Apollo assumed certain liabilities of Aero-Missile (the “Asset Sale”) for an aggregate purchase price of $10.5 million paid by Apollo to Aero-Missile. The purchase price is subject to a working capital adjustment and $1.0 million being held in escrow to secure the indemnification obligations of the Company and Aero-Missile. During the third quarter, it was determined that $22,500 was owed by the Company to Apollo, under the terms of the working capital adjustment. Pursuant to the Aero-Missile Asset Purchase Agreement, the Company and Aero-Missile were required to change their corporate names. On May 1, Aero-Missile changed its name to “PolyAero Inc.” and on June 28, 2017, the Company changed its name to “Amerinac Holding Corp.”
Simultaneous with the sale of Asset Sale, the Company repaid all amounts owing to C3 under Note A and Note B. The total amount repaid was $4 million plus accrued interest of $42,389. In addition, the Company purchased the 96,697 shares of common stock of the Company owned by C3 for an aggregate purchase price of $900,000 that was mutually agreed to by the Company and C3.
On April 28, 2017, the balance of the proceeds of the Asset Sale discussed in Note 4, totaling $4,557,611, were used to partially pay down the principal balance of the WBCC Revolving Loan. Although the WBCC Revolving Loan was senior to Note A and B, WBCC consented to the early repayment of these loans in full.
All financial results of PolyAero Inc. (formerly known as Aero-Missile) are classified as discontinued operations for the purposes of this these consolidated financial statements.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
On July 12, 2017, the Company entered into an Asset Purchase Agreement (the “Prime Asset Purchase Agreement”) with Prime Metals & Alloys, Inc., a Delaware corporation, (“Prime Metals”) pursuant to which PMAL would purchase all of the assets of Prime Metals for an aggregate purchase price of $9.6 million pursuant to an order of the Bankruptcy Court approving the sale under Section 363 of the Bankruptcy Code. Pursuant to an order of the Bankruptcy Court, the Company paid a deposit of $0.5 million to be held in escrow. The deposit was credited to the purchase price at closing. On March 2, 2017, Prime Metals filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (as amended, the “Bankruptcy Code”) in the United States Bankruptcy Court for the Western District of Pennsylvania (the “Bankruptcy Court”) at case no. 17-70164-JAD.
On August, 17, 2017 (the “Effective Date”), PMAL purchased substantially all of the assets of Prime Metals for $9.6 million in cash pursuant to the Prime Asset Purchase Agreement. To finance the purchase of the assets, on August 17, 2017, PMAL entered into a Credit Agreement (the “Credit Agreement”) with SummitBridge National Investments V LLC (“Summit”) pursuant to which Summit made loans to PMAL: (1) a Term Loan in the amount of $4,500,000 (“Term Loan A”) and (2) a Term Loan in the amount of $3,500,000 (“Term Loan B”). In addition, in consideration for Summit making the loans, PMAL issued to SBN V PMA LLC, an affiliate of Summit (“SBN”), membership interests in PMAL equal to 25% of the equity ownership of PMAL (the “SBN Membership Interests”).
The Company has guaranteed payment of Term Loan A and Term Loan B pursuant to a Guaranty Agreement made by the Company as of the Effective Date.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. All inter-company accounts have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The most significant estimates relate to the allowance for doubtful accounts, inventory valuation, cash flow assumptions regarding evaluations for impairment of long-lived and intangible assets, going concern considerations, and valuation allowances on deferred tax assets.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of reserves for sales returns and allowances and net of provisions for doubtful accounts. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable. The amount of the allowance is based on an analysis of the Company’s prior collection experience, customer credit worthiness, and current economic trends. Based on management’s review of accounts receivable, the Company carries an allowance for doubtful accounts of $78,753 and $43,947 as of December 31, 2017 and 2016, respectively. The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Inventory
Inventories are carried at the lower of cost on an average cost basis, or net realizable value. When necessary, management records an inventory reserve for estimated obsolescence or unmarketable inventory based upon knowledge of future demand of inventory on hand as well as other market conditions and events, and the age of the part. As of December 31, 2017 and 2016 the inventory reserve was $338,260 and $89,080, respectively. For the years 2017 and 2016, the Company wrote off approximately $0 and $112,481, respectively, of previously reserved for inventory.
For the Creative Assembly, management believes that the longer a part sits on the shelf the higher the likelihood that it will not sell in the future. This belief is not unique to the fastener industry. While management constantly assesses viability of a part within the customer base, it also believes that a reserve should be carried to reflect product that is aging out, as opposed to product that management identified based on a specific event. At the end of 2017, the Company had more than 4,000 unique part numbers on hand that had carrying value. Management believes that the two methods, specific identification and reserve based on age, to analyzing inventory will reflect the appropriate balance sheet value.
For the Company’s manufacturing subsidiary (PMAL), management believes volatility in the broader metal markets will have an impact on all aspects of raw material, work in process, and finished goods inventory. Management actively seeks to minimize inventory working capital, and increase inventory turns to eliminate any impacts from market fluctuations. As of December 31, 2017, the Company’s manufacturing subsidiary had more than 500 unique metal chemistries it produced, but keeps minimal finished inventory on hand. Management will evaluate the need to change inventory on hand levels.
Property, Land and Equipment
Property, land and equipment are stated at cost less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets acquired as follows:
Leasehold improvements
|
5 years **
|
Furniture and fixtures
|
7 years
|
Equipment and other
|
3-10 years
|
Building
|
30 years
|
** Shorter of life or lease term.
The carrying amount of all long-lived assets is evaluated periodically to determine whether adjustment to the useful life or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets.
Income Taxes
The Company provides for income taxes under ASC Topic 740-10. ASC Topic 740-10 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Temporary differences relate primarily to different accounting methods used for depreciation and amortization of property and equipment and deferred compensation.
ASC Topic 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
ASC Topic 740-10 clarifies the accounting for uncertainty in income tax positions, as defined. It requires, among other matters, that the Company recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company analyzes the filing positions in all of the federal and state jurisdictions where the Company is required to file income tax returns, as well as all open tax years in these jurisdictions. As of December 31, 2017, the Company did not record any unrecognized tax benefits. The Company’s policy, if it had unrecognized benefits, is to recognize accrued interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
The Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, among other things, permanently lowered the statutory federal corporate tax rate from 35% to 21%, effective for tax years including or beginning January 1, 2018. Under the guidance of ASC 740, “Income Taxes” (“ASC 740”), the Company revalued its net deferred tax assets on the date of enactment based on the reduction in the overall future tax benefit expected to be realized at the lower tax rate implemented by the new legislation. Although in the normal course of business the Company is required to make estimates and assumptions for certain tax items which cannot be fully determined at period end, the Company did not identify items for which the income tax effects of the Tax Act have not been completed as of December 31, 2017 and, therefore, considers its accounting for the tax effects of the Tax Act on its deferred tax assets and liabilities to be complete as of December 31, 2017.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable and collectability is reasonably assured. The Company recognizes revenue when product is shipped or when it is received by the customer, depending on the contractual terms.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheet for cash, certificates of deposit, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of the financial instruments.
The Company believes that its indebtedness approximates fair value based on current yields for debt instruments with similar terms.
Fair Value of Financial Assets and Liabilities
In accordance with the authoritative guidance for fair value measurements and the fair value election for financial assets and financial liabilities, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy was established that draws a distinction between market participant assumptions based on the following:
i)
|
observable inputs such as quoted prices in active markets (Level 1)
|
ii)
|
inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2)
|
iii)
|
unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).
|
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. See notes 3 and 6.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Stock Based Compensation
The Company accounts for stock-based awards to recipients in accordance with applicable accounting principles, which requires compensation expense related to share-based transactions, to be measured and recognized in the financial statements based on a grant date fair value over the requisite service period.
Long Lived Assets Impairment
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. When it becomes apparent that indicators such as a significant decrease in the market value of the long-lived asset group or if material differences between operating results and the Company’s forecasted expectations occur, then an impairment analysis is performed.
If indicators arise, an initial determination of recoverability is performed based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its eventual disposition compared with the carrying value. If the carrying value of the asset group exceeds the undiscounted cash flows, a measurement of an impairment loss for long-lived assets is performed. The impairment charge is the excess of the carrying value of the asset group over the fair value, as determined utilizing appropriate valuation techniques.
Goodwill and Intangible Assets
We make estimates, assumptions, and judgments when valuing goodwill and other intangible assets such as customer lists in connection with the initial purchase price allocation of any acquired operations, as well as when evaluating the recoverability of our goodwill and other intangible assets on an ongoing basis. These estimates are based upon a number of factors, including historical experience, market conditions, and information obtained from the management of any acquired operations. Critical estimates in valuing certain intangible assets include, but are not limited to, historical and projected attrition rates, discount rates, anticipated growth in revenue from the acquired customers and acquired technology, and the expected use of the acquired assets. These factors are also considered in determining the useful life of acquired intangible assets. The amounts and useful lives assigned to identified intangible assets impact the amount and timing of future amortization expense.
Concentration of Credit Risk
Sales to three customers and two customers totaled greater than 10% during 2017 and 2016, respectively. PACCAR Inc represented approximately 22.8% and 46% of the Company’s total sales for each of the years ending December 31, 2017 and 2016, respectively. PACCAR represented 13.5% and 42.5% of outstanding accounts receivable at December 31, 2017 and December 31, 2016, respectively. In the year 2016, approximately 11.9% of the Company’s sales were to Waterous Company and Waterous represented 17.5% of outstanding accounts receivable on December 31, 2016. In the year 2017, approximately 14.7% of the Company’s sales were to AMG Vanadium. In the year 2017, approximately 13.2% of the Company’s sales were to Remelt Sources, Inc. At December 31, 2017, the balances due from Universal Stainless & Alloy Products, Remelt Sources, Inc., Ametek and Eastham Forge, Inc. represented 17%, 15.2%, 10.3%, and 10.2% of accounts receivable, respectively.
No other customer accounted for greater than 10% of the Company’s total sales for the years ending December 31, 2017 and 2016, or greater than 10% of outstanding accounts receivable as of each balance sheet date.
Concentration of Suppliers
The Company’s largest supplier, AVK, represented approximately 14.3% and 26% of product distributed for the years ending December 31, 2017 and 2016, respectively. Amounts outstanding at December 31, 2017 and 2016 represent 17% and 34% of accounts payable, respectively. For nearly all suppliers, the Company looks to have secondary supply outlets. However, manufacturing issues with any supplier could cause temporary disruptions to the Company.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Earnings (Loss) per Common Share
Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. Basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same. The following table shows the calculation of diluted shares:
The following table shows the amounts used in computing earnings per share (EPS) and the effect on income and the weighted average number of shares of dilutive potential common stock.
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders used in basic EPS and diluted EPS
|
|
$
|
3,087,396
|
|
|
$
|
250,577
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS
|
|
|
279,298
|
|
|
|
171,118
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Common shares used in dilutive EPS
|
|
|
279,298
|
|
|
|
180,088
|
|
EPS
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11.05
|
|
|
|
1.46
|
|
Diluted
|
|
|
11.05
|
|
|
|
1.39
|
|
___________
** Weighted average number of common shares and dilutive potential common stock used in diluted EPS (When a company is in a loss situation, all outstanding potentially dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same). There are no dilutive or potentially dilutive shares issued or outstanding, other than the 15,000 shares to be issued as part of 2017 executive compensation plan. In 2016, the Company had 8,970 dilutive shares related to Mr. Mondo’s unvested restricted stock.
Redeemable Non-Controlling Interest
Non-controlling interests that are not subject to redemption rights are classified in permanent equity. Redeemable non-controlling interests are classified outside of permanent equity on the consolidated balance sheets.
On August 17, 2017, PMAL purchased substantially all of the assets of Prime Metals for $9.6 million in cash pursuant to the Prime Asset Purchase Agreement. To finance the purchase of the assets, PMAL entered into the Credit Agreement with Summit pursuant to which Summit made loans to PMAL: (1) Term Loan A and (2) Term Loan B. In addition, in consideration for Summit making the loans, PMAL issued to the SBN the SBN Membership Interests. The SBN Membership Interests represent 25% ownership of PMAL.
PMAL has granted SBN a put right under the operating agreement for PMAL for the SBN Membership Interests. On the earlier of August 17, 2020 or the date of a change in control of PMAL, SBN has the right but not the obligation to require PMAL to repurchase all of the SBN Membership Interests at market equity value (“Market Equity Value”). Market Equity Value shall be equal to the higher of (i) value of PMAL implied by a sale, (ii) 4.5 x EBITDA for the trailing twelve months plus cash, less all outstanding funded indebtedness or (iii) fair market value as determined by mutual agreement between PMAL and SBN, or failing that by an independent firm mutually agreed to. SBN has granted PMAL a call right under the operating agreement for PMAL for the SBN Membership Interests. On August 17, 2021, PMAL has the right but not the obligation to require SBN to sell all of the SBN Membership Interests at Market Equity Value.
The Company has accounted for this in accordance with ASC 480-10-55-59, as a redeemable non-controlling interest. At acquisition $400,000 was recorded as SBN’s PMAL equity ownership. This amount, plus SBN’s pro rata net income allocation is reflected before stockholder’s equity as Redeemable Non-controlling Interest.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting
, which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including treatment of excess tax benefits and forfeitures, as well as consideration of minimum statutory tax withholding requirements. This ASU is effective for years beginning after December 15, 2016, with early application permitted in any interim or annual period. The Company has implemented this standard for the consolidated financial statements for the year ending December 31, 2017.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers,
which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605-Revenue Recognition and most industry-specific guidance throughout the ASC. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early adoption is permitted to the original effective date for annual reporting periods beginning after December 15, 2016 (including interim reporting periods within those periods). The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company will adopt ASU 2014-09 in the first quarter of 2018 and plans to apply the full retrospective approach. The Company is currently completing its assessment of any changes in revenue recognition and does not believe it will have a material impact on its financial statements.
In November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classifications of Deferred Taxes
, which requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by this amendment. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company has presented its deferred tax liabilities in accordance with this standard for the year ending December 31, 2017.
In July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
, which requires inventory to be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company has presented its inventory in accordance with this standard for the year ending December 31, 2017.
There have been no other accounting pronouncements that have been issued but not yet implemented that the Company believes will materially impact the financial statements.
3. ACQUISITION AND BUSINESS COMBINATION
On July 12, 2017, the Company and PMAL entered into an Asset Purchase Agreement with Prime Metals. On August 17, 2017, PMAL purchased substantially all of the assets of Prime Metals for a purchase price of $9.6 million. The assets and liabilities of PMAL were recorded at their respective fair values as of the closing date of the acquisition, and the following table summarizes these values based on the balance sheet at August 17, 2017 and the Purchase Price Allocation performed as of December 31, 2017.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
The following summarizes the purchase price allocation:
Purchase Price
|
|
|
9,600,000
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
681,251
|
|
Inventory
|
|
|
693,603
|
|
Other current assets
|
|
|
23,053
|
|
Machinery & Equipment
|
|
|
2,747,100
|
|
Intangibles – customer list
|
|
|
1,990,000
|
|
Real Estate
|
|
|
3,410,000
|
|
Total
|
|
|
9,545,007
|
|
Goodwill
|
|
|
54,993
|
|
Acquisition costs were approximately $170,000, which are included in general and administrative expenses.
The following unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition occurred on January 1, 2016, nor is the financial information indicative of the results of future operations. The following table represents the unaudited consolidated pro forma results of operations for the years ending December 31, 2017 and 2016 as if the acquisition had occurred on January 1, 2016.
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
Pro Forma
|
|
December 31,
2017
|
|
|
December
31, 2016
|
|
Net Sales
|
|
|
33,203,966
|
|
|
|
31,984,639
|
|
Operating expenses
|
|
|
4,935,058
|
|
|
|
3,378,993
|
|
Income before taxes
|
|
|
(351,091
|
)
|
|
|
493,488
|
|
Net income (loss)
|
|
|
(351,822
|
)
|
|
|
471,388
|
|
The Company’s consolidated financial statements for the year ending December 31, 2017 include the actual results of PMAL since the date of the acquisition, August 17, 2017. The year ended December 31, 2017, pro forma results above include a year of pro forma results for Prime Metals. For the period ended December 31, 2016, pro forma results above include a year of pro forma results for Prime Metals. For the year ended December 31, 2017, the PMAL operations had a net income before taxes of $213,509 that was included in the Company’s Consolidated Statement of Income, which consisted of approximately $9,695,504 in revenues and $9,481,995 in expenses.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
4. DISCONTINUED OPERATIONS
The financial results of our PolyAero Inc. (formerly known as Aero-Missile) business, sold on April 28, 2017, for the years ended December 31, 2017 and 2016 are presented as discontinued operations, net of income taxes on our consolidated statements of income. The following table presents financial results of the Aero-Missile business:
|
|
Twelve Months Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
5,752,020
|
|
|
$
|
13,210,468
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
3,960,793
|
|
|
|
10,360,664
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,791,227
|
|
|
|
2,849,804
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
444,362
|
|
|
|
2,243,490
|
|
Professional and consulting fees
|
|
|
56,796
|
|
|
|
218,289
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
Total operating expenses
|
|
|
501,158
|
|
|
|
2,461,779
|
|
|
|
|
|
|
|
|
|
|
Income before other income (expense)
|
|
|
1,290,069
|
|
|
|
388,025
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense - net
|
|
|
(299,427
|
)
|
|
|
(528,548
|
)
|
Other expense
|
|
|
(5,925
|
)
|
|
|
-
|
|
Total other income (expense)
|
|
|
(305,352
|
)
|
|
|
(528,548
|
)
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
984,717
|
|
|
|
(140,523
|
)
|
|
|
|
|
|
|
|
|
|
Provision for state income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) of discontinued operations
|
|
|
984,717
|
|
|
|
(140,523
|
)
|
5. PROPERTY, LAND AND EQUIPMENT
The Company’s 220,000 square foot facility is located at 101 Innovation Drive, Homer City, PA. The facility is located on approximately 38 acres and was purchased in 2007. The facility houses the manufacturing operations of PMAL. The useful life of the building is estimated to be at least 30 years. The useful life of the machinery and equipment is estimated to range from 3 to 10 years. Depreciation and amortization expense was $285,489 and $7,912 for the years ending December 31, 2017 and 2016.
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Land, buildings and improvements
|
|
|
3,410,000
|
|
|
|
-
|
|
Equipment
|
|
|
3,030,635
|
|
|
|
169,760
|
|
Total
|
|
|
6,440,635
|
|
|
|
169,760
|
|
Less accumulated depreciation
|
|
|
(198,929
|
)
|
|
|
(27,593
|
)
|
Net property, land and equipment
|
|
|
6,241,706
|
|
|
|
142,167
|
|
As described in Note 1, the Company has $8,000,000 in notes secured against the property, plant and equipment.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill increased to $54,993 as of December 31, 2017 due to our acquisition of the assets of Prime Metals.
Information regarding our acquired intangible assets was as follows:
Customer lists
|
|
$
|
1,990,000
|
|
Goodwill
|
|
$
|
54,993
|
|
As of December 31, 2017 the intangible value of the customer list was $1,934,444.
Amortization expense for the years ended December 31, 2018 through 2022 is $199,000 per year. The Company will continue to expense $199,000 annually after 2022 until the balance of certain intangibles has zero value.
7. LONG-TERM DEBT AND LINE OF CREDIT
Webster Business Credit Corporation
On August 25, 2015, the Company established a new revolving credit facility in an aggregate principal amount of up to $7.5 million (the “WBCC Revolving Loan”) by entering into a Credit Agreement (the “WBCC Credit Agreement”) with Webster Business Credit Corporation, as Lender (“WBCC”). The Company’s wholly owned subsidiaries serve as guarantors of the WBCC Revolving Loan. Borrowings under the WBCC Revolving Loan were used to finance working capital and other general corporate purposes.
Borrowings under the WBCC Credit Agreement bore interest, at the Company’s election, at a rate tied to one of the following rates: (i) the prime lending rate plus 1.25% or (ii) the adjusted daily LIBOR rate plus 2.75%.
On April 28, 2017, the Company entered into Amendment No. 2 and Consent No. 1 (the “Amendment and Consent”) under the WBCC Credit Agreement. Under the Amendment and Consent, WBCC amended the WBCC Credit Agreement and consented to the sale of the assets of PolyAero Inc (formerly known as Aero-Missile), the repayment of all amounts owing to C3, and the repurchase of the shares owned by C3. On April 28, 2017, the Company used $4,557,611 of the proceeds from the sale of the assets of PolyAero Inc. (formerly known as Aero-Missile) to partially pay down the principal balance of the WBCC Revolving Loan. On July 31, 2017, the Company paid the remaining $209,406 due under the WBCC Credit Agreement and the WBCC Credit Agreement was terminated by mutual agreement.
SummitBridge Loans
On August 17, 2017 (the “PMAL Purchase Date”), PMAL purchased substantially all of the assets of Prime Metals for $9.6 million in cash pursuant to the Prime Asset Purchase Agreement. To finance the purchase of the assets, on August 17, 2017, PMAL entered into the Credit Agreement with Summit (the “Summit Credit Agreement”) pursuant to which made loans to PMAL: (1) Term Loan A and (2) Term Loan B. In addition, in consideration for Summit making the loans, PMAL issued to SBN, the SBN Membership Interests.
Term Loan A will accrue each month at either 17.5% interest per annum (with 12.5% payable monthly and 5.0% accruing to the outstanding balance of Term Loan A, payable at maturity) or 17.0% interest per annum, payable monthly. Term Loan A has a Maturity date of August 17, 2020. Any prepayments of principal during the period from the PMAL Purchase Date through the day before the one year anniversary of the PMAL Purchase Date will be subject to a fee payable to Summit equal to the interest that would have accrued on the principal amount prepaid from the date of such prepayment through the day before the one year anniversary of the PMAL Purchase Date with the exception that such fee shall not be chargeable to PMAL if the specific prepayment resulted solely from the operating cash flow of PMAL. Term Loan A will begin amortizing on the thirteenth (13) month following the PMAL Purchase Date. Term Loan A is secured against all of the assets of PMAL.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Term Loan B will accrue each month at either 17.5% interest per annum (with 14.0% payable monthly and 3.5% accruing to the outstanding balance of Term Loan B, payable at maturity) or 17.0% interest per annum, payable monthly. Term Loan B has a Maturity date of August 17, 2020. Any prepayments of principal during the period from the PMAL Purchase Date through the day before the one year anniversary of the PMAL Purchase Date will be subject to a fee payable to Summit equal to the interest that would have accrued on the principal amount prepaid from the date of such prepayment through the day before the one year anniversary of the PMAL Purchase Date with the exception that such fee shall not be chargeable to PMAL if the specific prepayment resulted solely from the operating cash flow of PMAL. Term Loan B began amortizing on the second month following the PMAL Purchase Date pursuant to an amendment executed on August 31, 2017 by Summit and PMAL. Term Loan B is secured against all of the assets of PMAL.
The Company has guaranteed payment of Term Loan A and Term Loan B pursuant to a Guaranty Agreement made by the Company as of the PMAL Purchase Date.
PMAL has granted SBN a put right under the operating agreement for PMAL for the SBN Membership Interests. On the earlier of August 17, 2020 or the date of a change in control of PMAL, SBN has the right but not the obligation to require PMAL to repurchase all of the SBN Membership Interests at market equity value (“Market Equity Value”). Market Equity Value shall be equal to the higher of (i) value of PMAL implied by a sale, (ii) 4.5 x EBITDA for the trailing twelve months plus cash, less all outstanding funded indebtedness or (iii) fair market value as determined by mutual agreement between PMAL and SBN, or failing that by an independent firm mutually agreed to. SBN has granted PMAL a call right under the operating agreement for PMAL for the SBN Membership Interests. On August 17, 2021, PMAL has the right but not the obligation to require SBN to sell all of the SBN Membership Interests at Market Equity Value. The Company has accounted for this in accordance with ASC 480-10-55-59, as a redeemable non-controlling interest. At acquisition $400,000 was recorded as SBN’s PMAL equity ownership. This amount, plus SBN’s pro rata net income allocation is reflected before stockholder’s equity as Redeemable Non-controlling Interest.
The Summit Credit Agreement also contains customary covenants, representations and warranties of the parties, including, among others (1) the grant by PMAL to Summit of a security interest on all of the assets of PMAL, (2) a pledge with respect to the equity interests in PMAL owned by the Company, and (3) an unconditional and irrevocable guaranty by the Company of the performance by PMAL of the obligations under the Summit Credit Agreement. In addition, until all amounts under Term Loan A and Term Loan B are paid in full, PMAL has agreed to comply with certain financial covenants that require PMAL to meet pre-established financial ratios. As of December 31, 2017, the applicable covenants were the fixed charge coverage ratio and capital expenditures of PMAL not to exceed $1,000,000 for the previous four fiscal quarters. The Company was in compliance with both covenants.
8. RELATED PARTY MATTERS
Management Services Agreement
On January 16, 2015, the Company and Polymathes Capital, LLC (“Consultant”), an affiliate of Precision Group Holdings (“Holdings”), entered into a Management Services Agreement whereby the Company engaged the Consultant to provide financing and management consulting services to the Company and its Subsidiaries on a month-to-month basis. The consulting fee was $100,000 per annum, payable in monthly increments. On June 30, 2017, the Company accelerated the payment of management fees due for the second half of 2017. On November 10, 2017, the Company and the Consultant agreed to terminate the Management Services Agreement on December 31, 2017. In lieu of payment of $44,000 under the Management Services Agreement in 2017, the Consultant received 1,100 shares of common stock as part of the Private Placement on July 17, 2017.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
9. SEGMENT RESULTS
The Company manages its operations in two business segments which are defined as follows:
|
·
|
The Company’s Creative Assembly subsidiary, which includes all distribution of proprietary and specialty fasteners primarily serving the heavy truck, automotive, transportation, and infrastructure industries.
|
|
|
|
|
·
|
The Company’s PMAL subsidiary, which includes all our manufacturing of specialty ingot, electrode products, shot products, and master alloys in addition to toll conversion melting services.
|
Segment information for the year ended December 31, 2017 is as follows:
|
|
CAS
|
|
|
Prime
|
|
Net Revenue
|
|
|
8,677,159
|
|
|
|
9,695,504
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
6,798,992
|
|
|
|
8,022,661
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,878,167
|
|
|
|
1,672,843
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
2,003,504
|
|
|
|
590,887
|
|
Professional and consulting fees
|
|
|
392,674
|
|
|
|
328,772
|
|
Total operating expenses
|
|
|
2,396,178
|
|
|
|
919,659
|
|
|
|
|
|
|
|
|
|
|
Income before other income (expense)
|
|
|
(518,011
|
)
|
|
|
753,184
|
|
Below is the Segment reconciliation to total net income:
(Loss) income from segments above
|
|
|
235,173
|
|
|
|
|
|
|
Non-allocated expenses
|
|
|
|
|
Other income (expense)
|
|
|
|
|
Interest expense - net
|
|
|
(866,361
|
)
|
Change in fair value put option
|
|
|
(213,000
|
)
|
Gain on sale
|
|
|
2,974,584
|
|
Other income (expense)
|
|
|
26,391
|
|
Total other income (expense)
|
|
|
1,921,614
|
|
|
|
|
|
|
Income from continuing operations before
provision for income taxes
|
|
|
2,156,787
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(731
|
)
|
Non-controlling interest
|
|
|
(53,377
|
)
|
|
|
|
|
|
Income before discontinued operations
|
|
|
2,102,679
|
|
|
|
|
|
|
Income from discontinued operations, net
|
|
|
984,717
|
|
|
|
|
|
|
Net Income attributable to Amerinac
Holding Corp Shareholders
|
|
|
3,087,396
|
|
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has two leased facilities, which are office, manufacturing and warehouse space. Our Texas facility is leased under an operating lease that is less than three years in duration. Our Ohio facility is leased under an operating lease that is more than three years in duration. In some cases the Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases. Our Texas facility lease calls for payments until expiration in February 2019 totaling $49,467. The annual payments for 2018 and 2019 are $42,400 and $7,067. Our Ohio facility calls for lease payments until expiration totaling $365,750. The annual payments are $77,000 for each of the years 2018, 2019, 2020 and 2021 and $57,750 for 2022.
Litigation
The Company is subject to the possibility of claims and lawsuits arising in the normal course of business. In the opinion of management, the Company liability, if any, under existing claims, asserted or unasserted, would not have a material adverse effect on the Company’s consolidated financial position or results of operations.
Employment Agreements
On November 10, 2017, John Wachter was appointed Chief Executive Officer of the Company. In connection with his appointment, the Company and Mr. Wachter entered into a written employment agreement (the “Wachter Employment Agreement”) for an initial three-year term, which provides for the following compensation terms for Mr. Wachter. Pursuant to the Wachter Employment Agreement, Mr. Wachter will receive a base salary of $100,000 per year, subject to increase, but not decrease, at the discretion of the Board. Mr. Wachter is eligible for a cash and stock bonus equal to ten to twenty percent of the Company’s pre-tax profits over established pre-tax targets, at the end of each respective annual period.
In addition, the Wachter Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during the term of the Wachter Employment Agreement, his employment is terminated by the Company other than for “cause,”, by Mr. Wachter for “good reason” (each as defined in the Wachter Employment Agreement) or by failure by either party to renew the Wachter Employment Agreement after expiration of the employment term, he would be entitled to (1) a lump sum payment equal to two times his base salary at the rate in effect immediately prior to the termination date, and (2) any unpaid portion of any cash bonus for the annual period preceding the annual period in which such termination occurs that was earned but not paid.
On November 10, 2017, William J. Golden was appointed Chief Financial Officer of the Company. Mr. Golden remains the Company’s General Counsel. In connection with his appointment, the Company and Mr. Golden entered into a written employment agreement (the “Golden Employment Agreement”) for an initial three-year term, which provides for the following compensation terms for Mr. Golden. Pursuant to the Golden Employment Agreement, Mr. Golden will receive a base salary of $100,000 per year, subject to increase, but not decrease, at the discretion of the Board. Mr. Golden is eligible for a cash and stock bonus equal to ten to twenty percent of the Company’s pre-tax profits over established pre-tax targets, at the end of each respective annual period.
In addition, the Golden Employment Agreement also provides for certain payments and benefits in the event of a termination of his employment under specific circumstances. If, during the term of the Golden Employment Agreement, his employment is terminated by the Company other than for “cause,”, by Mr. Golden for “good reason” (each as defined in the Golden Employment Agreement) or by failure by either party to renew the Golden Employment Agreement after expiration of the employment term, he would be entitled to (1) a lump sum payment equal to two times his base salary at the rate in effect immediately prior to the termination date, and (2) any unpaid portion of any cash bonus for the annual period preceding the annual period in which such termination occurs that was earned but not paid.
The Compensation Committee adopted a 2017-2019 Amerinac Holding Corp. Executive Bonus Plan (the “Executive Bonus Plan”), which is subject to and governed by the terms of the 2017 Amerinac Holding Corp. 2017 Equity Incentive Plan (the “2017 Equity Plan”). Certain key employees will participate in the Executive Bonus Plan. The Executive Bonus Plan is designed to (i) offer variable compensation primarily in equity of the Company if executives achieve annual target growth amounts and (ii) align the incentives of executives and shareholders.
The Company will fund the annual corporate bonus pool with no more than 20% of the excess, if any, of the Company’s yearly earnings before taxes minus a threshold amount. For 2017, 2018 and 2019, the threshold amounts will be $750,000, $1,250,000 and $1,750,000, respectively.
Pursuant to the Executive Bonus Plan, awards are paid out in a mix of cash and equity, with no less than 60% of corporate bonus pool to be in the form of newly issued restricted common stock. All awards will be subject to threshold performance and high-water marks.
The Company will issue 7,500 shares pursuant to the Executive Bonus Plan to Mr. Wachter in 2018. The Company will issue 7,500 shares pursuant to the Executive Bonus Plan to Mr. Golden in 2018, valued at $600,000.
On April 1, 2016, the Company appointed Victor Mondo as President of PolyAero Inc. (formerly known as Aero-Missile). Mr. Mondo became Chief Executive Officer of the Company on July 18, 2016. In connection with his appointment, the Company and Mr. Mondo entered into a written employment agreement (the “Employment Agreement”) for an initial three-year term. As part of the divesture of Aero-Missile, Mr. Mondo’s compensation structure was altered. Pursuant to the updated Mondo Employment Agreement, Mr. Mondo received a base salary of $195,000 per year, subject to increase, but not decrease, at the discretion of the Board. Mr. Mondo was eligible for a cash bonus equal to 4% of Adjusted EBITDA of the Company’s distribution subsidiary over $1,000,000 at the end of each respective annual period. For the period ending March 31, 2017, the Company awarded Mondo a discretionary $60,000 cash bonus. In addition, Mr. Mondo was entitled to an award of shares of the common stock of the Company equal to 3% of the total equity on a fully diluted basis, which were to fully vest on December 31, 2018. Pursuant to the updated Mondo Employment Agreement, Mr. Mondo’s 8,966 shares vested fully on June 30, 2017, subject to various clawback provisions.
Pursuant to the reorganization of the senior leadership of the Company following the acquisition of PMAL, Mr. Mondo resigned as Chief Executive Officer of the Company to become President and Chief Operating Officer of CAS on November 10, 2017. Mr. Mondo resigned from CAS on December 29, 2017. Pursuant to Mr. Mondo’s resignation on December 29, 2017, the Company clawed back 5,000 of the shares that Mr. Mondo received on June 30, 2017.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
11. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due. Our current effective tax rate is lower than the Federal and state effect rate primarily due to the reversal of significant timing differences (i.e. inventory reserve) upon the asset sale at our Aero-missile subsidiary.
Significant components of the income tax provision are as follows:
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Current income tax
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
712
|
|
|
|
22,100
|
|
City
|
|
|
-
|
|
|
|
-
|
|
Total Current income tax
|
|
|
712
|
|
|
|
22,100
|
|
|
|
|
|
|
|
|
|
|
Non current income tax
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
(66,752
|
)
|
State
|
|
|
-
|
|
|
|
-
|
|
City
|
|
|
-
|
|
|
|
-
|
|
Total non current income tax
|
|
|
-
|
|
|
|
(66,752
|
)
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit)
|
|
$
|
712
|
|
|
$
|
(44,652
|
)
|
The Company has an accumulated deficit of approximately $10.0 million and there are approximately $4,560,000 and $3,528,000 of net operating losses available to be used against Federal and state taxable income, respectively, which are subject to certain Section 382 limitations as a result of the change in control in January 2015. Benefits for income taxes were due to carryback of Federal operating losses.
A reconciliation of the statutory tax rate to the effective tax rate is as follows:
|
|
For the years ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Expected federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
State and local income taxes, net of federal benefit
|
|
|
0.0
|
%
|
|
|
7.9
|
%
|
Permanent difference - amortization and disallowable expenses
|
|
|
16
|
%
|
|
|
62.6
|
%
|
Reduction in federal tax rate
|
|
|
(13)
|
%
|
|
|
-
|
|
Change in valuation allowance
|
|
|
(37.0)
|
%
|
|
|
(128.7)
|
%
|
Other
|
|
|
0.0
|
%
|
|
|
4.8
|
%
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
(19.4)
|
%
|
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
The Company’s deferred tax assets and liability relates to a temporary timing difference in long-term assets. With the deferred tax asset for December 31, 2017 and 2016 consisting of:
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Gross
|
|
|
Effective
Tax Rate
|
|
|
Tax Asset
(Liability)
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(365,842
|
)
|
|
|
29%
|
|
|
|
(106,094
|
)
|
Decrease in inventory value
|
|
|
302,334
|
|
|
|
29%
|
|
|
|
87,677
|
|
Federal and state NOL
|
|
|
3,705,121
|
|
|
|
29%
|
|
|
|
1,074,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,641,613
|
|
|
|
|
|
|
|
1,056,068
|
|
Less valuation allowance
|
|
|
(3,641,613
|
)
|
|
|
|
|
|
|
(1,056,068
|
)
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Depreciation and amortization
|
|
|
1,275,513
|
|
|
|
42%
|
|
|
|
535,700
|
|
Decrease in inventory value
|
|
|
5,033,500
|
|
|
|
42%
|
|
|
|
2,114,100
|
|
Federal and state NOL
|
|
|
937,900
|
|
|
|
42%
|
|
|
|
393,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,246,900
|
|
|
|
|
|
|
|
3,043,675
|
|
Less valuation allowance
|
|
|
(7,246,900
|
)
|
|
|
|
|
|
|
(3,043,675
|
)
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
There were no significant uncertain tax positions taken, or expected to be taken, in a tax return that would be determined to be an unrecognized tax benefit taken or expected to be taken in a tax return that should have been recorded on the Company’s consolidated financial statements for the year ended December 31, 2017. Additionally, there were no interest or penalties outstanding as of or for each of the years ended December 31, 2017 and 2016.
The federal and state tax returns for the years ending December 31, 2014, 2015, and 2016 have been filed, but are still open to examination.
12. STOCK OPTIONS
The Amerinac Holding Corp. 2017 Equity Incentive Plan (the “Equity Plan”) was approved by a majority of Shareholders of the Company on November 10, 2017 and the Board on October 30, 2017. The 2017 Equity Plan provides for an aggregate of 100,000 shares of common stock to be available for awards. Concurrently, the Precision Aerospace Components, Inc. 2011 Omnibus Incentive Plan was cancelled and superseded by the Equity Plan.
13. STOCKHOLDERS EQUITY
Share based payments
On April 1, 2016, Victor Mondo was hired as President of PolyAero Inc. (formerly known as Aero-Missile). As part of Mr. Mondo’s employment agreement he was granted 8,970 restricted shares, which were fully vested on June 30, 2017. On December 31, 2017, 5,000 of those restricted shares were clawed back by the Company when Mr. Mondo left the Company. Total stock-based compensation expense was $9,489 for the year ended December 31, 2016. As of December 31, 2017, the Company accrued a $600,000 bonus which is included in accrued expenses in the accompanying consolidated financial statements, to certain executives to be paid out in stock subsequent to the year end.
As part of compensation for board service, Mssrs. Lamb and Garruto receive $25,000 each in stock for each year of service. For the first year, the independent directors will receive 625 shares each.
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
Securities Purchase Agreement
On the January 16, 2015 (“Effective Date”), the Company and its Subsidiaries entered into a Securities Purchase Agreement (the “Securities Purchase Agreement) with C3, pursuant to which the Company and its Subsidiaries authorized the issuance and sale to C3 of (1) a Senior Secured Note issued by the Subsidiaries in the amount of $5,500,000 (“Note A”), (2) a Subordinated Secured Note issued by the Subsidiaries in the amount of $3,500,000 (“Note B”), and (3) 3,200 shares of unregistered Common Stock for a loan from C3. In addition, in partial consideration for providing the two loans the Company issued 20,730 shares of unregistered Common Stock to C3 on July 6, 2016 (the “Second Closing”) that, together with the initial issuance of 3,200 shares, caused C3 to have received 8% of the total Common Stock of Amerinac after the Second Closing (collectively, the “Granted Equity”). In addition, the Company issued C3 shares of unregistered Common Stock pursuant to the Stock Purchase Agreement (see below) (the “Purchased Equity”). The issuance and sale of the Granted Equity was a private placement exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
The Company granted C3 a put right under the Securities Purchase Agreement for the Common Stock C3 received (whether by purchase or grant) at any time after the earlier to occur of (1) the fifth (5th) anniversary of the closing of the Securities Purchase Agreement for Common Stock (for Granted Equity), (2) the seventh (7th) anniversary of the closing of the Securities Purchase Agreement (for Purchased Equity), (3) payment in full of the amounts owed under Note A and Note B, or (4) upon an Event of Default, as defined in the Securities Purchase Agreement. The put right could be exercised by C3 for all or a portion of the Common Stock at an agreed upon valuation of the Company.
Stock Purchase Agreement
On the Effective Date, concurrently with the execution of the Securities Purchase Agreement, the Company entered into a Stock Purchase Agreement by and among Andrew S. Prince, Donald Barger, and David Walters (the “Amerinac Shareholders”), and C3 and PGH (the “Stock Purchase Agreement”). Pursuant to the Stock Purchase Agreement, Holdings and C3 agreed to purchase a total of 269,512 restricted shares of Common Stock for an aggregate purchase price of $500,000 in two installments. The First Closing occurred on the Effective Date resulting in an issuance of 8,401 shares of restricted Common Stock to C3 for a purchase price of $116,571 and 22,715 shares of restricted Common Stock to Holdings for a purchase price of $315,172. On July 7, 2016, pursuant to the Second Closing, the Company issued 85,096 and 174,028 shares of restricted Common Stock to C3 and Holdings, respectively for a total purchase price equal to $68,257. The issuance and sale of the restricted shares of Common Stock in each installment was a private placement exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. On April 28, 2017, the Company repurchased the 96,697 shares of Common Stock of the Company owned by C3 (the entirety of the shares) for an aggregate purchase price of $900,000.
C3 Put
C3, our subordinated lender, maintained a right to force the Company to repurchase its shares upon certain triggering events, which can be found in Exhibit 10.2 to that amended Form 8-K/A, filed on August 18, 2015. On April 28, 2017, the C3 put right was cancelled as part of the Company’s repurchase of C3’s equity. The Company maintained a liability on its balance sheet that reflected the fair value of the put option. To arrive at this liability the Company performed a valuation based on comparable company metrics. This technique would be considered a Level 3 fair market value approach. The Company performed its valuation in accordance with FASB’s “ASC 820 – Fair Value Measurements.”
AMERINAC HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017
The technique used was a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”). The Company subtracted the total outstanding debt and added back the available cash to arrive at the fair value of the put option. The Company made certain customary adjustments to EBITDA in order to provide a more accurate representation in regards to the Company’s financial situation. The Company recorded a debt discount of $165,650 based on the C3 Put’s fair value at issuance on January 16, 2015. This amount was scheduled to be amortized over the life of the Company’s five-year subordinated notes. As of December 31, 2017 and 2016, the Company’s valuation of C3 put was $0 and $687,000, respectively.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
|
|
December 31,
2017
|
|
Balance as of December 31, 2016
|
|
$
|
687,000
|
|
Mark to market adjustment
|
|
|
213,000
|
|
Repurchase of Stock
|
|
|
(900,000
|
)
|
Balance as of December 31, 2017
|
|
$
|
0
|
|
Redeemable non-controlling interest
The Company’s subsidiary, PMAL, granted SBN a put right under the operating agreement for PMAL for the SBN Membership Interests. On the earlier of August 17, 2020 or the date of a change in control of PMAL, SBN has the right but not the obligation to require PMAL to repurchase all of the SBN Membership Interests at market equity value (“Market Equity Value”). Market Equity Value shall be equal to the higher of (i) value of PMAL implied by a sale, (ii) 4.5 x EBITDA for the trailing twelve months plus cash, less all outstanding funded indebtedness or (iii) fair market value as determined by mutual agreement between PMAL and SBN, or failing that by an independent firm mutually agreed to. SBN has granted PMAL a call right under the operating agreement for PMAL for the SBN Membership Interests. On the August 17, 2021, PMAL has the right but not the obligation to require SBN to sell all of the SBN Membership Interests at Market Equity Value. The Company has accounted for this in accordance with ASC 480-10-55-59, as a redeemable non-controlling interest. At acquisition $400,000 was recorded as SBN’s PMAL equity ownership. This amount, plus SBN’s pro rata net income allocation is reflected before stockholder’s equity as Redeemable Non-controlling Interest.
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:
|
|
December 31,
2017
|
|
Balance as of December 31, 2016
|
|
$
|
-
|
|
Initial value
|
|
|
400,000
|
|
Allocation of non-controlling interest income
|
|
$
|
53,377
|
|
Balance as of December 31, 2017
|
|
$
|
453,377
|
|
Private Placement
On July 17, 2017, the Company completed the closing of a private placement (the “Private Placement”) with approximately 17 accredited investors, pursuant to which the Company sold to the Investors a total of 75,500 shares of restricted common stock of the Company at a purchase price of $40.00 per share, and total consideration of $3.02 million.
On September 28, 2017, the Company sold an additional 15,750 Shares at a purchase price of $40.00 per share, and total consideration of $630,000 to 5 Investors.
The Shares of common stock have not been registered under the Securities Act and may not be transferred or resold unless the transfer or resale is registered or unless exemptions from the registration requirements of the Securities Act and applicable state laws are available.