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Contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
CONTINGENCIES

Note 8. CONTINGENCIES

 

Loss Contingencies

 

A number of legal actions have been commenced against us by vendors, former landlords and others, including a third party claim as a result of an injury suffered on a portion of a leased property not occupied by us. As certain of these claims represent amounts included in accounts payable or accrued expenses they are not specifically discussed herein.

 

An employee of the Company commenced an action against, among others, Rechler Equity B-2, LLC and Air Industries Group, in the Supreme Court State of New York, Suffolk County, seeking compensation in an undetermined amount for injuries suffered while leaving the premises occupied by Welding Metallurgy, Inc. Rechler Equity B-2, LLC, has served a Third Party Complaint in this action against Air Industries Group, Inc. and Welding Metallurgy, Inc. The action remains in the early pleading stage. The Company believes it is not liable to the employee and any amount it might have to pay would be covered by insurance.

 

An employee of the Company commenced an action against, among others, Sterling Engineering and Air Industries Group, before the Connecticut Commission on Human Rights and Opportunities, seeking lost wages in an undetermined amount for the employee's termination. The action remains in the early pleading stage. The Company believes it is not liable to the employee and any amount it might have to pay would be covered by insurance.

 

On October 2, 2018, Contract Pharmacal Corp. commenced an action, relating to a Sublease entered into in May 2018 with respect to the property we occupied at 110 Plant Avenue, Hauppauge, New York. In the action Contract Pharmacal seeks damages of approximately $600,000 for the Company's failure to make the entire premises available by the Sublease commencement date. The Company disputes the validity of the claims asserted by Contract Pharmacal and believes it has meritorious defenses to those claims and recently submitted a motion in opposition to its motion for summary judgement.

 

On December 20, 2018, pursuant to a Stock Purchase Agreement dated as of March 21, 2018 ("SPA"), the Company completed the sale of all of the outstanding shares of its subsidiary, Welding Metallurgy, Inc. to CPI Aerostructures. On March 19, 2019, in accordance with the procedures set forth in the SPA with CPI Aerostructures, the Company received a notice from CPI claiming that the working capital deficit used to compute the purchase price was understated. The issue of the amount of the working capital deficit was submitted to BDO USA, LLP ("BDO"), acting as an expert, and it issued a report dated September 3, 2019, where it determined that the amount of the working capital deficit was approximately $4,145,870. On September 9, 2019 the Company received a demand from CPI for payment of such amount. The Company advised CPI that the determination of BDO is void because, among other things, it believes BDO exceeded the scope of its authority as set forth in the SPA. On September 27, 2019, CPI filed a notice of motion in the Supreme Court of the State of New York, County of New York, against the Company seeking, among other things, an order of specific performance requiring delivery of the funds deposited in escrow, together with the balance of the working capital deficit which it claimed, and a judgment against the Company in the amount of approximately $4,200,000 of which $2,000,000 would be satisfied by delivery of the funds in escrow. On October 7, 2019, the Company agreed to the release of $619,316 of the funds held in escrow in respect of claims related to the working capital deficit not related to the value of WMI's inventory. As of December 31, 2018, the Company has placed a reserve against substantially all of the escrowed amount and cannot estimate the amount of loss. Additionally, outside counsel for the Company has advised that they cannot offer an opinion as to the probable outcome at this stage in the proceedings. For, among others, the reasons stated above the Company intends to contest vigorously any claim CPI may make for payment based on the BDO Report.

 

From time to time, the Company also may be engaged in various lawsuits and legal proceedings in the ordinary course of the Company's business. The Company is currently not aware of any legal proceedings the ultimate outcome of which, in its judgment based on information currently available, would have a material adverse effect on its business, financial condition or operating results. The Company, however, has had claims brought against it by a number of vendors due to their liquidity constraints.  There are no proceedings in which any of its directors, officers or affiliates, or any registered or beneficial stockholder of the Company's common stock, is an adverse party or has a material interest adverse to the Company's interest.