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Summary of Significant Accounting Policies (Policies)
 9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Principal Business Activity

Principal Business Activity

 

The Company, through its AIM subsidiary, is primarily engaged in manufacturing aircraft structural parts and assemblies for prime defense contractors in the aerospace industry in the United States. NTW is a manufacturer of aerospace components, principally landing gear for F-16 and F-18 fighter aircraft. Sterling manufactures components and provides services for jet engines and ground-power turbines. The Company's customers consist mainly of publicly traded companies in the aerospace industry.
Inventory Valuation

Inventory Valuation

 

For annual periods, the Company values inventory at the lower of cost on a first-in-first-out basis or estimated net realizable value. The Company does not take physical inventories at interim quarterly reporting periods. As such, substantially all of the inventory value at September 30, 2019 has been estimated using a gross profit percentage based on historical gross profit percentages of previous periods as applied to the net sales of the current period, as management believes that the gross profit percentage on these items are materially consistent from period to period. The remainder of the inventory value at September 30, 2019 is estimated based on the Company's standard cost perpetual inventory system, as management believes the perpetual system computed value for these items provides a better estimate of value for that inventory. Adjustments to reconcile the annual physical inventory to the Company's books are treated as changes in accounting estimates and are recorded in the fourth quarter.

 

Inventories consist of the following at:

 

   September 30,   December 31, 
   2019   2018 
   (Unaudited)     
Raw Materials  $4,369,000   $4,622,000 
Work In Progress   20,298,000    17,530,000 
Finished Goods   9,966,000    10,915,000 
Inventory Reserve   (4,281,000)   (4,016,000)
Total Inventory  $30,352,000   $29,051,000 
Credit and Concentration Risks

Credit and Concentration Risks

 

There were two customers that represented 61.7% and three customers that represented 69.3% of total net sales for the three months ended September 30, 2019 and 2018, respectively. This is set forth in the table below.

 

Customer  Percentage of Sales 
   September 30,
2019		   September  30,
2018		 
   (Unaudited)   (Unaudited) 
1   35.0    27.1 
2   26.7    28.5 
3   *    13.7 

 

* Customer was less than 10% of sales for the three months ended September 30, 2019.

 

There were three customers that represented 73.4% and 72.3% of total sales for the nine months ended September 30, 2019 and 2018, respectively. This is set forth in the table below.

 

Customer  Percentage of Sales 
   September 30,
2019		   September 30,
2018		 
   (Unaudited)   (Unaudited) 
1   31.1    27.5 
2   31.0    33.3 
3   11.3    11.5 

 

There were three customers that represented 54.6% and two customers that represented 64.9% of gross accounts receivable at September 30, 2019 and December 31, 2018, respectively. This is set forth in the table below.

 

Customer   Percentage of Receivables  
    September 30,
2019		     December 31,
2018		  
    (Unaudited)        
1     24.0       38.5  
2     19.5       26.4  
3     11.1       *  

 

* Customer was less than 10% of gross receivables at December 31, 2018.

 

During the year, the Company had occasionally maintained balances in its bank accounts that were in excess of the FDIC limit. The Company has not experienced any losses on these accounts.

 

The Company has several key sole-source suppliers of various parts that are important for one or more of its products. These suppliers are its only source for such parts and, therefore, in the event any of them were to go out of business or be unable or unwilling to provide parts for any reason, its business could be severely harmed.
Earnings per share

Earnings per share

 

Basic earnings per share is computed by dividing the net income applicable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Potentially dilutive shares, using the treasury stock method, are included in the diluted per-share calculations for all periods when the effect of their inclusion is dilutive.

 

The following is a reconciliation of the denominators of basic and diluted earnings per share computations:

 

   Three Months Ended   Nine Months Ended 
   September 30,
2019		   September 30,
2018		   September 30,
2019		   September 30,
2018		 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Weighted average shares outstanding used to compute basic earnings per share   28,909,072    26,768,914    28,774,041    26,295,703 
Effect of dilutive stock options and warrants   131,458    —    —    — 
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share   29,040,530    26,768,914    28,774,041    26,295,703 

 

The following securities have been excluded from the calculation as the exercise price was greater than the average market price of the common shares:

 

   Three and Nine Months Ended 
   September 30,
2019		   September 30,
2018		 
   (Unaudited)   (Unaudited) 
Stock Options   852,000    215,000 
Warrants   2,183,000    1,480,000 
    3,035,000    1,695,000 

 

The following securities have been excluded from the calculation even though the exercise price was less than the average market price of the common shares during the periods set forth below because the effect of including these potential shares was anti-dilutive due to the net loss incurred during these periods:

 

   Nine Months Ended   Three and Nine Months Ended 
   September 30,
2019		   September 30,
2018		 
   (Unaudited)   (Unaudited) 
Stock Options   500,000    695,000 
Warrants   —    480,000 
    500,000    1,175,000
Stock-Based Compensation

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with FASB ASC 718, "Compensation – Stock Compensation." Under the fair value recognition provision of the ASC, stock-based compensation cost is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options and warrants granted using the Black-Scholes-Merton option pricing model. Stock based compensation expense for employees and directors amounted to $25,000 and $83,000 for the three months ended September 30, 2019 and 2018, respectively, and $351,000 and $308,000 for the nine months ended September 30, 2019 and 2018, respectively, and was included in operating expenses on the accompanying Condensed Consolidated Statements of Operations.
Goodwill

Goodwill

 

Goodwill represents the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. The goodwill amount of $163,000 at September 30, 2019 and December 31, 2018 relates to the acquisition of NTW.

 

Goodwill is not amortized, but is tested at least annually for impairment, or if circumstances occur that more likely than not reduce the fair value of the reporting unit below its carrying amount.

 

The Company has determined that there has been no impairment of goodwill at September 30, 2019.
Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

 

In October 2018, the FASB issued ASU No. 2018-17, "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities" ("ASU 2018-17"). This ASU reduces the cost and complexity of financial reporting associated with consolidation of variable interest entities (VIEs). A VIE is an organization in which consolidation is not based on a majority of voting rights. The new guidance supersedes the private company alternative for common control leasing arrangements issued in 2014 and expands it to all qualifying common control arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-17 is not expected to have material impact on the Company's condensed consolidated financial statements.

 

The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying condensed consolidated financial statements.