Document and Entity Information
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Document and Entity Information
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9 Months Ended | |
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Sep. 30, 2017
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Nov. 10, 2017
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| Document and Entity Information [Abstract] | ||
| Entity Registrant Name | MICRON SOLUTIONS INC /DE/ | |
| Entity Central Index Key | 0000819689 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2017 | |
| Document Fiscal Year Focus | 2017 | |
| Document Fiscal Period Focus | Q3 | |
| Amendment Flag | false | |
| Entity Common Stock, Shares Outstanding | 2,833,153 | |
| Trading Symbol | micr |
Condensed Consolidated Balance Sheets
Condensed Consolidated Balance Sheets (Parenthetical)
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flows
Basis of Presentation
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Basis of Presentation
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9 Months Ended |
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Sep. 30, 2017
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| Basis of Presentation [Abstract] | |
| Basis of Presentation | The consolidated financial statements (the "financial statements") include the accounts of Micron Solutions, Inc.® (“Micron Solutions”) and its subsidiary, Micron Products, Inc.® ("Micron" and together with Micron Solutions, the “Company”). All intercompany balances and transactions have been eliminated in consolidation. The unaudited interim condensed consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted pursuant to such rules and regulations. These financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 22, 2017. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The Company's balance sheet at December 31, 2016 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by GAAP for complete financial statements. The information presented reflects, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of the financial results for the interim periods presented. The preparation of financial statements in conformity with 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 period. Actual results could differ from those estimates. Recent Accounting Pronouncements In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”), Securities and Exchange Commission (“SEC”), Emerging Issues Task Force (“EITF”), or other authoritative accounting bodies to determine the potential impact they may have on the Company’s Consolidated Financial Statements. Based upon this review, except as noted below, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s consolidated financial statements. ASU No. 2016-02, “Leases (Topic 842)” In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. The standard retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. As of the date of this report, the Company is the lessee of office equipment in a single operating lease and is the lessee of a parking lot as well as storage units. The Company is not a lessor in any arrangements. The Company is evaluating other supplier relationships to determine if such arrangements constitute a lease per this guidance. The Company expects to complete its evaluation prior to the end of 2017 and will evaluate the impact of adoption at that time. The Company does not expect any material impact on reporting or on the results of operations. ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”) In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The core principle behind ASU No. 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies the performance obligations. This ASU allows two methods of adoption; a full retrospective approach where historical financial information is presented in accordance with the new standard, and a modified retrospective approach where this ASU is applied to the most current period presented in the financial statements. In August 2015, the FASB issued ASU No. 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016. As of the date of this report the Company has established a multi-disciplinary team including members of executive management, accounting, sales, operations and IT which is began implementation of a transition plan to the new guidance in the third quarter. The team will evaluate all supply and manufacturing agreements with customers as well as the nature of other arrangements and relationships between the Company and all other customers (“arrangements”), to determine if a contract, as defined by the guidance, exists. The Company has compiled a preliminary list of agreements and is evaluating them to determine if there is any potential impact to the accounting for the agreements under this guidance. After evaluating the arrangements, the Company will determine the appropriate treatment for revenue recognition per the guidance compared to the Company’s present revenue recognition policy as outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 22, 2017. To date, the Company does not expect any material adverse financial impact from the adoption of this standard. Operating matters and liquidity Due to a non-compliance with the debt service coverage ratio covenant at June 30, 2017, the Company and the bank entered into a forbearance agreement on September 29, 2017. Under the agreement the bank agreed to forbear from collections on all outstanding debt prior to March 31, 2018, provided no further events of default occur, and agreed to extend the revolver to March 31, 2018 subject to certain modifications of the agreement. Should a further event of default occur, the bank has the right to demand payments of all notes. Pursuant to the agreement, the interest rate under the revolver increased from the Prime Rate plus 0.25%, to the Prime Rate plus 1.00%, an increase of 75 basis points. The Company also agreed to provide monthly financial reporting and daily cash sweeps and to a modification of the equipment line of credit (the “equipment line”) to immediately terminate the availability of further advances under the equipment line rather than expiration thereof in November 2017 at which time the equipment line will convert into a five-year term note. In addition, the bank agreed to modify the debt service coverage ratio calculation for the September 30, 2017 measurement date. The Company is in compliance with this revised third quarter 2017 covenant calculation. Additionally, under the agreement, and in accordance with its rights under subordination agreements between the bank and the Company’s subordinated note holders, the quarterly interest payments to the note holders have been deferred due to previous non-compliance with the debt service coverage ratio covenant until such time as the bank otherwise permits resumption thereof. The Company is working with its bank under the extended credit facility while exploring alternative financing arrangements. The Company believes that cash flows from its operations, together with its existing working capital, increased booked orders and other resources, and the expected securing of a new facility will be sufficient to enable the Company to fund operations at current levels and repay debt obligations over the next twelve months; however, there can be no assurance that the Company will be able to do so.
Assessment of going concern The Company follows accounting standard ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The accounting standard requires management to evaluate whether there are conditions that give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year from the date of issuance of these financial statements. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date. Management evaluations include identifying relevant conditions and events that were known and reasonably knowable as of the date these financial statements have been issued. At December 31, 2016, the Company identified certain conditions and events which in the aggregate required management to perform an assessment of the Company’s ability to continue as a going concern. These conditions included the Company’s ability to renew the credit facility which was maturing in June 2017, negative financial history and the Company’s limited liquidity to meet the working capital needs to support the Company’s operations. While the Company was successful in extending the credit facility to March 31, 2018, similar conditions existed as of September 30, 2017. As of the June 30, 2017 testing date, the Company was in compliance with the terms of the credit facility except with respect to the debt service coverage ratio covenant. As a result of the non-compliance, the Company and the bank entered into a forbearance agreement on September 29, 2017. Under the agreement the bank agreed to forbear from collections on all outstanding debt prior to March 31, 2018 and agreed to extend the revolver to March 31, 2018, subject to certain modifications to the agreement. These modifications include an increase in interest rates, daily cash sweeps, terminating the availability of further advances under the equipment line and modification of the debt service ratio covenant calculation for the September 30, 2017 measurement date. The Company is in compliance with this revised third quarter 2017 covenant calculation. Management’s assessment included an analysis of the Company’s year to date 2017 results and financial forecasts looking forward twelve months from the date of these financial statements. Management’s assessment also considered the Company’s history of meeting financial covenants and being able to renew and refinance its debt obligations. During the first two quarters of 2017, the Company made strategic decisions to take on new large orders, at aggressive initial pricing, in order to land follow-on orders with lower material costs. During this period the Company incurred extraordinary costs related to the starting up of these new customers, including increased scrap, tooling, labor, rework, expediting charges from suppliers, shift premiums and overtime, in order to meet customer delivery requirements. The Company landed the follow-on orders with the lower material costs and mitigated the startup costs of these new products. The forecasts for the second half of 2017 and 2018 reflect the actual and expected results of cost savings measures and productivity improvements implemented, beginning at the end of the second quarter of 2017. These include more efficient use of labor by reducing overtime and modifying production schedules, process improvements, improved material yields, and decreased overhead expenses in part by compensation reductions for all salaried personnel including executive officers. In July 2017, the Company engaged a manufacturing consultancy firm with a focus on plastics, medical devices, contract manufacturing and outsourcing to analyze and benchmark the Company’s operations, suggest business development strategies and improve operating performance. Additionally, in August 2017, the Company engaged an investment banking firm to evaluate the overall strategic direction of the Company. The implementation of the cost savings measures and improvements yielded results in the third quarter of 2017. Despite a $482,638 decrease in net sales, gross profit increased $310,408, or 7.0% when compared to the second quarter of 2017. Further savings in operating expenses also contributed to the improvement in net loss from operations of $434,005 in the second quarter 2017 to a net loss from operations of $42,322, excluding non-recurring charges of $77,606 related to outside efficiency related consulting fees in the third quarter of 2017. The Company anticipates continued margin improvement and operating results through the fourth quarter and into 2018. Management continues to work with its bank under the credit facility, which was extended to March 31, 2018, to further extend the credit facility while also exploring alternative financing arrangements. Based upon the continued results of cost savings measures and improvements as noted above, cash forecasts, the expected fulfillment of booked orders from existing customers and new customer prospects, and the expected securing of a new credit facility, the Company expects to meet its debt obligations for the next twelve months, however there can be no assurance that the Company will be able to do so. The financial statements do not include any adjustment that might result from the outcome of such uncertainties.
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Earnings Per Share (_EPS_)
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Earnings Per Share ("EPS")
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9 Months Ended |
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Sep. 30, 2017
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| Earnings Per Share ("EPS") [Abstract] | |
| Earnings Per Share ("EPS") | 2. Earnings per Share ("EPS") Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding. The computation of diluted earnings (loss) per share is similar to the computation of basic earnings (loss) per share except that the denominator is increased to include the average number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In addition, the numerator is adjusted for any changes in net income (loss) that would result from the assumed conversions of those potential shares. For the three months ended September 30, 2017 and 2016, basic and diluted earnings per share was a loss of $0.06 per share and a loss of $0.02 per share, respectively. For the nine months ended September 30, 2017 and 2016, basic and diluted earnings per share was a loss of $0.35 per share and a loss of $0.14 per share, respectively.
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Inventories
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Inventories
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Sep. 30, 2017
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| Inventories [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 3. Inventories Inventories consist of the following:
Silver included in raw materials, work-in-process and finished goods inventory had an estimated cost of $506,991 and $521,745 as of September 30, 2017 and December 31, 2016, respectively.
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Property, Plant and Equipment, net
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Property, Plant and Equipment, net
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Sep. 30, 2017
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| Property, Plant and Equipment, net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment, net | 4. Property, Plant and Equipment, net Property, plant and equipment, net consist of the following:
For the three months ended September 30, 2017 and 2016, the Company recorded depreciation expense of $405,402 and $406,122, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded depreciation expense of $1,207,283 and $1,150,683, respectively.
In January 2016, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with a Buyer (collectively the “Parties”) to sell two unoccupied buildings, with approximately 52,000 square feet, and land, at its Fitchburg, Massachusetts campus. In December 2016, the Parties entered into a First Amendment to the Agreement (the “First Amendment”) which extended the time to close to January 13, 2018. As part of the consideration for extending the Agreement the Buyer agreed to pay certain extension fees.
In January 2017, the Parties entered into a Second Amendment to the Agreement (the “Second Amendment”) to further extend the time to close to July 2018. The Second Amendment permits the Buyer to assign the Agreement to a third party and extends the extension fees through July 2018 or the culmination of the Agreement. On July 13, 2017, the Parties entered into a Third Amendment to the Agreement (the “Third Amendment”) to further extend the time to close to June 2019. The Third Amendment permitted the Buyer to contract with outside parties to conduct certain due diligence activities on the property up until August 13, 2017. Additionally, the Third Amendment further extended the extension fees through June 2019, or the culmination of the Agreement, and allows for the Buyer to defer the last six months of extension fees to be settled at closing. On September 28, 2017, the Parties entered into a Fourth Amendment to the Agreement (the “Fourth Amendment”) to extend the time allowed to the Buyer to complete due diligence activities on the property from August 13, 2017 until October 13, 2017. At September 30, 2017 and December 31, 2016, the real estate under agreement was classified as Assets Held for Sale valued at $688,750. The carrying value approximated the fair value less the cost to sell.
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Intangible Assets, net
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Intangible Assets, net
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Sep. 30, 2017
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| Intangibles Assets, net | 5. Intangible Assets, net The Company assesses the impairment of long-lived assets and intangible assets with finite lives annually or whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. For the three and nine months ended September 30, 2017 and 2016, the Company did not impair any intangible assets. Intangible assets consist of the following:
For the three months ended September 30, 2017 and 2016, the Company recorded amortization expense of $602 and $439, respectively. For the nine months ended September 30, 2017 and 2016, the Company recorded amortization expense of $1,588 and $1,318, respectively.
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Debt
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Debt
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Sep. 30, 2017
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| Debt | 6. Debt The following table sets forth the items which comprise debt for the Company:
Bank Debt The Company has a multi-year credit facility with a Massachusetts based bank. This credit facility consists of a revolving line of credit (the "revolver"), a commercial term loan and an equipment line of credit (“equipment line”). The debt is secured by substantially all assets of the Company with the exception of real property. Due to a non-compliance with the debt service coverage ratio covenant at June 30, 2017, the Company and the bank entered into a forbearance agreement on September 29, 2017. Under the agreement the bank agreed to forbear from collections on all outstanding debt prior to March 31, 2018, provided no further events of default occur, and agreed to extend the revolver to March 31, 2018 subject to certain modifications of the agreement. Should a further event of default occur, the bank has the right to demand payments of all notes. Pursuant to the agreement, the interest rate under the revolver increased from the Prime Rate plus 0.25%, to the Prime Rate plus 1.00%, an increase of 75 basis points. The Company also agreed to provide monthly financial reporting and daily cash sweeps and to a modification of the equipment line to immediately terminate the availability of further advances under the equipment line rather than expiration thereof in November 2017 at which time the equipment line will convert into a five-year term note. In addition, the bank agreed to modify the debt service coverage ratio calculation for the September 30, 2017 measurement date. The Company is in compliance with this revised third quarter covenant calculation. As a result of having entered into the agreement, all of the Company’s bank debt has been classified as current liabilities as of September 30, 2017. Revolver The revolver provides for borrowings up to 80% of eligible accounts receivable and 50% of eligible raw materials inventory. The interest rate on the revolver is calculated at the bank's prime rate plus 1.00% (5.25% at September 30, 2017). Amounts available to borrow under the revolver are $95,767 at September 30, 2017. Commercial term loan In November 2016, the Company refinanced its bank term debt, including the commercial term loan and three equipment term loans, along with $500,000 from the revolver, into a new $2,481,943 consolidated five year commercial term loan with a maturity date in November 2021. The interest rate on the loan is a fixed 4.65% per annum and the loan requires monthly payments of principal and interest of approximately $46,500. Equipment line of credit In November 2016, the Company entered into the equipment line that allows for advances of up to $1.0 million under the Company's multi-year credit facility. The term of this equipment line is six years, maturing in November 2022, inclusive of a maximum one-year draw period. Repayment shall consist of monthly interest only payments, equal to the bank's prime rate plus 0.25% as to each advance commencing on the date of the loan through the earlier of: (i) one year from the date of the loan or (ii) the date upon which the equipment line is fully advanced (the “Conversion Date”). On the Conversion Date, principal and interest payments will be due and payable monthly in an amount sufficient to pay the loan in full based upon an amortization schedule commensurate with the remaining term of the loan. Pursuant to the Company’s September 29, 2017 agreement with the bank, the bank terminated the availability of further advances under the equipment line rather than the expiration thereof in November 2017 at which time the equipment line will convert into a five-year term note. At September 30, 2017, $504,781 has been drawn on the equipment line. At December 31, 2016, $102,500 had been drawn on the equipment line. Debt issuance costs The amount of the commercial term loan presented in the table above is net of debt issuance costs of $29,374 and $45,858 at September 30, 2017 and December 31, 2016, respectively. Bank covenants The credit facility contains both financial and non-financial covenants. The financial covenants include maintaining certain debt service coverage and leverage ratios. The non-financial covenants relate to various matters including notice prior to executing further borrowings and security interests, mergers or consolidations, acquisitions, guarantees, sales of assets other than in the normal course of business, leasing, changes in ownership and payment of dividends. As of the June 30, 2017 testing date, the Company was in compliance with the terms of the credit facility except with respect to the debt service coverage ratio covenant. As a result of the non-compliance, the Company entered into the September 29, 2017 agreement with the bank whereby, among other things, the bank agreed to forbear collections of all outstanding debt prior to March 31, 2018. In addition, the bank agreed to modify the debt service coverage ratio calculation for the September 30, 2017 measurement date. The Company is in compliance with this revised third quarter covenant calculation. Other Debt Equipment notes In January 2013, the Company entered into two equipment notes totaling $272,500 with a financing company to acquire production equipment. The notes bear interest at the fixed rate of 4.66% and require monthly payments of principal and interest of approximately $5,000 over a five year term maturing in January 2018. Subordinated promissory notes In December 2013, the Company completed a private offering in which the Company sold an aggregate of $500,000 in subordinated promissory notes. The unsecured notes required quarterly interest-only payments at a rate of 10% per annum for the first two years. In December 2015, the interest rate increased to 12% per annum. Three related parties participated in the private offering as follows: REF Securities, LLP, and with Mr. Rodd E. Friedman, a director of the Company since July 21, 2017, a beneficial owner of approximately 13% of the Company’s common stock, invested $100,000 in the offering; the Chambers Medical Foundation (the “Foundation”), beneficial owner of approximately 10% of the Company’s common stock, invested $100,000 in the offering; and Mr. E.P. Marinos, a director, invested $50,000 in the offering. The Company’s Chairman of the Board is a co-trustee of the Foundation but has held no dispositive powers since his appointment as such.
In October 2016, the Company and six of the seven investors in the private offering, aggregating $450,000 of the notes, including the three related parties holding $250,000 of the notes, agreed to extend the maturity dates of the notes to December 31, 2018 at a rate of 10% per annum. One investor did not extend the maturity date and that $50,000 note was paid at maturity in December 2016. The notes are subordinated to all indebtedness of the Company pursuant to its multi-year bank credit facility. Pursuant to the subordination agreements entered into among the bank, each of the note holders, and the Company upon issuance of the subordinated notes, quarterly interest payments to the note holders have been deferred due to the non-compliance with the debt service coverage ratio covenant until such time as the bank otherwise permits resumption thereof. In connection with the subordinated promissory notes, the Company issued 100,000 warrants to purchase the Company's common stock, including 20,000 warrants to REF Securities, LLP, 20,000 warrants to the Foundation and 10,000 warrants to Mr. Marinos. The warrants were exercisable through December 2016 at an exercise price of $3.51 per share. In 2014, 30,000 warrants were exercised, including 20,000 by the Foundation. In October 2016, in connection with the extension of the maturity dates of the subordinated promissory notes, the expiration date of the remaining 70,000 warrants was extended to December 31, 2018. The exercise price remained unchanged at $3.51 per share. The 70,000 warrants remain unexercised at September 30, 2017. In the fourth quarter of 2016, the Company calculated the incremental fair value of extending the expiration date of the Notes and Warrants and determined that the amendment represented a debt modification in accordance with the guidance outlined in ASC-470, “Debt”. Using the Black-Scholes model, and the 10% test, the Company determined that the incremental fair value of the warrants to be $18,310 which was recorded as a reduction against the Notes and an increase in Additional Paid-in Capital. The discount on the notes is being recognized as non-cash interest expense over the term of the notes. The Company recorded $2,218 and $6,727 for the three months ended September 30, 2017 and 2016, and $6,921 and $20,763 for the nine months ended September 30, 2017 and 2016, respectively. The unamortized discount which is net against the outstanding balance of the subordinated promissory notes is $11,261 at September 30, 2017 and $17,989 at December 31, 2016.
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Income Taxes
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Income Taxes
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9 Months Ended |
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Sep. 30, 2017
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| Income Taxes [Abstract] | |
| Income Taxes | 7. Income Taxes No provision for income taxes has been recorded in the three or nine months ended September 30, 2017 or 2016, respectively. The Company has a full valuation allowance against its deferred tax assets as of September 30, 2017 and December 31, 2016. At September 30, 2017, the Company has federal and state net operating loss carryforwards totaling $9,124,000 and $8,196,000, respectively, which begin to expire in 2030. The Company also has federal and state tax credit carryovers of $303,000 and $357,000 respectively. The federal and state tax credits begin to expire in 2026 and 2027, respectively.
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Commitments and Contingencies
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Commitments and Contingencies
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9 Months Ended |
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Sep. 30, 2017
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| Commitments and Contingencies [Abstract] | |
| Commitments and Contingencies | 8. Commitments and Contingencies Legal matters In the ordinary course of its business, the Company is involved in various legal proceedings involving a variety of matters. The Company does not believe there are any pending legal proceedings that will have a material impact on the Company’s financial position or results of operations. Off-balance sheet arrangements Lease expense under all operating leases was approximately $4,615 for the three months ended September 30, 2017 and 2016, respectively, and $13,114 and $14,444 for the nine months ended September 30, 2017 and 2016, respectively.
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Shareholders' Equity
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Shareholders' Equity
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Sep. 30, 2017
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| Shareholders' Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | 9. Shareholders’ Equity Stock options and share-based incentive plan The following table sets forth the stock option transactions for the nine months ended September 30, 2017:
For the three months ended September 30, 2017 and 2016, share based compensation expense related to stock options amounted to $5,083 and $4,492, respectively. For the nine months ended September 30, 2017 and 2016, share-based compensation expense related to stock options amounted to $26,250 and $35,083, respectively. Share based compensation is included in general and administrative expenses. For the three months ended September 30, 2017, no options were granted or exercised, 3,000 options were forfeited and 2,000 options expired due to employee terminations. For the three months ended September 30, 2016, no options were granted, exercised, forfeited or expired. For the nine months ended September 30, 2017, no options were granted or exercised, 7,000 options were forfeited and 2,000 options expired due to employee terminations. For the nine months ended September 30, 2016, 5,000 options were granted and 15,000 options were exercised generating proceeds of $51,150. Warrants For the three months ended September 30, 2017 and 2016, there were no warrants exercised. As of September 30, 2017, 70,000 warrants remain unexercised, including 20,000 held by the Company’s largest beneficial owner, REF Securities, LLP and with Mr. Rodd E. Friedman, a director of the Company, and 10,000 held by Mr. E. P. Marinos, a director of the Company. The warrants expire in December 2018. Common Stock For the three months ended September 30, 2017, the Company issued 12,154 shares of the Company’s common stock, pursuant to the 2010 Equity Incentive Plan, with a fair value of $47,250 for director fees in lieu of cash payments. For the three months ended September 30, 2016, there were no such stock grants. For the nine months ended September 30, 2017, the Company issued 16,514 shares of the Company’s common stock, pursuant to the 2010 Equity Incentive Plan, with a fair value of $58,500 for director fees in lieu of cash payments. For the nine months ended September 30, 2016, there were no such stock grants.
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Basis of Presentation (Policies)
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Basis of Presentation (Policies)
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9 Months Ended |
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Sep. 30, 2017
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| Accounting Policies [Abstract] | |
| Recently Accounting Pronouncements | Recent Accounting Pronouncements In the normal course of business, management evaluates all new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”), Securities and Exchange Commission (“SEC”), Emerging Issues Task Force (“EITF”), or other authoritative accounting bodies to determine the potential impact they may have on the Company’s Consolidated Financial Statements. Based upon this review, except as noted below, management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s consolidated financial statements. ASU No. 2016-02, “Leases (Topic 842)” In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. The standard retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. As of the date of this report, the Company is the lessee of office equipment in a single operating lease and is the lessee of a parking lot as well as storage units. The Company is not a lessor in any arrangements. The Company is evaluating other supplier relationships to determine if such arrangements constitute a lease per this guidance. The Company expects to complete its evaluation prior to the end of 2017 and will evaluate the impact of adoption at that time. The Company does not expect any material impact on reporting or on the results of operations. ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”) In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). The core principle behind ASU No. 2014-09 is that an entity should recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for delivering goods and services. This model involves a five-step process that includes identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the entity satisfies the performance obligations. This ASU allows two methods of adoption; a full retrospective approach where historical financial information is presented in accordance with the new standard, and a modified retrospective approach where this ASU is applied to the most current period presented in the financial statements. In August 2015, the FASB issued ASU No. 2015-14 “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016. As of the date of this report the Company has established a multi-disciplinary team including members of executive management, accounting, sales, operations and IT which is began implementation of a transition plan to the new guidance in the third quarter. The team will evaluate all supply and manufacturing agreements with customers as well as the nature of other arrangements and relationships between the Company and all other customers (“arrangements”), to determine if a contract, as defined by the guidance, exists. The Company has compiled a preliminary list of agreements and is evaluating them to determine if there is any potential impact to the accounting for the agreements under this guidance. After evaluating the arrangements, the Company will determine the appropriate treatment for revenue recognition per the guidance compared to the Company’s present revenue recognition policy as outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 22, 2017. To date, the Company does not expect any material adverse financial impact from the adoption of this standard.
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| Operating Matters And Liquidity | Operating matters and liquidity Due to a non-compliance with the debt service coverage ratio covenant at June 30, 2017, the Company and the bank entered into a forbearance agreement on September 29, 2017. Under the agreement the bank agreed to forbear from collections on all outstanding debt prior to March 31, 2018, provided no further events of default occur, and agreed to extend the revolver to March 31, 2018 subject to certain modifications of the agreement. Should a further event of default occur, the bank has the right to demand payments of all notes. Pursuant to the agreement, the interest rate under the revolver increased from the Prime Rate plus 0.25%, to the Prime Rate plus 1.00%, an increase of 75 basis points. The Company also agreed to provide monthly financial reporting and daily cash sweeps and to a modification of the equipment line of credit (the “equipment line”) to immediately terminate the availability of further advances under the equipment line rather than expiration thereof in November 2017 at which time the equipment line will convert into a five-year term note. In addition, the bank agreed to modify the debt service coverage ratio calculation for the September 30, 2017 measurement date. The Company is in compliance with this revised third quarter 2017 covenant calculation. Additionally, under the agreement, and in accordance with its rights under subordination agreements between the bank and the Company’s subordinated note holders, the quarterly interest payments to the note holders have been deferred due to previous non-compliance with the debt service coverage ratio covenant until such time as the bank otherwise permits resumption thereof.
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| Assessment Of Going Concern | Assessment of going concern The Company follows accounting standard ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The accounting standard requires management to evaluate whether there are conditions that give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year from the date of issuance of these financial statements. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date. Management evaluations include identifying relevant conditions and events that were known and reasonably knowable as of the date these financial statements have been issued. At December 31, 2016, the Company identified certain conditions and events which in the aggregate required management to perform an assessment of the Company’s ability to continue as a going concern. These conditions included the Company’s ability to renew the credit facility which was maturing in June 2017, negative financial history and the Company’s limited liquidity to meet the working capital needs to support the Company’s operations. While the Company was successful in extending the credit facility to March 31, 2018, similar conditions existed as of September 30, 2017. As of the June 30, 2017 testing date, the Company was in compliance with the terms of the credit facility except with respect to the debt service coverage ratio covenant. As a result of the non-compliance, the Company and the bank entered into a forbearance agreement on September 29, 2017. Under the agreement the bank agreed to forbear from collections on all outstanding debt prior to March 31, 2018 and agreed to extend the revolver to March 31, 2018, subject to certain modifications to the agreement. These modifications include an increase in interest rates, daily cash sweeps, terminating the availability of further advances under the equipment line and modification of the debt service ratio covenant calculation for the September 30, 2017 measurement date. The Company is in compliance with this revised third quarter 2017 covenant calculation. Management’s assessment included an analysis of the Company’s year to date 2017 results and financial forecasts looking forward twelve months from the date of these financial statements. Management’s assessment also considered the Company’s history of meeting financial covenants and being able to renew and refinance its debt obligations. During the first two quarters of 2017, the Company made strategic decisions to take on new large orders, at aggressive initial pricing, in order to land follow-on orders with lower material costs. During this period the Company incurred extraordinary costs related to the starting up of these new customers, including increased scrap, tooling, labor, rework, expediting charges from suppliers, shift premiums and overtime, in order to meet customer delivery requirements. The Company landed the follow-on orders with the lower material costs and mitigated the startup costs of these new products. The forecasts for the second half of 2017 and 2018 reflect the actual and expected results of cost savings measures and productivity improvements implemented, beginning at the end of the second quarter of 2017. These include more efficient use of labor by reducing overtime and modifying production schedules, process improvements, improved material yields, and decreased overhead expenses in part by compensation reductions for all salaried personnel including executive officers. In July 2017, the Company engaged a manufacturing consultancy firm with a focus on plastics, medical devices, contract manufacturing and outsourcing to analyze and benchmark the Company’s operations, suggest business development strategies and improve operating performance. Additionally, in August 2017, the Company engaged an investment banking firm to evaluate the overall strategic direction of the Company. The implementation of the cost savings measures and improvements yielded results in the third quarter of 2017. Despite a $482,638 decrease in net sales, gross profit increased $310,408, or 7.0% when compared to the second quarter of 2017. Further savings in operating expenses also contributed to the improvement in net loss from operations of $434,005 in the second quarter 2017 to a net loss from operations of $42,322, excluding non-recurring charges of $77,606 related to outside efficiency related consulting fees in the third quarter of 2017. The Company anticipates continued margin improvement and operating results through the fourth quarter and into 2018. Management continues to work with its bank under the credit facility, which was extended to March 31, 2018, to further extend the credit facility while also exploring alternative financing arrangements. Based upon the continued results of cost savings measures and improvements as noted above, cash forecasts, the expected fulfillment of booked orders from existing customers and new customer prospects, and the expected securing of a new credit facility, the Company expects to meet its debt obligations for the next twelve months, however there can be no assurance that the Company will be able to do so. The financial statements do not include any adjustment that might result from the outcome of such uncertainties.
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Inventories (Tables)
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Inventories (Tables)
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Sep. 30, 2017
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Property, Plant and Equipment, net (Tables)
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Property, Plant and Equipment, net (Tables)
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Sep. 30, 2017
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Intangible Assets, net (Tables)
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Intangible Assets, net (Tables)
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Sep. 30, 2017
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Debt (Tables)
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Debt (Tables)
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Sep. 30, 2017
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| Summary of Debt |
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Shareholders' Equity (Tables)
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Shareholders' Equity (Tables)
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Sep. 30, 2017
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| Stock Option Transactions |
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Basis of Presentation (Details)
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Basis of Presentation (Details) (USD $)
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3 Months Ended | 9 Months Ended | 0 Months Ended | ||
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Sep. 30, 2017
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Jun. 30, 2017
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Sep. 30, 2017
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Sep. 29, 2017
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Sep. 28, 2017
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| Line of Credit Facility [Line Items] | |||||
| (Decrease) in net sales | $ (482,638) | ||||
| Increase in gross profit | 310,408 | ||||
| Percent of gross profit increase | 7.00% | ||||
| Net loss from operations, excluding non-recurring charge | 42,322 | 434,005 | |||
| Non-recurring charges | $ 77,606 | ||||
| Revolving Credit Facility [Member] | |||||
| Line of Credit Facility [Line Items] | |||||
| Line of credit, maturity date | Mar. 31, 2018 | ||||
| Revolving Credit Facility [Member] | Prime Rate [Member] | |||||
| Line of Credit Facility [Line Items] | |||||
| Basis spread on variable rate | 1.00% | 0.25% | |||
| Basis spread on variable rate increase | 0.75% | ||||
| Equipment Term Loan 2017 [Member] | |||||
| Line of Credit Facility [Line Items] | |||||
| Debt instrument, term | 5 years | ||||
Earnings Per Share (_EPS_) (Details)
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Earnings Per Share ("EPS") (Details) (USD $)
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3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
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Sep. 30, 2017
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Sep. 30, 2016
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Sep. 30, 2017
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Sep. 30, 2016
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| Earnings Per Share ("EPS") [Abstract] | ||||
| Earnings (loss) per share - basic and diluted | $ (0.06) | $ (0.02) | $ (0.35) | $ (0.14) |
Inventories (Details)
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Inventories (Details) (USD $)
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Sep. 30, 2017
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Dec. 31, 2016
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| Inventories [Abstract] | ||
| Raw materials | $ 1,060,790 | $ 1,027,474 |
| Work-in-process | 672,843 | 537,858 |
| Finished goods | 1,480,524 | 1,494,753 |
| Total | 3,214,157 | 3,060,085 |
| Silver inventory | $ 506,991 | $ 521,745 |
Property, Plant and Equipment, net (Narrative) (Details)
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Property, Plant and Equipment, net (Narrative) (Details) (USD $)
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1 Months Ended | 3 Months Ended | 9 Months Ended | |||
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Jan. 31, 2016
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sqft
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Sep. 30, 2017
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Sep. 30, 2016
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Sep. 30, 2017
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Sep. 30, 2016
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Dec. 31, 2016
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| Property, Plant and Equipment, net [Abstract] | ||||||
| Depreciation expense | $ 405,402 | $ 406,122 | $ 1,207,283 | $ 1,150,683 | ||
| Number of unoccupied buildings with letter of intent to sale | 2 | |||||
| Area of building | 52,000 | |||||
| Assets held for sale, net | $ 688,750 | $ 688,750 | $ 688,750 | |||
Property, Plant and Equipment, net (Property, Plant and Equipment, net) (Details)
Intangible Assets, net (Narrative) (Details)
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Intangible Assets, net (Narrative) (Details) (USD $)
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3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
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Sep. 30, 2017
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Sep. 30, 2016
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Sep. 30, 2017
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Sep. 30, 2016
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| Intangible Assets, net [Abstract] | ||||
| Intangible asset impairment | $ 0 | $ 0 | $ 0 | $ 0 |
| Amortization expense | $ 602 | $ 439 | $ 1,588 | $ 1,318 |
Intangible Assets, net (Intangible Assets) (Details)
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Intangible Assets, net (Intangible Assets) (Details) (USD $)
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9 Months Ended | |
|---|---|---|
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Sep. 30, 2017
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Dec. 31, 2016
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| Intangible Assets [Line Items] | ||
| Gross | $ 69,139 | $ 39,831 |
| Accumulated Amortization | 11,327 | 9,738 |
| Net | 57,812 | 30,093 |
| Patents and Trademarks [Member] | ||
| Intangible Assets [Line Items] | ||
| Estimated Useful Life (in years) | 10 years | |
| Gross | 26,290 | 26,290 |
| Accumulated Amortization | 11,057 | 9,738 |
| Net | 15,233 | 16,552 |
| Patents and Trademarks Pending | ||
| Intangible Assets [Line Items] | ||
| Gross | 39,581 | 13,541 |
| Net | 39,581 | 13,541 |
| Trade Names [Member] | ||
| Intangible Assets [Line Items] | ||
| Gross | 3,268 | |
| Accumulated Amortization | 270 | |
| Net | $ 2,998 |
Debt (Bank Debt Narrative) (Details)
Debt (Other Debt Narrative) (Details)
Debt (Summary of Debt) (Details)
Income Taxes (Details)
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Income Taxes (Details) (USD $)
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3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
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Sep. 30, 2017
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Sep. 30, 2016
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Sep. 30, 2017
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Sep. 30, 2016
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| Operating Loss Carryforwards [Line Items] | ||||
| Income tax provision (benefit) | ||||
| Federal Tax Authority [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Tax credit carryforwards | 303,000 | 303,000 | ||
| State Jurisdiction [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Tax credit carryforwards | 357,000 | 357,000 | ||
| Federal Tax Authority [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Net operating loss carryforwards | 9,124,000 | 9,124,000 | ||
| State Jurisdiction [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Net operating loss carryforwards | $ 8,196,000 | $ 8,196,000 | ||
Commitments and Contingencies (Details)
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Commitments and Contingencies (Details) (USD $)
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3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
|
Sep. 30, 2017
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Sep. 30, 2016
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Sep. 30, 2017
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Sep. 30, 2016
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| Commitments and Contingencies [Abstract] | ||||
| Operating lease expense, office equipment | $ 4,615 | $ 4,615 | $ 13,114 | $ 14,444 |
Shareholders' Equity (Narrative) (Details)
Shareholders' Equity (Stock Option Transactions) (Details)