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Document and Entity Information - shares	9 Months Ended
Sep. 30, 2017	Nov. 13, 2017
Document And Entity Information
Entity Registrant Name	AIR INDUSTRIES GROUP
Entity Central Index Key	0001009891
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		23,282,831
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2017

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Current Assets
Cash and Cash Equivalents	$ 408,000	$ 1,304,000
Accounts receivable, net of allowance for doubtful accounts of $671,000 and $756,000, respectively	10,039,000	8,050,000
Inventory	39,242,000	39,851,000
Prepaid Expenses and Other Current Assets	550,000	557,000
Prepaid Taxes	21,000	409,000
Assets Held for Sale, Net	0	6,050,000
Total Current Assets	50,260,000	56,221,000
Property and Equipment, net	10,773,000	12,219,000
Capitalized engineering costs - net of accumulated amortization of $5,236,000 and $4,957,000, respectively	2,073,000	1,627,000
Deferred Financing Costs, Net, Deposits	2,152,000	1,096,000
Intangible Assets, net	1,124,000	1,754,000
Goodwill	9,883,000	9,883,000
TOTAL ASSETS	76,265,000	82,800,000
Current Liabilities
Notes Payable and Capitalized Lease Obligations - Current Portion	23,190,000	32,913,000
Notes Payable - Related Party - Current Portion	500,000	1,086,000
Accounts Payable and Accrued Expenses	12,212,000	16,160,000
Deferred Gain on Sale - Current Portion	38,000	38,000
Deferred Revenue	1,226,000	946,000
Liabilities Directly Associated with Assets Held for Sale	0	2,155,000
Income Taxes Payable	20,000	20,000
Total Current Liabilities	37,186,000	53,318,000
Long Term Liabilities
Notes Payable and Capitalized Lease Obligations - Net of Current Portion	5,270,000	2,971,000
Notes payable - related party - net of current portion	1,763,000	0
Deferred Gain on Sale - Net of Current Portion	304,000	333,000
Deferred Rent	1,316,000	1,288,000
TOTAL LIABILITIES	45,839,000	57,910,000
Commitments and Contingencies
Stockholders' Equity
Preferred stock - par value $.001 - authorized 3,000,000 shares: Shares designated as Series A convertible preferred stock, par value $.001, authorized 2,000,000 shares, 1,294,441 shares and 1,202,548 shares issued and outstanding at September 30 , 2017 and December 31, 2016, respectively, aggregate liquidation preference $12,944,410 and $12,025,480, respectively	1,000	1,000
Common stock - par value $. 001 - authorized 25,000,000 shares, 14,252,820 and 7,650,165 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	14,000	7,000
Additional Paid-In Capital	67,397,000	55,862,000
Accumulated Deficit	(36,986,000)	(30,980,000)
TOTAL STOCKHOLDERS' EQUITY	30,426,000	24,890,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 76,265,000	$ 82,800,000

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
ASSETS
Allowance for Doubtful Accounts	$ 671,000	$ 756,000
Accumulated Amortization	$ 5,236,000	$ 4,957,000
Stockholders Equity
Preferred Stock par value	$ 0.001	$ 0.001
Preferred Stock Authorized	3,000,000	3,000,000
Preferred Stock, Issued	1,294,441	1,202,548
Preferred Stock, Outstanding	1,294,441	1,202,548
Preferred Stock, Liquidation Preference	$ 12,944,410	$ 12,025,480
Common Stock par value	$ 0.001	$ 0.001
Common Stock Authorized	25,000,000	25,000,000
Common Stock Issued	14,252,820	7,650,165
Common Stock Outstanding	14,252,820	7,650,165
Series A Convertible Preferred Stock
Stockholders Equity
Preferred Stock par value	$ 0.001	$ 0.001
Preferred Stock Authorized	2,000,000	2,000,000

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Statement [Abstract]
Net Sales	$ 17,278,000	$ 15,710,000	$ 50,515,000	$ 50,257,000
Cost of Sales	15,121,000	13,713,000	42,737,000	41,284,000
Gross Profit	2,157,000	1,997,000	7,778,000	8,973,000
Operating Expenses	3,038,000	4,302,000	10,376,000	12,896,000
Loss from Operations	(881,000)	(2,305,000)	(2,598,000)	(3,923,000)
Interest and financing costs	(1,877,000)	(894,000)	(3,645,000)	(1,771,000)
Loss on extinguishment of debt	(150,000)	(172,000)	(150,000)	(172,000)
Gain (loss) on Sale of Subsidiary	50,000	0	338,000	0
Other Income (Expense), Net	7,000	4,000	(121,000)	35,000
Loss before Income Taxes	(2,851,000)	(3,367,000)	(6,176,000)	(5,831,000)
(Benefit) expense from income taxes	(29,000)	1,320,000	170,000	2,102,000
Net Loss	(2,880,000)	(2,047,000)	(6,006,000)	(3,729,000)
Less: Cumulative preferred stock dividends	0	(252,000)	(913,000)	(334,000)
Net Loss attributable to common stockholders	$ (2,880,000)	$ (2,299,000)	$ (6,919,000)	$ (4,063,000)
Loss per share - basic	$ (0.21)	$ (0.30)	$ (0.51)	$ (0.54)
Loss per share - diluted	$ (0.21)	$ (0.30)	$ (0.51)	$ (0.54)
Weighted average shares outstanding - basic	13,463,372	7,610,220	13,463,372	7,594,215
Weighted average shares outstanding - diluted	13,463,372	7,610,220	13,463,372	7,594,215

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$ (6,006,000)	$ (3,729,000)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation of property and equipment	2,026,000	2,808,000
Amortization of intangible assets	630,000	960,000
Amortization of capitalized engineering costs	278,000	280,000
Bad debt expense (recovery)	(10,000)	(3,000)
Non-cash compensation expense/(forfeiture of unamortized stock compensation)	9,000	126,000
Amortization of deferred financing costs	179,000	356,000
Deferred gain on sale of real estate	(29,000)	(29,000)
(Gain) loss on sale of subsidiary	(338,000)	5,000
Deferred income taxes	0	(2,145,000)
Loss on extinguishment of debt	150,000	172,000
Amortization of debt discount on convertible notes payable	1,544,000	184,000
Changes in Assets and Liabilities (Increase) Decrease in Operating Assets:
Accounts receivable	(1,979,000)	3,730,000
Inventory	609,000	(6,389,000)
Prepaid expenses and other current assets	7,000	285,000
Prepaid taxes	388,000	0
Deposits and other assets	(1,185,000)	(199,000)
Increase (Decrease) in Operating Liabilities:
Accounts payable and accrued expenses	(4,335,000)	2,356,000
Deferred rent	28,000	10,000
Deferred revenue	280,000	112,000
Income taxes payable	0	(14,000)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(7,754,000)	(1,124,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalized engineering costs	(724,000)	(644,000)
Purchase of property and equipment	(607,000)	(1,341,000)
Proceeds from sale of fixed assets	0	1,671,000
Proceeds from sale of subsidiary, net	4,260,000	0
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	2,929,000	(314,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Note payable - revolver, net	(6,316,000)	(3,782,000)
Payments of note payable - term loans	(2,808,000)	(2,814,000)
Capital lease obligations	(933,000)	(908,000)
Proceeds from notes payable issuances - related party	2,553,000	2,900,000
Proceeds from notes payable issuances	4,184,000	2,720,000
Payments of notes payable issuances	(463,000)	0
Deferred financing costs	(50,000)	(199,000)
Expense for issuance of preferred stock	0	(663,000)
Expense for issuance of convertible debt	0	(298,000)
Proceeds from the issuance of common stock	7,762,000	0
Proceeds from the issuance of preferred stock	0	5,250,000
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	3,929,000	2,206,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(896,000)	768,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	1,304,000	529,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD	408,000	1,297,000
Supplemental cash flow information
Cash paid during the period for interest	1,684,000	1,678,000
Cash paid during the period for income taxes	0	13,000
Supplemental disclosure of non-cash transactions
Common stock issued for notes payable-related party	1,754,000	0
Preferred stock issued for notes payable-related party	0	1,750,000
Preferred shares issued for PIK dividends	913,000	334,000
Acquisition of property and equipment financed by capital lease	0	2,096,000
Issuance of Convertible notes payable - related party	1,885,000	0
Placement agent warrants issued	$ 85,000	$ 26,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. Welding is a specialty welding and products provider whose significant customers include the world's largest aircraft manufacturers, subcontractors, and original equipment manufacturers. Upon the merger of Miller-Stuart into Welding, Welding became a manufacturer of aerospace components specializing in electromechanical systems, harness and cable assemblies, electronic equipment and printed circuit boards. Upon the merger of Woodbine into Welding, Welding became a manufacturer of aerospace components whose customers include major aircraft component suppliers. Decimal is a manufacturer of aerospace components specializing in welded and brazed chassis structures housing electronics in aircraft whose customers include major aircraft component suppliers. Eur-Pac specializes in military packaging and supplies. Eur-Pac’s primary business is “kitting” of supplies for all branches of the United States Defense Department including ordnance parts, hose assemblies, hydraulic, mechanical and electrical assemblies. Sterling manufactures components for aircraft and ground turbine engines. Compac specializes in the manufacture of RFI/EMI (Radio Frequency Interference – Electro-Magnetic Interference) shielded enclosures for electronic components. The Company’s customers are primarily publicly traded companies in the aerospace and other industries.

Inventory Valuation

The Company does not take physical inventories at interim quarterly reporting periods. Approximately 50% of the inventory value at September 30, 2017 has been estimated using a gross profit percentage based on sales of previous periods 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, 2017 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. The Company valued inventory at December 31, 2016 at the lower of cost on a first-in-first-out basis or market.

	September 30, 2017			December 31, 2016
	(Unaudited)
Raw Materials	$	7,388,000		$	7,031,000
Work in Process		24,981,000			25,635,000
Finished Goods		12,177,000			11,751,000
Inventory Reserve		(5,304,000	)		(4,566,000	)
Total Inventory	$	39,242,000		$	39,851,000

Credit and Concentration Risks

There were four customers that represented 67.9% and one customer that represented 14.2% of total net sales for the three months ended September 30, 2017 and 2016, respectively. This is set forth in the table below.

Customer			Percentage of Net Sales
		2017		2016
		(Unaudited)		(Unaudited)
	1		19.4		14.2
	2		21.8		*
	3		16.6		*
	4		10.1		*

* Customer was less than 10% of net sales for the three months ended September 30, 2016

There were three customers that represented 55.4% and four customers that represented 53.3% of total net sales for the nine months ended September 30, 2017 and 2016, respectively. This is set forth in the table below.

Customer			Percentage of Net Sales
		2017		2016
		(Unaudited)		(Unaudited)
	1		20.2		11.9
	2		18.1		19.8
	3		17.1		10.7
	4		*		10.9

* Customer was less than 10% of net sales for the nine months ended September 30, 2016

There were three customers that represented 60.7% of gross accounts receivable and one customer that represented 19.9% of gross accounts receivable at September 30, 2017 and December 31, 2016, respectively. This is set forth in the table below.

Customer			Percentage of Receivables
		June		December
		2017		2016
		(Unaudited)
	1		25.3		19.9
	2		23.8		*
	3		11.6		*

* Customer was less than 10% of Gross Accounts Receivable at December 31, 2016

During the nine months ended September 30, 2017 and 2016, 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 to provide parts for any reason, its business could be severely harmed.

Earnings Per Share

Basic earnings per share is computed by dividing the net income (loss) 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, 2017	September 30, 2016	September 30, 2017	September 30, 2016
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Weighted average shares outstanding used to compute basic earnings per share	13,463,372	7,610,220	13,463,372	7,594,215
Effect of dilutive stock options and warrants	—	—	—	—
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share	13,463,372	7,610,220	13,463,372	7,594,215

The following table sets forth securities which were excluded from the diluted per share calculation because the conversion price or the exercise price was greater than the average market price of the common shares:

	Three and Nine Months Ended
	September 30, 2017		September 30, 2016
	(Unaudited)		(Unaudited)
Convertible preferred stock		2,630,953		1,488,396
Stock options		516,342		443,648
Warrants		1,479,212		519,573
Unvested restricted stock		—		52,000
		4,626,507		2,503,617

The following table sets forth securities which were excluded from the diluted per share calculation for the nine months ended September 30, 2017 and 2016 even though the exercise price was less than the average market price of the common shares and unvested restricted stock because the effect of including these potential shares was anti-dilutive due to the net loss incurred during that period:

	September 30, 2017		September 30, 2016
	(Unaudited)		(Unaudited)
Convertible preferred stock		—		—
Stock options		—		202,694
Warrants		—		—
Unvested restricted stock		—		—
		—		202,694

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 amounted to $82,000 and $43,000 for the three months ended September 30, 2017 and 2016, respectively and $9,000 and $126,000 for the nine months ended September 30, 2017 and 2016, respectively, and was included in operating expenses on the accompanying Condensed Consolidated Statements of Operations.

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 $9,883,000 at September 30, 2017 and December 31, 2016 relates to the acquisitions of Welding $291,000, NTW $162,000, Woodbine $2,565,000, Eur-Pac $1,656,000, ECC $109,000, Sterling $4,540,000 and Compac $560,000. Goodwill is not amortized, but is tested 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, 2017; however, based on year-to-date performance, goodwill is at risk of impairment. During the three months ended December 2017, the Company will conduct its annual goodwill impairment testing.

Debt Issuance Costs

Effective January 1, 2016, the Company adopted FASB ASU 2015-15 “Interest-Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting”. The amendments to the SEC paragraphs in this update state that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this amended guidance did not have a significant impact on the Company's consolidated financial statements.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates all of its financial instruments, including notes payable, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated embedded derivatives are classified with the related host contract in the Company’s balance sheet.

Recently Issued Accounting Pronouncements

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes existing revenue recognition guidance, including ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts, and outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP. Among other things, it requires companies to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time. On July 9, 2015, the FASB approved a one year deferral of the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017. We intend to adopt the New Revenue Standard effective January 1, 2018.

The new guidance allows for two transition methods in application - (i) retrospective to each prior reporting period presented, or (ii) prospective with the cumulative effect of adoption recognized on January 1, 2018 (also known as the modified retrospective approach). The Company intends to adopt the standard using the modified retrospective approach, which will result in an adjustment to accumulated deficit for the cumulative effect of applying this guidance to contracts in process as of the adoption date. Under this approach, prior financial statements presented will not be restated. This guidance requires additional disclosures of the amount by which each financial statement line item affected in the current reporting period during 2019 as compared to the guidance that was in effect before the change, and an explanation of the reasons for the significant changes.

The Company currently recognizes the majority of its revenues based on shipment of products (at a point in time). Currently, some contracts the Company enters into with customers are accounted for on a percentage of completion basis. For contracts with a significant amount of development and/or requiring the delivery of a minimal number of units, revenue and profit are recognized using the percentage-of-completion cost-to-cost method to measure progress. For contracts that require the Company to produce a substantial number of similar items without a significant level of development, the Company currently records revenue and profit using the percentage-of-completion units-of-delivery method as the basis for measuring progress on the contract.

Under ASC 606, revenue will be recognized as the customer obtains control of the goods and services promised in the contract (i.e., performance obligations). We may also have more performance obligations in our contracts under ASC 606, which may impact the timing of recording sales and operating profit, including those where sales recognition is deferred pending the incurrence of costs.

The Company has not completed its assessment of the effects of the new revenue standard, and has not determined whether adopting ASU 2014-09 will have a material effect on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)” (“ASU 2016-01”).The main objective of ASU 2016-01 is enhancing the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The amendments address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of ASU 2016-01 to have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016- 02, Leases (Topic 842) . The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Condensed Consolidated Statement of Operations. In addition, this standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor doesn't convey risks and rewards or control, the lease is treated as operating. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases and lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We expect that upon adoption we will recognize ROU assets and lease liabilities and will be assessing the impact on our financial position and results of operations. We do not expect the ASU to have a material impact on our cash flows or results of operations.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash, which clarifies the presentation requirements of restricted cash within the statement of cash flows. The changes in restricted cash and restricted cash equivalents during the period should be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. When cash, cash equivalents, restricted cash or restricted cash equivalents are presented in more than one-line item within the statement of financial position, an entity shall calculate a total cash amount in a narrative or tabular format that agrees to the amount shown on the statement of cash flows. Details on the nature and amounts of restricted cash should also be disclosed. This standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on our financial statements.

In January 2017, the FASB issued ASU 2017-01 (“ASU 2017-01”), Business Combinations, which clarifies the definition of a business, particularly when evaluating whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. The first part of the guidance provides a screen to determine when a set is not a business; the second part of the guidance provides a framework to evaluate whether both an input and a substantive process are present. The guidance will be effective after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted for transactions that have not been reported in issued financial statements. The Company is currently assessing the impact of this update on the presentation of these financial statements.

In January 2017, FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, Step 2 of the goodwill impairment test, which requires determining the implied fair value of goodwill and comparing it with its carrying amount has been eliminated. Thus, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount (i.e., what was previously referred to as Step 1). In addition, ASU No. 2017-04 requires entities having one or more reporting units with zero or negative carrying amounts to disclose (1) the identity of such reporting units, (2) the amount of goodwill allocated to each, and (3) in which reportable segment the reporting unit is included. ASU No. 2017-04 is effective as follows: (1) for a public business entity that is an SEC filer for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on our financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The ASU allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company adopted this guidance in the current quarter, effective April 1, 2017. As a result, the warrants issued on May 12, 2017, in connection with the bridge financing, were equity-classified.

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 consolidated financial statements.

Subsequent Events

Management has evaluated subsequent events through the date of this filing.

At the Company’s Annual Meeting of Stockholders on October 3, 2017 (the “Annual Meeting”), stockholders approved the following stock issuances of common stock upon the conversion of outstanding securities at a conversion price of $1.50 per share, the public offering price of the shares of the Company’s common stock in the public offering completed on July 12, 2017 (the “Public Offering”), which issuances were contemplated as part of a restructuring of the Company’s capitalization:

1,222,809 shares upon conversion of $1,834,214 principal amount of May 2018 Notes.

8,629,606 shares upon conversion of the outstanding 1,294,441 shares of Series A Preferred Stock

346,992 shares upon the conversion of the Company’s 7% subordinated convertible notes in the original principal amount of $200,000 and $300,000 payable to Michael N. Taglich and Robert F. Taglich, respectively, together with accrued interest thereon.

At the Annual Meeting, stockholders also approved an amendment to the Company’s Articles of Incorporation increasing the number of authorized shares of common stock from 25,000,000 to 50,000,000 shares and approved the Company’s 2017 Equity Incentive Plan authorizing the issuance of up to 1,200,000 shares pursuant to the Plan.

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

9 Months Ended

Sep. 30, 2017

Notes and Loans Payable [Abstract]

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

Notes payable and capital lease obligations consist of the following:

	September 30, 2017			December 31, 2016
	(Unaudited)
Revolving credit note payable to PNC Bank N.A. (“PNC”)	$	18,077,000		$	24,393,000
Term loans, PNC		3,841,000			6,649,000
Capital lease obligations		3,281,000			4,215,000
Related party note payable, net of debt discount		2,263,000			1,086,000
Notes payable (private placement), net of debt discount		3,261,000			627,000
Subtotal		30,723,000			36,970,000
Less: current portion of notes and capital lease obligations		(23,690,000	)		(33,999,000	)
	$	7,033,000		$	2,971,000

PNC Bank N.A. (“PNC”)

The Company has a Loan Facility with PNC secured by substantially all of its assets. The Loan Facility has been amended many times during its term. The Loan Facility was amended in June 2016 (the “Twelfth Amendment”) and September 2016 (the “Thirteenth Amendment”). In connection with the Twelfth Amendment, the Company paid PNC a fee of $100,000 and reimbursed it for the fees and expenses of its counsel. The Twelfth Amendment provides for a $33,000,000 revolving loan. In addition, in the Twelfth Amendment the four term loans (Term Loan A, Term Loan B, Term Loan C and Term Loan D) then outstanding were consolidated into a single term loan with the initial principal amount of $7,387,854. Further, in the Twelfth Amendment the Company acknowledged that there were then outstanding excess advances under the revolving loan in the amount of $12,500,000.

Under the terms of the Loan Facility, as amended, the revolving loan now bears interest at (a) the sum of the Alternate Base Rate plus one and three- quarters of one percent (1.75%) with respect to Domestic Rate Loans; and (b) the sum of the LIBOR Rate plus four and one-half of one percent (4.50%) with respect to LIBOR Rate Loans. The amount outstanding under the revolving loan, inclusive of the excess advance, was $18,077,000 and $24,393,000, as of September 30, 2017 and December 31, 2016, respectively. Because the revolving loans contain a subjective acceleration clause which could permit PNC to require repayment prior to maturity, all of the loans outstanding with PNC are classified with the current portion of notes and capital lease obligations.

The Loan Facility was further amended pursuant to the Thirteenth Amendment, to modify the advance rate with respect to our inventory to be the lesser of (i) 75% of the eligible inventory, an increase from 50%, and (ii) 90% of the liquidation value of the eligible inventory, an increase from 85%, subject to the inventory sublimit of $12,500,000 and such reserves as PNC may deem proper. In addition, in the Thirteenth Amendment the lender waived any default resulting from the Company’s obligation to comply with the minimum EBITDA covenant for the period ended June 30, 2016, consented to the issuance of the Company’s 12% Subordinated Convertible Notes and the amendment to the Company’s Articles of Incorporation to increase the authorized number of shares of Preferred Stock and Series A Preferred Stock.

The repayment terms of the Term Loan provided for in the Twelfth Amendment consist of sixty (60) consecutive monthly principal installments, the first fifty-nine (59) of which shall be in the amount of $123,133 commencing on the first business day of July, 2016, and continuing on the first business day of each month thereafter, with a sixtieth (60th) and final payment of any unpaid balance of principal and interest payable on the last business day of June, 2021.

At the closing of the Twelfth Amendment, the Company paid $1,500,000 to reduce the outstanding excess under the revolving loan from $12,500,000 to $11,000,000. It also agreed that the excess advances will be paid down by $100,000 each week commencing the second week after the closing of the Twelfth Amendment.

To the extent that the Company disposes of collateral used to secure the Loan Facility, other than inventory, the Company must promptly repay the draws on the credit facility in the amount equal to the net proceeds of such sale.

The terms of the Loan Facility require that among other things, the Company maintain a specified Fixed Charge Coverage Ratio and maintain a minimum EBITDA. In addition, the Company is limited in the amount of capital expenditures it can make. The Company also is limited as to the amount of dividends it can pay its shareholders, as defined in the Loan Facility.

On June 19, 2017, we entered into the Fifteenth Amendment to the Loan Facility, which waived the failure to comply with the minimum EBITDA covenant for the periods ended December 31, 2016 and March 31, 2017 and the Capital Expenditures covenant for the period ended December 31, 2016. The amendment also requires that we maintain at all times a Fixed Charge Coverage Ratio, tested quarterly on a consolidated basis beginning September 30, 2017, as follows: (i) 1.00 to 1.00 for the quarter ending September 30, 2017, tested based upon the prior three (3) months, (ii) 1.05 to 1.00 for the quarter ending December 31, 2017, tested based upon the prior six (6) months and (iii) 1.05 to 1.00 for the quarter ending March 31, 2018, tested based upon the prior nine (9) months and that we maintain EBITDA of not less than $345,000 for the period ending September 30, 2017. The amendment also provided that we were not required to maintain a Fixed Charge Coverage Ratio and that no testing was required to the Fixed Charge Coverage Ratio for the periods ending December 31, 2016 and June 30, 2017 and that we are not required to maintain a Fixed Charge Coverage Ratio and that no testing will be required of the Fixed Charge Coverage Ratio for the period ending June 30, 2017. As of September 30, 2017, the Company was not in compliance with our Fixed Charge Coverage Ratio covenant. The failure to satisfy the foregoing covenants would constitute a default under the Loan Facility and PNC at its option could give notice to the Company that all amounts under the Loan Facility are immediately due and payable, and accordingly all amounts due under the loan facility have been classified as current, as of September 30, 2017. In addition, the amendment reduces the weekly payments we are required to make to reduce our $2,244,071 over-advance under the revolving credit facility as of June 19, 2017 from $100,000 to $25,000 per week during the period commencing May 22, 2017 through and including July 10, 2017. We paid $50,000 to PNC in connection with the amendment and reimbursed PNC’s counsel fees.

As of September 30, 2017, our debt to PNC in the amount of $21,918,000 consisted of the revolving credit loan in the amount of $18,077,000 (inclusive of the excess advance) and the term loan in the amount of $3,841,000. As of December 31, 2016, our debt to PNC in the amount of $31,042,000 consisted of the revolving credit note due to PNC in the amount of $24,393,000 and the term loan due to PNC in the amount of $6,649,000.

Each day, the Company’s cash collections are swept directly by the bank to reduce the revolving loans and the Company then borrows according to a borrowing base formula. The Company's receivables are payable directly into a lockbox controlled by PNC (subject to the terms of the Loan Facility). PNC may use some elements of subjective business judgment in determining whether a material adverse change has occurred in the Company's condition, results of operations, assets, business, properties or prospects allowing it to demand repayment of the Loan Facility.

As of September 30, 2017, the scheduled future minimum principal payments for the term loan are as follows, however as discussed above, the balance of the term loan has been classified as current:

For the twelve months ending	Amount
September 30, 2018	$	1,478,000
September 30, 2019		1,478,000
September 30, 2020		885,000
PNC Term Loans Payable		3,841,000
Short term portion		(3,841,000	)
Long-term portion	$	—

Interest expense related to these credit facilities amounted to approximately $1,660,000 and $1,365,000 for the nine months ended September 30, 2017 and 2016, respectively.

Capital Leases Payable – Equipment

The Company is committed under several capital leases for manufacturing and computer equipment. All leases have bargain purchase options exercisable at the termination of each lease. Capital lease obligations totaled $3,282,000 and $4,215,000 as of September 30, 2017 and December 31, 2016, respectively, with various interest rates ranging from approximately 4% to 14%.

As of September 30, 2017, the aggregate future minimum lease payments, including imputed interest, with remaining terms of greater than one year are as follows:

For the twelve months ending	Amount
September 30, 2018	$	1,441,000
September 30, 2019		1,264,000
September 30, 2020		780,000
September 30, 2021		41,000
September 30, 2022		2,000
Total future minimum lease payments		3,528,000
Less: imputed interest		(239,000	)
Less: current portion		(1,280,000	)
Total Long Term portion	$	2,009,000

Related Party Transactions and Notes Payable

Related party notes payable to Michael and Robert Taglich, and their affiliated entities, totaled $2,263,000 and $1,086,000, as of September 30, 2017 and December 31, 2016, respectively.

On March 17, 2017, the Company borrowed $200,000 and $300,000 from each of Michael Taglich and Robert Taglich, respectively, directors and principal stockholders of our company, and issued promissory notes in the principal amounts of $200,000 and $300,000 to Michael Taglich and Robert Taglich, respectively, to evidence our obligation to repay that indebtedness. The notes bore interest at the rate of 7% per annum. The notes have been converted into 346,992 shares of common stock.

On May 2, and May 10, 2017, the Company borrowed an aggregate of $750,000 from each of Michael Taglich and Robert Taglich. This indebtedness, together with accrued interest, were converted into May 2018 Notes on May 12, 2017.

Taglich Brothers acted as a placement agent in connection with the sale of the May 2018 Notes and warrants discussed below for which they are to be paid commissions in the aggregate amount of $176,000.

As compensation for its services as placement agent for the offering of the 12% Notes discussed below, the Company paid Taglich Brothers a fee of $295,400 and issued to Taglich Brothers five-year warrants to purchase 68,617 shares of common stock at an initial exercise price of $6.15, subject to certain anti-dilution and other adjustments.

Private Placements of 8% Subordinated Convertible Notes

From November 23, 2016 through March 21, 2017, the Company received gross proceeds of $4,775,000 from the sale of an equal principal amount of our 8% Subordinated Convertible Notes (the 8% Notes”), together with warrants to purchase a total of 383,032 shares of our common stock, in private placement transactions with accredited investors (the “8% Note Offerings”). In connection with the offering of the 8% Notes, the Company issued 8% Notes in the aggregate principal amount of $382,000 to Taglich Brothers, Inc., placement agent for the 8% Note Offerings, in lieu of payment of cash compensation for sales commissions, together with warrants to purchase a total of 180,977 shares of our common stock. Of the $5,147,000 principal amount of 8% Notes issued in connection with the offerings of the 8% Notes, $2,781,000 principal amount is due November 30, 2018 (the “2018 Notes”) and $2,366,000 principal amount is due January 31, 2019 (the “2019 Notes”). Payment of the principal and accrued interest on the 8% Notes are junior and subordinate in right of payment to our indebtedness under the Loan Facility.

Interest on the 2018 Notes is payable on the outstanding principal amount thereof at the annual rate of 8%, payable quarterly commencing February 28, 2017, in cash, or at our option, in additional 2018 Notes, provided that if accrued interest payable on $1,269,000 principal amount of the 2018 Notes issued in December 2016 is paid in additional 2018 Notes, interest for that quarterly interest payment shall be calculated at the rate of 12% per annum. Upon the occurrence and continuation of an event of default, interest shall accrue at the rate of 12% per annum.

On February 28, 2017, the Company issued an additional $61,596 principal amount of 2018 Notes in lieu of cash payment of accrued interest for the interest period then ended, on May 31, 2017 the Company issued 2018 Notes and 2019 Notes in the aggregate principal amounts of $68,872 and $72,285, respectively, in lieu of cash payment of accrued interest for the interest period then ended, and on August 31, 2017, the Company issued 2018 Notes and 2019 Notes in the aggregate principal amounts of $58,224 and $48,966, respectively, in lieu of cash payment of accrued interest for the interest period then ended. As of September 30, 2017, the Company had outstanding $5,466,600 principal amount of 8% Notes, including $2,969,359 principal amount of 2018 Notes and $2,497,251 principal amount of 2019 Notes.

The outstanding principal amount plus accrued interest on the 8% Notes is convertible at the option of the holder into shares of common stock conversion prices ranging from $2.25 to $4.45 per share, subject to certain anti-dilution and other adjustments, including stock splits, and in the event of certain fundamental transactions such as mergers and other business combinations.

An event of default under the 8% Notes will occur (i) if the Company fails to make any payment under the 8% Notes within ten (10) days after the date first due, or (ii) if the Company files a petition in bankruptcy or under any similar insolvency law, makes an assignment for the benefit of its creditors, or if any voluntary petition in bankruptcy or under any similar insolvency law is filed against the Company and such petition is not dismissed within sixty (60) days after the filing thereof. Upon the occurrence and continuation of an event of default, holders of a majority of the outstanding principal amount of the 8% Notes then outstanding, upon notice to the Company and the holders of the Senior Indebtedness (as defined in the 8% Notes), may demand immediate payment of the unpaid principal amount of the 8% Notes, together with accrued interest thereon and all other amounts payable under the 8% Notes, subject to the subordination provisions of the 8% Notes.

The exercise price of the warrants issued in connection with the 8% Note Offerings ranges from $3.00 to $4.53 per share, subject to certain anti-dilution and other adjustments, including stock splits, distributions in respect of the common stock and in the event of certain fundamental transactions such as mergers and other business combinations, and may be exercised on a cashless basis for a lesser number of shares depending upon prevailing market prices at the time of exercise. Of these warrants, 320,702 warrants may be exercised until November 30, 2021 and 243,307 warrants may be exercised until January 31, 2022.

May Note Financing

On May 12 and May 19, 2017, the Company issued and sold to 17 accredited investors (including Michael N. Taglich and Robert F. Taglich individually and a partnership of which they are partners), its “May 2018 Notes” in the aggregate principal amount of $4,158,624, together with warrants to purchase an aggregate of 501,039 shares of common stock, for gross proceeds (net of the exchange of indebtedness totaling $1,503,288 due to Michael N. Taglich and Robert F. Taglich for working capital advances made on May 2 and 10, 2017) of $2,534,196. Roth Capital LLC and Taglich Brothers acted as placement agents in connection with the sale of the May 2018 Notes and warrants for which they are to be paid commissions in the aggregate amount of $191,155.

The May 2018 Notes and warrants were issued for a purchase price equal to 97% of the principal amount of the May 2018 Notes purchased. The principal amount of each May 2018 Note will be increased by 2% for each 30 days it remains outstanding commencing August 1, 2017. Upon the occurrence of, and during the continuance of an Event of Default (as defined in the May 2018 Notes), the May 2018 Notes will accrue late interest at the rate of 10% per annum. Payment of the principal and accrued interest, if any, on the May 2018 Notes is junior and subordinate in right of payment to the Company’s indebtedness under the Loan Facility.

The principal amount, together with accrued interest, if any, of the May 2018 Notes, when issued, were convertible into shares of common stock until November 12, 2017 at a conversion price of $2.49 per share, subject to anti-dilution and other adjustments for stock splits and certain fundamental transactions, including recapitalizations, mergers and other business combination transactions (the “Fixed Conversion Price”), and thereafter at the lower of the Fixed Conversion Price and 75% of the five (5) Weighted Average Prices (as defined in the May 2018 Notes) of the common stock during the five consecutive trading day period ending on the trading day immediately preceding the day of a request by the holder for conversion of the May 2018 Note. The Company has the right to redeem all, or a portion of (on a pro rata basis), of the May 2018 Notes upon written notice to the holders not less than three trading days prior to the applicable redemption date. In connection with the Company’s July 2017 public offering of its common stock, approximately $1,754,215 principal amount of the May 2018 Notes were converted into 1,240,605 shares of common stock and $463,501 principal amount of May 2018 Notes were redeemed. The balance of the May 2018 Notes were converted into 1,222,809 shares of common stock pursuant to the restructuring approved by the Company’s stockholders at the Company’s Annual Meeting on October 3,2017. Consequently no May 2018 Notes remain outstanding.

The Company issued warrants to purchase 501,039 shares of common stock as part of the private placement of the May 2018 Notes. The warrants, when issued, were exercisable at an initial exercise price of $2.49 per share until May 12, 2022, and may be exercised on a cashless basis for a lesser number of shares based upon prevailing market prices when exercised. The exercise price of the warrants is subject to anti-dilution and other adjustments, including stock splits, and in the event of certain fundamental transactions such as recapitalizations, mergers and other business combination transactions. In accordance with the terms of the warrants, the exercise price was reduced to $1.50 per share, the public offering price of the shares of common stock sold in the Public Offering.

The Company early adopted the provisions of ASU 2017-11 in recognizing the warrants. As a result, the exercise price reset provisions were excluded from the assessment of whether the warrants are considered indexed to the Company’s own stock. The warrants otherwise meet the requirements for equity classification, as such were initially classified in Stockholders’ Equity. The Company will recognize the value of the exercise price reset provision if and when it becomes triggered, by recognizing the value of the effect of the exercise price reset as a deemed dividend and a reduction of income available to common shareholders in computing basic earnings per share.

The proceeds received upon issuing the May 2018 Notes and warrants was allocated to each instrument on a relative fair value basis. The allocation resulted in an effective conversion price for the May 2018 Notes that was below the quoted market price of the Company’s common stock. As such, the Company recognized a beneficial conversion feature equal to the intrinsic value of the conversion feature on each issuance date, resulting in an additional discount to the initial carrying value of the May 2018 Notes with a corresponding credit to additional paid-in capital.

The Company recognized an aggregate debt discount on the May 2018 Notes of approximately $2.5 million, comprised of the allocation of proceeds to the warrants and recognition of the beneficial conversion feature. The debt discount is presented net of the May 2018 Note balance in the Condensed Consolidated Balance Sheets and is amortized to interest expense over the term of the May 2018 Notes using the effective interest method. The Company amortized approximately $179,000 to interest expense in the three months ended September 30, 2017.

STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2017

Stockholders' Equity

STOCKHOLDERS' EQUITY

Issuance of Series A Preferred Stock and Related Financings

On May 25, 2016, and June 1, 2016, the Company completed a private placement of 700,000 shares of our Series A Preferred Stock for $10.00 per share and received gross cash proceeds of $5,250,000, net of $1,750,000 principal amount of our promissory notes exchanged by Michael Taglich and Robert Taglich, two of our principal stockholders, for shares of Series A Preferred Stock. The Company had issued the promissory notes to Michael Taglich and Robert Taglich for amounts borrowed from September 2015 through May 2016. The September 2015 loan bore interest at the rate of 4% per annum and was to be paid on September 7, 2016. The other loans bore interest at the rate of 7% per annum and were to be repaid on June 30, 2016 , or, if earlier, upon the sale of the Company’s equity from which it derived proceeds of $1,800,000 or $2,000,000 depending upon the promissory notes issued.

Preferred Stock

The shares of Series A Preferred Stock have a stated value of $10.00 per share and are initially convertible into shares of common stock at a price of $4.92 per share (subject to adjustment upon the occurrence of certain events). When issued, the dividend rate on the Series A Preferred Stock was 12% per annum, payable quarterly and was to increase to 15% per annum if we were to issue PIK Shares in lieu of payment of cash dividends payable until June 15, 2018. The dividend rate on the Series A Preferred Stock was originally to increase to 16% per annum after June 2018, 19% per annum to the extent dividends were paid in PIK Shares. In July 2017, the Company amended the Certificate of Designation authorizing the issuance of the Series A Preferred Stock to provide for the automatic conversion of the outstanding shares of Series A Preferred Stock into common stock at a conversion price of $1.50 per share, the offering price of the shares of common stock in the Public Offering, subject to stockholder approval in accordance with the applicable rules of the NYSE MKT. In addition, the amendment to the Certificate of Designation eliminated the liquidation preference and quarterly dividend payable to holders of the Series A Preferred Stock. Under the terms of the amendment, holders of the Series A Preferred Stock were to share ratably with the holders of the common stock on an as-converted basis (2.0325 shares of common stock for each share of Series A Preferred Stock held of record) with respect to dividends declared, paid or set aside for payment, assets available for distribution to stockholders upon the liquidation, dissolution or winding up of the Company’s affairs, in addition to voting upon the election of directors and other matters submitted to stockholders for approval, except for matters requiring a class vote of the holders of the Series A Preferred Stock specified in the Certificate of Designation or under applicable law.

The Company has the right to redeem the Series A Preferred Stock after May 26, 2018 for a redemption price of $10.00, plus accrued and unpaid dividends; however, the Company may not have sufficient cash available to effect such redemption.

In connection with the placement we incurred approximately $606,000 of direct offering costs and $57,000 in legal expenses and granted to the placement agents warrants to purchase 8% of the number of shares of our common stock (113,820 shares) issuable upon conversion of the Series A Preferred Stock sold in the offering. The warrants are exercisable in whole or in part, at an initial exercise price per share of $6.15, and are exercisable for cash or on a cashless basis commencing on November 26, 2016 and expiring on May 26, 2021. The exercise price and number of shares of common stock issuable under the warrants are subject to adjustments for stock dividends, splits, combinations and similar events.

Of the proceeds generated by the sale of our shares of Series A Preferred Stock, $1,500,000 was paid to PNC to reduce the amount outstanding under our Loan Facility.

In August 2016, the Company completed the private placement of $2,720,000 principal amount of our 12% Subordinated Convertible Notes due December 31, 2017 (the “12% Notes”), together with warrants to purchase an aggregate of 110,658 shares of common stock, for a total purchase price of $2,720,000, from which we derived net proceeds of approximately $2,319,800, which was used to pay down the Company’s indebtedness under the Loan Facility and for working capital. The Company also issued to Michael Taglich a 12% Note in the principal amount of $1,520,713, together with warrants to purchase 61,817 shares of common stock, upon surrender for cancellation of promissory notes in the aggregate principal amount of $1,500,000, together with accrued interest thereon and on notes previously exchanged for Series A Preferred Stock of $20,713. The Company had issued the promissory notes to Michael Taglich for amounts borrowed in August 2016. The promissory notes bore interest at the rate of 7% per annum and were to be repaid on December 31, 2016, or, if earlier, upon the sale of our equity securities from which we derived proceeds of $2,000,000. In addition, the Company issued to Robert Taglich a 12% Note in the principal amount of $4,373, together with warrants to purchase 177 shares of common stock, in consideration of the forgiveness of interest of $4,373 accrued on notes previously exchanged for Series A Preferred Stock.

The 12% Notes provided for the automatic conversion of the principal and accrued interest of the 12% Notes into shares of Series A Preferred Stock at a price of $10.00 per share, the stated value of the Series A Preferred Stock, upon the filing of an amendment to the Company’s Articles of Incorporation increasing the number of shares of preferred stock we are authorized to issue from 1,000,000 shares to 3,000,000 shares, including 2,000,000 shares of Series A Preferred Stock (the “Charter Amendment”). The Company issued 438,770 shares of Series A Preferred Stock to the holders of the 12% Notes on November 30, 2016, the date the Company’s stockholders approved the Charter Amendment and the Company filed the certificate of amendment effecting the Charter Amendment with the Office of the Secretary of State of Nevada. As a result of the automatic conversion of the 12% Notes into shares of Series A Preferred Stock, no 12% Notes are outstanding.

As compensation for its services as placement agent for the offering of the 12% Notes, the Company paid Taglich Brothers, Inc. a fee of $295,400 and issued to Taglich Brothers, Inc. five-year warrants to purchase 68,617 shares of common stock at an initial exercise price of $6.15, subject to certain anti-dilution and other adjustments, including stock splits, and in the event of certain fundamental transactions such as mergers and other business combinations.

As of December 31, 2016, the Company had outstanding 1,202,548 shares of Series A Preferred Stock. As of September 30, 2017, we had outstanding 1,294,441 shares of Series A Preferred Stock, including 45,106 shares issued as pay-in-kind dividends (“PIK Shares”) on March 15, 2017 and 46,787 PIK Shares issued on June 15, 2017.

Common Stock

On July 12, 2017, the Company sold 5,175,000 shares of common stock at a price of $1.50 per for gross proceeds of $7,762,000 in an underwritten public offering (“Public Offering”) from which it derived net proceeds of $6,819,125 of which approximately $4,000,000 was used to pay outstanding trade payables, $463,501 was used to redeem an equal principal amount of the May 2018 Notes and $2,355,624 was added to the Company’s working capital.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Principal Business Activity

Inventory Valuation

	September 30, 2017			December 31, 2016
	(Unaudited)
Raw Materials	$	7,388,000		$	7,031,000
Work in Process		24,981,000			25,635,000
Finished Goods		12,177,000			11,751,000
Inventory Reserve		(5,304,000	)		(4,566,000	)
Total Inventory	$	39,242,000		$	39,851,000

Credit and Concentration Risks

Credit and Concentration Risks

Customer			Percentage of Net Sales
		2017		2016
		(Unaudited)		(Unaudited)
	1		19.4		14.2
	2		21.8		*
	3		16.6		*
	4		10.1		*

* Customer was less than 10% of net sales for the three months ended September 30, 2016

Customer			Percentage of Net Sales
		2017		2016
		(Unaudited)		(Unaudited)
	1		20.2		11.9
	2		18.1		19.8
	3		17.1		10.7
	4		*		10.9

* Customer was less than 10% of net sales for the nine months ended September 30, 2016

Customer			Percentage of Receivables
		June		December
		2017		2016
		(Unaudited)
	1		25.3		19.9
	2		23.8		*
	3		11.6		*

* Customer was less than 10% of Gross Accounts Receivable at December 31, 2016

Earnings per share

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

	Three Months Ended		Nine Months Ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Weighted average shares outstanding used to compute basic earnings per share	13,463,372	7,610,220	13,463,372	7,594,215
Effect of dilutive stock options and warrants	—	—	—	—
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share	13,463,372	7,610,220	13,463,372	7,594,215

	Three and Nine Months Ended
	September 30, 2017		September 30, 2016
	(Unaudited)		(Unaudited)
Convertible preferred stock		2,630,953		1,488,396
Stock options		516,342		443,648
Warrants		1,479,212		519,573
Unvested restricted stock		—		52,000
		4,626,507		2,503,617

	September 30, 2017		September 30, 2016
	(Unaudited)		(Unaudited)
Convertible preferred stock		—		—
Stock options		—		202,694
Warrants		—		—
Unvested restricted stock		—		—
		—		202,694

Stock-Based Compensation

Goodwill

Debt Issuance Costs

Derivative Financial Instruments

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016- 02, Leases (Topic 842) . The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Condensed Consolidated Statement of Operations. In addition, this standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as financing. If the lessor doesn't convey risks and rewards or control, the lease is treated as operating. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases and lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We expect that upon adoption we will recognize ROU assets and lease liabilities and that the amounts could be material. We do not expect the ASU to have a material impact on our cash flows or results of operations.

Subsequent Events

Management has evaluated subsequent events through the date of this filing.

1,222,809 shares upon conversion of $1,834,214 principal amount of May 2018 Notes.

8,629,606 shares upon conversion of the outstanding 1,294,441 shares of Series A Preferred Stock

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Inventory Valuation

	September 30, 2017			December 31, 2016
	(Unaudited)
Raw Materials	$	7,388,000		$	7,031,000
Work in Process		24,981,000			25,635,000
Finished Goods		12,177,000			11,751,000
Inventory Reserve		(5,304,000	)		(4,566,000	)
Total Inventory	$	39,242,000		$	39,851,000

Credit and Concentration Risks

Customer			Percentage of Sales
		2017		2016
		(Unaudited)		(Unaudited)
	1		19.4		14.2
	2		21.8		*
	3		16.6		*
	4		10.1		*

* Customer was less than 10% of net sales for the three months ended September 30, 2016

Customer			Percentage of Net Sales
		2017		2016
		(Unaudited)		(Unaudited)
	1		20.2		11.9
	2		18.1		19.8
	3		17.1		10.7
	4		*		10.9

* Customer was less than 10% of net sales for the nine months ended September 30, 2016

Customer			Percentage of Receivables
		June		December
		2017		2016
		(Unaudited)
	1		25.3		19.9
	2		23.8		*
	3		11.6		*

* Customer was less than 10% of Gross Accounts Receivable at December 31, 2016

Earnings per share

	Three Months Ended		Nine Months Ended
	September 30, 2017	September 30, 2016	September 30, 2017	September 30, 2016
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Weighted average shares outstanding used to compute basic earnings per share	13,463,372	7,610,220	13,463,372	7,594,215
Effect of dilutive stock options and warrants	—	—	—	—
Weighted average shares outstanding and dilutive securities used to compute dilutive earnings per share	13,463,372	7,610,220	13,463,372	7,594,215

Anti-dilutive Securities

	Three and Nine Months Ended
	September 30, 2017		September 30, 2016
	(Unaudited)		(Unaudited)
Convertible preferred stock		2,630,953		1,488,396
Stock options		516,342		443,648
Warrants		1,479,212		519,573
Unvested restricted stock		—		52,000
		4,626,507		2,503,617

	September 30, 2017		September 30, 2016
	(Unaudited)		(Unaudited)
Convertible preferred stock		—		—
Stock options		—		202,694
Warrants		—		—
Unvested restricted stock		—		—
		—		202,694

PROPERTY AND EQUIPMENT (Details) - USD ($)	9 Months Ended
PROPERTY AND EQUIPMENT (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Total Property and Equipment	$ 31,777,000	$ 31,193,000
Less: Accumulated Depreciation	(21,004,000)	(18,974,000)
Property and Equipment, net	10,773,000	12,219,000
Land [Member]
Total Property and Equipment	300,000	300,000
Buildings and Improvements [Member]
Total Property and Equipment	$ 1,650,000	1,650,000
Property Plant And Equipment Useful Life	31 years 6 months
Machinery and Equipment [Member]
Total Property and Equipment	$ 13,428,000	14,032,000
Machinery and Equipment [Member] \| Minimum
Property Plant And Equipment Useful Life	5 years
Machinery and Equipment [Member] \| Maximum [Member]
Property Plant And Equipment Useful Life	8 years
Capital Lease Machinery and Equipment [Member]
Total Property and Equipment	$ 6,265,000	6,265,000
Capital Lease Machinery and Equipment [Member] \| Minimum
Property Plant And Equipment Useful Life	3 years
Capital Lease Machinery and Equipment [Member] \| Maximum [Member]
Property Plant And Equipment Useful Life	5 years
Tools and Instruments [Member]
Total Property and Equipment	$ 7,985,000	7,520,000
Tools and Instruments [Member] \| Minimum
Property Plant And Equipment Useful Life	1 year 6 months
Tools and Instruments [Member] \| Maximum [Member]
Property Plant And Equipment Useful Life	7 years
Automotive Equipment [Member]
Total Property and Equipment	$ 195,000	195,000
Property Plant And Equipment Useful Life	5 years
Furniture and Fixtures [Member]
Total Property and Equipment	$ 438,000	438,000
Furniture and Fixtures [Member] \| Minimum
Property Plant And Equipment Useful Life	5 years
Furniture and Fixtures [Member] \| Maximum [Member]
Property Plant And Equipment Useful Life	8 years
Leasehold Improvements [Member]
Total Property and Equipment	$ 997,000	966,000
Property Plant And Equipment Useful Life	Term of Lease
Computers and Software [Member]
Total Property and Equipment	$ 519,000	$ 519,000
Computers and Software [Member] \| Minimum
Property Plant And Equipment Useful Life	4 years
Computers and Software [Member] \| Maximum [Member]
Property Plant And Equipment Useful Life	6 years

INTANGIBLE ASSETS (Details) - USD ($)	9 Months Ended
INTANGIBLE ASSETS (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Customer Relationships	$ 6,115,000	$ 6,115,000
Trade Names	970,000	970,000
Technical Know-how	660,000	660,000
Non-Compete	150,000	150,000
Professional Certifications	15,000	15,000
Total Intangible Assets	7,910,000	7,910,000
Less: Accumulated Amortization	(6,786,000)	(6,156,000)
Intangible Assets, net	$ 1,124,000	$ 1,754,000
Customer Relationships [Member] \| Minimum
Intangible Assets Useful Life	5 years
Customer Relationships [Member] \| Maximum [Member]
Intangible Assets Useful Life	14 years
Trade Names [Member] \| Minimum
Intangible Assets Useful Life	15 years
Trade Names [Member] \| Maximum [Member]
Intangible Assets Useful Life	20 years
Technical Know-how [Member]
Intangible Assets Useful Life	10 years
Non-Compete [Member]
Intangible Assets Useful Life	5 years
Professional Certifications [Member] \| Minimum
Intangible Assets Useful Life	3 months
Professional Certifications [Member] \| Maximum [Member]
Intangible Assets Useful Life	2 years

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Notes and Loans Payable [Abstract]
Revolving credit note payable to PNC Bank N.A. ("PNC")	$ 18,077,000	$ 24,393,000
Term loans, PNC	3,841,000	6,649,000
Capital lease obligations	3,281,000	4,215,000
Related party note payable, net of debt discount	2,263,000	1,086,000
Notes Payable (private placement), net of debt discount	3,261,000	627,000
Subtotal	30,723,000	36,970,000
Less: Current portion of notes and capital lease obligations	(23,690,000)	(33,999,000)
Notes payable and capital lease obligations, net of current portion	$ 5,270,000	$ 2,971,000

- Definition

The carrying value as of the balance sheet date of the current and noncurrent portions of long-term obligations drawn from a line of credit, which is a bank's commitment to make loans up to a specific amount. Examples of items that might be included in the application of this element may consist of letters of credit, standby letters of credit, and revolving credit arrangements, under which borrowings can be made up to a maximum amount as of any point in time conditional on satisfaction of specified terms before, as of and after the date of drawdowns on the line. Includes short-term obligations that would normally be classified as current liabilities but for which (a) postbalance sheet date issuance of a long term obligation to refinance the short term obligation on a long term basis, or (b) the enterprise has entered into a financing agreement that clearly permits the enterprise to refinance the short-term obligation on a long term basis and the following conditions are met (1) the agreement does not expire within 1 year and is not cancelable by the lender except for violation of an objectively determinable provision, (2) no violation exists at the BS date, and (3) the lender has entered into the financing agreement is expected to be financially capable of honoring the agreement.

+ References + Details

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Details 2)	Sep. 30, 2017 USD ($)
Notes and Loans Payable [Abstract]
September 30, 2018	$ 1,441,000
September 30, 2019	1,264,000
September 30, 2020	780,000
September 30, 2021	41,000
September 30, 2022	2,000
Total future minimum lease payments	3,528,000
Less: Imputed interest	(239,000)
Less: Current portion	(1,280,000)
Total Long Term Portion	$ 2,009,000

SEGMENT REPORTING (Details) - USD ($)	3 Months Ended		9 Months Ended
SEGMENT REPORTING (Details) - USD ($)	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Gross Profit	$ 2,157,000	$ 1,997,000	$ 7,778,000	$ 8,973,000
Pre Tax Income (Loss)	(2,851,000)	(3,367,000)	(6,176,000)	(5,831,000)
Benefit from Income Taxes	29,000	(1,320,000)	(170,000)	(2,102,000)
Assets	76,265,000		76,265,000		$ 82,800,000
COMPLEX MACHINING
Net Sales	10,198,000	9,254,000	30,562,000	27,022,000
Gross Profit	1,449,000	1,476,000	5,289,000	5,898,000
Pre Tax Income (Loss)	(90,000)	(963,000)	(383,000)	(856,000)
Assets	44,362,000	54,159,000	44,362,000	54,159,000
AEROSTRUCTURES AND ELECTRONICS
Net Sales	5,431,000	3,738,000	14,484,000	14,939,000
Gross Profit	775,000	674,000	2,735,000	3,068,000
Pre Tax Income (Loss)	(539,000)	(893,000)	(1,470,000)	(1,832,000)
Assets	19,722,000	19,562,000	19,722,000	19,562,000
TURBINE ENGINE COMPONENTS
Net Sales	1,649,000	2,718,000	5,469,000	8,296,000
Gross Profit	(67,000)	(153,000)	(246,000)	7,000
Pre Tax Income (Loss)	(614,000)	(1,248,000)	(2,110,000)	(2,900,000)
Assets	11,220,000	17,645,000	11,220,000	17,645,000
CORPORATE
Net Sales	0	0	0	0
Gross Profit	0	0	0	0
Pre Tax Income (Loss)	(1,608,000)	(263,000)	(2,213,000)	(243,000)
Assets	961,000	574,000	961,000	574,000
CONSOLIDATED
Net Sales	17,278,000	15,710,000	50,515,000	50,257,000
Gross Profit	2,157,000	1,997,000	7,778,000	8,973,000
Pre Tax Income (Loss)	(2,851,000)	(3,367,000)	(6,176,000)	(5,831,000)
Benefit from Income Taxes	(29,000)	1,320,000	170,000	2,102,000
Net Loss	(2,880,000)	(2,047,000)	(6,006,000)	(3,729,000)
Assets	$ 76,265,000	$ 91,940,000	$ 76,265,000	$ 91,940,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)	3 Months Ended		9 Months Ended
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Accounting Policies [Abstract]
Customer 1 percentage of sales	19.40%	14.20%	20.20%	11.90%
Customer 2 percentage of sales	21.80%	0.00%	18.10%	19.80%
Customer 3 percentage of sales	16.60%	0.00%	17.10%	10.70%
Customer 4 percentage of sales	10.10%	0.00%	0.00%	10.90%

PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 584,000	$ 957,000	$ 2,026,000	$ 2,808,000

INTANGIBLE ASSETS (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
INTANGIBLE ASSETS (Details Narrative) - USD ($)	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of the intangibles	$ 49,000	$ 320,000	$ 630,000	$ 960,000

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Summary Of Significant Accounting Policies Details
Raw Materials	$ 7,388,000	$ 7,031,000
Work in Process	24,981,000	25,635,000
Finished Goods	12,177,000	11,751,000
Inventory Reserve	(5,304,000)	(4,566,000)
Total Inventory	$ 39,242,000	$ 39,851,000

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (Details 1)	Sep. 30, 2017 USD ($)
Notes and Loans Payable [Abstract]
September 30, 2018	$ 1,478,000
September 30, 2019	1,478,000
September 30, 2020	885,000
PNC Term Loans payable	3,841,000
Less: Current portion	(3,841,000)
Long-term portion	$ 0

INCOME TAXES (Details) - USD ($)	9 Months Ended
INCOME TAXES (Details) - USD ($)	Sep. 30, 2017	Sep. 30, 2016
Current
Federal	$ 0	$ 0
State	8,000	13,000
Prior Year (over)/under Accrual
Federal income tax refund	(178,000)	30,000
Total Current Expense	(170,000)	43,000
Deferred Tax Benefit	0	(2,145,000)
Net Benefit from Income Taxes	$ (170,000)	$ (2,102,000)