aeti-10q_20150930.htm

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2015

¨

TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                 TO                

Commission File No. 000-24575

 

AMERICAN ELECTRIC TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

 

Florida

 

59-3410234

(State or other jurisdiction
of incorporation)

 

(I.R.S. Employer
Identification No.)

1250 Wood Branch Park Drive, Suite 600, Houston, TX 77079

(Address of principal executive offices)

(713) 644-8182

(Registrant’s telephone number)

* * * * * * * * * * * * * * * * * * * * * *

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (S. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of November 11, 2015 the registrant had 8,254,001 shares of its Common Stock outstanding.

 

 

 

 

 


AMERICAN ELECTRIC TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q Index

For the Quarterly Period Ended September 30, 2015

 

 

  

 

  

Page

 

  

Part I. Financial Information

  

 

 

Item 1.

  

Financial Statements (Unaudited)

  

 

 

  

 

Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014

  

3

 

  

 

Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2015 and 2014

  

4

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine months ended September 30, 2015 and 2014

 

5

 

  

 

Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2015 and 2014

  

6

 

  

 

Notes to Condensed Consolidated Financial Statements

  

7

 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

14

 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

24

 

Item 4.

  

Controls and Procedures

  

24

 

  

 

Part II. Other Information

  

 

 

Item 1.

  

Legal Proceedings

  

25

 

Item 1A.

  

Risk Factors

  

25

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

25

 

Item 3.

  

Defaults upon Senior Securities

  

25

 

Item 4.

  

Mine Safety Disclosures

  

25

 

Item 5.

  

Other Information

  

25

 

Item 6.

  

Exhibits

  

25

 

Signatures

  

26

 

 

 

 

 

 

 

 

2


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

American Electric Technologies, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)  

 

 

September 30, 2015

 

 

December 31,

 

 

(unaudited)

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

9,168

 

 

$

3,550

 

Accounts receivable-trade, net of allowance of $204 and $315 at September 30, 2015 and December 31, 2014

 

8,017

 

 

 

11,877

 

Inventories, net of allowance of $120 and $73 at September 30, 2015 and December 31, 2014

 

1,470

 

 

 

2,769

 

Cost and estimated earnings in excess of billings on uncompleted contracts

 

2,846

 

 

 

2,989

 

Prepaid expenses and other current assets

 

286

 

 

 

750

 

Total current assets

 

21,787

 

 

 

21,935

 

Property, plant and equipment, net

 

8,135

 

 

 

8,373

 

Advances to and investments in foreign joint ventures

 

11,191

 

 

 

12,054

 

Intangibles

 

218

 

 

 

236

 

Other assets

 

311

 

 

 

6

 

Long-term assets held for sale

 

650

 

 

 

650

 

Total assets

$

42,292

 

 

$

43,254

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

4,695

 

 

$

6,447

 

Accrued payroll and benefits

 

877

 

 

 

1,145

 

Other accrued expenses

 

888

 

 

 

640

 

Billings in excess of costs and estimated earnings on uncompleted contracts

 

1,014

 

 

 

1,983

 

Revolving line of credit

 

1,500

 

 

 

-

 

Current portion of long-term note payable

 

267

 

 

 

222

 

Other current liabilities

 

95

 

 

 

150

 

Total current liabilities

 

9,336

 

 

 

10,587

 

Long-term note payable

 

3,578

 

 

 

3,778

 

Deferred compensation

 

301

 

 

 

290

 

Deferred income taxes

 

2,879

 

 

 

3,046

 

Total liabilities

 

16,094

 

 

 

17,701

 

Convertible preferred stock:

 

 

 

 

 

 

 

Redeemable convertible preferred stock, Series A, net of discount of $683 at September 30, 2015 and $719 at December 31, 2014; $0.001 par value, 1,000,000 shares authorized, issued and outstanding at September 30, 2015 and December 31, 2014

 

4,317

 

 

 

4,281

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock; $0.001 par value, 50,000,000 shares authorized, 8,252,563 and 8,185,323 shares issued and outstanding at September 30, 2015 and December 31, 2014

 

8

 

 

 

8

 

Treasury stock, at cost 131,928 shares at September 30, 2015 and 111,640 shares at December 31, 2014

 

(792

)

 

 

(722

)

Additional paid-in capital

 

11,743

 

 

 

11,418

 

Accumulated other comprehensive income

 

441

 

 

 

851

 

Retained earnings; including accumulated statutory reserves in equity method investments of $2,605 and $2,100 at September 30, 2015 and December 31, 2014

 

10,481

 

 

 

9,717

 

Total stockholders’ equity

 

21,881

 

 

 

21,272

 

Total liabilities, convertible preferred stock and stockholders’ equity

$

42,292

 

 

$

43,254

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

 

3


American Electric Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Unaudited

(in thousands, except share and per share data)

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net sales

$

13,780

 

 

$

14,283

 

 

$

41,393

 

 

$

43,561

 

Cost of sales

 

11,219

 

 

 

13,788

 

 

 

34,505

 

 

 

38,603

 

Gross profit

 

2,561

 

 

 

495

 

 

 

6,888

 

 

 

4,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

276

 

 

 

425

 

 

 

504

 

 

 

651

 

Selling and marketing

 

546

 

 

 

617

 

 

 

1,642

 

 

 

1,850

 

General and administrative

 

1,523

 

 

 

1,640

 

 

 

4,046

 

 

 

3,995

 

Total operating expenses

 

2,345

 

 

 

2,682

 

 

 

6,192

 

 

 

6,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from consolidated continuing operations

 

216

 

 

 

(2,187

)

 

 

696

 

 

 

(1,538

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net equity income from foreign joint ventures’ operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity income from foreign joint ventures’ operations

 

225

 

 

 

350

 

 

 

625

 

 

 

1,934

 

Foreign joint ventures’ operations related expenses

 

(103

)

 

 

(122

)

 

 

(310

)

 

 

(412

)

Net equity income from foreign joint ventures’ operations

 

122

 

 

 

228

 

 

 

315

 

 

 

1,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from consolidated continuing operations and net equity income from foreign joint ventures’ operations

 

338

 

 

 

(1,959

)

 

 

1,011

 

 

 

(16

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense and other, net

 

(93

)

 

 

(23

)

 

 

(157

)

 

 

(56

)

Foreign transaction gain (loss)

 

(134

)

 

 

-

 

 

 

-

 

 

 

-

 

Continuing operations income (loss) before income taxes

 

111

 

 

 

(1,982

)

 

 

854

 

 

 

(72

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for (benefit from) income taxes on continuing operations

 

(93

)

 

 

-

 

 

 

(171

)

 

 

-

 

Net income (loss) from continuing operations

 

204

 

 

 

(1,982

)

 

 

1,025

 

 

 

(72

)

Discontinued operations income (loss)

 

-

 

 

 

(21

)

 

 

-

 

 

 

(2,673

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes on discontinued operations

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income (loss) from discontinued operations

 

-

 

 

 

(21

)

 

 

-

 

 

 

(2,673

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) before dividends on redeemable convertible preferred stock

 

204

 

 

 

(2,003

)

 

 

1,025

 

 

 

(2,745

)

Dividends on redeemable convertible preferred stock

 

(87

)

 

 

(86

)

 

 

(261

)

 

 

(258

)

Net income (loss) attributable to common stockholders

$

117

 

 

$

(2,089

)

 

$

764

 

 

$

(3,003

)

Earnings (loss) from continuing operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.01

 

 

$

(0.25

)

 

$

0.09

 

 

$

(0.04

)

Diluted

$

0.01

 

 

$

(0.25

)

 

$

0.08

 

 

$

(0.04

)

Weighted - average number of continuing operations shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

8,252,396

 

 

 

8,180,970

 

 

 

8,236,212

 

 

 

8,137,133

 

Diluted

 

8,252,396

 

 

 

8,180,970

 

 

 

9,277,929

 

 

 

8,137,133

 

Loss per common share from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

$

-

 

 

$

(0.01

)

 

$

-

 

 

$

(0.33

)

Total earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.01

 

 

$

(0.26

)

 

$

0.09

 

 

$

(0.37

)

Diluted

$

0.01

 

 

$

(0.26

)

 

$

0.08

 

 

$

(0.37

)

Weighted - average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

8,252,396

 

 

 

8,180,970

 

 

 

8,236,212

 

 

 

8,137,133

 

Diluted

 

8,252,396

 

 

 

8,180,970

 

 

 

9,277,929

 

 

 

8,137,133

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

4


American Electric Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(in thousands)

 

 

For the Three Months Ended September 30,

 

 

2015

 

 

2014

 

Net income (loss) before dividends on redeemable convertible

  preferred stock

$

204

 

 

$

(2,003

)

Other comprehensive income:

 

 

 

 

 

 

 

Foreign currency translation gain (loss), net of deferred income taxes of

   $117 and ($1) for the three months ended September 30, 2015 and 2014

 

(315

)

 

 

(31

)

Total comprehensive income (loss)

$

(111

)

 

$

(2,034

)

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

2015

 

 

2014

 

Net income (loss) before dividends on redeemable convertible

  preferred stock

$

1,025

 

 

$

(2,745

)

Other comprehensive income:

 

 

 

 

 

 

 

Foreign currency translation gain (loss), net of deferred income taxes of

   $166 and ($1) for the nine months ended September 30, 2015 and 2014

 

(410

)

 

 

(32

)

Total comprehensive income (loss)

$

615

 

 

$

(2,777

)

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

 

 


5


 

American Electric Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Unaudited

(in thousands)

 

For the Nine Months Ended September 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss) from continuing operations

$

1,025

 

 

$

(72

)

Adjustments to reconcile net income (loss) to net cash provided by

   operating activities:

 

 

 

 

 

 

 

Deferred income tax provision (benefit)

 

(171

)

 

 

-

 

Equity income from foreign joint ventures’ operations

 

(625

)

 

 

(1,934

)

Depreciation and amortization

 

673

 

 

 

457

 

Stock based compensation

 

302

 

 

 

601

 

Provision for bad debt

 

(55

)

 

 

-

 

Allowance for obsolete inventory

 

47

 

 

 

25

 

(Gain)/Loss on sale of property and equipment

 

84

 

 

 

-

 

Deferred compensation costs

 

12

 

 

 

59

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

3,915

 

 

 

(604

)

Income taxes payable

 

-

 

 

 

(108

)

Inventories

 

1,252

 

 

 

(623

)

Costs and estimated earnings in excess of billings on

   uncompleted contracts

 

142

 

 

 

352

 

Prepaid expenses and other current assets

 

707

 

 

 

88

 

Accounts payable and accrued liabilities

 

(1,752

)

 

 

2,174

 

Billings in excess of costs and estimated

   earnings on uncompleted contracts

 

(969

)

 

 

(486

)

Other current liabilities

 

(393

)

 

 

-

 

Foreign currency translation adjustment

 

(410

)

 

 

-

 

Net cash provided by (used in) operating activities

 

3,784

 

 

 

(71

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property, plant and equipment and other

   assets

 

(559

)

 

 

(4,715

)

Proceeds from foreign joint ventures’ operations dividends

 

1,170

 

 

 

2,522

 

Net cash provided by (used in) from investing activities

 

611

 

 

 

(2,193

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from sale of common stock, preferred stock, and

   warrants

 

22

 

 

 

113

 

Treasury stocks purchase

 

(70

)

 

 

(466

)

Preferred stock cash dividend

 

(75

)

 

 

(225

)

Proceeds from long-term notes payable

 

4,000

 

 

 

-

 

Advances from revolving credit facility (repayments)

 

(2,500

)

 

 

-

 

Payments on long-term notes payable

 

(154

)

 

 

-

 

Net cash provided by (used in) financing activities

 

1,223

 

 

 

(578

)

Net increase (decrease) in cash and cash equivalents

   from continuing operations

 

5,618

 

 

 

(2,842

)

Advances from (to) discontinued operations

 

-

 

 

 

1,078

 

Net increase (decrease) in cash and cash equivalents

 

5,618

 

 

 

(1,764

)

Cash and cash equivalents, beginning of period

 

3,550

 

 

 

4,148

 

Cash and cash equivalents, end of period

 

9,168

 

 

 

2,384

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Non-cash dividends on convertible preferred shares

$

150

 

 

$

-

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Interest paid

$

137

 

 

$

36

 

Income taxes paid

$

-

 

 

$

102

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements

 


6


AMERICAN ELECTRIC TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of American Electric Technologies, Inc. and its wholly-owned subsidiaries (“AETI”, “the Company”, “our”, “we”, “us”)  have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and include all adjustments which, in the opinion of management, are necessary for a fair presentation of financial position as of September 30, 2015 and December 31, 2014 and results of operations for the three and nine months ended September 30, 2015 and 2014. All adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The statements should be read in conjunction with the Company’s consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014, which was filed on March 30, 2015. Because of the sale of the American Access Technologies, Inc. (“AAT”) segment’s operations which was completed on August 14, 2014, its remaining real estate is presented as “held for sale” and its operations are reported as discontinued operations. See Footnote 12. All dollar amounts disclosed in the footnotes are stated in thousands.

2. Earnings per Common Share

Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the number of shares of common stock outstanding for the three and nine months ended September 30, 2015 and 2014.

Diluted earnings per share is computed by dividing net income (loss) attributable to common stockholders, by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of convertible instruments and (3) the dilutive effect of the exercise of stock options and other stock units to our common stock.

When convertible preferred stocks are assumed converted then dividends are added back to the earnings in the calculation of diluted earnings per share.

For the three months ended September 30, 2015 and 2014, common stock equivalents from convertible instruments, stock options and other stock units have been excluded from the calculation of weighted average diluted shares because all such instruments were anti-dilutive. For the nine months ended September 30, 2014, common stock equivalents from convertible instruments, stock options and other stock units have been excluded from the calculation of weighted average diluted shares because all such instruments were anti-dilutive.  

The following tables set forth the computation of basic and diluted common shares.

 

Continuing Operations

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Weighted average basic shares

 

8,252,396

 

 

 

8,180,970

 

 

 

8,236,212

 

 

 

8,137,133

 

Dilutive effect of preferred stock, warrants, stock options

   and restricted stock units *

 

-

 

 

 

-

 

 

 

1,041,717

 

 

 

-

 

Total weighted average diluted shares

 

8,252,396

 

 

 

8,180,970

 

 

 

9,277,929

 

 

 

8,137,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With Discontinued Operations

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Weighted average basic shares

 

8,252,396

 

 

 

8,180,970

 

 

 

8,236,212

 

 

 

8,137,133

 

Dilutive effect of preferred stock, warrants, stock options

   and restricted stock units *

 

-

 

 

 

-

 

 

 

1,041,717

 

 

 

-

 

Total weighted average diluted shares

 

8,252,396

 

 

 

8,180,970

 

 

 

9,277,929

 

 

 

8,137,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* When preferred shares are assumed converted, their dividends are added back to net income.

 

7


3. Recently Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU No. 2014-08 changes the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under ASU No. 2014-08, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. In addition, ASU No. 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The guidance also requires disclosure of pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. ASU No. 2014-08 was effective in the first quarter of 2015. The adoption of ASU No. 2014-08 did not have a significant impact on the Company’s consolidated financial position, results of operations and disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required under existing U.S. GAAP. The standard was originally effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU No. 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). In July 2015, the FASB announced in ASU No. 2015-14 that public companies will apply the new standard effective for annual reporting periods after December 15, 2017. We are currently evaluating the future impact of our pending adoption of ASU No. 2014-09 on our consolidated financial statements and have not yet determined the method with which we will adopt the standard in 2018.

In June 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in ASU No. 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. Management is currently evaluating the future impact of ASU No. 2014-12 on the Company’s consolidated financial position, results of operations and disclosures.

In November 2014, the FASB issued ASU No. 2014-17, Business Combinations (Topic 805): Pushdown Accounting a census of the FASB Emerging Issues Task Force. ASU No. 2014-17 provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. An acquired entity should determine whether to elect to apply pushdown accounting for each individual change-in-control event in which an acquirer obtains control of the acquired entity. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity’s most recent change-in-control event. An election to apply pushdown accounting in a reporting period after the reporting period in which the change-in-control event occurred should be considered a change in accounting principle. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable.  ASU No. 2014-17 is effective on November 15, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. The adoption of ASU No. 2014-17 did not have a significant impact on the Company’s consolidated financial position, results of operations or disclosures.


8


In January 2015, the FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplified Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU eliminates from U.S. GAAP the concept of extraordinary items. Subtopic 225-20, Income statement – Extraordinary and Unusual Items, requires that an entity separately classify, present and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. ASU No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments of ASU No. 2015-01 can be applied prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The adoption of ASU No. 2015-01 is not expected to have a significant impact on the Company’s consolidated financial position, results of operations or disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability companies, and securitization structures. ASU No. 2015-02 focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification TM (“ASC”) and improves current GAAP by: (1) Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met; (2) Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity; and (3) Changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or variable interest entities. ASU No. 2015-02 is effective for periods beginning after December 15, 2015. Management is currently evaluating the future impact of ASU No. 2015-02 on the Company’s consolidated financial position, results of operations and disclosures.

In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330); Simplifying the Measurement of Inventory, which is intended to converge US GAAP on this topic with IFRS. ASU No. 2015-11 focuses on the premeasurement of inventory measured using any method other than LIFO, (for example, average cost) shall be measured at the lower of cost and net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference shall be recognized as a loss in earnings in the period in which it occurs. That loss may be required, for example, due to damage, physical deterioration, obsolescence, changes in price levels, or other causes. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Management is currently evaluating the future impact of ASU No. 2015-11 on the Company’s consolidated financial position, results of operations and disclosures.

In September 2015, the FASB issued ASU No. 2015-16 Business Combinations (Topic 805); Simplifying the Accounting for Measurement-Period Adjustments, ASU No. 2015-16 requires all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. ASU No. 2015-16 requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU No. 2015-16 also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Management is currently evaluating the future impact of ASU No. 2015-16 on the Company’s consolidated financial position, results of operations and disclosures.

 

4. Segment Information

The Company follows guidance prescribed by the ASC Topic 280, Segment Reporting, which governs the way the Company reports information about its operating segments.

Due to the disposition of the AAT segment’s operations and net assets in August 2014, that segment’s results are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Operations.

During the six months ended June 30, 2015, we reorganized our continuing operations under our Chief Operating Officer. As a result of these changes, the Company manages its continuing operations as a single segment and has removed the presentation of business segments in these Notes to Condensed Consolidated Financial Statements. The Company will report as a single segment on all future financial statements.

9


 

5. Investments in Foreign Joint Ventures

Effective May 1, 2014, we have interests in two joint ventures, outside of the United States of America (“U.S.”) which are accounted for using the equity method:

BOMAY Electric Industries Company, Ltd. (“BOMAY”), in which the Company holds a 40% interest, Baoji Oilfield Machinery Co., Ltd. (a subsidiary of China National Petroleum Corporation) holds a 51% interest, and AA Energies, Inc., holds a 9% interest; and,

M&I Electric Far East, Ltd. ("MIEFE”), in which the Company holds a 41% interest, MIEFE’s general manager holds an 8% interest and, Sonepar of France holds a 51% interest.

Effective April 30, 2014 the Company withdrew from the AETI Alliance Group do Brazil Sistemas E Servicos Em Energia LTDA. (“AAG”) joint venture in exchange for a note from AAG of $0.64 million, receivable in 12 equal payments. The Company has received ten payments totaling $0.41 million through September 30, 2015. The outstanding balance of the note receivable at September 30, 2015 was $0.09 million, adjusted for foreign currency translation adjustments. The note was originally written as 0% subordinated note, with a maturity date of April 30, 2015, we have imputed interest at 5%. We have determined that collection of the remaining balance of the note is uncertain and, therefore, have fully reserved the remaining balance of the note.

Sales to joint ventures, made on an arm’s length basis, totaled $0.03   for both the three months ended September 30, 2015 and 2014. Sales to joint ventures totaled $0.19 million and $0.05 million for the nine months ended September 30, 2015 and 2014.

Summary (unaudited) financial information of our foreign joint ventures in U.S. dollars was as follows at September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014 (in thousands):

 

 

BOMAY

 

 

MIEFE

 

 

AAG*

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

$

74,153

 

 

$

77,812

 

 

$

2,536

 

 

$

3,488

 

 

$

-

 

 

$

-

 

Total non-current assets

 

4,290

 

 

 

4,710

 

 

 

79

 

 

 

108

 

 

 

-

 

 

 

-

 

Total assets

$

78,443

 

 

$

82,522

 

 

$

2,615

 

 

$

3,596

 

 

$

-

 

 

$

-

 

Liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

$

50,652

 

 

$

53,277

 

 

$

1,879

 

 

$

2,128

 

 

$

-

 

 

$

-

 

Total joint ventures’ equity

 

27,791

 

 

 

29,245

 

 

 

736

 

 

 

1,468

 

 

 

-

 

 

 

-

 

Total liabilities and equity

$

78,443

 

 

$

82,522

 

 

$

2,615

 

 

$

3,596

 

 

$

-

 

 

$

-

 

 

 

 

Three Months Ended September 30,

 

 

BOMAY

 

 

MIEFE

 

 

AAG*

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

13,533

 

 

$

9,995

 

 

$

1,282

 

 

$

1,359

 

 

$

-

 

 

$

-

 

Gross Profit

$

1,996

 

 

$

2,353

 

 

$

214

 

 

$

567

 

 

$

-

 

 

$

-

 

Earnings

$

755

 

 

$

712

 

 

$

(187

)

 

$

158

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

BOMAY

 

 

MIEFE

 

 

AAG*

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

35,761

 

 

$

67,209

 

 

$

4,717

 

 

$

4,571

 

 

$

-

 

 

$

1,078

 

Gross Profit

$

5,830

 

 

$

9,812

 

 

$

901

 

 

$

1,686

 

 

$

-

 

 

$

154

 

Earnings

$

1,894

 

 

$

4,483

 

 

$

(324

)

 

$

339

 

 

$

-

 

 

$

4

 

*As of April 30, 2014, the Company withdrew from the AAG joint venture. Tables above include the operations of AAG for the period January 1, 2014 through April 29, 2014

The following is a summary of activity in investments in foreign joint ventures for the nine months ended September 30, 2015 (unaudited):

10


 

September 30, 2015

 

 

BOMAY**

 

 

MIEFE

 

 

TOTAL

 

 

(in thousands)

 

Investments in foreign joint ventures:

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

$

11,548

 

 

$

506

 

 

$

12,054

 

Equity in earnings (loss) in 2015

 

758