SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2006
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________
Commission file number 000-29245
GALES INDUSTRIES INCORPORATED
(Exact name of small business as specified in its charter)
Delaware 20-4458244
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1479 Clinton Avenue, Bay Shore, New York 11706
(Address of principal executive offices)
(631) 968-5000
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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 is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 14,723,421 shares of Common
Stock, $.001 per share, as of May 10, 2006.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
GALES INDUSTRIES INCORPORATED
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements..........................2
Balance Sheet as of March 31, 2006 (unaudited) ......................2
Statement of Operations for the three month period
ended March 31, 2006 (unaudited) ....................................3
Statement of Cash Flow for the three month period
ended March 31, 2006 (unaudited) ....................................4
Notes to Condensed Consolidated Financial Statements.................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................10
Item 3. Controls and Procedures.............................................21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................22
Item 6. Exhibits and Reports on Form 8-K....................................23
SIGNATURES....................................................................23
PART I. FINANCIAL INFORMATION
GALES INDUSTRIES INCORPORATED
Condensed Consolidated Balance Sheet
At March 31, 2006
(unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 877,812
Accounts Receivable, Net of Allowance for Doubtful Accounts of $45,000 3,805,208
Inventory 13,530,482
Prepaid Expenses and Other Current Assets 323,019
Deposits 76,924
------------
Total Current Assets 18,613,445
Property, Plant, and Equipment, net 7,678,003
Cash Surrender Value - Officer's Life 37,756
Deferred Financing Costs 451,059
Other Assets 41,222
Goodwill 1,265,963
------------
TOTAL ASSETS $ 28,087,448
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts Payable and Accrued Expenses $ 7,172,396
Advance Payment - Customers 188,199
Notes Payable - Current Portion 6,483,625
Notes Payable - Sellers - Current Portion 240,500
Capital Lease Obligations - Current Portion 364,990
Due to Sellers 91,084
------------
Total current liabilities 14,540,794
Long term liabilities
Notes Payable - Net of Current Portion 3,499,529
Notes Payable - Sellers - Net of Current Portion 1,386,762
Capital Lease Obligations - Net of Current Portion 725,638
Deferred Tax Liability 662,821
------------
Total liabilities 20,815,544
------------
Commitments and contingencies
Stockholders' Equity
Series A Convertible Preferred - $.001 Par value, 8,003,716 Shares Authorized 1
900 Shares Issued and Outstanding as of March 31, 2006
Liquidation Value, $18,240,000
Common Stock - $.001 Par, 120,055,746 Shares Authorized
14,723,421 Shares Issued and Outstanding as of March 31, 2006 14,723
Additional Paid-In Capital 7,870,519
Accumulated Deficit (613,338)
------------
Total Stockholders' Equity 7,271,904
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,087,448
============
See notes to condensed consolidated financial statements
2
GALES INDUSTRIES INCORPORATED
Condensed Consolidated Statement of Operations
For the three month period ended March 31, 2006 (1)
(unaudited)
Net sales $ 8,898,272
Cost of Sales 7,385,566
------------
Gross profit 1,512,706
Operating costs and expenses:
Selling and marketing 155,702
General and administrative 849,383
------------
Income from operations 507,621
Interest and financing costs (325,050)
Gain on sale of life insurance policy 53,047
------------
Income before income taxes 235,618
Provision for income taxes 99,253
------------
Net income 136,365
Less: Dividend attributable to preferred stockholders 180,000
------------
Net loss attributable to common stockholders $ (43,635)
============
Loss per share (basic and diluted) $ (0.00)
============
Weighted average shares outstanding (basic and diluted) 14,723,421
============
(1) For the period from October 28, 2004 (date of inception) through March 31,
2005 the Company had no business activity other than the issuance of a $22,500
convertible bridge note that accrued approximately $325 in interest for the
three month period ended March 31, 2005; the note and respective accrued
interest were subsequently converted to shares of the Company's common stock as
part of the Merger (see note 1 to condensed consolidated financial statements)
and accordingly a Statement of Operations is not presented.
See notes to condensed consolidated financial statements
3
GALES INDUSTRIES INCORPORATED
Condensed Consolidated Statement of Cash Flows
For the three month period ended March 31, 2006 (1)
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 136,365
Adjustments to Reconcile Net Income to Net
Cash Used in Operating Activities:
Depreciation and amortization of property and equipment 138,111
Amortization of deferred financing costs 35,148
Deferred taxes (13,573)
Stock based compensation expense 25,905
Changes in Assets and Liabilities
(Increase) Decrease in Assets:
Accounts receivable (1,181,596)
Inventory (926,671)
Prepaid expenses and other current assets (112,895)
Deposits (11,329)
Cash surrender value - officer's life insurance 28,460
Other assets 84
Increase in Liabilities:
Accounts payable and accrued expenses 1,877,767
-----------
NET CASH USED IN OPERATING ACTIVITIES (4,225)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (99,645)
-----------
NET CASH USED IN INVESTING ACTIVITIES (99,645)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of capital lease obligations (88,944)
Repayment of notes payable to sellers (148)
Proceeds from notes payable, net 12,358
-----------
NET CASH USED IN BY FINANCING ACTIVITIES (76,734)
-----------
Net decrease in cash and cash equivalents (180,604)
Cash and cash equivalents at the beginning of period 1,058,416
-----------
Cash and cash equivalents at the end of period $ 877,812
===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 170,995
===========
(1) For the period from October 28, 2004 (date of inception) through March 31,
2005 the Company had no business activity other than the issuance of a $22,500
convertible bridge note that accrued approximately $325 in interest for the
three month period ended March 31, 2005; the note and respective accrued
interest were subsequently converted to shares of the Company's common stock as
part of the Merger and accordingly a Statement of Cash Flow is not presented.
See notes to condensed consolidated financial statements
4
Note 1. FORMATION, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Merger and Acquisition
Ashlin Development Corp. (the "Company" or "Ashlin"), a Florida
corporation and its newly-formed subsidiary Merger Sub, entered into a
Merger Agreement (the "Merger Agreement") on November 14, 2005 with Gales
Industries Incorporated, a privately-held Delaware corporation ("Original
Gales"). On November 30, 2005 (the "Closing Date") Original Gales merged
(the "Merger") into Merger Sub. Pursuant to the Merger Agreement, the
Company issued 10,773,107 shares of its common stock ("Common Stock")
(representing 73.6% of Ashlin's outstanding shares) and 900 shares of
Series A Convertible Preferred Stock which was initially convertible into
40,909,500 shares of common stock of the Company for all the issued and
outstanding shares of Original Gales. As a result of the transaction, the
former stockholders of Original Gales became the controlling stockholders
of Ashlin. Additionally, since Ashlin had no substantial assets prior to
the merger, the transaction was treated for accounting purposes as a
reverse acquisition of a public shell. Accordingly, for financial
statement presentation purposes, Original Gales was the surviving entity.
On February 15, 2006, Ashlin changed its name to Gales Industries
Incorporated ("we" or the "Company") and its state of domicile from
Florida to Delaware.
Prior to the closing of the Merger, Original Gales, which did not have any
business operations other than in connection with the transactions
contemplated by the Merger Agreement, acquired (the "Acquisition") all of
the outstanding capital stock of Air Industries Machining, Corp. ("AIM").
Because of the change in ownership, management and control that occurred
in connection with the Acquisition, in accordance with Statement of
Financial Accounting Standards ("SFAS") 141, Business Combinations, the
transaction was accounted for as a purchase. Accordingly, the purchase
price was allocated to assets acquired and liabilities assumed based on
SFAS No. 141. Simultaneously with the Acquisition, AIM entered into a bank
facility (the "New Loan Facility") and used proceeds from the facility to
acquire real estate (the "Real Estate Acquisition").
Prior to the Acquisition, Original Gales raised bridge financing. In
connection with the Acquisition, Original Gales procured a private
placement of Series A Preferred Stock, the proceeds of which were used to
acquire AIM. Immediately prior to the Merger, Original Gales had
outstanding certain bridge notes convertible into shares of Original
Gales' common stock and certain bridge warrants to purchase shares of
Original Gales' common stock.
Original Gales was formed in October 2004 and prior to the Acquisition did
not have any business operations or other activity other than transactions
contemplated with the Merger. For presentation purposes, (see Note 4) to
see what the results of operations would have looked like if we had made
the Acquisition on January 1, 2005.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes that the disclosures are
adequate to make the financial information presented not misleading. These
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the
5
notes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2005, filed with the Securities and Exchange
Commission on April 17, 2006. All adjustments were of a normal recurring
nature unless otherwise disclosed. In the opinion of management, all
adjustments necessary for a fair statement of the results of operations
for the interim period have been included. The results of operations for
such interim periods are not necessarily indicative of the results for the
full year.
Reverse stock split
Pursuant to the terms of the Merger Agreement, prior to the Merger, Ashlin
effected a 1-for-1.249419586 reverse split of its Common Stock (the
"Reverse Split"). The Reverse Split became effective November 21, 2005.
The Reverse Split reduced the number of shares of Common Stock which the
Company had outstanding on a fully diluted basis to 3,868,000. As a result
of the Reverse Split, the conversion of the outstanding shares of Original
Gales pursuant to the Merger for new shares of the Company's Common Stock
was on a one-for-one basis. Any of the Company's shareholders who, as a
result of the Reverse Split, held a fractional share of Common Stock
received a whole share of Common Stock in lieu of such fractional share.
After giving effect to the Reverse Split, prior to the Merger, the Company
had outstanding 3,823,980 shares of Common Stock which continued to be
outstanding after the Merger.
Use of Estimates
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts in the
financial statements and accompanying notes. The more significant
management estimates are the useful lives of property and equipment,
provisions for inventory obsolescence, unamortized finance costs, accrued
expenses and various contingencies. Actual results could differ from those
estimates. Changes in facts and circumstances may result in revised
estimates, which are recorded in the period in which they become known.
Stock-Based Compensation
In December 2004, the FASB issued SFAS 123(R) which is a revision of SFAS
No. 123 and supersedes Accounting Principles Board Opinion No. 25. SFAS
No. 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement
based on their fair values at the date of grant. The Company recorded an
expense of approximately $26,000 in the accompanying statement of
operations for the three month period ended March 31, 2006 in accordance
with the measurement requirements under SFAS No. 123 (R) (see Note 3).
Note 2. CASH SURRENDER VALUE - LIFE INSURANCE
During the quarter ended March 31, 2006, the Company sold one of its
key-man life insurance policies. Proceeds from the sale of the insurance
policy were $86,000 which was offset by the cash surrender value of
$32,953. The resulting gain of $53,047 was recognized as Other
Non-Operating Income in the accompanying Statement of Operations for the
three month period ended March 31, 2006.
6
Note 3. STOCK-BASED COMPENSATION ARRANGEMENTS
During 2005, the Company's Board of Directors approved a stock option plan
and reserved 10,000,000 shares of its Common Stock for issuance under the
plan. The stock option plan permits the Company to grant non-qualified and
incentive stock options to employees, directors, and consultants. Awards
granted under the Company's plans vest over four and seven years.
The Company accounts for its stock option plans under the measurement
provisions of Statement of Financial Accounting Standards No. 123(R)
(revised 2004), Share-Based Payment ("SFAS 123R"). The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option pricing model. During the three months ended March 31, 2006, no
stock options were granted.
Certain of the Company's stock options contain features which include
variability in grant prices. A portion of the currently issued stock
options will be issued based on average trading prices of the Company's
Common Stock at the end of a given future period. Due to this variable
feature, these stock options are not deemed to be granted for purposes of
applying SFAS 123(R) and accordingly, their fair value will be calculated
and expensed in future periods.
At March 31, 2006, 790,000 options are vested and exercisable. The
weighted average exercise price of exercisable options at March 31, 2006
was $0.22 per share.
A summary of the status of the Company's stock options as of March 31,
2006, and changes during the period then ended is presented below:
Weighted
Weighted Average
Number Average Remaining Aggregate
of Exercise Contractual Intrinsic
Shares Price Term Value
--------- --------- ----------- ---------
Outstanding and reserved for
grants at
January 1, 2006 4,850,000 $ 0.32
Granted -- --
Cancelled -- --
Exercised -- --
--------- --------- --------- --------
Outstanding and reserved for
grants at
March 31, 2006 4,850,000 $ 0.32 9.75 219,620
========= ========= ========= ========
Options vested and exercisable at
March 31, 2006 790,000 $ 0.22 9.75 61,620
========= ========= ========= ========
The Company recorded an expense of $25,905 in its consolidated statement
of operations for the three month period ended March 31, 2006. The stock
option
7
expense relates to stock options granted in the previous fiscal year. The
Company granted no stock options during the quarter ended March 31, 2006.
The following table illustrates stock options granted through March 31,
2006:
Options Outstanding Options Vested and Exercisable
-------------------------------------------------- -----------------------------------
Weighted-
Average Weighted-
Remaining Average Weighted-
Number Contractual Exercise Number Average
Range of Exercise Prices Outstanding Life (Years) Price Exercisable Exercise Price
-------------------------- ---------------- ------------- ------------- -------------- ------------------
$0.220 790,000 9.75 $ 0.220 790,000 $ 0.22
$0.428 790,000 9.75 $ 0.428 -- --
Based on future market
price 3,270,000 9.75 N/A -- --
----------- ----------- ----------- ----------- -----------
4,850,000 9.75 $ 0.32 790,000 $ 0.22
=========== =========== =========== =========== ===========
A summary of the status of the Company's non-vested shares as of March 31,
2006 and changes during the three months ended March 31, 2006 is presented
below:
Weighted Weighted
Average Average
Exercise Remaining
Number Price Per Contractual
of Shares Share Term (in years)
----------- ----------- ---------------
Nonvested Shares at
January 1, 2006 790,000 $ 0.428 9.75
Shares based on future
market price 3,270,000 N/A N/A
Options granted -- -- --
Options vested -- -- --
Options forfeited or
expired -- -- --
----------- ----------- -----------
Nonvested shares at
March 31, 2006 4,060,000 $ 0.428 9.75
=========== =========== ===========
As of March 31, 2006, there was $72,417 of unrecognized compensation cost
related to nonvested stock option awards, which is to be recognized over
the remaining weighted average vesting period of nine months.
Note 4. UNAUDITED PRO-FORMA FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed statement of operations for
the three months ended March 31, 2005 gives effect to the Merger
Agreement, Acquisition, and Real Estate Acquisition as if they occurred on
January 1, 2005. The Acquisition was accounted for under the purchase
method of accounting in accordance with Statement of Financial Accounting
Standards No. 141, Accounting for Business Combinations. Under the
purchase method of accounting, the total purchase price was allocated to
the assets acquired and liabilities assumed based upon the fair values at
the completion of the Acquisition.
8
The unaudited pro forma condensed consolidated Statement of Operations has
been prepared for illustrative purposes and are not necessarily indicative
of the condensed consolidated results of operations in future periods or
the results that would have been realized had the Acquisition actually
occurred on January 1, 2005. The pro forma adjustments are based on the
information available at the time of the preparation of this document.
GALES INDUSTRIES INCORPORATED
Condensed Consolidated Statement of Operations
For the quarter ended
March 31,
-----------------------------
2006 2005
Actual
(unaudited) (proforma)
------------ ------------
Net sales $ 8,898,272 $ 6,265,206
Cost of Sales 7,385,566 5,278,591
------------ ------------
Gross profit 1,512,706 986,615
Operating costs and expenses
Selling and marketing 155,702 69,919
General and Administrative 849,383 365,855
------------ ------------
Income from operations 507,621 550,841
Other expenses
Interest and financing costs (325,050) (205,279)
Gain on sale of life insurance policy 53,047 --
------------ ------------
Income before income taxes 235,618 345,562
Provision for income taxes 99,253 138,294
------------ ------------
Net income 136,365 207,268
Less: Dividend attributable to preferred stockholders 180,000 180,000
------------ ------------
Net income (loss) attributable to common stockholders $ (43,635) $ 27,268
============ ============
Earnings (loss) per share:
Basic $ 0.00 $ 0.00
============ ============
Diluted $ 0.00 $ 0.00
============ ============
Weighted average shares outstanding:
Basic 14,723,421 14,723,421
============ ============
Diluted 14,723,421 27,871,958
============ ============
9
Item 2. Management's Discussion and Analysis or Plan of Operation
General
We, through our wholly owned subsidiary Air Industries Machining, Corp.
("AIM"), manufacture aircraft structural parts and assemblies principally for
prime defense contractors in the defense/aerospace industry. Approximately 85%
of AIM's revenues are derived from sales of parts and assemblies directed toward
military applications, although direct sales to the military (U.S. and NATO)
constitute less than 8.5% of AIM's revenues. The remaining 15% of revenues
represent sales in the airframe manufacturing sector to major aviation
manufacturers.
AIM has evolved from being an individual parts manufacturer to being a
manufacturer of subassemblies (i.e. being an assembly constructor) and being an
engineering integrator. AIM currently produces over 2,400 individual products
(SKU's) that are assembled by a skilled labor force into electromechanical
devices, mixer assemblies, rotorhub components, rocket launching systems,
arresting gear, vibration absorbing assemblies, landing gear components and many
other subassembly packages.
Sales of parts and services to one customer accounted for approximately
69% of AIM's revenue in the first quarter of 2006, and are subject to General
Ordering Agreements which were recently renegotiated and extended through 2010.
Results of Operations
The Management's Discussion and Analysis below discusses our unaudited
results of operations for the quarter ending March 31, 2006. Currently, the
operations of AIM are our only business. As a basis for comparison, we have set
forth below the unaudited pro forma results of AIM's operations for the quarter
ended March 31, 2005. Such pro forma results reflect the operations of AIM after
giving effect to the Merger, the Acquisition and the Real Estate Acquisition as
if they occurred on January 1, 2005. See Note 4 to our Consolidated Financial
Statements.
AIM historically operated as a private company. There can be no assurance
that our future operating results will be comparable to those achieved by AIM in
the past. It should also be noted that, prior to the Acquisition, AIM operated
as a Subchapter S company and incurred no income taxes. For purposes of the
following discussion, we have assumed that AIM incurred income taxes during 2005
at an effective rate of 40.02%.
The, following discussion and analysis should be read in conjunction with
the financial statements and notes, included with this report.
10
--------------------------------------------------------------------------------
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005 (pro
(actual) forma) (1)
--------------------------------------------------------------------------------
Net Sales $8,898,272 $6,265,206
--------------------------------------------------------------------------------
Cost of Sales 7,385,566 5,278,591
--------------------------------------------------------------------------------
Gross Profit 1,512,706 986,615
--------------------------------------------------------------------------------
Selling and Marketing Expenses 155,702 69,919
G&A Expense 849,383 365,855
Interest Expense 325,050 205,279
Gain on sale of life insurance policy 53,047
Income before Income Taxes 235,618 345,562
Provision for Income Taxes(2) 99,253 138,294
Net Income 136,365 207,268
Less Dividend Attributable to
Preferred Stock 180,000 180,000
Net Income (Loss) Attributable
to Common Stock (43,635) 27,268
--------------------------------------------------------------------------------
1) The information for March 31, 2005, reflects the historical operations of
AIM after giving effect to the Merger, the Acquisition and the Real Estate
Acquisition as if they occurred on January 1, 2005.
2) Prior to November 30, 2005, AIM elected to be treated under Subchapter "S"
of the Internal Revenue Code and incurred no income taxes For purposes of
presentation taxes were calculated using an effective 40.02% tax rate in
accordance with FAS 109.
Results of Operations
Three months ended March 31, 2006 compared with three months ended March 31,
2005
Net Sales. Net sales were $8,898,272 for the three months ended March 31,
2006 ("First Quarter 2006"), an increase of $2,633,066 (42.0%) from net sales of
$6,265,206 for the three months ended March 31, 2005 ("First Quarter 2005"). The
increase in net sales was attributable to increased shipments of parts and
related defense components to one customer which caused the portion of our
revenues derived from such customer to increase from approximately 50% in 2005
to approximately 69% in the First Quarter 2006.
11
Gross Profit. Gross profit was $1,512,706 in First Quarter 2006 (17.0% of
net sales), compared to gross profit of $986,615 in First Quarter 2005 (15.7% of
net sales). The increase in gross profit primarily reflects the increase in net
sales. The increase in gross profit as a percentage of net sales represents a
slight increase in the sales of higher margin products, as well as the
elimination of rent paid on the Company's facilities as a result of the Real
Estate Acquisition, partially offset by the mortgage interest and depreciation
of the Company's facilities allocated to sales, and reduction of payroll taxes
and related benefits as a result of the reallocation of the costs of certain
executives.
Selling and Marketing Expenses. Selling and marketing expenses were
$155,702 in First Quarter 2006, an increase of $122.7% from selling and
marketing expenses of $69,919 in First Quarter 2005. The increase in selling and
marketing expenses reflects the up-front recognition of costs related to leased
automobiles for the Company's executives and increased travel and entertainment
expenses related to increased sales activity.
General and Administrative Expenses. General and administrative expenses
were $849,383 in First Quarter 2006, an increase of $483,528 (132.2%) from
general and administrative expenses of $365,855 in First Quarter 2005. The
increase reflects (i) higher depreciation relating to the step-up in basis of
the Company's real property and mortgage interest charges resulting from the
Real Estate Acquisition, partially offset by the elimination of rent expense,
and (ii) higher salaries as a result of the reallocation of the costs of certain
executives.
Interest and Financing Costs. Interest and financing costs were $325,050
in First Quarter 2006, an increase of $119,771 (58.3%) from interest and
financing costs of $205,279 in First Quarter 2005. The increase in interest and
financing costs resulted from higher interest rates, interest accruing on the
promissory notes issued to the former shareholders of AIM in connection with the
AIM Acquisition, interest accruing on the new term loan and the larger revolving
credit facility.
Gain on the Sale of Life Insurance Policy. Gain on the sale of life
insurance policy was $53,047 in First Quarter 2006 and was a one-time gain.
Income before Income Taxes. Net income before provision for income taxes
was $235,618 in First Quarter 2006 and $345,562 in First Quarter 2005. Provision
for income taxes was $99,253 for First Quarter 2006 and $138,294 for First
Quarter 2005, based on an effective tax rate of 40.02% for both periods.
Net Income. Net income decreased from $207,268 in First Quarter 2005 to
$136,365 in First Quarter 2006. The decrease in net income reflects the fact
that the Company's higher gross profit was more than offset by an increase in
interest and financing costs from First Quarter 2005 to First Quarter 2006, as
well as increases in general and administrative and selling and marketing
expenses.
Net Loss Attributable to Common Stock. Because the dividend payable on the
Company's preferred stock for the First Quarter 2006 exceeded the Company's net
income during such period. There was a Net Loss Attributable to Common Stock of
$43,635 as compared to Net Income Attributable to Common Stock, on a pro forma
basis, of $27,268 for the First Quarter 2005.
12
Impact of Inflation
Inflation has not had a material effect on our results of operations.
Liquidity and Capital Resources
We used approximately $4,225 in our operations during the quarter ended
March 31, 2006. The use of cash in operations reflects the increase in our
accounts receivable and inventory of $1,181,596 and $926,671, respectively,
partially offset by the increase in our accounts payable and accrued expenses of
$1,877,767. This increase in inventory and accounts payable resulted, in part,
from work flow disruptions at our principal customer which prevented us from
shipping all of the inventory originally anticipated and similarly delayed
payments from this customer.
At March 31, 2006, we had cash and cash equivalents of $877,812 and
working capital of $4,072,651 as compared to $1,058,416 and $4,113,235 as of
December 31, 2005. We believe that our cash requirements in the next twelve
months will be met by our revenues from operations, our cash reserves, and the
amounts available under the New Loan Facility put in place in connection with
the acquisition of AIM and its corporate company.
AIM had financed its operations and investments up to the Closing Date
principally through revenues from operations. As a private company, AIM did not
have many of the expenses which we have as a public company. As a result of the
AIM Acquisition, we have significantly increased cash requirements relating to
the preparation of financial statements, our compliance with requirements under
the Securities Exchange Act of 1934, the registration of shares under the
Securities Act of 1933, and other requirements applicable to public companies.
We expect such increased cash requirements to be approximately $750,000 in 2006,
subject to a substantial increase if we become obligated to comply with Section
404 of Sarbanes-Oxley.
In connection with the Acquisition of AIM, we incurred notes payable
obligations in the aggregate principal amount of $1,627,262, of which $665,262
are in the form of convertible promissory notes which we may convert into shares
of our Common Stock at $.40 per share upon effectiveness of the Registration
Statement on Form SB-2 which we have filed under the Securities Act of 1933. The
remaining $962,000 principal amount of note is repayable by us in 20 equal
quarterly installments of $48,100 principal plus interest.
The terms of the New Loan Facility are set forth in our Consolidated
Financial Statements included in our Annual Report on Form 10-KSB for the year
ended December 31, 2005. Under the New Loan Facility, as of March 31, 2006, we
had revolving loan balances of $5,942,661 and $160,959, a term loan balance of
$3,468,333 and an equipment loan balance of $411,200.
As of March 31, 2006, we had capital lease obligations totaling
$1,090,628.
As of March 31, 2006, one customer accounted for approximately 50% of our
accounts receivable. In addition, this customer accounted for approximately 69%
of our total revenue for the quarter ended March 31, 2006. In the event such
customer is unable or unwilling to pay us our accounts receivable from such
customer, or in the event our relationship with such customer is severed or
negatively affected, our results of operations will be materially adversely
affected and we may not have the resources to meet our capital obligations.
Forward Looking Statements
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. This report contains a
number of forward-looking statements that reflect management's current views and
13
expectations with respect to our business, strategies, future results and events
and financial performance. All statements made in this Report other than
statements of historical fact, including statements that address operating
performance, events or developments that management expects or anticipates will
or may occur in the future, including statements related to distributor
channels, volume growth, revenues, profitability, adequacy of funds from
operations, statements expressing general optimism about future operating
results and non-historical information, are forward looking statements. In
particular, the words "believe," "expect," "intend," " anticipate," "estimate,"
"may," "will," variations of such words, and similar expressions identify
forward-looking statements, but are not the exclusive means of identifying such
statements and their absence does not mean that the statement is not
forward-looking. These forward-looking statements are subject to certain risks
and uncertainties, including those discussed below. Our actual results,
performance or achievements could differ materially from historical results as
well as those expressed in, anticipated or implied by these forward-looking
statements. We do not undertake any obligation to revise these forward-looking
statements to reflect any future events or circumstances.
Readers should not place undue reliance on these forward-looking
statements, which are based on management's current expectations and projections
about future events, are not guarantees of future performance, are subject to
risks, uncertainties and assumptions (including those described below) and apply
only as of the date of this report. Our actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed below in "Risk
Factors" as well as those discussed elsewhere in this report, and the risks
discussed in our press releases and other communications to shareholders issued
by us from time to time which attempt to advise interested parties of the risks
and factors that may affect our business. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Risk Factors
If any of the events described below occurs, our operating results would
be dramatically adversely affected, which in turn could cause the price of our
Common Stock to decline, perhaps significantly. Further, we may not be able to
continue our operations.
Risks of the Acquisition
There can be no assurance that any benefits to AIM's business will be
achieved from its acquisition by Original Gales and the merger of Original Gales
into the Company, the Real Estate Acquisition or the New Loan Facility (the
"Transactions") or that the results of operations of AIM prior to the Merger
will not be adversely impacted by the Transactions. As of November 30, 2005,
Luis Peragallo and Jorge Peragallo, formerly the principal shareholders of AIM,
resigned from their positions with AIM. Even though Peter Rettaliata and Dario
Peragallo, two of AIM's officers (President and Executive Vice President,
respectively), will continue to serve as officers of AIM and will serve as
officers of our Company, there can be no assurance that the management of our
company will have the necessary experience to operate AIM's business. The
process of combining the organizations of Original Gales, AIM and our Company
could interrupt the activities of part or all of AIM's business, and could cause
fundamental changes in AIM's business, which could have an adverse effect on the
14
results of operations. The past results of AIM's operations are not necessarily
indicative of the future results of our operations. In addition, AIM's results
of operations will be affected by the significant increase in expenses relating
to financial statements preparation and other requirements applicable to
publicly traded companies.
The inability to successfully manage the growth of our business may have a
material adverse effect on our business, results or operations and financial
condition.
We expect to experience growth in the number of employees and the scope of
our operations as a result of internal growth and acquisitions. Such activities
could result in increased responsibilities for management.
Our future success will be highly dependent upon our ability to manage
successfully the expansion of operations. Our ability to manage and support our
growth effectively will be substantially dependent on our ability to implement
adequate improvements to financial, inventory, management controls, reporting,
union relationships, order entry systems and other procedures, and hire
sufficient numbers of financial, accounting, administrative, and management
personnel. There can be no assurance that we will be able to identify, attract
and retain experienced personnel.
Our future success depends on our ability to address potential market
opportunities and to manage expenses to match our ability to finance operations.
The need to control our expenses will place a significant strain on our
management and operational resources. If we are unable to control our expenses
effectively, our business, results of operations and financial condition may be
adversely affected.
The unsuccessful integration of a business or business segment we acquire
could have a material adverse effect on our results.
As part of our business strategy, we expect to acquire assets and
businesses relating to or complementary to our operations. These acquisitions
will involve risks commonly encountered in acquisitions. These risks include,
among other things, exposure to unknown liabilities of the acquired companies,
additional acquisition costs and unanticipated expenses. Our quarterly and
annual operating results will fluctuate due to the costs and expenses of
acquiring and integrating new businesses. We may also experience difficulties in
assimilating the operations and personnel of acquired businesses. Our ongoing
business may be disrupted and our management's time and attention diverted from
existing operations. Our acquisition strategy will likely require additional
debt or equity financing, resulting in additional leverage or dilution of
ownership. We cannot assure you that any future acquisition will be consummated,
or that if consummated, that we will be able to integrate such acquisition
successfully.
Any reduction in government spending on defense could materially adversely
impact our revenues, results of operations and financial condition.
There are risks associated with programs that are subject to appropriation
by Congress, which could be potential targets for reductions in funding to pay
for other programs. Future reductions in United States Government spending on
defense or future changes in the kind of defense products required by United
States Government agencies could limit demand for our products, which would have
a materially adverse effect on our operating results and financial condition.
15
In addition, potential shifts in responsibilities and functions within the
defense and intelligence communities could result in a reduction of orders for
defense products by segments of the defense industry that have historically been
our major customers. As a result, demand for our products could decline,
resulting in a decrease in revenues and materially adversely affecting our
operating results and financial condition.
We depend on revenues from a few significant relationships and any loss,
cancellation, reduction, or interruption in these relationships could harm our
business.
As of March 31, 2006, one customer accounted for approximately 50% of our
accounts receivable. In addition, this customer accounted for approximately 69%
of our total revenue for the quarter ended March 31, 2006. In the event such
customer is unable or unwilling to pay us our accounts receivable from such
customer, or in the event our relationship with such customer is severed or
negatively affected, our results of operations will be materially adversely
affected and we may not have the resources to meet our capital obligations.
In general, AIM has derived a material portion of its revenue from one or
a limited number of customers. We expect that in future periods we may enter
into contracts with customers which represent a significant concentration of our
revenues. If such contracts were terminated, our revenues and net income could
significantly decline. Our success will depend on our continued ability to
develop and manage relationships with significant customers. Any adverse change
in our relationship with our significant customers could have a material adverse
effect on our business. Although we are attempting to expand our customer base,
we expect that our customer concentration will not change significantly in the
near future. The markets in which we sell our products are dominated by a
relatively small number of customers who have contracts with United States
governmental agencies, thereby limiting the number of potential customers. We
cannot be sure that we will be able to retain our largest customers or that we
will be able to attract additional customers, or that our customers will
continue to buy our products in the same amounts as in prior years. The loss of
one or more of our largest customers, any reduction or interruption in sales to
these customers, our inability to successfully develop relationships with
additional customers or future price concessions that we may have to make, could
significantly harm our business.
Continued competition in our markets may lead to a reduction in our
revenues and market share.
The defense and aerospace component manufacturing market is highly
competitive and we expect that competition will continue to increase. Current
competitors have significantly greater technical, manufacturing, financial and
marketing resources than we do. We expect that more companies will enter the
defense and aerospace component manufacturing market. We may not be able to
compete successfully against either current or future competitors. Increased
competition could result in reduced revenue, lower margins or loss of market
share, any of which could significantly harm our business.
Our future revenues are inherently unpredictable, our operating results
are likely to fluctuate from period to period and if we fail to meet the
expectations of securities analysts or investors, our stock price could decline
significantly.
16
Our quarterly and annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, some of which are
outside our control. Accordingly, we believe that period-to-period comparisons
of our results of operations are not meaningful and should not be relied upon as
indications of performance. Some of the factors that could cause quarterly or
annual operating results to fluctuate include conditions inherent in government
contracting and our business such as the timing of cost and expense recognition
for contracts, the United States Government contracting and budget cycles,
introduction of new government regulations and standards, contract closeouts,
variations in manufacturing efficiencies, our ability to obtain components and
subassemblies from contract manufacturers and suppliers, general economic
conditions and economic conditions specific to the defense market. Because we
base our operating expenses on anticipated revenue trends and a high percentage
of our expenses are fixed in the short term, any delay in generating or
recognizing forecasted revenues could significantly harm our business.
Fluctuations in quarterly results, competition or announcements of extraordinary
events such as acquisitions or litigation may cause earnings to fall below the
expectations of securities analysts and investors. In this event, the trading
price of our Common Stock could significantly decline. In addition, there can be
no assurance that an active trading market will be sustained for our Common
Stock. These fluctuations, as well as general economic and market conditions,
may adversely affect the future market price of our Common Stock, as well as our
overall operating results.
We may lose sales if our suppliers fail to meet our needs.
Although we procure most of our parts and components from multiple sources
or believe that these components are readily available from numerous sources,
certain components are available only from sole sources or from a limited number
of sources. While we believe that substitute components or assemblies could be
obtained, use of substitutes would require development of new suppliers or would
require us to re-engineer our products, or both, which could delay shipment of
our products and could have a materially adverse effect on our operating results
and financial condition.
Attracting and retaining key personnel is an essential element of our
future success.
Our future success depends to a significant extent upon the continued
service of our executive officers and other key management and technical
personnel and on our ability to continue to attract, retain and motivate
executive and other key employees, including those in managerial, technical,
marketing and information technology support positions. Attracting and retaining
skilled workers and qualified sales representatives is also critical to us.
Experienced management and technical, marketing and support personnel in the
defense and aerospace industries are in demand and competition for their talents
is intense. The loss of the services of one or more of our key employees or our
failure to attract, retain and motivate qualified personnel could have a
material adverse effect on our business, financial condition and results of
operations.
Terrorist acts and acts of war may seriously harm our business, results of
operations and financial condition.
United States and global responses to the Middle East conflict, terrorism,
perceived nuclear, biological and chemical threats and other global crises
increase uncertainties with respect to U.S. and other business and financial
markets. Several factors associated, directly or indirectly, with the Middle
East conflict, terrorism, perceived nuclear, biological and chemical threats,
and other global crises and responses thereto, may adversely affect the Company.
17
While some of our products may experience greater demand as a result of
increased U.S. Government defense spending, various responses could realign U.S.
Government programs and affect the composition, funding or timing of our
government programs and those of our customers. U.S. Government spending could
shift to defense programs in which we and our customers do not participate. As a
result of the September 11th terrorist attacks and given the current Middle East
and global situation, U.S. defense spending is generally expected to increase
over the next several years. Increased defense spending does not necessarily
correlate to increased business, because not all the programs in which we
participate or have current capabilities may be earmarked for increased funding.
Terrorist acts of war (wherever located around the world) may cause damage
or disruption to us, our employees, facilities, partners, suppliers,
distributors and resellers, and customers, which could significantly impact our
revenues, expenses and financial condition. The terrorist attacks that took
place in the United States on September 11, 2001 were unprecedented events that
have created many economic and political uncertainties. The potential for future
terrorist attacks, the national and international responses to terrorist
attacks, and other acts of war or hostility have created many economic and
political uncertainties, which could adversely affect our business and results
of operations in ways that cannot presently be predicted. In addition, as a
company with headquarters and significant operations located in the United
States, we may be impacted by actions against the United States.
Our indebtedness may affect operations.
We incurred significant indebtedness under the New Loan Facility. This
indebtedness far exceeds the amount of pre-Merger debt of AIM. As a result, we
are significantly leveraged and our indebtedness is substantial in relation to
our stockholders' equity. Our ability to make principal and interest payments
will depend on future performance, which is subject to many factors, some of
which are outside our control. In addition, the New Loan Facility is secured by
substantially all of our assets, including the real estate acquired in the Real
Estate Acquisition. In the case of a continuing default under the New Loan
Facility, the lender will have the right to foreclose on AIM's assets, which
would have a material adverse effect on the Company. Payment of principal and
interest on the New Loan Facility may limit our ability to pay cash dividends to
shareholders and the documents governing the New Loan Facility will prohibit the
payment of cash dividends. Our leverage may also adversely affect our ability to
finance future operations and capital needs, may limit our ability to pursue
other business opportunities and may make our results of operations more
susceptible to adverse economic conditions.
Absence of Principal Shareholders' Guarantees and Financial Accommodations
Historically, AIM obtained money and achieved other financial
accommodations through arrangements guaranteed by the AIM's former shareholders.
Since they sold their shares of AIM in connection with the Acquisition, such
former shareholders of AIM will not be providing any financial assistance to us
or AIM on a going-forward basis. Consequently, we are no longer able to rely
upon the credit of AIM's former shareholders when seeking to borrow money or
obtain other financial accommodations.
18
We may issue shares of our capital stock or debt securities to complete an
acquisition, which would reduce the equity interest of our stockholders.
We will, in all likelihood, issue additional shares of our Common Stock or
preferred stock, or a combination of common and preferred stock, to complete an
acquisition. The issuance of additional shares of our Common Stock or any number
of shares of our preferred stock may significantly reduce the equity interest of
our current stockholders, may subordinate the rights of holders of our Common
Stock if preferred stock is issued with rights senior to the Common Stock and
may adversely affect prevailing market prices for our Common Stock.
Similarly, if we issue debt securities, it could result in default and
foreclosure on our assets if our operating revenues after an acquisition were
insufficient to pay our debt obligations, could result in the acceleration of
our obligations to repay the indebtedness even if we have made all principal and
interest payments when due if the debt security contains covenants that require
the maintenance of certain financial ratios or reserves and any such covenant is
breached without a waiver or renegotiation of that covenant, and could result in
our inability to obtain additional financing if the debt security contains
covenants restricting our ability to obtain additional financing while such
security is outstanding.
Because of our limited resources and the significant competition for
acquisitions, we may not be able to consummate an acquisition with growth
potential, if at all.
We expect to encounter intense competition from other entities having a
business objective similar to ours, including venture capital funds, leveraged
buyout funds and operating businesses competing for acquisitions. Many of these
entities are well established and have extensive experience in identifying and
effecting business combinations directly or through affiliates. Many of these
competitors possess greater technical, human and other resources than we do and
our financial resources will be relatively limited when contrasted with those of
many of these competitors. While we believe that there are numerous potential
target businesses that we could acquire, our ability to compete in acquiring
certain target businesses will be limited by our available financial resources.
This inherent competitive limitation gives others an advantage in pursuing the
acquisition of certain target businesses.
We may be unable to obtain additional financing, if required, to complete
an acquisition or to fund the operations and growth of any business acquired,
which could compel us to abandon a particular prospective acquisition.
If we require additional financing to complete an acquisition, we cannot
assure you that such financing would be available on acceptable terms, if at
all. To the extent that additional financing proves to be unavailable when
needed to consummate a particular acquisition, we would be compelled to
restructure the transaction or abandon that particular acquisition. In addition,
if we consummate an acquisition, we may require additional financing to fund the
operations or growth of the business acquired. The failure to secure additional
financing could have a material adverse effect on the continued development or
growth of our business.
There is only a limited public market for our securities.
The trading market for our Common Stock is limited and conducted on the
OTC Bulletin Board. Our Common Stock is very thinly traded. There can be no
assurance that we will ever achieve a listing of our securities on Nasdaq or a
stock exchange or that a more active trading market will ever develop, or, if
developed, that it will be sustained.
19
Potential Adverse Effect on Market Price of Securities from Future Sales
of Common Stock.
Future sales of Common Stock pursuant to a registration statement or Rule
144 under the Securities Act, or the perception that such sales could occur,
could have an adverse effect on the market price of the Common Stock. We have
filed a Registration Statement on form SB-2 covering the resale by selling
security holders of more than 60,000,000 shares of Common Stock. This
Registration Statement (No. 333-131709) has not yet been declared effective.
Relative to the number of shares of our freely-trading Common Stock outstanding,
which we estimate to be approximately 2.52 million shares, the number of shares
which will be sold into the marketplace pursuant to our current Registration
Statement will be enormous. We believe that such sales will severely depress the
market price of our Common Stock. We also intend to register on Form S-8 under
the Securities Act an additional 10,000,000 shares of Common Stock, which are
the shares available for issuance under our 2005 Stock Incentive Plan, of which,
as of March 31, 2006, we have granted stock options to purchase 4,850,000 shares
of our Common Stock. In addition, shares of our Common Stock held for one year
or more will be eligible for public resale pursuant to Rule 144. In general, the
shares of Common Stock which we issued in connection with the Merger and the
Acquisition will become eligible for public resale under Rule 144 as of November
30, 2006. In addition, we may use our capital stock in the future to finance
acquisitions and to compensate employees and management, which will further
dilute the interests of our existing shareholders and could eventually
significantly depress the trading price of our Common Stock.
Dilution from Shares to Be Issued in Potential Acquisitions
Our business plan calls for our making acquisitions in the future. We will
very likely issue a significant number of shares of our capital stock to pay for
each such acquisition. Such issuances of shares will dilute the interests of our
existing shareholders and could depress the trading price of our Common Stock.
Effect of Stock Options
Our 2005 Stock Incentive Plan allows for the issuance of up to 10,000,000
shares of Common Stock, either as stock grants or options, to employees,
officers, directors, advisors and consultants of the Company. As of November 30,
2005, options to purchase 4,850,000 shares of Original Gales' common stock
became options to purchase shares of our Common Stock under our 2005 Stock
Incentive Plan. The committee administering such plans will have sole authority
and discretion to grant options under such plans. We may grant options which
become immediately exercisable in the event of a change in control of the
Company and in the event of certain mergers and reorganizations of the Company.
The existence of such options could limit the price that certain investors might
be willing to pay in the future for shares of our Common Stock and may have the
effect of delaying or preventing a change in control of the Company. The
issuance of additional shares upon the exercise of such options could also
decrease the amount of earnings and assets available for distribution to the
holders of the Common Stock and could result in the dilution of voting power of
the Common Stock.
20
The Series A Convertible Preferred Stock
We have 900 shares of Series A Convertible Preferred Stock ("Preferred
Stock") issued and outstanding. Each share of Preferred Stock is convertible at
the option of the holder at any time into 45,455 shares of Common Stock, at the
conversion price of $0.22 per share. The Preferred Stock will be automatically
converted into Common Stock, at the then applicable conversion rate, at such
time as the shares of Common Stock underlying the Preferred Stock have been
registered for resale under the Securities Act of 1933 and the registration
statement (the "Registration Statement") with respect to such shares has been
declared effective. The holders of Preferred Stock are entitled to receive
payment-in-kind dividends (payable in shares of Preferred Stock), prior to and
in preference to any declaration or payment of any dividend on the Common Stock,
at the rate of 8% per annum. However, if the Registration Statement is not
declared effective by June 15, 2006, the dividends on the Preferred Stock are
required to be paid in cash from the date of such default until the default is
cured. Such dividends are required to be paid until the Preferred Stock is
converted into shares of Common Stock. In general, the holders of the Preferred
Stock do not have any voting rights until June 15, 2006. After June 15, 2006,
however, the holders of the Preferred Stock will have voting rights as though
their shares of Preferred Stock were converted into Common Stock and, as a
group, will control a majority of the voting shares of the Company and will have
the ability to elect a majority of the members of our Board of Directors and
otherwise control the Company.
Prior to November 30, 2005, AIM was not subject to Sarbanes-Oxley
regulations and, therefore, may have lacked the financial controls and
procedures of public companies.
Prior to November 30, 2005, AIM did not have the internal or financial
control infrastructure necessary to meet the standards of a public company,
including the standards required by the Sarbanes Oxley Act of 2002 ("Sarbanes
Oxley"). Because AIM was not subject to Sarbanes Oxley, its internal and
financial controls reflected its status as a non-public company. AIM did not
have the internal infrastructure necessary to complete an attestation about its
financial controls that would be required under Section 404 of Sarbanes Oxley.
We are now required to comply with portions of Sarbanes Oxley and currently
estimate that the costs of complying with Sarbanes Oxley and other requirements
associated with being a public company will be $750,000 during calendar year
2006, and such cost will likely increase at such time as we are required to
comply with Section 404 of Sarbanes Oxley.
Item 3. Controls and Procedures
As of the end of the period covered by this report, our management,
including our principal executive officer and our principal financial officer,
have conducted an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15 under the Securities Exchange Act of
1934). Based upon that evaluation, our principal executive officer and our chief
financial officer have concluded that our disclosure controls and procedures are
effective in timely alerting them of material information relating to us that is
required to be disclosed by us in the reports we file or submit under the
Exchange Act.
Because AIM was subject to stringent performance criteria imposed by its
customers and as a consequence of its government contracts, in our management's
estimation, its disclosure controls and procedures were superior to those of
most privately held companies of comparable size. Nevertheless, its controls and
21
procedures were not designed to facilitate the external financial reporting
required of a publicly held company. Although no material weaknesses were found
in our disclosure controls and procedures as of March 31, 2006, to ensure the
reliability of future financial reports, our management has determined to
complete the implementation of a total financial and operating control system
that AIM installed during 2005. In addition, management has determined to hire
support personnel experienced with the reporting requirements imposed upon
public companies to facilitate the timely preparation of accurate financial
reports. Except for these planned changes and those resulting from the
acquisition of AIM and the substitution of its accounting procedures for those
of ours in effect prior to November 30, 2005, there have been no significant
changes made in our internal controls or in other factors that could
significantly affect our internal controls subsequent to March 31, 2006 or
during the quarter ended March 31, 2006.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
In January 2006, shareholders holding 7,717,603 shares (approximately
52.5%) of the shares of our Common Stock outstanding at such time consented in
writing, without a meeting, to change our Company's name from Ashlin Development
Corporation to Gales Industries Incorporated, to change our domicile from
Florida to Delaware and to adopt our 2005 Stock Incentive Plan. On or about
January 24, 2006, we mailed to our shareholders an information statement on
Schedule 14C with respect to such matters and, on February 15, 2006, we changed
our name and domicile as described above and the shareholder approval of our
2005 Stock Incentive Plan was completed.
22
Item 6. Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description of Exhibit
31.1 -- Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.
31.2 -- Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.
32.1 -- Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2 -- Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 12, 2006
GALES INDUSTRIES INCORPRATED
By: /s/ Michael A. Gales
---------------------------
Michael A. Gales,
Executive Chairman
/s/ Louis A. Giusto
---------------------------
Louis A. Giusto,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23
EXHIBIT INDEX
Exhibit No. Description of Exhibit
31.1 -- Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.
31.2 -- Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934.
32.1 -- Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2 -- Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
1