Commitments and Contingencies

In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters; however, it does not believe any such matters are material to its financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is possible that the Company’s future operating results could be affected by future costs of litigation.

A subsidiary of the Company, Quality Aluminum Forge, LLC ("Orange"), is currently a defendant in a lawsuit filed by Avco Corporation (“Avco”) in the Pennsylvania State Court, which was filed in August 2019, alleging that certain forged pistons delivered by the Orange plant failed to meet material specifications required by Avco. No specific amount of damages was claimed by Avco and no discovery has occurred at this time and Orange disagrees with the allegations made by Avco. Previously, Orange was a defendant with respect to the same action in the United States District Court for the District of Rhode Island, which action was dismissed in connection with the movement of the matter to Pennsylvania State Court. Although the Company records reserves for legal disputes and other matters in accordance with GAAP, the ultimate outcomes of these types of matters are inherently uncertain. Actual results may differ significantly from current estimates. Given the current status of this matter, the Company has not recorded a loss, as the Company does not have a reasonable basis on which to establish an estimate.

The Company is a defendant in a purported class action lawsuit filed in the Superior Court of California, County of Orange, which was filed in August 2017, arising from employee wage-and-hour claims under California law for alleged meal period, rest break, hourly and overtime wage calculation, timely wage payment and necessary expenditure indemnification violations; failure to maintain required wage records and furnish accurate wage statements; and unfair competition, which is similar to the one previously settled in fiscal 2018. As mentioned previously, the Company records reserves for legal disputes and other matters in accordance with GAAP, the ultimate outcomes of these types of matters are inherently uncertain. Actual results may differ significantly from current estimates. Given the current status of this matter, the Company recorded an estimated loss of $250 as of September 30, 2019 and an additional loss of $65 was recorded as of December 31, 2019.

Recovery on the insurance claim related to the fire on December 26, 2018 at to the Orange location continues in fiscal 2020. The Company continues to work diligently to restore the site back to full service as safely and quickly as possible. The 2500 ton press from storage that was placed in service in fiscal 2019 continues to run and the press located in Michigan was taken off-line at the end of November 2019 and was relocated to Orange at the end of December. Restoration is nearly complete for the structure of the manufacturing building and two additional presses damaged in the fire. The Company began running one of the restored presses at the end of December 2019, while the second is expected to be in use starting March 2020. During the first quarter of fiscal 2020, the Company received cash proceeds from insurance of $4,500. The table below reflects the receipt of proceeds and how they were expended as of December 31, 2019. Any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when the gain is realized or realizable. The Company also maintains business interruption insurance coverage and continues to work with the insurance company to reach an agreement on the recoverable amounts of business interruption expenses, which none were realized in the first quarter of fiscal 2020.



Balance sheet (Other receivables):

September 30, 2019		$	3,500
	Cash proceeds	(4,500		)
	Capital expenditures (equipment)	—
	Other expenses	1,170
	Business interruption	—
December 31, 2019		$	170

The tables below reflect how the proceeds received impacted the consolidated condensed statements of operations for the three months December 31,2019.



	Three Months Ended December 31, 2019
	Balance without insurance proceeds			Insurance recoveries			Balance with insurance proceeds
Cost of goods sold	24,053			(1,170		)	22,883
Net loss	$	(2,512	)	$	(1,170	)	$	(1,342	)