4.15 | Twelfth Amendment to Loan Agreement dated February 14, 2013 by and between Ranor, Inc. and Sovereign Bank, N.A. (Exhibit 10.1 to our Current Report on Form 8-K, filed with the Commission on February 19, 2013 and incorporated herein by reference). 10.1 | Preferred Stock Purchase Agreement, dated February 24, 2006, between the Registrant and Barron Partners LP (Exhibit 99.1 to our current reportCurrent Report on Form 8-K, filed with the Commission on March 3, 2006 and incorporated herein by reference). | 10.2 | Registration Rights Agreement, dated February 24, 2006, between the Registrant and Barron Partners LP (Exhibit 99.2 to our current reportCurrent Report on Form 8-K, filed with the Commission on March 3, 2006 and incorporated herein by reference). | 10.3 | Agreement dated February 24, 2006, among the Registrant, Ranor Acquisition LLC and the members of Ranor Acquisition LLC (Exhibit 99.3 to our current reportCurrent Report on Form 8-K, filed with the Commission on March 3, 2006 and incorporated herein by reference). | 10.4 | Subscription Agreement, dated February 24, 2006, between the Registrant and certain purchasers of the Registrant’s Common Stock (Exhibit 99.4 to our current reportCurrent Report on Form 8-K, filed with the Commission on March 3, 2006 and incorporated herein by reference). | 10.5 | Registration Rights Provisions, dated February 24, 2006, between the Registrant and certain purchasers of the Registrant’s Common Stock (Exhibit 99.5 to our current reportCurrent Report on Form 8-K, filed with the Commission on March 3, 2006 and incorporated herein by reference). | 10.6† | Employment Agreement, dated February 24, 2006, between the Registrant and Stanley Youtt (Exhibit 99.6 to our current report on Form 8-K, filed with the Commission on March 3, 2006 and incorporated herein by reference). | 10.7 | 2006 Long-term Incentive Plan, as restated effective November 22, 2010 (Exhibit 10.2 to our quarterly report on Form 10-Q, filed with the Commission on February 14, 2011 and incorporated herein by reference). |
10.810.7 | Limited Guarantee, dated October 4, 2006, by Andrew Levy in favor of Amalgamated Bank (Exhibit 10.13 to our annual report on Form 10-KSB, filed with the Commission on July 2, 2007 and incorporated herein by reference). | 10.910.8† | At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement, dated July 21, 2010, between the Registrant and James Molinaro (Exhibit 10.2 to our current reportCurrent Report on Form 8-K, filed with the Commission on July 22, 2010 and incorporated herein by reference). | 10.1010.9 | Lease Agreement, dated November 17, 2010, between Center Valley Parkway Associates, L.P. and the Registrant (Exhibit 10.1 to our quarterly report on Form 10-Q, filed with the Commission on February 14, 2011 and incorporated herein by reference). | 10.1110.10 | Purchase and Sale Agreement, dated December 20, 2010, between WM Realty Management, LLC and Ranor, Inc. dated December 20, 2010 (Exhibit 10.3 to our quarterly report on Form 10-Q, filed with the Commission on February 14, 2011 and incorporated herein by reference). | 10.1010.11 | Amendment, dated May 31, 2007, to the Agreement between the CompanyTechPrecision Corporation and Barron Partners LP dated August 17, 2005 (Exhibit 10.14 to our annual report on Form 10-KSB, filed with the Commission on July 2, 2007 and incorporated herein by reference). | 10.1110.12† | Separation, Severance and Release Agreement, dated March 31, 2009, between the Registrant and James G. Reindl (Exhibit 10.1 to our current reportCurrent Report on Form 8-K, filed with the Commission on April 2, 2009 and incorporated herein by reference). | 10.1210.13† | Executive Consulting Agreement, dated March 31, 2009, between the Registrant and Louis A. Winoski (Exhibit 10.2 to our current reportCurrent Report on Form 8-K, filed with the Commission on April 2, 2009 and incorporated herein by reference). | 10.1310.14† | Employment Agreement, dated March 23, 2009, between the Registrant and Richard F. Fitzgerald (Exhibit 10.3 to our current reportCurrent Report on Form 8-K, filed with the Commission on April 2, 2009 and incorporated herein by reference). | 10.1410.15† | | 10.15 | | 14.1 | Code of Business Conduct and Ethics of RegistrantFrancis (Exhibit 14.110.14 to our annual reportAnnual Report on Form 10-KSB,10-K filed with the CommissionSEC on April 17, 2006July 16, 2012 and incorporated herein by reference). | 10.16† | Form of Option Award Agreement for Directors (Exhibit 10.1 to our current report on Form 8-K filed with the SEC on June 17, 2013 and incorporated herein by reference) | 21.1 | List of Subsidiaries (Exhibit 21.1 to our annual report on Form 10-KSB, filed with the Commission on April 17, 2006 and incorporated herein by reference). | 23.1 | | 23.2 | Consent of Tabriztchi & Co., CPA, P.C. |
28
31.1 | | 31.2 | | 32.1 | | 101 | The following financial information from this Annual Report on Form 10-K for the fiscal year ended March 31, 2013, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets at March 31, 2013 and 2012; (ii) the Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2013 and 2012; (iii) the Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2013 and 2012; (iv) the Consolidated Statements of Cash Flows for the years ended March 31, 2013 and 2012; and (v) the Notes to the Consolidated Financial Statements. |
† Management contract or compensatory arrangement or plan.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
TECHPRECISION CORPORATIONJuly 16, 2012
/s/ James S. Molinaro | TechPrecision Corporation | | | | James S. Molinaro
Chief Executive Officer
| | | August 16, 2013 | By: | /s/ Richard F. Fitzgerald | | | Richard F. Fitzgerald | | | Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes James S. MolinaroLeonard M. Anthony and Richard F. Fitzgerald or either of them acting in the absence of the others, as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution for him or her and in his or her name, place and stead, in any and all capacities to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Signature | | Title | | Date | | | | | | /s/ James S. MolinaroLeonard M. Anthony | | Chief Executive OfficerChairman and Director | | JulyAugust 16, 20122013 | James S. MolinaroLeonard M. Anthony | | (principal executive officer)Principal Executive Officer) | | | | | | | | /s/ Richard F. Fitzgerald | | Chief Financial Officer | | JulyAugust 16, 20122013 | Richard F. Fitzgerald | | (principal financialPrincipal Financial and accounting officer)Accounting Officer) | | | | | | | | /s/ Michael R. Holly | | Director | | JulyAugust 16, 20122013 | Michael R. Holly | | | | | | | | | | /s/ Andrew A. Levy | | Director | | JulyAugust 16, 20122013 | Andrew A. Levy | | | | | | | | | | /s/ Philip A. Dur | | Director | | JulyAugust 16, 20122013 | Philip A. Dur | | | | | | | | | | /s/ Louis A. WinoskiRobert G. Isaman | | Director | | JulyAugust 16, 20122013 | Louis A. Winoski | | | | | | | | | | /s/ Leonard M. Anthony | | Director | | July 16, 2012 | Leonard M. AnthonyRobert G. Isaman | | | | |
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 20122013 AND 20112012
Report of Independent Registered Public Accounting FirmsFirm | | | | Consolidated Balance Sheets at March 31, 20122013 and 20112012 | | | | Consolidated Statements of Operations and Comprehensive Income (Loss)Loss for the years ended March 31, 20122013 and 20112012 | | | | Consolidated Statements of Stockholders’ Equity for the years ended March 31, 20122013 and 20112012 | | | | Consolidated Statements of Cash Flows for the years ended March 31, 20122013 and 20112012 | | | | Notes to Consolidated Financial Statements | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of TechPrecision CorporationCorporation: We have audited the accompanying consolidated balance sheetsheets of TechPrecision Corporation and subsidiaries (“the Company”) as of March 31, 2013 and 2012, and the related consolidated statements of operationoperations and comprehensive income (loss),loss, stockholders’ equity, and cash flows for the yearyears then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TechPrecision Corporation and subsidiaries as of March 31, 2012, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
July 16, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of TechPrecision Corporation
We have audited the accompanying consolidated balance sheets of TechPrecision Corporation as of March 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended March 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TechPrecision Corporation and subsidiaries as of March 31, 20112013 and 2010,2012, and the consolidated results of itstheir operations and their cash flows for each of the two years in the periodthen ended, March 31, 2011 in conformity with accounting principlesU.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the United Statesconsolidated financial statements, the Company was not in compliance with the fixed charges and interest coverage financial covenants under their credit facility, and the Bank has not agreed to waive the non-compliance with the covenants. Since the Company is in default, the Bank has the right to accelerate payment of America.the debt in full upon 60 days written notice. The Company has suffered recurring losses from operations, and the Company’s liquidity may not be sufficient to meet its debt service requirements as they come due over the next twelve months. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Tabriztchi & Co., CPA, P.C.KPMG LLP Tabriztchi & Co., CPA, P.C.
Garden City, New YorkPhiladelphia, Pennsylvania
June 29, 2011
7 Twelfth Street Garden City, NY 11530 ▪ Tel: 516-746-4200 ▪ Fax: 516-746-7900
Email:Info@Tabrizcpa.com ▪ www.Tabrizcpa.comAugust 16, 2013
F-2
TECHPRECISION CORPORATION | March 31, 2012 | | March 31, 2011 | | ASSETS | | Current assets: | | | | | Cash and cash equivalents | | $ | 2,823,485 | | | $ | 7,541,000 | | Accounts receivable, less allowance for doubtful accounts of $25,010 in 2012 and 2011 | | | 4,901,791 | | | | 5,578,072 | | Costs incurred on uncompleted contracts, in excess of progress billings | | | 3,910,026 | | | | 2,853,852 | | Inventories- raw materials | | | 373,544 | | | | 723,400 | | Income taxes receivable | | | 1,751,169 | | | | 122,263 | | Current deferred taxes | | | 1,020,208 | | | | 462,226 | | Other current assets | | | 1,486,954 | | | | 441,833 | | Total current assets | | | 16,267,177 | | | | 17,722,646 | | Property, plant and equipment, net | | | 7,395,445 | | | | 3,139,692 | | Plant and equipment under construction | | | -- | | | | 2,172,420 | | Noncurrent deferred taxes | | | 118,005 | | | | -- | | Other noncurrent assets, net | | | 270,630 | | | | 181,141 | | Total assets | | $ | 24,051,257 | | | $ | 23,215,899 | | LIABILITIES AND STOCKHOLDERS’ EQUITY: | | Current liabilities: | | | | | | | | | Accounts payable | | $ | 1,361,611 | | | $ | 1,093,350 | | Accrued expenses | | | 2,424,695 | | | | 1,291,953 | | Accrued taxes payable | | | 159,987 | | | | -- | | Deferred revenues | | | 799,413 | | | | 382,130 | | Current maturity of long-term debt | | | 1,358,933 | | | | 1,371,767 | | Total current liabilities | | | 6,104,639 | | | | 4,139,200 | | Long-term debt, including capital leases | | | 5,776,294 | | | | 5,217,421 | | Commitments and contingent liabilities (see Note 16) | | | | | | | | | Stockholders’ Equity: | | | | | | | | | Preferred stock- par value $.0001 per share, 10,000,000 shares authorized, | | | | | | | | | of which 9,890,980 are designated as Series A Preferred Stock, with | | | | | | | | | 7,035,982 and 8,878,982 shares issued and outstanding at March 31, 2012 and 2011, | | | | | | | | | (liquidation preference of $2,005,254 and $2,530,510 at March 31, 2012 and 2011) | | | 1,637,857 | | | | 2,039,631 | | Common stock -par value $.0001 per share, authorized, 90,000,000 shares | | | | | | | | | issued and outstanding, 17,992,177 shares at March 31, 2012 and | | | | | | | | | 15,422,888 at March 31, 2011 | | | 1,799 | | | | 1,543 | | Additional paid in capital | | | 4,412,075 | | | | 3,346,916 | | Accumulated other comprehensive (loss) income | | | (223,584) | | | | 5,905 | | Retained earnings | | | 6,342,177 | | | | 8,465,283 | | Total stockholders’ equity | | | 12,170,324 | | | | 13,859,278 | | Total liabilities and stockholders’ equity | | $ | 24,051,257 | | | $ | 23,215,899 | |
| March 31, 2013 | | March 31, 2012 | ASSETS | Current assets: | | | | | Cash and cash equivalents | | $ | 3,075,376 | | | $ | 2,823,485 | Accounts receivable, less allowance for doubtful accounts of $25,010 in 2013 and 2012 | | | 4,330,637 | | | | 4,901,791 | Costs incurred on uncompleted contracts, in excess of progress billings | | | 4,298,293 | | | | 3,910,026 | Inventories- raw materials | | | 354,516 | | | | 373,544 | Income taxes receivable | | | 374,030 | | | | 1,751,169 | Current deferred taxes | | | 255,765 | | | | 1,020,208 | Other current assets | | | 1,578,484 | | | | 1,486,954 | Total current assets | | | 14,267,101 | | | | 16,267,177 | Property, plant and equipment, net | | | 7,300,248 | | | | 7,395,445 | Noncurrent deferred taxes | | | -- | | | | 118,005 | Other noncurrent assets, net | | | -- | | | | 270,630 | Total assets | | $ | 21,567,349 | | | $ | 24,051,257 | LIABILITIES AND STOCKHOLDERS’ EQUITY: | | | | | | | | Current liabilities: | | | | | | | |
Accounts payable | | $ | 2,537,060 | | | $ | 1,361,611 | Accrued expenses | | | 1,874,924 | | | | 2,424,695 | Accrued taxes payable | | | 232,624 | | | | 159,987 | Deferred revenues | | | 253,813 | | | | 799,413 | Revolving credit facility | | | 500,000 | | | | -- | Debt | | | 5,784,479 | | | | 1,358,933 | Total current liabilities | | | 11,182,900 | | | | 6,104,639 | Long-term debt, including capital leases | | | 31,108 | | | | 5,776,294 | Noncurrent deferred taxes | | | 255,765 | | | | -- | Commitments and contingent liabilities (see Note 16) | | | | | | | | Stockholders’ Equity: | | | | | | | | Preferred stock- par value $.0001 per share, 10,000,000 shares authorized, | | | | | | | | of which 9,890,980 are designated as Series A Preferred Stock, with | | | | | | | | 5,532,998 and 7,035,982 shares issued and outstanding at March 31, 2013 and 2012, | | | | | | | | (liquidation preference of $1,576,904 and $2,005,254 at March 31, 2013 and 2012) | | | 1,310,206 | | | | 1,637,857 | Common stock -par value $.0001 per share, authorized, 90,000,000 shares | | | | | | | | issued and outstanding, 19,956,871 shares at March 31, 2013 | | | | | | | | and 17,992,177 at March 31, 2012 | | | 1,996 | | | | 1,799 | Additional paid in capital | | | 5,076,552 | | | | 4,412,075 | Accumulated other comprehensive loss | | | (221,418 | ) | | | (223,584) | Retained earnings | | | 3,930,240 | | | | 6,342,177 | Total stockholders’ equity | | | 10,097,576 | | | | 12,170,324 | Total liabilities and stockholders’ equity | | $ | 21,567,349 | | | $ | 24,051,257 |
TheSee accompanying notes are an integral part ofto the consolidated financial statements.
F-3
TECHPRECISION CORPORATION | CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)LOSS |
| | Years ended March 31, | | | | 2012 | | | 2011 | | Net sales | | $ | 33,266,778 | | | $ | 32,284,235 | | Cost of sales | | | 28,182,584 | | | | 22,368,320 | | Gross profit | | | 5,084,194 | | | | 9,915,915 | | Selling, general and administrative | | | 8,447,794 | | | | 5,171,190 | | (Loss) income from operations | | | (3,363,600) | | | | 4,744,725 | | Other income | | | 18,818 | | | | 62,720 | | Interest expense | | | (267,577) | | | | (425,925 | ) | Interest income | | | 20,035 | | | | 10,459 | | Finance costs | | | -- | | | | (116,110 | ) | Total other expense, net | | | (228,724) | | | | (468,856 | ) | (Loss) income before income taxes | | | (3,592,324) | | | | 4,275,869 | | Income tax (benefit) expense | | | (1,469,218) | | | | 1,588,890 | | Net (loss) income | | $ | (2,123,106) | | | $ | 2,686,979 | | Other comprehensive (loss) income, before tax: | | | | | | | | | Change in unrealized (loss) gain on cash flow hedges | | | (384,689) | | | | 9,177 | | Foreign currency translation adjustments | | | 3,385 | | | | 422 | | Other comprehensive (loss) income, before tax | | | (381,304) | | | | 9,599 | | Net tax expense of other comprehensive (loss) income items | | | 151,815 | | | | 3,694 | | Comprehensive (loss) income | | $ | (2,352,595) | | | $ | 2,692,884 | | Net (loss) income per share (basic) | | $ | (0.13) | | | $ | 0.19 | | Net (loss) income per share (diluted) | | $ | (0.13) | | | $ | 0.12 | | Weighted average number of shares outstanding (basic) | | | 16,738,213 | | | | 14,489,932 | | Weighted average number of shares outstanding (diluted) | | | 16,738,213 | | | | 22,896,251 | | | | | | | | | | |
| | Years ended March 31, | | | | 2013 | | | 2012 | | Net sales | | $ | 32,472,919 | | | $ | 33,266,778 | | Cost of sales | | | 25,914,345 | | | | 28,182,584 | | Gross profit | | | 6,558,574 | | | | 5,084,194 | | Selling, general and administrative | | | 8,160,984 | | | | 8,447,794 | | Loss from operations | | | (1,602,410 | ) | | | (3,363,600 | ) | Other (expense) income | | | (29,586 | ) | | | 18,818 | | Interest expense | | | (309,799 | ) | | | (267,577 | ) | Interest income | | | 2,189 | | | | 20,035 | | Total other expense, net | | | (337,196 | ) | | | (228,724 | ) | Loss before income taxes | | | (1,939,606 | ) | | | (3,592,324 | ) | Income tax expense (benefit) | | | 472,331 | | | | (1,469,218 | ) | Net loss | | $ | (2,411,937 | ) | | $ | (2,123,106 | ) | Other comprehensive loss, before tax: | | | | | | | | | Change in unrealized loss on cash flow hedges | | | (13,470 | ) | | | (384,689 | ) | Foreign currency translation adjustments | | | 10,964 | | | | 3,385 | | Other comprehensive loss, before tax | | | (2,506 | ) | | | (381,304 | ) | Net tax benefit of other comprehensive loss items | | | (4,672 | ) | | | (151,815 | ) | Comprehensive loss | | $ | (2,409,771 | ) | | $ | (2,352,595 | ) | Net loss per share (basic) | | $ | (0.13 | ) | | $ | (0.13) | | Net loss per share (diluted) | | $ | (0.13 | ) | | $ | (0.13) | | Weighted average number of shares outstanding (basic) | | | 19,004,897 | | | | 16,738,213 | | Weighted average number of shares outstanding (diluted) | | | 19,004,897 | | | | 16,738,213 | | | | | | | | | | |
TheSee accompanying notes are an integral part ofto the consolidated financial statements.
F-4
TECHPRECISION CORPORATION
| | Preferred Stock Outstanding | | | Preferred Stock | | | Warrants Outstanding | | | Common Stock Outstanding | | | Par Value | | | Additional Paid in Capital | | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Stockholders’ Equity | | Preferred Stock Outstanding | | Preferred Stock | | Warrants Outstanding | | Common Stock Outstanding | | Par Value | | Additional Paid in Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Stockholders’ Equity | Balance 3/31/2010 | | 9,661,482 | | $ | 2,210,216 | | 112,500 | | 14,230,846 | | $ | 1,424 | | $ | 2,903,699 | | $-- | $6,964,172 | $12,079,511 | | | | | | | | | | | | | | | | | | Distribution to WM Realty | | | | | | | | | | | | (140,296 | ) | | (1,185,868) | (1,326,164) | | Warrants issued | | | | | | 100,000 | | | | | | 51,429 | | | 51,429 | | Warrants expired | | | | | | (112,500 | ) | | | | | | | | | -- | | Stock based compensation | | | | | | | | | | | | 249,346 | | | 249,346 | | Stock options exercised | | | | | | | | 169,166 | | 17 | | 48,733 | | | 48,750 | | Excess tax benefit from exercise of stock options | | | | | | | | | | | | 63,522 | | | 63,522 | | Conversion of preferred stock | | (782,500) | | | (170,585 | ) | | | | 1,022,876 | | 102 | | 170,483 | | | -- | | Net Income | | | | | | | | | | | | | | | 2,686,979 | 2,686,979 | | Other comprehensive income, net of tax expense ($3,694) | | | | | | | | | | | | | | 5,905 | | 5,905 | | Balance 3/31/2011 | | 8,878,982 | | $ | 2,039,631 | | 100,000 | | 15,422,888 | | $ | 1,543 | | $ | 3,346,916 | | $5,905 | $8,465,283 | $13,859,278 | | 8,878,982 | | $ | 2,039,631 | | 100,000 | | 15,422,888 | | $ | 1,543 | | $ | 3,346,916 | | $5,905 | | $8,465,283 | | $13,859,278 | Share based compensation | | | | | | | | | | | | 622,245 | | | 622,245 | | | | | | | | | | | | 622,245 | | | | | | 622,245 | Stock options exercised | | | | | | | | 160,130 | | 16 | | 41,380 | | | 41,396 | | | | | | | | 160,130 | | 16 | | 41,380 | | | | | | 41,396 | | | | | | | | | | | | | | | | | Conversion of preferred stock | | (1,843,000) | | (401,774) | | | | 2,409,159 | | 240 | | 401,534 | | | -- | | (1,843,000) | | (401,774) | | | | 2,409,159 | | 240 | | 401,534 | | | | | | -- | Net Loss | | | | | | | | | | | | | | | (2,123,106) | (2,123,106) | | | | | | | | | | | | | | | | (2,123,106) | | (2,123,106) | Other comprehensive loss, net of tax benefit ($148,120) | | | | | | | | | | | | | | (229,489) | | (229,489) | | | | | | | | | | | | | | (229,489) | | | | (229,489) | Balance 3/31/2012 | | 7,035,982 | | $ | 1,637,857 | | 100,000 | | 17,992,177 | | $ | 1,799 | | $ | 4,412,075 | | $(223,584) | $6,342,177 | $12,170,324 | | 7,035,982 | | $ | 1,637,857 | | 100,000 | | 17,992,177 | | $ | 1,799 | | $ | 4,412,075 | | $(223,584) | | $6,342,177 | | $12,170,324 | Warrants expired | | | | | | | (100,000 | ) | | | | | | | | | | | | -- | Share based compensation | | | | | | | | | | | | | 337,023 | | | | | | 337,023 | Conversion of preferred stock | | | (1,502,984 | ) | | (327,651) | | | | 1,964,694 | | 197 | | 327,454 | | | | | | -- | Net Loss | | | | | | | | | | | | | | | | | (2,411,937) | | (2,411,937) | Other comprehensive loss, net of tax benefit ($4,672) | | | | | | | | | | | | | | | 2,166 | | | | 2,166 | Balance 3/31/2013 | | | 5,532,998 | | $ | 1,310,206 | | -- | | 19,956,871 | | $ | 1,996 | | $ | 5,076,552 | | $(221,418) | | $3,930,240 | | $10,097,576 |
TheSee accompanying notes are an integral part ofto the consolidated financial statements.
F-5
TECHPRECISION CORPORATION | CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | Years Ended March 31, | | | Years Ended March 31, | | | | 2012 | | | 2011 | | | 2013 | | | 2012 | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | Net (loss) income | | $ | (2,123,106) | | | $ | 2,686,979 | | | Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | | | | | | | | Net loss | | | $ | (2,411,937 | ) | | $ | (2,123,106) | | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | | | Depreciation and amortization | | | 681,434 | | | | 372,758 | | | | 846,012 | | | | 681,434 | | Stock based compensation expense | | | 622,245 | | | | 300,776 | | | | 337,023 | | | | 622,245 | | Deferred income taxes | | (524,173) | | | (158,717 | ) | | 695,762 | | (524,173) | | Gain on sale of equipment | | -- | | | (62,875 | ) | | Provision for contract losses | | 887,458 | | 333,944 | | | 270,172 | | 887,458 | | Write off deferred loan costs | | -- | | 68,188 | | | Changes in operating assets and liabilities: | | | | | | | | | | | | | | | Accounts receivable | | | 683,394 | | | | (2,884,681 | ) | | | 572,786 | | | | 683,394 | | Costs incurred on uncompleted contracts, in excess of progress billings | | | (1,056,174) | | | | (104,004 | ) | | | (388,267 | ) | | | (1,056,174) | | Inventories – raw materials | | | 351,236 | | | | (423,997 | ) | | | 19,985 | | | | 351,236 | | Other current assets | | | (1,043,732) | | | | (276,076 | ) | | | (75,540 | ) | | | (1,043,732) | | Taxes receivable | | (1,628,720) | | 122,198 | | | 1,824,262 | | | (1,628,720) | | Other noncurrent assets | | (171,252) | | -- | | | 212,700 | | (171,252) | | Accounts payable | | | 237,046 | | | | 648,615 | | | | 1,171,600 | | | | 237,046 | | Accrued expenses | | (139,844) | | 337,409 | | | (822,450 | ) | | (139,844) | | Accrued taxes payable | | 159,987 | | -- | | | 72,638 | | 159,987 | | Deferred revenues | | | 417,283 | | | | 325,755 | | | | (545,600 | ) | | | 417,283 | | Net cash (used in) provided by operating activities | | | (2,646,918) | | | | 1,286,272 | | | Net cash provided by (used in) operating activities | | | | 1,779,146 | | | | (2,646,918) | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | Purchases of property, plant and equipment | | | (2,682,341 | ) | | | (1,560,270 | ) | | | (663,185 | ) | | | (2,682,341 | ) | Proceeds from sale of equipment | | | -- | | 60,000 | | | Net cash used in investing activities | | | (2,682,341 | ) | | | (1,500,270 | ) | | | (663,185 | ) | | | (2,682,341 | ) | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | Capital distribution of WMR equity | | | -- | | | | (1,326,162 | ) | | Proceeds from exercised stock options | | | 41,396 | | | | 48,751 | | | | -- | | | | 41,396 | | Tax benefit from share based compensation | | -- | | 63,521 | | | Deferred loan costs | | -- | | | (171,212 | ) | | Borrowings of short-term debt | | | 500,000 | | -- | | Repayment of long-term debt | | | (1,372,637 | ) | | | (3,956,371 | ) | | | (1,366,017 | ) | | | (1,372,637 | ) | Borrowings of long-term debt | | | 1,918,676 | | | | 4,322,248 | | | | -- | | | | 1,918,676 | | Net cash provided by (used in) financing activities | | | 587,435 | | | | (1,019,225 | ) | | Net cash (used in) provided by financing activities | | | | (866,017 | ) | | | 587,435 | | Effect of exchange rate on cash and cash equivalents | | | 24,309 | | -- | | | | 1,947 | | 24,309 | | Net decrease in cash and cash equivalents | | | (4,717,515 | ) | | | (1,233,223 | ) | | Net increase (decrease) in cash and cash equivalents | | | | 251,891 | | | | (4,717,515 | ) | Cash and cash equivalents, beginning of period | | | 7,541,000 | | | | 8,774,223 | | | | 2,823,485 | | | | 7,541,000 | | Cash and cash equivalents, end of period | | $ | 2,823,485 | | $ | 7,541,000 | | | $ | 3,075,376 | | $ | 2,823,485 | |
TheSee accompanying notes are an integral part ofto the consolidated financial statements.
F-6
TECHPRECISION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) | | Years ended March 31, | | | Years ended March 31, | | | | 2012 | | | 2011 | | | 2013 | | | 2012 | | SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION | | | | | | | | | | | | | Cash paid during the year for: | | | | | | | | | | | | | Interest, net of amounts capitalized of $114,145 in 2012 | | $ | 208,220 | | | $ | 425,925 | | | Interest, net of amounts capitalized of $0 and $114,145 in 2013 and 2012 | | | $ | 268,351 | | | $ | 208,220 | | Income taxes | | $ | 764,306 | | | $ | 1,590,126 | | | $ | -- | | | $ | 764,306 | |
SUPPLEMENTAL INFORMATION – NONCASH INVESTING AND FINANCING TRANSACTIONS:
Year Ended March 31, 2013
We issued 1,964,694 shares of common stock in connection with the conversion of 1,502,984 shares of Series A Convertible Preferred Stock.
We recorded a liability of $388,982 (net of tax of $0) to reflect the fair value of an interest rate swap contract in connection with a tax exempt bond financing transaction.
Ranor entered into a capital lease arrangement for $46,378 for new office equipment.
Year Ended March 31, 2012
In connection with shareholder transactions during Fiscal 2012, Series A Convertible Preferred Stock of 1,843,000 shares were converted into 2,409,159 shares of common stock.
The CompanyWe recorded a liability of $384,689$227,392 (net of tax of $148,120) to reflect the fair value of interest rate swap contracts in connection with a tax-exempt bond financing transaction.
The CompanyWe placed $2.1 million of plant and equipment classified as construction in progress as of March 31, 2011 into service during the year ended March 31, 2012.
There were 44,865 stock options exercised as broker assisted cashless transactions during the fiscal 2012 period.
Year Ended March 31, 2011
In connection with shareholder transactions during fiscal 2011 and March 7, 2011, Series A Convertible Preferred Stock of 782,500 shares were converted into 1,022,876 shares of common stock, respectively.
On February 15, 2011,See accompanying notes to the Company issued an additional 100,000 warrants to acquire common stock at a price of $1.65/share. The warrants were issued to a consultant for services performed and had a fair value of $51,428.consolidated financial statements.
The accompanying notes are an integral part of the financial statements.
F-7
TECHPRECISION CORPORATION
NOTE 1 - DESCRIPTION OF BUSINESS TechPrecision Corporation (TechPrecision) is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. The name was changed to TechPrecision Corporation on March 6, 2006. TechPrecision is the parent company of Ranor, Inc. (Ranor), a Delaware corporation. On November 4, 2010 TechPrecision announced it completed the formation of a wholly foreign owned enterprise (WFOE),corporation and Wuxi Critical Mechanical Components Co., Ltd. (WCMC), a wholly foreign owned enterprise (WFOE), to meet growing demand for local manufacturing of components in China. TechPrecision, WCMC and Ranor are collectively referred to as the “Company”, “we”, “us” or “our”. The Company manufacturesWe manufacture large scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets including the alternative energy, medical, nuclear, defense, commercial, and aerospace industries.
The formation of WCMC was made in consultation with one of our largest customers in the Solar Energy industry, and was based on the forecasted significant growth in demand for solar and nuclear energy components in Asia, and especially in China. During the third quarter of fiscal 2011, WCMC commenced organizational and start-up activities and production began during the fourth quarter of fiscal 2011, with initial production units shipped to a largeour largest solar customer on March 31, 2011. Accordingly,Through our subcontractors, we have the resultscapability and capacity to manufacture furnaces for the HEM sapphire industry in both the U.S. and Asia.
Liquidity and Capital Resources
At March 31, 2013, we were not in compliance with the fixed charges and interest coverage financial covenants under our Loan and Security Agreement between Ranor and Sovereign Bank (the Bank), dated February 24, 2006, as amended (the Loan Agreement), and the Bank has not agreed to waive the non-compliance with the covenants. In addition, the Bank did not renew the revolving credit facility which expired on July 31, 2013. Since we are in default, the Bank has the right to accelerate payment of this wholly owned subsidiary are includedthe debt in full upon 60 days written notice. As a consequence, we have classified all amounts under the Loan Agreement ($5.8 million) as a current liability at March 31, 2013. The Bank is evaluating its course of action and has not yet demanded repayment. We continue to make payments pursuant to the terms of the Loan Agreement. If the Bank were to make such a demand for repayment, we would be unable to pay the obligation as we do not have existing facilities or sufficient cash on hand to satisfy these obligations and would need to seek alternative financing. We have incurred operating losses of $2.4 million and $2.1 million for the periods ended March 31, 2013 and 2012, respectively. At March 31, 2013, we had cash and cash equivalents of $3.1 million, of which $0.5 million is located in China and which we may not be able to repatriate for use in the U.S. without undue cost or expense if at all. We borrowed $0.5 million under our revolving line of credit during the quarter ended March 31, 2013, and has repaid this borrowing in full in July 2013. In addition, we have $1.0 million of restricted cash with the Bank (included in our other current assets) that could be used toward satisfying our obligation under the Loan Agreement.
These factors raise substantial doubt about our ability to continue as a going concern. In order for us to continue operations beyond the next twelve months and be able to discharge our liabilities and commitments in the normal course of business, we must secure long-term financing on terms consistent with our near-term business plans. In addition, we must increase our backlog and change the composition of our revenues to focus on recurring unit of delivery projects rather than custom first article and prototyping projects which do not efficiently use our manufacturing capacity, and reduce our operating expenses to be in line with current business conditions in order to increase profit margins and decrease the amount of cash used in operations. If successful in changing the composition of revenue and reducing costs, we expect that fiscal 2014 operating results will reflect positive cash flows. However, we plan to closely monitor our expenses and, if required, will further reduce operating costs and capital spending to enhance liquidity.
The consolidated financial statements.statements for the year ended March 31, 2013 were prepared on the basis of a going concern which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should we be required to liquidate assets. Our ability to satisfy our total liabilities of $11.2 million at March 31, 2013 and to continue as a going concern is dependent upon the timely availability of long-term financing and successful execution of its operating plan. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation The accompanying consolidated financial statements include the accounts of TechPrecision, WCMC and Ranor. A variable interest entity (VIE), WM Realty, was included in the fiscal 2011 financial statements. WM Realty no longer has ongoing transactional involvement with the Company, and the entity has substantially liquidated its assets following the December 20, 2010 real estate sale to the Company. Accordingly, we do not consolidate WM Realty in periods subsequent to March 31, 2011. Intercompany transactions and balances have been eliminated in consolidation. Use of Estimates in the Preparation of Financial Statements In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reported period. We continually evaluate our estimates, including those related to contract accounting, accounts receivable, contract accounting, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. We base our estimates on historical and current experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Reclassifications
Certain prior year balances including the notes thereto have been reclassified to conform to the current year presentation.
In the prior year, costs incurred on uncompleted contracts, in excess of progress billings was reflected net of $333,994 of provision for contract losses. In order to conform to the current year presentation, prior year costs incurred on uncompleted contracts, in excess of progress billings and accrued expenses on the consolidated balance sheet, provision for contract losses and costs incurred on uncompleted contracts, in excess of progress billings on the consolidated statement of cash flows, and Notes 4 and 7 have been adjusted to conform to the current year presentation. In addition, the prior year net operating loss carry-forward and the valuation allowance in Note 9 have been reduced by $193,209 to reflect the impact of state operating loss carry forwards that had previously expired.
Fair Value Measurements
We account for fair value of financial instruments under the Financial Accounting Standard Board’s (FASB) Accounting Standards Codification (ASC) authoritative guidance which defines fair value and establishes a framework to measure fair value and the related disclosures about fair value measurements. The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The FASB establishes a fair value hierarchy used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories: Level 1: Inputs based upon quoted market prices for identical assets or liabilities in active markets at the measurement date; Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and Level 3: Inputs that are management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments’ valuation.
F-8
In addition, we will measure fair value in an inactive or dislocated market based on facts and circumstances and significant management judgment. We will use inputs based on management estimates or assumptions, or make adjustments to observable inputs to determine fair value when markets are not active and relevant observable inputs are not available.
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses as presented in the balance sheet, approximates fair value due to the short-term nature of these instruments.
Cash and cash equivalents Holdings of highly liquid investments with maturities of three months or less, when purchased, are considered to be cash equivalents. U.S. based deposits are maintained in a large regional bank. The Company’sOur China subsidiary also maintains a bank account in a large national Bank in China subject to People’s Republic of China (PRC) banking regulations. Cash on deposit with thea large national China-based bank was $692,524$482,630 and $350,357$692,524 at March 31, 20122013 and 2011,2012, respectively.
Foreign currency translation
The majority of the Company’sour business is transacted in U.S. dollars; however, the functional currency of the Company’s ChinaourChina subsidiary is the local currency, the Chinese Yuan Renminbi. In accordance with ASC No. 830,Foreign Currency Matters(ASC (ASC 830), foreign currency translation adjustments of subsidiaries operating outside the U.S. are accumulated in other comprehensive income, a separate component of equity. Foreign currency transaction gains and losses are recognized in the determination of net income.
Accounts receivable and allowance for doubtful accounts Accounts receivable are stated at the amount the Company expectswe expect to collect. The Company maintainsWe maintain allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Based on management’s assessment, the Company provideswe provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company haswe have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. Current earnings are also charged with an allowance for sales returns based on historical experience. Historically, the level of uncollectible accounts has not been significant. There was bad debt expense of $0 for the years ended March 31, 20122013 and 2011.2012.
Inventories Inventories - raw materials is stated at the lower of cost or market determined by the first-in, first-out (FIFO) method. Property, plant and equipment Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are accounted for on the straight-line method based on estimated useful lives. The amortization of leasehold improvements is based on the shorter of the lease term or the useful life of the improvement. Amortization of assets recorded under capital leases is included under depreciation expense. Betterments and large renewals, which extend the life of the asset, are capitalized whereas maintenance and repairs and small renewals are expensed as incurred. The estimated useful lives are: machinery and equipment, 5-15 years; buildings, 30 years; and leasehold improvements, 2-5 years.
Interest is capitalized for assets that are constructed or otherwise produced for the Company’sour own use, including assets constructed or produced for the Companyus by others for which deposits or progress payments have been made. Interest is capitalized to the date the assets are available and ready for use. When an asset is constructed in stages, interest is capitalized for each stage until it is available and ready for use. The Company usesWe use the interest rate incurred on funds borrowed specifically for the project. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Interest cost capitalized was $0 and $114,145 fiscal 2013 and $0 in fiscal 2012, and 2011, respectively.
F-9
In accordance with ASC No. 360,Property, Plant & Equipment (ASC 360), the Company'sour property, plant and equipment is tested for impairment when triggering events occur, and if impaired, written-down to fair value based on either discounted cash flows or appraised values. The carrying amount of an asset or asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. There were no impairments for the years ended March 31, 20122013 and 2011.2012.
Operating Leases Operating leases are charged to operations on a straight-line basis over the term of the lease. The Company leases itsWe lease our office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 20162017 and provide for renewal options ranging from three months to five years. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.
Derivative Financial Instruments
The Company isWe are exposed to various risks such as fluctuating interest rates, foreign exchange rates and increasing commodity prices. To manage these market risks, we may periodically enter into derivative financial instruments such as interest rate swaps, options and foreign exchange contracts for periods consistent with and for notional amounts equal to or less than the related underlying exposures.
We do not purchase or hold any derivative financial instruments for speculation or trading purposes.
All derivative instruments are recognized in the financial statements and measured at fair value regardless of the purpose or intent of holding them. At March 31, 2012, the Company2013, we had two interest rate swap transactions designated as cash flow hedges, each with an effective date of January 3, 2011. For our cash flow hedges, the effective portion of the derivative’s gain or loss is initially reported in Shareholders’ equity (as a component of accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. The ineffective portion of the gain or loss of a cash flow hedge is reported in earnings immediately. The CompanyWe formally documentsdocument the hedging relationship and its risk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The CompanyWe also formally assesses,assess, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions.
The CompanyWe will discontinue hedge accounting prospectively when it determineswe determine that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires, is sold, terminated, or exercised, or our management determines to remove the designation of a cash flow hedge. See Note 8 for additional disclosure related to interest rate swaps.
Convertible Preferred Stock and Warrants The Company measuresWe measured the fair value of the Series A Convertible Preferred Stock by the amount of cash that was received for their issuance. The Company hasWe have determined that the convertible preferred shares and warrants issued are equity instruments. The holders of the Series A Convertible Preferred Stock have no right higher than the common stockholders other than the liquidation preference in the event of liquidation of the Company.
The Company’sOur warrants were excluded from derivative accounting because they were indexed to the Company’sour unregistered common stock and are classified in stockholders’ equity. The majority of the warrants were exchanged for preferred stock on August 14, 2009. The remaining 112,500 warrants expired on September 1, 2010.
On February 15, 2011, the Companywe issued an additional 100,000 warrants to acquire common stock at an exercise price of $1.65/share. The warrants had a fair value of $51,428. The warrants outstanding terminated at the end of the exercise period on February 14, 2013.
Research and Development
The Company chargesWe charge research and development costs associated with the design and development of new products to expense when incurred. We incurred no research and development expense in fiscal 2013. In fiscal 2012, we recorded $266,177 of expense in connection with the design, and development of certain pre-production prototypes and models under Selling, General and Administrative expense.
F-10
Selling, General, and Administrative Selling, general and administrative (SG&A) expenses include items such as executive compensation, business travel and advertising costs. Compensation and related expenses amounted to $3.4 million and $2.4 million in fiscal 2012 and 2011, respectively. Advertising costs are expensed as incurred. Other general and administrative expenses include items for the Company’sour administrative functions and include costs for items such as office rent, supplies, insurance, legal, accounting, tax, telephone and other outside services. SG&A consisted of the following as of March 31: | | 2013 | | | 2012 | | Salaries and related expenses | | $ | 4,460,708 | | | $ | 4,983,056 | | Professional fees | | | 1,793,282 | | | | 1,205,445 | | Other general and administrative | | | 1,906,994 | | | | 2,259,293 | | Total Selling, General and Administrative | | $ | 8,160,984 | | | $ | 8,447,794 | |
Stock Based Compensation Stock based compensation represents the cost related to stock based awards granted to the Boardour board of Directorsdirectors and employees. The Company measuresWe measure stock based compensation cost at the grant date based on the estimated fair value of the award and recognizes the cost as expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. The Company estimatesWe estimate the fair value of stock options using a Black-Scholes valuation model.
Excess tax benefits of awards that are recognized in equity related to stock options exercises are reflected as financing cash inflows. Stock based compensation cost that has been included in (loss) income from operations amounted to $622,245$337,023 and $300,776$622,245 for the fiscal years ended 20122013 and 2011,2012, respectively. See Note 13 for additional disclosures related to stock based compensation.
Net Income (Loss) per Share of Common Stock Basic net income (loss) per common share is computed by dividing net income or loss by the weighted average number of shares outstanding during the year. Diluted net income per common share is calculated using net income divided by diluted weighted-average shares. Diluted weighted-average shares include weighted-average shares outstanding plus the dilutive effect of convertible preferred stock, stock options and warrants calculated using the treasury stock method. See Note 13 for additional disclosures related to stock based compensation.
Revenue Recognition
We account for revenues and earnings using the percentage-of-completion method of accounting. Under this method, we recognize contract revenue and gross profit as the work progresses, either as the products are produced and delivered, or as services are rendered. We determine progress toward completion on production contracts based on either input measures, such as labor hours incurred, or output measures, such as units delivered.
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability are recognized in the period in which the revisions are determined. Costs incurred on uncompleted contracts consist of labor, overhead, and materials.
We may combine contracts for accounting purposes when they are negotiated as a package with an overall profit margin objective. These essentially represent an agreement to do a single project for a single customer, involve interrelated construction activities with substantial common costs, and are performed concurrently or sequentially. When a group of contracts is combined, revenue and profit are earned during the performance of the combined contracts. Costs allocable to undelivered units are reported in the consolidated balance sheet as costs incurred on uncompleted contracts. Amounts in excess of agreed upon contract price for customer directed changes, construction changes, customer delays or other causes of additional contract costs are recognized in contract value if it is probable that a claim for such amounts will result in additional revenue and the amounts can be reliably estimated. Revenues from such claims are recorded only to the extent that contract costs relating to the claim have been incurred. Revisions in cost and profit estimates are reflected in the period in which the facts requiring the revision become known and are estimable.
When we can only estimate a range of revenues and costs, we use the most likely estimate within the range. If we cannot determine which estimate in the range is most likely, the amounts within the ranges that would result in the lowest profit margin (the lowest contract revenue estimate and the highest contract cost estimate) isare used.
In some situations, it may be impractical for us to estimate either specific amounts or ranges of contract revenues and costs. However, if we can at least determine that we will not incur a loss, a zero profit model is adopted. The zero profit model results in the recognition of an equal amount of revenues and costs. This method is only used if more precise estimates cannot be made and its use is discontinued when such estimates are obtainable. When we obtain more precise estimates, the change is treated as a change in an accounting estimate.
F-11
Income Taxes In accordance with ASC No. 740,Income Taxes(ASC (ASC 740), income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The Company recognizesWe recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
Variable Interest Entity (VIE)
Conforming to the authoritative FASB guidance for VIEs, under ASC 810 (see Note 10 for more information about the VIE), the Company consolidated WM Realty through March 31, 2011, a VIE which entered into a building sale and leaseback contract with the Company in 2006. The Company repurchased the building and land from the VIE in December 2010. The creditors of WM Realty do not have recourse to the general credit of TechPrecision or Ranor. On December 20, 2010, the Company purchased the property under a purchase option within the lease from WM Realty and simultaneously cancelled the lease.
Recent Accounting Pronouncements
In December 2011, the FASB issued ASU No. 2011-11,Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position, and to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under International Financial Reporting Standards, (IFRS).or IFRS. The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The Company will implementWe implemented the provisions of ASU 2011-11 as of JanuaryApril 1, 2013.2013 and there was no material impact on reported financial position and results of operations. In June 2011,February 2013, the FASB issued ASU No. 2011-052013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Topic 220): Presentation (ASU 2013-02). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of Comprehensive Income (ASU 2011-05). The ASU is intended to increase the prominence ofaccumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the financial statements. The main provisionsnotes, significant amounts reclassified out of this ASU provide that an entity that reports items ofaccumulated other comprehensive income hasby the option to present comprehensive income in either one or two consecutive financial statements: 1) a single statement presenting the componentsrespective line items of net income and total net income,but only if the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income, and 2) in a two-statement approach, presenting the components of net income and totalamount reclassified is required under U.S. generally accepted accounting principles (“GAAP”) to be reclassified to net income in its entirety in the first statement. That statement mustsame reporting period. For other amounts that are not required under U.S. GAAP to be immediately followed by a financial statement that presents the components ofreclassified in their entirety to net income, an entity is required to cross-reference to other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The option in currentdisclosures required under U.S. GAAP that permits the presentationprovide additional detail about those amounts. ASU 2013-02 was effective on April 1, 2013 for us and there was no material impact on reported financial position and results of other comprehensive income in the statement of changes in equity has been eliminated.operations.
Subsequently, in December 2011,In March 2013, the FASB issued ASU No. 2011-12,2013-05, Comprehensive Income (Topic 220): DeferralParent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”). ASU 2013-05 provides guidance for the treatment of the Effective Date for Amendmentscumulative translation adjustment when an entity ceases to the Presentationhold a controlling financial interest in a subsidiary or group of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12), which deferred certain provisions ofassets within a foreign entity. ASU 2011-05. Under ASU 2011-12, the requirement within ASU 2011-05 to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements has been deferred pending further deliberation by the FASB. The new guidance within ASU 2011-05 and ASU 2011-122013-05 is effective for fiscal yearsinterim and annual reporting periods beginning after December 15, 2011, with early adoption permitted and full retrospective application required. The Company has elected to early adopt2013. We are currently evaluating the new guidance effective March 31, 2012.impact of adopting ASU 2013-05 on our consolidated results of operations, financial position or cash flows.
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NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consisted of the following as of March 31: | | 2012 | | | 2011 | | | 2013 | | | 2012 | | Land | | $ | 110,113 | | | $ | 110,113 | | | $ | 110,113 | | | $ | 110,113 | | Building and improvements | | | 3,345,662 | | | | 1,508,966 | | | | 3,261,680 | | | | 3,345,662 | | Machinery equipment, furniture and fixtures | | | 8,102,700 | | | | 5,088,422 | | | | 8,826,050 | | | | 8,102,700 | | Equipment under capital leases | | | 56,242 | | | | 56,242 | | | | 46,378 | | | | 56,242 | | Total property, plant and equipment | | | 11,614,717 | | | | 6,763,743 | | | | 12,244,221 | | | | 11,614,717 | | Less: accumulated depreciation | | | (4,219,272 | ) | | | (3,624,051 | ) | | | (4,943,973 | ) | | | (4,219,272 | ) | Total property, plant and equipment, net | | $ | 7,395,445 | | | $ | 3,139,692 | | | $ | 7,300,248 | | | $ | 7,395,445 | |
Depreciation expense for the years ended March 31, 2013 and 2012 was $804,564 and 2011 was $601,866, and $363,847, respectively.
NOTE 4 - COSTS INCURRED ON UNCOMPLETED CONTRACTS The following table sets forth information as to costs incurred on uncompleted contracts as of March 31: | | 2012 | | 2011 | | | 2013 | | | 2012 | | Cost incurred on uncompleted contracts, beginning balance | | $ | 7,958,153 | | | $ | 5,149,663 | | | $ | 10,879,743 | | | $ | 7,958,153 | | Total cost incurred on contracts during the year | | 31,104,174 | | | | 25,176,810 | | | 21,215,441 | | | | 31,104,174 | | Less cost of sales, during the year | | | (28,182,584 | ) | | | (22,368,320 | ) | | | (25,914,345 | ) | | | (28,182,584 | ) | Cost incurred on uncompleted contracts, ending balance | | $ | 10,879,743 | | | $ | 7,958,153 | | | $ | 6,180,839 | | | $ | 10,879,743 | | | | | | | | | | | | | | | | | Billings on uncompleted contracts, beginning balance | | $ | 5,104,301 | | | $ | 2,399,815 | | | $ | 6,969,717 | | | $ | 5,104,301 | | Plus: Total billings incurred on contracts, during the year | | 35,132,194 | | | | 34,988,721 | | | 27,385,748 | | | | 35,132,194 | | Less: Contracts recognized as revenue, during the year | | | (33,266,778 | ) | | | (32,284,235 | ) | | | (32,472,919 | ) | | | (33,266,778 | ) | Billings on uncompleted contracts, ending balance | | $ | 6,969,717 | | | $ | 5,104,301 | | | $ | 1,882,546 | | | $ | 6,969,717 | | | | | | | | | | | | | | | | | Cost incurred on uncompleted contracts, ending balance | | $ | 10,879,743 | | | $ | 7,958,153 | | | $ | 6,180,839 | | | $ | 10,879,743 | | Billings on uncompleted contracts, ending balance | | | (6,969,717 | ) | | | (5,104,301 | ) | | | 1,882,546 | | | | (6,969,717 | ) | Costs incurred on uncompleted contracts, in excess of progress billings | | $ | 3,910,026 | | | $ | 2,853,852 | | | $ | 4,298,293 | | | $ | 3,910,026 | |
Contract costs consist primarily of labor and materials and related overhead, to the extent that such costs are recoverable. Revenues associated with these contracts are recorded only when the amount of recovery can be estimated reliably and realization is probable.
As of March 31, 2013 and 2012, and 2011, the Companywe had deferred revenues totaling $799,413$253,813 and $382,130,$799,413, respectively. Deferred revenues represent customer prepayments on their contracts and completed contracts on which all revenue recognition criteria were not met. The Company recordsWe record provisions for losses within costs of sales in itsour consolidated statement of operations and comprehensive (loss) income. The CompanyWe also receivesreceive advance billings and deposits representing down payments for acquisition of materials and progress payments on contracts. The agreements with our customers allow the Company totusto offset the progress payments against the costs incurred.
NOTE 5 – OTHER CURRENT ASSETS Other current assets included the following as of March 31:
| | 2012 | | | 2011 | | | Other current assets included the following as of March 31: | | | 2013 | | | 2012 | | Payments advanced to suppliers | | $ | 77,000 | | | $ | 285,187 | | | $ | 267,513 | | | $ | 145,637 | | Prepaid insurance | | 220,496 | | 139,838 | | | 187,086 | | 220,496 | | Collateral deposits (see Note 8) | | 1,052,500 | | -- | | | 1,032,348 | | 1,052,500 | | Deferred loan costs, net of amortization | | | 57,930 | | -- | | Other | | | 136,958 | | | | 16,808 | | | | 33,607 | | | | 68,321 | | Total | | $ | 1,486,954 | | | $ | 441,833 | | | $ | 1,578,484 | | | $ | 1,486,954 | |
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NOTE 6 – OTHER NONCURRENT ASSETS
Other noncurrent assets included the following as of March 31:
| | 2012 | | 2011 | | | Other noncurrent assets included the following as of March 31: | | | 2013 | | 2012 | | Collateral deposit (see Note 8) | | $ | 171,252 | | | $ | -- | | | $ | -- | | | $ | 171,252 | | Deferred loan costs, net of amortization | | | 99,378 | | | | 181,141 | | | | -- | | | | 99,378 | | Total | | $ | 270,630 | | | $ | 181,141 | | | $ | -- | | | $ | 270,630 | |
NOTE 7 - ACCRUED EXPENSES Accrued expenses included the following as of March 31: Accrued expenses included the following as of March 31: | | 2013 | | | 2012 | | Accrued compensation | | $ | 668,038 | | | $ | 970,088 | | Interest rate swaps market value | | | 388,982 | | | | 375,512 | | Provision for contract losses | | | 270,172 | | | | 887,458 | | Other | | | 547,732 | | | | 191,637 | | Total | | $ | 1,874,924 | | | $ | 2,424,695 | |
| | 2012 | | | 2011 | | Accrued compensation | | $ | 970,088 | | | $ | 886,748 | | Interest rate swaps market value | | | 375,512 | | | | -- | | Provision for contract losses | | | 887,458 | | | | 333,944 | | Other | | | 191,637 | | | | 71,261 | | Total | | $ | 2,424,695 | | | $ | 1,291,953 | |
NOTE 8 – LONG-TERM DEBT
The following debt obligations were outstanding as of March 31: | | 2012 | | 2011 | | | Debt obligations outstanding were classified as of March 31: | | | 2013 | | | 2012 | | Sovereign Bank Secured Term Note due March, 2013 | | $ | 571,429 | | | $ | 1,142,857 | | | $ | -- | | | $ | 571,429 | | Sovereign Bank Capital expenditure note due November 2014 | | | 490,292 | | | | 674,151 | | | | 306,432 | | | | 183,859 | | Sovereign Bank Staged advance note due March 2016 | | 445,133 | | 556,416 | | | 333,850 | | 111,283 | | MDFA Series A Bonds due January 2021 | | 4,002,083 | | 3,663,991 | | | 3,789,583 | | 212,500 | | MDFA Series B Bonds due January 2018 | | 1,624,999 | | 535,488 | | | 1,346,429 | | 278,571 | | Obligations under capital leases | | | 1,291 | | | 16,285 | | | | 8,185 | | | | 1,291 | | Total short-term debt | | | | 5,784,479 | | | | 1,358,933 | | Sovereign Bank Capital expenditure note due November 2014 | | | | -- | | | | 306,433 | | Sovereign Bank Staged advance note due March 2016 | | | -- | | 333,850 | | MDFA Series A Bonds due January 2021 | | | -- | | 3,789,583 | | MDFA Series B Bonds due January 2018 | | | -- | | 1,346,428 | | Obligations under capital leases | | | | 31,108 | | | | -- | | Total long-term debt | | | 7,135,227 | | | | 6,589,188 | | | $ | 31,108 | | | $ | 5,776,294 | | Principal payments due within one year | | | (1,358,933 | ) | | | (1,371,767 | ) | | Principal payments due after one year | | $ | 5,776,294 | | | $ | 5,217,421 | | |
On February 24, 2006, the Companywe entered into a loan and security agreement (“the Loan Agreement”)Agreement, with Sovereignthe the Bank (the “Bank”), which has since been amended as further described below. Pursuant to the Loan Agreement, as amended, the Bank provided the Companyus with a secured term loan of $4,000,000 (“$4.0 million, or the Term Note”)Note, and a revolving line of credit of up to $2,000,000 (“$2.0 million, or Revolving Note”).Note. On January 29, 2007, the Loan Agreement was amended, adding a capital expenditure line of credit facility of $3,000,000 (“$3.0 million, or Capital Expenditure Note”).Note. On March 29, 2010, the Bank agreed to extend to the Companyus a loan facility, (“or Staged Advance Note”)Note, in the amount of up to $1,900,000$1.9 million for the purpose of acquiring a gantry mill machine.
On December 30, 2010, the Companywe completed a $6,200,000$6.2 million tax exempt bond financing with the Massachusetts Development Finance Authority, (“MDFA”),or the MDFA, pursuant to which the MDFA sold to the Bank MDFA Revenue Bonds, Ranor Issue, Series 2010A in the original aggregate principal amount of $4,250,000 (“$4.25 million, or Series A Bonds”)Bonds, and MDFA Revenue Bonds, Ranor Issue, Series 2010B in the original aggregate principal amount of $1,950,000 (“$1.95 million, or Series B Bonds”) (togetherBonds together with the Series A Bonds, the “Bonds”).Bonds. The proceeds of such sales were loadedloaned to the Companyus under the terms of a Mortgage Loan and Security Agreement, dated as of December 1, 2010, by and among the Company,us, MDFA and the Bank (as Bond owner and Disbursing Agent) (the “MLSA”)., or the MLSA.
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In connection with the December 30, 2010 bond financing, the Companywe executed an Eighth Amendment to the Loan Agreement, (“or Eighth Amendment”).Amendment. The Eighth Amendment incorporated borrowing of the Bond proceeds into the borrowings covered by the Loan Agreement. The MLSA provides for customary events of default, including any event of default under the Loan Agreement described above. Subject to lapse of any applicable cure period, a default under the MLSA would cause the acceleration of all of our outstanding obligations of the Company under the MLSA. Under the MLSA and the Eighth Amendment, we were required, as of the Company was requiredend of each fiscal quarter, to meet certain financial covenants applicable while the Bonds remain outstanding, including, among other things, that the ratio of earnings available to cover fixed charges will be greater than or equal to 120%; the interest coverage ratio will equal or exceed 2:1 as of the end of each fiscal quarter;1; and that the Company’sour leverage ratio will be less than or equal to 3:1.
On August 8, 2011, an appraisal was completed on the Westminster, Massachusetts property assigning a value of $4.8 million to such property. The Series A Bonds require that the loan-to-value ratio not exceed 75%, indicating a maximum loan amount of $3.6 million.
The bond balance exceeded such maximum loan amount at December 31, 2011 by approximately $490,000. On October 28, 2011, we and the Bank agreed to resolve the collateral shortfall by establishing a separate interest bearing restricted cash account in the amount of $490,000 which is pledged as additional collateral to the debt and restricted from use for any other purpose. The required restricted balance is being amortized down at the current monthly debt principal amount of $17,708. At March 31, 2013, the restricted cash is classified as a collateral deposit in other current assets of $189,589.
At December 31, 2011, we were in compliance with theour leverage ratio.ratio bank covenant. However, we did not meet the ratio of earnings available to cover fixed charges or the interest coverage ratio covenants. In February 2012, the Companywe executed a Tenth Amendment and obtained a waiver of the breach of such covenants from the Bank, which waiver covered the breach that otherwise would have occurred in connection with the covenant testing for the third quarter ended December 31, 2011 and waived the ratio of earnings available to cover fixed charges covenant at March 31, 2012. This waiver did not apply to any future covenant testing dates.
On July 6, 2012, the Companywe executed an Eleventh Amendment and obtained a waiver for failure to comply with the fixed charge coverage ratio and the interest coverage ratio covenants at March 31, 2012. The Eleventh Amendment also waived the covenant testing requirements related to the ratio of earnings available to cover fixed charges and the interest coverage ratio for the fiscal quarters ended June 30, 2012 and September 30, 2012. The leverage ratio covenant will remainremained in effect. Withouteffect, and must not be greater than 2:1. We were in compliance with the execution ofleverage ratio covenant at September 30, 2012, as the Eleventh Amendment for the applicable periods, the Company would have been required to reclassify all of its long-term debt as a current liability at March 31, 2012. In addition, if the lender had demanded repayment and caused the debt to be considered a short-term obligation, the Company would have been unable to pay the obligation because the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations.actual leverage ratio was 1:1. Although there will bewas no testing of the covenant to comply with the ratio of earnings available to cover fixed charges and the interest coverage covenants for the fiscal quarters ended June 30 and September 30, 2012, the Bank will requirerequired that the Companywe have earnings before interest and taxes (EBIT) greater than $1 for the fiscal quarter ended September 30, 2012. In addition,We reported EBIT of $14,286 for the fiscal quarter ended September 30, 2012 and, therefore, was in compliance with this covenant. The $1 EBIT covenant at September 30, 2012 is not applicable to any future periods as testing of all covenants resumed on December 31, 2012 according to the terms of the Eleventh Amendment.
Under the Eleventh Amendment the covenants were revised such that we was not to permit earnings available for fixed charges to be less than 125%, the interest coverage ratio to be less than 2:1, and the leverage ratio to be greater than 2:1 at any time, tested quarterly. Also, in connection with the Eleventh Amendment, we paid the Bank required the Companya fee of $10,000 and made a collateral deposit of $840,000 to transfer $840,000 into a restricted cash account as additional collateral. This amount equals the total ofcover estimated principal and interest due for the next two quarters of debt service.on its obligation. This collateral willwas to be released to the Companyus upon successful compliance with all debt covenant tests. The earliest date this could occur ishave occurred was December 31, 2012, the first date the Company willwe would have been again be subject to testing of all of the financial covenants. The Eleventh Amendment also revised covenant testing to provide that the ratio of earnings available to cover fixed charges and the interest coverage ratio coverage covenant testing willwas to resume at December 31, 2012 on a trailing six month basis, and continue at March 31, 2013 on a trailing nine month basis and quarterly thereafter on a trailing twelve month basis beginning on June 30, 2013. Under
On February 14, 2013, we executed a Twelfth Amendment and obtained a waiver for failure to comply with the Eleventh Amendment the Company shall not permit earnings available for fixed charges to be less than 125%,charge coverage ratio and the interest coverage ratio tocovenants at December 31, 2012. The actual fixed charge ratio at December 31, 2012 was negative 41% and the actual interest coverage ratio was negative 256% as we reported an operating loss for the three months ended December 31, 2012. The leverage ratio covenant remained in effect (and must not be lessgreater than 2:1, and1). We were in compliance with the leverage ratio covenant at December 31, 2012, as the actual leverage ratio was 1:1. The Twelfth Amendment revised the covenant to be greater than 2:1provide that the ratio of earnings available to cover fixed charges and the interest ratio coverage covenant testing will resume at any time, tested quarterly. The Company believes that it will remain in compliance with all of the revised covenants throughMarch 31, 2013 on a trailing three month basis, and continue at least June 30, 2013 on a trailing six month basis, at September 30, 2013 on a trailing nine month basis, and quarterly thereafter on a trailing twelve month basis beginning at December 31, 2013. In Also, in connection with the EleventhTwelfth Amendment, the Companywe paid the Bank a fee of $10,000$7,500 and madeare required to continue to maintain a collateral deposit of $840,000 to cover estimated principal and interest on its obligation. The $840,000 collateral deposit is included in other current assets at March 31, 2012. 2013On August 8, 2011, an appraisal was completed on the Westminster, Massachusetts property assigning a value of $4.8 million to such property. The Series A Bonds require that the loan-to-value ratio not exceed 75%, indicating a maximum loan amount of $3.6 million. The bond balance exceeded such maximum loan amount at September 30, 2011 by approximately $490,000. On October 28, 2011 the Company and the Bank agreed to resolve the collateral shortfall by establishing a separate interest bearing restricted cash account in the amount of $490,000 which is pledged as additional collateral to the debt and restricted from use for any other purpose. The required restricted balance will be amortized down at the current monthly debt principal amount of $17,708. At March 31, 2012, the cash is classified as a collateral deposit in other current and noncurrent assets of $212,500 and $171,252, respectively.
In the event of default (which default may occur in connection with a non-waived breach), the Bank may choose to accelerate payment of any long-term debt outstanding and, under certain circumstances, the Bank may be entitled to cancel the facilities. If the Company were unable to obtain a waiver for a breach of covenant and the Bank accelerated the payment of any outstanding amounts, such acceleration may cause the Company’s cash position to deteriorate or, if cash on hand were insufficient to satisfy any payment due, may require the Company to seek alternate financing to satisfy any accelerated payment obligation.
Obligations under the Term Note, Revolving Note, Capital Expenditure Note and Staged Advance Note are guaranteed by the Company. Collateral securing such notes comprises all personal property of the Company, including cash, accounts receivable, inventories, equipment, financial and intangible assets.
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At March 31, 2013, we were not in compliance with the fixed charges and interest coverage financial covenants, and the Bank has not agreed to waive the non-compliance with the covenants. In addition, the Bank did not renew the revolving credit facility which expired on July 31, 2013. Since we are in default, the Bank has the right to accelerate payment of the debt in full upon 60 days written notice. As a consequence, we have classified all amounts under the Loan Agreement ($5.8 million) as a current liability at March 31, 2013. The Bank is evaluating its course of action and has not yet demanded repayment. We continue to make payments pursuant to the terms of the Loan Agreement. If the Bank were to make such a demand for repayment, we would be unable to pay the obligation as we do not have existing facilities or sufficient cash on hand to satisfy these obligations and would need to seek alternative financing.
The actual fixed charge ratio at March 31, 2013 was negative 81% and the actual interest coverage ratio was negative 351% as we reported an operating loss for the three months ended March 31, 2013. The leverage ratio covenant remained in effect (and must not be greater than 2:1). We were in compliance with the leverage ratio covenant at March 31, 2013, as the actual leverage ratio was 1:1.
Term Note:
The Term Note issued on February 24, 2006 has a term of 7 years with an initial fixed interest rate of 9%. The interest rate on the Term Note converted from a fixed rate of 9% to a variable rate on February 28, 2011. From February 28, 2011 until maturity the Term Note will bear interest at the Prime Rate plus 1.5% (4.75% at March 31, 2012 and 2011, respectively)2012), payable on a quarterly basis. Principal is payablewas paid in quarterly installments of $142,857, plus interest, with a final payment duemade on March 1, 2013. There was $571,429$0 and $1,142,857$571,429 outstanding under this facility at March 31, 20122013 and March 31, 2011,2012, respectively.
MDFA Series A and B Bonds
On December 30, 2010, the Companywe and Ranor completed a $6,200,000$6.2 million tax exempt bond financing with the MDFA pursuant to which the MDFA sold to Sovereignthe Bank MDFA Revenue Bonds, Ranor Issue, Series 2010A in the original aggregate principal amount of $4,250,000$4.25 million (Series A Bonds) and MDFA Revenue Bonds, Ranor Issue, Series 2010B in the original aggregate principal amount of $1,950,000$1.95 million (Series B Bonds) and loaned the proceeds of such sale to Ranor under the terms of the MLSA, dated as of December 1, 2010, by and among the Company,us, Ranor, MDFA and Sovereignthe Bank.
The proceeds from the sale of the Series A Bonds were used to finance the previously disclosed Ranor facility acquisition and 19,500 sq. ft. expansion of Ranor’s manufacturing facility located at Bella Drive in Westminster, Massachusetts, and the proceeds from the sale of the Series B Bonds were used to finance acquisitions of qualifying manufacturing equipment installed at the Westminster facility. Under the MLSA and related documents, the Westminster facility secures, and the Companywe further guarantees,guarantee, Ranor’s obligations to Sovereignthe Bank and subsequent holders of the Bonds.
The initial rate of interest on the Series A and B bondsBonds was 1.96% for a period from the bond date to and including January 31, 2011, and the interest rate thereafter is 65% times the sum of 275 basis points plus one-month LIBOR. The Company isWe are required to make monthly payments of $17,708 and $23,214 with respect to the Loans beginning on February 1, 2011 until the maturity date or earlier redemption of each Bond. The Series A Bonds and the Series B Bonds will mature on January 1, 2021 and January 1, 2018, respectively. The Bonds are redeemable pursuant to the MLSA prior to maturity, in whole or in part, on any payment date in accordance with the terms of the MLSA. The interest rates on the Series A and B bonds was 1.95% and 1.96% at March 31, 2012 and 2011, respectively.
In connection with the Bond financing, the Companywe and the Bank entered into the International Swap and Derivatives Association, Inc. 2002 Master Agreement, dated December 30, 2010, (“or ISDA Master Agreement”),Agreement, pursuant to which the variable interest rates applicable to the Bonds were swapped for fixed interest rates of 4.14% on the Series A Bonds and 3.63% on the Series B Bonds. Under the ISDA Master Agreement, the Companywe and the Bank entered into two swap transactions, each with an effective date of January 3, 2011. The notional amount of outstanding fair-valuefair value interest rate swaps totaled $5.6$5.1 and $6.1$5.6 million at March 31, 20122013 and March 31, 2011,2012, respectively. These derivative instruments, which are designated as cash flow hedges, are carried on the Company’sour consolidated balance sheet at fair value with the effective portion of the gain or loss on the derivative reported in stockholders’ equity as a component of accumulated other comprehensive income (loss)loss and subsequently reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The swaps will terminate on January 4, 2021 and January 2, 2018, respectively. The fair value of the interest rate swaps contracts were measured using market based level 2 inputs. The method employed to calculate the values conforms to the industry convention for calculation of such values. The swap’s market value can be calculated any time by comparing the fixed rate set at the inception of the transaction and the “swap replacement rate,” which represents the market rate for an offsetting interest rate swap with the same Notional Amounts and final maturity date. The market value is then determined by calculating the present value interest differential between the contractual swap and the replacement swap. The termination value is the sum of the present value interest differential as described above plus the accrued interest due at termination.
Revolving Note:
The CompanyWe and the Bank agreed to extend the maturity date of the revolving credit facility to July 29, 2012 under the Ninth Amendment to the Loan Agreement. The maturity date of the revolving credit facility was extended to January 31, 2013 under the Eleventh Amendment, and was extended further to July 31, 2013 under the Loan Agreement.Twelfth Amendment. The Revolving Note bears interest at a variable rate determined as the Prime Rate, plus 1.5% annually on any outstanding balance. The borrowing limit on the Revolving Note is limited to the sum of 70% of the Company’s eligible accounts receivable plus 40% of eligible inventory up to a maximum borrowing limit of $2,000,000. There were no borrowings outstanding under this facility as of March 31, 2012 and 2011. As of March 31, 2012, $2.0 million was available for us to borrow. The Company paysWe pay an unused credit line fee of 0.25% on the average unused credit line amount in the previous month.
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The borrowing limit on the Revolving Note is limited to the sum of 70% of our eligible accounts receivable plus 40% of eligible inventory up to a maximum borrowing limit of $2.0 million. There was $500,000 and $0 borrowed and outstanding under this facility as of March 31, 2013 and 2012, respectively. As of March 31, 2013, $1.5 million was available under this facility. In July 2013, we repaid the $500,000 borrowed under the Revolving Note. This facility expired by its terms on July 31, 2013 and was not renewed by the Bank.
Capital Expenditure Note:
The initial borrowing limit under the Capital Expenditure Note was $500,000$0.5 million and has been amended several times resulting in a borrowing limit of $3,000,000.$3.0 million. On November 30, 2009, the Companywe elected not to renew this facility when it terminated. Borrowings outstanding under this facility were converted to a note when the facility terminated. The current rate of interest is LIBOR plus 3% (3.75% at March 31, 2012 and 2011). Principal and interest payments are due monthly based on a five year amortization schedule. The Capital Expenditure Note matures on November 30, 2014. There was $490,292 and $674,151 outstanding under this facility at March 31, 2012 and March 31, 2011, respectively.
Staged Advance Note:
The Bank made certain loans to the Companyus limited to a cap of $1.9 million for the purpose of acquiring a gantry mill machine. The machine serves as collateral for the loan. The total aggregate amount of advances under this agreement could not exceed 80% of the actual purchase price of the gantry mill machine. All advances provideprovided for a payment of interest only monthly through February 28, 2011, and thereafter, no further borrowings were permitted under this facility. The current interest rate is LIBOR plus 4% (4.5% at March 31, 2012 and 2011). Beginning on April 1, 2011, the Company iswe was obligated to pay principal and interest sufficient to amortize the outstanding balance on a five year schedule. The Staged Advance Note matures on March 1, 2016. On March 29 and September 29, 2010, Ranor drew down equal amounts of $556,416 under this facility to finance the initial deposit on the purchase of the gantry mill machine. On December 30, 2010 the Company paid down $556,416 of principal with the proceeds from the Series B Bonds and amended the term loan agreement with Sovereign Bank to cap advances at $556,416, with no further advances permitted. There was $445,133 and $556,416 outstanding under this facility at March 31, 2012 and 2011, respectively. TechPrecision has guaranteed the payment and performance from and by Ranor.
Capital Lease:
The Company also leasesWe leased certain office equipment under a non-cancelable capital lease. This lease will expirethat expired in April 2012. Lease payments for principal and interest on capital lease obligations for the year ended March 31, 2012 totaled $15,564 and the amount of the lease recorded in property, plant and equipment, net was $0 and $14,061 as of March 31, 2012 and 2011, respectively.2012.
AtWe entered into a new capital lease in April 2012 in the amount of $46,378 for certain office equipment. The lease term is for 63 months, bears interest at 6.0% and requires monthly payments of principal and interest of $860. The amount of the lease recorded in property, plant and equipment, net was $37,544 as of March 31, 2012, the2013.
The maturities of our debt including the long-term debt werecapital lease are as follows: 2014: $5,784,479, 2015: $8,690, 2016: $9,226, 2017: $9,795, 2018: $3,397. Year ending March 31, | | | | | 2013 | | $ | 1,358,933 | | 2014 | | | 786,214 | | 2015 | | | 724,928 | | 2016 | | | 602,355 | | 2017 | | | 491,071 | | Due after 2017 | | | 3,171,726 | | Total | | $ | 7,135,227 | |
NOTE 9 - INCOME TAXES
The Company accountsWe account for income taxes under the provisions of FASB ASC 740,Income Taxes. The following table reflects (loss) incomeloss from continuing operations by location, and the (benefit) provision and benefit for income taxes and the effective tax rate for fiscal 2012 and 2011:fiscal:
| | 2012 | | | 2011 | | U.S. operations | | $ | (3,554,842) | | | $ | 4,275,869 | | Foreign operations | | | (37,482) | | | | -- | | (Loss) income from operations before tax | | | (3,592,324) | | | | 4,275,869 | | Income tax (benefit) provision | | | (1,469,218) | | | | 1,588,890 | | Net (Loss) income | | $ | (2,123,106) | | | $ | 2,686,979 | | Effective tax rate | | | (41)% | | | | 37% | |
F-17
| | 2013 | | | 2012 | | U.S. operations | | $ | (1,796,789 | ) | | $ | (3,554,842 | ) | Foreign operations | | | (142,817 | ) | | | (37,482 | ) | Loss from operations before tax | | | (1,939,606 | ) | | | (3,592,324 | ) | Income tax expense (benefit) provision | | | 472,331 | | | | (1,469,218 | ) | Net Loss | | $ | (2,411,937 | ) | | $ | (2,123,106 | ) | Effective tax rate | | | (24)% | | | | 41% | |
The provision (benefit) provision for income taxes consists of the following as of March 31: Current | | 2012 | | | 2011 | | | 2013 | | | 2012 | | Federal | | $ | (1,072,138) | | $ | 1,435,673 | | | $ | (332,580 | ) | | $ | (1,072,138) | | State | | -- | | 311,934 | | | 12,987 | | | -- | | Foreign | | | 127,093 | | | | -- | | | | 96,162 | | | | 127,093 | | Total current | | | (945,045) | | | | 1,747,607 | | | Total Current | | | | (223,431 | ) | | | (945,045) | | Deferred | | | | | | | | | | | Federal | | | | | (126,060 | ) | | 606,757 | | 35,423 | | State | | (423,133) | | | (32,657 | ) | | (47,458 | ) | | (423,133) | | Foreign | | | (136,463) | | | | -- | | | | 136,463 | | | | (136,463) | | Total deferred | | | (524,173) | | | | (158,717 | ) | | Income tax (benefit) provision | | $ | (1,469,218) | | | $ | 1,588,890 | | | Total Deferred | | | | 695,762 | | | | (524,173) | | Income tax expense (benefit) provision | | | $ | 472,331 | | | $ | (1,469,218) | |
A reconciliation between income taxes computed at the federal statutory rate for fiscal years ended March 31, 20122013 and 20112012 to the effective income tax rates applied to the net (loss) incomeloss reported in the Consolidated Statements of Operations and Other Comprehensive Income (Loss)Loss is presented as follows: | | 2013 | | | 2012 | | Federal statutory income tax rate | | 34 | % | | | 34 | % | State income tax, net of federal benefit | | 1 | % | | | 13 | % | Change in valuation allowance | | (53) | % | | | (2) | % | Stock based compensation | | (6) | % | | | (3) | % | Other | | - | % | | | (1) | % | Effective income tax rate | | (24) | % | | | 41 | % |
| 2012 | | | 2011 | | Federal statutory income tax rate | (34) | % | | | 34 | % | State income tax, net of federal benefit | (13) | % | | | 6 | % | Deduction for domestic production | - | % | | | (3) | % | Change in valuation allowance | 2 | % | | | 2 | % | Stock based compensation | 3 | % | | | - | % | Other | 1 | % | | | (2) | % | Effective income tax rate | (41) | % | | | 37 | % |
The following table summarizes the components of deferred income tax assets and liabilities are as follows:
Current Deferred Tax Assets: | | 2012 | | | 2011 | | | 2013 | | | 2012 | | Compensation | | $ | 311,003 | | $ | 284,748 | | | $ | 177,703 | | $ | 311,003 | | Allowance for doubtful accounts | | | 9,865 | | 9,960 | | | | 9,824 | | 9,865 | | Loss on uncompleted contracts | | | 350,058 | | | 132,285 | | | | 106,123 | | | 350,058 | | Net operating loss carry-forward | | 63,040 | | -- | | | 30,145 | | 63,040 | | Interest rate swaps | | 148,120 | | -- | | | 152,792 | | 148,120 | | Other liabilities not currently deductible | | 198,896 | | -- | | | 341,726 | | 198,896 | | Valuation allowance | | | (60,774 | ) | | | -- | | | | (562,548 | ) | | | (60,774 | ) | Total Current Deferred Tax Asset | | $ | 1,020,208 | | | $ | 426,993 | | | $ | 255,765 | | | $ | 1,020,208 | | Noncurrent Deferred Tax Asset (Liability): | | | | | | | | | | | Share based compensation awards | | 302,201 | | 158,203 | | | 323,734 | | 302,201 | | Net operating loss carry-forward | | 956,921 | | 526,009 | | | 1,662,848 | | 956,921 | | Valuation allowance | | | (371,807 | ) | | | (160,799 | ) | | | (1,062,741 | ) | | | (371,807 | ) | Total Noncurrent Deferred Tax Assets | | $ | 887,315 | | | $ | 523,413 | | | $ | 923,841 | | | $ | 887,315 | | Accelerated depreciation | | | (769,310 | ) | | | (488,181) | | | | (1,179,606 | ) | | | (769,310 | ) | Net Noncurrent Deferred Tax Asset | | $ | 118,005 | | | $ | 35,232 | | | Net Noncurrent Deferred Tax Asset (Liability) | | | $ | (255,765 | ) | | $ | 118,005 | | Net Deferred Tax Asset | | $ | 1,138,213 | | | $ | 462,225 | | | $ | -- | | | $ | 1,138,213 | | | | | | | | | | | | |
In assessing the recoverability of deferred tax assets, the Company considerswe consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company hasWe have determined that it is more likely than not that certain future tax benefits may not be realized. Accordingly, a valuation allowance has been recorded against deferred tax assets that are unlikely to be realized. Realization of the remaining deferred tax assets will depend on the generation of sufficient taxable income in the appropriate jurisdiction, the reversal of deferred tax liabilities, tax planning strategies and other factors prior to the expiration date of the carryforwards. A change in the estimates used to make this determination could require a reductionan increase in deferred tax assets if they are no longer consideredbecome realizable. F-18
The following table summarizes carryforwards of net operating losses and tax credits as of March 31, 2012 | Amount | Expiration | Federal net operating losses | $1,549,543 | 2025 | Federal alternative minimum tax credits | $32,894 | Indefinite | State net operating losses | $7,500,156 | 2032 |
2013:
| | Amount | | | Begins to Expire: | | Federal net operating losses | | $ | 2,274,497 | | | | 2025 | | Federal alternative minimum tax credits | | $ | 76,185 | | | Indefinite | | State net operating losses | | $ | 13,735,586 | | | | 2032 | |
The Internal Revenue Code provides for a limitation on the annual use of net operating loss carryforwards following certain ownership changes that could limit the Company’sour ability to utilize these carryforwards on a yearly basis. The CompanyWe experienced an ownership change in connection with the acquisition of Ranor. Accordingly, the Company’sour ability to utilize the aforementionedcertain carryforwards is limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Companywe may not be able to take full advantage of these carryforwards for Federal or state income tax purposes.
The following table provides a reconciliation of our unrecognized tax benefits as of March 31, 2013: | | | | | | | | Unrecognized tax benefits at March 31, 2012 | | $ | 16,532 | | Increases based on tax positions related to 2013 | | | -- | | Increases based on tax positions prior to 2013 | | | 674 | | Decreases from expiration of statute of limitations | | | -- | | Unrecognized tax benefits at March 31, 2013 | | $ | 17,206 | |
The following table provides a reconciliation of the Company’s unrecognized tax benefits as of March 31, 2012:
| | | | | | 2012 | | Unrecognized tax benefits at March 31, 2011 | | $ | -- | | Increases (decreases) based on tax positions related to 2012 | | | -- | | Increases (decreases) based on tax positions prior to 2012 | | | 16 | | Decreases from expiration of statute of limitations | | | -- | | Unrecognized tax benefits at March 31, 2012 | | $ | (16 | ) |
The Company hasWe recognized $1,104$674 in interest expense related to uncertain tax positions in the tax provision (benefit) on the Consolidated Statements of Operations and Other Comprehensive Income (Loss). The Company hasWe have not accrued any penalties with respect to uncertain tax positions.
The Company files
We file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. The Company’sOur foreign subsidiary files separate income tax returns in the foreign jurisdiction in which it is located. Tax years 20082009 and forward remain open for examination. The Company recognizesWe recognize interest and penalties accrued related to income tax liabilities in selling, general and administrative expense in its Consolidated Statements of Operations.
NOTE 10- RELATED PARTY TRANSACTIONS On February 24, 2006, WM Realty borrowed $3,300,000 from Amalgamated Bank to finance the purchase of Ranor’s real property and pursuant to a lease agreement leased the property back to Ranor. WM Realty was formed solely for this purpose and its partners who were stockholders of the Company. The Company considered WM Realty a variable interest entity (VIE) as defined by the FASB, and included the VIE in the Company’s consolidated financial statements through the year ended March 31, 2011.
On December 20, 2010, the Company, through its wholly-owned subsidiary, Ranor, purchased the property located in Westminster, MA pursuant to a Purchase and Sale Agreement, by and among the former owner of the property WM Realty (an entity controlled by one of the Company’s directors), and Ranor. This transaction terminated the relationship between the Company and the VIE, WM Realty. As such, WM Realty was not included in the Company’s consolidated financial statements after March 31, 2011.
The property included a 125,000 sq. ft. manufacturing facility recently expanded to 145,000 sq. ft. that serves as Ranor’s primary operating location. Pursuant to the Purchase Agreement, Ranor paid WM Realty $4,275,000 for the property, which price was based on independent, third-party real estate appraisals obtained by the Company. Under the Purchase Agreement, the parties agreed to share equally in the $91,448 prepayment penalty associated with early termination of the mortgage that encumbered the property and which was paid off in full in connection with the closing under the Purchase Agreement. In addition, the Purchase Agreement provided for the early termination of Ranor’s lease of the property from WM Realty, pursuant to which Ranor had been paying annual rent of $450,000. For the year ended March 31, 2011, WM Realty had a net loss of $36,206 and made capital distributions of $1.3 million.
On November 15, 2010, WCMC leased approximately 1,000 sq. ft. of office space from an affiliate of Cleantech Solutions International (“CSI”)(CSI) to serve as its primary corporate offices in Wuxi, China. The lease hashad an initial two-year term and rent under the lease with the CSI affiliate is approximately $17,000 on an annual basis. In addition to leasing property from an affiliate of CSI, the Company subcontractswe subcontract fabrication and machining services from CSI through their manufacturing facility in Wuxi, China and such subcontracted services are overseen by the Companyour personnel co-located at CSI in Wuxi, China. We view CSI as a related party because a holder of an approximate 18%5% fully diluted equity interest in CSI, also holds an approximate 36% fully diluted equity interest in the Company.us. WCMC is also subcontracting manufacturing services from other Chinese manufacturing companies on comparable terms as those it has with CSI. The CompanyWe paid $1.9 and $1.7 million to CSI for materials and manufacturing services in fiscal 2012.2013 and 2012, respectively. NOTE 11 - PROFIT SHARING PLAN Ranor has a 401(k) profit sharing plan that covers substantially all Ranor employees who have completed 90 days of service. Ranor retains the option to match employee contributions. The Company’sOur contributions were $24,230$21,219 and $23,750$24,230 for the years ended March 31, 2013 and 2012, and 2011, respectively.
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NOTE 12 - CAPITAL STOCK
Preferred Stock The Company hasWe have 10,000,000 authorized shares of preferred stock and the Boardour board of Directorsdirectors has broad power to create one or more series of preferred stock and to designate the rights, preferences, privileges and limitation of the holders of such series. The BoardOur board of Directorsdirectors has created one series of preferred stock - the Series A Convertible Preferred Stock.
Each share of Series A Convertible Preferred Stock was initially convertible into one share of common stock. As a result of the failure of the Companyus to meet thecertain levels of earnings before interest, taxes, depreciation and amortization for the years ended March 31, 2006 and 2007, the conversion rate changed, and, at December 31, 2009, each share of Series A Convertible Preferred Stock was convertible into 1.3072 shares of common stock, with an effective conversion price of $0.218. Based on the current conversion ratio, there were 9,197,4367,232,735 and 11,606,6059,197,436 common shares underlying the Series A Convertible Preferred Stock as of March 31, 20122013 and 2011,2012, respectively.
In addition to the conversion rights described above, the certificate of designation for the Series A Convertible Preferred Stock provides that the holder of the series A preferred stock or its affiliates will not be entitled to convert the Series A Convertible Preferred Stock into shares of common stock or exercise warrants to the extent that such conversion or exercise would result in beneficial ownership by the investor and its affiliates of more than 4.9% of the shares of common stock outstanding after such exercise or conversion. This provision cannot be amended.
No dividends are payable with respect to the Series A Convertible Preferred Stock and no dividends are payable on common stock while Series A Convertible Preferred Stock is outstanding. The common stock will not be redeemed while preferred stock is outstanding.
The holders of the Series A Convertible Preferred Stock have no voting rights. However, so long as any shares of Series A Convertible Preferred Stock are outstanding, the Companywe shall not, without the affirmative approval of the holders of 75% of the outstanding shares of Series A Convertible Preferred Stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the Series A Convertible Preferred Stock, (b) authorize or create any class of stock ranking as to dividends or distribution of assets upon liquidation senior to or otherwise pari passu with the Series A Convertible Preferred Stock, or any of preferred stock possessing greater voting rights or the right to convert at a more favorable price than the Series A Convertible Preferred Stock, (c) amend itsour certificate of incorporation or other charter documents in breach of any of the provisions hereof, (d) increase the authorized number of shares of Series A Convertible Preferred Stock, or (e) enter into any agreement with respect to the foregoing. Upon any liquidation the Company iswe will be required to pay $0.285 for each share of Series A Convertible Preferred Stock. The payment will be made before any payment to holders of any junior securities and after payment to holders of securities that are senior to the Series A Convertible Preferred Stock. Under the terms of the purchase agreement, the investor has the right of first refusal in the event that the Company seekswe seek to raise additional funds through a private placement of securities, other than certain exempt issuances. The percentage of shares that investor may acquire is based on the ratio of shares held by the investor plus the number of shares issuable upon conversion of Series A Convertible Preferred Stock owned by the investor to the total of such shares.
On August 14, 2009, our Boardboard of directors adopted a resolution authorizing and directing that the designated shares of Series A Convertible Preferred Stock be increased from 9,000,000 to 9,890,980.
On August 14, 2009, the Companywe entered into a warrant exchange agreement pursuant to which the Companywe agreed to issue 3,595,472 shares of Series A Convertible Preferred Stock to certain investors in exchange for warrants to purchase 9,320,000 shares of common stock. Effective September 11, 2009, the warrants were surrendered to the Company, the Companyus, we filed an amendment to its certificate of designation relating to its Series A Convertible Preferred Stock to increase the number of designated shares of Series A Convertible Preferred Stock, and the 3,595,472 shares of Series A Convertible Preferred Stock were issued pursuant to the terms of the warrant exchange agreement. All warrants surrendered in connection with the warrant exchange were cancelled.
During the fiscal year ended March 31, 2013 and 2012, 1,502,984 and 2011, 1,843,000 and 782,500 shares of Series A Convertible Preferred Stock were converted into 2,409,1591,964,694 and 1,022,8762,409,159 shares of common stock, respectively. The CompanyWe had 7,035,9825,532,998 and 8,878,9827,035,982 shares of Series A Convertible Preferred Stock outstanding at March 31, 20122013 and 2011,2012, respectively.
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Common Stock Purchase Warrants On February 15, 2011, the Companywe entered into a contract with a third party pursuant to which the Companywe issued two-year warrants to purchase 100,000 shares of common stock at an exercise price of $1.65 per share. Using the Black-Scholes options pricing formula assuming a risk free rate of 0.30%, volatility of 79%, aan expected term of one year, and the price of the common stock on February 15, 2011 of $1.65 per share, the value of the warrant was calculated at $51,428, or $0.51 per share issuable upon exercise of the warrant, or a total of $51,428.warrant. Since the warrant permitted delivery of unregistered shares, the Company has thewe have control in settling the contract by issuing equity. The cost of warrants was charged to selling, general and administrative. The warrants expired on February 14, 2013 and at March 31, 2013 there were no warrants outstanding. At March 31, 2012 and 2011, there were 100,000 warrants issued and outstanding.
Common Stock The CompanyWe had 90,000,000 authorized common shares at March 31, 2012 and 2011. The CompanyWe had 17,992,177 shares of common stock outstanding at March 31, 2012, and 15,422,888 shares of common stock outstanding at March 31, 2011.
In fiscal 2013, we issued 1,964,694 shares of common stock in connection with a Series A Convertible Preferred Stock conversions.
In fiscal 2012, the Companywe issued 160,130 shares of common stock in connection with the exercise of stock options and 2,409,159 shares of common stock in connection with a Series A Convertible Preferred Stock conversions.
In fiscal 2011, the Company issued 169,166 shares of common stock in connection with the exercise of stock options and 1,022,876 shares of common stock in connection with a Series A Convertible Preferred Stock conversions.
NOTE 13 - STOCK BASED COMPENSATION In 2006, theour board of directors adopted, and theour stockholders approved, the 2006 long-term incentive plan (the “Plan”)Plan) covering 1,000,000 shares of common stock. On August 5, 2010, the Plan was amended to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,000,000 shares. On September 15, 2011, the directors adopted and the shareholders approved an amendment to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,300,000 shares. The Plan provides for the grant of incentive and non-qualified options, stock grants, stock appreciation rights and other equity-based incentives to employees, including officers, and consultants. The Plan is to be administered by a committee of not less than two directors each of whom is to be an independent director. In the absence of a committee, the Plan is administered by the Boardour board of Directors.directors. Independent directors are not eligible for discretionary options.
Pursuant to the Plan, each newly elected independent director receives at the time of his election, a five-year option to purchase 50,000 shares of common stock at the market price on the date of his or her election. In addition, the Plan provides for the annual grant of an option to purchase 10,000 shares of common stock on July 1st of each year following the third anniversary of the date of his or her first election. On July 1, 2010, the CompanyApril 19, 2011, we granted stock options to two directors to purchase 10,000 shares of common stock at an exercise price of $0.76 per share, pursuant to the Plan provision following the third anniversary date of each director’s first election to the board. Fifty percent of the shares will vest in nine monthsour chief executive officer and eighteen months from the grant date, respectively.
On August 4, 2010, the Company granted stock options to its CEO and CFO to purchase 1,000,000 and 150,000 shares of common stock, respectively, at an exercise price of $0.70 per share, the fair market value on the date of grant. The options will vest in equal amounts over three years on the anniversary of the grant date.
On September 27, 2010, pursuant to the Plan, the Company granted options to purchase 50,000 shares of common stock at an exercise price of $0.82 per share to a new independent director. The grant provided for 30,000 shares to vest immediately on the grant date and 10,000 shares each to vest on September 26, 2011 and 2012.
Also, during fiscal 2011, the Company granted stock options to employees to purchase 155,000 shares of common stock at exercise prices ranging from $1.22 - $1.70 per share or the fair market value on the grant date. The options will vest in three cumulative annual installments over three years on the grant date anniversary.
On April 19, 2011, the Company granted stock options to its CEO and CFOchief financial officer to purchase 250,000 and 100,000 shares of common stock, respectively, at an exercise price of $1.96 per share, the fair market value on the date of grant. The options will vest in equal amounts over three years on the anniversary of the grant date. Also, on April 19, 2011, the Companywe granted stock options to certain employees to purchase 227,000 shares of common stock at an exercise price of $1.96 per share, the fair market value on the date of grant. The options will vest in equal amounts over three years on the anniversary of the grant date.
F-21
On July 1, 2011, the Companywe granted stock options to two directors to purchase 10,000 shares of common stock each at an exercise price of $1.62 per share, the fair market value on the date of grant, pursuant to the plan provision following the third anniversary date of each director’s first election to the board. Fifty percent of the shares will vest in six months and 50% in eighteen months from the grant date, respectively.
On July 21, 2011, the Companywe granted stock options to an employee to purchase 20,000 shares of common stock at an exercise price of $1.65 per share, the fair market value on the date of grant. The options vested immediately on the grant date.
On August 29, 2011, the Companywe granted stock options to certain employees to purchase 30,000 shares of common stock at an exercise price of $1.45 per share, the fair market value on the date of grant. The options will vest in equal amounts over three years on the anniversary of the grant date.
On April 26, 2012, we granted stock options to an employee to purchase 50,000 shares of common stock at an exercise price of $0.70 per share, the fair market value on the date of grant. The options will vest in equal amounts over three years on the anniversary of the grant date.
On July 2, 2012, we granted stock options to two directors to purchase 10,000 shares of common stock each at an exercise price of $0.61 per share, the fair market value on the date of grant, pursuant to the plan provision following the third anniversary date of each director’s first election to the board. Fifty percent of the shares will vest in six months and 50% in eighteen months from the grant date, respectively.
On December 5, 2012, we granted stock options to a new member of our board of directors to purchase 50,000 shares of common stock each at an exercise price of $1.02 per share, the fair market value on the date of grant. Thirty thousand shares will vest immediately, with the remaining options vesting in equal amounts on the second and third year anniversary of the grant date.
The fair value was estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The risk-free interest rate was selected based upon yields of five-year U.S. Treasury issues. The Company usesWe use the simplified method for all grants to estimate the expected term of the option. We assume that stock options will be exercised evenly over the period from vesting until the awards expire. As such, the assumed period for each vesting tranche is computed separately and then averaged together to determine the expected term for the award. Because of our limited stock exercise activity we did not rely on our historical exercise data. The assumptions utilized for option grants during the periods presented ranged from 80%103.5% to 112%106.1% for volatility, a risk free interest rate of 0.92%0.061% to 2.09%0.083%, and expected term of approximately six years. At March 31, 2012, 403,8402013, 418,506 shares of common stock were available for grant under the Plan.
The following table summarizes information about options for the most recent annual income statements presented: | | Number Of | | | Weighted Average | | | Aggregate Intrinsic | | | Weighted Average Remaining Contractual Life | | | | Options | | | Exercise Price | | | Value | | | (in years) | | Outstanding at 3/31/2011 | | | 2,046,661 | | | $ | 0.738 | | | $ | 1,969,075 | | | 7.05 | | Granted | | | 647,000 | | | $ | 1.916 | | | | | | | | | Forfeited | | | (73,000 | ) | | $ | 1.662 | | | | | | | | | Exercised | | | (204,995 | ) | | $ | 0.385 | | | | | | | | | Outstanding at 3/31/2012 | | | 2,415,666 | | | $ | 1.040 | | | $ | 107,375 | | | 7.71 | | Granted | | | 120,000 | | | $ | 0.820 | | | | | | | | | Forfeited | | | (51,666 | ) | | $ | 1.150 | | | | | | | | | Outstanding at 3/31/2013 | | | 2,484,000 | | | $ | 1.027 | | | $ | 776,475 | | | 9.07 | | Vested or expected to vest 3/31/2013 | | | 1,984,000 | | | $ | 1.003 | | | $ | 626,375 | | | | 6.68 | | Exercisable at 3/31/2013 | | | 1,629,666 | | | $ | 0.910 | | | $ | 573,475 | | | | 4.91 | |
| | Number Of | | | Weighted Average | | | Aggregate Intrinsic | | | Weighted Average Remaining Contractual Life | | | | Options | | | Exercise Price | | | Value | | | (in years) | | Outstanding at 3/31/2010 | | | 850,827 | | | $ | 0.558 | | | | | | | | Granted | | | 1,365,000 | | | $ | 0.794 | | | | | | | | Exercised | | | (169,166 | ) | | $ | 0.285 | | | $ 204,341 | | | | | Outstanding at 3/31/2011 | | | 2,046,661 | | | $ | 0.738 | | | $ | 1,969,075 | | | 7.05 | | Granted | | | 647,000 | | | $ | 1.916 | | | | | | | | | Forfeited | | | (73,000 | ) | | $ | 1.662 | | | | | | | | | Exercised | | | (204,995 | ) | | $ | 0.385 | | | $ | 138,238 | | | | | Outstanding at 3/31/2012 | | | 2,415,666 | | | $ | 1.040 | | | $ | 107,375 | | | 7.71 | | Vested or expected to vest 3/31/2012 | | | 2,415,666 | | | $ | 1.040 | | | $ | 107,375 | | | | 7.71 | | Exercisable at 3/31/2012 | | | 926,667 | | | $ | 0.627 | | | $ | 69,041 | | | | 4.61 | | | | | | | | | | | | | | | | | | |
At March 31, 20122013 there was $968,867$233,005 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over the next three years. The total fair value of shares vested during the year was $877,137.$768,063.
The following is a summary oftable summarizes the status of the Company’stour stock options outstanding but not vested for the year ended March 31, 2012 and 2011:31: | | Number of Options | | Weighted Average | | | Number of Options | | Weighted Average | | Outstanding at 3/31/2010 | | 299,500 | | $ | 0.718 | | | Granted | | 1,365,000 | | $ | 0.794 | | | Vested | | | (224,500) | | | $ | 0.808 | | | Outstanding at 3/31/2011 | | 1,440,000 | | $ | 0.783 | | | 1,440,000 | | $ | 0.783 | | Granted | | 647,000 | | $ | 1.916 | | | 647,000 | | $ | 1.916 | | Forfeited | | (83,000) | | $ | 1.960 | | | (83,000) | | $ | 1.960 | | Vested | | | (515,000) | | | $ | 0.798 | | | | (515,000) | | $ | 0.798 | | Outstanding at 3/31/2012 | | | 1,489,000 | | | $ | 1.205 | | | 1,489,000 | | $ | 1.205 | | Granted | | | 120,000 | | $ | 0.820 | | Forfeited | | | (51,666) | | $ | 1.150 | | Vested | | | | (703,000) | | $ | 1.090 | | Outstanding at 3/31/2013 | | | | 854,334 | | | $ | 1.249 | |
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NOTE 14 - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS The Company maintainsWe maintain bank account balances, which, at times, may exceed insured limits. The Company hasWe have not experienced any losses with these accounts and believes that it is not exposed to any significant credit risk on cash.
At March 31, 2012,2013, there were accounts receivable balances outstanding from fourthree customers comprising 59%88% of the total receivables balance; the largest balance from a single customer represented 24% of our receivables balance, while the smallest balance from a single customer making up this group was 6%.balance.
The following table sets forth information as to accounts receivable from customers who accounted for more than 10% of our accounts receivable balance as of: | | | March 31, 2012 | | | March 31, 2011 | | Customer | | | Dollars | | | Percent | | | Dollars | | | Percent | | | A | | | $ | 1,160,957 | | | | 24 | % | | $ | 455,337 | | | | 7 | % | | B | | | $ | 726,908 | | | | 15 | % | | $ | -- | | | | -- | % | | C | | | $ | 322,828 | | | | 6 | % | | $ | 624,765 | | | | 10 | % | | D | | | $ | 561,927 | | | | 11 | % | | $ | 3,563,951 | | | | 54 | % |
The Company has | | | March 31, 2013 | | | March 31, 2012 | | Customer | | | Dollars | | | Percent | | | Dollars | | | Percent | | | A | | | $ | 2,379,078 | | | | 55 | % | | $ | 17,494 | | | | -- | % | | B | | | $ | 915,632 | | | | 21 | % | | $ | 26,972 | | | | 1 | % | | C | | | $ | 516,174 | | | | 12 | % | | $ | -- | | | | -- | % | | D | | | $ | -- | | | | -- | % | | $ | 1,160,957 | | | | 24 | % | | E | | | $ | -- | | | | -- | % | | $ | 726,908 | | | | 15 | % | | F | | | $ | 10,919 | | | | -- | % | | $ | 561,927 | | | | 11 | % |
We have been dependent in each year on a small number of customers who generate a significant portion of our business, and these customers change from year to year. The following table sets forth information as to net sales from customers who accounted for more than 10% of our revenue for the fiscal year ended:
| | | March 31, 2012 | | | March 31, 2011 | | Customer | | | Dollars | | | Percent | | | Dollars | | | Percent | | | A | | | $ | 11,307,100 | | | | 34 | % | | $ | 17,762,747 | | | | 54 | % | | B | | | $ | 3,388,386 | | | | 10 | % | | $ | 1,816,597 | | | | 6 | % | | C | | | $ | 2,981,044 | | | | 9 | % | | $ | 4,876,435 | | | | 15 | % |
| | | March 31, 2013 | | | March 31, 2012 | | Customer | | | Dollars | | | Percent | | | Dollars | | | Percent | | | A | | | $ | 7,665,775 | | | | 24% | | | $ | 333,346 | | | | 1% | | | B | | | $ | 6,086,928 | | | | 19% | | | $ | 17,494 | | | | --% | | | C | | | $ | 4,800,047 | | | | 15% | | | $ | 3,388,386 | | | | 10% | | | D | | | $ | 2,765,777 | | | | 8% | | | $ | 11,307,100 | | | | 34% | |
NOTE 15 – SEGMENT INFORMATION
We consider our business to consist of one segment - metal fabrication and precision machining.
A significant amount of our operations, assets and customers are located in the United States. During the third quarter of fiscal 2011, we commenced organizational and start-up activities at WCMC, our wholly owned subsidiary in China, and commenced operations in the fourth quarter of fiscal 2011. The following table presents our geographic information (net sales and net property, plant and equipment) by the country in which the legal subsidiary is domiciled and assets are located: | | Net Sales | | Property, Plant and Equipment, Net | | | Net Sales | | Property, Plant and Equipment, Net | | | | 2012 | | 2011 | | 2012 | | 2011 | | | 2013 | | 2012 | | 2013 | | 2012 | | United States | | $ | 28,693,327 | | $ | 32,135,344 | | $ | 7,363,002 | | $ | 3,139,692 | | | $ | 29,146,085 | | $ | 28,693,327 | | $ | 7,252,027 | | $ | 7,363,002 | | China | | $ | 4,573,451 | | $ | 148,891 | | $ | 32,443 | | $ | -- | | | $ | 3,326,834 | | $ | 4,573,451 | | $ | 19,346 | | $ | 32,443 | |
NOTE 16 – COMMITMENTS
Leases
On December 20, 2010, the Company, through its wholly-owned subsidiary, Ranor, Inc., purchased the property in Westminster, Massachusetts pursuant to a Purchase and Sale Agreement, by and among the former owner of the property WM Realty (an entity controlled by the Company’s director, Andrew Levy), and Ranor. On the same date, the Company cancelled its lease with WM Realty.
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The property included a 125,000 sq. ft. manufacturing facility that serves as Ranor’s primary operating location. Pursuant to the Purchase Agreement, Ranor paid WM Realty $4,275,000 for the property, which price was based on independent, third-party real estate appraisals obtained by the Company. Under the Purchase Agreement, the parties agreed to share equally in the $91,448 prepayment penalty associated with early termination of the mortgage that encumbered the property and which was paid off in full in connection with the closing under the Purchase Agreement. In addition, the Purchase Agreement provided for the early termination of Ranor’s lease of the property from WM Realty, pursuant to which Ranor had been paying annual rent of $450,000.
Ranor, Inc. had leased its manufacturing, warehouse and office facilities in Westminster, Massachusetts from WM Realty, a variable interest entity, for a term of 15 years, commencing February 24, 2006. For the year ended on March 31, 2011 the Company’s rent expense was $324,194. Since the Company consolidated the operations of WM Realty, a variable interest entity, in fiscal 2011, the rental expense was eliminated in the consolidated financial statements, and the building was carried at cost and depreciation expensed.
On November 17, 2010, the Companywe entered into a lease agreement to lease approximately 3,200 square feet of office space in Center Valley, Pennsylvania to be used as the Company’sour corporate headquarters. The CompanyWe took possession of the office space on April 1, 2011. Under the Lease, the Company’sour payment obligations were deferred until the fifth month after it takes possession, at which time the Companywe will pay annual rent of approximately $58,850 in equal monthly installments, subject to upward adjustments during each subsequent year of the term of the Lease. In addition to Base Rent, the Companywe will pay to the Landlord certain operating expenses and other fees in accordance with the terms of the Lease. Payment of Base Rent and other fees under the Lease may be accelerated if the Company failswe fail to satisfy itsour payment obligations in a timely manner, or otherwise defaultsdefault on itsour obligations under the Lease. The Lease expires sixty-four months after the date of the Lease. The CompanyWe may elect to renew the lease for an additional five-year term. The Lease contains customary representations and covenants regarding occupancy, maintenance and care of the Property. At March 31, 20122013 we recorded a liability for deferred rent of $17,880$16,126 reflecting the difference between the expense recorded in the consolidated statement of operations and comprehensive income (loss) the monthly rent cash payments paid to the lessor.
On November 15, 2010 and June 15, 2011, the Companywe entered into certain leases for approximately 1,000 sq. ft. of office space in Wuxi, China. The annual rental cost is approximately $27,000 and the leases expireexpired on November 14, 2012. The leases were renewed thereafter on an annual basis. We also lease apartment space and cars for certain expatriate employees who live and work in China. TheChina at an annual rental cost isof approximately $42,000$34,000 and the leases expire on various dates during fiscal 2013.dates. Rent expense for all operating leases for the fiscal years ended March 31, 2013 and 2012 was $138,765 and 2011 was $131,090, and $90,030, respectively. Future minimum lease payments required under non-cancellable operating leases in the aggregate, at March 31, 2012,2013, totaled $186,412.$227,448. The totals for each annual period ended on March 31 were: 2013- $57,360, 2014- $57,360,$59,912, 2015- $57,358$61,500, 2016- $63,092 and 2016- $14,334.2017- $42,944. As of March 31, 2012, the Company2013, we had $2.3$0.9 million in purchase obligations outstanding, which primarily consisted of contractual commitments to purchase raw materials and supplies at fixed prices.
Employment Agreements
The Company hasWe have employment agreements with itsour executive officers. Such agreements provide for minimum salary levels, adjusted annually, as well as for incentive bonuses that are payable if specified company goals are attained. The aggregate annual commitment at March 31, 20122013 for future salaries during the next fiscal year 2013,2014, excluding bonuses, was approximately $985,000.$710,000.
Severance Agreement
On February 8, 2012 the Company’sour President and General Manager for itsour Ranor operation in the U.S. retired. In connection with the above event, the Company waswe were required to provide severance and certain post-employment benefits. As such, the Company haswe recorded a charge of $226,945 associated with this event. The entire balance remains outstanding at March 31, 2012,event and is includedwas paid in accrued expenses on the consolidated balance sheet.full during fiscal 2013.
NOTE 17 - EARNINGS PER SHARE (EPS)
Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average shares outstanding. Diluted EPS also includes the effect of dilutive potential common shares. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations, as required under FASB ASC 260.
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| | March 31, 2012 | | | March 31, 2011 | | | March 31, 2013 | | | March 31, 2012 | | Basic EPS | | | | | | | | | | | | | Net (loss) income | | $ | (2,123,106) | | | $ | 2,686,979 | | | Net Loss | | | $ | (2,411,937 | ) | | $ | (2,123,106) | | Weighted average shares | | | 16,738,213 | | | | 14,489,932 | | | | 19,004,897 | | | | 16,738,213 | | Basic (loss) income per share | | $ | (0.13) | | | $ | 0.19 | | | Basic Loss per share | | | $ | (0.13 | ) | | $ | (0.13) | | Diluted EPS | | | | | | | | | | | | | | | | | Net (loss) income | | $ | (2,123,106) | | | $ | 2,686,979 | | | Net Loss | | | $ | (2,411,937 | ) | | $ | (2,123,106) | | Dilutive effect of convertible preferred stock, warrants and stock options | | | -- | | | | 8,406,319 | | | | -- | | | | -- | | Diluted weighted average shares | | | 16,738,213 | | | | 22,896,251 | | | | 19,004,897 | | | | 16,738,213 | | Diluted (loss) income per share | | $ | (0.13) | | | $ | 0.12 | | | Diluted Loss per share | | | $ | (0.13 | ) | | $ | (0.13) | |
All potential common share equivalents that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the period ended March 31, 20122013 and 2011,2012, there were 7,289,8545,594,949 and 402,500 shares,7,289,854, respectively, of potentially anti-dilutive stock options, warrants and convertible preferred stock, none of which were included in the EPS calculations above.
NOTE 1918 - SELECTED QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain unaudited quarterly data for each of the four quarters in the years ended March 31, 2012 and 2011. The data has been derived from the Company'sour unaudited consolidated financial statements that, in management's opinion, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notes thereto. The results of operations for any quarter are not necessarily indicative of the results of operations for any future period. | | | | | (in thousands, except for per share data) | | First Quarter | | Second Quarter | | Third Quarter (a) | | Fourth Quarter (b) | | | First Quarter | | Second Quarter | | Third Quarter | | | Fourth Quarter | | Year ended March 31, 2013 | | | | | | | | | | | | Net sales | | | $ | 7,145 | | $ | 8,079 | | $ | 7,294 | | | $ | 9,955 | | Gross profit | | | $ | 1,105 | | $ | 1,938 | | $ | 1,884 | | | $ | 1,631 | | Net Loss | | | $ | (706 | ) | | $ | (45 | ) | | $ | (545 | ) | | $ | (1,115 | ) | Basic Loss per share | | | $ | (0.04 | ) | | $ | (0.00 | ) | | $ | (0.03 | ) | | $ | (0.06 | ) | Diluted Loss per share | | | $ | (0.04 | ) | | $ | (0.00 | ) | | $ | (0.03 | ) | | $ | (0.06 | ) | Year ended March 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | Net sales | | $ | 9,176 | | $ | 7,147 | | $ | 10,864 | | $ | 6,079 | | | $ | 9,176 | | $ | 7,147 | | $ | 10,864 | | | $ | 6,079 | | Gross profit | | $ | 2,426 | | $ | 1,915 | | $ | 740 | | $ | 2 | | | $ | 2,426 | | $ | 1,915 | | $ | 740 | (a) | | $ | 2 | (b) | Net income (loss) | | $ | 381 | | $ | (88 | ) | | $ | (1,148 | ) | | $ | (1,268) | | | $ | 381 | | $ | (88 | ) | | $ | (1,148 | ) | | $ | (1,268 | ) | Basic income (loss) per share | | $ | 0.02 | | $ | (0.01 | ) | | $ | (0.07 | ) | | $ | (0.07) | | | $ | 0.02 | | $ | (0.01 | ) | | $ | (0.07 | ) | | $ | (0.07 | ) | Diluted income (loss) per share | | $ | 0.01 | | $ | (0.01 | ) | | $ | (0.07 | ) | | $ | (0.07) | | | $ | 0.01 | | $ | (0.01 | ) | | $ | (0.07 | ) | | $ | (0.07 | ) | | | | | | | | | | | | | | | | Year ended March 31, 2011 | | | | | | | | | | | | | | | Net sales | | $ | 6,154 | | $ | 8,381 | | $ | 9,670 | | $ | 8,079 | | | Gross profit | | $ | 2,316 | | $ | 2,585 | | $ | 2,856 | | $ | 2,159 | | | Net income | | $ | 819 | | $ | 856 | | $ | 829 | | $ | 183 | | | Basic income per share | | $ | 0.06 | | $ | 0.06 | | $ | 0.06 | | $ | 0.01 | | | Diluted income per share | | $ | 0.04 | | $ | 0.04 | | $ | 0.04 | | $ | 0.00 | | |
(a)(b) Net Loss for Fiscal 2012 in the third and fourth quarters includeincluded contract losses of $518,792 and $1,558,421, respectively. These contract losses increased cost of goods sold and lowered gross profit for the periods. NOTE 2019 – SUBSEQUENT EVENTS
On May 13, 2013, James Molinaro, our former chief executive officer, submitted his resignation as our chief executive officer and as a member of our board of directors. In connection with a shareholder transaction in May 2012, Series A Convertible Preferred Stock of 482,984this resignation Mr. Molinaro forfeited 1,250,000 common shares were converted into 631,352 shares of common stock.granted under the 2006 long-term incentive plan.
On April 30, 2012June 13, 2013 we issued 200,000 special options to our non-employee directors in recognition of their additional services while we seek a permanent chief executive officer. We also granted Mr. Anthony a stock option grant covering 100,000 shares of our common stock and set his compensation at $20,000 per month for his service as Executive Chairman. Additionally, weissued 190,000 stock options to certain of our executives.
On July 5 and 31, 2013, we repaid $250,000 and $250,000, respectively, of debt outstanding under its revolving credit facility. The revolving loan facility expired on July 31, 2013 without renewal by the Company received $553,071 representing a refund of estimated federal tax payments made during the first two quarters of fiscal 2012.Bank.
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On July 6, 2012, the Company executed an Eleventh Amendment and obtained a waiver for failure to comply with the fixed charge coverage ratio and the interest coverage ratio covenants at March 31, 2012. The Eleventh Amendment also waived the covenant testing requirement related to the ratio of earnings available to cover fixed charges and the interest coverage ratio covenants for the fiscal quarters ended June 30, 2012 and September 30, 2012. The leverage ratio covenant will remain in effect. Without the execution of the Eleventh Amendment for the applicable periods, the Company would have been required to reclassify all of its long-term debt as a current liability at March 31, 2012. Although there will be no testing of the covenants to comply with the ratio of earnings available to cover fixed charges and the interest coverage ratio covenant testing at June 30 and September 30, 2012, the Bank will require that the Company have EBIT greater than $1 for the fiscal quarter ended September 30, 2012. Additionally, the Bank required the Company to transfer $840,000 into a restricted cash account as additional collateral. This amount equals the total due for the next two quarters of debt service. This collateral will be released back to the Company upon successful compliance with all debt covenant tests. The ratio of earnings available to cover fixed charges and the interest coverage covenant testing will resume at December 31, 2012 on a trailing six month basis, and continue at March 31, 2013 on a trailing nine month basis and quarterly thereafter on a trailing twelve month basis beginning on June 30, 2013. Under the Eleventh Amendment the Company shall not permit earnings available for fixed charges to be less than 125%, interest coverage to be less than 2:1, and the leverage ratio to be greater than 2:1 at any time, tested quarterly. The Company believes that it will remain in compliance with all of the revised covenants through at least June 30, 2013.
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Exhibit Index.
Exhibit Number | Description of Document | 3.2 | Amended and Restated By-laws of the Registrant. | 4.13 | | 10.14 | | 10.15 | | 23.1 | | 23.2 | Consent of Tabriztchi & Co., CPA, P.C. | 31.1 | | 31.2 | | 32.1 | | 101 | The following financial information from this Annual Report on Form 10-K for the fiscal year ended March 31, 2013, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets at March 31, 2013 and 2012; (ii) the Consolidated Statements of Operations and Comprehensive Loss for the years ended March 31, 2013 and 2012; (iii) the Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2013 and 2012; (iv) the Consolidated Statements of Cash Flows for the years ended March 31, 2013 and 2012; and (v) the Notes to the Consolidated Financial Statements. |
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