UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark one)
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________________ to________________________________________
Commission File Number________________________________________________________________________________
Precision Aerospace Components, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 20-4763096 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
2200 Arthur Kill Road
Staten Island, New York 10309-1202
(Address of Principal Executive Offices)
(718)-356-1500
(Issuer’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
None | ||
Securities registered pursuant to section 12(g) of the Act: | ||
Common Stock | OTC:BB |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [XX]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [ ]
Note-Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ XX ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K (229.405 of this chapter)is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. Yes [ ] No [XX]
Indicate by check mark whether the registrants is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [XX] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [XX ] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of a date within the last 60 days, March 15, 2010: $2,718,645
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [XX] Yes [ ] No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of March 15, 2010 1,840,004.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Pat II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).
All items of the Company’s Form 10-K annual report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2009 other than the Financial Statements in Item 8 thereto (which have been changed only to reflect the removal of the statements “The report is a copy of the previously issued report. The predecessor auditor has not reissued the report.” These statements had originally appeared at the bottom of the Bagell, Josephs, Levine report in Item 8) and exhibits 31.1;31.2; and 32.1.
INTRODUCTORY NOTE
This amendment to Precision Aerospace Components, Inc. (the "Company") form 10K for the fiscal year ended December 31, 2009 is being submitted in response to an August 26, 2010 SEC comment letter requiring the correction.
Although Financial Statements within the Item 8 - are being resubmitted, the only change is to the one-page report from Bagell, Josephs, Levine & Company, L.L.C. included within the Financial Statements. The only change to that report has been the removal of the statements "The report is a copy of the previously issued report. The predecessor auditor has not reissued the report". These statements had originally appeared at the bottom of the report in the originally filed Financial Statements.
The report as originally included, with the statements set forth above, had been prepared in accordance with guidance received from the PCAOB. The SEC has taken a contrary view of the requirements and required this amendment.
Other than the removal of the two aforementioned statements in the auditor's report, there have been no changes to the Financial Statements.
ITEM 8. FINANCIAL STATEMENTS
The consolidated financial statements of the Company follow:
PRECISION AEROSPACE COMPONENTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
PRECISION AEROSPACE COMPONENTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
CONSOLIDATED FINANCIAL STATEMENTS:
Pages | |
Reports of Independent Registered Public Accounting Firm | 3-4 |
Consolidated Balance Sheets as of December 31, 2009 and 2008 | 5 |
Consolidated Statements of Operations for the Years Ended | |
December 31, 2009 and 2008 | 6 |
Consolidated Statement of Stockholders’ Equity for the Years | |
Ended December 31, 2009 and 2008 | 7 |
Consolidated Statement of Cash Flows for the Years | |
Ended December 31, 2009 and 2008 | 8 |
Notes to Consolidated Financial Statements | 9–21 |
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![](https://capedge.com/proxy/10-KA/0001121781-10-000338/paos10k1231091.jpg)
The Board of Directors and Stockholders
Precision Aerospace Components, Inc.
Staten Island, New York
We have audited the accompanying consolidated balance sheet of Precision Aerospace Components, Inc. (the “Company”), as of December 31, 2009 and the related consolidated statement of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2009. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts a nd disclosures in the consolidated financial statements, 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 consolidated financial position of Precision Aerospace Components, Inc. as of December 31, 2009 and the consolidated results of its operations and cash flows for the year ended December 31, 2009, in conformity with accounting principles generally accepted in the United States.
/s/ Friedman LLP
Friedman LLP
Marlton, New Jersey
March 31, 2010
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BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
406 Lippincott Drive
Suite J
Marlton, New Jersey 08053
(856) 355-5900 Fax (856) 396-0022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Precision Aerospace Components, Inc.
Staten Island, New York
We have audited the accompanying consolidated balance sheets of Precision Aerospace Components, Inc. as of December 31, 2008 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year ended December 31, 2008. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amount s and disclosures in the consolidated financial statements, 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 financial position of Precision Aerospace Components, Inc. as of December 31, 2008 and the consolidated results of its operations and its cash flows for the year ended December 31, 2008 in conformity with accounting principles generally accepted in the United States.
/s/ Bagell Josephs, Levine & Company, LLC
Bagell Josephs, Levine & Company, LLC
Marlton, New Jersey
March 15, 2009
4
PRECISION AEROSPACE COMPONENTS, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
ASSETS | ||||||||
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
(Audited) | (Audited) | |||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 198,971 | $ | 176,483 | ||||
Accounts receivable, net | 778,450 | 874,124 | ||||||
Inventory, net | 5,087,712 | 4,592,247 | ||||||
Prepaid expenses | 5,941 | 39,693 | ||||||
Prepaid income taxes | 69,374 | 98,616 | ||||||
6,140,448 | 5,781,163 | |||||||
PROPERTY AND EQUIPMENT - Net | 120,458 | 184,634 | ||||||
OTHER ASSETS | ||||||||
Deposits | 24,700 | 24,700 | ||||||
Goodwill | 2,221,744 | 2,221,744 | ||||||
2,246,444 | 2,246,444 | |||||||
TOTAL ASSETS | $ | 8,507,350 | $ | 8,212,241 | ||||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 210,542 | $ | 252,530 | ||||
Subordinated note payable-current portion | - | 75,000 | ||||||
Loan payable-current portion | 2,682,000 | 2,722,506 | ||||||
2,892,542 | 3,050,036 | |||||||
LONG -TERM LIABILITIES | ||||||||
Subordinated note payable-long term portion | - | - | ||||||
Convertible note payable | - | - | ||||||
TOTAL LIABILITIES | 2,892,542 | 3,050,036 | ||||||
TEMPORARY EQUITY | ||||||||
Preferred Stock A $.001 par value; 7,100,000 shares authorized | ||||||||
5,274,152 shares issued and outstanding | - | 5,274 | ||||||
Preferred Stock B $.001 par value; 2,900,000 shares authorized | ||||||||
2,811,000 shares issued and outstanding | - | 2,811 | ||||||
Additional paid-in capital - preferred stock | - | 2,916,173 | ||||||
Additional paid-in capital -options | - | 4,417,917 | ||||||
Additional paid-in capital -warrants | - | 843,272 | ||||||
- | 8,185,447 | |||||||
STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Preferred Stock A $.001 par value; 7,100,000 shares authorized | ||||||||
6,123,301 shares issued and outstanding | 6,123 | - | ||||||
Preferred Stock B $.001 par value; 2,900,000 shares authorized | ||||||||
0 shares issued and outstanding | - | - | ||||||
Common stock, $.001 par value; 100,000,000 shares authorized | ||||||||
at December 31, 2009 and December 31, 2008; 1,753,279 and 66,649 shares issued and outstanding | 1,753 | 67 | ||||||
Additional paid-in capital | 11,103,398 | 2,925,760 | ||||||
Accumulated deficit | (5,496,466 | ) | (5,949,069 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | 5,614,808 | (3,023,242 | ) | |||||
TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 8,507,350 | $ | 8,212,241 | ||||
The accompanying notes are an integral part of these consolidated financial statements
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PRECISION AEROSPACE COMPONENTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2009 | 2008 | |||||||
REVENUE - SALES | $ | 10,114,990 | $ | 11,414,687 | ||||
TOTAL COST OF GOODS SOLD | 7,016,346 | 7,888,205 | ||||||
GROSS PROFIT | 3,098,644 | 3,526,482 | ||||||
OPERATING EXPENSES | ||||||||
General and administrative expenses ($4,417,917 noncash compensation for year ended December 31, 2008 and -0- for December 31, 2009) | 1,978,994 | 6,332,498 | ||||||
Professional and consulting fees | 296,311 | 353,974 | ||||||
Depreciation | 81,467 | 80,063 | ||||||
Total Operating Expenses | 2,356,772 | 6,766,535 | ||||||
INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE) | 741,872 | (3,240,053 | ) | |||||
OTHER INCOME (EXPENSE) | ||||||||
Interest expense | (138,149 | ) | (211,575 | ) | ||||
(138,149 | ) | (211,575 | ) | |||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 603,723 | (3,451,628 | ) | |||||
Provision for income taxes | 151,120 | 369,254 | ||||||
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES | $ | 452,603 | $ | (3,820,882 | ) | |||
NET INCOME (LOSS) PER BASIC SHARES | $ | 4.37 | $ | (57.33 | ) | |||
NET INCOME (LOSS) PER DILUTED SHARES | $ | 0.03 | $ | 0.00 | ||||
WEIGHTED AVERAGE NUMBER OF BASIC COMMON | ||||||||
SHARES OUTSTANDING | 103,617 | 66,649 | ||||||
WEIGHTED AVERAGE NUMBER OF FULLY DILUTED | ||||||||
COMMON SHARES OUTSTANDING | 15,478,043 | 17,770,843 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
6
PRECISION AEROSPACE COMPONENTS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
Additional | ||||||||||||||||||||||||||||||||||||
Preferred Stock-Series A | Preferred Stock-Series B | Common Stock | paid-in | Accumulated | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2007 | - | $ | - | - | $ | - | 66,649 | $ | 67 | $ | 2,925,760 | $ | (2,128,187 | ) | $ | 797,640 | ||||||||||||||||||||
Net (Loss) | - | - | - | - | - | - | - | (3,820,882 | ) | (3,820,882 | ) | |||||||||||||||||||||||||
Balance, December 31, 2008 | - | $ | - | - | $ | - | 66,649 | $ | 67 | $ | 2,925,760 | $ | (5,949,069 | ) | $ | (3,023,242 | ) | |||||||||||||||||||
Reclassification to permanent equity | 5,274,152 | 5,274 | 2,811,000 | 2,811 | - | - | 8,177,362 | 8,185,447 | ||||||||||||||||||||||||||||
Conversion of Preferred B stock | (2,811,000 | ) | (2,811 | ) | 1,686,630 | 1,686 | 1,125 | - | ||||||||||||||||||||||||||||
Conversion of A and B warrants | 849,149 | 849 | (849 | ) | - | |||||||||||||||||||||||||||||||
. | ||||||||||||||||||||||||||||||||||||
Net Income | - | - | - | - | - | - | - | 452,603 | 452,603 | |||||||||||||||||||||||||||
Balance, December 31, 2009 | 6,123,301 | $ | 6,123 | - | $ | - | 1,753,279 | $ | 1,753 | $ | 11,103,398 | $ | (5,496,466 | ) | $ | 5,614,808 | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements
7
PRECISION AEROSPACE COMPONENTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 |
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net (loss) income | $ | 452,603 | $ | (3,820,882 | ) | |||
Adjustments to reconcile net income (loss) to net cash | ||||||||
(used in) operating activities: | ||||||||
Depreciation and amortization | 81,467 | 80,063 | ||||||
Stock Based Compensation | - | 4,417,917 | ||||||
Changes in assets and liabilities: | ||||||||
Decrease (increase) in assets | ||||||||
Decrease (increase) in accounts receivable | 95,674 | (36,572 | ) | |||||
Decrease (increase) in inventory | (495,465 | ) | (706,915 | ) | ||||
Decrease (increase) in prepaid expenses | 33,752 | (39,693 | ) | |||||
Decrease (increase) in security deposits | - | (12,000 | ) | |||||
Decrease (increase) in prepaid income taxes | 29,242 | (98,616 | ) | |||||
Increase (decrease) in liabilities | ||||||||
Increase (decrease) in accounts payable and accrued expenses | (41,989 | ) | (354,096 | ) | ||||
Increase (decrease) in income taxes payable | - | (363,356 | ) | |||||
Total adjustments | (297,319 | ) | 2,886,732 | |||||
Net cash provided by (used in) operating activities | 155,284 | (934,150 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
(Purchase) of property and equipment | (17,290 | ) | (4,116 | ) | ||||
Net cash (used in) investing activities | (17,290 | ) | (4,116 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds (payment) of convertible note payable | - | (1,000,000 | ) | |||||
Proceeds (payment) of S/T loan payable Greater Bay | - | (387,466 | ) | |||||
Proceeds (payment) from loan payable IDB Bank | (140,506 | ) | - | |||||
Proceeds (payment) from loan payable IDB Bank | 100,000 | 2,722,506 | ||||||
Proceeds (payment) on subordinated note | (75,000 | ) | (375,000 | ) | ||||
Net cash provided by (used in) financing activities | (115,506 | ) | 960,040 | |||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 22,488 | 21,774 | ||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR | 176,483 | 154,709 | ||||||
CASH AND CASH EQUIVALENTS - END OF YEAR | $ | 198,971 | $ | 176,483 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for: | ||||||||
Interest paid | $ | 138,149 | $ | 211,575 | ||||
Income taxes paid | $ | 175,843 | $ | 460,584 | ||||
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY: | ||||||||
Issuance of options for stock based compensation | $ | - | $ | 4,417,917 | ||||
The accompanying notes are an integral part of these consolidated financial statements
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1. HISTORY AND NATURE OF BUSINESS
Precision Aerospace Components (Precision Aerospace or the “Company”) was previously known as Jordan 1 Holdings Company (“Jordan 1”) and was incorporated in Delaware on December 28, 2005. Jordan 1 is the successor to Gasel Transportation Lines, Inc. ("Gasel"), an Ohio corporation that was organized under the laws of the State of Ohio on January 27, 1988.
Gasel was a trucking company that filed for bankruptcy in the Southern District of Ohio, Eastern Division, in May of 2003. On December 12, 2005, a final plan of reorganization was approved by the court and the bankruptcy proceeding was dismissed.
On December 30, 2005, Gasel entered into a private sale of stock under a Stock Purchase Agreement with Venture Fund I, Inc., a Nevada corporation.
Subsequent to December 30, 2005, Jordan 1 did not engage in any business activity until July 20, 2006 when it entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Company acquired all of the equity of Delaware Fastener Acquisition Corp., a Delaware corporation (“DFAC”), pursuant to an exchange agreement with the stockholders of DFAC. Contemporaneously, DFAC acquired the assets, subject to certain liabilities, of Freundlich Supply Company, Inc. (“Freundlich Supply”), pursuant to an asset purchase agreement (the “Asset Purchase Agreement”) dated May 24, 2006 among DFAC, Freundlich Supply, and Michael Freundlich. The purchase of the assets was financed by the proceeds from the sale by the Company of its securities pursuant to a securities purchase agreement (the “Securities Purchase Agreement”). As a result of the Exchange Agreement, DFAC became a wholly-owned subsidiary of the Company. Upon completion of the foregoing transactions, the Company changed its name to Precision Aerospace Components, Inc. and DFAC changed its name to Freundlich Supply Company, Inc. (“Freundlich”).
Freundlich is a stocking distributor of aerospace quality, internally-threaded fasteners. The organization from which the operating assets were acquired was founded in 1938 and had been operating in its present business line since 1940. The Company distributes high-quality, domestically-manufactured nut products that are used primarily for aerospace and military applications and for industrial/commercial applications that require a high level of certified and assured quality. The Company’s products are manufactured, by others, to exacting specifications and are made from raw materials that provide strength and reliability required for aerospace applications.
Freundlich is a niche player in the North American aerospace fastener industry. The Company currently focuses exclusively on aero-space quality nut products, serving as an authorized stocking distributor for seven of the premier nut manufacturers in the United States.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All inter-company accounts have been eliminated.
Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flow, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of reserves for sales returns and allowances and net of provisions for doubtful accounts. The Company records an allowance for doubtful accounts to allow for any amounts that may not be recoverable. The amount of the allowance is based on an analysis of the Company’s prior collection experience, customer credit worthiness, and current economic trends. Based on management’s review of accounts receivable, no allowance for doubtful accounts is considered necessary. The Company determines receivables to be past due based on the payment terms of original invoices. Interest is not typically charged on past due receivables.
Allowance for doubtful accounts was $0 for December 31, 2009 and 2008, respectively.
Inventory
Inventory is stated at the lower of cost or market, utilizing the specific lot identification method (except as noted subsequently). The Company is a distributor of goods that retain their value and may be purchased by its customers for an extended period of time. The Company has adopted the convention that any Inventory item for which the Company has not had any transactions within the past five years shall be reduced to a zero value. Inventory consists of finished goods for resale at December 31, 2009. The Company has not established a valuation allowance for inventory. For the year January 1-December 31, 2009, the Company had $190,853 in inventory which became over five years without sale during the period and has been reduced to zero value. For the year January 1-December 31, 2 008, the Company had $148,750 in inventory which became over five years without sale during the period and has been reduced to zero value.
Property and equipment are stated at cost less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets acquired as follows:
Warehouse equipment | 5 years | |
Leasehold improvements | 5 - 39 years ** | |
Computers | 5 years | |
Furniture and fixtures | 7 years | |
Equipment | 5 years |
** Shorter of life or lease term.
The carrying amount of all long-lived assets is evaluated periodically to determine whether adjustment to the useful life or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 142 “Goodwill and Other Intangible Assets”. This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, “Intangible Assets”. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. In conjunction with the purchase of Freundlich assets and acquisition of DFAS in July 2006 goodwill is recognized at $2,221,744. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. The Company tests for impairment on an annual basis. The Company has determined that no impairment is needed at December 31, 2009.
Income Taxes
The Company accounts for income taxes in accordance with Statements of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes and liabilities are computed annually for differences between the financial statement and the tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The only temporary book to tax difference is depreciation, and these amounts for 2009 and 2008 were, in management's judgment, immaterial to the financial statements on both an annual and cumulative basis, and so deferred tax assets or liabilities were not recorded.
Earnings (Loss) per Common Share
Basic earnings (loss) per share is calculated by dividing net income attributable to common stockholders by the weighted average number of outstanding common shares during the year. Basic earnings (loss) per share exclude any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share. The company carried out a 500:1 reverse split effective December 24, 2009 accordingly outstanding shares as of December 31, 2008 have been retroactivity restated to account for the 500:1 reverse split.
Revenue Recognition
Revenues are recognized when title, ownership and risk of loss pass to the customer. A sale occurs at the time of shipment from the Company’s warehouse in Staten Island, New York, as the terms of the Company’s sales are FOB shipping point.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheet for cash, certificates of deposit, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of the financial instruments.
The Company believes that its indebtedness approximates fair value based on current yields for debt instruments with similar terms.
Concentration of Credit Risk
Sales to the United States Department of Defense (“DOD”) represented approximately 51 percent of our total sales. No other customer accounted for greater than 10 percent of our total sales and the Company has no substantial concentrations of credit risk in its trade receivables.
Shipping and Handling Costs and Fees
The Company records freight cost on merchandise purchased to cost of goods.
Subsequent Events
In May 2009, the FASB issued guidance now included in ASC Topic 855 Subsequent Events. This guidance establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the consolidated financial statements are issued or are available to be issued. Among other items, the guidance requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. In February 2010, the FASB amended its guidance on subsequent events to remove the requirement for SEC filers (as defined in ASU 2010-09) to disclose the date through which an entity has evaluated subsequent events. The Company has adopted this guidance in its consolidated financial statements for the year ended December 31, 2009.
Fair Value of Financial Assets and Liabilities
In accordance with the authoritative guidance for fair value measurements and the fair value election for financial assets and financial liabilities, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy was established that draws a distinction between market participant assumptions based on the following:
i) | observable inputs such as quoted prices in active markets (Level 1) |
ii) | inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) |
iii) | unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). |
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In May of 2009, the Financial Accounting Standards Board (FASB) issued FASB ASC 855-10, “Subsequent Events”. This Statement is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date—that is, whether that date represents the date the financial statements were issued or were available to be issued. This Statement is effective for interim and annual periods ending after June 15, 2009. FASB ASC 855-10 is only disclosure-related, and it would not have an impact on the Company’s financial position and results of operations.
In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an amendment of SFAS No. 140” (SFAS 166). SFAS No. 166 has not yet been superseded by FASB Accounting Standards Codification Topic 105. SFAS 166 amends SFAS No. 140 to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions of this Statement shall be applied to transfers that occur on or after the effective date. The adoption SFAS No. 166 will not presently have a material impact on the Company’s financial position or results of operations.
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167). SFAS No. 167 has not yet been superseded by FASB Accounting Standards Codification Topic 105. SFAS 167 amends certain requirements of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This Statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application i s prohibited. The adoption SFAS No. 167 will not presently have a material impact on the Company’s financial position or results of operations.
On June 2009, the FASB issued ASC 105-10, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (“SFAS 162”). Under ASC 105-10, the FASB Accounting Standards Codification will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. On the effective date of this statement, the Codification will supersede all existing non-SEC accounting and reporting standards. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of ASC 105-10 will not presently have a material impact on the Company’s financial positio n or results of operations.
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3. PROPERTY AND EQUIPMENT
2009 | 2008 | |||||||
Furniture and fixtures | $ | 2,392 | $ | 2,392 | ||||
Equipment and other | 375,591 | 358,300 | ||||||
Leasehold improvements | 6,487 | 6,487 | ||||||
384,470 | 367,179 | |||||||
Less accumated depreciation and amortization | (264,012 | ) | (182,545 | ) | ||||
Property and equipment, net | $ | 120,458 | $ | 184,634 | ||||
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of December 31, 2009 and 2008 consist of the following:
2009 | 2008 | |||||||
Accounts payable | $ | 184,270 | 237,390 | |||||
Accrued expenses | 26,272 | 15,140 | ||||||
Total | $ | 210,542 | 252,530 | |||||
5. COMMITMENTS AND CONTINGENCIES
The Company leases office space for its operations under a triple net lease which expires July 20, 2013. The lease has an option for renewal for five years at the company's option. The rental rate is $12,797 per month. The Company can terminate the lease upon six months notice.
The Company has guaranteed the Freundlich revolving funding facility as more completely described in Note 8.
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6. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due.
Significant components of the income tax provision for the years ended December 31, 2009 and 2008 are as follows:
2009 | 2008 | |||||||
Federal (After credits for tax refunds (2007) $24,618 and (2006) $34,188 | $ | 76,913 | $ | 234,438 | ||||
State | 34,937 | 63,458 | ||||||
City | 39,270 | 71,358 | ||||||
Total Current income tax | $ | 151,120 | $ | 369,254 | ||||
The only temporary book to tax difference is depreciation, and these amounts for 2009 and 2008 were, in management's judgment, immaterial to the financial statements on both an annual and cumulative basis, and so deferred tax assets or liabilities were not recorded.
Although the Company has an accumulated deficit of $5,496,466 there are no net operating losses available to be used against taxable income.
7. EARNINGS (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share were computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. At December 31, 2009, the number of common shares was increased by the number of shares issuable upon the exercise of outstanding stock warrants and the conversion of Series A Preferred Stock. At December 31, 2008, the number of common shares was increased by the number of shares issuable upon the exercise of outstanding stock options and warrants and the conversion of Series A and Series B Preferred Stock. The December 31, 2009 stock numbers reflect the 500:1 reverse split of the common stock and its effect on the shares of common stock issuable upon the exercise of outstanding stock warrants and the conversion of the Preferred stock. The December 31, 2008 share numbers were adjusted to show comparability for the 500:1 reverse split on December 24, 2009.
The following data shows the amounts used in computing earnings per share (EPS) and the effect on income and the weighted average number of shares of dilutive potential common stock.
The computation of diluted EPS for 2008 is not presented because inclusion of outstanding instruments to purchase stock would be anti-dilutive. Dilutive securities are presented for information purposes only.
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7. EARNINGS (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE (CONTINUED)
December 31, | ||||||||
2009 | 2008 | |||||||
Net income (loss) available to | ||||||||
common stockholders used | ||||||||
in basic EPS and diluted EPS | $ | 452,603 | $ | (3,820,882 | ) | |||
Weighted average number of | ||||||||
common shares used in basic EPS | 103,617 | 66,649 | ||||||
Effect of dilutive securities: | ||||||||
Weighted average number of | ||||||||
Stock options and warrants, | ||||||||
conversion of preferrred shares and note | 15,374,426 | 17,704,194 | ||||||
Weighted average number of common | ||||||||
shares and dilutive potential common | ||||||||
stock used in diluted EPS | 15,478,043 | 17,770,843 |
Treasury stock method-diluted calculation as of December 31: | 2009 | |
1,753,249 | ||
Common Stock | ||
8,199,688 | ||
Series A convertible pfd stock | ||
49,970 | ||
Options issued at $5.00 | ||
3,703 | ||
Options issued at $2.50 | ||
200 | ||
Options issued - August 2, 2002 | ||
400 | ||
Warrants - Eagle and Thompson | ||
2,848,458 | ||
Common Stock Purchase Warrant A | ||
2,622,375 | ||
Common Stock Purchase Warrant B | ||
Fully Diluted | 15,478,043 |
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8. LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt as of December 31, 2009 and 2008 consists of the following:
2009 | 2008 | |||||||
$750,000 subordinated term loan due April 30, 2009 secured by all assets equipment at a variable rate of Prime plus 1% (4.25% and 8.25% ). | $ | - | $ | 75,000 | ||||
Total debt | - | 75,000 | ||||||
Less current portion | - | (75,000 | ) | |||||
Long-term portion | $ | - | $ | - |
$2,800,000 available to draw revolving funding facility. Availability of payment of up to eighty (80) per-cent of eligible accounts and a percentage, decreasing at the rate of 1% per month from fifty (50) per-cent of eligible inventory in September to forty (40) per-cent of eligible inventory, up to a maximum inventory advance amount of two million five hundred thousand dollars ($2,500,000). Eligible accounts are those domestic accounts not outstanding for more than one hundred twenty (120) days and eligible inventory is inventory as determined by the bank, presently that which has had sales within the preceding sixty (60) months. The daily rate on the outstanding balance will be, at the Company’s option, the prime rate plus one and one half (1.5) per cent, with a minimum of four and one quarter ( 4.25) percent. The balance is secured by a first lien position on all of the Company’s assets. The facility is due as of April 30, 2010. The Company expects that the facility will be renewed. As of December 31, 2009 $2,682,000 was outstanding, the interest rate was 4.75%, and $118,000 was available to draw. As of December 31, 2008, $2,722,506 was outstanding, the interest rate was 4.25%, and $178,627 was available to draw.
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9. STOCK OPTIONS
The Company had adopted a stock option plan, which provided for the granting of options to certain officers, directors and key employees of the Company. Currently, options for 200 shares of common stock have been issued under this plan and remain outstanding. The option price, number of shares and grant date were determined at the discretion of the Company's board of directors. Grantees vested in the options at the date of the grant. The exercise price of each option that has been granted under the plan equals 100% of the market price of the Company’s stock on the date of the grant. Options under this plan vest on the grant date and are exercisable for a period not to exceed 10 years from the option grant date. Plan options are non-transferable.
During 2008 the Company issued non-plan options to officers and directors of the Company. The option number of shares were in accordance with compensation arrangements agreed to by the Company and approved by its board of directors. Grantees vested in the options at the date of issuance. The exercise price of each option that has been granted equals 100% of the market price of the Company’s stock on the date of the grant. Options under this plan vested on the grant date and were exercisable for a period not to exceed 1 year from the option grant issuance date. All of the options have expired unexercised.
A summary of the status of the Company’s stock options as of December 31, 2009 and 2008, and changes during the years then ended is presented below (2008 numbers have been adjusted to reflect the company's 500:1 reverse stock split in 2009):
2009 | 2008 | |||||||||||||||
Weighted Average Exercise | Weighted Average Exercise | |||||||||||||||
Options | Price | Options | Price | |||||||||||||
Outstanding at beginning of year | 1,274,111 | $ | 5 | 200 | $ | 175 | ||||||||||
Granted | - | 1,273,911 | 5 | |||||||||||||
Expired | 1,273,911 | 5 | - | |||||||||||||
Exercised | - | - | ||||||||||||||
Forfeited | - | - | ||||||||||||||
Outstanding at end of year | 200 | $ | 175 | 1,274,111 | $ | 5 | ||||||||||
Exercisable at end of year | 200 | 1,274,111 | ||||||||||||||
Weighted average fair value of options granted during the period | 0 | $ | 0 | 1,273,911 | $ | 4,417,917 |
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9. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding at December 31, 2009.
Weighted | ||||||||||||||||||
Range of exercise prices | Number outstanding at 12/31/09 | Average remaining contractual life | Weighted average exercise price | Number exercisable at 12/31/09 | ||||||||||||||
$ | 175 | 200 | 2.58 | $ | 175 | 200 |
The Company utilized the Black Scholes valuation model for the 2008 options using the following assumptions:
Date issued | 2/27/2008 | 12/16/2008 | ||||||
Dividend yield | - | - | ||||||
Risk free interest rate | 3.75 | % | 2.37 | % | ||||
Expected life | 1 Year | 1 Year | ||||||
Expected volatility | 200.43 | % | 339.00 | % |
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10. WARRANTS
As part of the December, 2000 acquisition of the freight transport and freight brokerage business of Eagle Transportation Services, Inc., and Eagle Transport, Inc., the Sellers were granted warrants to purchase 200 shares of common stock exercisable at $1,250 per share and 150 shares of common stock exercisable at $1,500 per share, exercisable after one year and expiring in 10 years (2010).
On August 5, 2002, Gasel and S. Gene Thompson executed an Employment Agreement outlining the terms and conditions of Mr. Thompson’s employment as Vice President and Chief Financial Officer. In accordance with the terms of this agreement, Mr. Thompson was given 50 shares of common stock, no par value, of the Company; warrants to purchase an additional 50 shares of common stock, no par value, of Gasel at an exercise price of $175 per share; and will receive additional warrants to purchase 100 shares of common stock in the future at the market price effective on the grant dates, which were to be given on January 1, 2003 and January 2, 2004. The warrants may be exercised at any time within a 10-year period after the date of issuance. In the event the Company shall terminate Mr. Thompson’s employ ment prior to the end of the three year term, or should Gasel enter into a merger or other combination with another company, then the grant date of future warrants shall be accelerated to the date of such merger, combination or termination.
In connection with the Securities Purchase Agreement of July 20, 2006, (the “SPA”) the Company issued 5 year warrants to purchase 3,162,300 shares of the Company’s common stock at $1.167 per share; and 3,162,300 shares of the Company’s common stock at $2.00 per share. The warrant exercise prices were subsequently adjusted to $0.677 and $1.157 respectively. The Company has reviewed all of the provisions of these warrants and has determined in accordance with the applicable accounting literature, these warrants qualify as equity instruments.
The Company, in connection with the Securities Purchase Agreement of July 20, 2006, calculated the fair value of the warrants issued using a Black-Scholes valuation model, in which Management considered all the facts and circumstances of this equity instrument and has deemed the use of a Black-Scholes formula to estimate the fair value of the warrants to be appropriate and consistent with the measurement objectives of the accounting standards.
The factors used by the Company in determining fair value were: closing stock price at the date of the issuance ($20.00), the exercise prices ($1.167 and $2.00), the expected life in years (5 years), the historical volatility of 418.05% was determined by observing the stock price on the issue date and the same date of the eleven prior months, and the discount rate utilized was 2.25%. These factors yielded fair values of $421,636 for each of the warrants issued, a sum of $843,272.
All of the above amounts and prices were adjusted for the 500:1 reverse stock split which occurred in December, 2009.
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10. WARRANTS (CONTINUED)
2009 | 2008 | |||||||||||||||
Shares | Weighted Average Price | Shares | Weighted Average Price | |||||||||||||
Outstanding at Beginning of year (A) | 6,325,000 | $ | 0.915 | 6,325,000 | $ | 0.915 | ||||||||||
Granted | - | - | ||||||||||||||
Exercised | (4,399,724 | ) | - | |||||||||||||
Expired | - | |||||||||||||||
Outstanding at end of year | 1,925,276 | 6,325,000 | ||||||||||||||
Warrants exercisable at year end | 1,925,276 | 6,325,000 |
(A) Adjusted for 500:1 reverse stock split accomplished in 2009.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PRECISION AEROSPACE COMPONENTS, INC. | |||
Date: September 22, 2010 | By | /s/ Andrew S. Prince | |
Andrew S. Prince President and Chief Executive Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | |||
/s/ Andrew S. Prince | President, Chief Executive Officer and Director | September 22, 2010 | |||
Andrew S. Prince | (Principal Executive Officer and Principal Financial Officer) | ||||
/s/ Alexander Kreger | Chairman of the Board of Directors | September 22, 2010 | |||
Alexander Kreger | |||||
/s/ Robert Adler | Director | September 22, 2010 | |||
Robert Adler | |||||
/s/ Donald Barger, Jr. | Director | September 22, 2010 | |||
Donald Barger, Jr. | |||||
/s/ David Walters | Director | September 22, 2010 | |||
David Walters |