As
filed
with the Securities and Exchange Commission on August __, 2008
Registration
No. 333-_________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
TECHPRECISION
CORPORATION
(Name
of
Small Business Issuer in Its Charter)
|
Delaware
|
3599
|
51-0539828
|
|
(State
or Other Jurisdiction of
|
(Primary
Standard Industrial
|
(IRS
Employer
|
|
Incorporation
or Organization)
|
Classification
Code Number)
|
Identification
No.)
|
Bella
Drive, Westminster, Massachusetts 01473 (978) 874-0591
(Address
and telephone number of Principal Executive Offices)
Bella
Drive, Westminster, Massachusetts 01473
(Address
of principal place of business)
Mr.
James
G. Reindl, Chief Executive Officer
Techprecision
Corporation
Bella
Drive
Westminster,
Massachusetts 01473
Telephone:
(978) 874-0591
Fax:
(978) 874-2748
(Name,
address and telephone number of agent for service)
Please
send a copy of all communications to:
Asher
S.
Levitsky P.C.
Sichenzia
Ross Friedman Ference LLP
61
Broadway
New
York,
NY 10006
Telephone:
(212) 981-6767
Fax:
(212) 930-9725
e-mail:
alevitsky@srff.com
Approximate
date of proposed sale to the public: As soon as practicable
after
this Registration Statement becomes effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the
same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company.
See definitions of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
| Large accelerated filer o | Accelerated filer o |
| Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
CALCULATION
OF REGISTRATION FEE
|
Title
of each class of
securities
to be registered
|
Amount
to be registered
|
Proposed
maximum offering price per unit (1)
|
Proposed
maximum aggregate offering price (1)
|
Amount
of registration fee
|
|||||||||
|
Common
Stock, par value $.0001 per share (2)
|
5,000,000
|
$
|
2.625
|
$
|
13,125,500
|
$
|
515.82
|
||||||
(1)
Estimated solely for the purpose of calculating the registration fee pursuant
to
Rule 457(c) promulgated under the Securities Act of 1933, as amended, based
on
the average of the bid and asked prices on August 26, 2008.
(2)
Represents 5,000,000 shares of common stock issuable upon exercise of warrants.
Pursuant to Rule 416 there are also being registered such additional shares
as
may be issuable pursuant to anti-dilution provisions relating to dilution
resulting from stock splits, stock dividends, or similar
transactions.
The
Registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said section 8(a),
may determine.
The
information in this Prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement is filed with the Securities and Exchange Commission and becomes
effective. This Prospectus is not an offer to sell these securities and is
not soliciting an offer to buy these securities in any state where the sale
is
not permitted.
PRELIMINARY
PROSPECTUS SUBJECT TO COMPLETION DATED AUGUST __, 2008
PROSPECTUS
5,000,000
Shares
TECHPRECISION
CORPORATION
Common
Stock
OTC
Bulletin Board trading symbol: TPCS
This
prospectus relates to the public offering of an aggregate of 5,000,000 shares
of
common stock which may be sold from time to time by the selling stockholder
named in this prospectus. These shares are issuable upon the exercise of
warrants held by the selling stockholder.
We
will
not receive any proceeds from the sale by the selling stockholders of their
shares of common stock other than the exercise price of the outstanding warrants
if and when the warrants are exercised. We will pay the cost of the preparation
of this prospectus, which is estimated at $20,000.
On
August, 2008, the last reported sales price per share of our common stock on
the
OTC Bulletin Board was $___.
Investing
in shares of our common stock involves a high degree of risk. You should
purchase our common stock only if you can afford to lose your entire investment.
See “Risk Factors,” which begins on page 4.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined whether this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The
selling stockholder has not engaged any underwriter in connection with the
sale
of its of common stock. The selling stockholder may sell shares of common stock
in the public market based on the market price at the time of sale or at
negotiated prices. The selling stockholders may also sell their shares in
transaction that are not in the public market in the manner set forth under
“Plan of Distribution.”
The
date
of this Prospectus is _________, 2008
You
may
only rely on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with different
information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to
sell
or a solicitation of an offer to buy any common stock in any circumstances
in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under
any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained
by
reference to this prospectus is correct as of any time after its
date.
TABLE
OF CONTENTS
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Page
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||||
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Prospectus
Summary
|
3 | |||
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Risk
Factors
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4 | |||
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Forward-Looking
Statements
|
8 | |||
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Use
of Proceeds
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8 | |||
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Selling
Stockholder
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9 | |||
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Plan
of Distribution
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10 | |||
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Market
for Common Stock and Stockholder Matters
|
12 | |||
|
Management’s
Discussion and Analysis
|
13 | |||
|
Business
|
23 | |||
|
Management
|
27 | |||
|
Principal
Stockholders
|
30 | |||
|
Certain
Relationships and Related Transactions
|
31 | |||
|
Description
of Capital Stock
|
31 | |||
|
Experts
|
33 | |||
|
Legal
Matters
|
33 | |||
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How
to Get More Information
|
33 | |||
|
Financial
Statements
|
F-1 | |||
-
2 -
PROSPECTUS
SUMMARY
This
summary does not contain all of the information that is important to you. You
should read the entire prospectus, including the Risk Factors and our
consolidated financial statements and related notes appearing elsewhere in
this
prospectus before making an investment decision.
Our
Business
Through
our wholly-owned subsidiary, Ranor, Inc., we manufacture metal fabricated and
machined precision components and equipment. These products are used in a
variety of markets including: alternative energy, medical, nuclear, defense,
industrial, and aerospace. Our goal is to be an end-to-end service provider
to
our customers by furnishing customized and integrated “turn-key” solutions for
completed products requiring custom fabrication and machining, assembly,
inspection and testing.
We
work
with our customers to manufacture products in accordance with the customers’
drawings and specifications. Our work complies with specific national and
international codes and standards applicable to our industry. We believe that
we
have earned our reputation through outstanding technical expertise, attention
to
detail, and a total commitment to quality and excellence in customer
service.
About
Us
We
are a
Delaware corporation, organized in 2005 under the name Lounsberry Holdings
II,
Inc. On February 24, 2006, we acquired all of the issued and outstanding capital
stock of Ranor, Inc., a Delaware corporation that, together with its
predecessors, has been in continuous operations since 1956. Since February
24,
2006, our sole business has been the business of Ranor. On March 6, 2006,
following the acquisition of Ranor, we changed our corporate name to
Techprecision Corporation. Our acquisition of Ranor is accounted for as a
reverse acquisition. As a result, our financial statements for periods prior
to
February 24, 2006 reflect the financial condition and results of operations
of
Ranor.
Our
executive offices are located at Bella Drive, Westminster, MA 01473, telephone
(978) 874-0591. Our website is www.techprecision.com.
Information on our website or any other website is not part of this
prospectus.
References
in this prospectus to “we,” “us,” “our” and similar words refer to Techprecision
Corporation and its subsidiary, Ranor, unless the context indicates otherwise.
|
The
selling stockholder is offering a total of 5,000,000 shares of common
stock, all of which are issuable upon exercise of
warrants
|
|
|
Limitation
on Issuance of Common Stock:
|
The
holder of the warrants cannot exercise the warrants to the extent
that
such exercise would result in the holder and its affiliates beneficially
owning more than 4.9% of our outstanding common stock.
|
|
Outstanding
Shares of Common Stock:
|
13,868,995
shares 1,2
|
|
Common
Stock to be Outstanding After Offering:
|
18,868,995
shares 1,3
|
|
Use
of Proceeds:
|
We
will receive no proceeds from the sale of any shares by the selling
stockholders. In the event that the selling stockholder exercises
its
warrants, we would receive the exercise price. If all warrants for
which
the underlying shares are registered are exercised at the current
exercise
price, we would receive approximately $3.3 million, all of which,
if and
when received, would be used for working capital and other corporate
purposes. We can give no assurance that any of the warrants will
be
exercised.
|
(1)
Does not include a total of 1,000,000 shares reserved for options, stock grants
or other equity-based incentives granted or available for grant under our 2006
long-term incentive plan or shares issuable upon outstanding warrants held
by an
investor relations firm.
-
3 -
(2)
Does
not include the shares of common stock issuable upon conversion of the series
A
preferred stock or exercise of warrants held by Barron Partners.
The
number of shares of common stock outstanding after the offering is based on
the
issuance of 5,000,000 shares of common stock upon exercise of those warrants
for
which the underlying shares included in this prospectus, and does not include
any shares issuable upon conversion of series A preferred stock or exercise
or
warrants held by Barron Partners for which the underlying shares are not
included in this prospectus.
SUMMARY
FINANCIAL INFORMATION
(in
thousands, except per share information)
The
following information relating to June 30, 2008, March 31, 2008 and 2007 and
the
three months ended June 30, 2008 and June 30, 2007 and the years ended March
31,
2008 and 2007 has been derived from our financial statements which appear
elsewhere in this prospectus.
Statement
of Operations Information:
|
Three
Months Ended June 30,
|
Year
Ended March 31,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
||||||||||
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Net
sales
|
$
|
11,658
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$
|
6,553
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$
|
31,805
|
$
|
19,086
|
|||||
|
Gross
profit
|
3,380
|
1,676
|
8,332
|
3,543
|
|||||||||
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Income
from operations
|
2,759
|
1,217
|
6,402
|
1,446
|
|||||||||
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Interest
expense, net
|
119
|
132
|
512
|
628
|
|||||||||
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Finance
costs
|
4
|
3
|
17
|
289
|
|||||||||
|
Income
(loss) before income taxes
|
2,636
|
1,082
|
5,874
|
530
|
|||||||||
|
Net
income (loss)
|
1,572
|
685
|
3,516
|
290
|
|||||||||
|
Deemed
dividend to preferred stockholders
|
--
|
--
|
--
|
(676
|
)
|
||||||||
|
Net
income (loss) to holders of common stock
|
1,572
|
685
|
3,516
|
(386
|
)
|
||||||||
|
Net
income (loss) per share of common stock –
basic
|
$
|
0.12
|
$
|
0.07
|
$
|
0.32
|
$
|
(0.04
|
)
|
||||
|
Weighted
average shares of common stock outstanding – basic
|
12,926
|
10,051
|
10,897
|
10,008
|
|||||||||
|
Net
income (loss) per share of common stock – diluted
|
$
|
0.06
|
$
|
0.04
|
$
|
0.12
|
$
|
(0.04
|
)
|
||||
|
Weighted
average shares of common stock outstanding – diluted
|
26,422
|
19,314
|
28,381
|
10,008
|
|||||||||
Balance
Sheet Information:
|
June
30, 2008
|
March
31, 2008
|
March
31, 2007
|
||||||||
|
Working
capital
|
$
|
7,796
|
$
|
6,392
|
$
|
3,398
|
||||
|
Total
assets
|
16,835
|
16,068
|
8,566
|
|||||||
|
Notes
payable – long-term portion
|
5,251
|
5,405
|
6,020
|
|||||||
|
Total
liabilities
|
10,981
|
11,909
|
8,489
|
|||||||
|
Retained
earnings (deficit)
|
526
|
(1,010
|
)
|
(4,525
|
)
|
|||||
|
Stockholders’
equity
|
5,854
|
4,159
|
77
|
|||||||
RISK
FACTORS
An
investment in our securities involves a high degree of risk. In determining
whether to purchase our securities, you should carefully consider all of the
material risks described below, together with the other information contained
in
this prospectus before making a decision to purchase our securities. You should
only purchase our securities if you can afford to suffer the loss of your entire
investment.
-
4 -
Risks
Relating To Our Business
Because
we may require additional financing to expand our operations, our failure to
obtain necessary financing may impair our operations.
At
June
30, 2008, we had working capital of approximately $7.8 million. The only funding
presently available to us, other than our cash flow from operations, is a $3.0
million capital equipment facility and a $2.0 million revolving credit line
with
a bank. We contemplate that we will expand our business during the next twelve
months. The expansion of our facilities will require financing and our decision
to commence the expansion will be based on our backlog of orders and anticipated
growth in our business. The failure to obtain the necessary financing as well
as
the failure to generate the business necessary to keep the expanded facilities
operation on a full-time basis could affect both our cash flows and our ability
to operate profitably. We cannot assure you that these credit facilities will
be
sufficient to provide us with the funds necessary to enable us to perform our
obligations under our contracts and to develop our business. Our failure to
obtain any required financing could impair our ability to both serve our
existing clients base and develop new clients and could result in both a
decrease in revenue and an increase in our loss.
To
the
extent that we require financing, the terms of our February 2006 private
placement and the number of outstanding warrants and the exercise price and
other terms on which we may issue common stock upon exercise of the warrants,
it
may be difficult for us to raise additional equity capital if required for
our
present business or for any planned expansion. We cannot assure you that we
will
be able to get additional financing on any terms, and, if we are able to raise
funds, it may be necessary for us to sell our securities at a price which is
at
a significant discount from the market price and on other terms which may be
disadvantageous to us. In connection with any such financing, we may be required
to provide registration rights to the investors. The price and terms of any
financing which would be available to us could result in the issuance of a
significant number of shares. Further, since Barron Partners, the investor
in
the February 2006 private placement, has a right of first refusal with respect
to future financings, this right may affect our ability to obtain financing
from
other sources.
Because
our contracts are individual purchase orders and not long-term agreements,
the
results of our operations can vary significantly from quarter to
quarter.
We
currently do not have long-term contracts with our customers, and major
contracts with a small number of customers account for a significant percentage
of our revenue. We must bid or negotiate each contract separately, and when
we
complete a contract, there is generally no continuing source of revenue under
that contract. As a result, we cannot assure you that we have a continuing
stream of revenue from any contract. Our failure to generate new business on
an
ongoing basis would materially impair our ability to operate profitably. Because
a significant portion of our revenue is derived from services rendered from
the
alternative energy, nuclear, medical, defense, industrial, aerospace and related
industries, our operating results may suffer from conditions affecting these
industries, including any budgeting, economic or other trends that have the
effect of reducing the requirements for our services.
Because
of our dependence on a limited number of customers, our failure to generate
major contracts from a small number of customers may impair our ability to
operate profitably.
We
have,
in the past, been dependent in each year on a small number of customers who
generate a significant portion of our business, and these customers have changed
from year to year. However, since the year ended March 31, 2008, a majority
of
our revenues have come from one customer. For the three months ended June 30,
2008, our largest customer accounted for 69% of our revenues and our largest
two
customers accounted for 82% of our revenue. For the year ended March 31, 2008
our largest customer accounted for 51% of our revenue and our two largest
customers accounted for 68% of our revenue. For the year ended March 31, 2007,
our three largest customers accounted for approximately 44% of our revenue,
with
the largest accounting for 17.9% of our revenue. In addition, as of June 30,
2008, we had a $52.8 million order backlog, of which our largest customer
accounted for approximately 80%. As a result, we may have difficulty operating
profitable in the event of the default in payment by any of our major customers,
the loss or deferral of existing orders or our failure to generate orders from
new customers. Furthermore, to the extent that any one customer accounts for
a
large percentage of our revenue, the loss of that customer could materially
affect our ability to operate profitably. Since one customer, GT Solar, Inc.,
accounted for 69% of our revenue for the three months ended June 30, 2008 and
51% of our revenue in the year ended March 31, 2008 and 80% of our backlog
at
June 30, 2008, the loss of this customer would have a material adverse effect
upon our business and may impair our ability to operate profitably. We
anticipate that our dependence on a limited number of customers in any given
fiscal year will continue for the foreseeable future. There is a risk that
existing customers will elect not to do business with us in the future or will
experience financial difficulties. Furthermore, many of our customers are at
an
early stage and many are dependent on the equity capital markets to finance
their purchase of our products. As a result, these customers could experience
financial difficulties, business reverses or the loss of orders or anticipated
orders which reduces or eliminates the need for the products which they ordered
from us, as a result of which they could be unable or unwilling to fulfill
their
contracts with us. There is also a risk that our customers will attempt to
impose new or additional requirements on us that reduce the profitability of
those customers for us. Further, even if the orders are not changed, these
orders may not generate margins equal to our recent historical results. If
we do
not develop relationships with new customers, we may not be able to increase,
or
even maintain, our revenue, and our financial condition, results of operations,
business and/or prospects may be materially adversely affect.
-
5 -
Because
of the nature of our business, we are subject to environmental regulations,
we
have in the past failed to comply with these regulations, and our failure to
comply with these regulations has in the past resulted in, and could in the
future result in, increased costs as well as penalties for violation of these
regulations.
As
a
manufacturing business, we must comply with federal and state environmental
laws
and regulations which relate to the manner in which we store and dispose of
materials and the reports that we are required to file. In the past, we have
not
been in compliance with all environmental regulations and, consequently, we
have
experienced increased costs and penalties. Any future non-compliance could
result in both significant costs to become compliant as well as penalties which
we may be required to pay as a result of non-compliance. We cannot assure you
that we will not incur additional costs to maintain compliance with
environmental laws and regulations or that we will not incur significant
penalties for failure to be in compliance.
Changes
in delivery schedules and order specifications may affect our revenue
stream.
Although
we perform manufacturing services pursuant to orders placed by our customers,
we
have in the past experienced delays in the scheduling and changes in the
specification of the products. These changes may result from a number of
factors, including a determination by the customer that the product
specifications need to be changed after receipt of an initial product or
prototype. As a result of these changes, we suffered a delay in the recognition
of revenue from the projects. We cannot assure you that our revenue will not
be
affected in the future by delays or changes in specifications or that we will
ever be able to recoup revenue which was lost as a result of the delays or
changes. In the past our revenue for a period of one or two quarters was
affected by the postponement of one contract after the delivery of the initial
unit and a delay in delivery under a second contract that was postponed and
restarted as a result of a change in the customer’s drawings resulting in a
decline in revenue on a period to period basis. Further, if we cannot allocate
our personnel to a different project, we will continue to incur some expenses
relating to the project, including labor and overhead. Thus, if orders are
postponed our net income would be impacted by our need to maintain staffing
for
the postponed projects, even though they were not fully utilized during this
period. We cannot assure you that our income will not decline in future periods
as a result of changes in customers’ orders or their requirements for the
products that they ordered.
If
we make any acquisitions, they may disrupt or have a negative impact on our
business.
Although
we have no present plans for any acquisitions, in the event that we make
acquisitions, we could have difficulty integrating the acquired companies’
personnel and operations with our own. In addition, the key personnel of the
acquired business may not be willing to work for us. We cannot predict the
affect expansion may have on our core business. Regardless of whether we are
successful in making an acquisition, the negotiations could disrupt our ongoing
business, distract our management and employees and increase our expenses.
In
addition to the risks described above, acquisitions are accompanied by a number
of inherent risks, including, without limitation, the following:
|
•
|
the
difficulty of integrating acquired products, services, assets,
intellectual property or
operations;
|
|
•
|
the
potential disruption of the ongoing businesses and distraction of
our
management and the management of acquired
companies;
|
|
•
|
difficulties
in maintaining uniform standards, controls, procedures and
policies;
|
|
•
|
the
potential impairment of relationships with employees and customers
as a
result of any integration of new management
personnel;
|
|
•
|
the
potential inability or failure to achieve additional sales and enhance
our
customer base through cross-marketing of the products to new and
existing
customers;
|
|
•
|
potential
unknown liabilities associated with acquired businesses or product
lines,
or the need to spend significant amounts to retool, reposition or
modify
the marketing and sales of acquired products or the defense of any
litigation, whether or not successful, resulting from actions of
the
acquired company prior to our
acquisition.
|
Our
business could be severely impaired if and to the extent that we are unable
to
succeed in addressing any of these risks or other problems encountered in
connection with these acquisitions, many of which cannot be presently
identified.
-
6 -
Risks
Related to our Common Stock and the Market for our Common
Stock
The
rights of the holders of common stock may be impaired by the potential issuance
of preferred stock.
Our
certificate of incorporation gives our board of directors the right to create
new series of preferred stock. As a result, the board of directors may, without
stockholder approval, issue preferred stock with voting, dividend, conversion,
liquidation or other rights which could adversely affect the voting power and
equity interest of the holders of common stock. Preferred stock, which could
be
issued with the right to more than one vote per share, could be utilized as
a
method of discouraging, delaying or preventing a change of control. The possible
impact on takeover attempts could adversely affect the price of our common
stock. Although we have no present intention to issue any additional shares
of
preferred stock or to create any new series of preferred stock and the
certificate of designation relating to the series A preferred stock restricts
our ability to issue additional series of preferred stock, we may issue such
shares in the future. Without the consent of the holders of 75% of the
outstanding shares of series A preferred stock, we may not alter or change
adversely the rights of the holders of the series A preferred stock or increase
the number of authorized shares of series A preferred stock, create a class
of
stock which is senior to or on a parity with the series A preferred stock,
amend
our certificate of incorporation in breach of these provisions or agree to
any
of the foregoing.
The
issuance of shares through our stock compensation plans may dilute the value
of
existing stockholders and may affect the market price of our
stock.
We
may
use stock options, stock grants and other equity-based incentives, to provide
motivation and compensation to our officers, employees and key independent
consultants. The award of any such incentives will result in an immediate and
potentially substantial dilution to our existing stockholders and could result
in a decline in the value of our stock price. The exercise of these options
and
the sale of the underlying shares of common stock and the sale of stock issued
pursuant to stock grants may have an adverse effect upon the price of our
stock.
Because
of our cash requirements and restrictions in our preferred stock purchase
agreement, we may be unable to pay dividends.
In
view
of the cash requirements of our business, we expect to use any cash flow
generated by our business to finance our operations and growth. Further, we
are
prohibited from paying dividends on our common stock while the series A
preferred stock is outstanding.
Our
stock price may be affected by our failure to meet projections and estimates
of
earnings developed either by us or by independent securities
analysts.
Although
we do not make projections relating to our future operating results, our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would likely
be
materially adversely affected.
We
would be required to pay liquidated damages if we do not maintain a board
consisting of a majority of independent directors.
The
purchase agreement relating to the February 2006 private placement requires
us
to maintain a board of directors on which a majority of directors are
independent directors and an audit committee composed solely of independent
directors and the compensation committee will have a majority of independent
directors as long as the series A preferred stock is outstanding. Although
we
presently meet these requirements, our failure to continue to meet these
requirements in the future could result in our payment of liquidated damages
that could be payable in cash or by the issuance of additional shares of series
A preferred stock, as the investors shall determine. Our maximum liability
under
this provision is $396,000.
Because
the holder of our warrants has cashless exercise rights, we may not receive
proceeds from the exercise of the outstanding warrants if the underlying shares
are not registered.
The
holders of our warrants have cashless exercise rights, which provide them with
the ability to receive common stock with a value equal to the appreciation
in
the stock price over the exercise price of the warrants being exercised. This
right is not exercisable if the underlying shares are subject to an effective
registration statement, and accordingly, the holders have the cashless
registration rights until the effective date of the registration statement
and
thereafter if the warrants are not subject to a current and effective
registration statement. Since we have not registered all of the shares of common
stock issuable upon exercise of the warrants, the holders of those warrants,
which cover the right to purchase 6,170,000 shares of common stock, have
cashless exercise rights with respect to the underlying shares. To the extent
that the holders of the warrants exercise this right, we will not receive
proceeds from such exercise.
-
7 -
The
issuance and sale of the common stock issuable upon conversion of the series
A
preferred stock and exercise of the warrants could result in a change of
control.
If
we
issue all of the shares of common stock issuable upon conversion of the
outstanding series A preferred stock and exercise of the warrants, the 8,267,999
shares of common stock so issuable would constitute approximately 56.2% of
our
then outstanding common stock. The percentage would increase to the extent
that
we are required to issue any additional shares of common stock become upon
conversion of the series A preferred stock pursuant to the anti-dilution
provisions. Any sale of all or a significant percentage of those shares to
a
person or group could result in a change of control.
FORWARD-LOOKING
STATEMENTS
Statements
in this prospectus may be “forward-looking statements.” Forward-looking
statements include, but are not limited to, statements that express our
intentions, beliefs, expectations, strategies, predictions or any other
statements relating to our future activities or other future events or
conditions. These statements are based on current expectations, estimates and
projections about our business based, in part, on assumptions made by
management. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may, and are likely to, differ materially
from what is expressed or forecasted in the forward-looking statements due
to
numerous factors, including those described above and those risks discussed
from
time to time in this prospectus, including the risks described under “Risk
Factors,” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in this prospectus and in other documents which we file
with the Securities and Exchange Commission. In addition, such statements could
be affected by risks and uncertainties related to our ability to generate
business on an on-going business, to receive contract awards from the
competitive bidding process, maintain standards to enable us to manufacture
products to close tolerances, enter new markets for our services, market and
customer acceptance, our ability to raise any financing which we may require
for
our operations, competition, government regulations and requirements, pricing
and development difficulties, our ability to make acquisitions and successfully
integrate those acquisitions with our business, as well as general industry
and
market conditions and growth rates, economic and business conditions that affect
our clients, and general economic conditions. Any forward-looking statements
speak only as of the date on which they are made, and we do not undertake any
obligation to update any forward-looking statement to reflect events or
circumstances after the date of this prospectus.
We
will
not receive any proceeds from the sale by the selling stockholder of its common
stock. If the selling stockholder exercises any warrants, we will receive the
amount of the exercise price. Based on the present exercise price of $0.654075
per share, if the warrants to purchase a total of 5,000,000 shares of common
stock were to be exercised, we would receive gross proceeds of approximately
$3.3 million. We cannot assure you that any of the warrants will be
exercised.
Further,
the warrants include cashless exercise provisions which, if exercised, would
result in the issuance of shares of common stock equal to the value the
appreciation of the warrants without payment of any cash consideration. These
rights are exercisable and would be continue to be exercisable to the extent
that the underlying shares are not registered. We are only registering 5,000,000
shares of common stock for issuance upon exercise of the warrants. Since we
are
not registering all of the shares of common stock issuable upon exercise of
the
warrants, the holders of those warrants for which we have not registered the
underlying shares, which cover the right to purchase 4,320,000 shares of common
stock, have cashless exercise rights with respect to the underlying
shares.
There
are
presently outstanding 13,868,995 shares of common stock. If all of the shares
of
common stock issuable upon exercise of the warrants that are covered by this
prospectus are issued, we will have 18,868,995 shares of common stock
outstanding, resulting in significant dilution to our stockholders. In addition
to the 5,000,000 shares of common stock issuable upon exercise of warrants
that
are included in this prospectus, an additional 8,267,999 shares of common stock
that are not covered by this prospectus are issuable upon conversion of the
series A preferred stock, and an additional 4,320,000 shares of common stock
that are not covered by this prospectus are issuable upon exercise of
warrants.
-
8 -
SELLING
STOCKHOLDER
The
following table sets forth the names of the selling stockholder, the number
of
shares of common stock owned beneficially by the selling stockholder as of
July
31, 2008, and the number of shares of our common stock that may be offered
by
the selling stockholder pursuant to this prospectus. The table and the other
information contained under the captions “Selling Stockholder” and “Plan of
Distribution” have been prepared based upon information furnished to us by or on
behalf of the selling stockholder. The following table sets forth, as to the
selling stockholder, the number of shares beneficially owned, the number of
share being sold, the number of shares beneficially owned upon completion of
the
offering and the percentage beneficial ownership upon completion of the
offering.
|
After
Sale of Shares in Offering
|
||||
|
Name
|
Shares
Beneficially
Owned
|
Shares
Being Sold
|
Shares
Beneficially Owned
|
Percentageof
Outstanding2
|
|
Barron
Partners, LP1
|
5,000,000
|
5,000,000
|
972,219
|
4.9%
|
| 1 |
Mr.
Andrew B. Worden, president of the general partner of Barron Partners,
has
sole voting and dispositive power over the shares beneficially owned
by
Barron Partners. The number of shares shows as beneficially owned
by
Barron Partners represents the number of shares being sold in this
offering. As a result of the 4.9% limitation on the number of shares
issuable upon conversion of the series A preferred stock and the
exercise
of the warrants, the number of shares of common stock shown as
beneficially owned by Barron Partners after the offering represents
the
number that, upon such exercise or conversion, would result in Barron
Partners owning 4.9% of the then outstanding common stock. The total
number of shares which Barron Partners would own beneficially if
the 4.9%
limitation were not applicable is 17,902,999 shares prior to this
offering, representing shares of common stock owned by Barron Partners
or
issuable upon exercise of the warrants and conversion of series A
preferred stock, which would represent beneficial ownership of 66.9%of
our
common stock. The total number of shares which Barron Partners would
own
beneficially after completion of the offering, assuming all shares
offered
had been sold, if the 4.9% limitation were not applicable would be
12,902,999 shares, which would represent beneficial ownership of
41.0% of
our common stock.
|
The
selling stockholder is not a broker-dealer or an affiliate of a broker-dealer.
The selling stockholder does not, and within the past three years has not had,
any position, office or material relationship with us or any of our predecessors
or affiliates.
On
February 24, 2006, we entered into a preferred stock purchase agreement with
Barron Partners LP, pursuant to which we sold to Barron Partners, for
$2,200,000, 7,719,250 shares of series A preferred stock, and five-year warrants
to purchase an aggregate of 5,610,000 shares of common stock at $.57 per share
and 5,610,000 shares of commons stock at $.855 per share. The series A preferred
stock was initially convertible into 7,719,250 shares of common stock, subject
to adjustment. Both the conversion price of the series A preferred Stock and
the
exercise price of the warrants were adjusted because of our failure to meet
the
targeted fully-diluted earnings per As a result (i) the conversion price of
the
series A preferred stock was reduced from $.285 to $.218025, a reduction of
23.5%, with the result that the series A convertible preferred stock became
convertible into an aggregate of 10,090,586 shares of common stock, with the
conversion rate increasing from 1.00 share of common stock being issuable upon
conversion of one share of series A preferred stock to 1.3072 shares of common
stock being issuable upon conversion of one share of series A preferred stock
and (ii) the exercise prices of the warrants were reduced by 23.5% -- from
$.57
to $.43605 and from $.855 to $.654075. The
shares of common stock being offered by Barron Partners represent shares of
common stock issuable upon exercise of warrants with a $0.654075 exercise
price.
The
purchase agreement, the certificate of designation relating to the series A
preferred stock and the warrants all provide that the preferred stock cannot
be
converted and the warrant cannot be exercised to the extent that the number
of
shares of common stock held by the selling stockholder and his affiliates after
such conversion or exercise would exceed 4.9% of the outstanding common stock.
Beneficial ownership is determined in the manner provided in Section 13(d)
of
the Securities Exchange Act of 1934 and Regulation 13d-3 of the SEC thereunder.
This provision, which cannot be modified, limits the ability of the holders
of
the series A preferred stock and warrants to convert their shares of series
A
preferred stock and exercise their warrants. Based on the 13,868,995 shares
of
common stock that were outstanding on July 23, 2008, Barron Partners would
not
be able to convert series A preferred stock or exercise warrants for more than
714,596 shares of common stock. As the number of shares of common stock
increases, whether upon conversion of series A preferred stock, exercise of
warrants or for any other reason, the number of shares which could be issued
under this limitation will increase. In the event that any holder of the series
A preferred stock or the warrants issued in the February 2006 private placement
transfers shares of series A preferred stock or warrants, the transferee, if
it
is not an affiliate of the transferor, would be subject to a separate 4.9%
limitation.
-
9 -
As
a
result of our failure to have shares registered in a prior registration
statement by August 23, 2006, we issued 33,212 shares of common stock as
liquidated damages.
The
purchase agreement also provides that:
|
•
|
Barron
Partners has the right to participate in any future
financing.
|
|
•
|
We
are required to maintain a majority of independent directors and
independent audit and compensation committees as long as the series
A
preferred stock is outstanding.
|
|
•
|
With
certain limited exceptions, if we issue stock at a purchase price
or
warrants or convertible securities at an exercise or conversion price
which is less than the conversion price of the series A preferred
stock or
the exercise price of the warrants, the conversion price and exercise
price will be reduced to such lower
price.
|
On
October 3, 2007, we registered 2,000,000 shares, of which 1,900,000 shares
represented shares issuable upon exercise of warrants held by Barron Partners.
Barron exercised all of the warrants for which the underlying shares were
registered and sold 1,585,000 shares.
The
selling stockholder and any of its pledgees, donees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which
the
shares are traded or in private transactions or by gift. These sales may be
made
at fixed or negotiated prices. The selling stockholder may sell its shares
of
common stock in the public market based on the market price at the time of
sale
or at negotiated prices. Subject to the foregoing, the selling stockholder
may
use any one or more of the following methods when selling or otherwise
transferring shares:
| • |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
| • |
block
trades in which a broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
| • |
sales
to a broker-dealer as principal and the resale by the broker-dealer
of the
shares for its account;
|
| • |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| • |
privately
negotiated transactions, including gifts and exchanges for other
securities;
|
| • |
covering
short sales made after the date of this
prospectus.
|
| • |
pursuant
to an arrangement or agreement with a broker-dealer to sell a
specified
number of such shares at a stipulated price per
share;
|
| • |
a
combination of any such methods of sale;
and
|
| • |
any
other method of sale permitted pursuant to applicable:
law.
|
Barron
Partners may also sell shares issuable upon conversion of the series A preferred
stock pursuant to Rule 144 or Rule 144A under the Securities Act, if available,
and, if Barron Partners exercises warrants for which the underlying shares
of
common stock are not registered, Barron Partners may sell such shares pursuant
to Rule 144 or Rule 144A if available.
See
“Selling Stockholder” for information concerning the restriction on the right of
the holders of the series A preferred stock and certain of the warrants to
convert the shares of series A preferred stock and to exercise warrants if
such
conversion or exercise would result in the holder and his or its affiliates
beneficially owning more than 4.9% of our common stock. Because of the
limitation whereby Barron Partners cannot hold more than 4.9% of our stock,
there is a limit on the number of shares that Barron Partners may sell at any
time. However, this limitation does not prohibit successive exercises or
conversions and sales of the underlying shares.
-
10 -
Broker-dealers
engaged by the selling stockholder may arrange for other brokers dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholder (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholder does not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholder may from time to time pledge or grant a security interest
in
some or all of the shares or common stock or warrant owned by him and, if the
selling stockholder defaults in the performance of the secured obligations,
the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of
1933
amending the list of selling stockholders to include the pledgee, transferee
or
other successors in interest as selling stockholders under this
prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholder may enter into hedging transactions with broker-dealers or other
financial institutions which may in turn engage in short sales of our common
stock in the course of hedging the positions they assume. The selling
stockholder may, after the date of this prospectus, also sell shares of our
common stock short and deliver these securities to close out their short
positions, or lend or pledge their common stock to broker-dealers that in turn
may sell these securities. The selling stockholder may also enter into option
or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to
such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution
may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholder also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this prospectus.
In the event of a transfer by the selling stockholder of the warrants, we may
be
required to amend or supplement this prospectus in order to name the transferee
as a selling stockholder.
The
selling stockholder and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. The selling stockholder has informed us
that
it does not have any agreement or understanding, directly or indirectly, with
any person to distribute the common stock.
Because
the selling stockholder may be deemed to be “underwriters” within the meaning of
the Securities Act, it would be subject to the prospectus delivery requirements
of the Securities Act. Federal securities laws, including Regulation M, may
restrict the timing of purchases and sales of our common stock by the selling
stockholder and any other persons who are involved in the distribution of the
shares of common stock pursuant to this prospectus.
If
any
broker-dealers act as underwriters in connection with the sale by the selling
stockholder of its shares, it will be necessary for us to update this prospectus
to provide information relating to such broker-dealers. In this connection,
it
will be necessary for us to file a supplement or a post-effective amendment
to
reflect, among other things, the identity of the broker-dealers acting as
underwriters and the terms of the underwriting.
We
are
required to pay all fees and expenses incidental to the registration of the
shares. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
We
are
also required to register the shares of common stock issuable upon exercise
of
the warrants that are held by Barron Partners which shares are not included
in
the registration statement of which this prospectus is a part. We expect to
file
one or more additional registration statements, subject to the SEC’s policy on
when such registration statements may be filed.
-
11 -
Our
common stock is traded on the Over the Counter Bulletin Board under the symbol
TPCS. The following table sets forth the high and low bid quotations per share
of our common stock as reported on the OTC Bulletin Board for the periods
commencing November 7, 2007, when trading in our stock commenced, through March
31, 2008 and for the quarter ended June 30, 2008. The high and low bid
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
|
Period
|
High
Bid
|
Low
Bid
|
|||||
|
November
7, 2007 to March 31, 2008
|
$
|
3.90
|
$
|
1.40
|
|||
|
March
31, 2008 to June 30, 2008
|
3.05
|
2.15
|
|||||
As
of
July 31, 2008, we had approximately 90 record holders of our common stock and
more than 400 beneficial owners of our common stock.
We
have
not paid dividends on our common stock, and the terms of certificate of
designation relating to the creation of the series A preferred stock prohibit
us
from paying dividends. We plan to retain future earnings, if any, for use in
our
business. We do not anticipate paying dividends on our common stock in the
foreseeable future.
As
of
July 31, 2008, we had the following shares of common stock reserved for
issuance:
|
•
|
8,267,999
shares issuable upon conversion of the series A preferred
stock.
|
|
•
|
9,320,000
shares issuable upon exercise of the warrants held by Barron
Partners.
|
|
•
|
1,000,000
shares issuable upon exercise of stock options or other equity-based
incentives pursuant to our 2006 long-term incentive plan. As of July
31,
2008, there were outstanding options and warrants to purchase 371,659
shares of common stock.
|
The
8,267,999 shares of common stock issuable upon conversion of the series A
preferred stock held by Barron Partners may be sold pursuant to Rule 144. Barron
Partners has registration rights with respect to these shares and the shares
issuable upon exercise of the warrants held by Barron Partners.
Our
insiders, who held 6,860,200 shares of common stock at July 31, 2008, may not
sell the shares acquired at the time of the reverse acquisition for a period
of
twelve months following the February 24, 2006 closing. Thereafter, none of
these
stockholders may sell more than 10% of his or her shares in the public market
in
the twelve-month period following the expiration of the lock-up period or more
than an additional 10% of his or her shares during the following twelve-month
period, which is the period ended February 23, 2009. Thereafter, there are
no
contractual restrictions on the sale of their shares. Although these
stockholders have demand and piggyback registration rights, we are not subject
to any liquidated damages in the event that we fail to satisfy our obligations
to register the shares. However, since these shares may be sold pursuant to
Rule
144, we will not be required to register these shares.
Equity
Compensation Plan Information
The
following table summarizes the equity compensation plans under which our
securities may be issued as of June 30, 2008.
|
Plan
Category
|
Number
of securities to
be
issued upon exercise
of
outstanding options
and
warrants
|
Weighted-average
exercise
price of
outstanding
options
and
warrants
|
Number
of securities
remaining
available for future
issuance
under equity
compensation
plans
|
|
Equity
compensation plans approved by security holders
|
484,159
|
$0.544
|
515,841
|
|
Equity
compensation plan not approved by security holders
|
0
|
--
|
--
|
No
unregistered securities were sold during the year ended March 31,
2008.
-
12 -
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The
following discussion of the results of our operations and financial condition
should be read in conjunction with our financial statements and the related
notes, which appear elsewhere in this prospectus. The following discussion
includes predictive statements. For a discussion of important factors that
could
cause actual results to differ from results discussed in the predictive
statements, see “Forward Looking Statements.”
Overview
We
offer
a full range of services required to transform raw material into precise
finished products. Our manufacturing capabilities include: fabrication
operations - cutting, press and roll forming, assembly, welding, heat treating,
blasting and painting; and machining operations - CNC (computer numerical
controlled) horizontal and vertical milling centers. We also provide support
services to our manufacturing capabilities: manufacturing engineering (planning,
fixture and tooling development, manufacturability), quality control (inspection
and testing), and production control (scheduling, project management and
expediting).
All
manufacturing is done in accordance with our written quality assurance program,
which meets specific national and international codes, standards, and
specifications. Ranor holds several certificates of authorization issued by
the
American Society of Mechanical Engineers and the National Board of Boiler and
Pressure Vessel Inspectors. The standards used are specific to the customer’s
needs, and we have implemented such standards into our manufacturing
operations.
In
recent
years, the capital goods market experienced a slow down due to industry over
build of product in the late 1990’s coupled together with the events of
September 11, 2001. However, over the last several years, and based on recent
project inquiries, recent projects awarded and current customer demands for
our
services and our backlog, we believe the market has rebounded. However, we
may
be affected by recessionary pressures to the extent that they affect the
requirements of our customers.
A
significant portion of our revenue is generated by a small number of customers
who differ from period to period as we complete work on projects or commence
new
projects for other customers. For the three months ended June 30, 2008, GT
Solar
accounted for 69% of our sales and our second largest customer, BAE Systems
accounted for 13% of our sales. In
the
year ended March 31, 2008, our largest customer, GT Solar, accounted for
approximately 51% of our revenue, and BAE Systems accounted for approximately
17% of revenue. For the year ended March 31, 2007, our largest customer, GT
Solar, accounted for 18% of our revenue and our largest three customers
accounted for 45% of our revenue.
Our
contracts are generated both through negotiation with the customer and from
bids
made pursuant to a request for proposal. Our ability to receive contract awards
is dependent upon the contracting party’s perception of such factors as our
ability to perform on time, our history of performance and our financial
condition. We believe, based on increased requests for quotations, that there
is
an increasing demand for services of the type which we perform. We have changed
the manner in which we treat potential business. In the past, our contracts
generally called for one or a limited number of units, and once we complete
our
work on a contract, we generally do not receive subsequent orders for the same
product. Although some of our contracts contemplate the manufacture of one
or a
limited number of units, we have are seeking more long-term projects with a
more
predictable cost structure, and we are rejecting or not bidding on projects
we
do not believe would generate an adequate gross margin. As a result of the
implementation of this strategy, for the
three
months ended June 30, 2008, our sales and net income were $11,658,134 and
$1,571,696, respectively, as compared to sales of $6,553,112 and a net income
of
$684,827 for the corresponding period of the previous fiscal year, and
for
the
year ended March 31, 2008, our sales and net income were $31,805,146 and
$3,515,935, respectively, as compared to sales of $19,086,209 and a net income
of $290,225 for the previous fiscal year. Our gross margin for the three-month
period ended June 30, 2008 was 29%, as compared with 26% for the three months
ended June 30, 2007, and for the year ended March 31, 2008 our gross margin
was
26% as compared to 19% in the year ended March 31, 2007. In the year ended
March
31, 2007 we had a one-time deemed dividend of $675,013 to the preferred
stockholders, for not meeting targeted earnings before taxes, depreciation
and
amortization (EBITDA).
Because
our revenues are derived from the sale of goods manufactured pursuant to a
contract, and we do not sell from inventory, it is necessary for us to
constantly seek new contracts. There may be a time lag between our completion
of
one contract and commencement of work on another contract. During this period,
we will continue to incur our overhead expense but with lower revenue.
Furthermore, changes in the scope of a contract may impact the revenue we
receive under the contract and the allocation of manpower.
Although
we provide manufacturing services for large governmental programs, we usually
do
not work directly for agencies of the United States government. Rather, we
perform our services for large governmental contractors and large utility
companies. However, our business is dependent in part on the continuation of
governmental programs which require the services we provide.
-
13 -
Growth
Strategy
Our
strategy is to leverage our core competence as a manufacturer of high-precision,
large metal fabrications to expand our business into areas which have shown
increasing demand and which we believe could generate higher
margins.
We
believe that rising energy demands along with increasing environmental concerns
are likely to continue to drive demand in the alternative energy industry,
particularly the solar and nuclear power industries. Because of our capabilities
and the nature of the equipment required by companies in the alternative energy
industries, we intend to focus our services in this sector.
As
a
result of both the increased prices of oil and gas and the resulting greenhouse
gas emissions, nuclear power may become an increasingly important source of
energy. Because we have certification from the American Society of Mechanical
Engineers, along with our historic relationships with suppliers in the industry,
we believe that we have the qualifications to benefit from any increased
activity in the nuclear sector that may result. One of our customers is
currently involved in a variety of commercial nuclear reactor repairs and
overhaul projects. We manufacture several components needed to support this
work. Another customer provides a complete nuclear waste storage system to
commercial nuclear power plants. We manufacture lifting equipment for this
company to use in these storage systems. We also see the fabrication of medical
isotopes storage systems as a potential business area. However, revenues derived
from the nuclear industry were insignificant for the three months ended June
30,
2008 and the year ended March 31, 2008 and currently do not constitute a
significant portion of our backlog at June 30, 2009. We cannot assure you that
we will be able to develop any significant business from the nuclear industry.
As an example of our plan for diversification, we are currently working with
a
medical customer to manufacture critical components for proton beam therapy
machines designed to be used to treat cancer. However, we cannot assure you
that, if we obtain an order for this product, we will derive any significant
business from the product.
We
are
currently evaluating plans to expand our current manufacturing facilities in
the
near-term both at our present locations and in other locations. We believe
that
this expansion will allow us to increase our overall industry offerings and
capacity, allowing us to handle high volume orders or niche orders
simultaneously. However, this expansion will require financing which may not
be
available on acceptable terms, if any.
We
plan
to offer more integrated products and turnkey solutions to provide greater
value
to our customers. We may target acquisitions that could enhance our existing
business, although we are not engaged in any discussions or negotiations with
respect to any acquisition.
As
of
June 30, 2008, we had a backlog of firm orders totaling approximately $52.8
million. We anticipate that a significant amount of this backlog will be
shipped during the year ended March 31, 2009 and the remainder in the year
ended
March 31, 2010. The backlog includes orders for more than $1.0 million from
four
three customers, in addition to GT Solar, which accounts for approximately
80%
of our backlog.
Critical
Accounting Policies
The
preparation of the Company’s financial statements in conformity with generally
accepted accounting principles in the United States requires our management
to
make assumptions, estimates and judgments that effect the amounts reported
in
the financial statements, including all notes thereto, and related disclosures
of commitments and contingencies, if any. We rely on historical experience
and
other assumptions we believe to be reasonable in making our estimates. Actual
financial results of the operations could differ materially from such estimates.
There have been no significant changes in the assumptions, estimates and
judgments used in the preparation of our audited 2008 financial statements
from
the assumptions, estimates and judgments used in the preparation of our 2007
audited financial statements.
Revenue
Recognition and Costs Incurred
We
derive
revenues from (i) the fabrication of large metal components for our customers;
(ii) the precision machining of such large metal components, including
incidental engineering services; and (iii) the installation of such components
at the customers’ locations when the scope of the project requires such
installations.
-
14 -
Revenue
and costs are recognized on the units of delivery method. This method recognizes
as revenue the contract price of units of the product delivered during each
period and the costs allocable to the delivered units as the cost of earned
revenue. When the sales agreements provide for separate billing of engineering
services, the revenues for those services are recognized when the services
are
completed. Costs allocable to undelivered units are reported in the balance
sheet as costs incurred on uncompleted contracts. Amounts in excess of agreed
upon contract price for customer directed changes, constructive 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 reasonably estimated. Revisions in
cost and profit estimates are reflected in the period in which the facts
requiring the revision become known and are estimable. The unit of delivery
method requires the existence of a contract to provide the persuasive evidence
of an arrangement and determinable seller’s price, delivery of the product
and reasonable collection prospects. The Company has written agreements with
the
customers that specify contract prices and delivery terms. The Company
recognizes revenues only when the collection prospects are
reasonable.
Adjustments
to cost estimates are made periodically, and losses expected to be incurred
on
contracts in progress are charged to operations in the period such losses are
determined and are reflected as reductions of the carrying value of the costs
incurred on uncompleted contracts. Costs incurred on uncompleted contracts
consist of labor, overhead, and materials. Work in process is stated at the
lower of cost or market and reflects accrued losses, if required, on uncompleted
contracts.
Variable
Interest Entity
We
have
consolidated WM Realty Management, a variable interest entity from which we
lease our real estate, to conform to FASB Interpretation No. 46, “Consolidation
of Variable Interest Entities” (FIN 46). We have also adopted the revision to
FIN 46, FIN 46 (R), which clarified certain provisions of the original
interpretation and exempted certain entities from its requirements.
Income
Taxes
We
provide for federal and state income taxes currently payable, as well as those
deferred because of temporary differences between reporting income and expenses
for financial statement purposes versus tax purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
assets and liabilities are measured using the enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recoverable. The effect of the change in the tax rates is
recognized as income or expense in the period of the change. A valuation
allowance is established, when necessary, to reduce deferred income taxes to
the
amount that is more likely than not to be realized. As of March 31, 2008, we
had
tax assets of approximately $672,000 from net operating loss carry-forwards
and
sources. As a result of the change in ownership resulting for the acquisition
of
Ranor in February 2006, our annual usage of the tax benefit of the tax
loss-carryforward pursuant to Section 382 of the Internal Revenue Code and
the
treasury regulations is limited to approximately $24,863.
New
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
2007), Business
Combinations,
which
replaces SFAS No 141. The statement retains the purchase method of accounting
for acquisitions, but requires a number of changes, including changes in the
way
assets and liabilities are recognized in the purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising
from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for the Company’s fiscal year
beginning April 1, 2009 and will apply prospectively to business
combinations completed on or after that date.
In
December 2007, the FASB issued SFAS No. 160, Non-Controlling
Interests in Consolidated Financial Statements, an amendment of ARB
51,
which
changes the accounting and reporting for minority interests. Minority interests
will be re-characterized as non-controlling interests and will be reported
as a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted
for
as equity transactions. In addition, net income attributable to the
non-controlling interest will be included in consolidated net income on the
face
of the income statement and, upon a loss of control, the interest sold, as
well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for the Company’s fiscal
years beginning April 1, 2009 and will apply prospectively, except for the
presentation and disclosure requirements, which will apply retrospectively.
The
adoption of SFAS No. 160 does not have an effect on our financial position
or
results of operation.
-
15 -
On
July 1, 2007, we adopted the provisions of FASB Interpretation No. 48
(“FIN 48”), Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109,
which
provides a financial statement recognition threshold and measurement attribute
for a tax position taken or expected to be taken in a tax return. Under FIN
48,
we may recognize the tax benefit from an uncertain tax position only if it
is
more likely than not that the tax position will be sustained on examination
by
the taxing authorities, based on the technical merits of the position. The
tax
benefits recognized in the financial statements from such a position should
be
measured based on the largest benefit that has a greater than 50% likelihood
of
being realized upon ultimate settlement. FIN 48 also provides guidance on
de-recognition of income tax assets and liabilities, classification of current
and deferred income tax assets and liabilities, accounting for interest and
penalties associated with tax positions, and income tax disclosures. The
adoption of FIN 48 does not have a material effect on our financial position
or
results of operation.
On
July 1, 2007, we adopted Emerging Issues Task Force Issue No. 06-2
(“EITF 06-2”), Accounting
for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement
No. 43.
EITF
06-2 requires companies to accrue the costs of compensated absences under a
sabbatical or similar benefit arrangement over the requisite service period.
The
adoption of EITF 06-2 does not have an affect the Company’s financial position
or results of operation.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 provides
reporting entities an option to report selected financial assets, including
investment securities designated as available for sale, and liabilities,
including most insurance contracts, at fair value. SFAS 159 establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar
types
of assets and liabilities. The standard also requires additional information
to
aid financial statement users’ understanding of a reporting entity’s choice to
use fair value on its earnings and also requires entities to display on the
face
of the balance sheet the fair value of those assets and liabilities for which
the reporting entity has chosen to measure at fair value. SFAS 159 is effective
as of the beginning of a reporting entity’s first fiscal year beginning after
November 15, 2007. Early adoption is permitted as of the beginning of the
previous fiscal year provided the entity makes that choice in the first 120
days
of that fiscal year and also elects to apply the provisions of SFAS 157. The
Company adopted SFAS No. 159. The application of SFAS No. 159 is not expected
to have a material effect on the Company’s financial position or results of
operations.
-
16 -
Results
of Operations
Three
Months Ended June 30, 2008 and 2007
The
following table sets forth information from our statements of operations for
the
quarters ended June 30, 2008 and 2007, in dollars and as a percentage of revenue
(in thousands, except per share amounts):
|
Change
from Quarter
|
|||||||||||||||||||
|
Quarter
Ended June 30
|
Ended
June 30, 2007
|
||||||||||||||||||
|
2008
|
2007
|
to
June 30, 2008
|
|||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|||||||||||||
|
Net
sales
|
$
|
11,658
|
100.0
|
%
|
$
|
6,553
|
100.0
|
%
|
$
|
5,105
|
77.9
|
%
|
|||||||
|
Cost
of sales
|
8,278
|
71.0
|
%
|
4,877
|
74.4
|
%
|
3,401
|
69.7
|
%
|
||||||||||
|
Gross
profit
|
3,380
|
29.0
|
%
|
1,676
|
25.6
|
%
|
1,704
|
101.7
|
%
|
||||||||||
|
Operating
expenses:
|
|||||||||||||||||||
|
Salaries
and related expenses
|
435
|
3.7
|
%
|
344
|
5.2
|
%
|
91
|
26.5
|
%
|
||||||||||
|
Professional
fees
|
47
|
0.4
|
%
|
44
|
0.7
|
%
|
3
|
6.8
|
%
|
||||||||||
|
Selling,
general and administrative
|
139
|
1.2
|
%
|
71
|
1.1
|
%
|
68
|
95.8
|
%
|
||||||||||
|
Total
operating expenses
|
621
|
5.3
|
%
|
459
|
7.0
|
%
|
162
|
35.3
|
%
|
||||||||||
|
Income
from operations
|
2,759
|
23.7
|
%
|
1,217
|
18.6
|
%
|
1,542
|
126.7
|
%
|
||||||||||
|
Other
income (expenses)
|
|||||||||||||||||||
|
Interest
expense
|
(119
|
)
|
(1.0
|
)%
|
(132
|
)
|
(2.0
|
)%
|
13
|
9.8
|
%
|
||||||||
|
Interest
income
|
-
|
-
|
0.0
|
%
|
-
|
-
|
%
|
||||||||||||
|
Finance
costs
|
(4
|
)
|
0.0
|
%
|
(3
|
)
|
0.0
|
%
|
(1
|
)
|
33.8
|
%
|
|||||||
|
Total
other income (expense)
|
(123
|
)
|
(1.1
|
)%
|
(135
|
)
|
(2.1
|
)%
|
12
|
(8.9
|
)%
|
||||||||
|
Income
(loss) before income taxes
|
2,636
|
22.6
|
%
|
1,082
|
16.5
|
%
|
1,554
|
143.6
|
%
|
||||||||||
|
Provision
for income taxes
|
(1,064
|
)
|
(9.1
|
)%
|
(397
|
)
|
(6.1
|
)%
|
(667
|
)
|
168.0
|
%
|
|||||||
|
Net
income
|
$
|
1,572
|
13.5
|
%
|
$
|
685
|
10.5
|
%
|
$
|
887
|
129.5
|
%
|
|||||||
Sales
increased by $5,105,000, or 77.9%, from $6,553,000 for the quarter ended June
30, 2007 (the “June 2007 Quarter”) to $11,658 for the quarter ended June 30,
2008 (the “June 2008 Quarter”). The increase in sales resulted from an increase
of $5,510,000, or 217%, in sales to GT Solar from $2,536,000 in the June 2007
Quarter to $8,046,000 in the June 2008 Quarter. Because of the work we performed
for GT Solar, our sales to other customers declined slightly from the June
2007
Quarter to the June 2008 Quarter.
Our
cost
of sales for the June 2008 Quarter increased by $3,401,000 to $8,278, an
increase of 69.7%, from $4,877,000 for the quarter ended June 30, 2007. The
increase in cost of sales reflected the increase in sales and gross margin,
with
the result that our gross margin increased from 25.6% to 29.0%. With our
marketing efforts focused on long range contracts with more predictable cost
structures and avoiding projects that we believe are not likely to generate
an
adequate margin we were able to significantly improve our gross margin. More
efficient manufacturing procedures additionally contributed to our increased
profitability.
Our
payroll and related costs were $435,000 for the quarter ended June 30, 2008
as
compared to $344,000 for the quarter ended June 30, 2007. The $91,000 (26.5%)
increase in payroll was partly attributable to the increased sales and related
compensation of as well as bonuses to our senior executive officers and the
chief executive officer of Ranor of $88,000 for the year ended March 31, 2008
which were awarded during the June 2008 Quarter.
-
17 -
Professional
fees remained relatively constant, increasing from $44 for the June 2007 Quarter
to $47 for the June 2008 Quarter.
Selling,
administrative and other expenses for the June 2008 Quarter were $139,000 as
compared to $71,000 for June 2007 Quarter, an increase of $68,000 or 95.8%.
This
increase reflected in part additional costs which we incurred when our stock
became publicly traded in November 2007, as well as additional expense incurred
as a result of the overall increase in our business.
Interest
expense for the June 2008 Quarter was $119,000 as compared to $132,000 for
the
June 2007 Quarter. The reduction of $14,000 (10.3%) is a result of the repayment
of the principal and decrease in the amount of the long-term debt of
Ranor.
Income
tax expense was $1,064,000 in the June 2008 Quarter as compared to $397,000
in
the June 2007 Quarter. Our effective income tax rate was 40% in the
June 2008 Quarter as compared to 37% in the June 2007 Quarter. The
increase is a result of increased profitability in the second half of last
year
and positive earnings estimates for the current period. The effective tax rate
in the June 2008 Quarter includes the recognition of a net deferred tax asset
of
$91,000. This deferred tax asset reflects the impact of recording an income
tax
benefit for the current portion of net operating loss carry forwards subject
to
Internal Revenue Code Section 382 and related state statutory limitations in
the
amount of $39,000 and an income tax benefit of $134,000 related to accrued
compensation benefits. The deferred tax asset reflected on the balance sheet
is
net of the current portion deferred tax liability arising from timing
differences in depreciation in the amount of $82,000.
As
a
result of the foregoing, our net income was $1,572,000 ($ 0.12 per share basic
and $0.06 per share diluted) for the June 2008 Quarter, as compared to $685,000
($0.07 per share basic and $0.04 per share diluted) for June 2007 Quarter as
result of the factors described above.
Years
Ended March 31, 2008 and 2007
The
following table sets forth information from our statements of operations for
the
years ended March 31, 2008 and 2007, in dollars and as a percentage of revenue
(dollars in thousands):
|
Year
Ended March 31,
|
Changes
Year
Ended
March 31,
|
||||||||||||||||||
|
2008
|
2007
|
2008
to 2007
|
|||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||||
|
Net
sales
|
$
|
31,805
|
100
|
%
|
$
|
19,086
|
100
|
%
|
$
|
12,719
|
67
|
%
|
|||||||
|
Cost
of sales
|
23,473
|
74
|
%
|
15,543
|
81
|
%
|
7,930
|
51
|
%
|
||||||||||
|
Gross
profit
|
8,332
|
26
|
%
|
3,543
|
19
|
%
|
4,789
|
135
|
%
|
||||||||||
|
|
|||||||||||||||||||
|
Payroll
and related costs
|
1,228
|
4
|
%
|
1,209
|
6
|
%
|
19
|
2
|
%
|
||||||||||
|
Professional
expense
|
291
|
1
|
%
|
498
|
3
|
%
|
(207
|
)
|
(42
|
)%
|
|||||||||
|
Selling,
general and administrative
|
411
|
1
|
%
|
390
|
2
|
%
|
21
|
5
|
%
|
||||||||||
|
Total
operating expenses
|
1,931
|
6
|
%
|
2,098
|
11
|
%
|
(167
|
)
|
(8
|
)%
|
|||||||||
|
|
|||||||||||||||||||
|
Income
(loss) from operations
|
6,402
|
20
|
%
|
1,446
|
8
|
%
|
4,956
|
343
|
%
|
||||||||||
|
Interest
expense, net
|
(512
|
)
|
(2
|
)%
|
(628
|
)
|
(3
|
)%
|
(116
|
)
|
(18
|
)%
|
|||||||
|
Finance
costs
|
(17
|
)
|
0
|
%
|
(289
|
)
|
(2
|
)%
|
(272
|
)
|
(94
|
)%
|
|||||||
|
Income
before income taxes
|
5,874
|
18
|
%
|
530
|
3
|
%
|
5,344
|
1008
|
%
|
||||||||||
|
Provision
for income taxes, net
|
(2,358
|
)
|
(7
|
)%
|
(240
|
)
|
(1
|
)%
|
2,118
|
882
|
%
|
||||||||
|
Net
Income
|
$
|
3,516
|
11
|
%
|
$
|
290
|
2
|
%
|
$
|
3,226
|
1112
|
%
|
|||||||
|
Deemed
dividend to preferred shareholders
|
-
|
-
|
(676
|
)
|
(4
|
)%
|
676
|
--
|
|||||||||||
|
Income
to common shareholders
|
3,516
|
-
|
(386
|
)
|
(2
|
)%
|
3,902
|
1011
|
%
|
||||||||||
Sales
increased by $12,719,000, or 67%, from $19,086,000 for the year ended March
31,
2007 to $31,805,000 for the year ended March 31, 2008. This increase in sales
reflected improved market conditions for capital goods and our business refocus
as stated earlier. A significant portion of the increase resulted from a $12.7
million increase in sales to GT Solar and a $5.3 million increase in sales
to
BAE Systems.
-
18 -
Our
cost
of sales for the year ended March 31, 2008 increased by $7,930,000, to
$23,473,000, an increase of 51%, from $15,543,000 for year ended March 31,
2007.
The increase in cost of sales reflected the increase in sales and gross margin,
with the result that our gross margin increased from 19% to 26%. With the
increased orders from GT Solar and our marketing efforts focused on long range
contracts with more predictable cost structures and avoiding projects that
we
believe are not likely to generate an adequate margin we were able to
significantly improve our gross margin. More efficient manufacturing procedures
additionally contributed to our increased profitability.
Our
salaries and related expenses were $1,229,000 for the year ended March 31,
2008
as compared to $1,209,000 for the year ended March 31, 2007. The modest increase
was partly attributable to the increased sales and related compensation of
sales
persons.
Professional
fees decreased from $498,000 for the year ended March 31, 2007 to $391,000
for
the year ended March 31, 2008. This decrease was attributable a decrease in
the
number of our regulatory filings of the company with a resulting decrease in
associated fees.
Selling,
administrative and other expenses for the year ended March 31, 2008 were
$411,000 as compared to $390,000 for year ended March 31, 2007, an increase
of
$21,000 or 5%. This increase reflected in part additional costs which we
incurred when our stock became publicly traded in November 2007, including
the
value of warrants issued to an investor relations firm, as well as additional
expense incurred as a result of the overall increase in our
business.
Interest
expense for the year ended March 31, 2008 was $512,000 compared to $628,000
for
the year ended March 31, 2007. The decrease of $116,000 (19%) is a result of
refinancing the short term loan of WM Realty Management with a longer term
loan.
The refinancing of the loan also eliminated $150,000 amortization expenses
of
deferred short term loan costs.
As
a
result of the foregoing, our net income allocable to common stockholders was
$3,516,000 ($0.32 per share basic and $0.12 per share diluted) for the year
ended March 31, 2008, as compared to the loss of $386,000, $0.04 per share
(basic and diluted),` for the year ended March 31, 2007. The net income
allocable to common stockholders for the year ended March 31, 2007 reflected
a
deemed dividend to preferred stockholders as a result of changes in the
conversion price of the series A preferred stock because of our failure to
generate specified levels of earnings before interest, taxes, depreciation
and
amortization.
-
19 -
Liquidity
and Capital Resources
At
June
30, 2008, we had working capital of $7,796,000 as compared with working capital
of $6,392,000 at March 31, 2007, an increase of $1,404,000 reflecting our
increased level and profitability of our business. The following table sets
forth information as to the principal changes in the components of our working
capital (dollars in thousands).
|
March
31 to June 30, 2008
|
|||||||||||||
|
Category
|
June
30, 2008
|
March
31, 2008
|
Amount
|
Change
|
|
||||||||
|
Cash
and cash equivalents
|
$
|
3,774
|
$
|
2,853
|
$
|
921
|
32.3
|
%
|
|||||
|
Accounts
receivable, net
|
6,401
|
4,509
|
1,892
|
42.0
|
%
|
||||||||
|
Costs
Incurred on uncompleted contracts
|
2,755
|
4,299
|
(1,544
|
)
|
(35.9
|
)%
|
|||||||
|
Inventories
|
253
|
196
|
57
|
29.1
|
%
|
||||||||
|
Deferred
tax asset
|
91
|
-
|
91
|
-
|
|||||||||
|
Prepaid
expenses
|
252
|
1,039
|
(787
|
)
|
(75.7
|
)%
|
|||||||
|
Accounts
payable
|
2,039
|
991
|
1,048
|
105.8
|
%
|
||||||||
|
Accrued
expenses
|
1,748
|
1,481
|
267
|
18.0
|
%
|
||||||||
|
Progress
billings in excess of
|
|||||||||||||
|
cost
of uncompleted contracts
|
1,328
|
3,419
|
-2,091
|
(61.2
|
)%
|
||||||||
|
Current
maturity of long-term debt
|
614
|
614
|
-
|
-
|
%
|
||||||||
|
Total
current assets
|
13,525
|
12,895
|
630
|
4.9
|
%
|
||||||||
|
Total
current liabilities
|
5,729
|
6,504
|
(775
|
)
|
(11.9
|
)%
|
|||||||
|
Net
working capital
|
7,796
|
6,392
|
1,404
|
22.0
|
%
|
||||||||
The
cash
flow from operations was $1,225,000 for the June 2008 Quarter as compared to
$44,000 in June 2007 Quarter. The increase of in cash flows from operations
of
$1,181,000 or 2687% was the net effect of an increase in the net profits and
decrease in costs incurred on uncompleted contracts. The net cash used in
financing activities was $30,000 for the quarter ended June 30, 2008 as compared
to outflow of $193,000 for the quarter ended June 30, 2007. The $143,000
principal payment of the Sovereign bank notes and $2,000 auto loans were more
than offset by $170,000 of cash received from the exercise of warrants. In
addition, since our financial statements include the operations of WM Realty,
our cash flows include the cash flows of WM Realty. During the quarter ended
June 30, 2008, WM Realty made mortgage principal reduction payments totaling
$9,000, and made net distributions of $47,000 to its members.
We
invested $124,000 and $63,000 in property plant and equipment during the
quarters ended June 30, 2008 and 2007, respectively. We made a deposit of
$150,000 with manufacturers to acquire additional equipment in 2008.
As
a
result of cash flows from operations, our cash balance increased by $921,000
(32.3%) from $2,853,000 on March 31, 2008 to $3,774,000, on June 30, 2008.
For
the
year ended March 31, 2008, the cash flow from operations was $2,490,000 for
the
year ended March 31, 2008 as compared to $1,587,000 in 2007. The increase of
in
cash flows from operations of $903,000, or 57%, was the net effect of an
increase in the net profits and decrease in costs incurred on uncompleted
contracts. The net cash used in financing activities was $126,000 for the
year ended March 31, 2008 as compared to outflow of $205,000 for the year ended
March 31, 2007. The principal payment of the Sovereign bank notes was $571,000
and auto loans $7,500, which was offset by $658,000 cash received from the
exercise of warrants. In addition, since our financial statements include the
operations of WM Realty, our cash flows include the cash flows of WM Realty.
During the year ended March 31, 2008, WM Realty made mortgage principal
reduction payments totaling $34,000, repaid a $60,000 loan from a member, had
an
addition to its capital of $17,500 and made a distribution of $129,000 to its
members.
As
part
of the October 2006 refinancing of the mortgage given by WM Realty on the
property leased by us, a new mortgage of $3,200,000 was placed on the property
and the existing mortgage of $3,100,000 was paid off. The new mortgage has
a
term of ten years, bears interest at 6.75% per annum, and provides for monthly
payments of principal and interest of $21,000. The monthly payments are based
on
a thirty-year amortization schedule, with the unpaid principal being due in
full
on November 1, 2016. WM Realty has the right to prepay the mortgage note upon
payment of a prepayment premium of 5% of the amount prepaid if the prepayment
is
made during the first two years, and declining to 1% of the amount prepaid
if
the prepayment is made during the ninth or tenth year.
-
20 -
During
the June 2008 Quarter, WM Realty had a net income of $33,000. The accumulated
deficit of WM Realty was $163, as of June 30, 2008. During the quarter ended
June 30, 2008, WM Realty made net capital distributions of $47,000 to its
members.
We
have a
loan and security agreement with Sovereign Bank, pursuant to which we borrowed
$4,000,000 on a term loan basis in connection with the acquisition of Ranor.
As
a result of amendments to the loan and security agreement, we have a $2,000,000
revolving credit facility and a $3,000,000 million capital expenditure facility,
which is available to us until November 30, 2009, at which time any amounts
borrowed under the line are to be amortized over a five year period. Pursuant
to
the agreement, Ranor is required to maintain a ratio of earnings available
for
fixed charges to fixed charges of at least 1.2 to 1, and an interest coverage
ratio of at least 2:1.
The
term
note is due on March 1, 2013, and is payable in quarterly installments of
$143,000. The note bears interest at 9% per annum through December 31, 2010
and
at prime plus 1½% thereafter. At June 30, 2008 the principal balance due on our
term loan to Sovereign Bank was approximately $2,714,000. The revolving note
bears interest at prime plus ½%, and we have the right to borrow at a LIBOR rate
plus 300 basis points. We may borrow, subject to the borrowing formula at any
time prior to June 30, 2009. Any advances under the revolving note become due
on
June 30, 2009. The maximum borrowing under the revolving note is the lesser
of
(i) $2,000,000 or (ii) the sum of 70% of eligible accounts receivable and 40%
of
eligible inventory. At June 30, 2008, there were no borrowings under the line
and maximum available under the borrowing formula was $2,000,000.
Under
our
capital expenditures facility, we may borrow up to $3,000,000 with interest
at
prime plus ½%, with interest only payable until November 30, 2008 and thereafter
at the bank’s cost of funds rate related to its wholesale liabilities. The
principal is to be amortized over a five-year term commencing December 1, 2008.
As of June 30, 2008, we had not borrowed any money under this
facility.
The
securities purchase agreement pursuant to which we sold the series A preferred
stock and warrants to Barron Partners provides Barron Partners with a right
of
first refusal on future equity financings, which may affect our ability to
raise
funds from other sources if the need arises.
While
we
believe that the $2,000,000 revolving credit facility, which remained unused
as
of June 30, 2008 and terminates in June 2009, our $3,000,000 capital expenditure
facility and our cash flow from operations should be sufficient to enable us
to
satisfy our cash requirements at least through the end of fiscal 2009, it is
possible that we may require additional funds to the extent that we expand
our
facilities. In the event that we make an acquisition, we may require additional
financing for the acquisition. However, we do not have any current plans for
any
acquisition, and we cannot give any assurance that we will make any acquisition.
We have no commitment from any party for additional funds; however, the terms
of
our agreement with Barron Partners, particularly Barron Partners’ right of first
refusal, may impair our ability to raise capital in the equity markets since
potential investors are often reluctant to negotiate a financing when another
party has a right to match the terms of the financing.
On
December 7, 2007, Ranor acquired all the equipment Vertex Tool and Die, Inc
for
$150,000 and assumed Vertex’s real property lease obligation. The current lease
expires on February 28, 2009, and Ranor has the option to extend the lease
for
an additional term of five years. We have the option to purchase the leased
property at market price.
We
contemplate that we will expand our business during the next twelve months.
Although we may use the bank facilities for this purpose, we may require
additional financing as well. We can give no assurance that the necessary
financing will be available.
The
cash
flow from operations was $2.5 million for the year ended March 31, 2008 as
compared to $1.6 million in 2007. The increase of in cash flows from operations
of $903,000, or 57%, was the net effect of an increase in the net profits and
decrease in costs incurred on uncompleted contracts. The net cash used in
financing activities was $126,000 for the year ended March 31, 2008 as compared
to outflow of $205,000 for the year ended March 31, 2007. The principal payment
of the Sovereign bank notes was $571,000 and auto loans $7,500, which was offset
by $658,000 cash received from the exercise of warrants. In addition, since
our
financial statements include the operations of WM Realty, our cash flows include
the cash flows of WM Realty. During the year ended March 31, 2008, WM Realty
made mortgage principal reduction payments totaling $34,000, repaid a $60,000
loan from a member, had an addition to its capital of $17,500 and made a
distribution of $129,000 to its members.
-
21 -
In
the
year ended March 31, 2007, cash flow from financing activities reflected an
$82,500 addition to WM Realty capital and $415,000 of capital contributed from
the proceeds of the settlement agreement with the former stockholders of
Ranor.
We
invested $716,000 and $431,000 in property plant and equipment during the years
ended March 31, 2008 and 2007, respectively. We made a deposit of $240,000
with
manufacturers to acquire additional equipment in 2008.
Our
cash
balance almost doubled from March 31, 2007 to March 31, 2008. The net increase
in cash was $1.4 million for the year ended March 31, 2008, as compared to
$951,000 for the year ended March 31, 2007.
As
part
of the October 2006 refinancing of the mortgage given by WM Realty on the
property leased by us, a new mortgage of $3.2 million was placed on the property
and the existing mortgage of $3.1 million was paid off. The new mortgage has
a
term of ten years, bears interest at 6.75% per annum, and provides for monthly
payments of principal and interest of $21,000. The monthly payments are based
on
a thirty-year amortization schedule, with the unpaid principal being due in
full
on November 1, 2016. WM Realty has the right to prepay the mortgage note upon
payment of a prepayment premium of 5% of the amount prepaid if the prepayment
is
made during the first two years, and declining to 1% of the amount prepaid
if
the prepayment is made during the ninth or tenth year.
During
the year ended March 31, 2008, WM Realty had a net income of $118,000. The
accumulated deficit of WM Realty was $312,000 as of March 31, 2008. During
the
year ended March 31, 2008, WM Realty members made net capital contributions
of
$17,500 and received distributions of $129,000.
We
have a
loan and security agreement with Sovereign Bank, pursuant to which we borrowed
$4.0 million on a term loan basis in connection with the acquisition of Ranor.
As a result of amendments to the loan and security agreement, we have a $2.0
million revolving credit facility and a $3.0 million capital expenditure
facility, which is available to us until November 30, 2009, at which time any
amounts borrowed under the line are to be amortized over a five year period.
Pursuant to the agreement, Ranor is required to maintain a ratio of earnings
available for fixed charges to fixed charges of at least 1.2 to 1, and an
interest coverage ratio of at least 2:1.
The
term
note is due on March 1, 2013, and is payable in quarterly installments of
$143,000. The note bears interest at 9% per annum through December 31, 2010
and
at prime plus 1½% thereafter. At March 31, 2008 the principal balance due on our
term loan to Sovereign Bank was approximately $2.9 million. The revolving note
bears interest at prime plus ½%, and we have the right to borrow at a LIBOR rate
plus 300 basis points. We may borrow, subject to the borrowing formula at any
time prior to June 30, 2009. Any advances under the revolving note become due
on
June 30, 2009. The maximum borrowing under the revolving note is the lesser
of
(i) $2.0 million or (ii) the sum of 70% of eligible accounts receivable and
40%
of eligible inventory. At March 31, 2008, there were no borrowings under the
line and maximum available under the borrowing formula was $2.0
million.
Under
our
capital expenditures facility, we may borrow up to $3.0 million with interest
at
prime plus ½%, with interest only payable until November 30, 2008 and thereafter
at the bank’s cost of funds rate related to its wholesale liabilities. The
principal is to be amortized over a five-year term commencing December 1, 2008.
As of March 31, 2008, we had not borrowed any money under this
facility.
The
securities purchase agreement pursuant to which we sold the series A preferred
stock and warrants to Barron Partners provides Barron Partners with a right
of
first refusal on future equity financings, which may affect our ability to
raise
funds from other sources if the need arises.
While
we
believe that the $2.0 million revolving credit facility, which remained unused
as of March 31, 2008 and terminates in June 2009, our $3.0 million capital
expenditure facility and our cash flow from operations should be sufficient
to
enable us to satisfy our cash requirements at least through the end of fiscal
2009, it is possible that we may require additional funds. In the event that
we
make an acquisition, we may require additional financing for the acquisition.
However, we do not have any current plans for any acquisition, and we cannot
give any assurance that we will make any acquisition. We have no commitment
from
any party for additional funds; however, the terms of our agreement with Barron
Partners, particularly Barron Partners’ right of first refusal, may impair our
ability to raise capital in the equity markets since potential investors are
often reluctant to negotiate a financing when another party has a right to
match
the terms of the financing.
On
December 7, 2007, Ranor acquired all the equipment Vertex Tool and Die, Inc
for
$150,000 and assumed Vertex’s real property lease obligation. The current lease
expires on August 31, 2009, and Ranor has the option to extend the lease for
an
additional term of five years.
We
contemplate that we will expand our business during the next twelve months.
Although we may use the bank facilities for this purpose, we may require
additional financing as well. We can give no assurance that any necessary
financing will be available.
-
22 -
BUSINESS
Our
Business
Through
our wholly-owned subsidiary, Ranor, Inc., we manufacture metal fabricated and
machined precision components and equipment. These products are used in a
variety of markets including: alternative energy, medical, nuclear, defense,
industrial, and aerospace. Our goal is to be an end-to-end service provider
to
our customers by furnishing customized and integrated “turn-key” solutions for
completed products requiring custom fabrication and machining, assembly,
inspection and testing.
We
work
with our customers to manufacture products in accordance with the customers’
drawings and specifications. Our work complies with specific national and
international codes and standards applicable to our industry. We believe that
we
have earned our reputation through outstanding technical expertise, attention
to
detail, and a total commitment to quality and excellence in customer
service.
About
Us
We
are a
Delaware corporation, organized in 2005 under the name Lounsberry Holdings
II,
Inc. On February 24, 2006, we acquired all of the issued and outstanding capital
stock of Ranor, Inc., a Delaware corporation that, together with its
predecessors, has been in continuous operations since 1956. Since February
24,
2006, our sole business has been the business of Ranor. On March 6, 2006,
following the acquisition of Ranor, we changed our corporate name to
Techprecision Corporation. Our acquisition of Ranor is accounted for as a
reverse acquisition. As a result, our financial statements for periods prior
to
February 24, 2006 reflect the financial condition and results of operations
of
Ranor.
Our
executive offices are located at Bella Drive, Westminster, MA 01473, telephone
(978) 874-0591. Our website is www.techprecision.com.
Information on our website or any other website is not part of this
prospectus.
General
Our
operations are situated on approximately 63 acres in North Central
Massachusetts. Our 136,000 square foot facility is the home for state-of-the-art
equipment with the ability to manufacture products as large as 100 tons. We
offer a full range of services required to transform raw material into precise
finished products. Our manufacturing capabilities include: fabrication
operations - cutting, press and roll forming, assembly, welding, heat treating,
blasting and painting; and machining operations - CNC (computer numerical
controlled) horizontal and vertical milling centers. We also provide support
services to our manufacturing capabilities: manufacturing engineering (planning,
fixture and tooling development, manufacturability), quality control (inspection
and testing), and production control (scheduling, project management and
expediting).
All
manufacturing is done in accordance with our written quality assurance program,
which meets specific national and international codes, standards, and
specifications. Ranor holds several certificates of authorization issued by
the
American Society of Mechanical Engineers and the National Board of Boiler and
Pressure Vessel Inspectors. The standards used are specific to the customer’s
needs, and we have implemented such standards into our manufacturing
operations.
Products
We
manufacture a wide variety of products pursuant to customer contracts. We
manufacture products based on our customer’s needs. We do not distribute
products on the open market. We do not market any typical product on an on-going
basis. Although our focus is to provide long-term integrated solutions to our
customers on continuous production programs, our activities include a variety
of
both custom-based and production-based requirements. The custom-based work
is
typically either prototype or unique, one-of-a-kind product. The
production-based work is repeat work or a single product with multiple quantity
releases. The products provided are not designed by us, in general, and are
manufactured according to “build-to-print” requirements specified by the
customer.
The
change in market demand can be wide and varied and requires our ability to
adapt
to the needs of the customer and industry. We are able to transform our
workforce to manufacture products for customers in different
industries.
-
23 -
We
do not
own any proprietary product marketed, and we do not manufacture products in
anticipation of orders. Manufacturing operations do not commence on any project
without a customer’s purchase order. All contracts cover specific product within
the capability of our resources.
Examples
of the industries we serve and the products that we have manufactured during
recent years include, but are not limited to:
Alternative
Energy:
Proprietary
solar product
Wind
turbine components
Medical:
Proton
beam accelerators for cancer treatment
Nuclear:
Commercial
reactor internal components and temporary heads
Spent
fuel storage and transportation canisters and casks
Material
handling equipment
Defense:
Aircraft
carrier steam accumulator tanks
DDX
destroyer prototype propulsion equipment, gun and weapons handling
equipment
Submarine
sonar system components, primary shield tank heads and foundations
Industrial:
Vacuum
chambers
Food
processing equipment
Chemical
processing equipment
Pressure
vessels
Aerospace:
Delta
rocket precision-machined fuel tank bulkheads
F-15
special equipment pods
Various
other components, fixtures and tooling
Source
of Supply
Manufacturing
operations are partly dependent on the availability of raw material. Raw
material requirements vary with each contract and are specified by the customer
requirements and specifications. We have established relationships with numerous
suppliers. We seek to initiate new contacts in order to establish alternate
sources of material supply to reduce our dependency on any one supplier. The
purchase of raw material is subject to the customer’s purchase order
requirements, and not based on speculation or long-term contract awards. Some
contracts require the use of customer supplied materials in the manufacture
of
their product.
Our
projects include the manufacturing of product of various traditional, as well
as
specialty metal alloys. These materials may include, but not be limited to:
inconel, titanium, stainless steel, high strength steel and other alloys.
Certain materials are subject to long-lead delivery schedules (based on their
alloy composition).
During
the year ended March 31, 2008 the following suppliers accounted for 10% or
more
of our purchased material in the fiscal year: Brighton Tru-Edge Heads, which
provided pressure vessel heads, - 26%; Scot Forge Co., which provided forging
services, - 13%; and Steel Industries Acquisition, Inc., which provided steel,
-
12%. No other suppliers exceeded 10% of our purchases of raw
material.
-
24 -
Marketing
We
maintain an active marketing and sales department both in-house and an
independent sales representative. We market to our existing customer base and
we
initiate contacts with new potential customers through various sources such
as
personal contact and trade show participation. A portion of our business is
the
result of competitive bidding work while a significant portion is from contract
negotiation. We believe that the reputation we have earned from our current
customers represents an important aspect of our marketing effort.
Requests
for quotations received from customers are reviewed to determine the specific
requirements and our capability to meet these requirements. Quotations are
prepared by estimating the material and labor costs and assessing our current
backlog to determine our delivery commitments. Competitive bid quotations are
submitted to the customer for review and award of contract. Negotiation bids
typically require the submission of additional information to substantiate
the
quotation. The bidding process can range from several weeks for a competitive
bid, to several months for a negotiation bid before the customer awards a
contract.
Principal
Customers
A
significant portion of our business is generated by a small number of “major”
customers. The balance is made of numerous additional customers in our customer
base. As the industry and markets change, our major customers may also
change.
Currently,
our largest customer, in the three months ended June 30, 2008 and the years
ending March 31, 2008 and 2007 is GT Solar Inc. Revenue from this customer
constituted 69% of our revenue for the three months ended June 30, 2008 and
51%
of the revenue for the year ended March 31, 2008. Our business is dependent
on
the purchase orders received from our customers for work, and at this time
we do
not have any long-term contracts with any customer. Our customer base consists
of many businesses in the markets identified above.
The
following table sets forth the revenue, both in dollars and as a percentage
of
total revenue, generated by each customer that accounted for 10% or more of
our
revenue in the three months ended June 30, 2008 or the year ended March 31,
2007
(dollars in thousands):
|
Three
Months Ended June 30,
|
Year
Ended March 31,
|
|||||||||||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||
|
Dollars
|
%
|
|
|
Dollars
|
|
%
|
|
Dollars
|
%
|
Dollars
|
%
|
|||||||||||||||||
|
GT
Solar, Inc.
|
$
|
8,046
|
69
|
%
|
$
|
2,536
|
39
|
%
|
$
|
16,143
|
51
|
%
|
$
|
3,407
|
18
|
%
|
||||||||||||
|
BAE
Systems
|
1,553
|
13
|
%
|
1,259
|
19
|
%
|
5,434
|
17
|
%
|
130
|
1
|
%
|
||||||||||||||||
In
addition, during the year ended March 31, 2007, two other customers accounted
for 10% or more of our revenue. General Dynamics Electric Boat accounted for
revenue of $2,587,000, or 14% of revenue, and Essco/L3 Communications accounted
for revenue of $2,415,000, or 13% of revenue.
GT
Solar
is an alternative energy company that engaged us to provide a component for
its
proprietary solar related product.
BAE
Systems is a major defense contractor that engaged us to provide fabrication
and
machining services for military components constructed of large exotic alloy
forgings and ancillary equipment.
General
Dynamics Electric Boat is a major defense contractor that engaged us for the
fabrication, machining and assembly of a number of components for a classified
project for the United States Navy.
Essco/L3
Communications is a company that engaged us in the fabrication, machining and
assembly of several components for a classified project for the Air
Force.
For
each
of these customers, the manufacturing of the product and the generation of
revenue is from the purchase orders issued to us for completion of the different
aspects of the projects.
As
of
June 30, 2008, we had a backlog of firm orders totaling approximately $52.8
million. We anticipate that a significant amount of this backlog will be
shipped during the year ended March 31, 2009 and the remainder in the year
ended
March 31, 2010. The backlog includes orders for more than $1.0 million from four
three customers, in addition to GT Solar, which accounts for approximately
80%
of our backlog.
-
25 -
Competition
In
the
manufacture of metal fabricated and machined precision components and equipment
we have competition from both domestic and foreign manufacturers. As no one
company dominates the industry, we compete against companies that are both
larger and smaller in size and capacity. Some may be better known with greater
resources at their disposal, and some have lower production costs. For certain
products, being a domestic manufacturer may be a factor. For other products,
we
may be undercut by foreign manufacturers who have a lower cost of production.
If
a contracting party has a relationship with a vendor and is required to place
a
contract for bids, the preferred vendor may provide or assist in the development
of the specification for the product which may be tailored to that vendor’s
products. In such event, we would be at a disadvantage in seeking to obtain
that
contract. We believe that customers focus on such factors as the quality of
work, the reputation of the vendor, the perception of the vendor’s ability to
meet the required schedule, and the price in selecting a vendor for their
products.
Government
Regulations
Although
we do not have any contracts with government agencies, some of our manufacturing
services are provided as a subcontractor to a government contractor. As a
result, the prime contractors subject to government procurement and acquisition
regulations, which give the government the right of termination for the
convenience of the government and certain renegotiation rights as well as a
right of inspection. As a result, any government action which affects our
customers would affect us. Some of the work we perform for our customers is
part
of government appropriation packages, and therefore, subject to the Miller
Act,
requiring the prime contractors (our customers) to pay all subcontractors under
contracted purchase agreements first. Because of the nature and use of our
products, we are subject to compliance with quality assurance programs, which
are a condition for our bidding on government contracts and subcontracts. We
believe we are in compliance with these programs.
We
are
also subject to laws applicable to any manufacturing company, such as federal
and state occupational health and safety laws, as well as environmental laws,
which are discussed in under “Environmental Compliance.”
Environmental
Compliance
We
are
subject to compliance with federal, state and local environmental laws and
regulations that involve the use, disposal and cleanup of substances regulated
by those laws and the filing of reports with environmental agencies, and we
are
subject to periodic inspections to monitor our compliance.
During
the past three fiscal years, we have not been in full compliance with applicable
environmental regulations. Some failures of compliance resulted from the failure
of Ranor to perform necessary remediation prior to our acquisition of Ranor.
Others resulted from our failure to file required reports. We have completed
the
remediation and we believe that we are in compliance with applicable
environmental regulations. Our costs incurred as a result of our failure to
comply with applicable environmental laws and regulations was $106,000 in
the year ended March 31, 2008, $50,000 for the year ended March 31, 2007, and
$87,000 for the year ended March 31, 2006.
We
believe that we are currently in compliance with applicable environmental
regulations. As part of our normal business practice we are required to develop
and file reports and maintain logbooks that document all environmental issues
within our organization. In this connection, we may engage outside consultants
to assist us in keeping current on developments in environmental regulations.
We
do not believe that our cost of compliance on an annual basis will exceed
$50,000.
Intellectual
Property Rights
We
have
no patent rights. In the course of our business we develop know-how for use
in
the manufacturing process. Although we have non-disclosure policies, we cannot
assure you that we will be able to protect our intellectual property rights.
We
do not believe that our business requires patent or similar protection. Because
of the nature of our business as a contract manufacturer, we do not believe
that
lack of ownership of intellectual property will adversely affect our
operations.
Research
and Development
We
did
not incur any research and development expenses, either on our own behalf or
on
behalf of our customers, during the three months ended June 30, 2008 or the
year
ended March 31, 2008 or 2007.
-
26 -
Personnel
As
of
June 30, 2008, we had 148 employees, of whom 19 are administrative, nine are
engineering and 120 are manufacturing personnel. All of our employees are full
time. None of our employees is represented by a labor union, and we believe
that
our employee relations are good.
We
lease
from WM Realty Management, LLC, which is an affiliated company, an approximately
136,000-square foot office and manufacturing facility at Bella Drive,
Westminster, Massachusetts 01473, pursuant to a 15-year lease that expires
February 28, 2021, at a current annual rental of $450,000, subject to annual
escalations based upon increases in the consumer price index. The lease provides
for two five-year extensions and a purchase option at appraised
value.
We
also
lease approximately 12,720 square feet of manufacturing space in Fitchburg,
Massachusetts from an unaffiliated party. The lease provides for an annual
rent
of $50,112 with 3% annual increases. The lease expires in February 2009, and
is
renewable for a five year term. We have the option to purchase the property
at
the appraised market value.
Although
our current facilities are adequate for present requirements, we believe that
we
may need to expand our manufacturing facilities in order for us to expand our
business. However, as of the date of this prospectus, we have not entered into
agreements with respect to the expansion of our facilities.
MANAGEMENT
Directors
and Executive Officers
The
following table sets forth certain information concerning our directors and
executive officers.
|
Name
|
|
Age
|
|
Position
|
||
|
James
G. Reindl
|
|
49
|
|
Chairman
and chief executive officer
|
||
|
Mary
Desmond
|
|
44
|
|
Chief
financial officer and secretary
|
||
|
Stanley
A. Youtt
|
|
62
|
|
Director
and chief executive officer of Ranor
|
||
|
Michael
R. Holly 1
|
|
62
|
|
Director
|
||
|
Larry
A. Steinbrueck 1
|
|
56
|
|
Director
|
||
|
Louis
A. Winoski 1
|
|
49
|
|
Director
|
||
|
|
|
|
|
|||
|
(1)
|
Member
of the audit and compensation
committees.
|
||||||
James
G.
Reindl has been a director, chairman and chief executive officer since February
2006. From 2002 until January 2007, Mr. Reindl was president of TechPrecision,
LLC, a company that was formed in 2002 to acquire, manage and develop smaller
to
mid-sized companies in the aerospace, military and precision manufacturing
industry sectors. Mr. Reindl received his Bachelor of Science degree in
mechanical aerospace engineering from the University of Delaware.
Mary
Desmond has been our chief financial officer since February 2006, and she has
been the chief financial officer of Ranor since 1998. Ms. Desmond obtained
her
Bachelor of Science degree in accounting from Franklin Pierce College and she
received her Masters of Business (MBA) from Fitchburg State
College.
Stanley
A. Youtt has been a director since February 2006, and he has been chief
executive officer of Ranor since 2000. Mr. Youtt received a Bachelor of Science
degree in naval architecture and marine engineering from the University of
Michigan and Masters Degree in civil engineering (applied mechanics) from the
University of Connecticut.
Michael
R. Holly has been a director since March 2006. Since 2004, Mr. Holly has been
a
private investor and consultant. From 1996 until 2004, Mr. Holly was managing
director of Safeguard International Fund, L.P., a private equity fund of which
Mr. Holly is a founding partner. Mr. Holly has a Bachelor of Science degree
in
economics from Mount St. Mary’s College.
Larry
R.
Steinbrueck has been a director since March 2006. Since 1991, Mr. Steinbrueck
has been president of MidWest Capital Group, an investment banking firm. Mr.
Steinbrueck has a Bachelor of Science degree in business and a Masters in
Business Administration from the University of Missouri.
-
27 -
Louis
A.
Winoski has been a director since March 2006. Since 2002, Mr. Winoski has been
managing partner of Homeric Partners, LLC, a management consulting business.
Mr.
Winoski has a Bachelor of Science degree in industrial and systems management
engineering from Pennsylvania State University.
Our
directors are elected for a term of one year. None of our officers and directors
are related.
Board
Committees
The
board
of directors has two committees, the audit committee and the compensation
committee. Michael Holly, Larry Steinbrueck and Louis Winoski, each of whom
is
an independent director, are the members of both committees. Mr. Holly is the
audit committee financial expert and chairman of the audit committee and Mr.
Winoski is chairman of the compensation committee.
Code
of Ethics
Our
board
of directors has adopted a code of business conduct and ethics for its officers
and employees.
Section
16(a) Compliance
Section
16(a) of the Securities Exchange Act of 1934, requires our directors, executive
officers and persons who own more than 10% of our common stock to file with
the
SEC initial reports of ownership and reports of changes in ownership of common
stock and other of our equity securities.
SUMMARY
COMPENSATION
TABLE
Set
forth
below is information for the years ended March 31, 2008 and 2007 for our chief
executive officer, the chief executive officer of Ranor and our chief financial
officer. No other officer received compensation of more than $100,000 for the
year ended March 31, 2008.
|
Name
and Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
All
Other
Compensation
|
Total
|
|||||||||||||||
|
James
G. Reindl,
chief
executive officer
|
2008
2007
|
$
|
160,000
24,615
|
$
|
—
—
|
$
|
—
—
|
$
|
—
—
|
$
|
—
75,000
|
$
|
160,000
99,615
|
|||||||||
|
Stanley
A. Youtt,
chief
executive officer –
Ranor
|
2008
2007
|
198,016
198,016
|
—
—
|
—
—
|
—
—
|
—
—
|
198,016
198,016
|
|||||||||||||||
|
Mary
Desmond,
chief
financial officer
|
2008
2007
|
103,846
89,870
|
5,000
—
|
855
—
|
—
—
|
—
—
|
109,701
89,870
|
|||||||||||||||
Other
compensation for Mr. Reindl in the year ended March 31, 2007 represents the
amounts paid by us to TechPrecision, LLC, a company in which Mr. Reindl was
president, during the months of February through December 2006. During this
period, we had a management contract with TechPrecision, LLC, pursuant to which
TechPrecision LLC provided the services of Mr. Reindl as our chief executive
officer and we did not pay any compensation directly to Mr. Reindl. Commencing
January 2007, Mr. Reindl’s sole compensation was paid by us, and he did not
receive any compensation through TechPrecision LLC. The total payments to
TechPrecision LLC were $55,000 during the year ended March 31, 2008 and $185,000
during the year ended March 31, 2007. The other members are Andrew A. Levy,
a
major stockholder, and Martin M. Daube.
We
also
reimbursed Mr. Reindl for his travel expenses from his home to our offices
in
Westminster, Massachusetts, which were $24,827 for the year ended March 31,
2008 and $29,039 for the year ended March 31, 2007.
In
April
2007, we granted Ms. Desmond 3,000 shares of common stock and an option to
purchase 25,000 shares of common stock at $.285, being the fair value on the
date of grant.
-
28 -
Employment
Agreements
We
have
employment agreements with Mr. Reindl, Mr. Youtt, and Ms. Desmond.
In
February 2006, contemporaneously with our acquisition of Ranor, Ranor entered
into an employment agreement with Stanley A. Youtt pursuant to which he would
serve as our chief executive officer for a term of three year term ending on
February 28, 2009. Pursuant to the agreement, we pay Mr. Youtt salary at the
annual rate of $200,000. Mr. Youtt is also eligible for performance bonuses
based on financial performance criteria set by the board. In the event that
we
terminate Mr. Youtt’s employment without cause, we are required to make a
lump-sum payment to him equal to his base compensation for the balance of the
term and to provide the insurance coverage that we would provide if he remained
employed.
On
June
19, 2007, we entered into an employment agreement dated as of April 1, 2007
with
James G. Reindl, our chief executive officer. Pursuant to the terms of the
agreement, we will employ Mr. Reindl for an initial term commencing April 1,
2007 and expiring on March 31, 2009 and continuing on a year-to-year basis
thereafter unless terminated by either party on 90 days’ written notice prior to
the expiration of the initial term or any one-year extension. Mr. Reindl is
to
receive an annual base salary of $160,000 a year. Mr. Reindl is also entitled
to
receive an increase to his base salary and receive certain bonus compensation,
stock options or other equity-based incentives at the discretion of the
compensation committee of the board of directors and reimbursement of his
commuting expenses. The agreement may be terminated by us with or without cause
or by Mr. Reindl’s resignation. If we terminate the agreement without cause, we
are to pay Mr. Reindl severance pay equal to his salary for the balance of
the
term plus the amount of his bonus for the prior year. During the term of his
employment and for a period thereafter, Mr. Reindl will be subject to
non-competition and non-solicitation provisions, subject to standard
exceptions.
On
June
19, 2007, we entered into an employment contract with Mary Desmond, our Chief
Financial Officer, dated retroactively to April 1, 2007. Pursuant to the terms
of this agreement, the Company is employing Ms. Desmond for an initial term
commencing April 1, 2007 and expiring March 31, 2009 and continuing on a
year-to-year basis thereafter unless terminated by either party on 90 days
written notice prior to the expiration of the initial term or any one-year
extension. Ms. Desmond is to receive an annual salary of $110,000 a year. Ms.
Desmond is also entitled to receive an increase to her base salary and receive
certain bonus compensation, stock options or other equity based incentives
at
the discretion of the compensation committee of the board of directors. The
agreement may be terminated by us with or without cause or by Ms. Desmond’s
resignation. If the Company terminates the agreement without cause, the Company
is to pay Ms. Desmond severance pay equal to her salary for the balance of
the
term plus the amount of her bonus received in the prior year. During the term
of
her employment and for a period thereafter, Ms. Desmond will be subject to
non-competition and non-solicitation provisions, subject to standard
exceptions.
Directors’
Compensation
Commencing
with the year ending March 31, 2007, we pay our independent directors a fee
of
$2,000 per meeting. In addition, our 2006 long-term incentive plan provides
for
the grant of non-qualified options to purchase 50,000 shares, exercisable in
installments, to each newly elected independent director and annual grants
of
options to purchase 5,000 shares of common stock commencing with the third
with
year of service as a director, as described under “2006 Long-Term Incentive
Plan.”
2006
Long-Term Incentive Plan
In
February 2006, our board of directors adopted, and in July 2006 it amended,
and
in October 2006, our stockholders approved, the 2006 long-term incentive plan
covering 1,000,000 shares of common stock. 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 2006 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 board of directors. Independent
directors are not eligible for discretionary options. As initially adopted,
each
newly elected independent director received at the time of his election, a
five-year option to purchase 25,000 shares of common stock at the market price
on the date of his or her election. Pursuant to the amendment to the plan,
the
number of shares subject to the initial option grant was increased to 50,000
shares, with the option being exercisable as to 30,000 shares in July 2006
and
as to 10,000 shares in each of February 2007 and 2008. In addition, the plan
provides for the annual grant of an option to purchase 5,000 shares of common
stock on July 1st of each year, commencing July 1, 2009. For each independent
director who is elected after July 31, 2006, the director will receive an option
to purchase 50,000 shares at an exercise price equal to the fair market value
on
the date of his or her election. The option vest as to 30,000 shares nine months
from the date of grant and as 10,000 shares on each of the first and second
anniversaries of the date of grant. These directors will receive an annual
grant
of an option to purchase 5,000 shares of common stock on the July 1st coincident
with or following the third anniversary of the date of his or her first
election. Pursuant to the plan, we granted non-qualified stock options to
purchase 50,000 shares of common stock to our three independent directors -
Michael Holly, Larry Steinbrueck and Louis Winoski - at an exercise price of
$.285 per share, which was determined to be the fair market value on the date
of
grant. On April 1, 2006, we granted incentive stock options to purchase a total
of 221,659 shares of common stock to our key employees, including Mary Desmond,
our chief financial officer, who received an option to purchase 25,000 shares.
The options are immediately exercisable at an exercise price of $.285 per share,
which the compensation committee determined to be the fair market value on
the
date of grant.
-
29 -
Options
intended to be incentive stock options must be granted at an exercise price
per
share which is not less than the fair market value of the common stock on the
date of grant and may have a term which is not longer than ten years. If the
option holder holds 10% of our common stock, the exercise price must be at
least
110% of the fair market value on the date of grant and the term of the option
cannot exceed five years.
Option
holders do not recognize taxable income on the grant of such either incentive
or
non-qualified stock options. When employees exercise incentive stock options,
they will not recognize taxable income upon exercise of the option, although
the
difference between the exercise price and the fair market value of the common
stock on the date of exercise is included in income for purposes of computing
their alternative minimum tax liability, if any. If certain holding period
requirements are met, their gain or loss on a subsequent sale of the stock
will
be taxed at capital gain rates. Generally, long-term capital gains rates will
apply to their full gain at the time of the sale of the stock, provided that
they do not dispose of the stock made within two years from the date of grant
of
the option or within one year after your acquisition of such stock, and the
option is exercised while they are employed by us or within three months of
the
termination of their employment or one year in the event of death or disability,
as defined in the Internal Revenue Code.
In
general, upon the exercise of a non-qualified option, the option holder will
recognize ordinary income in an amount equal to the difference between the
exercise price of the option and the fair market value of the shares on the
date
they exercise the option. Subject to certain limitations, we may deduct that
amount an expense for federal income tax purposes. In general, when the holders
of shares issued on exercise of a nonqualified stock option sell their shares,
any profit or loss is short-term or long-term capital gain or loss, depending
upon the holding period for the shares and their basis in the shares will be
the
fair market value on the date of exercise.
As
of
July 31, 2008, there were outstanding options to purchase 150,000 shares which
we issued to our independent directors pursuant to provision of the 2006 Plan
that provide for the automatic grant of options to independent directors, and
outstanding options to purchase 211,660 shares of common stock which were
granted to employees on April 1, 2007, of which options to purchase 25,000
shares were granted to Ms. Desmond. Except for the options granted to Ms.
Desmond on April 1, 2007, no options were granted to any of the individuals
named in the summary compensation table. We also issued a warrant to purchase
112,500 shares of common stock to an investor relations firm. All outstanding
options have an exercise price of $.285, which was determined to be the fair
market value on the date of grant, and the warrant has an exercise price of
$1.40.
At
June
30, 2008, Ms. Desmond held on option to purchase 25,000 shares of common stock
at $0.285 per share. No other person named in the summary compensation table
held any options or stock appreciation rights.
PRINCIPAL
STOCKHOLDERS
The
following table provides information as to shares of common stock beneficially
owned as of July 31, 2008 by:
|
|
·
|
each
director;
|
|
|
·
|
each
officer named in the summary compensation
table;
|
|
|
·
|
each
person owning of record or known by us, based on information provided
to
us by the persons named below, to own beneficially at least 5% of
our
common stock; and
|
|
|
·
|
all
directors and officers as a group.
|
|
Name
|
Shares
|
Percentage
|
|||||
|
James
G. Reindl
Bella
Drive
Westminster,
MA 01473
|
2,587,100
|
18.9
|
%
|
||||
|
Andrew
A. Levy
46
Baldwin Farms North
Greenwich,
CT 06831
|
2,382,100
|
17.4
|
%
|
||||
|
Howard
Weingrow
805
Third Avenue
New
York, NY 10022
|
1,850,000
|
13.5
|
%
|
||||
-
30 -
|
Name
|
Shares
|
Percentage
|
|||||
|
Stanoff
Corporation
805
Third Avenue
New
York, NY 10022
|
1,700,000
|
12.4
|
%
|
||||
|
Stanley
A. Youtt
Bella
Drive
Westminster,
MA 01473
|
1,592,000
|
11.6
|
%
|
||||
|
Larry
Steinbrueck
|
254,000
|
1.8
|
%
|
||||
|
Michael
Holly
|
135,000
|
*
|
|||||
|
Louis
A. Winoski
|
50,000
|
*
|
|||||
|
Mary
Desmond
|
38,000
|
*
|
|||||
|
All
officers and directors as a group (six individuals)
|
4,656,100
|
33.6
|
%
|
* Less
than
1%
Except
as
otherwise indicated each person has the sole power to vote and dispose of all
shares of common stock listed opposite his name. Each person is deemed to own
beneficially shares of common stock which are issuable upon exercise or warrants
or options or upon conversion of convertible securities if they are exercisable
or convertible within 60 days of June 30, 2008.
Howard
Weingrow, as president of Stanoff Corporation, has voting and dispositive
control over the shares owned by Stanoff Corporation. Because Mr. Weingrow
has
voting and dispositive control over the shares owned by Stanoff, the shares
owned by Stanoff are deemed to be beneficially owned by Mr. Weingrow. Thus,
the
number of shares beneficially owned by Mr. Weingrow includes the 1,700,000
shares owned by Stanoff Corporation and the 150,000 shares owned by Mr. Weingrow
individually.
The
shares owned by Mr. Steinbrueck, Mr. Holly and Mr. Winoski include shares of
common stock issuable upon exercise of currently exercisable options to purchase
50,000 shares of common stock which are held by each of them. The shares owned
by Ms. Desmond include 25,000 shares issued upon exercise of
options.
Barron
Partners owns shares of series A preferred stock and warrants which, if fully
converted or exercised, would result in ownership of more than 4.9% of our
outstanding common stock. However, the series A preferred stock may not be
converted and the warrants may not be exercised if such conversion would result
in Barron Partners owning more than 4.9% of our outstanding common stock. The
applicable instruments provide that this limitation may not be waived. As a
result, Barron Partners does not beneficially own 5% or more of our common
stock.
Mr.
Reindl, Mr. Levy and Mr. Daube may be deemed to be our founders.
We
lease
our facilities in Westminster, Massachusetts from WM Realty Management, which
is
controlled by Andrew A. Levy, a principal stockholder. We currently pay an
annual rental of $450,000, which is subject to increase based on increases
in
the cost of living index. We also have a right to purchase the property at
fair
market value.
We
are
authorized to issue 90,000,000 shares of common stock, par value $.0001 per
share, and 10,000,000 shares of preferred stock, par value $.0001 per share.
As
of July 31,
2008,
we
had we 13,868,995 shares of common stock and 6,324,979 shares of series A
preferred stock outstanding.
The
following summary of certain provisions of our common stock, preferred stock,
certificate of incorporation and by-laws is not intended to be complete. It
is
qualified by reference to the provisions of our certificate of incorporation
and
by-laws.
-
31 -
Common
Stock
Holders
of common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of common stock are entitled to receive proportionately any
dividends as may be declared by our board of directors, subject to any
preferential dividend rights of outstanding preferred stock. Pursuant to the
certificate of designation relating to the series A preferred stock, we are
prohibited from paying dividends on our common stock while the preferred stock
is outstanding. Upon our liquidation, dissolution or winding up, the holders
of
common stock are entitled to receive proportionately our net assets available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to, and may
be
adversely affected by, the rights of the holders of shares of any series of
preferred stock that we may designate and issue in the future.
Preferred
Stock
Our
certificate of incorporation gives our board of directors the power to issue
shares of preferred stock in one or more series without stockholder approval.
Our board of directors has the discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, of each
series of preferred stock. The purpose of authorizing our board of directors
to
issue preferred stock and determine its rights and preferences is to eliminate
delays associated with a stockholder vote on specific issuances. The issuance
of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or could discourage
a
third party from acquiring, a majority of our outstanding voting stock. Except
for the series A preferred stock, we have no present plans to issue any shares
of preferred stock. Our certificate of incorporation includes a provision which
states that any rights, options and warrants may provide that any or all of
such
terms and conditions may not be waived or amended or may be waived or amended
only with the consent of the holders of a designated percentage of a designated
class or classes of our capital stock (or a designated group or groups of
holders within such class or classes, including but not limited to disinterested
holders), and the applicable terms and conditions of any such rights, options
or
warrants so conditioned may not be waived or amended or may not be waived or
amended absent such consent. This relates to the terms of the warrants that
provide that the 4.9% limitation on the number of shares of common stock that
a
warrant holder may beneficially own may not be amended.
Series
A Preferred Stock
The
certificate of designation for the series A preferred stock provides
that:
|
|
·
|
Each
share of series A preferred stock is convertible into 1.3072 shares
of
common stock, subject to
adjustment.
|
|
|
·
|
If,
during the period ending February 24, 2009, we issue common stock
at a
price, or options, warrants or other convertible securities with
a
conversion or exercise price less than the conversion price (presently
$0.218025), with certain specified exceptions, the number of shares
issuable upon conversion of one share of series A preferred stock
is
adjusted to reflect a conversion price equal to the lower
price.
|
No
dividends are payable with respect to the series A preferred stock.
While
the
series A preferred stock is outstanding, we may not pay dividends on or redeem
shares of common stock.
Upon
any
voluntary or involuntary liquidation, dissolution or winding-up, the holders
of
the series A preferred stock are entitled to a preference of $0.285 per share
before any distributions or payments may be made with respect to the common
stock or any other class or series of capital stock which is junior to the
series A preferred stock upon voluntary or involuntary liquidation, dissolution
or winding-up.
The
holders of the series A preferred stock have no voting rights. However, so
long
as any shares of series A preferred stock are outstanding, we shall not, without
the affirmative approval of the holders of 75% of the outstanding shares of
series A preferred stock then outstanding, (a) alter or change adversely the
powers, preferences or rights given to the series A preferred stock or alter,
(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 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 preferred stock, (c) amend our 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 preferred stock, or (e) enter into any agreement
with respect to the foregoing.
-
32 -
The
holders of the series A preferred stock may not convert the series A preferred
stock to the extent that such conversion would result in the holders owning
more
than 4.9% of our outstanding common stock. This limitation may not be amended
or
waived; provided, that the limitation does not supply with respect to a change
of control. The shares of series A preferred stock are automatically converted
upon a change of control, as defined in the certificate of
designation.
Delaware
Law and Certain Charter and By-law Provisions
We
are
subject to the provisions of Section 203 of the Delaware General Corporation
Law
statute. Section 203 prohibits a publicly-held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a
period of three years after the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A “business
combination” includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an “interested stockholder” is a person who, together with affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation’s voting stock.
Our
certificate of incorporation contains certain provisions permitted under
Delaware General Corporation Law relating to the liability of directors. The
provisions eliminate a director’s liability for monetary damages for a breach of
fiduciary duty, except in certain circumstances where such liability may not
be
eliminated under applicable law. Further, our certificate of incorporation
contains provisions to indemnify our directors and officers to the fullest
extent permitted by Delaware General Corporation Law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to our directors, officers and controlling persons pursuant to
the
foregoing provisions, or otherwise, we have been advised that in the opinion
of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in said Act and is, therefore, unenforceable.
The
financial statements of Techprecision Corporation at March 31, 2008 and 2007
and
for two years in the period ended March 31, 2008, included in this prospectus
to
the extent and for the periods indicated in its report, have been audited by
Tabriztchi & Co., CPA, P.C., independent registered public accountants, and
are included herein in reliance upon the authority of such firm as an expert
in
accounting and auditing in giving such report.
LEGAL
MATTERS
The
validity of the shares of common stock offered through this prospectus will
be
passed on by Sichenzia Ross Friedman Ference LLP. Asher S. Levitsky P.C. Defined
Benefit Plan owns 39,671 shares of common stock. Asher S. Levitsky P.C. is
of
counsel to Sichenzia Ross Friedman Ference LLP.
HOW
TO GET MORE INFORMATION
We
file
annual, quarter and periodic reports, proxy statements and other information
with the Securities and Exchange Commission using the Commission’s EDGAR system.
You may inspect these documents and copy information from them at the
Commission’s offices at public reference room at 100 F Street, NE, Washington,
D.C. 20549. You may obtain information on the operation of the public reference
room by calling the SEC at 1-800-SEC-0330. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http//www.sec.gov.
We
have
filed a registration statement with the Commission relating to the offering
of
the shares. The registration statement contains information which is not
included in this prospectus. You may inspect or copy the registration statement
at the Commission’s public reference facilities or its website.
You
should rely only on the information contained in this prospectus. We have not
authorized any person to provide you with any information that is
different.
-
33 -
|
|
|
|
Report
of Independent Registered Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheet at March 31, 2008 and 2007
|
F-3
|
|
Consolidated
Statement of Operations for the years ended March 31, 2008 and
2007
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the years ended March 31,
2008 and 2007
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2008 and
2007
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
Consolidated
Balance Sheet at June 30, 2008 (unaudited) and March 31,
2007
|
F-24
|
|
Consolidated
Statement of Operations for the three months ended June 30, 2008
and 2007
(unaudited)
|
F-25
|
|
Consolidated
Statements of Cash Flows for the three months ended March 31, 2008
and
2007 (unaudited)
|
F-26
|
|
Notes
to Unaudited Consolidated Financial Statements
|
F-28
|
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, 2007 and 2008, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the
two years in the period ended March 31, 2008. These financial statements
are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these 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 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 financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Techprecision
Corporation as of March 31, 2008 and 2007, and the consolidated results of
its
operations, changes in stockholders’ equity and cash flows for each of the two
years in the period ended March 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.
/s/
Tabriztchi & Co., CPA, P.C.
Tabriztchi
& Co., CPA, P.C.
Garden
City, New York
June
10,
2008
7
Twelfth
Street Garden City, NY 11530 ¨
Tel:
516-746-4200 ¨
Fax:
516-746-7900
Email:Info@Tabrizcpa.com
¨ www.Tabrizcpa.com
F-2
TECHPRECISION
CORPORATION
MARCH
31,
2008 and 2007
|
2008
|
2007
|
||||||
|
ASSETS
|
|||||||
|
Current
assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
2,852,676
|
$
|
1,443,998
|
|||
|
Accounts
receivable, less allowance for doubtful accounts of
$25,000
|
4,509,336
|
2,701,707
|
|||||
|
Costs
incurred on uncompleted contracts, in excess of progress
billings
|
4,298,683
|
1,266,445
|
|||||
|
Inventories-
raw materials
|
195,506
|
183,498
|
|||||
|
Prepaid
expenses
|
1,039,117
|
270,321
|
|||||
|
Total
current assets
|
12,895,318
|
5,865,969
|
|||||
|
Property,
plant and equipment, net
|
2,810,981
|
2,561,054
|
|||||
|
Deposit
on fixed assets
|
240,000
|
—
|
|||||
|
Deferred
loan cost, net
|
121,692
|
138,718
|
|||||
|
Total
assets
|
$
|
16,067,991
|
$
|
8,565,741
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable
|
$
|
990,533
|
1,298,643
|
||||
|
Accrued
expenses
|
1,480,507
|
498,626
|
|||||
|
Deferred
revenues
|
3,418,898
|
—
|
|||||
|
Loan
from shareholder
|
—
|
60,000
|
|||||
|
Current
maturity of long-term debt
|
613,832
|
610,814
|
|||||
|
Total
current liabilities
|
6,503,770
|
2,468,083
|
|||||
|
LONG-TERM
DEBT
|
|||||||
|
Notes
payable- noncurrent
|
5,404,981
|
6,020,440
|
|||||
|
STOCKHOLDERS’
EQUITY
|
|||||||
|
Preferred
stock- par value $.0001 per share, 10,000,000 shares
|
|||||||
|
authorized,
of which 9,000,000 are designated as Series A Preferred
|
|||||||
|
Stock,
with 7,018,064 shares issued and outstanding at March
31,2008
|
|||||||
|
and
7,752,462 at March 31, 2007.
|
2,542,643
|
2,835,278
|
|||||
|
Common
stock -par value $.0001 per share, authorized,
|
|||||||
|
90,000,000
shares, issued and outstanding, 12,572,995
|
|||||||
|
shares
at March 31, 2008 and 10,049,000 at March 31, 2007
|
1,259
|
1,006
|
|||||
|
Paid
in capital
|
2,624,892
|
1,766,423
|
|||||
|
Accumulated
deficit
|
(1,009,554
|
)
|
(4,525,489
|
)
|
|||
|
Total
stockholders’ equity
|
4,159,240
|
77,218
|
|||||
|
Total
liabilities and stockholders' equity
|
$
|
16,067,991
|
$
|
8,565,741
|
|||
The
accompanying notes are an integral part of the financial
statements.
F-3
|
TECHPRECISION
CORPORATION
|
|
Years
ended March 31,
|
|||||||
|
2008
|
2007
|
||||||
|
Net
sales
|
$
|
31,805,146
|
$
|
19,086,206
|
|||
|
Cost
of sales
|
23,472,922
|
15,543,055
|
|||||
|
Gross
profit
|
8,332,224
|
3,543,151
|
|||||
|
Operating
expenses:
|
|||||||
|
Salaries
and related expenses
|
1,228,316
|
1,208,920
|
|||||
|
Professional
fees
|
291,357
|
498,349
|
|||||
|
Selling,
general and administrative
|
410,886
|
390,290
|
|||||
|
Total
operating expenses
|
1,930,559
|
2,097,559
|
|||||
|
Income
from operations
|
6,401,665
|
1,445,592
|
|||||
|
Other
income (expenses)
|
|||||||
|
Interest
expense
|
(511,615
|
)
|
(628,412
|
)
|
|||
|
Interest
income
|
479
|
2,453
|
|||||
|
Finance
costs
|
(17,026
|
)
|
(289,308
|
)
|
|||
|
Total
other income (expense)
|
(528,162
|
)
|
(915,267
|
)
|
|||
|
Income
(loss) before income taxes
|
5,873,503
|
530,325
|
|||||
|
Provision
for income taxes
|
(2,357,568
|
)
|
(240,100
|
)
|
|||
|
Net
income (loss)
|
3,515,935
|
290,225
|
|||||
|
Deemed
dividend to preferred stockholders
|
—
|
(675,813
|
)
|
||||
|
Net
income (loss) to common stockholders
|
$
|
3,515,935
|
$
|
(385,588
|
)
|
||
|
Net
gain (loss) per share of common stock (basic)
|
$
|
0.32
|
$
|
(0.04
|
)
|
||
|
Net
gain (loss) per share (fully diluted)
|
$
|
0.12
|
$
|
(0.04
|
)
|
||
|
Weighted
average number of shares outstanding (basic)
|
10,896,976
|
10,008,463
|
|||||
|
Weighted
average number of shares outstanding (fully diluted)
|
28,380,980
|
10,008,463
|
|||||
The
accompanying notes are an integral part of the financial
statements.
F-4
TECHPRECISION
CORPORATION
YEARS
ENDED MARCH 31, 2008 AND 2007
|
Additional
|
||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Paid
in
|
Accumulated
|
|||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
|
Balance,
March 31, 2006
|
7,719,250
|
$
|
2,150,000
|
9,967,000
|
$
|
997
|
1,240,821
|
$
|
(4,139,901
|
)
|
$
|
(748,083
|
)
|
|||||||||
|
Issuance
of shares of common stock for services
|
82,000
|
9
|
14,752
|
14,761
|
||||||||||||||||||
|
Grant
of options to directors
|
13,500
|
13,500
|
||||||||||||||||||||
|
Contributed
capital
|
497,350
|
497,350
|
||||||||||||||||||||
|
Deemed
dividend to preferred stockholders
|
675,813
|
(675,813
|
)
|
|||||||||||||||||||
|
Series
A preferred stock issued as liquidated damages
|
33,212
|
9,465
|
9,465
|
|||||||||||||||||||
|
Net
income
|
|
|
|
290,225
|
290,225
|
|||||||||||||||||
|
Balance,
March 31, 2007
|
7,752,462
|
$
|
2,835,278
|
10,049,000
|
$
|
1,006
|
$
|
1,766,423
|
$
|
(4,525,489
|
)
|
$
|
77,218
|
|||||||||
|
|
||||||||||||||||||||||
|
Distribution
WM Realty
|
(111,500
|
)
|
(111,500
|
)
|
||||||||||||||||||
|
Grant
of options
|
11
|
11
|
||||||||||||||||||||
|
Shares
issued for services
|
53,995
|
6
|
19,133
|
19,139
|
||||||||||||||||||
|
Issuance
of common stock on exercise of warrants
|
(45,300
|
)
|
1,510,000
|
151
|
703,586
|
658,437
|
||||||||||||||||
|
Conversion
of preferred stock
|
(734,398
|
)
|
(247,335
|
)
|
960,000
|
96
|
247,239
|
—
|
||||||||||||||
|
Net
income
|
|
|
|
|
|
3,515,935
|
3,515,935
|
|||||||||||||||
|
Balance,
March 31, 2008
|
7,018,064
|
$
|
2,542,643
|
12,572,995
|
$
|
1,259
|
$
|
2,624,892
|
$
|
(1,009,554
|
)
|
$
|
4,159,240
|
|||||||||
The
accompanying notes are an integral part of the financial
statements.
F-5
|
TECHPRECISION
CORPORPORATION
|
||||||
|
Year
Ended March 31,
|
|||||||
|
2008
|
2007
|
||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
|
Net
income (loss)
|
$
|
3,515,935
|
$
|
290,225
|
|||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
|
Depreciation
and amortization
|
483,358
|
722,352
|
|||||
|
Shares
issued for services
|
19,139
|
14,761
|
|||||
|
Issuance
of options
|
11
|
13,500
|
|||||
|
Preferred
stock issued as liquidated damages
|
—
|
9,466
|
|||||
|
Changes
in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(1,807,630
|
)
|
(194,423
|
)
|
|||
|
Inventory
|
(12,007
|
)
|
30,649
|
||||
|
Costs
incurred on uncompleted contracts
|
(5,178,720
|
)
|
(2,565,492
|
)
|
|||
|
Prepaid
expenses
|
(768,797
|
)
|
116,154
|
||||
|
Accounts
payable and accrued expenses
|
673,770
|
544,369
|
|||||
|
Customer
advances
|
5,565,381
|
2,605,636
|
|||||
|
Net
cash provided (used) in operating activities
|
2,490,440
|
1,587,197
|
|||||
|
CASH
FLOW FROM INVESTING ACTIVITIES
|
|||||||
|
Purchases
of property, plant and equipment
|
(716,260
|
)
|
(430,534
|
)
|
|||
|
Deposits
on equipment
|
(240,000
|
)
|
—
|
||||
|
Net
cash used in investing activities
|
(956,260
|
)
|
(430,534
|
)
|
|||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
|
Mortgage
loan
|
—
|
3,200,000
|
|||||
|
Capital
addition (distribution) of WMR equity
|
(111,500
|
)
|
82,500
|
||||
|
Addition
to capital - proceeds of warranty settlement
|
—
|
414,850
|
|||||
|
Issuance
of common stock on exercise of warrants
|
658,437
|
—
|
|||||
|
Payment
of notes
|
(612,439
|
)
|
(3,888,148
|
)
|
|||
|
Increase
in restricted cash
|
—
|
950,000
|
|||||
|
Decrease
in amounts due to former stockholders
|
—
|
(843,600
|
)
|
||||
|
Borrowing
costs
|
—
|
(181,068
|
)
|
||||
|
Increase
(decrease) in loan from stockholder
|
(60,000
|
)
|
60,000
|
||||
|
Net
cash provided by (used in) financing activities
|
(125,502
|
)
|
(205,466
|
)
|
|||
|
Net
increase (decrease) in cash and cash equivalents
|
1,408,678
|
951,197
|
|||||
|
Cash
and cash equivalents, beginning of period
|
1,443,998
|
492,801
|
|||||
|
Cash
and cash equivalents, end of period
|
$
|
2,852,676
|
$
|
1,443,998
|
|||
The
accompanying notes are an integral part of the financial
statements.
F-6
TECHPRECISION
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Continued)
|
|
Years
ended March 31,
|
||||||
|
|
2008
|
2007
|
|||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOWS INFORMATION
|
|
|
|||||
|
Cash
paid during the year for:
|
|||||||
|
Interest
expense
|
$
|
511,614
|
$
|
637,793
|
|||
|
Income
taxes
|
$
|
1,746,184
|
$
|
4,229
|
|||
SUPPLEMENTAL
INFORMATION - NONCASH TRANSACTIONS:
Year
Ended March 31, 2007
The
Company recorded deemed dividends of $388,233 and $287,580 to the preferred
stockholders in the year ended March 31, 2007 because of a reduction in the
conversion price of the series A preferred stock from $.285 to $.24225 resulting
from the Company’s failure to attain a specified level of fully diluted EBITDA
per share for the years ended March 31, 2006 and a further reduction from
$.24225 to $.218025 resulting from our failure to attain a specified level
of
fully-diluted EBITDA for the year ended March 31, 2007. The deemed dividends
increased the preferred stockholders’ equity and reduced the income available to
common stockholders by total amount of $675,813.
Year
Ended March 31, 2008
During
the year ended March 31, 2008, the Company issued 960,000 shares of common
stock
upon conversion of 734,398 shares of series A preferred stock, based on a
conversion ratio of 1.3072 shares of common stock for each share of series
A
preferred stock. The conversion price of each share of common stock was computed
at $0.2180.
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. Techprecision and Ranor are
collectively referred to as the “Company.”
The
Company manufactures metal fabricated and machined precision components and
equipment. These products are used in a variety of markets including the
alternative energy, medical, nuclear, defense, industrial, and aerospace
industries.
NOTE
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation
On
February 24, 2006, Techprecision acquired all stock of Ranor in a transaction
which is accounted for as a recapitalization (reverse acquisition), with
Ranor
being treated as the acquiring company for accounting purposes.
The
accompanying consolidated financial statements include the accounts of the
Company and Ranor as well as a special purpose entity. Intercompany transactions
and balances have been eliminated in consolidation.
Use
of Estimates in the Preparation of Financial Statements
In
preparing financial statements in conformity with generally accepted accounting
principles, 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 financial statements and revenues
and
expenses during the reported period. Actual results could differ from those
estimates.
Fair
Values of Financial 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. The carrying amount reported
in the balance sheet for cash and cash equivalents approximates its fair
values.
The amount of federally insured cash deposits was $100,000 as of March 31,
2008
and March 31, 2007.
The
carrying amount of trade accounts receivable, accounts payable, prepaid and
accrued expenses, and notes payable, as presented in the balance sheet,
approximates fair value.
Accounts
receivable
Trade
accounts receivable are stated at the amount the Company expects to collect.
The
Company maintains 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. If the financial condition of the Company’s customers
were to deteriorate, adversely affecting their ability to make payments,
additional allowances would be required. Based on management’s assessment, the
Company provides for estimated uncollectible amounts through a charge to
earnings and a credit to a valuation allowance. Balances that remain outstanding
after the Company has 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. There was no bad debt expense for the years ended
March
31, 2008 and 2007.
F-8
Inventories
Cost
of
the inventories of raw materials is determined principally by the first-in,
first-out method.
Notes
Payable
The
Company accounts for all note liabilities that are due and payable in one
year
as short-term liabilities.
Long-lived
Assets
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 life
of
the improvement. 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,
7-15 years; buildings, up to 30 years; and leasehold improvements, 10-20
years.
Leases
Operating
leases are charged to operations as paid. Capital leases are capitalized
and
depreciated over the term of the lease. A lease is considered a capital lease
if
there is a favorable buyout clause that would be an inducement for us to
own the
asset.
Convertible
Preferred Stock and Warrants
In
accordance with EITF 00-19, the Company initially measured the fair value
of the
series A preferred stock by the amount of cash that was received for their
issuance. The Company subsequently determined that the convertible preferred
shares and the accompanying warrants were equity instruments under SFAS 150
and
133. Although the Company had unconditional obligation to issue additional
shares of common stock upon conversion of the series A preferred stock if
EBITDA
per share were below the targeted amount, the certificate of designation
relating to the series A preferred stock did not provide that we must issue
shares that are registered pursuant to the Securities Act of 1933, with the
result, pursuant to the certificate of designation, the additional shares
need
not be registered shares. Our preferred stock also met all other conditions
for
the classification as equity instruments. The Company had sufficient number
of
authorized shares, there is no required cash payment or net cash settlement
requirement and the holders of the series A preferred stock had no right
higher
than the common stockholders other than the liquidation preference in the
event
of liquidation of the Company.
The
Company’s warrants were excluded from derivative accounting because they were
indexed to the Company’s own common stock and were classified in stockholders’
equity section according to SFAS 133 paragraph 11(a), under preferred
stock.
As
of
April 1, 2006, the Company was required to reduce the conversion price of
the
series A preferred stock, which resulted in an increase in the number of
shares
of common stock issuable upon conversion of the series A preferred stock
by 15%
because the Company’s EBITDA per share was below the targeted level of $0.06591
per share for the year ended March 31, 2006. On March 31, 2007, the Company
was
required to further reduce the conversion price by an additional 10% because
the
fully-diluted EBITDA per share was below the targeted level of $0.08568 per
share in the year ended March 31, 2007. According to EITF number 00-27,
“Application of issue No. 98-5 to Certain Convertible Instruments,” (EITF 00-27)
we estimated the beneficial effect of the reductions in conversion price
to be
$675,813. The 2,371,336 additional shares of common stock into which the
holders
of the series A preferred stock could obtain, upon conversion of their shares,
were valued at $0.285 per share, which represents the initial conversion
price
of the series A preferred stock and the Company’s estimate of the current fair
value per share of the common stock.
F-9
In
accordance with EITF 98-5, this amount ($675,813) is analogous to a deemed
dividend and recognized as a return to holders of the series A preferred
stock
and is included in the calculation of net loss allocable to common stockholders
and basic and diluted net loss per share of common stock.
The
reductions in the exercise price of the warrants, because of the Company’s fully
diluted EBITDA per share was lower than the targeted amounts for the years
ended
March 31, 2006 and 2007, did not result in any beneficial effect to the warrant
holders because there was no public market for common stock and the exercise
price of the warrants was greater than the Company’s determination of the then
current market price of the common stock.
The
Company issued 33,212 shares of series A preferred stock, valued at $9,465,
or
$0.285 per share, as liquidated damages for its failure to have shares
registered with the Securities and Exchange Commission as required by a
registration rights agreement relating to the February 2006 private placement.
The shares of series A preferred shares were valued at the last cash price
paid
for those shares, which was $.285 per share in February 2006, determined
without
allocating any value to the warrants that were issued with the series A
preferred stock. At the time of issuance, there was no market for the Company’s
common stock or series A preferred stock. According to the final FASB Staff
Position (FSP) No. EITF 00-19-2, “Accounting for Registration Payment
Arrangements,” issued on December 21, 2006, the Company recognized the amount of
liquidated damages of $9,465 as an expense and credited to preferred stock.
The
Company recorded the series A preferred stock to permanent equity in accordance
with the terms of the Abstracts - Appendix D - Topic D-98: Classification
and
Measurement of redeemable Securities.”
Shipping
Costs
Shipping
and handling costs are included in cost of sales in the accompanying
Consolidated Statements of Income for all periods presented.
Selling,
General, and Administrative
Selling
expenses include items such business travel and advertising costs. Advertising
costs are expensed as incurred. General and administrative expenses include
items for Company’s administrative functions and include costs for items such as
office supplies, insurance, telephone and payroll services.
Stock
Based Compensation
Stock-based
compensation represents the cost related to stock-based awards granted to
employees. The Company measures stock-based compensation cost at 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
employee requisite service period. The Company estimates the fair value of
stock
options using a Black-Scholes valuation model. In the year ended March 31,
2007,
the 150,000 options granted to the company directors were evaluated using
Black
Scholes model assuming average volatility of 25%, exercise and stock price
of
$0.285, risk free rate of 5% and the term of 5 years.
Earnings
per Share of Common Stock
Basic
net
income 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, preferred shareholders and other warrants and share-based
compensation were
calculated using the treasury stock method. The weighted average number of
dilutive shares was 17,484,004, in the year ended March 31, 2008. In the
year
ended March 31, 2007, because of the $385,588 loss applicable to common
shareholders, the conversion of preferred shares and exercise of warrants
and
options were anti-dilutive and were not included in the computation of loss
per
share.
F-10
Revenue
Recognition and Costs Incurred
Revenue
and costs are recognized on the units of delivery method. This method recognizes
as revenue the contract price of units of the product delivered during each
period and the costs allocable to the delivered units as the cost of earned
revenue. When the sales agreements provide for separate billing of engineering
services, the revenues for those services are recognized when the services
are
completed. Costs allocable to undelivered units are reported in the balance
sheet as costs incurred on uncompleted contracts. Amounts in excess of agreed
upon contract price for customer directed changes, constructive 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 reasonably estimated. Revisions
in
cost and profit estimates are reflected in the period in which the facts
requiring the revision become known and are estimable. The unit of delivery
method requires the existence of a contract to provide the persuasive evidence
of an arrangement and determinable seller’s price, delivery of the product
and reasonable collection prospects. The Company has written agreements with
the
customers that specify contract prices and delivery terms. The Company
recognizes revenues only when the collection prospects are reasonable.
Adjustments
to cost estimates are made periodically, and losses expected to be incurred
on
contracts in progress are charged to operations in the period such losses
are
determined and are reflected as reductions of the carrying value of the costs
incurred on uncompleted contracts. Costs incurred on uncompleted contracts
consist of labor, overhead, and materials. Work in process is stated at the
lower of cost or market and reflect accrued losses, if required, on uncompleted
contracts.
Advertising
Expenses
Advertising
costs are charged to operations when incurred. Advertising expenses were
$19,000
and $10,832 in 2008 and 2007, respectively.
Income
Taxes
The
Company uses the asset and liability method of financial accounting and
reporting for income taxes required by statement of Financial Accounting
Standards No. 109 (“FAS 109”), “Accounting for Income Taxes.” Under FAS 109,
deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and the amounts recognized for tax purposes.
Temporary
differences giving rise to deferred income taxes consist primarily of the
reporting of losses on uncompleted contracts, the excess of depreciation
for tax
purposes over the amount for financial reporting purposes, and accrued expenses
accounted for differently for financial reporting and tax purposes, and net
operating loss carryforwards.
Variable
Interest Entity
The
Company has consolidated WM Realty, a variable interest entity that entered
into
a sale and leaseback contract with the Company, in 2006, to conform to FASB
Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46).
The Company has also adopted the revision to FIN 46, FIN 46R, which clarified
certain provisions of the original interpretation and exempted certain entities
from its requirements.
Reclassification
Certain
accounts for the year ended March 2007 have been reclassified to conform
to the
current year presentation.
F-11
Recent
Accounting Pronouncements
In
June
2006, FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes”, was
issued, which clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, “Accounting for Income Taxes.” This Interpretation prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. This Interpretation is effective for fiscal years
beginning after December 15, 2006, and earlier application of the provisions
of
this Interpretation is encouraged if the enterprise has not yet issued financial
statements, including interim financial statements, in the period this
Interpretation is adopted. The Company has determined that the FASB
Interpretation 48 does not have a material impact on its financial
statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157 (“SFAS 157”), “Fair Value Measurements,” which defines fair value,
establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurements. SFAS 157 does not require any new fair
value
measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. Earlier adoption is permitted, provided
the
company has not yet issued financial statements, including for interim periods,
for that fiscal year. The Company does not expect the adoption of SFAS 157
will
have a material impact on its consolidated financial position, results of
operations or cash flows.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB
108 provides interpretive guidance on how the effects of prior-year uncorrected
misstatements should be considered when quantifying misstatements in the
current
year financial statements. SAB 108 requires registrants to quantify
misstatements using both an income statement (“rollover”) and balance sheet
(“iron curtain”) approach and evaluate whether either approach results in a
misstatement that, when all relevant quantitative and qualitative factors
are
considered, is material. If prior year errors that had been previously
considered immaterial now are considered material based on either approach,
no
restatement is required so long as management properly applied its previous
approach and all relevant facts and circumstances were considered. If prior
years are not restated, the cumulative effect adjustment is recorded in opening
accumulated earnings as of the beginning of the fiscal year of adoption.
SAB 108
is effective for fiscal years ending after November 15, 2006. The Company
has determined that there will be no impact to the financial statements upon
the
adoption of this bulletin.
On
December 21, 2006, the FASB issued final FASB Staff Position (FSP) No. EITF
00-19-2, Accounting for Registration Payment Arrangements, which addresses
an
issuer’s accounting for registration payment arrangements. This FSP requires
that an entity should recognize and measure a registration payment arrangement
as a separate unit of account from the financial instrument (s) subject to
that
arrangement. This FSP states that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment
arrangement should be separately recognized and measured in accordance with
FASB
Statement No. 5, Accounting for Contingencies. This FSP further specifies
that a
financial instrument subject to a registration payment arrangement should
be
recognized and measured in accordance with other applicable GAAP without
regard
to the contingent obligation to transfer consideration pursuant to the
registration payment arrangement.
This
FSP
is effective immediately for registration payment arrangements and the financial
instruments subject to those arrangements that are entered into or modified
subsequent to December 21, 2006. Otherwise, the guidance in the FSP is effective
for financial statements issued for fiscal years beginning after December
15,
2006, and interim periods within those fiscal years. For registration payment
arrangements and financial instruments subject to those arrangements that
were
entered into prior to December 21, 2006 and that continue to be outstanding
at
the beginning of the period of adoption, the FSP requires retrospective
application. The Company adopted the FSP and accordingly recorded liquidated
damages in the amount of $9,465.
In
February 2007, the FASB issued SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial
Liabilities”
(“SFAS
159”). SFAS 159 provides reporting entities an option to report selected
financial assets, including investment securities designated as available
for
sale, and liabilities, including most insurance contracts, at fair value.
SFAS
159 establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes
for
similar types of assets and liabilities. The
F-12
standard
also requires additional information to aid financial statement users'
understanding of a reporting entity's choice to use fair value on its earnings
and also requires entities to display on the face of the balance sheet the
fair
value of those assets and liabilities for which the reporting entity has
chosen
to measure at fair value. SFAS 159 is effective as of the beginning of a
reporting entity's first fiscal year beginning after November 15, 2007. Early
adoption is permitted as of the beginning of the previous fiscal year provided
the entity makes that choice in the first 120 days of that fiscal year and
also
elects to apply the provisions of SFAS 157. Management has determined that
the
adoption of SFAS 159 will not have a material effect on our financial condition,
results of operations and cash flows.
December
2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling
Interests in Consolidated Financial Statements (an
amendment of Accounting Research Bulletin (ARB 51)) (SFAS No. 160). SFAS
No. 160 amends ARB 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of
a
subsidiary. SFAS No. 160 becomes effective beginning January 1, 2009
and is required to be adopted prospectively, except for the reclassification
of
noncontrolling interests to equity and the recasting of net income (loss)
attributable to both the controlling and noncontrolling interests, which
are
required to be adopted retrospectively. We do not expect the adoption of
SFAS
No. 160 to have a significant impact on our consolidated financial
statements.
NOTE
3.
PROPERTY, PLANT AND EQUIPMENT
As
of
March 31, 2008 and 2007 property, plant and equipment consisted of the
following:
|
2008
|
2007
|
||||||
|
Land
|
$
|
110,113
|
$
|
110,113
|
|||
|
Building
and improvements
|
1,412,730
|
1,290,072
|
|||||
|
Machinery
equipment, furniture and fixtures
|
3,633,833
|
3,040,232
|
|||||
|
Total
property, plant and equipment
|
5,156,676
|
4,440,417
|
|||||
|
Less:
accumulated depreciation
|
(2,345,695
|
)
|
(1,879,363
|
)
|
|||
|
Total
property, plant and equipment, net
|
$
|
2,810,981
|
$
|
2,561,054
|
|||
Depreciation
expense for the years ended March 31, 2008 and 2007 were $466,332 and $426,474,
respectively. Land and buildings (which are owned by WM Realty Management,
LLC -
a consolidated entity under Fin 46 (R)) are collateral for the $3,300,000
Mortgage Loan. Other fixed assets of the Company together with its other
personal properties, are collateral for the Sovereign Bank $4,000,000 secured
loan and line of credit.
NOTE
4.
COSTS INCURRED ON UNCOMPLETED CONTRACTS
The
Company recognizes revenues based upon the units-of-delivery method (see
Note
2). The advance billing and deposits includes down payments for acquisition
of materials and progress payments on contracts. The agreements with the
buyers
of the Company’s products allow the Company to offset the progress payments
against the costs incurred. The following table sets forth information as
to costs incurred on uncompleted contracts as of March 31, 2008 and
2007:
|
2008
|
2007
|
||||||
|
Cost
incurred on uncompleted contracts, beginning balance
|
$
|
5,455,142
|
$
|
2,889,649
|
|||
|
Total
cost incurred on contracts during the year
|
28,651,712
|
18,108,550
|
|||||
|
Less
cost of sales, during the year
|
(23,472,992
|
)
|
(15,543,057
|
)
|
|||
|
Cost
incurred on uncompleted contracts, ending balance
|
$
|
10,633,862
|
$
|
5,455,142
|
|||
|
Billings
on uncompleted contracts, beginning balance
|
$
|
4,188,697
|
$
|
1,593,061
|
|||
|
Plus:
Total billings incurred on contracts, during the year
|
19,956,718
|
9,236,613
|
|||||
|
Less:
Contracts recognized as revenue, during the year
|
(17,810,236
|
)
|
(6,630,977
|
)
|
|||
|
Billings
on uncompleted contracts, ending balance
|
$
|
6,335,179
|
$
|
4,198,697
|
|||
|
Cost
incurred on uncompleted contracts, ending balance
|
$
|
10,633,862
|
$
|
5,455,142
|
|||
|
Billings
on uncompleted contracts, ending balance
|
(6,335,179
|
)
|
(4,198,697
|
)
|
|||
|
Costs
incurred on uncompleted contracts, in excess of progress
billings
|
$
|
4,298,683
|
$
|
1,256,445
|
|||
F-13
As
of
March 31, 2008, the company had deferred revenues totaling $3,418,898. Deferred
revenues represent the customer prepayments on their contracts.
On
March
31, 2008 and 2007, $151,195 and $116,755 of allowance for losses on uncompleted
contracts were recognized, respectively
NOTE
5.
PREPAID EXPENSES
As
of
March 31, 2008 and 2007, the prepaid expenses included the following:
|
|
2008
|
2007
|
|||||
|
Insurance
|
$
|
145,338
|
$
|
137,484
|
|||
|
Real
estate taxes
|
4,438
|
4,387
|
|||||
|
Prepayments
on purchases
|
882,739
|
121,720
|
|||||
|
Equipment
maintenance
|
6,602
|
6,730
|
|||||
|
Total
|
$
|
1,039,117
|
$
|
270,321
|
|||
NOTE
6.
DEFERRED CHARGES
Deferred
charges represent the capitalization of costs incurred in connection with
obtaining the bank loan and building mortgage. These costs are being amortized
over the term of the related debt obligation. Amortization charged to operations
in 2008 and 2007 were $17,026 and $295,978, respectively. As of March 31,
2008
and 2007, deferred charges were as follows:
|
2008
|
2007
|
||||||
|
|
|||||||
|
Deferred
loan costs
|
$
|
150,259
|
$
|
150,259
|
|||
|
Accumulated
amortization
|
(28,567
|
)
|
(11,541
|
)
|
|||
|
Deferred
loan costs, net
|
$
|
121,692
|
$
|
138,718
|
|||
F-14
NOTE
7.
LONG-TERM DEBT
The
following debt obligations, outstanding on March 31, 2008 and 2007:
|
2008
|
2007
|
||||||
|
1.
Long-term debt issued on February 24, 2006:
|
|||||||
|
|
|||||||
|
Sovereign
Bank-Secured Term note payable- 72 month 9% variable term note
with
quarterly principal payments of $142,857 plus interest. Final payment
due
on March 1, 2013
|
$
|
2,817,142
|
$
|
3,428,571
|
|||
|
2.
Long-term mortgage loan issued on October 4, 2006:
|
|||||||
|
Amalgamated
Bank mortgage loan to WM Realty- 10 years, annual interest rate
6.75%,
monthly interest and principal payment $20,955. The amortization
is based
on a 30- year term. WM Realty Management has the right to prepay
the
mortgage note upon payment of a prepayment premium of 5% of the
amount
prepaid if the prepayment is made during the first two years, and
declining to 1% of the amount prepaid if the prepayment is made
during the
ninth or tenth year.
|
3,154,171
|
3,189,087
|
|||||
|
3.
Automobile Loan:
|
|||||||
|
Ford
Motor Credit Company-Note payable secured by a vehicle - payable
in
monthly installments of $552 including interest of 4.9%, commencing
July
20, 2003 through June 20, 2009
|
7,500
|
13,596
|
|||||
|
Total
long-term debt
|
6,018,813
|
6,631,254
|
|||||
|
Principal
payments due within one year
|
613,832
|
610,814
|
|||||
|
Principal
payments due after one year
|
$
|
5,404,981
|
$
|
6,020,440
|
|||
On
February 24, 2006, Ranor entered into a loan and security agreement with
Sovereign Bank. Pursuant to the agreement, the bank has granted Ranor a term
loan of $4,000,000 (“Term Note”) and extended Ranor a line of credit of
$1,000,000, initial interest at 9%. In February 2007, Ranor entered into
an
amendment to the agreement with the bank which (i) reduced the interest rate
on
its increased revolving credit line of $2,000,000 (“Revolving Note’) from prime
plus 1½% to prime plus 1% and (ii) provided for Ranor to borrow up to $500,000
at prime plus 1% in order to finance capital expenditures. Under this capital
expenditures facility, Ranor was able to borrow up to $500,000 until the
February 1, 2008. On November 30, 2007, Ranor and the bank entered into another
amendment to the loan agreement pursuant to which the capital expenditure
line
was increased to $3,000,000, which is available to Ranor until November 30,
2008, and any borrowings under the capital expenditures line are amortized
over
five years, commencing December 1, 2008. The interest on the capital expenditure
loans is equal to the prime plus one half of one percent per annum through
November 30, 2008. After November 2008, the interest is charged on the
outstanding balance of the capital expenditures loan at the annual rate that
the
bank offers to pay for its wholesale liabilities, adjusted for reserve
requirement, plus 2.25% (“Cost of Fund Rate”.) As of March 31, 2008 and 2007
there were no borrowings outstanding under either the revolving line or the
capital expenditure line. Any outstanding principal or accrued interest has
to
be paid off on or before November 2013, the maturity date.
F-15
The
Term
Note is subject to various covenants that include the following: the loan
collateral comprises all personal property of Ranor, including cash, accounts
receivable, inventories, equipment, financial and intangible assets owned
when
the loan is contracted or acquired thereafter; the amount of loan outstanding
at
all times is limited to a borrowing base amount of the Ranor’s qualified
accounts receivable and inventory; there are prepayment penalties of 3%,
2% and
1% of the outstanding principal, in the first, second and third years following
the issuance date, respectively. There is no prepayment penalty thereafter.
Ranor is prohibited from issuing any additional equity interest (except to
existing holders), or redeem, retire, purchase or otherwise acquire for value
any equity interests; Ranor pays an unused credit line fee of 0.25% of the
average unused credit line amount in previous month; the earnings available
to
cover fixed charges are required not to be less than 120% of fixed charges
for
the rolling four quarters, tested at the end of each fiscal quarter; and
interest coverage ratio is required to be not less than 2:1 at the end of
each
fiscal quarter. Ranor’s obligations under the notes to the bank are guaranteed
by Techprecision.
In
connection with the Amalgamated Bank mortgage financing of the real estate
owned
by WM Realty Management LLC, Mr. Andrew Levy executed a limited guarantee.
Pursuant to the limited guaranty, Mr. Levy guaranteed the lender the payment
of
any loss resulting from WM Realty Management’s fraud or misrepresentation in
connection with the loan documents, misapplication of rent and insurance
proceeds, failure to pay taxes and other defaults resulting from his or WM
Realty Management’s misconduct.
As
of
March 31, 2008, the maturities of long-term debt were as follows:
Year
ending March 31,
|
2009
|
$
|
612,752
|
||
|
2010
|
612,435
|
|||
|
2011
|
612,641
|
|||
|
2012
|
615,628
|
|||
|
Due
after 2011
|
3,565,357
|
|||
|
Total
|
$
|
6,018,813
|
NOTE
8.
INCOME TAXES
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to the net income or loss from operations.
For
the years ended March 31, 2008 and 2007, the sources and tax effects of the
differences are as follows:
|
2008
|
2007
|
||||||
|
Income
tax provision at statutory rate
|
$
|
(2,382,431
|
)
|
$
|
(400,600
|
)
|
|
|
Tax
benefit before net operating loss carry forward
|
24,863
|
160,500
|
|||||
|
Net
tax provision
|
$
|
(2,357,568
|
)
|
$
|
(
240,100
|
)
|
|
F-16
As
of
March 31, 2008 and 2007, the tax effect of temporary differences and net
operating loss carry forward that give rise to the Company’s deferred tax assets
and liabilities are as follows:
|
Deferred
Tax Assets:
|
2008
|
2007
|
|||||
|
Current:
|
|||||||
|
Compensation
accrual
|
$
|
96,000
|
$
|
112,000
|
|||
|
Bad
debt allowance
|
10,000
|
10,000
|
|||||
|
Loss
on uncompleted contracts
|
62,000
|
46,000
|
|||||
|
Non-Current:
|
|||||||
|
Net
operating loss carry-forward
|
552,000
|
585,000
|
|||||
|
Total
deferred tax assets
|
720,000
|
753,000
|
|||||
|
Deferred
Tax Liabilities:
|
|||||||
|
Non-Current:
|
|||||||
|
Depreciation
|
48,000
|
206,000
|
|||||
|
Net
deferred tax asset
|
672,000
|
547,000
|
|||||
|
Valuation
allowance
|
(672,000
|
)
|
(547,000
|
)
|
|||
|
Net
Deferred Tax Asset Balance
|
$
|
—
|
$
|
—
|
|||
At
March
31, 2008 and 2007, the Company provided a full valuation allowance for its
net
deferred tax assets. The Company believes sufficient uncertainty exists
regarding the realization of the deferred tax assets. The net changes in
the
valuation allowances during the years ended March 31, 2008 and 2007 were
$(125,000) and $(123,000) respectively. The Company applied $24,863 of the
tax
benefit of loss carryforward to offset the provision for income taxes, in
the
year ended March 31, 2008.
As
of
March 31, 2008, the Company’s federal net operating loss carry-forward was
approximately $1,415,200. If not utilized, the federal net operating loss
carryforward of Ranor and Techprecision will expire in 2025 and 2027,
respectively. Furthermore, because of over fifty percent change in ownership
as
a consequence of the reverse acquisition in February 2006, as a result of
the
application of Section 382 of the Internal Revenue Code, the amount of net
operating loss carry forward used in any one year in the future is substantially
limited.
NOTE
9.
RELATED PARTY TRANSACTIONS
Management
Fees
During
the year ended March 31, 2007, the Company paid $185,000 pursuant to a
management contract with Techprecision LLC, a limited liability company that
was
owned by three individuals, including two principal stockholders, one of
whom
was also the Company’s chief executive officer. On January 29, 2007, the
management agreement with Techprecision LLC was terminated retroactive to
December 31, 2006. In connection with the termination, the Company made payments
totaling $55,000, during the year ended March 31, 2008.
Loans
from Related Parties
The
principal equity owner of WM Realty made loans to WM Realty in the year ended
March 31, 2007. The loan balance was $60,000 on March 31, 2007 and was paid
off
during the year ended March 31, 2008. Interest of $4,735 was paid during
the
years ended March 31, 2008 on
the
loan.
Sale
and Lease Agreement and Intra-company Receivable
On
February 24, 2006, WM Realty Management, LLC borrowed $3,300,000 to finance
the
purchase of Ranor’s real property. WM Realty Management purchased the real
property for $3,000,000 and leased the property on which Ranor’s facilities are
located pursuant to a net lease agreement. The property was appraised on
October
31, 2005 at $4,750,000. The Company advanced $226,808 to WM Realty Management
to
pay closing costs, which advance was repaid when WM Realty Management refinanced
the mortgage in October 2006. WM Realty Management was formed solely for
this
purpose; its partners are stockholders of the Company. The Company considers
WM
Realty Management a special purpose entity as defined by FIN 46, and therefore
has consolidated its operations into the Company.
F-17
On
October 4, 2006, WM Realty Management placed a new mortgage of $3.2 million
on
the property and the then existing mortgage of $3.1 million was paid off.
The
new mortgage has a term of ten years, bears interest at 6.75% per annum,
and
provides for monthly payments of principal and interest of $20,595 (See Note
8).
Andrew Levy, the principal equity owner of WM Realty Management, executed
a
limited guarantee. Pursuant to the limited guaranty, Mr. Levy guaranteed
the
lender the payment of any loss resulting from WM Realty Management’s fraud or
misrepresentation in connection with the loan documents, misapplication of
rent
and insurance proceeds, failure to pay taxes and other defaults resulting
from
his or WM Realty Management’s misconduct.
Distribution
to WM Realty Management Members
The
accumulated deficit and the stockholders deficit of the WM Realty Management
were $194,058 and $223,058, respectively, on March 31, 2008. During the year
ended March 31, 2008, WM Realty had a net income of $117,691and capital
distributions of $129,000,
NOTE
10.
EQUIPMENT LEASES
Ranor
leases office equipment under operating lease agreements expiring through
April
2012. Total rent expense charged to operations was $16,537 and $16,700 in
the
years ended March 31, 2008 and 2007, respectively. Future minimum lease payments
under non-cancellable portions of the leases as of March 31, 2006, are as
follows:
|
March
31,
|
Amount
|
|||
|
2009
|
$
|
15,564
|
||
|
2010
|
15,564
|
|||
|
2011
|
15,564
|
|||
|
2012
|
15,564
|
|||
NOTE
11.
REAL ESTATE LEASES
Ranor,
Inc. has leased its manufacturing, warehouse and office facilities in
Westminster (Westminster Lease), Massachusetts from WM Realty Management,
LLC, a
special purpose entity, for a term of 15 years, commencing February 24, 2006.
For the years ended March 31, 2008 and 2007, the Company’s annual rent expense
was $444,500 and $438,500, respectively. Since the Company consolidated the
operations of WM Realty Management pursuant to FIN 46, the rental expense
is
eliminated in consolidation, the building is carried at cost and depreciation
is
expensed. The annual rent is subject to an annual increase based on the increase
in the consumer price index.
The
Company has an option to purchase the real property at fair value and an
option
to extend the term of the lease for two additional terms of five years, upon
the
same terms. The minimum rent payable for each option term will be the greater
of
(i) the minimum rent payable under the lease immediately prior to either
the
expiration date, or the expiration of the preceding option term, or (ii)
the
fair market rent for the leased premises.
The
Company also leases approximately 12,720 square feet of
manufacturing space
in
Fitchburg, Massachusetts from an unaffiliated lessor. The lease provides
for
rent at the annual rate of $50,112 with 3% annual increases, starting 2004.
The
lease expires in February 2009, and is renewable for a five year term. The
Company has the option to purchase the property at the appraised market
value.
F-18
The
minimum future lease payments under the Company’s real property leases are as
follows:
| Year Ended March 31, |
Amount
|
|||
| Operating Lease | ||||
| 2009 |
$
|
57,389
|
||
|
2010
|
24,206
|
|||
|
Total
|
$
|
81,595
|
||
|
Lease
Payments to WM Realty Management
|
||||
|
2009
|
450,000
|
|||
|
2010
|
450,000
|
|||
|
2011
|
450,000
|
|||
|
2012
|
450,000
|
|||
|
2013
|
450,000
|
|||
|
2014-2018
|
2,250,000
|
|||
|
2019-2022
|
1,800,000
|
|||
|
Total
|
$
|
6,300,000
|
||
NOTE
12.
PROFIT SHARING PLAN
Ranor
has
a 401(k) profit sharing plan that covers substantially all employees who
have
completed 90 days of service. Ranor retains the option to match employee
contributions. The Company’s contributions were $ 15,573 and
$10,687 for the years ended March 31, 2008 and 2007, respectively.
NOTE
13.
CAPITAL STOCK
Preferred
Stock
The
Company has 10,000,000 authorized shares of preferred stock and the board
of
directors 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 board of directors has created one series of preferred stock
-
the series A convertible preferred stock (“series A preferred stock”).
Each
share of series A preferred stock was initially convertible into one share
of
common stock. As a result of the failure of the Company to meet the levels
of
earnings before interest, taxes, depreciation and amortization for the years
ended March 31, 2006 and 2007, the conversion rate changed, and, at March
31,
2008, each share of series A preferred stock was convertible into 1.3072
shares,
with an effective conversion price of $.2180.
The
shares of series A preferred stock and warrants to purchase a total of
11,220,000 shares of common stock were issued pursuant to a securities purchase
agreement dated February 24, 2006. Contemporaneously with the securities
purchase agreement, the Company entered into a registration rights agreement
with the investor, pursuant to which it agreed to register the shares of
common
stock underlying the securities in accordance with a schedule. The registration
statement was not declared effective in accordance with the schedule, and
the
Company issued 33,212 shares of series A preferred stock to the investor
as
liquidated damages.
No
shares
of series A preferred stock were converted during the year ended March 31,
2007.
During the year ended March 31, 2008, 734,398 shares of series A preferred
stock
were converted into 960,000 shares of common stock.
F-19
The
Company had 7,018,064 and 7,719,250 shares of series A preferred stock
outstanding at March 31, 2008 and 2007.
In
addition to the conversion rights described above, the certificate of
designation for the series A preferred stock provides as follows:
The
holder of the series A preferred stock or its affiliates will not be entitled
to
convert the series A 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 preferred stock and no
dividends are payable on common stock while series A preferred stock is
outstanding. The common stock shall not be redeemed while preferred stock
is
outstanding.
If,
during the period ending February 24, 2009, the Company issues common stock
at a
price, or options, warrants or other convertible securities with a conversion
or
exercise price less than the conversion price (presently $.218025), with
certain
specified exceptions, the number of shares issuable upon conversion of one
share
of series A preferred stock is adjusted to reflect a conversion price equal
to
the lower price.
The
holders of the series A preferred stock have no voting rights. However, so
long
as any shares of series A preferred stock are outstanding, the Company shall
not, without the affirmative approval of the holders of 75% of the outstanding
shares of series A preferred stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the series A 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 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 preferred stock, (c) amend its 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 preferred stock, or (e) enter into any agreement
with respect to the foregoing.
Upon
any
liquidation the Company is required to pay $.285 for each share of Series
A
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 preferred stock.
The
holders of the series A preferred stock do not have voting rights. However,
the
approval of the holders of 75% of the outstanding shares of series A preferred
stock is required to amend the certificate of incorporation, change the
provisions of the preferred stock purchase agreement, to authorize additional
series A preferred stock in addition to the 9,000,000 authorized, or to
authorize any class of stock that ranks senior with respect to voting rights,
dividends or liquidations.
Pursuant
to the securities purchase agreement relating to the issuance of the series
A
preferred stock and warrants, the Company agreed as follows:
The
Company will not to issue any additional preferred stock until the earlier
of
(a) three years from the Closing or (b) the date that the investor transfer
and/or converts not less than 90% of the shares of series A preferred stock
and
sells the underlying shares of common stock,
The
investor has the right of first refusal in the event that the Company seeks
to
raise additional funds through a private placement of securities, other than
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 preferred stock owned by the investor to the total
of
such shares.
The
Company is required to maintain a board of directors on which a majority
of
directors are independent directors and an audit committee composed solely
of
independent directors and the compensation committee with have a majority
of
independent directors. If the Company fails to meet these requirements, the
Company is to pay liquidated damages, payable in cash or by the issuance
of
additional shares of series A preferred stock, as the investor shall determine.
The Company’s maximum liability under this provision is $396,000. At March 31,
2008, the Company was in compliance with this provision.
F-20
Common
Stock Purchase Warrants
In
February 2006, we issued to the investor warrants to purchase 11,220,000
shares
of common stock in connection with its purchase of the series A preferred
stock.
These warrants are exercisable, in part or full, at any time from February
24,
2006 until February 24, 2011. If the shares of common stock are not registered
pursuant to the Securities Act of 1933, the holders of the warrants have
cashless exercise rights which will enable them to receive the value of the
appreciation in the common stock through the issuance of additional shares
of
common stock. These warrants had initial exercise prices of $0.57 as to
5,610,000 shares and $0.855 as to 5,610,000 shares. As a result of the Company’s
failure to meet the EBITDA per share targets for the years ended March 31,
2006
and 2007, the exercise prices per share of the warrants were reduced from
$0.57
to $.43605 and from $0.855 to $.654075.
If,
during the period ending February 24, 2009, the Company issues common stock
at a
price, or options, warrants or other convertible securities with a conversion
or
exercise price less than the applicable exercise prices, with certain specified
exceptions, the exercise price of the warrants is reduced to reflect an exercise
price equal to the lower price. This adjustment does not affect the number
of
shares of common stock issuable upon exercise of the warrants.
During
the year ended March 31, 2008, we issued 1,510,000 shares of common stock
upon
exercise or warrants having an exercise price of $.43605. The Company had
estimated the costs of warrants at $.03 per warrant using Black Scholes model,
at the time of issuance. The assumptions were market price of $.28, risk
free
rate of 5% and volatility of 28%.
On
September 1, 2007, the Company entered into a contract with an investor
relations firm pursuant to which the Company issued three-year warrants to
purchase 112,500 shares of common stock at an exercise price of $1.40 per
share. Using the Black-Scholes options pricing formula assuming a
risk free rate of 5%, volatility of 28.5%, a term of three years, and the
price
of the common stock on September 1, 2007 of $0.285 per share, the value of
the
warrant was calculated at $0.0001 per share issuable upon exercise of the
warrant, or a total of $11. Since the warrant permits the Company to deliver
unregistered shares, the Company has the control in settling the contract
by
issuing equity. The cost of warrants was added the additional paid in
capital.
Common
Stock
The
Company had 12,572,995 shares of common stock outstanding at March 31, 2008
and
10,049,000 shares of common stock outstanding at March 31, 2007.
During
the year ended March 31, 2007, the Company issued 82,000 shares of common
stock
to employees. During the year ended March 31, 2008, the Company issued 1,510,000
shares of common stock upon exercise of warrants, 960,000 shares of common
stock
upon conversion of series A preferred stock, and 53,995 shares for services.
NOTE
14.
STOCK BASED COMPENSATION
In
February 2006, our board of directors adopted, and in July 2006 the board
amended, and in October 2006, the stockholders approved, the 2006 long-term
incentive plan (the “Plan”) covering 1,000,000 shares of common stock. The
purpose of the Plan is to attract, retain and reward officers and other key
employees, directors, consultants and independent contractors of the Company.
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 board of directors. Independent directors are not eligible for discretionary
options. As initially adopted, each newly elected independent director received
at the time of his election, a five-year option to purchase 25,000 shares
of
common stock at the market price on the date of his or her
election.
F-21
Pursuant
to the amendment to the plan, the number of shares subject to the initial
option
grant was increased to 50,000 shares, with the option being exercisable,
with
respect to the then current independent directors as to 30,000 shares in
July
2006 and as to 10,000 shares in each of February 2007 and 2008. In addition,
the
plan provides for the annual grant of an option to purchase 5,000 shares
of
common stock on July 1st of each year, commencing July 1, 2009. For each
independent director who is elected after July 31, 2006, the director will
receive an option to purchase 50,000 shares at an exercise price equal to
the
fair market value on the date of his or her election. The option will vest
as to
30,000 shares nine months from the date of grant and as 10,000 shares on
each of
the first and second anniversaries of the date of grant. These directors
will
receive an annual grant of an option to purchase 5,000 shares of common stock
on
the July 1st coincident with or following the third anniversary of the date
of
his or her first election. Pursuant to the plan, the Company granted
non-qualified stock options to purchase an aggregate of 150,000 shares of
common
stock at an exercise price of $.285 per share, which was determined to be
the
fair market value on the date of grant, to the three independent directors.
On
April
1, 2007, the Company granted options to purchase 211,660 shares of common
stock
at an exercise price of $.285 to the employees. The exercise price was
determined to be the fair market value of the common stock on the date of
grant.
The number of securities remaining available under equity compensation plans
is
641,341.
NOTE
15.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The
Company maintains bank account balances, which, at times, may exceed insured
limits. The Company has not experienced any losses with these accounts and
believes that it is not exposed to any significant credit risk on cash.
The
Company has 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. To the extent that the Company is unable to generate orders
from
new customers, it may have difficulty operating profitably.
The
following table sets forth information as to revenue derived from those
customers who accounted for more than 10% of our revenue in the years ended
March 31, 2008 and 2007:
|
Year
Ended March 31,
|
|||||||||||||
|
2008
|
2007
|
||||||||||||
| Customer |
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||
|
A
|
$
|
16,143,078
|
51
|
%
|
$
|
3,407,363
|
18
|
%
|
|||||
|
B
|
5,434,054
|
17
|
%
|
129,985
|
1
|
%
|
|||||||
|
C
|
1,769,106
|
6
|
%
|
2,587,151
|
14
|
%
|
|||||||
|
D
|
1,275,202
|
4
|
%
|
2,415,124
|
13
|
%
|
|||||||
NOTE
16.
EMPLOYMENT AGREEMENTS
On
June
19, 2007, the Company entered into an employment agreement, effective April
1,
2007 with its chief executive officer. Pursuant to the agreement, the Company
is
employing the chief executive officer for an initial term commencing April
1,
2007 and expiring on March 31, 2009 and continuing on a year-to-year basis
thereafter unless terminated by either party on 90 days written notice prior
to
the expiration of the initial term or any one-year extension. The agreement
provides for the chief executive officer to receive an annual base salary
of
$160,000. Increase in base salary and bonus compensation, stock options or
other
equity-based incentives are at the discretion of the compensation committee
of
the board of directors. The chief executive officer is also entitled to
reimbursement of his commuting expenses. The agreement may be terminated
by the
Company with or without cause or by resignation. If the Company terminates
the
agreement without cause, the Company is to pay severance pay equal to his
salary
for the balance of the term plus the amount of his bonus received in the
prior
year. The agreement also includes non-competition and non-solicitation
provisions, subject to standard exceptions.
F-22
On
June
19, 2007, the Company entered into an employment contract with its chief
financial officer, dated retroactively to April 1, 2007. Pursuant to the
terms
of this agreement, the Company is employing the chief financial officer for
an
initial term commencing April 1, 2007 and expiring March 31, 2009 and continuing
on a year-to-year basis thereafter unless terminated by either party on 90
days
written notice prior to the expiration of the initial term or any one-year
extension. The agreement provides for the chief financial officer to receive
an
annual salary of $110,000. Increases in base salary and bonus compensation,
stock options or other equity based incentives are at the discretion of the
compensation committee of the board of directors. The agreement may be
terminated by the Company with or without cause or by resignation. If the
Company terminates the agreement without cause, the Company is to pay severance
pay equal to her salary for the balance of the term plus the amount of her
bonus
received in the prior year. The agreement also includes non-competition and
non-solicitation provisions, subject to standard exceptions.
In
February 2006, Ranor entered into an employment agreement with its chief
executive officer pursuant to which he would serve as Ranor’s chief executive
officer for a term of three years ending on February 28, 2009. Pursuant to
the
agreement, the Company pays salary at the annual rate of $200,000. Ranor’s chief
executive officer is also eligible for performance bonuses based on financial
performance criteria set by the board. In the event that the terminates Mr.
Youtt’s employment without cause, the Company is required to make a lump-sum
payment to him equal to his base compensation for the balance of the term
and to
provide the insurance coverage that we would provide if he remained
employed.
NOTE
17.
SEGMENT INFORMATION
We
operate in one industry segment - metal fabrication and precision machining.
All
of our operations, assets and customers are located in the United
States.
F-23
TECHPRECISION
CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
June
30,
2008
(unaudited)
|
March
31,
2008
|
||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
3,773,889
|
$
|
2,852,676
|
|||
|
Accounts
receivable, less allowance for doubtful accounts of
$25,000
|
6,400,652
|
4,509,336
|
|||||
|
Costs
incurred on uncompleted contracts, in excess of progress
billings
|
2,754,675
|
4,298,683
|
|||||
|
Inventories-
raw materials
|
253,090
|
195,506
|
|||||
|
Prepaid
expenses
|
251,833
|
1,039,117
|
|||||
|
Deferred
income tax
|
90,772
|
-
|
|||||
|
Total
current assets
|
13,524,911
|
12,895,318
|
|||||
|
Property,
plant and equipment, net
|
2,801,876
|
2,810,981
|
|||||
|
Deposit
on fixed assets
|
390,000
|
240,000
|
|||||
|
Deferred
loan cost, net
|
117,867
|
121,692
|
|||||
|
Total
assets
|
$
|
16,834,654
|
$
|
16,067,991
|
|||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable
|
$
|
2,038,662
|
$
|
990,533
|
|||
|
Accrued
expenses
|
1,748,430
|
1,480,507
|
|||||
|
Progress
billings in excess of cost of uncompleted contracts
|
1,327,844
|
3,418,898
|
|||||
|
Current
maturity of long-term debt
|
614,467
|
613,832
|
|||||
|
Total
current liabilities
|
5,729,403
|
6,503,770
|
|||||
|
LONG-TERM
DEBT
|
|||||||
|
Notes
payable- noncurrent
|
5,251,130
|
5,404,981
|
|||||
|
Total
liabilities
|
10,980,533
|
11,908,751
|
|||||
|
Commitments
and contingencies
|
|||||||
|
STOCKHOLDERS’
EQUITY
|
|||||||
|
Preferred
stock- par value $.0001 per share, 10,000,000 shares authorized,
of which
9,000,000 are designated as Series A Preferred Stock,
|
|||||||
|
with
issued and outstanding: 6,484,969 shares at June 30, 2008 and 7,018,064
shares at March 31, 2008
|
2,344,580
|
2,542,643
|
|||||
|
Common
stock -par value $.0001 per share, authorized — 90,000,000 shares,
|
|||||||
|
Issued
and outstanding: 13,685,995 shares at June 30, 2008 and
12,572,995
shares at
March 31, 2008.
|
1,371
|
1,259
|
|||||
|
Paid
in capital
|
2,946,028
|
2,624,892
|
|||||
|
Retained
earnings (deficit)
|
562,142
|
(1,009,554
|
)
|
||||
|
Total
stockholders’ equity
|
5,854,121
|
4,159,240
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
16,834,654
|
$
|
16,067,991
|
|||
The
accompanying notes are an integral part of the financial statements.
F-24
TECHPRECISION
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three
months ended
|
||||||
|
June
30,
|
|||||||
|
2008
|
2007
|
||||||
|
Net
sales
|
$
|
11,658,134
|
$
|
6,553,112
|
|||
|
Cost
of sales
|
8,277,803
|
4,877,572
|
|||||
|
Gross
profit
|
3,380,331
|
1,675,540
|
|||||
|
Operating
expenses:
|
|||||||
|
Salaries
and related expenses
|
435,095
|
344,291
|
|||||
|
Professional
fees
|
47,687
|
44,045
|
|||||
|
Selling,
general and administrative
|
138,996
|
70,620
|
|||||
|
Total
operating expenses
|
621,778
|
458,956
|
|||||
|
Income
from operations
|
2,758,553
|
1,216,584
|
|||||
|
Other
income (expenses)
|
|||||||
|
Interest
expense
|
(118,781
|
)
|
(132,438
|
)
|
|||
|
Interest
income
|
--
|
275
|
|||||
|
Finance
costs
|
(3,826
|
)
|
(2,589
|
)
|
|||
|
Total
other income (expense)
|
(122,607
|
)
|
(134,752
|
)
|
|||
|
Income
before income taxes
|
2,635,946
|
1,081,832
|
|||||
|
Provision
for income taxes, net
|
(1,064,250
|
)
|
(397,005
|
)
|
|||
|
Net
income
|
$
|
1,571,696
|
$
|
684,827
|
|||
|
Net
income per share of common stock (basic)
|
$
|
.12
|
$
|
.07
|
|||
|
Net
income per share (diluted)
|
$
|
.06
|
$
|
.04
|
|||
|
Weighted
average number of shares outstanding (basic)
|
12,925,606
|
10,051,000
|
|||||
|
Weighted
average number of shares outstanding (diluted)
|
26,421,957
|
19,313,683
|
|||||
The
accompanying notes are an integral part of the financial statements.
F-25
TECHPRECISION
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
Three
Months Ended
|
|||||||
|
June
30,
|
June
30,
|
||||||
|
2008
|
2007
|
||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
|
Net
income
|
$
|
1,571,696
|
$
|
684,827
|
|||
|
Non
cash items included in net income:
|
|||||||
|
Depreciation
and amortization
|
136,471
|
117,295
|
|||||
|
Deferred
income taxes
|
(90,772
|
)
|
-
|
||||
|
Shares
issued for services
|
-
|
720
|
|||||
|
(Increase)
decrease in operating assets and liabilities:
|
|||||||
|
Accounts
receivable
|
(1,891,316
|
)
|
(686,828
|
)
|
|||
|
Inventory
|
(57,584
|
)
|
(12,654
|
)
|
|||
|
Costs
incurred on uncompleted contracts
|
4,790
|
(969,695
|
)
|
||||
|
Prepaid
expenses
|
787,284
|
113,286
|
|||||
|
Accounts
payable and accrued expenses
|
1,316,052
|
796,989
|
|||||
|
Customer
advances
|
(551,836
|
)
|
-
|
||||
|
Net
cash provided by operating activities
|
1,224,785
|
43,940
|
|||||
|
CASH
FLOWS USED IN INVESTING ACTIVITIES
|
|||||||
|
Purchases
of property, plant and equipment
|
(123,540
|
)
|
(63,472
|
)
|
|||
|
Deposits
on equipment
|
(150,000
|
)
|
-
|
||||
|
Net
cash used in investing activities
|
(273,540
|
)
|
(63,472
|
)
|
|||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
|
Distribution
of WM Realty members
|
(46,875
|
)
|
-
|
||||
|
Additional
Paid in Capital
|
-
|
(10,500
|
)
|
||||
|
Exercise
of warrants
|
170,060
|
-
|
|||||
|
Payment
of notes
|
(153,217
|
)
|
(182,701
|
)
|
|||
|
Net
cash provided by (used in) financing activities
|
(30,032
|
)
|
(193,201
|
)
|
|||
|
Net
increase (decrease) in cash and cash equivalents
|
921,213
|
(212,733
|
)
|
||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
2,852,676
|
1,443,998
|
|||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
$
|
3,773,889
|
$
|
1,231,265
|
|||
The
accompanying notes are an integral part of the financial
statements.
F-26
TECHPRECISION
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(Continued)
|
|
Years
ended June 30,
|
||||||
|
|
2008
|
2007
|
|||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOWS INFORMATION
|
|||||||
|
|
|||||||
|
Cash
paid during the three months ended June 30, 2008 for:
|
|||||||
|
Interest
expense
|
$
|
118,781
|
$
|
132,438
|
|||
|
Income
taxes
|
$
|
937,067
|
$
|
2,985
|
|||
SUPPLEMENTAL
INFORMATION - NONCASH TRANSACTIONS:
Three
months Ended June 30, 2008
During
the three months ended June 30, 2008, the Company issued 723,000 shares of
common stock upon conversion of 553,093 shares of series A preferred stock,
based on a conversion ratio of 1.3072 shares of common stock for each share
of
series A preferred stock. The conversion price of each share of common stock
was
computed at $0.2180.
During
the three months ended June 30, 2008, the Company issued 390,000 shares of
common stock upon exercise of 390,000 warrants having an exercise price of
$.43605. The Company had estimated the costs of warrants at $.03 per warrant
using Black-Scholes model, at the time of issuance.
The
accompanying notes are an integral part of the financial
statements.
F-27
TECHPRECISION
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. TechPrecision and Ranor are
collectively referred to as the “Company.”
The
Company manufactures metal fabricated and machined precision components and
equipment. These products are used in a variety of markets including the
alternative energy, medical, nuclear, defense, industrial, and aerospace
industries.
NOTE
2.
SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions
to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all
adjustments (consisting of normal recurring accruals) considered necessary
for a
fair presentation have been included. Operating results for the three-month
period ended June 30, 2008 are not necessarily indicative of the results
that
may be expected for the year ended March 31, 2009.
For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company’s Annual report on form 10-KSB for the
year ended March 31, 2008.
Consolidation
On
February 24, 2006, TechPrecision acquired all stock of Ranor in a transaction
which is accounted for as a recapitalization (reverse acquisition), with
Ranor
being treated as the acquiring company for accounting purposes.
The
accompanying consolidated financial statements include the accounts of the
Company as well as a variable interest entity. Intercompany transactions
and
balances have been eliminated in consolidation.
Variable
Interest Entity
The
Company has consolidated WM Realty Management LLC (“WM Realty), a variable
interest entity that entered into a sale and leaseback contract with the
Company
in 2006, to conform to FASB Interpretation No. 46, “Consolidation of Variable
Interest Entities” (FIN 46). The Company has also adopted the revision to FIN
46, FIN 46R, which clarified certain provisions of the original interpretation
and exempted certain entities from its requirements.
F-28
Segment
Information
In
accordance with SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information”
(SFAS
131), and based on the nature of the Company’s products, technology,
manufacturing processes, customers and regulatory environment, the Company
operates in one industry segment - metal fabrication and precision machining.
All of the Company’s operations, assets and customers are located in the United
States.
Use
of Estimates in the Preparation of Financial Statements
In
preparing financial statements in conformity with generally accepted accounting
principles, 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 financial statements and revenues
and
expenses during the reported period. Actual results could differ from those
estimates.
New
Accounting Pronouncements
In
December 2007, FASB issued Statement of Financial Accounting Standards
No. 141(R), “Business
Combinations” (“SFAS
141(R)”). SFAS No. 141(R) establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest
in
the acquiree and recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase. SFAS No. 141(R) also sets
forth the disclosures required to be made in the financial statements to
evaluate the nature and financial effects of the business combination. SFAS
No. 141(R) is effective for fiscal years beginning after December 15,
2008. The effects of the adoption of this standard in 2009 will be prospective.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Non-controlling
Interests in Consolidated Financial Statements, an amendment of ARB
No. 51”
(“SFAS
No. 160”). SFAS No. 160 establishes accounting and reporting standards
that require that the ownership interests in subsidiaries held by parties
other
than the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but separate
from
the parent’s equity; the amount of consolidated net income attributable to the
parent and to the non-controlling interest be clearly identified and presented
on the face of the consolidated statement of income; and changes in a parent’s
ownership interest while the parent retains its controlling financial interest
in its subsidiary be accounted for consistently. SFAS No. 160 also requires
that any retained non-controlling equity investment in the former subsidiary
be
initially measured at fair value when a subsidiary is deconsolidated. SFAS
No. 160 also sets forth the disclosure requirements to identify and
distinguish between the interests of the parent and the interests of the
non-controlling owners. SFAS No. 160 is effective for fiscal years
beginning after December 15, 2008. The Company has not yet determined the
anticipated effect, if any, of the adoption of this standard in 2009.
In
March
2008, the FASB issued Statement No. 161, "Disclosures
about Derivative Instruments and Hedging Activities"
("SFAS
161"). SFAS 161 requires enhanced disclosures about an entity's derivative
and
hedging activities and is effective for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged. We
do not
expect the adoption of SFAS 161 to have a material effect on our consolidated
financial statements.
In
April 2008, the FASB issued FSP FAS 142-3, “Determination
of Useful Life of Intangible Assets”
(“FSP
FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in
developing the renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under FAS 142, “Goodwill and Other
Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure related to
the determination of intangible asset useful lives. FSP FAS 142-3 is effective
for fiscal years beginning after December 15, 2008. Earlier adoption is not
permitted. We do not expect the adoption of this FSP to have a material effect
on our consolidated financial statements.
F-29
In
May
2008, the FASB issued Staff Position No. APB 14-1, "Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)"
(the
"FSP"), which clarifies the accounting for convertible debt instruments that
may
be settled in cash (including partial cash settlement) upon conversion. The
FSP
requires issuers to account separately for the liability and equity components
of certain convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized. The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations. The FSP requires retrospective application
to the terms of instruments as they existed for all periods presented. This
FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. We do not
expect the adoption of this FSP to have a material effect on our consolidated
financial statements.
In
May
2008, the FASB issued SFAS No. 162, “The
Hierarchy of Generally Accepted Accounting Principles.”
This
Statement identifies the sources of accounting principles and the framework
for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with GAAP in
the
United States (the GAAP hierarchy). This Statement will not have any impact
on
the Company’s consolidated financial statements.
In
May
2008, the FASB issued SFAS No. 163, “Accounting
for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement
No. 60.”
The
scope of this Statement is limited to financial guarantee insurance (and
reinsurance) contracts, as described in this Statement, issued by enterprises
included within the scope of Statement 60. Accordingly, this Statement does
not
apply to financial guarantee contracts issued by enterprises excluded from
the
scope of Statement 60 or to some insurance contracts that seem similar to
financial guarantee insurance contracts issued by insurance enterprises (such
as
mortgage guaranty insurance or credit insurance on trade receivables). This
Statement also does not apply to financial guarantee insurance contracts
that
are derivative instruments included within the scope of FASB Statement No.
133,
“Accounting for Derivative Instruments and Hedging Activities.” This Statement
will not have any impact on the Company’s consolidated financial
statements.
In
June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 “Determining
whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own
Stock”
(“EITF
No. 07-5”). This Issue is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those
fiscal
years. Early application is not permitted. Paragraph 11(a) of Statement of
Financial Accounting Standard No 133 “Accounting for Derivatives and Hedging
Activities” (“SFAS 133”) specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own
stock and (b) classified in stockholders’ equity in the statement of
financial position would not be considered a derivative financial instrument.
EITF No.07-5 provides a new two-step model to be applied in determining whether
a financial instrument or an embedded feature is indexed to an issuer’s own
stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception.
Management is currently evaluating the impact of adoption of EITF No. 07-5
on
the Company’s consolidated financial statements.
In
June
2008, FASB issued EITF Issue No. 08-4, “Transition
Guidance for Conforming Changes to Issue No. 98-5 (“EITF No.
08-4”)”. The
objective of EITF No.08-4 is to provide transition guidance for conforming
changes made to EITF No. 98-5, “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”,
that result from EITF No. 00-27 “Application of Issue No. 98-5 to Certain
Convertible Instruments”, and SFAS No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity”. This Issue is
effective for financial statements issued for fiscal years ending after December
15, 2008. Early application is permitted. Management is currently
evaluating the impact of adoption of EITF No. 08-45, on the Company’s
consolidated financial statements.
F-30
.
In
June
2007, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue
No. 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services Received to Be Used
in
Future Research and Development Activities”
(“EITF
No. 07-3”). EITF No. 07-3 requires companies that are involved in research and
development activities to defer nonrefundable advance payments for future
research and development activities and to recognize those payments as goods
and
services are delivered. The Company will be required to assess on an ongoing
basis whether or not the goods or services will be delivered and to expense
the
nonrefundable advance payments immediately if it is determined that delivery
is
unlikely. EITF No. 07-3 is effective for new arrangements entered into
subsequent to the beginning of the Company’s fiscal year 2009. The Company is
currently evaluating the impact that the adoption of EITF No. 07-3 will have,
but does not believe it will be material to the consolidated financial position
or results of operations.
NOTE
3.
COSTS INCURRED ON UNCOMPLETED CONTRACTS
The
Company recognizes revenues based upon the units-of-delivery method. The
advance billing and deposits include down payments for acquisition of materials
and progress payments on contracts. The agreements with the buyers of the
Company’s products allow the Company to offset the progress payments against the
costs incurred. The following table sets forth information as to costs
incurred on uncompleted contracts at June 30, 2008 and March 31,
2008:
|
June
30, 2008
|
March
31, 2008
|
||||||
|
Cost
incurred on uncompleted contracts, beginning balance
|
$
|
10,633,862
|
$
|
5,455,142
|
|||
|
Total
cost incurred on contracts during the period
|
8,252,717
|
28,651,712
|
|||||
|
Less
cost of sales, during the period
|
(8,257,507
|
)
|
(23,472,992
|
)
|
|||
|
Cost
incurred on uncompleted contracts, ending balance
|
$
|
10,629,072
|
$
|
10,633,862
|
|||
|
Billings
on uncompleted contracts, beginning balance
|
$
|
6,335,179
|
$
|
4,188,697
|
|||
|
Plus:
Total billings incurred on contracts in progress
|
13,197,352
|
19,956,718
|
|||||
|
Less:
Contracts recognized as revenue, during the period
|
(11,658,134
|
)
|
(17,810,236
|
)
|
|||
|
Billings
on uncompleted contracts, ending balance
|
$
|
7,874,397
|
$
|
6,335,179
|
|||
|
Cost
incurred on uncompleted contracts, ending balance
|
$
|
10,629,072
|
$
|
10,633,862
|
|||
|
Billings
on uncompleted contracts, net of deferred revenue
|
(7,874,397
|
)
|
(6,335,179
|
)
|
|||
|
Costs
incurred on uncompleted contracts, in excess of progress
billings
|
$
|
2,754,675
|
$
|
4,298,683
|
|||
As
of
June 30, 2008, the Company had progress billings in excess of cost of
uncompleted contracts (i.e. customer prepayments and deferred revenues) totaling
$1,327,844.
NOTE
4.
PREPAID EXPENSES
As
of
June 30, 2008 and March 31, 2008, the prepaid expenses included the following:
|
|
June
30, 2008
|
March
31, 2008
|
|||||
|
Insurance
|
$
|
121,488
|
$
|
145,338
|
|||
|
Real
estate taxes
|
4,438
|
4,438
|
|||||
|
Prepayments
on materials
|
100,096
|
882,739
|
|||||
|
Equipment
maintenance
|
25,811
|
6,602
|
|||||
|
Total
|
$
|
251,833
|
$
|
1,039,117
|
|||
F-31
The
reduction in prepayments on materials reflected the receipt and subsequent
use
of steel in various contracts after fiscal year end.
NOTE
5.
LONG-TERM DEBT
The
following debt obligations, outstanding on June 30, 2008 and March 31, 2008:
|
June
30,
2008
|
March
31,
2008
|
||||||
|
1.
Long-term debt issued on February 24, 2006:
|
|||||||
|
|
|||||||
|
Sovereign
Bank-Secured Term note payable- 72 month 9% variable term note
with
quarterly principal payments of $142,857 plus interest. Final payment
due
on March 1, 2013
|
$
|
2,714,286
|
$
|
2,857,142
|
|||
|
2.
Long-term mortgage loan issued on October 4, 2006:
|
|||||||
|
Amalgamated
Bank mortgage loan to WM Realty- 10 years, annual interest rate
6.75%,
monthly interest and principal payment $20,955. The amortization
is based
on a 30- year term. WM Realty Management has the right to prepay
the
mortgage note upon payment of a prepayment premium of 5% of the
amount
prepaid if the prepayment is made during the first two years, and
declining to 1% of the amount prepaid if the prepayment is made
during the
ninth or tenth year.
|
3,145,383
|
3,154,171
|
|||||
|
3.
Automobile Loan:
|
|||||||
|
Ford
Motor Credit Company-Note payable secured by a vehicle - payable
in
monthly installments of $552 including interest of 4.9%, commencing
July
20, 2003 through June 20, 2009
|
5,928
|
7,500
|
|||||
|
Total
long-term debt
|
5,865,597
|
6,018,813
|
|||||
|
Principal
payments due within one year
|
614,467
|
613,832
|
|||||
|
Principal
payments due after one year
|
$
|
5,251,130
|
$
|
5,404,981
|
|||
On
February 24, 2006, Ranor entered into a loan and security agreement with
Sovereign Bank. Pursuant to the agreement, the bank has granted Ranor a term
loan of $4,000,000 (“Term Note”) and extended Ranor a line of credit of
$1,000,000, with an initial interest rate of 9%. In February 2007, Ranor
entered
into an amendment to the agreement with the bank which (i) reduced the interest
rate from prime plus 1½% to prime plus 1% and increased the revolving credit
line of $2,000,000 (“Revolving Note’) and (ii) provided for Ranor to borrow up
to $500,000 at in order to finance capital expenditures. Under this capital
expenditures facility, Ranor was able to borrow up to $500,000 until the
February 1, 2008. On November 30, 2007, Ranor and the bank entered into second
amendment to the loan agreement pursuant to which the capital expenditure
line
was increased to $3,000,000, which is available to Ranor until November 30,
2008. Any borrowings under the capital expenditures line are amortized over
five
years, commencing December 1, 2008. The interest on the capital expenditure
loans is equal to the prime plus ½% per annum through November 30, 2008. After
November 2008, the interest is charged on the outstanding balance of the
capital
expenditures loan at the annual rate that the bank offers to pay for its
wholesale liabilities, adjusted for reserve requirement, plus 2.25% (“Cost of
Fund Rate”.) As of June 30, 2008 and March 31, 2008, there were no borrowings
outstanding under either the revolving line or the capital expenditure line.
Any
outstanding principal or accrued interest has to be paid off on or before
November 2013, the maturity date.
F-32
The
Term
Note is subject to various covenants that include the following: the loan
collateral comprises all personal property of Ranor, including cash, accounts
receivable, inventories, equipment, financial and intangible assets owned
when
the loan is contracted or acquired thereafter; the amount of loan outstanding
at
all times is limited to a borrowing base amount of the Ranor’s qualified
accounts receivable and inventory; there are prepayment penalties of 3%,
2% and
1% of the outstanding principal, in the first, second and third years following
the issuance date, respectively. There is no prepayment penalty thereafter.
Ranor is prohibited from issuing any additional equity interest (except to
existing holders), or redeem, retire, purchase or otherwise acquire for value
any equity interests; Ranor pays an unused credit line fee of 0.25% of the
average unused credit line amount in previous month; the earnings available
to
cover fixed charges are required not to be less than 120% of fixed charges
for
the rolling four quarters, tested at the end of each fiscal quarter; and
interest coverage ratio is required to be not less than 2:1 at the end of
each
fiscal quarter. Ranor’s obligations under the notes to the bank are guaranteed
by TechPrecision.
In
connection with the Amalgamated Bank mortgage financing of the real estate
owned
by WM Realty Management LLC, Mr. Andrew Levy, the principal equity owner
and
manager of WM Realty and a major stockholder of TechPrecision, executed a
limited guarantee. Pursuant to the limited guaranty, Mr. Levy guaranteed
the
lender the payment of any loss resulting from WM realty’s fraud or
misrepresentation in connection with the loan documents, misapplication of
rent
and insurance proceeds, failure to pay taxes and other defaults resulting
from
his or WM Realty Management’s misconduct.
As
of
June 30, 2008, the maturities of long-term debt were as follows:
Year
ending June 30,
|
2009
|
$
|
614,467
|
||
|
2010
|
612,034
|
|||
|
2011
|
614,449
|
|||
|
2012
|
617,488
|
|||
|
Due
after 2012
|
3,407,159
|
|||
|
Total
|
$
|
5,865,597
|
NOTE
6.
CAPITAL STOCK
The
Company had 13,685,995 shares of common stock outstanding at June 30, 2008
and
12,572,995 shares of common stock outstanding at March 31, 2008.
The
Company had 6,484,971 and 7,018,064 shares of series A preferred stock
outstanding at June 30, 2008 and March 31, 2008. Each share of preferred
stock
is convertible into 1.3072 shares of common stock, subject to adjustment.
During
the three months ended June 30, 2008, 553,093 shares of series A preferred
stock
were converted into 723,000 shares of common stock.
Common
Stock Purchase Warrants
In
February 2006, we sold to the investor, for $2,200,000, (a) 7,719,250 shares
of
series A convertible preferred stock and (b) warrants to purchase 11,220,000
shares of common stock. The warrants are exercisable, in part or full, at
any
time from February 24, 2006 until February 24, 2011.
If,
during the period ending February 24, 2009, the Company issues common stock
at a
price, or options, warrants or other convertible securities with a conversion
or
exercise price less than the applicable exercise prices, with certain specified
exceptions, the exercise price of the warrants is reduced to reflect an exercise
price equal to the lower price. This adjustment does not affect the number
of
shares of common stock issuable upon exercise of the warrants.
F-33
During
the three months ended June 30, 2008, we issued 390,000 shares of common
stock
upon exercise of warrants having an exercise price of $.43605 and a cost
of
$11,700. The Company had estimated the costs of warrants at $.03 per warrant
using Black Scholes model, at the time of issuance. The assumptions were
market
price of $.28, risk free rate of 5% and volatility of 28%. The number of
warrants outstanding as of June 30, 2008 is 9,320,000. In addition, at June
30,
2008 and March 31, 2008 warrants to purchase 112,500 shares of common stock
were
outstanding under our 2006 long-term incentive plan. These warrants were
issued
to an investor relations firm in the year ended March 31, 2008.
Stock
options
During
the three months ended June 30, 2008, no stock options were granted and no
stock
options were exercised. As of June 30, 2008 and March 31, 2008, stock options
to
purchase 371,659 shares of common stock were outstanding under the 2006
long-term incentive plan.
NOTE
7.
EARNINGS PER SHARE OF COMMON STOCK
Basic
net
income per share of common stock is computed by dividing net income or loss
by
the weighted average number of shares outstanding during the year. Diluted
net
income per share of common stock 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, preferred shareholders and other warrants and share-based
compensation were calculated using the treasury stock method.
|
Three
Months Ended June 30,
|
|||||||
|
2008
|
2007
|
||||||
|
Net
Income
|
$
|
1,571,696
|
$
|
684,827
|
|||
|
Average
basic shares outstanding
|
12,925,606
|
10,051,000
|
|||||
|
Effect
of dilutive stock options, warrants and preferred stock
|
13,496,351
|
9,262,683
|
|||||
|
Average
diluted shares outstanding
|
26,421,957
|
19,313,683
|
|||||
|
Basic
net income per share
|
$
|
.12
|
$
|
.07
|
|||
|
Diluted
net income per share
|
$
|
.06
|
$
|
.04
|
|||
NOTE
8.
INCOME TAXES
The
Company uses the asset and liability method of financial accounting and
reporting for income taxes required by statement of Financial Accounting
Standards No. 109 (“FAS 109”), “Accounting
for Income Taxes.”
Under
FAS 109, deferred income taxes reflect the tax impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for tax purposes. Temporary differences
giving rise to deferred income taxes consist primarily of the reporting of
losses on uncompleted contracts, the excess of depreciation for tax purposes
over the amount for financial reporting purposes, and accrued expenses accounted
for differently for financial reporting and tax purposes and net operating
loss
carry forwards.
F-34
During
the quarter of ended June 30, 2008, an evaluation of recent historical
profitability and growth in the last two quarters of the year ended March
31,
2008 and an increase in current and projected market demand and future customer
production schedules for the coming year led us to significantly revise the
near-term projected future operating results of our operations.
We
reviewed the likelihood that we would be able to realize the benefit of our
U.S.
deferred tax assets as of June 30, 2008, based on the revised near-term
projected future operating results. We concluded that it is “more
likely than not” that we will realize our short term net deferred tax assets and
thus recorded an income tax benefit in the first quarter of 2008 of $90,772
to
establish a provision for these assets.
If,
in
the future, we do not generate taxable income in the U.S. on a sustained
basis,
our current estimate of the recoverability of our deferred tax assets could
change and result in the increase of the valuation allowance.
Income
tax expense was $1,064,250 in the three months ended June 30, 2008 as compared
to $397,005 in the three months ended June 30, 2007. The Company’s
effective income tax rate was 40% in the first quarter of 2008 as compared
to
37% in the first quarter of 2007. The increase is a
result of increased profitability in the second half of last year and positive
earnings estimates for the current period. The effective tax rate in the
first
quarter of 2008 includes the recognition of a net deferred tax asset of $90,722.
This deferred tax asset reflects the impact of recording an income tax benefit
for the current portion of net operating loss carry forwards subject to Internal
Revenue Code Section 382 and related state statutory limitations in the amount
of $39,454 and an income tax benefit of $133,804 related to accrued compensation
benefits. The deferred tax asset reflected on the balance sheet is net of
the
current portion deferred tax liability arising from timing differences in
depreciation in the amount of $82,486.
NOTE
9.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The
Company maintains bank account balances, which, at times, may exceed insured
limits. The Company has not experienced any losses with these accounts and
believes that it is not exposed to any significant credit risk on cash.
The
Company has 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. To the extent that the Company is unable to generate orders
from
new customers, it may have difficulty operating profitably.
The
following table sets forth information as to revenue derived from those
customers who accounted for more than 10% of our revenue in the three months
ended June 30, 2008 and 2007:
|
June
30
|
June
30
|
||||||||||||
|
2008
|
2007
|
||||||||||||
|
Customer
|
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||
|
Customer
A
|
$
|
8,046,100
|
69
|
%
|
$
|
2,536,111
|
39
|
%
|
|||||
|
Customer
B
|
1,552,084
|
13
|
%
|
1,258,567
|
19
|
%
|
|||||||
F-35
NOTE
10.
COMMITMENT AND CONTINGENCIES
Leases
Ranor,
Inc. has leased its manufacturing, warehouse and office facilities in
Westminster (Westminster Lease), Massachusetts from WM Realty,
a
variable interest entity, for a term of 15 years, commencing February 24,
2006.
For the quarters ended June 30, 2008 and 2007, the Company’s rent expenses were
$112,500 and $109,625, respectively. Since the Company consolidated the
operations of WM Realty pursuant to FIN 46, the rental expense is eliminated
in
consolidation, the building is carried at cost and depreciation is expensed.
The
annual rent is subject to an annual increase based on the increase in the
consumer price index.
The
Company has an option to purchase the real property at fair value and an
option
to extend the term of the lease for two additional terms of five years, upon
the
same terms. The minimum rent payable for each option term will be the greater
of
(i) the minimum rent payable under the lease immediately prior to either
the
expiration date, or the expiration of the preceding option term, or (ii)
the
fair market rent for the leased premises.
The
Company also has leased approximately 12,720 square feet of
manufacturing space
in
Fitchburg, Massachusetts (“Fitchburg Lease”) from an unaffiliated lessor. The
lease provides for rent at the annual rate of $50,112 with 3% annual increases,
starting 2004. The lease expires in February 2009, and is renewable for a
five
year term. The company’s rent expense for this facility was $12,528 for the
three months ended June 30, 2008. The Company has the option to purchase
the
property at the appraised market value.
The
minimum future lease payments under the Company’s real property leases are as
follows:
|
Year
Ended June 30,
|
Amount
|
|||
|
Operating
Lease- Fitchburg Lease
|
||||
|
2009
|
$
|
33,408
|
||
|
Total
|
$
|
33,408
|
||
|
Lease
Payments to WM Realty
|
||||
|
2009
|
450,000
|
|||
|
2010
|
450,000
|
|||
|
2011
|
450,000
|
|||
|
2012
|
450,000
|
|||
|
2013
|
450,000
|
|||
|
2014-2018
|
2,250,000
|
|||
|
2019-2022
|
1,650,000
|
|||
|
Total
|
$
|
6,150,000
|
||
F-36
Part
II
INFORMATION
NOT REQUIRED TO BE IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution
The
estimated expenses of the registration, all of which will be paid by the
Company, are as follows:
|
Item
|
|
Amount
|
|
|
|
SEC
filing fee
|
|
$
|
|
|
|
Printing
and filing
|
|
|
|
|
|
Legal
expenses, including blue sky
|
|
|
|
|
|
Accounting
expenses
|
|
|
|
|
|
Miscellaneous
|
|
|
|
|
|
Total
|
|
$
|
|
|
*
Estimated
Item
14. Indemnification of Officers and Directors
The
Company’s certificate of incorporation provide that the liability of the
directors of the corporation for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law and provides for indemnification
to the extent permitted by Delaware law.
The
Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for any breach
of the director’s duty of loyalty to the corporation or its stockholders; acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; payments of unlawful dividends or unlawful stock
repurchases or redemptions, or any transaction from which the director derived
an improper personal benefit.
Section
145 of the Delaware General Corporation Law provides that a corporation may
indemnify directors and officers as well as other employees and individuals
against expenses including attorneys’ fees, judgments, fines and amounts paid in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or
in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys’ fees
incurred in connection with the defense or settlement of such actions, and
the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation.
The
statute provides that it is not exclusive of other indemnification that may
be
granted by a corporation’s certificate of incorporation, bylaws, agreement, a
vote of stockholders or disinterested directors or otherwise.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, offices or controlling persons of the Company, pursuant
to the foregoing provisions, or otherwise, the Company has been advised that,
in
the opinion of the Securities and Exchange Commission, such indemnification
is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered
hereunder, the Company will, unless in the opinion of its counsel the matter
has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-1
In
connection with our organization in February 2005, we issued 1,000,000 to
Capital Markets for $100 and 20,000 shares to Mark Allen for $2. Both purchasers
are “accredited investors” and they represented in writing that they acquired
the securities for their own accounts. They are founders of Lounsberry Holdings
II, Inc. In February 2006, in connection with the reverse acquisition, we
purchased 928,000 shares from Capital Markets for $167,602, and paid $32,398
of
debt due to Capital Markets. The issuance of these shares is exempt from the
registration requirement pursuant to Section 4(2) of the Securities Act as
a
transaction not involving a public offering. Each investor acquired the shares
for investment and the stock certificates bear an investment legend. No broker
or underwriter was involved in the sale of the shares and no brokerage or
underwriting commission was paid.
In
December 2005, we issued 8,000 shares of common stock for $2,000. The sales
were
made directly by the Company to persons known by the Company. One of the
investors, Michael Byl, is president of Southridge Investment Group, LLC, an
NASD registered broker-dealer formerly known as Greenfield Capital Partners
LLC
(“Southridge”). Southridge is affiliated by common ownership with Capital
Markets in that both are controlled by a family limited partnership in which
Steve Hicks has voting and disposition control. The following table indicates
the accredited investors and their family members. For those listed with a
family relationship, the funds were provided by the related accredited
investor.
|
Nelson
Broms - Accredited
|
|
Pearl
Broms—Accredited
|
|
CFO
Managed Fund I LLC
-
Accredited
|
|
Jeffrey
Hicks - Brother of Steve Hicks
|
|
Anna
Crawford - Sister-in-law of Steve Hicks
|
|
Christopher
Toppin—Accredited
|
|
James
McKeever—Accredited
|
|
Antonio
A. Yenidjeian
|
|
Stephen
Hieber
|
|
Susan
Isley
|
|
Gina
Pacific
|
|
Joanne
Leftwich
|
|
Emilia
P. Cantelio
|
|
Mary
Ellen Schloth—Accredited
|
|
Brenda
Garzi—Accredited
|
|
Joseph
Garzi—Accredited
|
|
Gabrielle
Guttman
|
|
Brittany
Moss
|
|
Jennifer
Rasmussen
|
|
Brooke
Rodgerson
|
|
John
Rodgerson
|
|
Erika
Magnussen
|
|
Zoe
Hicks - Niece of Steve Hicks
|
|
Ellen
Hicks - Niece of Steve Hicks
|
|
Carol
Hicks - Sister-in-law of Steve Hicks
|
|
Bradley
Hicks - Brother of Steve Hicks
|
|
Mary
Hicks - Accredited
|
|
Taylor
Hicks - Daughter of Steve Hicks
|
|
Jonathan
Hicks - Son of Steve Hicks
|
|
Lori
Cipot
|
|
Tonya
Toriari
|
|
Sarah
Licata
|
|
Debra
Case
|
|
Michael
Byl - Accredited
|
|
Claire
Byl - Daughter of Michael Byl
|
|
Kendall
Byl - Son of Michael Byl
|
|
Tracy
Byl - Accredited
|
|
Jean
McKeever - Accredited
|
|
Larry
Ditkoff - Accredited
|
|
Henry
Sargent
|
II-2
Of
the
investors who are not accredited investors or family members of accredited
investors, each of the investors has the understanding of the nature of the
investment, including the fact that the shares may not be sold except pursuant
to a registration statement and that they may never be a registration statement
covering their shares. These investors have experience in investing in blind
pool shell companies and have a relationship with either Steve Hicks or Mark
Allen. In no case did the investment constitute more than an insignificant
portion of the investor’s net worth or assets.
No
broker
or underwriter was involved in the sale of the shares and no brokerage or
underwriting commission was paid. Each of the investors was provided with a
placement memorandum disclosing the Company’s proposed business, and management
was available to respond to any questions they may have and had the
sophistication with respect to their investment in the Company, then known
as
Lounsberry. Each of the investors had experience participating in similar
offerings of stock and understood the nature of the restriction on their shares,
including their inability to sell the shares without a registration statement.
The purchasers acquired the shares for their own accounts and not with a view
to
the sale or distribution thereof. The stock certificates representing the shares
bear a restrictive legend. The issuance of these shares is exempt from the
registration requirement pursuant to Section 4(2) of the Securities Act as
a
transaction not involving a public offering, and each of the investors was
known
to the Company. Each investor acquired the shares for investment and the stock
certificates bear an investment legend.
On
February 24, 2006, we issued the following securities:
|
|
·
|
Pursuant
to the preferred stock purchase agreement, we sold to Barron Partners,
for
an aggregate of $2.2 million, (i) 7,719,250 shares of series A preferred
stock, and (ii) warrants to purchase 5,610,000 shares of common stock
at
$.57 per share and 5,610,000 shares of common stock at $.855 per
share.
Barron Partners is a highly sophisticated investor that makes investments
in public companies or companies that become public in connection
with its
investment. Barron Partners had access to information concerning
Ranor and
the terms of the acquisition of Ranor, as well as access to the Company’s
officers. Through August 21, 2008, Barron Partners has exercised
warrants
to purchase 1,900,000 shares of common stock and converted 968,485
shares
of series A preferred stock into 1,266,000 shares of common
stock.
|
|
|
·
|
|
Name
|
|
No.
Shares
|
|
|
|
James
G. Reindl
|
|
|
3,095,300
|
|
|
Andrew
A. Levy
|
|
|
2,825,300
|
|
|
Redstone
Capital Corporation
|
|
|
250,000
|
|
|
Stanley
Youtt
|
|
|
796,000
|
|
|
Martin
Daube
|
|
|
741,400
|
|
|
Larry
Steinbrueck
|
|
|
204,000
|
|
|
Michael
Holly
|
|
|
85,000
|
|
|
Total
|
|
|
7,997,000
|
|
Mr.
Levy
is president of Redstone Capital Corporation and the stock of Redstone is owned
by Mr. Levy and his wife. Mr. Reindl, Mr. Levy and Mr. Daube are the founders
of
Ranor Acquisition LLC. Mr. Youtt, who is president of Ranor and a director
of
the Company, was Ranor’s president and CEO prior to the reverse acquisition. Mr.
Steinbrueck and Mr. Holly are sophisticated investors who are directors of
the
Company.
|
|
·
|
We
sold 1,700,000 shares of common stock to Stanoff Corporation for
$500,000.
Stanoff is operated by Howard Weingrow and owned by his family. Mr.
Weingrow is a very sophisticated and wealthy investor. He had access
to
information concerning the Company through Mr.
Levy.
|
|
|
Shares
|
|
||
|
Mathers
Associates
|
|
|
80,000
|
|
|
Grace
Sorensen
|
|
|
40,000
|
|
|
Glenn
Goldfinger
|
|
|
40,000
|
|
|
Mary
Desmond
|
|
|
10,000
|
|
|
Total
|
|
|
170,000
|
|
II-3
The
Company and its founders, Mr. Reindl, Mr. Levy and/or Mr. Daube, had existing
relationship with each of the persons to whom stock was issued, and the
stockholders who acquired the shares for their own accounts and not with a
view
to the sale or distribution thereof. Mathers Associates is an investment fund
run by professionals. Ms. Sorensen is a personal friend of Mr. Reindl and Mr.
Levy, and Mr. Goldfinger is a personal friend of Mr. Levy and he has invested
with Mr. Levy in the past. Mathers, Ms. Sorensen and Mr. Goldfinger had access
to information concerning Ranor and the Company through Mr. Levy or Mr. Reindl.
Ms. Desmond is the Company’s chief financial officer and she served in that
capacity for Ranor before the reverse acquisition. None of these individuals
made any cash payment for their securities.
The
issuance of these shares on February 24, 2006 is exempt from the registration
requirement pursuant to Section 4(2) of the Securities Act as a transaction
not
involving a public offering and Rule 506 of the SEC thereunder. Each investor
is
an accredited investor, as defined in Rule 501, purchased the securities for
his
or her own account, understood the restricted nature of the shares, and was
provided information pursuant to Rule 502.
II-4
Item
27. Exhibits
|
2.1
|
Stock
purchase agreement dated August 17, 2005, by and among Ranor Acquisition,
LLC, the stockholders of Ranor and Ranor, Inc. 1
|
|
3.1
|
Certificate
of incorporation 1
|
|
3.2
|
By-laws
2
|
|
3.3
|
Certificate
of Designation for the Series A Convertible Preferred Stock 4
|
|
4.1
|
Loan
and security agreement dated February 24, 2006, between Ranor and
Sovereign Bank 1
|
|
4.2
|
Guaranty
from the Registrant to Sovereign Bank 1
|
|
4.3
|
Form
of warrant issued to Barron Partners LP 1
|
|
4.4
|
First
amendment dated January 29, 2007 to loan and security agreement dated
February 24, 2006, between Ranor, Inc. and Sovereign Bank and forms
of
notes 6
|
|
4.5
|
Second
amendment dated June, 2007 to loan and security agreement dated February
24, 2006, between Ranor, Inc. and Sovereign Bank and forms of revolving
note 1
|
|
4.6
|
Mortgage
security agreement and fixture filing dated October 4, 2006, from
WM
Realty Management, LLC to Amalgamated Bank 1
|
|
4.7
|
Mortgage
note dated October 4, 2006 1
|
|
4.8
|
Third Amendment dated November 30, 2007 to loan and security agreement
dated February 24, 2006, between Ranor, Inc. and Sovereign Bank and
form
of amended and restated note 3.
11
|
|
5.1
|
Opinion
of Sichenzia Ross Friedman Ference LLP.3
|
|
Preferred
stock purchase agreement dated February 24, 2006, between the Registrant
and Barron Partners, LP 1
|
|
|
10.2
|
Registration
rights agreement dated February 24, 2006, between the Registrant
and
Barron Partners LP 1
|
|
10.3
|
Agreement
dated February 24, 2006, among the Registrant, Ranor Acquisition
LLC and
the members of Ranor Acquisition LLC 1
|
|
10.4
|
Subscription
Agreement dated February 24, 2006 1
|
|
10.5
|
Registration
rights provisions pursuant to the agreements listed in Exhibits 10.3
and
10.4 1
|
|
10.6
|
Employment
agreement between the Registrant and Stanley Youtt 1
|
|
10.7
|
Lease,
dated February 24, 2006 between WM Realty Management, LLC and Ranor
1
|
|
10.8
|
2006
Long-term incentive plan 4
|
|
10.9
|
Settlement
agreement and general release dated February 13, 2007, among the
Company,
Green Mountain Partners III, L.P. 6
|
|
10.10
|
Letter
agreement dated January, 2007 between Techprecision Corporation and
Techprecision LLC 7
|
|
10.11
|
Limited
guarantee dated October 4, 2006 from Andrew Levy to Amalgamated Bank
1
|
|
10.12
|
Employment
agreement dated as of April 1, 2007 between the Company and James
G.
Reindl 8
|
|
10.13
|
Employment
agreement dated April 1, 2007 between the Company and Mary Desmond.
11
|
|
10.15
|
Purchase
order from Electric Boat Corporation dated November 9, 2006 1
|
|
10.16
|
Purchase
order from GT Solar Incorporated dated January 22, 2007 1,10
|
|
10.17
|
Purchase
order from L3 Communications ESSCO dated March 29, 2006 1
|
|
14.1
|
Code
of business conduct and ethics 4
|
|
21.1
|
List
of Subsidiaries 11
|
|
23.1
|
Consent
of Sichenzia Ross Friedman Ference LLP (included in Exhibit
5.1)
|
|
23.2
|
Consent
of Tabriztchi & Co., CPA, P.C.
3
|
|
1
|
Filed
as an exhibit to the Company’s registration statement on Form SB-2, File
No. 333-133509, and incorporated hereby by reference.
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2
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Filed
as an exhibit to the Company’s registration statement on Form 10-SB, which
was filed with the Commission on June 23, 2005 and incorporated herein
by
reference.
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3
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Filed
herewith.
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4
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Filed
as an appendix to the Company’s information statement of Schedule 14-C,
and incorporated herein by reference.
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5
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Filed
as an exhibit to the Company’s annual report on Form 10-KSB for the year
ended December 31, 2005 and incorporated hereby
reference.
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6
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Filed
as an exhibit to the Company’s current report on Form 8-K, which was filed
with the commission on February 20, 2007.
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7
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Filed
as an exhibit to the Company’s current report on Form 8-K, which was filed
with the commission on February 8, 2007.
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8
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Filed
as an exhibit to the Company’s current report on Form 8-K, which was filed
with the commission on June 26, 2007.
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9
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Filed
as an exhibit to the Company’s annual report on Form 10-KSB for the year
ended March 31, 2007 and incorporated herein by
reference.
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10
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Confidential
treatment requested.
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11
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Filed
as an exhibit to the Company’s annual report on Form 10-KSB for the year
ended March 31, 2008 and incorporated herein by
reference.
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II-5
The
undersigned Company hereby undertakes to:
(1)
File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act
if,
in the aggregate, the changes in volume and price represent no more than a
20%
change in the maximum aggregate offering price set forth in the "Calculation
of
Registration Fee" table in the effective registration statement,
and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3)
File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4)
For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means
of
any of the following communications, the undersigned small business issuer
will
be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i)
Any
preliminary prospectus or prospectus of the undersigned small business issuer
relating to the offering required to be filed pursuant to;
(ii)
Any
free writing prospectus relating to the offering prepared by or on behalf of
the
undersigned small business issuer or used or referred to by the undersigned
small business issuer;
(iii)
The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned small business issuer or its
securities provided by or on behalf of the undersigned small business issuer;
and
(iv)
Any
other communication that is an offer in the offering made by the undersigned
small business issuer to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that
in
the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the Company of expenses incurred or paid by a director, officer
or
controlling person of the Company in the successful defense of any action,
suit
or proceeding) is asserted by such director, officer or controlling person
in
connection with the securities being registered, the Company will, unless in
the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on, shall be deemed to be part
of
and included in the registration statement as of the date it is first used
after
effectiveness. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made
in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as
to a
purchaser with a time of contract of sale prior to such first use, supersede
or
modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such date of first use.
II-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Westminster, Commonwealth of Massachusetts on this
27th
day of
August, 2008.
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TECHPRECISION
CORPORATION
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| By: | /s/ James G. Reindl | |
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James
G. Reindl, CEO
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Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration
statement 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 constitutes and appoints James G. Reindl his true and lawful
attorneys-in-fact, with full power of substitution and resubstitution, for
him
and in his name, place and stead, in any and all capacities to sign any and
all
amendments (including post-effective amendments) to this registration statement
and to sign a registration statement pursuant to Section 462(b) of the
Securities Act of 1933, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact, full power and authority
to do
and perform each and every act and thing requisite and necessary to be done
in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact or his substitute or substitutes, may lawfully do or cause
to
be done by virtue hereof.
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Signature
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Title
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Date
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/s/
James G. Reindl
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Chief
Executive Officer
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August
27, 2008
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James
G. Reindl.
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and
Director
(Principal
Executive Officer)
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/s/
Mary Desmond
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Chief
Financial Officer
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August
27, 2008
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Mary
Desmond
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(Principal
Financial and Accounting Officer)
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/s/
Stanley A. Youtt
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Director
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August
26, 2008
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Stanley
A. Youtt
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Director
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August
, 2008
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Michael
Holly
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/s/
Larry Steinbrueck
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Director
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August
25, 2008
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Larry
Steinbrueck
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/s/
Louis Winoski
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Director
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August
26, 2008
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Louis
A. Winoski
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II-7