UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
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| Accelerated filer | ☐ |
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| Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes
The number of shares outstanding of the registrant’s common stock as of November 10, 2023, was
TABLE OF CONTENTS
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 19 | |
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37 |
2
PART I
ITEM 1. FINANCIAL STATEMENTS
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, | March 31, | |||||
| 2023 |
| 2023 | |||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net |
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Contract assets |
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Raw materials | | | ||||
Work-in-process | | | ||||
Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Right-of-use asset, net | | | ||||
Deferred income taxes |
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Other noncurrent assets, net |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses |
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Contract liabilities |
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Current portion of long-term lease liability |
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Current portion of long-term debt, net | | | ||||
Total current liabilities |
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Long-term debt, net |
| — |
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Long-term lease liability | | | ||||
Other noncurrent liability | | | ||||
Total liabilities | | | ||||
Commitments and contingent liabilities (see Note 14) | ||||||
Stockholders’ Equity: | ||||||
Common stock - par value $ |
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Additional paid in capital |
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Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to the condensed consolidated financial statements.
3
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
Net sales | $ | | $ | | $ | | $ | | |||||
Cost of sales |
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Gross profit |
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Selling, general and administrative |
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Loss from operations | ( | ( | ( | ( | |||||||||
Other income |
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Interest expense |
| ( |
| ( | ( | ( | |||||||
Refundable employee retention tax credits |
| — |
| | — | | |||||||
Total other (expense) income |
| ( |
| | ( | | |||||||
(Loss) income before income taxes |
| ( |
| | ( | ( | |||||||
Income tax (benefit) expense | ( |
| | ( | ( | ||||||||
Net (loss) income | $ | ( | $ | | $ | ( | $ | ( | |||||
Net (loss) earnings per share basic | $ | ( | $ | | $ | ( | $ | ( | |||||
Net (loss) earnings per share diluted | $ | ( | $ | | $ | ( | $ | ( | |||||
Weighted average shares outstanding - basic | |
| | | | ||||||||
Weighted average shares outstanding - diluted | | | | |
See accompanying notes to the condensed consolidated financial statements.
4
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
Retained | ||||||||||||||
| Common |
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| Additional |
| Earnings |
| Total | ||||||
| Stock | Par |
| Paid in |
| (Accumulated |
| Stockholders’ | ||||||
| Outstanding |
| Value |
| Capital |
| Deficit) |
| Equity | |||||
Balance March 31, 2022 |
| | $ | | $ | | $ | | $ | | ||||
Stock based compensation | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance June 30, 2022 | | $ | | $ | | $ | | $ | | |||||
Stock-based compensation | — | — | | — | | |||||||||
Stock issued for contingent consideration | | | | — | | |||||||||
Stock award nonemployee directors | | | | — | | |||||||||
Net income | — | — | — | | | |||||||||
Balance September 30, 2022 | | $ | | $ | | $ | | $ | | |||||
Balance March 31, 2023 | | $ | | $ | | $ | ( | $ | | |||||
Net loss | — | — | — | ( | ( | |||||||||
Balance June 30, 2023 | | $ | | $ | | $ | ( | $ | | |||||
Stock issued for exercised options | | | ( | — | — | |||||||||
Stock used for tax withholding at exercise | — | — | ( | — | ( | |||||||||
Restricted stock award | | | ( | — | — | |||||||||
Stock-based compensation | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance September 30, 2023 | | $ | | | $ | ( | $ | |
See accompanying notes to the condensed consolidated financial statements.
5
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended September 30, | ||||||
| 2023 |
| 2022 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of debt issue costs |
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Stock-based compensation expense |
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Change in contract loss provision |
| ( |
| ( | ||
Deferred income taxes |
| ( |
| ( | ||
Gain on disposal of fixed assets | ( | — | ||||
Change in fair value for contingent consideration | — | | ||||
Changes in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Contract assets |
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| ( | ||
Work-in-process and raw materials |
| ( |
| ( | ||
Other current assets |
| ( |
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Accounts payable |
| ( |
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Accrued expenses |
| ( |
| ( | ||
Contract liabilities |
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Other noncurrent liabilities | | | ||||
Net cash provided by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from insurance claim on fixed assets | | — | ||||
Fixed asset deposit | — | ( | ||||
Purchases of property, plant and equipment |
| ( |
| ( | ||
Net cash used in investing activities | ( | ( | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Debt issue costs | — | ( | ||||
Revolver loan payments and borrowings, net | | ( | ||||
Payments of principal for leases | ( | ( | ||||
Repayments of long-term debt |
| ( | ( | |||
Net cash provided by (used in) financing activities |
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| ( | ||
Net decrease in cash and cash equivalents |
| ( |
| ( | ||
Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period | $ | | $ | | ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: |
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Cash paid for interest, net of amounts capitalized | $ | | $ | |
See accompanying notes to the condensed consolidated financial statements.
SUPPLEMENTAL INFORMATION – NONCASH INVESTING AND FINANCING TRANSACTIONS:
On July 13, 2023, our former CFO exercised an option to purchase
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
TechPrecision Corporation, or “TechPrecision”, is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. On February 24, 2006, we acquired all of the issued and outstanding capital stock of our wholly owned subsidiary Ranor, Inc., or “Ranor.” Ranor, together with its predecessors, has been in continuous operation since 1956. The company’s name was changed to TechPrecision Corporation on March 6, 2006.
On August 25, 2021, the Company completed its previously announced acquisition of Stadco, pursuant to that certain stock purchase agreement with Stadco New Acquisition, LLC, or “Acquisition Sub”, Stadco Acquisition, LLC, Stadco and each equity holder of Stadco Acquisition, LLC. On the closing date, the Company, through Acquisition Sub, acquired all the issued and outstanding capital stock of Stadco from Stadco Acquisition, LLC in exchange for the issuance of shares of the Company’s common stock to Stadco Acquisition, LLC. As a result of the acquisition, Stadco is now our wholly owned indirect subsidiary.
TechPrecision is the parent company of Ranor, Westminster Credit Holdings, LLC, or “WCH”, Acquisition Sub, and Stadco. TechPrecision, Ranor, WCH, Acquisition Sub and Stadco are collectively referred to as the “Company”, “we”, “us” or “our”.
We manufacture large-scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets, primarily defense and aerospace, and secondarily precision industrial. All our operations and customers are in the United States, or “U.S.”.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the accounts of TechPrecision, Ranor, Stadco, WCH, and Acquisition Sub. All intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of September 30, 2023, the condensed consolidated statements of operations and stockholders’ equity for the three and six months ended September 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the six months ended September 30, 2023 and 2022 are unaudited, but, in the opinion of management, include all adjustments that are necessary for a fair presentation of our financial statements for interim periods in accordance with U.S. Generally Accepted Accounting Principles, or “U.S. GAAP”. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The results of operations for an interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. On February 23, 2023, the Company effected a
-for-four reverse stock split with respect to the issued and outstanding shares of TechPrecision common stock. All share and per-share amounts included in this Form 10-Q are presented as if the stock split had been effective from the beginning of the earliest period presented.These notes to the condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the “SEC”, for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements and related notes should be read in conjunction with the consolidated financial statements included with our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with the SEC on June 15, 2023.
Use of Estimates in the Preparation of Financial Statements - In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the reporting period. We continually evaluate our estimates, including those related to revenue recognition and income taxes. We base our estimates on historical and current experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.
Liquidity and Going Concern - Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income. For the six months ended September 30, 2023 we reported a net loss ($
7
As of September 30, 2023, we had $
The Company is the borrower under the Loan Agreement (as defined below; see Note 11 – Debt). There was $
The Company was not in compliance with certain of the financial covenants at September 30, 2023 and has requested a waiver from Berkshire Bank, the lender, but has not yet received approval from the bank. Under the terms of the loan agreement, the bank has the right to demand repayment. If the lender demands repayment the Company will be unable to pay the obligation because the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations. Also, it is probable that the Company will not be in compliance with the same debt covenants at subsequent measurement dates within the next twelve months. As such, all of our long-term debt has been classified as current in our condensed consolidated balance sheet.
Without a waiver, the lender has the right, but not the obligation, to demand repayment from the Company for noncompliance with the debt covenants. In addition, the bank retains the right to act on covenant violations that occur after the date of delivery of any waiver. If the lender were to decline to grant us a waiver and instead demand repayment, we would need to seek alternative financing to pay these obligations as the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations.
The Company is exploring various means of strengthening its liquidity position and ensuring compliance with its debt financing covenants, which may include the obtaining of waivers from our current lender, amending our facility or entering into one or more alternative facilities.
In order for us to continue operations beyond the next twelve months from the date of issuance of the financial statements and to be able to discharge our liabilities and commitments in the normal course of business, we must mitigate our recurring operating losses at our Stadco subsidiary. We must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process, so our direct labor hours (inputs) allow us to recognize more revenue over time (outputs) and improve job performance. We plan to closely monitor our expenses and, if required, will reduce operating costs to enhance liquidity.
The uncertainty associated with the recurring operating losses at Stadco, the current violation of debt covenants, and the expected debt covenant violation at subsequent compliance dates raise substantial doubt about our ability to continue as a going concern within one-year after the date the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued.
The condensed consolidated financial statements for the six months ended September 30, 2023 were prepared on the basis of a going concern which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should we be required to liquidate assets. Our ability to satisfy our current liabilities and to continue as a going concern is dependent upon the Company’s compliance with the debt covenants and its ability to grow revenue and reduce costs at Stadco. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
New Accounting Standards Recently Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03. The guidance in these ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used. The standard also establishes additional disclosures related to credit risks. This standard was effective for fiscal years beginning after December 15, 2022. The adoption of this ASU on April 1, 2023 did not have a significant impact on the Company’s condensed financial statements and disclosures.
8
NOTE 3 – REVENUE
The Company generates revenue primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can be between
and . Revenue is recognized over-time or at a point-in-time given the terms and conditions of the related contracts. The Company utilizes an inputs methodology based on estimated labor hours to measure performance progress. This model best depicts the transfer of control to the customer. The Company’s contract portfolio is comprised of fixed-price contracts and provides for product-type sales only. The following table presents net sales on a disaggregated basis by market and contract type:Net Sales by market |
| Defense |
| Industrial |
| Totals | |||
Three months ended September 30, 2023 | $ | | $ | | $ | | |||
Three months ended September 30, 2022 | $ | | $ | | $ | | |||
Six months ended September 30, 2023 | $ | $ | $ | ||||||
Six months ended September 30, 2022 | $ | $ | $ |
Net Sales by contract type |
| Over-time |
| Point-in-time |
| Totals | |||
Three months ended September 30, 2023 | $ | | $ | | $ | | |||
Three months ended September 30, 2022 | $ | | $ | | $ | | |||
Six months ended September 30, 2023 | $ | $ | $ | ||||||
Six months ended September 30, 2022 | $ | $ | $ |
As of September 30, 2023, the Company had $
We are dependent each year on a small number of customers who generate a significant portion of our business, and these customers change from year to year. The following table sets forth revenues from customers who accounted for more than 10% of our net sales.
Three months ended | Three months ended | Six months ended | Six months ended | ||||||||||||||||||
September 30, 2023 | September 30, 2022 |
| September 30, 2023 | September 30, 2022 | |||||||||||||||||
Customer |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| ||||
A | $ | |
| | % | $ | |
| | % | $ | | | % | $ | | | % | |||
B | $ | |
| | % | $ | * |
| * | % | $ | | | % | $ | * | * | % | |||
C | $ | * | * | % | $ | | | % | $ | * | * | % | $ | | | % | |||||
D | $ | * | * | % | $ | | | % | $ | * | * | % | $ | | | % |
*Less than 10% of total
In our condensed consolidated balance sheet, contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. For the six months ended September 30, 2023, we recognized revenue of approximately $
Progress | |||||||||
| Unbilled |
| payments |
| Total | ||||
September 30, 2023 | $ | | $ | ( | $ | | |||
March 31, 2023 | $ | | $ | ( | $ | |
9
NOTE 4 – INCOME TAXES
The Company accounts for income taxes under ASC 740, Income Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. We recorded an income tax benefit for the three ($
The valuation allowance on deferred tax assets was approximately $
NOTE 5 – EARNINGS PER SHARE (EPS)
Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average number of shares outstanding. Diluted EPS also includes the effect of stock options that would be dilutive. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations for the periods ended:
| Three Months ended |
| Three Months ended |
| Six Months ended |
| Six Months ended | |||||
September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||
Basic EPS |
| |||||||||||
Net (loss) income | $ | ( | $ | | $ | ( | $ | ( | ||||
Weighted average shares |
| |
| |
| |
| | ||||
Net (loss) earnings per share | $ | ( | $ | | $ | ( | $ | ( | ||||
Diluted EPS | ||||||||||||
Net (loss) income | $ | ( | $ | | $ | ( | $ | ( | ||||
Dilutive effect of stock options |
| — |
| |
| — |
| — | ||||
Weighted average shares |
| |
| |
| |
| | ||||
Net (loss) earnings per share | $ | ( | $ | | $ | ( | $ | ( |
All potential common stock equivalents that have an anti-dilutive effect are excluded from the calculation of diluted EPS (i.e., those that increase income per share or decrease loss per share). For the three months and six months ended September 30, 2023 there were potential anti-dilutive stock options and warrants of
10
NOTE 6 – STOCK-BASED COMPENSATION
The 2016 TechPrecision Equity Incentive Plan, or the “2016 Plan”, is designed to reflect our commitment to having best practices in both compensation and corporate governance. The 2016 Plan provides for a share reserve of
On July 13, 2023, our former CFO exercised an option to purchase
The following table summarizes information about options granted during the most recently completed periods:
Weighted | ||||||||||
Average | ||||||||||
Weighted | Aggregate | Remaining | ||||||||
Number Of | Average | Intrinsic | Contractual Life | |||||||
| Options |
| Exercise Price |
| Value |
| (in years) | |||
Outstanding at March 31, 2023 | | $ | | $ | | |||||
Exercised | ( | $ | | | — | |||||
Outstanding at September 30, 2023 | | $ | | $ | | |||||
Vested or expected to vest at September 30, 2023 |
| | $ | | $ | |
| |||
Exercisable and vested at September 30, 2023 |
| | $ | | $ | |
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the second quarter of fiscal 2024 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2023. This amount changes based on the fair market value of the Company’s common stock. The maximum contractual term is
Weighted | ||||||||||||
|
| Average |
|
|
| |||||||
| Remaining |
| Weighted |
| Weighted | |||||||
Options |
| Contractual | Average | Options | Average | |||||||
Range of Exercise Prices: |
| Outstanding |
| Term |
| Exercise Price |
| Exercisable |
| Exercise Price | ||
$ |
| |
| $ | |
| | $ | | |||
$ |
| |
| $ | |
| | $ | | |||
Totals |
| |
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|
|
| |
|
|
On August 3, 2023 the Company issued
At September 30, 2023, there were
11
NOTE 7 - CONCENTRATION OF CREDIT RISK
We maintain bank account balances, which, at times, may exceed insured limits. We have not experienced any losses with these accounts and believe that we are not exposed to any significant credit risk on cash.
On September 30, 2023, there were trade accounts receivable balances outstanding from
September 30, 2023 | March 31, 2023 |
| |||||||||
Customer |
| Dollars |
| Percent |
| Dollars |
| Percent |
| ||
A | $ | |
| | % | $ | |
| | % | |
B | $ | * |
| * | % | $ | |
| | % | |
C | $ | |
| | % | $ | * |
| * | % | |
D | $ | * |
| * | % | $ | |
| | % | |
E | $ | |
| | % | $ | * |
| * | % |
*less than 10% of total
NOTE 8 - OTHER CURRENT ASSETS
Other current assets included the following as of: |
| September 30, 2023 |
| March 31, 2023 | ||
Prepaid taxes | $ | | $ | | ||
Prepaid insurance |
| |
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Prepaid subscriptions |
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Deposits | | | ||||
Employee advances |
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Prepaid advisory fees, other |
| |
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Total | $ | | $ | |
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following as of: |
| September 30, 2023 |
| March 31, 2023 | ||
Land | $ | | $ | | ||
Building and improvements |
| |
| | ||
Machinery equipment, furniture, and fixtures |
| |
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Construction-in-progress |
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Total property, plant, and equipment |
| |
| | ||
Less: accumulated depreciation and amortization |
| ( |
| ( | ||
Total property, plant and equipment, net | $ | | $ | |
We capitalize interest on borrowings during active construction periods for major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Interest capitalized for the six months ended September 30, 2023 was $
12
NOTE 10 - ACCRUED EXPENSES
Accrued expenses included the following as of: |
| September 30, 2023 |
| March 31, 2023 | ||
Accrued compensation | $ | | $ | | ||
Provision for claims | | | ||||
Provision for contract losses |
| |
| | ||
Accrued professional fees |
| |
| | ||
Accrued project costs |
| |
| | ||
Other |
| |
| | ||
Total | $ | | $ | |
Accrued compensation includes amounts for executive bonuses, payroll and vacation and holiday pay. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in the provision are recorded in cost of sales. Accrued project costs are estimates for certain project expenses during the reporting period.
NOTE 11 – DEBT
Long-term debt included the following as of: |
| September 30, 2023 |
| March 31, 2023 | ||
Stadco Term Loan, at | $ | | $ | | ||
Ranor Term Loan, at | | | ||||
Ranor Revolver Loan, at | | | ||||
Total debt | $ | | $ | | ||
Less: debt issue costs unamortized | $ | | $ | | ||
Total debt, net | $ | | $ | | ||
Less: Current portion of long-term debt | $ | | $ | | ||
Total long-term debt, net | $ | — | $ | |
Amended and Restated Loan Agreement
On August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank, or the “Loan Agreement”. Under the Loan Agreement, Berkshire Bank will provide the Ranor Term Loan (as defined below) and the revolving line of credit, or the “Revolver Loan”. In addition, Berkshire Bank provided the Stadco Term Loan (as defined below) in the original amount of $
Stadco Term Loan
On August 25, 2021, Stadco borrowed $
Unamortized debt issue costs on September 30, 2023 and March 31, 2023 were $
Ranor Term Loan and Revolver Loan
A term loan was made to Ranor by Berkshire Bank in 2016 in the amount of $
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On December 23, 2022, Ranor and certain affiliates of the Company entered into a Fifth Amendment to Amended and Restated Loan Agreement, Fifth Amendment to Promissory Note and First Amendment to Second Amended and Restated Promissory Note, or the “Amendment”. Effective as of December 20, 2022, the Amendment, among other things (i) extends the maturity date of the Ranor Term Loan to December 15, 2027, (ii) extends the maturity date of the Revolver Loan from December 20, 2022 to December 20, 2023, (iii) increases the interest rate on the Ranor Term Loan from
Under the Loan Agreement, Berkshire Bank also makes available to Ranor the Revolver Loan, which has a maximum principal amount available of $
The Company agrees to pay to Berkshire Bank, as consideration for Berkshire Bank’s agreement to make the Revolver Loan available, a nonrefundable Revolver Loan fee equal to
Under the amended promissory note for the Revolver Loan, the Company can elect to pay interest at the Term SOFR-based rate or an Adjusted Prime Rate, each as defined in the agreement. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The prior LIBOR-based rate expired on December 20, 2022.
There was approximately $
Unamortized debt issue costs at September 30, 2023 and March 31, 2023 were $
Berkshire Loan Covenants
For purposes of this discussion, Ranor and Stadco are referred to together as the “Borrowers”. The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or together, the “Berkshire Loans”, may be accelerated upon the occurrence of an event of default as defined in the Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the Loan Agreement, the unpaid principal amount of the Berkshire Loans together with accrued interest and all other obligations owing by the Borrowers to Berkshire Bank would become immediately due and payable without presentment, demand, protest, or further notice of any kind.
The Company agreed to maintain compliance with certain financial covenants under the Loan Agreement. Namely, the Borrowers agree to maintain the ratio of the Cash Flow of TechPrecision-to-the Total Debt Service of TechPrecision of not less than
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interest paid on liabilities, obligations, and reserves of TechPrecision paid by TechPrecision, (ii) all amounts paid by TechPrecision in connection with current maturities of long-term debt and preferred dividends, and (iii) all payments on account of capitalized leases, all as determined in accordance with U.S. GAAP.
The Borrowers agree to cause their Balance Sheet Leverage to be less than or equal
The Borrowers agree that their combined annual capital expenditures shall not exceed $
The Borrowers agree to maintain a Loan-to-Value Ratio of not greater than
On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company’s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024 any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.
The Company was not in compliance with the debt service coverage ratio covenant at September 30, 2023 and has requested a waiver from Berkshire Bank, the lender. Also, it is probable that the Company will not be in compliance with the debt covenants at subsequent measurement dates. As such, all of our long-term debt has been classified as current in our condensed consolidated balance sheet.
Collateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets. The carrying value of short and long-term borrowings approximates their fair value. The Company’s short-term and long-term debt is all privately held with no public market for this debt and is considered to be Level 3 under the fair value hierarchy.
NOTE 12 - OTHER NONCURRENT LIABILITIES
Under an addendum to a contract purchase order, one of our customers agreed to reimburse the Company for the cost of certain new equipment. Payments are received as the Company’s incurs construction costs. We received the first payment in January 2022, with additional payments received during fiscal 2023 and the six months ended September 30, 2023. In case of a contract breach, at the time of the breach, the customer may claw back the funds based on a prorated ten-year straight-line annual declining balance recovery period. This liability amount was included in the Company’s balance sheet as a noncurrent liability as of September 30, 2023 and March 31, 2023 for $
Stadco entered into the Payment Agreement with the Department of Water and Power of the City of Los Angeles (the “LADWP”) to settle previously outstanding amounts for water, water service, electric energy and/or electric service in the aggregate amount of $
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NOTE 13 – LEASES
On August 25, 2021, Stadco became party to an amended building and property operating lease and recorded a right of use asset and liability of $
The following table lists our right-of-use assets and liabilities on our condensed consolidated balance sheets at:
Finance lease: |
|
| ||||
Right of use asset – operating lease | $ | | $ | | ||
Right of use asset – finance leases | |
| | |||
Amortization | ( | ( | ||||
Right of use asset, net | $ | | $ | | ||
Lease liability – operating lease | $ | | $ | | ||
Lease liability – finance leases | | | ||||
Total lease liability | $ | | $ | |
Other supplemental information regarding our leases is contained in the following tables:
Components of lease expense for the six months ended: |
| September 30, 2023 |
| September 30, 2022 | ||
Operating lease amortization | $ | | $ | | ||
Finance lease amortization | $ | | $ | | ||
Finance lease interest | $ | | $ | |
Weighted average lease term and discount rate at: |
| September 30, 2023 |
| September 30, 2022 |
|
Lease term (years) – operating lease |
| ||||
Lease term (years) – finance lease | |||||
Lease rate – operating lease | | % | | % | |
Lease rate – finance lease |
| | % | | % |
Supplemental cash flow information related to leases for the six months ended: |
| September 30, 2023 |
| September 30, 2022 | ||
Cash used in operating activities | $ | | $ | |