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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022

or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                  to                                 

Commission File Number: 000-51378

TechPrecision Corporation

(Exact name of registrant as specified in its charter)

Delaware

    

51-0539828

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

1 Bella Drive

    

 

Westminster, MA

 

01473

(Address of principal executive offices)

 

(Zip Code)

 

 

 

Registrant’s telephone number, including area code

 

(978) 874-0591 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

N/A

 

N/A

 

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

No

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).

Yes

No

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  

Accelerated filer

Non-accelerated filer    

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

No

The number of shares outstanding of the registrant’s common stock as of February 9, 2023, was 34,443,959.

PART I

ITEM 1. FINANCIAL STATEMENTS

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

    

December 31, 

    

March 31, 

2022

2022

ASSETS

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

316,185

$

1,052,139

Accounts receivable

 

2,927,407

 

3,009,249

Contract assets

 

9,356,242

 

8,350,231

Raw materials

1,271,558

874,538

Work-in-process

1,020,566

1,360,137

Other current assets

 

986,024

 

1,421,459

Total current assets

 

15,877,982

 

16,067,753

Property, plant and equipment, net

 

12,640,077

 

13,153,165

Right of use asset, net

6,043,056

6,383,615

Deferred income taxes

 

2,117,985

 

2,126,770

Other noncurrent assets, net

 

726,456

 

121,256

Total assets

$

37,405,556

$

37,852,559

LIABILITIES AND STOCKHOLDERS’ EQUITY:

 

 

  

Current liabilities:

 

 

  

Accounts payable

$

1,489,972

$

3,426,921

Accrued expenses

 

2,443,285

 

3,435,866

Contract liabilities

 

1,905,262

 

1,765,319

Current portion of long-term lease liability

727,803

593,808

Current portion of long-term debt

 

2,069,859

 

4,093,079

Total current liabilities

 

8,636,181

 

13,314,993

Long-term debt, net

 

4,863,602

 

3,114,936

Long-term lease liability

5,481,895

5,853,791

Other noncurrent liabilities

2,828,737

305,071

Total liabilities

21,810,415

22,588,791

Commitments and contingencies - see Note 15

 

 

  

Stockholders’ Equity:

 

 

  

Common stock - par value $.0001 per share, 90,000,000 shares authorized, shares issued and outstanding : December 31, 2022 - 34,443,959; March 31, 2022 - 34,307,450

 

3,444

 

3,430

Additional paid in capital

 

14,945,376

 

14,637,771

Retained earnings

 

646,321

 

622,567

Total stockholders’ equity

 

15,595,141

 

15,263,768

Total liabilities and stockholders’ equity

$

37,405,556

$

37,852,559

See accompanying notes to the condensed consolidated financial statements.

3

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited)

Three Months Ended December 31, 

Nine Months Ended December 31, 

    

2022

    

2021

    

2022

    

2021

Net sales

$

8,327,345

$

6,511,325

$

23,926,349

$

14,720,964

Cost of sales

 

6,828,458

 

6,033,267

 

19,870,572

 

12,479,531

Gross profit

 

1,498,887

 

478,058

 

4,055,777

 

2,241,433

Selling, general and administrative

 

1,224,572

 

1,623,883

 

4,426,894

 

3,530,179

Income (loss) from operations

 

274,315

 

(1,145,825)

 

(371,117)

 

(1,288,746)

Other income

 

254

 

1,999

 

40,590

 

13,390

Interest expense

 

(93,603)

 

(94,721)

 

(260,978)

 

(181,494)

PPP loan forgiveness

1,317,100

Refundable employee retention tax credits

624,045

Total other (expense) income

 

(93,349)

 

(92,722)

 

403,657

 

1,148,996

Income (loss) before income taxes

 

180,966

 

(1,238,547)

 

32,540

 

(139,750)

Income tax expense (benefit)

 

46,991

 

(333,867)

 

8,786

 

(385,749)

Net income (loss)

$

133,975

$

(904,680)

$

23,754

$

245,999

Other comprehensive loss:

 

 

 

 

Foreign currency translation adjustments

$

$

(810)

$

$

(1,909)

Other comprehensive loss

$

$

(810)

$

$

(1,909)

Comprehensive income (loss)

$

133,975

$

(905,490)

$

23,754

$

244,090

Net income (loss) per share basic

$

0.00

$

(0.03)

$

0.00

$

0.01

Net income (loss) per share diluted

$

0.00

$

(0.03)

$

0.00

$

0.01

Weighted average shares outstanding - basic

34,443,959

34,286,580

34,363,352

31,716,353

Weighted average shares outstanding - diluted

36,134,709

34,286,580

36,039,468

33,395,123

See accompanying notes to the condensed consolidated financial statements.

4

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

    

    

    

    

Accumulated

    

    

Common

Additional

Other

Total

Stock

Par

Paid in

Comprehensive

Retained

Stockholders’

    

Outstanding

    

Value

    

Capital

    

Income

    

Earnings

    

Equity

Balance 3/31/2021

29,498,662

$

2,949

$

8,944,660

$

21,838

$

972,401

$

9,941,848

Stock-based compensation

33,500

33,500

Net income

 

 

 

1,371,092

 

1,371,092

Foreign currency translation adjustment

 

 

 

42

 

42

Balance 6/30/2021

 

29,498,662

$

2,949

$

8,978,160

$

21,880

2,343,493

$

11,346,482

Restricted stock award

100,000

10

(10)

Common stock issued for acquired business

1,466,061

147

2,268,853

2,269,000

Proceeds from sale of common stock, net

3,202,727

320

3,187,261

3,187,581

Issuance of warrants

46,256

46,256

Stock-based compensation

28,566

28,566

Net loss

(220,413)

(220,413)

Foreign currency translation adjustment

(1,141)

(1,141)

Balance 9/30/2021

34,267,450

$

3,426

$

14,509,086

$

20,739

2,123,080

$

16,656,331

Issuance of common stock

20,000

2

34,998

35,000

Stock-based compensation

44,109

44,109

Net loss

(904,680)

(904,680)

Foreign currency translation adjustment

(810)

(810)

Balance 12/31/2021

34,287,450

$

3,428

$

14,588,193

$

19,929

$

1,218,400

$

15,829,950

Balance 3/31/2022

34,307,450

$

3,430

$

14,637,771

$

622,567

$

15,263,768

Stock-based compensation

52,107

52,107

Net loss

(501,165)

(501,165)

Balance 6/30/2022

34,307,450

$

3,430

$

14,689,878

$

121,402

$

14,814,710

Stock-based compensation

46,539

46,539

Stock issued for contingent consideration

36,509

4

56,306

56,310

Stock award nonemployee directors

100,000

10

143,990

144,000

Net income

390,944

390,944

Balance 9/30/2022

34,443,959

$

3,444

$

14,936,713

$

512,346

$

15,452,503

Stock-based compensation

8,663

8,663

Net income

133,975

133,975

Balance 12/31/2022

34,443,959

$

3,444

$

14,945,376

$

646,321

$

15,595,141

See accompanying notes to the condensed consolidated financial statements.

5

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine Months Ended December 31, 

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

  

Net income

$

23,754

$

245,999

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

Depreciation and amortization

 

1,666,741

 

978,517

Amortization of debt issue costs

 

39,961

 

34,588

Stock based compensation expense

 

307,619

 

141,176

Change in contract loss provision

 

100,880

 

(66,232)

Deferred income taxes

 

8,785

 

(386,413)

PPP loan forgiveness

(1,317,100)

Change in fair value for contingent consideration

63,436

Gain on sale of fixed asset

(468)

Changes in operating assets and liabilities:

 

 

Accounts receivable

 

81,842

 

(575,181)

Contract assets

 

(1,006,010)

 

(871,339)

Work-in-process and raw materials

(57,450)

477,936

Other current assets

 

435,435

 

215,334

Other noncurrent assets

 

 

(50,633)

Accounts payable

 

(166,749)

 

(611,045)

Accrued expenses

 

(1,741,606)

 

(1,282,269)

Contract liabilities

 

139,944

 

1,418,010

Other noncurrent liabilities

974,737

Net cash provided by (used in) operating activities

 

870,851

 

(1,648,652)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

Business acquisition, net of cash acquired

(7,795,810)

Proceeds from sale of fixed assets

7,000

Fixed asset deposit

(605,200)

Purchases of property, plant, and equipment

 

(663,033)

 

(436,531)

Net cash used in investing activities

 

(1,261,233)

 

(8,232,341)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

Proceeds from term loan

4,000,000

Closing costs related to common stock sale

(335,419)

Proceeds from sale of common stock

3,523,000

Debt issue costs

 

(43,945)

 

(116,511)

Revolver loan payments and borrowings, net

187,998

1,978,221

Payments of principal for leases

(31,058)

(493,015)

Repayments of long-term debt

 

(458,567)

 

(243,510)

Net cash (used in) provided by financing activities

 

(345,572)

 

8,312,766

Effect of exchange rate on cash and cash equivalents

 

 

(25)

Net decrease in cash and cash equivalents

 

(735,954)

 

(1,568,252)

Cash and cash equivalents, beginning of period

 

1,052,139

 

2,130,711

Cash and cash equivalents, end of period

$

316,185

$

562,459

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:

 

 

Cash paid for interest; net of amounts capitalized

$

216,881

$

152,498

See accompanying notes to the condensed consolidated financial statements.

6

SUPPLEMENTAL INFORMATION - NONCASH OPERATING, INVESTING AND FINANCING TRANSACTIONS:

Nine Months Ended December 31, 2022

Stadco entered into a payment arrangement agreement (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 $1,770,201 that are delinquent and unpaid. This liability amount was included in accounts payable on the Company’s balance sheet as of March 31, 2022, and was reclassified as a current liability for $221,272 to accrued expenses and to noncurrent liabilities for $1,548,929 in December 2022.

Nine Months Ended December 31, 2021

On August 25, 2021, in exchange for the issuance of 1,466,061 shares of common stock and a warrant to purchase 100,000 shares of the common stock, the Company acquired all the issued and outstanding capital stock of Stadco, acquired certain other securities of Stadco and satisfied certain liabilities of Stadco. The fair value of the common stock transferred was $2,269,000, based on the closing market price of the Company’s common stock on the closing date, August 25, 2021. The fair value of the warrants transferred was $46,256 and was estimated using the Black-Scholes option-pricing model. Also, in connection with the Stadco acquisition, the Company became party to an amended and restated lease agreement to rent buildings and property at the Stadco manufacturing location and recorded a right-of-use asset and liability of approximately $6.7 million.

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 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 name was changed to TechPrecision Corporation on March 6, 2006.

TechPrecision is the parent company of Ranor, Westminster Credit Holdings, LLC, or “WCH”, Stadco New Acquisition, LLC, or “Acquisition Sub”, Stadco and Wuxi Critical Mechanical Components Co., Ltd., or “WCMC”, a wholly foreign owned enterprise. WCMC was dissolved and deregistered in November 2021 and has had no customers or operations for over five years. TechPrecision, Ranor, WCH, WCMC (until November 2021), Acquisition Sub and Stadco are collectively referred to as the “Company”, “we”, “us” or “our”.

On August 25, 2021, the Company completed its previously announced acquisition of Stadco, pursuant to that certain stock purchase agreement with 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. See Note 3 for additional disclosures related to this business combination.

We manufacture large-scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets including defense and aerospace, nuclear, medical, and 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, Acquisition Sub, and WCMC, until its dissolution. Intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheets as of December 31, 2022, the condensed consolidated statements of operations and comprehensive income (loss) and stockholders’ equity for the three and nine months ended December 31, 2022 and 2021, and the condensed consolidated statements of cash flows for the nine months ended December 31, 2022 and 2021 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

7

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.

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, 2022, filed with the SEC on August 10, 2022.

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 reported 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.

Risks and Uncertainties - For the nine months ended December 31, 2022 and 2021, there were no events related to Coronavirus Disease (COVID-19) that had a material impact on our operations. The Company will continue to monitor the impacts of COVID-19 and any government-imposed actions thereto.

We reported a net loss of $0.1 million for the six months ended September 30, 2022. We reported a net loss of $0.3 million for the fiscal year ended March 31, 2022. Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain our gross profit and operating income. Berkshire Bank waived the Company’s noncompliance with certain of the financial and related covenants at September 30, 2022. In our Form 10-Q for the quarter ended September 30, 2022, we disclosed our intention to secure new long-term financing on terms consistent with our near-term business plans for us to continue operations beyond the next twelve months and be able to discharge our liabilities and commitments in the normal course of business. On December 23, 2022, we were successful extending the maturity date of the Ranor Term Loan to December 2027 and renewing the Revolver Loan for one year (each as defined below; see Note 12 – Debt). Additionally, we were able to meet certain financial and related loan covenants that the Company had failed in the prior quarter. As such, the uncertainty with respect to the Company’s ability to continue as a going concern has been alleviated.

NOTE 3 – BUSINESS COMBINATION

Stadco Acquisition

On August 25, 2021, the closing date, the Company completed its previously announced acquisition of Stadco, pursuant to that certain stock purchase agreement, dated as of October 16, 2020, or the “SPA”, among TechPrecision, Acquisition Sub, Stadco Acquisition, LLC, or “Holdco”, and each stockholder of Holdco. Stadco is a company in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, and industrial customers.

Also on the closing date, the Company completed its previously announced acquisition of certain indebtedness obligations of Stadco, pursuant to that certain Amended and Restated Loan Purchase and Sale Agreement, dated as of April 23, 2021, with Sunflower Bank, N.A., as amended by Amendment to Amended and Restated Loan Purchase and Sale Agreement, dated as of June 28, 2021, together, the “Loan Purchase Agreement”. On August 25, 2021, WCH, as assignee of Acquisition Sub, paid $7.9 million in the aggregate to Sunflower Bank, N.A., under the terms of the Loan Purchase Agreement, to purchase the indebtedness.

Pursuant to the SPA, and upon the terms and subject to the conditions therein, the Company acquired all of the issued and outstanding capital stock of Stadco in exchange for the issuance of 666,666 shares of the Company’s common stock to Holdco. In connection with the acquisition of Stadco, the Company reached an agreement with the holders of certain other non-bank indebtedness of Stadco, under which each such lender agreed to forgive such indebtedness in exchange for an aggregate of 199,395 shares of the Company’s common stock. In addition, the Company reached an agreement with a certain other security holder who agreed to sell its Stadco securities to the Company in exchange for the issuance by the Company of 600,000 shares of the Company’s common stock and a warrant to purchase 100,000 shares of the Company’s common stock. The fair value of the 1,466,061 shares of common stock issued as aggregate consideration was $2.3 million based on the closing market price of the Company’s common stock on the August 25, 2021 closing date. The fair value of the warrants is estimated using the Black-Scholes option-pricing model. The warrants vested in full on the issue date, have a three-year term and exercise price of $1.43 per share. The fair value of the warrants was $46,256 and estimated using the Black-

8

Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the grant. Expected volatility of 46.7% was based on the historical volatility of our common stock. The risk-free interest rate of 0.4% was selected based upon yields of three-year U.S. Treasury bond.

On August 25, 2021, the Company entered into a Securities Purchase Agreement with a limited number of institutional and other accredited investors, pursuant to which investors committed to subscribe for and purchase 3,202,727 shares of the Company’s common stock at a purchase price of $1.10 per share. Costs directly attributable to this offering of securities totaled $0.3 million.

Stadco’s assets and liabilities were measured at estimated fair values on August 25, 2021, primarily using Level 1 and Level 3 inputs. Estimates of fair value represent management’s best estimate and require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of these assets and liabilities.

Included in the total consideration transferred is $113,890 related to a contingent provision in the agreements that required payment based on the difference between the TechPrecision stock price and contract target stock price. The contingent provision allowed the issuer, TechPrecision, to settle the contingency with stock or cash, or a combination of each. If after one year following the closing of the acquisition, the fair value of the consideration stock was less than the target stock price stated in each agreement, TechPrecision was to issue to the holder additional shares of consideration stock or cash, or some combination of stock and cash. The target stock price stated in the agreements was guaranteed and only the number of shares issued could vary, with the final measurement date and amount determined on the one-year anniversary date. Since the contract did not specify a fixed maximum number of shares to be issued on the anniversary date, had the company determined to satisfy the contingent consideration with shares only, then a number of shares higher than the amount currently authorized by the company’s certificate of incorporation could have been required to be issued. In any case, the maximum value of the contingent consideration was $2,269,000, whether paid in shares of common stock or in cash, or both. The Company settled the obligation associated with the contingent consideration on August 25, 2022 by issuing 36,509 shares of common stock valued at $56,310 on August 25, 2022. The fair value of the contingent consideration was based on the closing stock price on the issuance date.

Measurement Period Adjustments

The Company has completed the process of measuring the fair value of assets acquired and liabilities assumed. In the third and fourth quarters of fiscal 2022, the Company made certain measurement period adjustments to reflect the facts and circumstances in existence at the acquisition date. These measurement period adjustments are related to changes in preliminary assumptions and initial estimates that would have been recognized if all the facts and circumstances had been known at the time of acquisition. The table below presents the fair value of assets acquired and liabilities assumed on the acquisition date based on the best information it has received to date in accordance with Accounting Standards Codification (“ASC”) 805.

Adjusted

Reported at

ERTC

Customer

Fixed

Totals

August 25,

refundable

claim2 and

Asset

August 25,

    

2021

    

credit1

    

Warrant3

    

Valuation4

    

2021

Total consideration transferred

$

10,163,164

$

46,256

$

10,209,420

Recognized amounts of identifiable assets acquired and liabilities assumed:

 

Accounts receivable

1,247,015

1,247,015

Inventory

 

927,188

927,188

Other current assets

4,323,593

1,093,661

5,417,254

Property, plant, and equipment and right of use assets

 

15,074,273

897,488

15,971,761

Accounts payable, accrued expenses, and other current liabilities

 

(5,882,048)

(164,049)

(606,415)

(6,652,512)

Lease obligations

 

(6,701,286)

(6,701,286)

Net assets

8,988,735

929,612

(606,415)

897,488

10,209,420

Goodwill

 

1,174,429

(929,612)

652,671

(897,488)

Total

$

10,163,164

$

$

46,256

$

$

10,209,420

All measurement period adjustments were offset against goodwill:

1In calendar year 2021 our Stadco subsidiary filed for a refund of tax credits for $1,093,661 from the IRS under the Employee Retention Credit, or ERTC program. Fees associated with the filing totaled $164,049.

2Customer claim of $471,166 accrued for additional costs incurred in connection with a certain product manufacturing project. Other adjustments to current liabilities totaled $135,249.

3Warrant issued to former shareholder in connection with the acquisition valued at $46,256.

4Fixed asset adjustments related to changes in preliminary valuation assumptions and estimates, including estimates of asset useful lives.

9

Supplemental Pro Forma Information

The pro forma results have been prepared for comparative purposes only and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on April 1, 2021. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved from the acquisition. The following table discloses the pro forma results for the combined entities, assuming the acquisition date had occurred on April 1, 2021, for the nine months ended December 31, 2021:

Pro forma combined

Nine months ended

December 31, 

    

2021

Net sales

$

19,441,005

Operating loss

$

(2,793,821)

Loss before income taxes

$

(1,880,903)

Net loss

$

(1,496,049)

EPS basic

$

(0.04)

EPS dilutive

$

(0.04)

Weighted average shares outstanding – basic and diluted

34,212,032

The pro forma results include adjustments for the purchase accounting impact, including, but not limited to, depreciation and amortization associated with the acquired tangible assets, and an adjustment for interest expense related to the new long-term debt, the alignment of accounting policies, and the elimination of transactions between TechPrecision and Stadco. Other adjustments reflected in the pro forma results are as follows for the nine months ended December 31, 2021:

In selling, general and administrative, excluded non-recurring expense of $0.3 million for consulting, legal, due diligence, bank fees, and other costs incurred in connection with the acquisition.
We excluded $0.7 million of management fees due to then preferred stockholders of Stadco,
We excluded interest expense of $0.5 million, reflecting a reduction of Stadco’s bank debt and interest rates.
We included an estimated tax benefit of $0.4 million based on the Company’s fiscal year 2022 annual estimated tax rate.

NOTE 4 - 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 three and thirty-six months.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 provide 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 December 31, 2022

$

8,316,711

$

10,634

$

8,327,345

Three months ended December 31, 2021

$

6,362,681

$

148,644

$

6,511,325

Nine months ended December 31, 2022

$

23,543,077

$

383,272

$

23,926,349

Nine months ended December 31, 2021

$

13,868,968

$

851,996

$

14,720,964

Net Sales by contract type

    

Over-time

    

Point-in-time

    

Totals

Three months ended December 31, 2022

$

7,813,273

$

514,072

$

8,327,345

Three months ended December 31, 2021

$

6,378,952

$

132,733

$

6,511,325

Nine months ended December 31, 2022

$

22,672,048

$

1,254,301

$

23,926,349

Nine months ended December 31, 2021

$

13,259,229

$

1,461,735

 

$

14,720,964

As of December 31, 2022, the Company had $43.9 million of remaining performance obligations, of which $39.7 million were less than 50% complete. The Company expects to recognize all its remaining performance obligations as revenue within the next thirty-six months.

10

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

Nine months ended

Nine months ended

 

    

December 31, 2022

    

December 31, 2021

December 31, 2022

    

December 31, 2021

    

Customer

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

 

A

$

1,448,547

    

17

%

$

967,846

    

15

%

$

4,182,984

    

18

%  

$

3,447,511

    

23

%  

B

$

*

 

*

%

$

793,910

 

12

%

$

*

*

%

$

2,454,171

 

17

%

C

$

*

 

*

%

$

937,620

 

14

%

$

*

 

*

%

$

*

 

*

%

D

$

*

 

*

%

$

926,965

 

14

%

$

*

 

*

%

$

*

 

*

%

E

$

*

*

%

$

913,501

14

%

$

*

*

%

$

*

*

%

F

$

1,451,713

17

%

$

*

*

%

$

4,495,028

19

%

$

*

*

%

G

$

1,385,871

16

%

$

*

*

%

$

4,764,391

20

%

$

*

*

%

*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 nine months ended December 31, 2022, we recognized revenue of approximately $1.8 million related to our contract liabilities at April 1, 2022. Contract assets consisted of the following at:

Progress

    

Unbilled

    

payments

    

Total

December 31, 2022

$

18,824,537

$

(9,468,295)

$

9,356,242

March 31, 2022

$

14,216,187

$

(5,865,956)

$

8,350,231

NOTE 5 - 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. The Company recorded income tax expense of $8,786 for the nine months ended December 31, 2022, and an income tax expense of $46,991 for the three months ended December 31, 2022. The Company’s effective tax rate for the nine months ended December 31, 2022 was 27.0%.

The valuation allowance on deferred tax assets was approximately $2.0 million at December 31, 2022. We believe that it is more likely than not that the benefit from certain state net operating losses, or NOLs, carryforwards and other deferred tax assets will not be realized. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.

11

NOTE 6 - EARNINGS PER SHARE

Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average 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

Nine Months ended

Nine Months ended

    

December 31, 2022

    

December 31, 2021

    

December 31, 2022

    

December 31, 2021

Basic EPS

Net income (loss)

$

133,975

$

(904,680)

$

23,754

$

245,999

Weighted average shares

 

34,443,959

 

34,286,580

 

34,363,352

 

31,716,353

Net income (loss) per share

$

0.00

$

(0.03)

$

0.00

$

0.01

Diluted EPS

 

 

 

 

Net income (loss)

$

133,975

$

(904,680)

$

23,754

$

245,999

Dilutive effect of stock options

 

1,690,750

 

 

1,676,116

 

1,678,770

Weighted average shares

 

36,134,709

 

34,286,580

 

36,039,468

 

33,395,123

Net income (loss) per share

$

0.00

$

(0.03)

$

0.00

$

0.01

All potential common stock equivalents that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the three months ended December 31, 2021, there were potential anti-dilutive stock options and warrants of 2,820,000, none of which were included in the earnings per share calculations above.

NOTE 7 – 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 5,000,000 shares of common stock.

The 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates. The purpose of the 2016 Plan is to: (a) enable TechPrecision and its affiliated companies to recruit and retain highly qualified employees, directors and consultants; (b) provide those employees, directors and consultants with an incentive for productivity; and (c) provide those employees, directors and consultants with an opportunity to share in the growth and value of the Company. Subject to adjustment as provided in the 2016 Plan, the maximum number of shares of common stock that may be issued with respect to awards under the 2016 Plan is 5,000,000 shares (inclusive of awards issued under the 2006 Long-Term Incentive Plan, or the “2006 Plan”, that remained outstanding as of the effective date of the 2016 Plan). Shares of our common stock subject to awards that expire unexercised or are otherwise forfeited shall again be available for awards under the 2016 Plan.

At December 31, 2022, there were 1,250,000 shares available for grant under the 2016 Plan. 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 3/31/2021

2,719,000

$

0.372

$

2,476,300

5.62

Canceled

 

(49,000)

 

Outstanding at 3/31/2022

2,670,000

$

0.343

$

3,597,700

4.66

Outstanding at 12/31/2022

 

2,670,000

$

0.343

$

4,612,330

3.93

Vested or expected to vest at 12/31/2022

 

2,670,000

$

0.343

$