TECHPRECISION CORP [TPCS] Filings

10-Q 1 tpcs-20230930x10q.htm 10-Q

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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 September 30, 2023

☐ 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
Common Stock, par value $0.0001 per share	TPCS	Nasdaq Capital Market

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 November 10, 2023, was 8,762,432.

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TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3
	CONDENSED CONSOLIDATED BALANCE SHEETS	3
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS	4
	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	5
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	32
ITEM 4.	CONTROLS AND PROCEDURES	32
PART II.	OTHER INFORMATION	34
ITEM 1A.	RISK FACTORS	34
ITEM 6.	EXHIBITS	36
	SIGNATURES	37

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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	$	138,206	$	534,474
Accounts receivable, net		3,020,723		2,336,481
Contract assets		8,096,608		8,947,811
Raw materials		1,925,085		1,692,852
Work-in-process		866,848		719,736
Other current assets		466,245		348,983
Total current assets		14,513,715		14,580,337
Property, plant and equipment, net		15,764,677		13,914,024
Right-of-use asset, net		5,322,118		5,660,938
Deferred income taxes		2,254,314		1,931,186
Other noncurrent assets, net		121,256		121,256
Total assets	$	37,976,080	$	36,207,741
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	1,607,001	$	2,224,320
Accrued expenses		2,785,839		2,533,185
Contract liabilities		3,180,681		2,333,591
Current portion of long-term lease liability		721,623		711,727
Current portion of long-term debt, net		6,958,395		1,218,162
Total current liabilities		15,253,539		9,020,985
Long-term debt, net		—		4,749,139
Long-term lease liability		4,780,155		5,143,974
Other noncurrent liability		4,428,812		2,699,492
Total liabilities		24,462,506		21,613,590
Commitments and contingent liabilities (see Note 14)
Stockholders’ Equity:
Common stock - par value $.0001 per share, shares authorized: 50,000,000; Shares issued and outstanding: 8,737,432 at September 30, 2023 and 8,613,408 at March 31, 2023		874		861
Additional paid in capital		14,924,927		14,949,729
Accumulated deficit		(1,412,227)		(356,439)
Total stockholders’ equity		13,513,574		14,594,151
Total liabilities and stockholders’ equity	$	37,976,080	$	36,207,741

See accompanying notes to the condensed consolidated financial statements.

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TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
	2023		2022		2023		2022
Net sales	$	7,970,086	$	8,522,647	$	15,341,326	$	15,599,004
Cost of sales		6,935,271		6,782,975		13,612,362		13,042,114
Gross profit		1,034,815		1,739,672		1,728,964		2,556,890
Selling, general and administrative		1,632,168		1,827,095		2,906,117		3,202,322
Loss from operations		(597,353)		(87,423)		(1,177,153)		(645,432)
Other income		40,875		73,561		40,876		40,336
Interest expense		(148,553)		(83,730)		(242,639)		(167,375)
Refundable employee retention tax credits		—		624,045		—		624,045
Total other (expense) income		(107,678)		613,876		(201,763)		497,006
(Loss) income before income taxes		(705,031)		526,453		(1,378,916)		(148,426)
Income tax (benefit) expense		(176,698)		135,509		(323,128)		(38,205)
Net (loss) income	$	(528,333)	$	390,944	$	(1,055,788)	$	(110,221)
Net (loss) earnings per share basic	$	(0.06)	$	0.05	$	(0.12)	$	(0.01)
Net (loss) earnings per share diluted	$	(0.06)	$	0.04	$	(0.12)	$	(0.01)
Weighted average shares outstanding - basic		8,720,603		8,584,510		8,667,298		8,580,707
Weighted average shares outstanding - diluted		8,720,603		8,998,195		8,667,298		8,580,707

See accompanying notes to the condensed consolidated financial statements.

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TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)


						Retained
	Common			Additional		Earnings		Total
	Stock	Par		Paid in		(Accumulated		Stockholders’
	Outstanding	Value		Capital		Deficit)		Equity
Balance March 31, 2022	8,576,863	$	858	$	14,640,343	$	622,567	$	15,263,768
Stock based compensation	—		—		52,107		—		52,107
Net loss	—		—		—		(501,165)		(501,165)
Balance June 30, 2022	8,576,863	$	858	$	14,692,450	$	121,402	$	14,814,710
Stock-based compensation	—		—		46,539		—		46,539
Stock issued for contingent consideration	9,127		1		56,309		—		56,310
Stock award nonemployee directors	25,000		2		143,998		—		144,000
Net income	—		—		—		390,944		390,944
Balance September 30, 2022	8,610,990	$	861	$	14,939,296	$	512,346	$	15,452,503

Balance March 31, 2023	8,613,408	$	861	$	14,949,729	$	(356,439)	$	14,594,151
Net loss	—		—		—		(527,455)		(527,455)
Balance June 30, 2023	8,613,408	$	861	$	14,949,729	$	(883,894)	$	14,066,696
Stock issued for exercised options	109,024		11		(11)		—		—
Stock used for tax withholding at exercise	—		—		(34,013)		—		(34,013)
Restricted stock award	15,000		2		(2)		—		—
Stock-based compensation	—		—		9,224		—		9,224
Net loss	—		—		—		(528,333)		(528,333)
Balance September 30, 2023	8,737,432	$	874		14,924,927	$	(1,412,227)	$	13,513,574

See accompanying notes to the condensed consolidated financial statements.

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TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Six Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,055,788)	$	(110,221)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		1,128,059		1,116,602
Amortization of debt issue costs		37,475		26,747
Stock-based compensation expense		9,224		298,957
Change in contract loss provision		(43,049)		(26,628)
Deferred income taxes		(323,128)		(38,205)
Gain on disposal of fixed assets		(40,399)		—
Change in fair value for contingent consideration		—		63,436
Changes in operating assets and liabilities:
Accounts receivable		(684,242)		968,829
Contract assets		851,203		(869,853)
Work-in-process and raw materials		(379,345)		(281,929)
Other current assets		(117,262)		411,770
Accounts payable		(617,319)		272,554
Accrued expenses		(84,182)		(1,243,082)
Contract liabilities		847,090		41,086
Other noncurrent liabilities		1,729,320		993,203
Net cash provided by operating activities		1,257,657		1,623,266
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from insurance claim on fixed assets		61,944		—
Fixed asset deposit		—		(574,143)
Purchases of property, plant and equipment		(2,658,937)		(499,341)
Net cash used in investing activities		(2,596,993)		(1,073,484)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issue costs		—		(18,862)
Revolver loan payments and borrowings, net		1,250,000		(1,012,002)
Payments of principal for leases		(10,552)		(25,820)
Repayments of long-term debt		(296,380)		(309,853)
Net cash provided by (used in) financing activities		943,068		(1,366,537)
Net decrease in cash and cash equivalents		(396,268)		(816,755)
Cash and cash equivalents, beginning of period		534,474		1,052,139
Cash and cash equivalents, end of period	$	138,206	$	235,384
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest, net of amounts capitalized	$	201,388	$	135,041

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 125,000 shares of the Company’s common stock pursuant to option awards previously granted under the 2016 Plan. The option was exercised as a cashless net settlement transaction and resulted in the delivery of 109,024 shares of common stock on July 13, 2023.

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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 one-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 ($1,055,788).

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As of September 30, 2023, we had $3.2 million in total available liquidity, consisting of $0.1 million in cash and cash equivalents, and $3.1 million in undrawn capacity under our revolver loan. As of March 31, 2023, we had $4.7 million in total available liquidity, consisting of $0.5 million in cash and cash equivalents, and $4.2 million in undrawn capacity under our revolver loan.

The Company is the borrower under the Loan Agreement (as defined below; see Note 11 – Debt). There was $7.1 million outstanding under the agreement on September 30, 2023. The maturity date of the revolver loan under the loan agreement is December 20, 2023.

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.

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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 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 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	$	7,959,628	$	10,458	$	7,970,086
Three months ended September 30, 2022	$	8,385,441	$	137,206	$	8,522,647
Six months ended September 30, 2023	$	15,159,032	$	182,294	$	15,341,326
Six months ended September 30, 2022	$	15,226,365	$	372,639	$	15,599,004


Net Sales by contract type	Over-time		Point-in-time		Totals
Three months ended September 30, 2023	$	7,413,656	$	556,430	$	7,970,086
Three months ended September 30, 2022	$	8,219,139	$	303,508	$	8,522,647
Six months ended September 30, 2023	$	14,347,460	$	993,866	$	15,341,326
Six months ended September 30, 2022	$	14,841,232	$	757,772	$	15,599,004

As of September 30, 2023, the Company had $44.6 million of remaining performance obligations, of which $38.3 million were less than 50% complete. The Company expects to recognize all of its remaining performance obligations as revenue within the next thirty-six months.

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	$	2,560,204	32	%	$	1,438,049	17	%	$	4,845,478	32	%	$	2,734,436	18	%
B	$	999,540	13	%	$	*	*	%	$	1,742,776	11	%	$	*	*	%
C	$	*	*	%	$	1,614,929	19	%	$	*	*	%	$	3,378,520	22	%
D	$	*	*	%	$	1,971,441	23	%	$	*	*	%	$	3,043,315	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 six months ended September 30, 2023, we recognized revenue of approximately $1.2 million related to our contract liabilities at April 1, 2023. Contract assets consisted of the following at:


			Progress
	Unbilled		payments		Total
September 30, 2023	$	20,183,772	$	(12,087,164)	$	8,096,608
March 31, 2023	$	19,485,914	$	(10,538,103)	$	8,947,811

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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 ($176,698) and six months ($323,128) ended September 30, 2023. For the three months ended September 30, 2022, we recorded income tax expense of $135,509, and for the six months ended September 30, 2022 we recorded an income tax benefit ($38,205). The Company’s effective tax rate for the six months ended September 30, 2023 and 2022 was 23.4% and 25.7%, respectively.

The valuation allowance on deferred tax assets was approximately $2.1 million at September 30, 2023. 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.

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	$	(528,333)	$	390,944	$	(1,055,788)	$	(110,221)
Weighted average shares		8,720,603		8,584,510		8,667,298		8,580,707
Net (loss) earnings per share	$	(0.06)	$	0.05	$	(0.12)	$	(0.01)
Diluted EPS
Net (loss) income	$	(528,333)	$	390,944	$	(1,055,788)	$	(110,221)
Dilutive effect of stock options		—		413,685		—		—
Weighted average shares		8,720,603		8,998,195		8,667,298		8,580,707
Net (loss) earnings per share	$	(0.06)	$	0.04	$	(0.12)	$	(0.01)

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 567,500, none of which were included in the earnings per share calculations above. For the six months ended September 30, 2022, there were potential anti-dilutive stock options and warrants of 417,124, none of which were included in the earnings per share calculations above.

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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 1,250,000 shares of common stock.

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	667,500	$	1.37	$	3,804,625	3.70
Exercised	(125,000)	$	0.68		846,250	—
Outstanding at September 30, 2023	542,500	$	1.53	$	3,108,950	3.63
Vested or expected to vest at September 30, 2023	542,500	$	1.53	$	3,108,950	3.63
Exercisable and vested at September 30, 2023	542,500	$	1.53	$	3,108,950	3.63

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 ten years for option grants. Other information relating to stock options outstanding at September 30, 2023 is as follows:


		Weighted
		Average
		Remaining	Weighted			Weighted
	Options	Contractual	Average		Options	Average
Range of Exercise Prices:	Outstanding	Term	Exercise Price		Exercisable	Exercise Price
$0.01-$0.99	192,500	1.87	$	0.32	192,500	$	0.32
$2.00-$2.99	350,000	3.66	$	2.19	350,000	$	2.19
Totals	542,500				542,500

On August 3, 2023 the Company issued 15,000 restricted shares of the Company’s common stock to the Company’s new CFO. Under the terms of the employment agreement, provided she remains employed by the Company from the grant date through the applicable vesting dates, 5,000 shares of the restricted stock will vest on each of the first, second, and third anniversaries of the effective employment date of July 17, 2023.

At September 30, 2023, there were 297,500 shares available for grant under the 2016 Plan.

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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 three customers comprising 56% of the total trade receivables balance. The following table sets forth information as to trade accounts receivable from customers which accounted for more than 10% of our accounts receivable balance as of:


	September 30, 2023				March 31, 2023
Customer	Dollars		Percent		Dollars		Percent
A	$	809,255	28	%	$	730,514	31	%
B	$	*	*	%	$	260,177	11	%
C	$	448,127	15	%	$	*	*	%
D	$	*	*	%	$	265,755	11	%
E	$	375,811	13	%	$	*	*	%

*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	$	80,028	$	9,616
Prepaid insurance		143,928		162,075
Prepaid subscriptions		182,668		120,570
Deposits		21,706		21,706
Employee advances		16,163		4,561
Prepaid advisory fees, other		21,752		30,455
Total	$	466,245	$	348,983

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	$	110,113	$	110,113
Building and improvements		3,293,986		3,293,986
Machinery equipment, furniture, and fixtures		25,671,848		23,018,713
Construction-in-progress		114,990		149,576
Total property, plant, and equipment		29,190,937		26,572,388
Less: accumulated depreciation and amortization		(13,426,260)		(12,658,364)
Total property, plant and equipment, net	$	15,764,677	$	13,914,024

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 $14,455.

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NOTE 10 - ACCRUED EXPENSES


Accrued expenses included the following as of:	September 30, 2023		March 31, 2023
Accrued compensation	$	1,203,466	$	1,257,245
Provision for claims		234,472		256,227
Provision for contract losses		148,503		102,954
Accrued professional fees		487,631		241,195
Accrued project costs		558,010		440,550
Other		153,757		235,014
Total	$	2,785,839	$	2,533,185

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 3.79% interest, due August 2028	$	2,919,712	$	3,186,495
Ranor Term Loan, at 6.05% interest, due December 2027		2,246,920		2,276,518
Ranor Revolver Loan, at 7.69% interest, due December 2023		1,900,000		650,000
Total debt	$	7,066,632	$	6,113,013
Less: debt issue costs unamortized	$	108,237	$	145,712
Total debt, net	$	6,958,395	$	5,967,301
Less: Current portion of long-term debt	$	6,958,395	$	1,218,162
Total long-term debt, net	$	—	$	4,749,139

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 $4.0 million. The proceeds of the original Ranor Term Loan of $2.85 million were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. The proceeds of the Stadco Term Loan were to be used to support the acquisition of Stadco and refinance existing indebtedness of Stadco.

Stadco Term Loan

On August 25, 2021, Stadco borrowed $4.0 million from Berkshire Bank, or the “Stadco Term Loan”, under the Loan Agreement. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021 at a fixed rate per annum equal to the 7 year Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Since September 25, 2021 and on the 25th day of each month thereafter, Stadco had made and will make monthly payments of principal and interest in the amount of $54,390 each, with all remaining outstanding principal and accrued interest due and payable on August 25, 2028. Interest shall be calculated based on actual days elapsed and a 360-day year.

Unamortized debt issue costs on September 30, 2023 and March 31, 2023 were $36,945 and $44,482, respectively.

Ranor Term Loan and Revolver Loan

A term loan was made to Ranor by Berkshire Bank in 2016 in the amount of $2.85 million, or the “Ranor Term Loan”. Payments began on January 20, 2017, and were made in monthly installments of $19,260 each, inclusive of interest at a fixed rate of 5.21% per annum, with all outstanding principal and accrued interest due and payable on the original maturity date, December 20, 2021, which was extended to December 20, 2022.

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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 5.21% to 6.05% per annum, (iv) decreases the monthly payment on the Ranor Term Loan from $19,260 to $16,601, (v) replaces LIBOR as an option for the benchmark interest rate for the Revolver Loan with the Secured Overnight Financing Rate, or “SOFR”, (vi) replaces LIBOR-based interest pricing conventions with SOFR-based pricing conventions, including benchmark replacement provisions, and (vii) solely with respect to the fiscal quarter ending December 31, 2022, lowers the debt service coverage ratio from at least 1.2 to 1.0 to 1.1 to 1.0.

Under the Loan Agreement, Berkshire Bank also makes available to Ranor the Revolver Loan, which has a maximum principal amount available of $5.0 million. Advances under the Revolver Loan are subject to a borrowing base equal to the lesser of (a) $5.0 million or (b) the sum of (i)80% of the net outstanding amount of Base Accounts, plus (ii) the lesser of (x) 25% of Eligible Raw Material Inventory, and (y) $250,000, plus (iii) 80% of the Appraised Value of the Eligible Equipment, as such terms are defined in the Loan Agreement.

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 0.25% per annum (computed based on a year of 360 days and actual days elapsed) on the difference between the amount of: (a) $5.0 million, and (b) the average daily outstanding balance of the Revolver Loan during the quarterly period then ended. All Revolver Loan fees are payable quarterly in arrears on the first day of each January, April, July and October and on the Revolver Maturity Date, or upon acceleration of the Revolver Loan, if earlier.

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 $1.9 million outstanding under the Revolver Loan at September 30, 2023. Interest paid and accrued under the Revolver Loan was $83,182 for the six months ended September 30, 2023. The weighted average interest rate for the first six months of fiscal 2024 was 7.46%. Unused borrowing capacity at September 30, 2023 and March 31, 2023 was approximately $3.1 million and $4.2 million, respectively.

Unamortized debt issue costs at September 30, 2023 and March 31, 2023 were $71,292 and $101,230, respectively.

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 1.20 to 1.00 (except for the fiscal quarter ended December 31, 2022, in which case such ratio of Cash Flow to Total Debt Service was to be not less than 1.10 to 1.00), measured quarterly on the last day of each fiscal quarter, or annual period of TechPrecision on a trailing 12-month basis, commencing with the fiscal quarter ending as of September 30, 2021. Calculations will be based on the audited (year-end) and unaudited (quarterly) consolidated financial statements of TechPrecision. Quarterly tests will be measured based on the financial statements included in the Company’s quarterly reports on Form 10-Q within 60 days of the end of each quarter, and annual tests will be measured based on the financial statements included in the Company’s annual reports on Form 10-K within 120 days after the end of each fiscal annual period. Cash Flow means an amount, without duplication, equal to the sum of net income of TechPrecision plus (i) interest expense, plus (ii) taxes, plus (iii) depreciation and amortization, plus (iv) stock based compensation expense taken by TechPrecision, plus (v) non-cash losses and charges and one time or non-recurring expenses at Berkshire Bank’s discretion, less (vi) the amount of cash distributions, if any, made to stockholders or owners of TechPrecision, less (vii) cash taxes paid by the TechPrecision, all as determined in accordance with U.S. GAAP. “Total Debt Service” means an amount, without duplication, equal to the sum of (i) all amounts of cash

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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 2.50 to 1.00. For purposes of this covenant, “Balance Sheet Leverage” means, at any date of determination, the ratio of Borrowers’ (a) Total Liabilities, less Subordinated Debt, to (b) Net Worth, plus Subordinated Debt.

The Borrowers agree that their combined annual capital expenditures shall not exceed $1.5 million, subject to certain agreed-upon exclusions. Compliance is tested annually.

The Borrowers agree to maintain a Loan-to-Value Ratio of not greater than 0.75 to 1.00. “Loan-to-Value Ratio” means the ratio of (a) the sum of the outstanding balance of the Ranor Term Loan and the Stadco Term Loan to (b) the fair market value of the property pledged as collateral for the loan, as determined by an appraisal obtained from time to time by Berkshire Bank, but not more frequently than one time during each 365 day period (provided that Berkshire Bank may obtain an appraisal at any time after either the Ranor Term Loan or the Stadco Term Loan has been accelerated), which appraisals shall be at the expense of the Borrowers.

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 $3.1 million and $1.2 million, respectively. In September 2023, the Company agreed to and signed another addendum for additional equipment upgrades.

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 $1,770,201 that were delinquent and unpaid. Under the Payment Agreement, Stadco will make monthly installment payments on the unpaid balance beginning on December 15, 2022, in an aggregate amount of $18,439 per month until the earlier of November 15, 2030, or the amount due is paid in full. Late payments under the Payment Agreement accrue a late payment charge equal to an 18% annual rate on the unpaid balance. This liability amount was included in the Company’s balance sheet as a current and noncurrent liability as of September 30, 2023 and March 31, 2023 for $0.2 million and $1.4 million, and $0.2 million, and $1.5 million, respectively.

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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 $6.6 million. Monthly base rent for the property is $82,998 per month. The term of the lease will expire on June 30, 2030, and the lessee has no right of renewal beyond the expiration date. The lease contains customary default provisions allowing the landlord to terminate the lease if the lessee fails to remedy a breach of its obligations under the lease within the period specified in the lease, or upon certain events of bankruptcy or seizure or attachment of the lessee’s assets or interest in the lease. The lease also contains other customary provisions for real property leases of this type.

The following table lists our right-of-use assets and liabilities on our condensed consolidated balance sheets at:


	September 30, 2023		March 31, 2023
Finance lease:
Right of use asset – operating lease	$	6,629,396	$	6,629,396
Right of use asset – finance leases		65,016		65,016
Amortization		(1,372,294)		(1,033,474)
Right of use asset, net	$	5,322,118	$	5,660,938
Lease liability – operating lease	$	5,475,993	$	5,819,365
Lease liability – finance leases		25,785		36,336
Total lease liability	$	5,501,778	$	5,855,701

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	$	330,130	$	317,529
Finance lease amortization	$	8,690	$	11,411
Finance lease interest	$	496	$	544


Weighted average lease term and discount rate at:	September 30, 2023		September 30, 2022
Lease term (years) – operating lease	6.75		7.75
Lease term (years) – finance lease	2.15		2.66
Lease rate – operating lease	4.5	%	4.5	%
Lease rate – finance lease	4.5	%	3.7	%


Supplemental cash flow information related to leases for the six months ended:	September 30, 2023		September 30, 2022
Cash used in operating activities	$	469,401	$	386,786 </

TECHPRECISION CORP [TPCS] Filings
10-Q	[2023-11-20]
10-Q	[2023-08-21]
10-K	[2023-06-15]
10-Q	[2023-02-14]
10-Q	[2022-11-17]
10-Q	[2022-09-15]
10-K	[2022-08-10]
10-Q	[2022-02-17]
S-1	[2022-01-07]
10-Q	[2021-12-09]
10-Q	[2021-08-12]
10-K	[2021-06-10]
10-Q	[2021-02-11]
10-Q	[2020-11-12]
10-Q	[2020-08-13]
10-K	[2020-06-11]
10-Q	[2020-02-13]
10-Q	[2019-11-13]
10-Q	[2019-08-13]
10-K	[2019-06-27]
10-Q	[2019-02-13]
10-Q	[2018-11-13]
10-Q	[2018-08-13]
10-K	[2018-06-28]
10-Q	[2018-02-13]
10-Q	[2017-11-13]
10-Q	[2017-08-14]
10-K	[2017-06-29]
10-Q	[2017-02-14]
10-Q	[2016-11-14]
10-Q	[2016-08-15]
10-K	[2016-06-28]
10-Q	[2016-02-16]
10-Q	[2015-11-16]
10-Q	[2015-08-14]
10-K	[2015-06-29]
10-Q	[2015-02-17]
10-Q	[2014-11-14]
10-Q	[2014-08-18]
10-K	[2014-07-15]
10-Q	[2014-02-13]
10-Q	[2013-11-14]
10-Q	[2013-09-18]
10-K	[2013-08-16]
10-Q	[2013-02-19]
10-Q	[2012-11-21]
10-Q	[2012-08-14]
10-K	[2012-07-16]
10-Q	[2012-02-14]