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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(State or other jurisdiction of |
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incorporation or organization) |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code |
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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| Name of each exchange on which registered |
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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.
☒ | ☐ | 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).
☒ | ☐ | 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 | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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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
TABLE OF CONTENTS
Page | ||
3 | ||
3 | ||
3 | ||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) | 4 | |
5 | ||
6 | ||
7 | ||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 21 | |
32 | ||
32 | ||
34 | ||
34 | ||
35 |
2
PART I
ITEM 1. FINANCIAL STATEMENTS
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| December 31, |
| March 31, | |||
2022 | 2022 | |||||
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable |
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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: |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses |
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Contract liabilities |
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Current portion of long-term lease liability | | | ||||
Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, net |
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Long-term lease liability | | | ||||
Other noncurrent liabilities | | | ||||
Total liabilities | | | ||||
Commitments and contingencies - see Note 15 |
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Stockholders’ Equity: |
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Common stock - par value $ |
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Additional paid in capital |
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Retained earnings |
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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 AND COMPREHENSIVE INCOME (LOSS) (unaudited)
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net sales | $ | | $ | | $ | | $ | | ||||
Cost of sales |
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Gross profit |
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Selling, general and administrative |
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Income (loss) from operations |
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Other income |
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Interest expense |
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PPP loan forgiveness | — | — | — | | ||||||||
Refundable employee retention tax credits | — | — | | — | ||||||||
Total other (expense) income |
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Income (loss) before income taxes |
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Income tax expense (benefit) |
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Net income (loss) | $ | | $ | ( | $ | | $ | | ||||
Other comprehensive loss: |
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Foreign currency translation adjustments | $ | — | $ | ( | $ | — | $ | ( | ||||
Other comprehensive loss | $ | — | $ | ( | $ | — | $ | ( | ||||
Comprehensive income (loss) | $ | | $ | ( | $ | | $ | | ||||
Net income (loss) per share basic | $ | | $ | ( | $ | | $ | | ||||
Net income (loss) 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)
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Common | Additional | Other | Total | ||||||||||||||
Stock | Par | Paid in | Comprehensive | Retained | Stockholders’ | ||||||||||||
| Outstanding |
| Value |
| Capital |
| Income |
| Earnings |
| Equity | ||||||
Balance 3/31/2021 | | $ | | $ | | $ | | $ | | $ | | ||||||
Stock-based compensation | | | |||||||||||||||
Net income |
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Foreign currency translation adjustment |
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Balance 6/30/2021 |
| | $ | | $ | | $ | | | $ | | ||||||
Restricted stock award | | | ( | — | |||||||||||||
Common stock issued for acquired business | | | | | |||||||||||||
Proceeds from sale of common stock, net | | | | | |||||||||||||
Issuance of warrants | | | |||||||||||||||
Stock-based compensation | | | |||||||||||||||
Net loss | ( | ( | |||||||||||||||
Foreign currency translation adjustment | ( | ( | |||||||||||||||
Balance 9/30/2021 | | $ | | $ | | $ | | | $ | | |||||||
Issuance of common stock | | | | | |||||||||||||
Stock-based compensation | | | |||||||||||||||
Net loss | ( | ( | |||||||||||||||
Foreign currency translation adjustment | ( | ( | |||||||||||||||
Balance 12/31/2021 | | $ | | $ | | $ | | $ | | $ | | ||||||
Balance 3/31/2022 | | $ | | $ | | $ | — | | $ | | |||||||
Stock-based compensation |
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Net loss |
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Balance 6/30/2022 | | $ | | $ | | $ | — | | $ | | |||||||
Stock-based compensation |
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Stock issued for contingent consideration | | | | | |||||||||||||
Stock award nonemployee directors | | | | | |||||||||||||
Net income |
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Balance 9/30/2022 | | $ | | $ | | $ | — | | $ | | |||||||
Stock-based compensation | | | |||||||||||||||
Net income | | | |||||||||||||||
Balance 12/31/2022 | | $ | | $ | | $ | — | | $ | |
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: |
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Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by (used in) 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 |
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Deferred income taxes |
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PPP loan forgiveness | — | ( | ||||
Change in fair value for contingent consideration | | — | ||||
Gain on sale of fixed asset | ( | — | ||||
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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Other noncurrent assets |
| — |
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Accounts payable |
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Accrued expenses |
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Contract liabilities |
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Other noncurrent liabilities | | — | ||||
Net cash provided by (used in) operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Business acquisition, net of cash acquired | — | ( | ||||
Proceeds from sale of fixed assets | | — | ||||
Fixed asset deposit | ( | — | ||||
Purchases of property, plant, and equipment |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from term loan | — | | ||||
Closing costs related to common stock sale | — | ( | ||||
Proceeds from sale of common stock | — | | ||||
Debt issue costs |
| ( |
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Revolver loan payments and borrowings, net | | | ||||
Payments of principal for leases | ( | ( | ||||
Repayments of long-term debt |
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Net cash (used in) provided by financing activities |
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Effect of exchange rate on cash and cash equivalents |
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Net decrease in cash and cash equivalents |
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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.
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 $
Nine Months Ended December 31, 2021
On August 25, 2021, in exchange for the issuance of
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 $
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 $
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
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
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
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 $
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 | $ | | $ | | $ | | |||||||||
Recognized amounts of identifiable assets acquired and liabilities assumed: |
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Accounts receivable | | | |||||||||||||
Inventory |
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Other current assets | | | | ||||||||||||
Property, plant, and equipment and right of use assets |
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Accounts payable, accrued expenses, and other current liabilities |
| ( | ( | ( | ( | ||||||||||
Lease obligations |
| ( | ( | ||||||||||||
Net assets | | | ( | | | ||||||||||
Goodwill |
| | ( | | ( | — | |||||||||
Total | $ | | $ | — | $ | | $ | — | $ | |
All measurement period adjustments were offset against goodwill:
1In calendar year 2021 our Stadco subsidiary filed for a refund of tax credits for $
2Customer claim of $
3Warrant issued to former shareholder in connection with the acquisition valued at $
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 | $ | | |
Operating loss | $ | ( | |
Loss before income taxes | $ | ( | |
Net loss | $ | ( | |
EPS basic | $ | ( | |
EPS dilutive | $ | ( | |
Weighted average shares outstanding – basic and diluted | |
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 $ |
● | We excluded $ |
● | We excluded interest expense of $ |
● | We included an estimated tax benefit of $ |
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
Net Sales by market |
| Defense |
| Industrial |
| Totals | |||
Three months ended December 31, 2022 | $ | | $ | | $ | | |||
Three months ended December 31, 2021 | $ | | $ | | $ | | |||
Nine months ended December 31, 2022 | $ | | $ | | $ | | |||
Nine months ended December 31, 2021 | $ | | $ | | $ | |
Net Sales by contract type |
| Over-time |
| Point-in-time |
| Totals | |||
Three months ended December 31, 2022 | $ | | $ | | $ | | |||
Three months ended December 31, 2021 | $ | | $ | | $ | | |||
Nine months ended December 31, 2022 | $ | | $ | | $ | | |||
Nine months ended December 31, 2021 | $ | | $ | |
| $ | |
As of December 31, 2022, the Company had $
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 |
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| December 31, 2022 |
| December 31, 2021 | December 31, 2022 |
| December 31, 2021 |
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Customer |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
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A | $ | |
| | % | $ | |
| | % | $ | |
| | % | $ | |
| | % | |
B | $ | * |
| * | % | $ | |
| | % | $ | * | * | % | $ | |
| | % | ||
C | $ | * |
| * | % | $ | |
| | % | $ | * |
| * | % | $ | * |
| * | % | |
D | $ | * |
| * | % | $ | |
| | % | $ | * |
| * | % | $ | * |
| * | % | |
E | $ | * | * | % | $ | | | % | $ | * | * | % | $ | * | * | % | |||||
F | $ | | | % | $ | * | * | % | $ | | | % | $ | * | * | % | |||||
G | $ | | | % | $ | * | * | % | $ | | | % | $ | * | * | % |
*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 $
Progress | |||||||||
| Unbilled |
| payments |
| Total | ||||
December 31, 2022 | $ | | $ | ( | $ | | |||
March 31, 2022 | $ | | $ | ( | $ | |
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 $
The valuation allowance on deferred tax assets was approximately $
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) | $ | | $ | ( | $ | | $ | | ||||
Weighted average shares |
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Net income (loss) per share | $ | | $ | ( | $ | | $ | | ||||
Diluted EPS |
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Net income (loss) | $ | | $ | ( | $ | | $ | | ||||
Dilutive effect of stock options |
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Weighted average shares |
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Net income (loss) per share | $ | | $ | ( | $ | | $ | |
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
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
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
At December 31, 2022, there were
Weighted | ||||||||||
Average | ||||||||||
Weighted | Aggregate | Remaining | ||||||||
Number Of | Average | Intrinsic | Contractual Life | |||||||
| Options |
| Exercise Price |
| Value |
| (in years) | |||
Outstanding at 3/31/2021 | | $ | | $ | | |||||
Canceled |
| ( |
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Outstanding at 3/31/2022 | | $ | | $ | | |||||
Outstanding at 12/31/2022 |
| | $ | | $ | | ||||
Vested or expected to vest at 12/31/2022 |
| | $ | | $ |