Company Quick10K Filing
TechPrecision
Price-0.00 EPS0
Shares29 P/E-0
MCap-0 P/FCF-0
Net Debt1 EBIT1
TEV1 TEV/EBIT1
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-12-31 Filed 2021-02-11
10-Q 2020-09-30 Filed 2020-11-12
10-Q 2020-06-30 Filed 2020-08-13
10-K 2020-03-31 Filed 2020-06-11
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10-Q 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-13
10-K 2019-03-31 Filed 2019-06-27
10-Q 2018-12-31 Filed 2019-02-13
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10-Q 2015-12-31 Filed 2016-02-16
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10-Q 2014-12-31 Filed 2015-02-17
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10-K 2012-03-31 Filed 2012-07-16
10-Q 2011-12-31 Filed 2012-02-14
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10-K 2011-03-31 Filed 2011-06-29
10-Q 2010-12-31 Filed 2011-02-14
10-Q 2010-09-30 Filed 2010-11-15
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8-K 2020-11-12
8-K 2020-10-16
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8-K 2019-11-13
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8-K 2019-06-27
8-K 2019-03-15
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8-K 2018-12-19
8-K 2018-12-07
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8-K 2018-09-12
8-K 2018-08-13
8-K 2018-07-18
8-K 2018-06-28
8-K 2018-06-06
8-K 2018-05-08
8-K 2018-02-13

TPCS 10Q Quarterly Report

Part I
Item 1. Financial Statements
Note 1 - Description of Business
Note 2 - Basis of Presentation and Significant Accounting Policies
Note 3 - Accounting Standards Update
Note 4 - Revenue
Note 5 - Income Taxes
Note 6 - Earnings per Share
Note 7 - Stock - Based Compensation
Note 8 - Concentration of Credit Risk
Note 9 - Other Current Assets
Note 10 - Accrued Expenses
Note 11 - Debt
Note 12 - Leases
Note 13 - Commitments
Note 14 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information.
Item 1A. Risk Factors
EX-31.1 tm214827d1_ex31-1.htm
EX-31.2 tm214827d1_ex31-2.htm
EX-32.1 tm214827d1_ex32-1.htm

TechPrecision Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
25201510502012201420172020
Assets, Equity
10.07.54.92.4-0.2-2.72012201420172020
Rev, G Profit, Net Income
2.51.70.8-0.0-0.9-1.72012201420172020
Ops, Inv, Fin

10-Q 1 tm214827d1_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended December 31, 2020

 

¨ 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.

 

x 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).

 

x 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 x     Smaller reporting company x
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 x No

 

The number of shares outstanding of the registrant’s common stock as of February 8, 2021 was 29,498,662.

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

2 

 

 

PART I

ITEM 1. FINANCIAL STATEMENTS

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

 

  

December 31,

2020

  

March 31,

2020

 
ASSETS          
Current assets:          
Cash and cash equivalents  $1,255,320   $930,856 
Accounts receivable, net   1,173,376    990,300 
Contract assets   5,314,653    4,504,621 
Raw materials   503,636    561,572 
Work-in-process   694,848    656,041 
Other current assets   442,024    606,151 
Total current assets   9,383,857    8,249,541 
Property, plant and equipment, net   4,208,329    4,182,861 
Deferred income taxes   2,016,816    2,115,480 
Other noncurrent assets, net   16,086    32,600 
Total assets  $15,625,088   $14,580,482 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY:          
Current liabilities:          
Accounts payable  $510,434   $185,065 
Accrued expenses   1,306,109    1,554,524 
Contract liabilities   308,358    805,049 
Current portion of long-term debt   3,088,553    109,829 
Total current liabilities   5,213,454    2,654,467 
Long-term debt   717,559    2,456,560 
Commitments and contingent liabilities (Note 13)          
Stockholders’ Equity:          

Common stock - par value $.0001 per share, 90,000,000 shares authorized, 29,498,662 and 29,354,594 shares issued and outstanding, at December 31, 2020 and March 31, 2020

   2,949    2,935 
Additional paid in capital   8,911,160    8,793,062 
Accumulated other comprehensive income   21,838    21,688 
Retained earnings   758,128    651,770 
Total stockholders’ equity   9,694,075    9,469,455 
Total liabilities and stockholders’ equity  $15,625,088   $14,580,482 

 

See accompanying notes to the condensed consolidated financial statements.

 

3 

 

 

TECHPRECISION CORPORATION

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

 

   Three Months Ended
December 31,
   Nine Months Ended
December 31,
 
   2020   2019   2020   2019 
Net sales  $3,569,718   $3,667,276   $11,566,176   $11,075,620 
Cost of sales   2,864,274    3,352,962    9,034,858    9,238,287 
Gross profit   705,444    314,314    2,531,318    1,837,333 
Selling, general and administrative   716,361    662,675    2,205,739    2,145,055 
(Loss) income from operations   (10,917)   (348,361)   325,579    (307,722)
Other (expense) income   (219)   185    1,237    21,063 
Interest expense   (50,405)   (69,328)   (159,885)   (218,447)
Total other expense, net   (50,624)   (69,143)   (158,648)   (197,384)
(Loss) income before income taxes   (61,541)   (417,504)   166,931    (505,106)
Income tax (benefit) expense   (13,369)   (97,734)   60,573    (115,092)
Net (loss) income  $(48,172)  $(319,770)  $106,358   $(390,014)
Other comprehensive income (loss), before tax:                    
Foreign currency translation adjustments  $1,252   $9   $151   $(329)
Other comprehensive income (loss), net of tax  $1,252   $9   $151   $(329)
Comprehensive (loss) income  $(46,920)  $(319,761)  $106,509   $(390,343)
Net (loss) income per share basic  $(0.00)  $(0.01)  $0.00   $(0.01)
Net (loss) income per share diluted  $(0.00)  $(0.01)  $0.00   $(0.01)
Weighted average number of shares outstanding: Basic   29,498,662    29,254,594    29,430,206    29,254,230 
Diluted   29,498,662    29,254,594    31,021,384    29,254,230 

 

See accompanying notes to the condensed consolidated financial statements.

 

4 

 

 

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

 

  

Common

Stock
Outstanding

  

Par

Value

  

Additional
Paid in

Capital

  

Accumulated

Other
Comprehensive
Income

  

 

Retained
Earnings

  

Total
Stockholders’
Equity

 
Balance 3/31/2019   29,234,594   $2,923   $8,693,106   $21,940   $993,339   $9,711,308 
Stock-based compensation             30,625              30,625 
Shares issued under LTIP   20,000    2    7,198              7,200 
Net income                       220,777    220,777 
Currency translation adjustment                  (179)        (179)
Balance 6/30/2019   29,254,594   $2,925   $8,730,929   $21,761   $1,214,116   $9,969,731 
Stock-based compensation             30,625              30,625 
Net loss                       (291,021)   (291,021)
Currency translation adjustment                  (159)        (159)
Balance 9/30/2019   29,254,594   $2,925   $8,761,554   $21,602   $923,095   $9,709,176 
Stock-based compensation             20,417              20,417 
Net loss                       (319,770)   (319,770)
Currency translation adjustment                  9         9 
Balance 12/31/2019   29,254,594   $2,925   $8,781,971   $21,611   $603,325   $9,409,832 
                               
Balance 3/31/2020   29,354,594   $2,935   $8,793,062   $21,688   $651,770   $9,469,455 
Stock-based compensation             55,500              55,500 
Shares issued under LTIP   44,068    4    (4)             -- 
Net loss                       (116,234)   (116,234)
Currency translation adjustment                  (97)        (97)
Balance 6/30/2020   29,398,662   $2,939   $8,848,558   $21,591   $535,536   $9,408,624 
Stock-based compensation             57,417              57,417 
Restricted stock award   100,000    10    133,990              134,000 
Non-vested restricted stock             (134,000)             (134,000)
Net income                       270,764    270,764 
Currency translation adjustment                  (1,005)        (1,005)
Balance 9/30/2020   29,498,662   $2,949   $8,905,965   $20,586   $806,300   $9,735,800 
Stock-based compensation             33,500              33,500 
Taxes on exercised options             (28,305)             (28,305)
Net loss                       (48,172)   (48,172)
Currency translation adjustment                  1,252         1,252 
Balance 12/31/2020   29,498,662   $2,949   $8,911,160   $21,838   $758,128   $ 9,694,075 


 

See accompanying notes to the condensed consolidated financial statements.

 

5 

 

 

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

   Nine Months Ended December 31, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income (loss)  $106,358   $(390,014)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:          
Depreciation   521,422    548,038 
Amortization of debt issue costs   45,099    31,280 
Stock based compensation expense   146,417    81,667 
Change in contract loss provision   (175,365)   216,039 
Deferred income taxes   60,573    (115,092)
Changes in operating assets and liabilities:          
Accounts receivable   (183,076)   257,459 
Contract assets   (810,032)   (271,767)
Inventories   19,129    589,904 
Other current assets   164,127    (296,328)
Other noncurrent assets   38,092    (9,419)
Accounts payable   325,369    (138,463)
Accrued expenses   (101,028)   18,282 
Contract liabilities   (496,691)   87,815 
Net cash (used in) provided by operating activities   (339,606)   609,401 
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property, plant and equipment   (546,890)   (35,225)
Net cash used in investing activities   (546,890)   (35,225)
CASH FLOWS FROM FINANCING ACTIVITIES          
Debt issue costs   (24,610)   (32,209)
Proceeds from payroll protection program loan   1,317,100    -- 
Proceeds from revolver loan   1,000,000    -- 
Repayment of revolver loan   (1,000,000)   -- 
Repayment of long-term debt   (81,352)   (610,515)
Net cash provided by (used in) financing activities   1,211,138    (642,724)
Effect of exchange rate on cash and cash equivalents   (178)   307 
Net increase (decrease) in cash and cash equivalents   324,464    (68,241)
Cash and cash equivalents, beginning of period   930,856    2,036,646 
Cash and cash equivalents, end of period  $1,255,320   $1,968,405 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION          
Cash paid during the year for:          
Interest (net of amounts capitalized)  $106,342   $187,085 
Income taxes  $--   $-- 

 

See accompanying notes to the condensed consolidated financial statements.

 

SUPPLEMENTAL INFORMATION - NONCASH INVESTING AND FINANCING TRANSACTIONS:

 

Nine months ended December 31, 2020

 

On June 16, 2020, our executive officers exercised options to purchase 150,000 shares of the Company’s common stock, par value $0.0001 per share, in a cashless transaction, pursuant to option awards granted under the Company’s 2016 Long-Term Incentive Plan.

 

6 

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

NOTE 1 - DESCRIPTION OF BUSINESS

 

TechPrecision Corporation, or TechPrecision, is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. The name was changed to TechPrecision Corporation on March 6, 2006. TechPrecision is the parent company of Ranor, Inc., or Ranor, a Delaware corporation, Stadco New Acquisition, LLC, and Wuxi Critical Mechanical Components Co., Ltd., or WCMC, a wholly foreign owned enterprise. WCMC has no customers or operations, and we have initiated a plan of termination to legally dissolve this subsidiary. TechPrecision, WCMC and Ranor 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 including defense and aerospace, nuclear, medical, and precision industrial. We consider our business to consist of one segment - metal fabrication and precision machining. All of our operations and customers are located in the United States.

 

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 and WCMC. Intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheets as of December 31, 2020 and March 31, 2020, the condensed consolidated statements of operations and comprehensive (loss) income and stockholders’ equity for the three and nine months ended December 31, 2020 and 2019, and the condensed consolidated statements of cash flows for the nine months ended December 31, 2020 and 2019 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.

 

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, 2020, or the 2020 Form 10-K, filed with the SEC on June 11, 2020.

 

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 contract accounting, accounts receivable, inventories, the recovery of long-lived assets, income taxes and the valuation of equity transactions. 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.

 

The COVID-19 pandemic has negatively affected certain customers, suppliers and their labor force. For example, travel restrictions in connection with the pandemic have delayed inspections, deliveries and impacted some supply chain providers. The future financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time as its impact depends on future developments, which are highly uncertain and cannot be predicted.

 

The directives imposed by federal, state and local governments as a result of the COVID-19 pandemic did not impair our ability to maintain operations during the first nine months of fiscal 2021 as the Company was designated an essential service. Our estimates at the end of the first nine months of fiscal 2021 assumed no material impact from the disruptions caused by COVID-19.

 

NOTE 3 – ACCOUNTING STANDARDS UPDATE

 

New Accounting Standards Recently Adopted

 

On April 1, 2020 we adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.  This ASU modifies the disclosure requirements in Topic 820 by removing, modifying or adding certain disclosures.  The amendments for changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are applied prospectively.  All other amendments are applied retrospectively to all periods presented upon their effective date.  The adoption did not have a significant impact on our consolidated financial statement disclosures.

 

7 

 

 

Issued Standards Not Yet Adopted

 

In December, 2019, the Financial Accounting Standards Board (FASB) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, expected to reduce cost and complexity related to the accounting for income taxes. This ASU removes specific exceptions to the general principles in Topic 740 under U.S. GAAP and removes the limitation on the tax benefit recognized on pre-tax losses in interim periods. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company plans to adopt the standard on April 1, 2021, and is currently evaluating the amendments in this update to determine the impact it may have on its financial statements and disclosures.

 

NOTE 4 - REVENUE

 

The Company generates its revenues 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 range from three to thirty-six months. The Company invoices and receives related payments based upon performance progress not less frequently than monthly.

 

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 December 31, 2020  $2,885,753   $683,965   $3,569,718 
Three months ended December 31, 2019  $3,200,671   $466,605   $3,667,276 
Nine months ended December 31, 2020  $9,314,846   $2,251,330   $11,566,176 
Nine months ended December 31, 2019  $9,725,635   $1,349,985   $11,075,620 
                
Net Sales by contract type  Over-time   Point-in-time    Totals 
Three months ended December 31, 2020  $3,141,416   $428,302   $3,569,718 
Three months ended December 31, 2019  $3,439,367   $227,909   $3,667,276 
Nine months ended December 31, 2020  $9,251,284   $2,314,892   $11,566,176 
Nine months ended December 31, 2019  $9,104,395   $1,971,225   $11,075,620 

 

As of December 31, 2020, the Company had $18.4 million of remaining performance obligations, of which $13.0 million were less than 50% complete. The Company expects to recognize all of its remaining performance obligations as revenue over-time or at a point-in-time during the next thirty-six months.

 

We have been dependent in each year on a small number of customers who generate a significant portion of our business, and these customers can change from year to year. The following table presents customers who accounted for 10% or more of our net sales for the following periods:

 

   Three months ended
December 31, 2020
   Three months ended
December 31, 2019
   Nine months ended
December 31, 2020
   Nine months ended
December 31, 2019
 
Customer  Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent 
A  $398,011    11%  $404,062    11%  $2,106,998    18%  $1,790,311    16%
B  $530,583    15%  $*    *%  $1,871,256    16%  $*    *%
C  $609,114    17%  $1,215,737    33%  $1,679,814    15%  $2,320,485    21%
D  $682,337    19%  $727,084    20%  $1,631,010    14%  $1,825,213    16%
E  $550,096    15%  $*    *%  $*    *%  $*    *%
F  $*    *%  $*    *%  $*    *%  $1,136,146    10%
G  $*    *%  $*    *%  $*    *%  $1,148,242    10%

*Less than 10% of total

 

8 

 

 

On 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. In fiscal 2021, we recognized revenue of $0.8 million related to our contract liabilities at March 31, 2020. At December 31, 2020 contract assets consisted of the following:

 

Contract assets  Unbilled   Less:Progress 
payments
   Total 
December 31, 2020  $10,074,902   $4,760,249   $5,314,653 
March 31, 2020  $10,635,588   $6,130,967   $4,504,621 

 

NOTE 5 - INCOME TAXES

 

We account for income taxes under the provisions of FASB 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 income tax provision for the nine months ended December 31, 2020 was $60,573, the income tax benefit for the nine months ended December 31, 2019 was $115,092. The Company's estimated effective tax rate for the nine months ended December 31, 2020 was 36.3%.

 

The valuation allowance on deferred tax assets was approximately $1.7 million at December 31, 2020. We believe that it is more likely than not that the benefit from certain state and foreign net operating losses, or NOL, 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 6 - EARNINGS PER SHARE

 

Basic earnings per share is computed by dividing reported earnings available to stockholders by the weighted average number of shares outstanding. Diluted earnings per share 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, as required under FASB ASC 260.

 

   Three months ended
December 31, 2020
   Three months ended
December 31, 2019
   Nine months ended
December 31, 2020
   Nine months ended
December 31, 2019
 
Basic EPS:                    
Net (loss) income  $(48,172)  $(319,770)  $106,358   $(390,014)
Weighted average shares   29,498,662    29,254,594    29,430,206    29,254,230 
Basic (loss) income per share  $(0.00)  $(0.01)  $0.00   $(0.01)
Diluted EPS:                    
Net (loss) income  $(48,172)  $(319,770)  $106,358   $(390,014)
Dilutive effect of stock options   --    --    1,591,178    -- 
Diluted weighted average shares   29,498,662    29,254,594    31,021,384    29,254,230 
Diluted (loss) income per share  $(0.00)  $(0.01)  $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 earnings per share. For the three months ended December 31, 2020 there were 2,814,000 of potentially anti-dilutive stock options, none of which were included in the EPS calculations above. For the nine months ended December 31, 2020, there were 94,000 of common stock equivalents that were out-of-the-money and not included in the above earnings per share calculations. For the three and nine months ended December 31, 2019, there were 2,967,000 of potentially anti-dilutive stock options, none of which were included in the EPS calculations above.

 

NOTE 7 - STOCK-BASED COMPENSATION

 

Our board of directors approved the 2016 TechPrecision Equity Incentive Plan, or the 2016 Plan, on November 10, 2016. Our stockholders approved the 2016 Plan at the Company’s Annual Meeting of Stockholders on December 8, 2016. The 2016 Plan succeeds the 2006 Plan and applies to awards granted after the 2016 Plan’s adoption by the Company’s stockholders. 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.

 

9 

 

 

At December 31, 2020 there were 1,376,000 shares available for grant under the 2016 Plan. The following table summarizes information about stock option activity:

 

   Number Of  

Weighted

Average

  

Aggregate
Intrinsic

  

Weighted
Average
Remaining
Contractual Life

 
   Options   Exercise Price   Value   (in years) 
Outstanding at 3/31/2019   2,938,000   $0.416   $1,869,200    6.74 
Exercised   (20,000)   0.360           
Canceled   (2,000)               
Outstanding at 3/31/2020   2,916,000   $0.415   $2,546,800    6.21 
Canceled   (2,000)               
Exercised   (150,000)   0.800           
Outstanding at 12/31/2020   2,764,000   $0.393   $2,743,300    5.81 
Vested or expected to vest at 12/31/2020   2,764,000   $0.393   $2,743,300    5.81 
Exercisable and vested at 12/31/2020   2,764,000   $0.393   $2,743,300    5.81 

 

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 third quarter of fiscal 2021 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 December 31, 2020. This amount changes based on the fair market value of the Company’s common stock.

 

At December 31, 2020, there was no remaining unrecognized compensation cost related to stock options. The maximum contractual term is ten years for option grants. Other information relating to stock options outstanding at December 31, 2020 is as follows:

 

Range of Exercise Prices: 

Options
Outstanding

  

Weighted
Average
Remaining

Contractual
Term

  

Weighted
Average
Exercise Price

  

Options
Exercisable

  

Weighted
Average
Exercise Price

 
$0.01-$1.00   2,670,000    5.87   $0.34    2,670,000   $0.34 
$1.01-$1.96   94,000    0.26   $1.84    94,000   $1.84 
Totals   2,764,000              2,764,000      

 

Restricted Stock Awards

 

On September 1, 2020 we granted a total of 100,000 shares of restricted stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $134,000 for service-based restricted stock was measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. The shares of restricted stock fully vest and cease to be subject to forfeiture on August 31, 2021, or twelve months following the grant date. Each grantee must be serving as a director on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee is not permitted to sell, transfer, pledge, assign or otherwise encumber the shares of restricted stock and if the grantee’s service with the Company terminates prior to the vesting date, the grantee’s restricted stock will be forfeited automatically. Total recognized compensation cost related to the restricted stock award was $44,667 for the nine months ended December 31, 2020. At December 31, 2020 there was $89,333 of unrecognized compensation cost related to these restricted stock awards.

 

On March 16, 2020 we granted a total of 100,000 shares of restricted stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $111,000 for service-based restricted stock was measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. The shares of restricted stock fully vested and ceased to be subject to forfeiture on September 1, 2020, or approximately six months following the grant date. Each grantee must have been serving as a director on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee was not permitted to sell, transfer, pledge, assign or otherwise encumber the shares of restricted stock and if the grantee’s service with the Company had terminated prior to the vesting date, the grantee’s restricted stock would have been forfeited automatically. Total recognized compensation cost related to the restricted stock award was $101,750 for the nine months ended December 31, 2020. There was no unrecognized compensation cost related to these restricted stock awards at December 31, 2020.

 

10 

 

 

 

NOTE 8 - 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.

 

At December 31, 2020, there were trade accounts receivable balances outstanding from five customers comprising 93% of the total trade receivables balance. The following table sets forth information as to trade accounts receivable from customers who accounted for more than 10% of the total balance at:

 

    December 31, 2020    March 31, 2020  
Customer   Dollars   Percent   Dollars   Percent  
A   $356,228    30%  $ *   *  
B   $243,938    21%  $ *   *  
C   $193,750    17%  $*   *  
D   $*    *   $365,636   37 %
E   $167,152    14%  $254,637   26 %
F   $*      *   $123,000   12 %
G   $123,909    11%  $ *   *  

 *less than 10% of total

 

NOTE 9 - OTHER CURRENT ASSETS

 

   December 31, 2020   March 31, 2020 
Payments advanced to suppliers  $31,268   $272,070 
Prepaid insurance   358,029    250,073 
Prepaid subscriptions   22,057    14,440 
Refundable AMT credits   22,748    22,748 
Employee advances   --    18,173 
Other   7,922    28,647 
Total  $442,024   $606,151 

 

NOTE 10 - ACCRUED EXPENSES

 

   December 31, 2020   March 31, 2020 
Provision for claims settlement  $495,000   $495,000 
Accrued compensation   316,490    383,555 
Provision for contract losses   110,115    285,480 
Accrued professional fees   244,703    279,657 
Accrued project costs   109,062    76,059 
Other   30,739    34,773 
Total  $1,306,109   $1,554,524 

 

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

 

Total debt included the following as of:  December 31, 2020   March 31, 2020 
Berkshire Term Loan at 5.21% interest, due December 2021  $2,491,835   $2,564,389 
Berkshire SBA PPP loan at 1% interest, due May 2022   1,317,100    -- 
Finance lease obligations at 8% interest, due January 2022   13,662    22,460 
Total debt  $3,822,597   $2,586,849 
Less: debt issue costs unamortized  $16,485   $20,460 
Total debt, net  $3,806,112   $2,566,389 
Less: Current portion of long-term debt  $3,088,553   $109,829 
Total long-term debt, net  $717,559   $2,456,560 

 

11

 

 

Small Business Administration Loan

 

On May 8, 2020, the Company, through its wholly owned subsidiary Ranor, issued a promissory note, or the Note, evidencing an unsecured loan in the amount of $1,317,100 made to Ranor under the Paycheck Protection Program, or the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and is administered by the U.S. Small Business Administration, or the SBA. The loan to Ranor was made through Berkshire Bank.

 

Principal and accrued interest are payable monthly in equal installments commencing at a future date in calendar year 2021 and continuing through the maturity date, unless the Note is forgiven as described below. To be available for loan forgiveness, the Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligations that existed before February 15, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties and contains events of default and other conditions customary for a Note of this type. For example, the Note contains events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Berkshire Bank, or breaching the terms of the loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or the SBA or Berkshire Bank filing suit and obtaining judgment against the Company and/or Ranor.

 

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, certain group health care benefits and insurance premiums, and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.

 

On June 5, 2020, the PPP was amended to give borrowers more time to spend loan proceeds and still obtain loan forgiveness. The amendments extended the length of the covered period as defined in the CARES Act from eight to twenty-four weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week covered period. In addition, the amendments provide that if the borrower does not apply for forgiveness of a loan within ten months after the last day of the covered period, the PPP loan is no longer deferred and the borrower must begin paying principal and interest. As provided under the amendments, our first payment, if required, would not be due until September 11, 2021.

 

Berkshire Term Loan Facility

 

On December 21, 2016, TechPrecision, through Ranor, closed on a Loan Agreement, or the Berkshire Loan Agreement, with Berkshire Bank. Pursuant to the Berkshire Loan Agreement, Berkshire Bank made a term loan to Ranor in the amount of $2,850,000, or the Term Loan, and made available to Ranor a revolving line of credit of $1,000,000 under the Revolver Loan, or together, the Berkshire Loans. The Berkshire Loans are secured by a first lien on all personal and real property of Ranor.

 

On December 23, 2019, TechPrecision, through Ranor, entered into a Third Modification to Loan Agreement, or the Third Modification, and an Amended and Restated Promissory Note with Berkshire Bank. Under the Third Modification, Ranor and Berkshire agreed to increase the maximum principal amount available under the Revolver Loan from $1,000,000 to $3,000,000. Advances under the Revolver Loan are now subject to the lesser of (a) $3,000,000 or (b) the sum of (i) 80% of eligible accounts receivable, plus (ii) the lesser of (x) 25% of Eligible Raw Material Inventory, and (y) $250,000, plus (iii) 50% of the Appraised Value of the Eligible Equipment. The loan agreement is available for refinancing existing indebtedness and for working capital and general corporate purposes. Additionally, the parties agreed to lower the interest rate on advances made under the Revolver Loan at a variable rate equal to the one-month LIBOR plus 225 basis points.  The Third Modification contains customary LIBOR replacement provisions.

 

On December 18, 2020, TechPrecision, through Ranor, entered into a Fourth Modification to Loan Agreement and First Modification and Allonge to Amended and Restated Promissory Note, or the Fourth Modification, with Berkshire Bank. The Modification amends and modifies the Berkshire Loan Agreement. The Fourth Modification also amends the Amended and Restated Promissory Note dated December 23, 2019 made by Ranor in favor of Berkshire in the stated principal amount of $3,000,000. As of the date of the Fourth Modification, there was approximately $2.5 million in remaining principal outstanding under the Term Loan and no amounts outstanding under the Revolver Loan.

 

Under the Fourth Modification, Ranor and Berkshire agreed to revise the minimum interest rate payable on the Revolver Loan. Under the promissory note for the Revolver Loan, the Company can elect to pay interest at an adjusted LIBOR-based rate or an Adjusted Prime Rate. Under the Fourth Modification, the minimum adjusted LIBOR-based rate is 2.75% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The maturity date of the Revolver Loan was also extended to December 20, 2022. All other material terms of the Berkshire Loan Agreement and the promissory note for the Revolver Loan were unchanged.

 

12

 

 

The Company borrowed $1.0 million under the Revolver Loan on April 3, 2020 and repaid principal of $1.0 million on June 30, 2020. There were no borrowed amounts outstanding under the Revolver Loan at December 31, 2020 and March 31, 2020. Interest payments on advances made under the Revolver Loan during the nine months ended December 31, 2020 were $6,664 at a weighted average interest rate of 2.67%. Unused borrowing capacity at December 31, 2020 was $3.0 million.

 

The Berkshire Loan Agreement contains a covenant whereby the Company is required to maintain a debt service coverage ratio, or DSCR, of at least 1.2 to 1.0 during the term of the Berkshire Loans.  The DSCR is measured at the end of each fiscal quarter of the Company.  The Company was in compliance with all of the financial covenants at December 31, 2020 and March 31, 2020.

 

The Berkshire Loan Agreement also contains covenants to cause its balance sheet leverage to be less than or equal to 2.50 to 1.00 for each fiscal year end, and require Ranor to maintain a loan-to-value ratio of not greater than 0.75 to 1.00, to be measured by appraisal not more frequently than one time during each 365-day period.

 

Finance Lease

 

See Note 12 for information regarding our obligations under the finance lease.

 

Fair Value Measurements

 

We account for fair value measurements in accordance with ASC Topic 820, Fair Value Measurement, which defines fair value and establishes a framework to measure fair value and the related disclosures about fair value. The carrying value of short and long-term borrowings approximates their fair value at December 31, 2020 and March 31, 2020. The fair value of the long-term debt was calculated based on interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements. The Company’s short-term and long-term debt with Berkshire bank is privately held with no public market for the debt and is considered to be Level 3 under the fair value hierarchy.

 

NOTE 12 – LEASES

 

Leases that are economically similar to the purchase of an asset are classified as finance leases. The leased, or right-of-use assets in finance lease arrangements are reported in net property, plant and equipment on our condensed consolidated balance sheet. Right-of-use assets and liabilities on our condensed consolidated balance sheet at December 31, 2020 were:

 

Finance lease:  December 31, 2020 
Property, plant and equipment  $54,376 
Accumulated depreciation   43,501 
Net property, plant and equipment  $10,875 
Current portion of long-term debt  $12,569 
Long-term debt  $1,093 
Total finance lease liabilities  $13,662 

 

In December 2019, we signed a one-year operating lease for office space which expired in December 2020 and was amortized on a straight line basis. Since the expiration of the term of the lease, we have continued to lease this office space on a month-to-month basis. Other supplemental information regarding our leases are contained in the following tables:

 

Components of lease expense for the period ended:  December 31, 2020 
Operating lease amortization  $2,878 
Finance lease amortization  $8,156 
Finance lease interest  $1,102 

 

Weighted average lease term and discount rate at:  December 31, 2020 
Finance lease term (years)   1.25 
Finance lease rate   8%

 

Supplemental cash flow information related to leases for the period ended:  December 31, 2020 
Cash used in operating activities  $2,878 
Cash used in financing activities  $8,798 

 

13

 

 

NOTE 13 - COMMITMENTS

 

Retirement Benefits

 

Ranor has a defined contribution and savings plan that covers substantially all Ranor employees who have completed 90 days of service. Ranor retains the option to match employee contributions. The Company contributed $21,897 and $64,167 for the three and nine months ended December 31, 2020.

 

Provision for claims settlement

 

On March 16, 2020, the Company reached an agreement to settle all outstanding claims for $495,000 related to a civil action brought by former employees for past wages claimed under a paid time-off program. The claim is to be paid within sixty days following Court approval of the settlement. Such approval has not yet occurred.

 

NOTE 14 – SUBSEQUENT EVENTS

 

Securities Purchase Agreement

 

On October 16, 2020, the Company entered into a stock purchase agreement, or the SPA, with Stadco New Acquisition, LLC, a wholly owned subsidiary of the Company, or the Acquisition Sub, Stadco, Stadco Acquisition, LLC, or the Target, and each stockholder of Target. The SPA provides for the Company, through Acquisition Sub, to acquire all of the issued and outstanding capital stock of Stadco from Target. Stadco, the operating subsidiary of Target, is a California corporation in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, research and commercial customers. As consideration for the acquisition of all of Target’s common stock, the Company, on behalf of Acquisition Sub, will issue 1,000,000 shares of the Company’s common stock to Target. The Company, Stadco and Target are also working, through negotiation with creditors of Stadco and Target, to substantially reduce the approximately $14 million of Stadco liabilities that would otherwise be added to the consolidated balance of the combined company after closing of the acquisition. Reaching agreements with these creditors to the satisfaction of the Company is required for the closing of the deal to occur. The Company expects that a percentage of these liabilities will be satisfied in part or full through the issuance of additional shares of the Company’s common stock.

 

The SPA contains customary representations and warranties of Stadco, Target, the Company and Acquisition Sub, and Stadco and Target have agreed to customary covenants relating to the conduct of their business during the interim period between the execution of the SPA and the closing of the acquisition. The consummation of the acquisition and the related transactions contemplated by the SPA is subject to certain customary conditions.

 

On February 2, 2021, the Company entered into an amendment effective as of December 15, 2020, to the previously disclosed stock purchase agreement providing for the Acquisition with Acquisition Sub, Stadco, Target and each stockholder of Target. Under the terms of SPA, if the Acquisition was not closed by December 31, 2020, either the Company or Stadco could have terminated the SPA. The Amendment effected a change to this provision by extending until February 28, 2021 the date after which the parties may terminate if the Acquisition has not closed. The Amendment also effected certain other minor changes to the SPA.

 

Loan Purchase and Sale Agreement

 

On January 29, 2021, in connection with securities purchase agreement described above, Acquisition Sub entered into a Loan Purchase and Sale Agreement, effective January 26, 2021, with Sunflower Bank, N.A., and agreed to by Stadco, Target, and Stadco Mexico, Inc.  Under the terms of the Loan Purchase Agreement, Acquisition Sub agreed to purchase certain indebtedness obligations of Stadco consisting of long-term indebtedness and revolving credit line indebtedness owed to Sunflower Bank. The current amount outstanding under these indebtedness obligations is approximately $9.8 million. In exchange, Acquisition Sub agreed to pay $2 million less than the aggregate amount of the indebtedness that is then outstanding on the date of the closing of the transactions contemplated under the Loan Purchase Agreement.  The closing of the indebtedness purchase is subject to the closing of the acquisition contemplated under the SPA and will take place on or about February 15, 2021, with an optional grace period of up to an additional 15 days.  In connection with the closing, Acquisition Sub will also guaranty repayment by Stadco to Sunflower Bank of any of the original approximately $1.5 million in principal indebtedness under Stadco’s Paycheck Protection Program Loan that is not forgiven under the terms of the Coronavirus Aid, Relief, and Economic Security Act.  The Loan Purchase Agreement contains customary representations and warranties of each party, as well as mutual indemnification provisions.

 

14

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Statement Regarding Forward Looking Disclosure

 

The following discussion of the results of our operations and financial condition should be read in conjunction with our condensed consolidated financial statements and the related notes, which appear elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may contain predictive or “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical fact contained in this quarterly report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions, as they relate to us, are intended to identify forward-looking statements.

 

These statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, the forward-looking statements due to numerous risks and uncertainties. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:

 

  · our reliance on individual purchase orders, rather than long-term contracts, to generate revenue;
  · our ability to balance the composition of our revenues and effectively control operating expenses;
  · external factors, including the COVID-19 pandemic, that may be outside of our control;
  · the impacts of the COVID-19 pandemic and government-imposed lockdowns in response thereto;
  · the availability of appropriate financing facilities impacting our operations, financial condition and/or liquidity;
  · our ability to receive contract awards through competitive bidding processes;
  · our ability to maintain standards to enable us to manufacture products to exacting specifications;
  · our ability to enter new markets for our services;
  · our reliance on a small number of customers for a significant percentage of our business;
  · competitive pressures in the markets we serve;
  · changes in the availability or cost of raw materials and energy for our production facilities;
  · operating in a single geographic location;
  · restrictions in our ability to operate our business due to our outstanding indebtedness;
  · government regulations and requirements;
  · pricing and business development difficulties;
  · changes in government spending on national defense;
  · our ability to make acquisitions and successfully integrate those acquisitions with our business;
  · general industry and market conditions and growth rates;
  · general economic conditions;
  · the risk that the proposed acquisition of Stadco may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of Company’s common stock;
  · the failure of either party to satisfy any of the conditions to the consummation of the proposed acquisition of Stadco and uncertainties as to the timing of the consummation of the proposed acquisition;
  · the occurrence of any event, change or other circumstance that could give rise to the termination of the securities purchase agreement governing the acquisition of Stadco;
  · the effect of the announcement or pendency of the proposed acquisition of Stadco on the Company’s business relationships, operating results and business generally;
  · risks related to diverting management’s attention from the Company’s ongoing business operations;
  · unexpected costs, charges or expenses resulting from the proposed acquisition of Stadco; and
  · those risks discussed in “Item 1A. Risk Factors” and elsewhere in our 2020 Annual Report on Form 10-K, as well as those described in any other filings which we make with the SEC.

 

Any forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. Investors should evaluate any statements made by us in light of these important factors.

 

Overview

 

Contract Manufacturing

 

We offer a full range of services required to transform raw materials into precision finished products. Our manufacturing capabilities include: fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting) and final assembly.

 

15

 

 

All manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications. Ranor holds several certificates of authorization issued by the American Society of Mechanical Engineers and the National Board of Boiler and Pressure Vessel Inspectors. The standards used are specific to the customers’ needs, and our manufacturing operations are conducted in accordance with these standards.

 

Because our revenues are derived from the sale of goods manufactured pursuant to a contract, and we do not sell from inventory, it is necessary for us to constantly seek new contracts. There may be a time lag between our completion of one contract and commencement of work on another contract. During such periods, we may continue to incur overhead expense but with lower revenue resulting in lower operating margins. Furthermore, changes in either the scope of an existing contract or related delivery schedules may impact the revenue we receive under the contract and the allocation of manpower. Although we provide manufacturing services for large governmental programs, we usually do not work directly for the government or its agencies. Rather, we perform our services for large governmental contractors. Our business is dependent in part on the continuation of governmental programs which require our services and products.

 

Our contracts are generated both through negotiation with the customer and from bids made pursuant to a request for proposal. Our ability to receive contract awards is dependent upon the contracting party’s perception of such factors as our ability to perform on time, our history of performance, including quality, our financial condition and our ability to price our services competitively.  Although some of our contracts contemplate the manufacture of one or a limited number of units, we continue to seek more long-term projects with predictable cost structures.

 

Financial Results

 

Our results of operations are affected by a number of external factors including the availability of raw materials, commodity prices (particularly steel), macroeconomic factors, including the availability of capital that may be needed by our customers, and political, regulatory and legal conditions in the United States and in foreign markets. Generally, our projects are made up of short-term contracts with a production timeline that can range from three to as much as thirty-six months. Units manufactured under the majority of our customer contracts are delivered on time and with a positive gross margin.  Our results of operations for any specific period are also affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress fulfilling obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog.

 

If revenue for a particular quarter is below our expectations, we may not be able to proportionally reduce operating expenses for that quarter. Therefore, a revenue shortfall would have a disproportionate effect on our operating results for that quarter. We have reported operating losses in four of the last seven quarters. In Fiscal 2020 we reported a loss from operations of $0.1 million, due primarily to an increase in cost of sales for losses on certain customer projects. Until we complete and deliver the final units from these projects, they will continue to dampen gross margin in future quarterly periods.

 

For the nine months ended December 31, 2020, our net sales and net income were $11.6 million and $0.1 million, respectively, compared with net sales of $11.1 million and net loss of $0.4 million for the nine months ended December 31, 2019.  Our gross margin for the nine months ended December 31, 2020 and 2019 was 21.9% and 16.6%, respectively. We used $0.3 million of cash in operations for the nine months ended December 31, 2020 and had a cash balance of $1.3 million at December 31, 2020. Our sales order backlog at December 31, 2020 and March 31, 2020 was approximately $18.4 million and $16.8 million, respectively.

 

Acquisition of Stadco

 

We recently announced an agreement to purchase a company that manufactures precision parts for the defense and aerospace industries. Incremental costs incurred for due diligence as a result of this agreement could impact earnings in future quarterly periods. Because of the size of this acquisition target relative to our business, following closing, we expect to report that our results of operations, cash flows and financial condition will differ materially from those reported to date. The acquisition agreement is subject to certain conditions, and may or may not be completed unless all of the conditions set forth in the agreement are completed. Failure to successfully integrate and realize the expected benefits of such acquisitions or to implement our acquisition strategy, including successfully integrating acquired businesses, could have an adverse effect on our business, financial condition and results of operations.

 

16

 

 

COVID-19

 

At the end of March 2020, the outbreak of coronavirus (COVID-19) had spread worldwide as a pandemic. The full extent of the outbreak, related business and travel restrictions and changes to social behavior intended to reduce its spread remain uncertain and subject to change as the health crisis continues to evolve in the U.S. and abroad. The directives imposed by federal, state and local governments did not impair our ability to maintain operations during the first nine months of fiscal 2021 as the Company was designated an “Essential Service.” The pandemic has nevertheless negatively affected certain of the Company’s customers, suppliers and labor force, and with the changing conditions as a result of the COVID-19 outbreak, the impact on our operations and financial results for the remainder of calendar year 2021 remains uncertain.

 

We and our customers have been designated essential services as national critical infrastructure companies by the U.S. Department of Homeland Security. Additionally, we believe that the long term outlook for the defense industry remains positive as we continue to see meaningful opportunities in our defense sector, primarily in the nuclear submarine business for the next twelve months and beyond.

 

Critical Accounting Policies

 

The preparation of the condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We continually evaluate our estimates, including those related to revenue recognition, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. These estimates and assumptions require management's most difficult, subjective or complex judgments. Actual results may differ under different assumptions or conditions.

 

Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2020 Annual Report on Form 10-K. We consider the policies relating to revenue recognition to be a critical accounting policy. There have been no significant changes to our critical accounting policies during the nine months ended December 31, 2020.

 

Accounting Pronouncements

 

New Accounting Standards

 

See Note 3, Accounting Standards Update, in the Notes to the condensed consolidated financial statements in “Item 1. Financial Statements” for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted.

 

Key Performance Indicators

 

While we prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, we also utilize and present certain financial measures that are not based on or included in U.S. GAAP. We refer to these as Non-GAAP financial measures.  Please see the section “EBITDA Non-GAAP financial measure” below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the most directly comparable U.S. GAAP financial measures.

 

Three Months Ended December 31, 2020 and 2019

 

The following table sets forth information from our condensed consolidated statements of operations and comprehensive (loss) income, in dollars and as a percentage of revenue:

 

   December 31, 2020   December 31, 2019   Changes 
(dollars in thousands)  Amount   Percent   Amount   Percent   Amount   Percent 
Net sales  $3,569    100%  $3,667    100%  $(98)   (3)%
Cost of sales   2,864    80%   3,353    91%   (489)   (15)%
Gross profit   705    20%   314    9%   391    124%
Selling, general and administrative   716    20%   663    18%   53    8%
Loss from operations   (11)   -%   (349)   (9)%   338    97%
Other expense, net   (50)   (1)%   (69)   (2)%   19    28%
Loss before taxes   (61)   (2)%   (418)   (11)%   357    85%
Income tax benefit   (13)   (1)%   (98)   (3)%   85    87%
Net loss  $(48)   (1)%  $(320)   (8)%  $272    85%

 

17

 

 

Net Sales

 

The Company records most of its revenue over time as it completes performance obligations. We measure progress for performance obligations satisfied over time using input methods (e.g., labor hours expended and time elapsed).

 

Net sales were $3.6 million for the three months ended December 31, 2020, or 3% lower when compared to net sales for the three months ended December 31, 2019 of $3.7 million. Net sales in our defense markets decreased by $0.3 million when compared to the three months ended December 31, 2019. However, our defense backlog remains strong as new orders for components continue to flow down from our prime defense contractors. Net sales to other commercial markets increased by $0.2 million when compared to the three months ended December 31, 2019, primarily on new projects for components built for a certain nuclear energy customer. We have experienced repeat business in these markets, but the order flow is uneven and difficult to forecast.

 

Cost of Sales and Gross Margin

 

Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Cost of sales for the three months ended December 31, 2020 were $0.5 million lower when compared to the three months ended December 31, 2019, primarily because of the absence of any significant contract losses. The fiscal 2020 third quarter included a higher loss provision for certain customer projects.

 

As a result, gross profit was $0.7 million for the three months ended December 31, 2020, or $0.4 million higher when compared to the three months ended December 31, 2019. Gross margin was 19.8% for the three months ended December 31, 2020 and 8.6% for the three months ended December 31, 2019.

 

We continue to solve learning-curve challenges on a limited number of projects in the manufacturing schedule which had an unfavorable financial impact in fiscal 2020. Progress notwithstanding, until we complete and deliver the final units from these projects, they could have an unfavorable impact on gross margin in future quarterly periods.

 

Selling, General and Administrative Expenses

 

Total selling, general and administrative expenses for the three months ended December 31, 2020 increased by $54,172 compared to the three months ended December 31, 2019, due primarily to an increase in outside advisory services, which included expenses for the proposed Stadco acquisition.

 

Other Expense, net

 

Interest expense was lower for the three months ended December 31, 2020 when compared to the three months ended December 31, 2019, and should continue to be lower than the prior year, barring any additional borrowings for working capital purposes under our revolving credit facility, or any new credit facility to meet our changing capital resource needs. Debt issue costs increased as the Company began to amortize costs associated with increasing the borrowing limit under the Revolver loan with Berkshire bank and borrowings under the payroll protection program, or PPP. The following table reflects other income and expense, interest expense and amortization of debt issue costs for the three months ended:

 

   December 31, 2020   December 31, 2019   $ Change   % Change 
Other (expense) income, net  $(219)  $185   $(404)   (218)%
Interest expense  $(36,391)  $(58,817)  $22,426    38%
Amortization of debt issue costs  $(14,014)  $(10,511)  $(3,503)   (33)%

 

Income Taxes

 

For the three months ended December 31, 2020 and December 31, 2019, we recorded a tax benefit of $13,369 and $97,734, respectively. The tax benefit was the result of an operating loss.

 

Net Loss

 

As a result of the foregoing, for the three months ended December 31, 2020, we recorded a net loss of $48,172, compared with a net loss of $319,770 for the three months ended December 31, 2019.

 

18

 

 

Nine Months Ended December 31, 2020 and 2019

 

The following table sets forth information from our condensed consolidated statements of operations and comprehensive (loss) income, in dollars and as a percentage of revenue:

 

   December 31, 2020   December 31, 2019   Changes 
(dollars in thousands)  Amount   Percent   Amount   Percent   Amount   Percent 
Net sales  $11,566    100%  $11,075    100%  $491    4%
Cost of sales   9,035    78%   9,238    83%   (203)   (2)%
Gross profit   2,531    22%   1,837    17%   694    38%
Selling, general and administrative   2,206    19%   2,145    19%   61    3%
Income (loss) from operations   325    3%   (308)   (3)%   633    206%
Other expense, net   (159)   (1)%   (197)   (2)%   38    20%
Income (loss) before taxes   166    2%   (505)   (5)%   671    133%
Income tax expense (benefit)   60    1%   (115)   (1)%   175    152%
Net income (loss)  $106    1%  $(390)   (4)%  $496    127%

 

Net Sales

 

The Company records most of its revenue over time as it completes performance obligations. We measure progress for performance obligations satisfied over time using input methods (e.g., labor hours expended and time elapsed).

 

Changes in net sales generally reflect a different product mix and project volume when comparing the current and prior year periods. Net sales were 4% higher for the nine months ended December 31, 2020 when compared to net sales for the nine months ended December 31, 2019. For the nine months ended December 31, 2020, net sales in our defense markets decreased by $0.4 million when compared to the nine months ended December 31, 2019. However, our defense backlog remains strong as new orders for components continue to flow down from our prime defense contractors. Net sales to other commercial markets increased by $0.9 million when compared to the nine months ended December 31, 2019 on projects completed for customers in the nuclear energy and medical markets. We have experienced repeat business in this sector, but the order flow can be uneven and difficult to forecast.

 

Cost of Sales and Gross Margin

 

Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the nine months ended December 31, 2020 were $0.2 million lower when compared to the nine months ended December 31, 2019, primarily on the absence of any significant contract losses. The fiscal 2020 nine month period was marked by new project startup activities and higher provisions for contract losses.

 

Gross profit was $2.5 million for the nine months ended December 31, 2020, or 38% higher when compared to the nine months ended December 31, 2019. Gross margin was 21.9% for the nine months ended December 31, 2020 and 16.6% for the nine months ended December 31, 2019.

 

Selling, General and Administrative Expenses

 

Total selling, general and administrative expenses for the nine months ended December 31, 2020 increased by $60,684 as an increase in compensation and office costs more than offset a decrease in travel expenses when compared to the nine months ended December 31, 2019.

 

Other Expense, net

 

Interest expense was lower for the nine months ended December 31, 2020 when compared to the nine months ended December 31, 2019, and should continue to be lower than the prior year, barring any additional borrowings for working capital purposes under our revolving credit facility, or any new credit facility to meet our changing capital resource needs. Debt issue costs increased as we began to amortize costs associated with amendments to the existing Berkshire loan agreement bank and new borrowings under the payroll protection program, or PPP.

 

Other income for the nine months ended December 31, 2019 included proceeds from the sale of machinery and equipment of $16,000. The following table reflects other income, interest expense and amortization of debt issue costs for the nine months ended:

 

   December 31, 2020   December 31, 2019   $ Change   % Change 
Other income, net  $1,237   $21,063   $(19,826)   (94)%
Interest expense  $(114,786)  $(187,167)  $72,381    39%
Amortization of debt issue costs  $(45,099)  $(31,280)  $(13,819)   (44)%

 

19

 

 

Income Taxes

 

For the nine months ended December 31, 2020 we recorded tax expense of $60,573 and a tax benefit of $115,092 for the nine months ended December 31, 2019. The tax benefit for the nine months ended December 31, 2019 was the result of an operating loss.

 

The valuation allowance on deferred tax assets at December 31, 2020 was approximately $1.7 million. We believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. 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.

 

Net Income (Loss)

 

As a result of the foregoing, for the nine months ended December 31, 2020, we recorded net income of $0.1 million, compared with a net loss of $0.4 million for the nine months ended December 31, 2019.

 

Liquidity and Capital Resources

 

Small Business Administration Loan

 

On May 8, 2020, the Company, through Ranor, issued a promissory note, or the Note, evidencing an unsecured loan in the amount of $1,317,100 made to Ranor under the Paycheck Protection Program, or the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and is administered by the U.S. Small Business Administration, or the SBA. The loan to Ranor was made through Berkshire Bank.

 

The Note provides for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are payable monthly in equal installments commencing on the date that is approximately six months after the date funds are first disbursed on the loan and continuing through the maturity date, unless the Note is forgiven as described below. To be available for loan forgiveness, the Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that existed before February 15, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties and contains events of default and other conditions customary for a Note of this type.

 

Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, certain group health care benefits and insurance premiums, and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.

 

On June 5, 2020, the PPP was amended to give borrowers more time to spend loan proceeds and still obtain loan forgiveness. The amendments extended the length of the covered period as defined in the CARES Act from eight to twenty-four weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week covered period. In addition, the amendments provide that if the borrower does not apply for forgiveness of a loan within ten months after the last day of the covered period, the PPP loan is no longer deferred and the borrower must begin paying principal and interest. As provided under the amendments, our first payment, if required, would not be due until September 11, 2021.

 

Berkshire Term Loan Facility

 

On December 21, 2016, TechPrecision, through Ranor, closed on a Loan Agreement with Berkshire Bank. Pursuant to the Berkshire Loan Agreement, Berkshire Bank made a term loan to Ranor in the amount of $2,850,000, and made available to Ranor a revolving line of credit of $1,000,000 under the Revolver Loan. The debt matures on December 20, 2021, with a balloon payment of approximately $2.4 million due under the terms of the Term Loan with Berkshire bank. We anticipate that we will be able to refinance that debt with Berkshire Bank.

 

On December 23, 2019, TechPrecision, through Ranor, entered into a Third Modification to Loan Agreement, and an Amended and Restated Promissory Note with Berkshire Bank. Under the Third Modification, Ranor and Berkshire agreed to increase the maximum principal amount available under the Revolver Loan from $1,000,000 to $3,000,000.

 

The Company borrowed $1.0 million under the Revolver Loan on April 3, 2020 and repaid that principal on June 30, 2020. There were no borrowed amounts outstanding under the Revolver Loan at December 31, 2020 and March 31, 2020. Interest-only payments on advances made under the Revolver Loan during the nine months ended December 31, 2020 totaled $6,664 at a weighted average interest rate of 2.67%.

 

20

 

 

On December 18, 2020, under the Fourth Modification, Ranor and Berkshire Bank agreed to revise the minimum interest rate payable on the Revolver Loan. Under the Line of Credit Note, the Company can elect to pay interest at an adjusted LIBOR-based rate or an Adjusted Prime Rate. Under the Fourth Modification, the minimum adjusted LIBOR-based rate is 2.75% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The maturity date of the Revolver Loan was also extended to December 20, 2022. All other material terms of the Loan Agreement and Line of Credit Note were unchanged. Unused borrowing capacity at December 31, 2020 was $3.0 million.

 

At December 31, 2020, we had cash and cash equivalents of $1.3 million and working capital of $4.2 million. We believe our available cash plus cash expected to be provided by operations during fiscal 2021, and borrowing capacity available under the Revolver Loan will be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the 12 months from the issuance date of our financial statements. However, following the closing of the acquisition of Stadco, or in connection therewith, we may need to reevaluate our financing needs in light of the significant changes we expect to the combined company’s capital resource needs. As a result, we may decide to seek new debt and/or equity financing.

 

The table below presents selected liquidity and capital measures at the indicated dates:

 

(dollars in thousands) 

December 31,

2020

  

March 31,

2020

  

Change

Amount

 
Cash and cash equivalents  $1,255   $931   $324 
Working capital  $4,170   $5,595   $(1,425)
Total debt  $3,823   $2,587   $1,236 
Total stockholders’ equity  $9,694   $9,469   $225 

 

The following table summarizes the primary components of cash flows for the nine months ended:

 

(dollars in thousands) 

December 31,

2020

  

December 31,

2019

  

Change

Amount

 
Cash flows provided by (used in):               
Operating activities  $(340)  $609   $(949)
Investing activities   (547)   (35)   (512)
Financing activities   1,211    (642)   1,853 
Net increase (decrease) in cash  $324   $(68)  $392 

 

Operating activities

 

Our primary sources of cash are from accounts receivable collections, customer advance payments and project progress payments. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments, progress payments and payments made after shipment of finished goods. Cash used in operations for the nine months ended December 31, 2020 was $0.3 million compared with cash provided by operations of $0.6 million for fiscal 2020.

 

We used cash in operations during the first nine months of fiscal 2021, as accounts receivable and contract assets increased and contract liabilities decreased due to a changing production mix. We have encountered some delayed inspections, deliveries, and disrupted supply chain issues, due to travel restrictions in connection with the COVID-19 pandemic. The future financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time as its impact depends on future developments, which are highly uncertain and cannot be predicted.

 

Investing activities

 

We do not anticipate any additional expenditures for new factory machinery and equipment during the last quarter of fiscal 2021. Net cash used in investing activities for purchases of property, plant and equipment in the nine months ended December 31, 2020 and 2019 totaled $546,890 and $35,225, respectively. The increase in the nine months ended December 31, 2020 occurred because the Company purchased new robotic equipment during fiscal 2021.

 

21

 

 

Financing activities

 

On May 8, 2020 we borrowed $1.3 million under the CARES Act payroll protection program. On April 3, 2020 we borrowed $1.0 million under our Revolver loan, then paid down $1.0 million in principal on June 30, 2020.

 

For the nine months ended December 31, 2020 and 2019 we made monthly principal payments of $81,352 and $610,515 in connection with our term debt and finance lease obligations.

 

All of the above activity resulted in a net increase in cash of $0.3 million for the nine months ended December 31, 2020 compared with a decrease in cash of $0.1 million for the nine months ended December 31, 2019.

 

Off-Balance Sheet Arrangements

 

We do not currently have, and have not had, any off-balance sheet assets, liabilities or arrangements at December 31, 2020.

 

EBITDA Non-GAAP Financial Measure

 

To complement our condensed consolidated statements of operations and comprehensive (loss) income and condensed consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net (loss) income is the financial measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to EBITDA. We believe EBITDA provides our board of directors, management and investors with a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We also believe that EBITDA is a measure frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, and is a measure contained in our debt covenants. However, while we consider EBITDA to be an important measure of operating performance, EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

 

We define EBITDA as net (loss) income plus interest, income taxes, depreciation and amortization. EBITDA, a non-GAAP financial measure, was $0.8 million for the nine months ended December 31, 2020, as compared to $0.3 million for the nine months ended December 31, 2019. The following table provides a reconciliation of EBITDA to net (loss) income, the most directly comparable GAAP measure reported in our condensed consolidated financial statements for the following periods:

 

   Three Months ended December 31,   Nine Months ended December 31, 
(dollars in thousands)  2020   2019   Change   2020   2019   Change 
Net (loss) income  $(48)  $(320)  $272   $106   $(390)  $496 
Income tax (benefit) expense    (13)   (98)   85    61    (115)   176 
Interest expense (1)   50    69    (19)   160    218    (58)
Depreciation and amortization   182    168    14    521    548    (27)
EBITDA  $171   $(181)  $352   $848   $261   $587 

(1) Includes amortization of debt issue costs.

 

Item 3.  Quantitative and Qualitative Disclosure About Market Risk.

 

As a smaller reporting company, we have elected not to provide the information required by this Item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures.

 

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and procedures that are designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and includes controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

As of the end of the period covered by this report, an evaluation was carried out, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures were effective at a reasonable assurance level.

 

22

 

 

Inherent Limitations Over Internal Controls

 

The Company’s internal control over financial reporting is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

For the quarter ended December 31, 2020, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. Other Information.

 

Item 1A. Risk Factors

 

Our ability to complete the acquisition of Stadco is subject to closing conditions, including the receipt of consents and approvals from third parties, which may impose conditions that could adversely affect us or cause the acquisition not to be completed.

 

Our acquisition of Stadco and its affiliates is subject to a number of closing conditions as specified in the stock purchase agreement entered into with Stadco and its holding company. These include, among others, the entry into arrangements with certain lenders of Stadco and its affiliates and the absence of governmental restraints or prohibitions preventing the consummation of the acquisition. No assurance can be given that the required consents and approvals will be obtained or that the closing conditions will be satisfied in a timely manner or at all. Any delay in completing the acquisition could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve. In addition, we can provide no assurance that these conditions will not result in the abandonment or delay of the acquisition. The occurrence of any of these events could have a material adverse effect on our results of operations, cash flows, financial condition and/or the trading price of our common stock.

 

We may not achieve the intended benefits of our acquisition of Stadco, and the acquisition may disrupt our current plans or operations.

 

We may not be able to successfully integrate Stadco’s business and assets or otherwise realize the expected benefits of the transaction, including anticipated annual operating cost and capital synergies to the extent currently anticipated, or at all. To realize these anticipated benefits, our business and Stadco’s business must be successfully combined, which is subject to our ability to consolidate operations, corporate cultures and systems and our ability to eliminate redundancies and costs. Difficulties in integrating Stadco into our operations may result in the combined company performing differently than expected, in operational challenges or in the failure to realize anticipated synergies and efficiencies in the expected time frame or at all. The integration of the two companies may result in material challenges, including the diversion of management’s attention from ongoing business concerns; retaining key management and other employees; retaining existing business and operational relationships, including customers and other counterparties, and attracting new business and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating geographically separate organizations; difficulties in the assimilation of employees and corporate cultures; unanticipated issues in integrating information technology, communications and other systems; as well as unforeseen expenses or delays associated with the acquisition. If we are not successful in integrating Stadco’s business and assets or otherwise fail to realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Stadco acquisition, our results of operations, cash flows and financial condition may be materially adversely affected.

 

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Whether or not it is completed, the announcement and pendency of the acquisition of Stadco could cause disruptions in our business, which could have an adverse effect on our business and financial results.

 

Whether or not it is completed, the announcement and pendency of our acquisition of Stadco could cause disruptions in our business: our and Stadco’s current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect the ability to retain key employees; uncertainty regarding the completion of the acquisition may cause customers, suppliers, distributors, vendors, strategic partners or others to delay or defer entering into contracts, make other decisions or seek to change or cancel existing business relationships; and the attention of management may be directed toward the completion of the acquisition. If the acquisition is not completed, we will have incurred significant costs and diverted management resources, for which we will have received little or no benefit.

 

We are expected to incur substantial expenses related to the acquisition of Stadco and its affiliates and the integration of their business with ours.

 

We expect to incur substantial expenses in connection with the integration of our business with Stadco and its affiliates. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. In addition, our and Stadco’s businesses will continue to maintain a presence in Westminster, Massachusetts and Los Angeles, California, respectively. Some of these costs will be non-recurring expenses related to the acquisition itself, including legal and accounting costs and systems consolidation costs. We may also incur additional costs to attract, motivate or retain management personnel and other key employees. We have incurred and will continue to incur acquisition fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs.

 

Our stockholders may not realize a benefit from the acquisition of Stadco commensurate with the ownership dilution they will experience in connection with the transaction.

 

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the acquisition of Stadco and its affiliates, our stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the acquisition.

 

The market price of our common stock following the acquisition of Stadco may decline as a result of the transaction.

 

The market price of our common stock may decline as a result of our acquisition of Stadco and its affiliates for a number of reasons, including if:

 

·investors react negatively to the prospects of the combined company’s business and financial condition following the acquisition;

 

·the effect of the acquisition on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

·the combined company does not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by management and the Company’s investors, or at all.

 

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Item 6. Exhibits.
Exhibit Index
Exhibit No.   Description  
2.1*   Stock Purchase Agreement among TechPrecision Corporation, Stadco New Acquisition, LLC, Stadco, Stadco Acquisition, LLC and the stockholders of Stadco, dated as of October 16, 2020 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed with the Commission on October 20, 2020).
     
3.1   Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 to our registration statement on Form SB-2, filed with the Commission on August 28, 2006).
     
3.2   Amended and Restated By-laws of the Registrant (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the Commission on February 3, 2014).
     
3.3   Certificate of Designation for Series A Convertible Preferred Stock of the Registrant (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the Commission on March 3, 2006).
     
3.4   Certificate of Amendment to Certificate of Designation for Series A Convertible Preferred Stock of the Registrant (incorporated herein by reference to Exhibit 3.5 to our Quarterly Report on Form 10-Q, filed with the Commission on November 12, 2009).
     
10.1*   Fourth Modification to Loan Agreement and First Modification and Allonge to Amended and Restated Promissory Note, dated December 18, 2020, between Ranor, Inc. and Berkshire Bank (incorporated by reference to Exhibit 10.1 to our Current Report, filed with the Commission on December 21, 2020)
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101   The following financial information from this Quarterly Report on Form 10-Q for the three and nine months ended December 31, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at December 31, 2020 and March 31, 2020; (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended December 31, 2020 and 2019; (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the periods ended December 31, 2020 and 2019; (iv) the Condensed Consolidated Statements of Cash Flows for the nine months  ended December 31, 2020 and 2019; and (v) the Notes to the Condensed Consolidated Financial Statements.

 

*Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules have been omitted. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    TechPrecision Corporation
     
February 11, 2021 By:  /s/ Thomas Sammons
    Thomas Sammons
    Chief Financial Officer

 

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