Techprecision Corp 10-Q for FY2024 Q1
Techprecision Corp (TPCS)
About this 10-Q
Techprecision Corp filed this 10-Q on August 21, 2023, covering the quarter ended June 30, 2023 (FY2024 Q1).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.37M
- up 4.2% from $7.08M a year earlier
- Net loss
- $527.46K
- compared with a net loss of $501.17K a year earlier
- Diluted EPS
- -$0.06
- compared with -$0.06 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to __________________
Commission File Number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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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).
The number of shares outstanding of the registrant’s common stock as of August 18, 2023, was
TABLE OF CONTENTS
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 18 | |
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2
PART I
ITEM 1. FINANCIAL STATEMENTS
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| | June 30, | | March 31, | ||
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| 2023 |
| 2023 | ||
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net | |
| | |
| |
Contract assets | |
| | |
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Raw materials | | | | | | |
Work-in-process | | | | | | |
Other current assets | |
| | | | |
Total current assets | |
| | | | |
Property, plant and equipment, net | |
| | | | |
Right-of-use asset, net | | | | | | |
Deferred income taxes | |
| | | | |
Other noncurrent assets, net | |
| | | | |
Total assets | | $ | | | $ | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | | | $ | |
Accrued expenses | |
| | | | |
Contract liabilities | |
| | | | |
Current portion of long-term lease liability | |
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Current portion of long-term debt, net | | | | | | |
Total current liabilities | |
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Long-term debt, net | |
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Long-term lease liability | | | | | | |
Other noncurrent liability | | | | | | |
Total liabilities | | | | | | |
Commitments and contingent liabilities (see Note 14) | | | | | | |
Stockholders’ Equity: | | | | | | |
Common stock - par value $ | |
| | | | |
Additional paid in capital | |
| | | | |
Accumulated deficit | |
| ( | | | ( |
Total stockholders’ equity | |
| | | | |
Total liabilities and stockholders’ equity | | $ | | | $ | |
See accompanying notes to the condensed consolidated financial statements.
3
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
| | Three months ended June 30, | ||||
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| 2023 |
| 2022 | ||
Net sales | | $ | | | $ | |
Cost of sales | |
| | | | |
Gross profit | |
| | | | |
Selling, general and administrative | |
| | | | |
Loss from operations | | | ( | | | ( |
Other income (expense), net | |
| | | | ( |
Interest expense | |
| ( | | | ( |
Total other income (expense), net | |
| ( | | | ( |
Loss before income taxes | |
| ( | | | ( |
Income tax benefit | | | ( | | | ( |
Net loss | | $ | ( | | $ | ( |
Net loss per share – basic | | $ | ( | | $ | ( |
Net loss per share – diluted | | $ | ( | | $ | ( |
Weighted average number of shares outstanding – basic | | | | | | |
Weighted average number of shares outstanding – diluted | | | | | | |
See accompanying notes to the condensed consolidated financial statements.
4
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
| | | | | | | | | | Retained | | | | |
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| Common |
| | |
| Additional |
| Earnings |
| Total | |||
|
| Stock | | Par |
| Paid in |
| (Accumulated |
| Stockholders’ | ||||
|
| Outstanding |
| Value |
| Capital |
| Deficit) |
| Equity | ||||
Balance March 31, 2022 |
| | | $ | | | $ | | | $ | | | $ | |
Stock based compensation | | — | | | — | | | | | | — | | | |
Net loss | | — | | | — | | | — | | | ( | | | ( |
Balance June 30, 2022 | | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | |
Balance March 31, 2023 | | | | $ | | | $ | | | $ | ( | | $ | |
Net loss | | — | | | — | | | — | | | ( | | | ( |
Balance June 30, 2023 | | | | $ | | | $ | | | $ | ( | | $ | |
See accompanying notes to the condensed consolidated financial statements.
5
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| | Three Months Ended June 30, | ||||
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| 2023 |
| 2022 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
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Depreciation and amortization | |
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Amortization of debt issue costs | |
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Stock based compensation expense | |
| — | |
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Change in contract loss provision | |
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Deferred income taxes | |
| ( | |
| ( |
Change in fair value for contingent consideration | | | — | | | ( |
Changes in operating assets and liabilities: | |
| | | | |
Accounts receivable | |
| ( | |
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Contract assets | |
| | |
| ( |
Work-in-process and raw materials | |
| ( | |
| ( |
Other current assets | |
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Accounts payable | |
| ( | |
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Accrued expenses | |
| ( | |
| ( |
Contract liabilities | |
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Other noncurrent liabilities | | | | | | |
Net cash provided by operating activities | |
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CASH FLOWS FROM INVESTING ACTIVITIES: | |
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Fixed asset deposit | | | — | | | ( |
Purchases of property, plant, and equipment | |
| ( | |
| ( |
Net cash used in investing activities | | | ( | | | ( |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
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Debt issue costs | | | — | | | ( |
Revolver loan payments and borrowings, net | | | | | | ( |
Payments of principal for leases | | | ( | | | ( |
Repayments of long-term debt | |
| ( | | | ( |
Net cash provided by (used in) financing activities | |
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| ( |
Net decrease in cash and cash equivalents | |
| ( | |
| ( |
Cash and cash equivalents, beginning of period | |
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Cash and cash equivalents, end of period | | $ | | | $ | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: | |
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Cash paid for interest; net of amounts capitalized | | $ | | | $ | |
See accompanying notes to the condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
TechPrecision Corporation, or “TechPrecision”, is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. On February 24, 2006, we acquired all of the issued and outstanding capital stock of our wholly owned subsidiary Ranor, Inc., or “Ranor.” Ranor, together with its predecessors, has been in continuous operation since 1956. The company’s name was changed to TechPrecision Corporation on March 6, 2006.
On August 25, 2021, the Company completed its previously announced acquisition of Stadco, pursuant to that certain stock purchase agreement with Stadco New Acquisition, LLC, or “Acquisition Sub”, Stadco Acquisition, LLC, Stadco and each equity holder of Stadco Acquisition, LLC. On the closing date, the Company, through Acquisition Sub, acquired all the issued and outstanding capital stock of Stadco from Stadco Acquisition, LLC in exchange for the issuance of shares of the Company’s common stock to Stadco Acquisition, LLC. As a result of the acquisition, Stadco is now our wholly owned indirect subsidiary.
TechPrecision is the parent company of Ranor, Westminster Credit Holdings, LLC, or “WCH”, Acquisition Sub, and Stadco. TechPrecision, Ranor, WCH, Acquisition Sub and Stadco are collectively referred to as the “Company”, “we”, “us” or “our”.
We manufacture large-scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets including defense and aerospace, nuclear, medical, and precision industrial. All our operations and customers are in the United States, or “U.S.”.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the accounts of TechPrecision, Ranor, Stadco, WCH, and Acquisition Sub. Intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and stockholders’ equity for the three months ended June 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the three months ended June 30, 2023 and 2022 are unaudited, but, in the opinion of management, include all adjustments that are necessary for a fair presentation of our financial statements for interim periods in accordance with U.S. Generally Accepted Accounting Principles, or “U.S. GAAP”. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The results of operations for an interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. On February 23, 2023, the Company effected a -for-four reverse stock split with respect to the issued and outstanding shares of TechPrecision common stock. All share and per-share amounts included in this Form 10-Q are presented as if the stock split had been effective from the beginning of the earliest period presented.
These notes to the condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the “SEC”, for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements and related notes should be read in conjunction with the consolidated financial statements included with our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with the SEC on June 15, 2023.
Use of Estimates in the Preparation of Financial Statements - In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the reporting period. We continually evaluate our estimates, including those related to revenue recognition and income taxes. We base our estimates on historical and current experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.
Liquidity and Going Concern - Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income. For the three months ended June 30, 2023 we reported a net loss of $
7
The Company is the borrower under the amended and restated loan agreement with Berkshire Bank, or the “Loan Agreement” (as defined below; see Note 11 – Debt). There was $
Without such a waiver, the lender would have the right, but not the obligation, to demand repayment from the Company for noncompliance with the debt covenants. In addition, the bank retains the right to act on covenant violations that occur after the date of delivery of any waiver. If the lender were to decline to grant us a waiver and instead demand repayment, we would need to seek alternative financing to pay these obligations as the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations.
We are subject to certain financial debt covenants and may not spend more than $
We estimate our spending on new machinery and equipment in fiscal 2024, which we expect will include expenditures for the installation and construction of equipment for contract project work with a certain customer, will again exceed the spending limitation. However, as a result of the agreement to exclude certain expenditures from the limitation imposed by the covenant, the Company does not anticipate this will result in noncompliance with the capital spending limit covenant for the fiscal year ended March 31, 2024.
In order for us to continue operations beyond the next twelve months and be able to discharge our liabilities and commitments in the normal course of business, we must mitigate our recurring operating losses at our Stadco subsidiary. We must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process, so our direct labor hours (inputs) allow us to recognize more revenue over time (outputs) and improve job performance. We plan to closely monitor our expenses and, if required, will reduce operating costs to enhance liquidity.
The uncertainty associated with the recurring operating losses at Stadco and expected debt covenant violation at subsequent compliance dates raise substantial doubt about our ability to continue as a going concern.
The condensed consolidated financial statements for the three months ended June 30, 2023, were prepared on the basis of a going concern which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should we be required to liquidate assets. Our ability to satisfy our current liabilities and to continue as a going concern is dependent upon the Company’s compliance with the debt covenants and its ability to grow revenue and reduce costs at Stadco. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
New Accounting Standards Recently Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03. The guidance in these ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used. The standard also establishes additional disclosures related to credit risks. This standard is effective for fiscal years beginning after December 15, 2022. The adoption of this ASU on April 1, 2023 did not have a significant impact on the Company’s condensed financial statements and disclosures.
8
NOTE 3 – REVENUE
The Company generates revenue primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can be between and. Revenue is recognized over-time or at a point-in-time given the terms and conditions of the related contracts. The Company utilizes an inputs methodology based on estimated labor hours to measure performance progress. This model best depicts the transfer of control to the customer. The Company’s contract portfolio is comprised of fixed-price contracts and provide for product type sales only. The following table presents net sales on a disaggregated basis by market and contract type:
Net Sales by market |
| Defense |
| Industrial |
| Totals | |||
Three months ended June 30, 2023 | | $ | | | $ | | | $ | |
Three months ended June 30, 2022 | | $ | | | $ | | | $ | |
Net Sales by contract type |
| Over-time |
| Point-in-time |
| Totals | |||
Three months ended June 30, 2023 | | $ | | | $ | | | $ | |
Three months ended June 30, 2022 | | $ | | | $ | | | $ | |
As of June 30, 2023, the Company had $
We are dependent each year on a small number of customers who generate a significant portion of our business, and these customers change from year to year. The following table sets forth revenues from customers who accounted for more than 10% of our net sales.
| | Three months ended | | Three months ended | | ||||||
| | June 30, 2023 | | June 30, 2022 |
| ||||||
Customer |
| Amount |
| Percent |
| Amount |
| Percent |
| ||
A | | $ | |
| | % | $ | |
| | % |
B | | $ | |
| | % | $ | |
| | % |
C | | $ | |
| | % | $ | |
| | % |
D | | $ | * | | * | % | $ | | | | % |
E | | $ | | | | % | $ | * | | * | % |
F | | $ | | | | % | $ | * | | * | % |
*Less than 10% of total
In our condensed consolidated balance sheet, contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. For the three months ended June 30, 2023, we recognized revenue of approximately $
| | | | | Progress | | | | |
|
| Unbilled |
| payments |
| Total | |||
June 30, 2023 | | $ | | | $ | ( | | $ | |
March 31, 2023 | | $ | | | $ | ( | | $ | |
NOTE 4 – INCOME TAXES
The Company accounts for income taxes under ASC 740, Income Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. The Company recorded income tax benefit of ($
9
The valuation allowance on deferred tax assets was approximately $
NOTE 5 – EARNINGS PER SHARE (EPS)
Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average number of shares outstanding. Diluted EPS also includes the effect of stock options that would be dilutive. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations for the periods ended:
|
| Three Months ended |
| Three Months ended | ||
| | June 30, 2023 | | June 30, 2022 | ||
Basic EPS | | | | | | |
Net loss | | $ | ( | | $ | ( |
Weighted average shares | |
| | | | |
Net loss per share | | $ | ( | | $ | ( |
Diluted EPS | | | | | | |
Net loss | | $ | ( | | $ | ( |
Dilutive effect of stock options | |
| — | | | — |
Weighted average shares | |
| | | | |
Net loss per share | | $ | ( | | $ | ( |
All potential common stock equivalents that have an anti-dilutive effect are excluded from the calculation of diluted EPS (i.e., those that increase income per share or decrease loss per share). For the three months ended June 30 2023 there were potential anti-dilutive stock options and warrants of
NOTE 6 – STOCK-BASED COMPENSATION
The 2016 TechPrecision Equity Incentive Plan, or the “2016 Plan”, is designed to reflect our commitment to having best practices in both compensation and corporate governance. The 2016 Plan provides for a share reserve of
The 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted and unrestricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates. The purpose of the 2016 Plan is to: (a) enable TechPrecision and its affiliated companies to recruit and retain highly qualified employees, directors and consultants; (b) provide those employees, directors and consultants with an incentive for productivity; and (c) provide those employees, directors and consultants with an opportunity to share in the growth and value of the Company. Subject to adjustment as provided in the 2016 Plan, the maximum number of shares of common stock that may be issued with respect to awards under the 2016 Plan is
10
At June 30, 2023, there were
| | | | | | | | | | Weighted |
| | | | | | | | | | Average |
| | | | Weighted | | Aggregate | | Remaining | ||
| | Number Of | | Average | | Intrinsic | | Contractual Life | ||
|
| Options |
| Exercise Price |
| Value |
| (in years) | ||
Outstanding at March 31, 2023 | | | | $ | | | $ | | | |
Outstanding at June 30, 2023 | | | | $ | | | $ | | | |
Vested or expected to vest at June 30, 2023 |
| | | $ | | | $ | |
| |
Exercisable and vested at June 30, 2023 |
| | | $ | | | $ | |
| |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the first quarter of fiscal 2024 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2023. This amount changes based on the fair market value of the Company’s common stock. The maximum contractual term is for option grants. Other information relating to stock options outstanding at June 30, 2023 is as follows:
| | | | Weighted | | | | | | | | |
|
| |
| Average |
| | |
| |
| | |
| | |
| Remaining |
| Weighted | | |
| Weighted | ||
| | Options |
| Contractual | | Average | | Options | | Average | ||
Range of Exercise Prices: |
| Outstanding |
| Term |
| Exercise Price |
| Exercisable |
| Exercise Price | ||
$ |
| |
| | $ | |
| | | $ | | |
$ |
| |
| | $ | |
| | | $ | | |
Totals |
| |
| | |
|
|
| | |
|
|
NOTE 7 - CONCENTRATION OF CREDIT RISK
We maintain bank account balances, which, at times, may exceed insured limits. We have not experienced any losses with these accounts and believe that we are not exposed to any significant credit risk on cash.
On June 30, 2023, there were trade accounts receivable balances outstanding from
| | June 30, 2023 | | March 31, 2023 |
| ||||||
Customer |
| Dollars |
| Percent |
| Dollars |
| Percent |
| ||
A | | $ | |
| | % | $ | |
| | % |
B | | $ | * |
| * | % | $ | |
| | % |
C | | $ | |
| | % | $ | * |
| * | % |
D | | $ | * |
| * | % | $ | |
| | % |
*less than 10% of total
11
NOTE 8 - OTHER CURRENT ASSETS
Other current assets included the following as of: |
| June 30, 2023 |
| March 31, 2023 | ||
Prepaid taxes | | $ | | | $ | |
Prepaid insurance | |
| | |
| |
Prepaid subscriptions | |
| | |
| |
Deposits | | | | | | |
Employee advances | |
| | | | |
Prepaid advisory fees, other | |
| | | | |
Total | | $ | | | $ | |
NOTE 9 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following as of: |
| June 30, 2023 |
| March 31, 2023 | ||
Land | | $ | | | $ | |
Building and improvements | |
| | | | |
Machinery equipment, furniture, and fixtures | |
| | | | |
Construction-in-progress | |
| | | | |
Total property, plant, and equipment | |
| | | | |
Less: accumulated depreciation | |
| ( | | | ( |
Total property, plant and equipment, net | | $ | | | $ | |
We capitalize interest on borrowings during active construction period for major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Interest capitalized for the three months ended June 30, 2023 was $
NOTE 10 - ACCRUED EXPENSES
Accrued expenses included the following as of: |
| June 30, 2023 |
| March 31, 2023 | ||
Accrued compensation | | $ | | | $ | |
Provision for claims | | | | | | |
Provision for contract losses | |
| | | | |
Accrued professional fees | |
| | | | |
Accrued project costs | |
| | | | |
Other | |
| | | | |
Total | | $ | | | $ | |
Accrued compensation includes amounts for executive bonuses, payroll and vacation and holiday pay. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in the provision are recorded in cost of sales. Accrued project costs are estimates for certain project expenses during the reporting period.
NOTE 11 – DEBT
Long-term debt included the following as of: |
| June 30, 2023 |
| March 31, 2023 | ||
Stadco Term Loan, at | | $ | | | $ | |
Ranor Term Loan, at | | | | | | |
Ranor Revolver Loan, at | | | | | | |
Total debt | | $ | | | $ | |
Less: debt issue costs unamortized | | $ | | | $ | |
Total debt, net | | $ | | | $ | |
Less: Current portion of long-term debt | | $ | | | $ | |
Total long-term debt, net | | $ | | | $ | |
12
Amended and Restated Loan Agreement
On August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank, or the “Loan Agreement”. Under the Loan Agreement, Berkshire Bank will continue to provide the Ranor Term Loan (as defined below) and the revolving line of credit, or the “Revolver Loan”. In addition, Berkshire Bank provided the Stadco Term Loan (as defined below) in the original amount of $
Stadco Term Loan
On August 25, 2021, Stadco borrowed $
Unamortized debt issue costs on June 30, 2023 and March 31, 2023 were $
Ranor Term Loan and Revolver Loan
A term loan was made to Ranor by Berkshire Bank in 2016 in the amount of $
On December 23, 2022, Ranor and certain affiliates of the Company entered into a Fifth Amendment to Amended and Restated Loan Agreement, Fifth Amendment to Promissory Note and First Amendment to Second Amended and Restated Promissory Note, or the “Amendment”. Effective as of December 20, 2022, the Amendment, among other things (i) extends the maturity date of the Ranor Term Loan to December 15, 2027, (ii) extends the maturity date of the Revolver Loan from December 20, 2022 to December 20, 2023, (iii) increases the interest rate on the Ranor Term Loan from
Under the Loan Agreement, Berkshire Bank also makes available to Ranor the Revolver Loan, which has a maximum principal amount available of $
The Company agrees to pay to Berkshire Bank, as consideration for Berkshire Bank’s agreement to make the Revolver Loan available, a nonrefundable Revolver Loan fee equal to
Under the amended promissory note for the Revolver Loan, the Company can elect to pay interest at the Term SOFR-based rate or an Adjusted Prime Rate, each as defined in the agreement. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The prior LIBOR-based rate expired on December 20, 2022.
13
There was approximately $
Unamortized debt issue costs at June 30, 2023 and March 31, 2023 were $
Berkshire Loan Covenants
For purposes of this discussion, Ranor and Stadco are referred to together as the “Borrowers”. The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or together, the “Berkshire Loans”, may be accelerated upon the occurrence of an event of default as defined in the Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the Loan Agreement, the unpaid principal amount of the Berkshire Loans together with accrued interest and all other obligations owing by the Borrowers to Berkshire Bank would become immediately due and payable without presentment, demand, protest, or further notice of any kind.
The Company agreed to maintain compliance with certain financial covenants under the Loan Agreement. Namely, the Borrowers agree to maintain the ratio of the Cash Flow of TechPrecision-to-the Total Debt Service of TechPrecision of not less than
The Borrowers agree to cause their Balance Sheet Leverage to be less than or equal
The Borrowers agree that their combined annual capital expenditures shall not exceed $
The Borrowers agree to maintain a Loan-to-Value Ratio of not greater than
On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company’s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024 any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.
The Company was in compliance with all of the financial covenants at June 30, 2023.
14
Collateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets. The carrying value of short and long-term borrowings approximates their fair value. The Company’s short-term and long-term debt is all privately held with no public market for this debt and is considered to be Level 3 under the fair value hierarchy.
The scheduled principal maturities for our total debt for the next five years and thereafter:
2024 |
| $ | |
2025 | |
| |
2026 | |
| |
2027 | |
| |
2028 | |
| |
Thereafter | |
| |
Total | | $ | |
NOTE 12 - OTHER NONCURRENT LIABILITIES
The Company purchased new equipment in fiscal 2022 for contract project work with a certain customer. Under an addendum to the contract purchase orders, that customer agreed to reimburse the Company for the cost of the new equipment. We received the first payment in January 2022 and two additional payments in April 2022. In case of a contract breach, at the time of the breach, the customer may claw back the funds based on a prorated ten-year straight-line annual declining balance recovery period. Customer payments received of $
Stadco entered into the Payment Agreement with the Department of Water and Power of the City of Los Angeles (the “LADWP”) to settle previously outstanding amounts for water, water service, electric energy and/or electric service in the aggregate amount of $
NOTE 13 – LEASES
On August 25, 2021, Stadco became party to an amended building and property operating lease and recorded a right of use asset and liability of $
The following table lists our right-of-use assets and liabilities on our condensed consolidated balance sheets at:
|
| June 30, 2023 |
| March 31, 2023 | ||
Finance lease: |
| | | | |
|
Right of use asset – operating lease | | $ | | | $ | |
Right of use asset – finance leases | | | | | | |
Amortization | | | ( | | | ( |
Right of use asset, net | | $ | | | $ | |
Lease liability – operating lease | | $ | | | $ | |
Lease liability – finance leases | | | | | | |
Total lease liability | | $ | | | $ | |
15
Other supplemental information regarding our leases is contained in the following tables:
Components of lease expense for the three months ended: |
| June 30, 2023 |
| June 30, 2022 | ||
Operating lease amortization | | $ | | | $ | |
Finance lease amortization | | $ | | | $ | |
Finance lease interest | | $ | | | $ | |
Weighted average lease term and discount rate at: |
| June 30, 2023 |
| June 30, 2022 |
|
Lease term (years) – operating lease |
| | | ||
Lease term (years) – finance lease | | | | ||
Lease rate – operating lease | | | % | | % |
Lease rate – finance lease |
| | % | | % |
Supplemental cash flow information related to leases for the three months ended: |
| June 30, 2023 |
| June 30, 2022 | ||
Cash used in operating activities | | $ | | | $ | |
Cash used in financing activities | | $ | | | $ | |
Maturities of lease liabilities at June 30, 2023 for the next five years and thereafter:
2024 |
| $ | |
2025 | |
| |
2026 | |
| |
2027 | |
| |
2028 | | | |
Thereafter | |
| |
Total lease payments | | $ | |
Less: imputed interest | |
| |
Total | | $ | |
NOTE 14 - COMMITMENTS
Employment Agreements
We have employment agreements with each of our executive officers. Such agreements provide for minimum salary levels, adjustable annually, and incentive bonuses that are payable if specified company goals are attained. The aggregate commitment at June 30, 2023 for future executive salaries and bonus was approximately $
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 $
NOTE 15 – SEGMENT INFORMATION
The Company has
16
Each reportable segment focuses on the manufacture and assembly of specific components, primarily for defense, aerospace and other industrial customers. However, both segments have separate operating, engineering, and sales teams. The Chief Operating Decision Maker, or “CODM”, evaluates the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs. Corporate costs include executive and director compensation, stock-based compensation, and other corporate and administrative expenses not allocated to the segments. The segment operating profit metric is what the CODM uses in evaluating our results of operations and the financial measure that provides insight into our overall performance and financial position. The following table provides summarized financial information for our segments:
| | Three Months Ended June 30, | ||||
|
| 2023 |
| 2022 | ||
Ranor | | $ | | | $ | |
Stadco | |
| | |
| |
Eliminate intersegment revenue | |
| ( | |
| — |
Net sales from external customers | | | | | | |
Ranor operating income | |
| | |
| |
Stadco operating loss | |
| ( | |
| ( |
Corporate and unallocated (1) | | | ( | | | ( |
Total operating loss | | | ( | | | ( |
Other (expense) income | | | | | | ( |
Interest expense | |
| ( | |
| ( |
Consolidated loss before income taxes | | $ | ( | | $ | ( |
Depreciation and amortization: | |
| | |
| |
Ranor | | $ | | | $ | |
Stadco | |
| | |
| |
Totals | | $ | | | $ | |
Capital expenditures | |
| | |
| |
Ranor | | $ | | | $ | |
Stadco | |
| — | |
| |
Totals | | $ | | | $ | |
(1) Corporate general costs include executive and director compensation, and other corporate administrative expenses not allocated to the segments. Prior period segment data is revised to reflect current period updates to unallocated corporate administrative expense.
NOTE 16 – SUBSEQUENT EVENTS
On July 13, 2023, Thomas Sammons, our previous CFO, exercised options to purchase
On July 14, 2023, Thomas Sammons, retired from service as Chief Financial Officer of the Company. He is continuing to serve the Company as a non-executive employee, which he and the Company expect will continue for a limited period of time, to assist with transition efforts. Thereafter, the Company expects that it may enter into a consultancy agreement with Mr. Sammons under which he will agree to provide consulting services to the Company as an independent contractor, primarily to continue ensuring an orderly transition of his former duties to the new chief financial officer.
On July 17, 2023, the Company entered into an Employment Agreement with Barbara M. Lilley, with an effective date as of July 14, 2023 which governs Ms. Lilley’s employment as Chief Financial Officer of the Company. Pursuant to the Employment Agreement, Ms. Lilley will: (i) receive an annual base salary of $
On August 3, 2023 the Company issued
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statement Regarding Forward Looking Disclosure
The following discussion of our financial condition and results of operations 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 forward-looking 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 that may be outside our control: including health emergencies, like epidemics or pandemics, the Russia – Ukraine conflict, price inflation, interest rates increases, and supply chain inefficiencies; |
| ● | 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; |
| ● | 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; |
18
| ● | our failure to maintain effective internal controls over financial reporting; |
| ● | general industry and market conditions and growth rates, and |
| ● | those risks discussed in “Item 1A. Risk Factors” and elsewhere in our 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
Through our two wholly owned subsidiaries, Ranor and Stadco, each of which is a reportable segment, 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.
All manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications. 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 contracts, 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 that 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.
All the Company’s operations, assets, and customers are located in the U.S.
Critical Accounting Policies and Estimates
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 and income taxes. These estimates and assumptions require management’s most difficult, subjective or complex judgments. Actual results may vary under different assumptions or conditions.
19
We consider the principles and estimates applied for revenue recognition to be one of the most critical accounting estimates that we make. Our revenue can fluctuate from quarter-to-quarter as we measure revenue recognition over the duration of a project, or at the end of the project. The Company records most of its revenue over time as it completes performance obligations or at a point-in-time, for example, at the delivery date, when control of the promised goods are transferred to the customer. Project volume for revenue recognized at a point-in-time is generally smaller, can fluctuate from period to period, and is difficult to forecast.
We measure progress for performance obligations satisfied over time using input methods, for example, labor hours expended and time elapsed. As a result, assuming a steady flow of project volume and labor hours, we have the ability to deliver a fair and accurate flow of revenue over time. When project volume is higher or lower, we may report higher or lower amounts of revenue for those given quarterly periods.
Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2023 Annual Report on Form 10-K. There were no significant changes to our critical accounting policies during the three months ended June 30, 2023.
New Accounting Standards
See Note 2, Basis of Presentation and Significant Accounting Policies, in the Notes to the Unaudited Condensed Consolidated Financial Statements under “Item 1. Financial Statements”, for a discussion of recently adopted new accounting guidance.
Results of Operations
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. It generally takes approximately twelve months or less to complete our manufacturing projects. However, contracts for larger complex components can take up to thirty-six months to complete. Units manufactured under the majority of our customer contracts have historically been delivered on time and with a positive gross margin, with some exceptions. Our results of operations 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.
We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that we consider not representative of ongoing operations, such as refundable employee retention tax credits.
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 titled “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.
Percentages in the following tables and throughout this “Results of Operations” section may reflect rounding adjustments. Prior period segment data is revised to reflect new allocations. Prior period Selling, General and Administrative, or “SG&A”, segment data is revised to reflect current period updates to unallocated corporate administrative expense.
20
Three Months Ended June 30, 2023 and 2022
The following table presents net sales, cost of sales and gross profit, consolidated and by reportable segment:
|
| June 30, 2023 |
| June 30, 2022 |
| Changes |
| |||||||||
| | | | Percent of | | | | Percent of | | | | | | |||
(dollars in thousands) | | Amount |
| Net sales | | Amount |
| Net sales | | Amount |
| Percent |
| |||
Net sales | | | | | | | | | | | | | | | | |
Ranor | | $ | 4,499 |
| 61 | % | $ | 4,726 |
| 67 | % | $ | (227) |
| (5) | % |
Stadco | | | 2,967 |
| 40 | % | | 2,350 |
| 33 | % | | 617 |
| 26 | % |
Intersegment elimination | | | (95) |
| (1) | % | | — |
| — | % | | (95) |
| nm | % |
Consolidated Net sales | | $ | 7,371 |
| 100 | % | $ | 7,076 |
| 100 | % | $ | 295 |
| 4 | % |
Cost of sales | | | | | | | | | | | | | | | | |
Ranor | | $ | 3,122 |
| 43 | % | $ | 2,886 |
| 41 | % | $ | 236 |
| 8 | % |
Stadco | | | 3,555 |
| 48 | % | | 3,373 |
| 48 | % | | 182 |
| 5 | % |
Consolidated Cost of sales | | $ | 6,677 |
| 91 | % | $ | 6,259 |
| 89 | % | $ | 418 |
| 7 | % |
Gross profit | | | | | | | | | | | | | | | | |
Ranor | | $ | 1,282 | | 17 | % | $ | 1,840 | | 26 | % | $ | (558) | | (30) | % |
Stadco | | | (588) | | (8) | % | | (1,023) | | (14) | % | | 435 | | 43 | % |
Consolidated Gross profit | | $ | 694 | | 9 | % | $ | 817 | | 12 | % | $ | (123) | | (15) | % |
nm - not meaningful
Net Sales
Consolidated - Net sales were $7.4 million for the three months ended June 30, 2023, or 4% higher when compared to consolidated net sales of $7.1 million for the three months ended June 30, 2022. Net sales increased by $0.6 million at Stadco offset by a decrease of $0.2 million at Ranor. Net sales to precision industrial markets for Stadco increased by $0.5 million.
Ranor – Net sales were $4.5 million for the three months ended June 30, 2023, a decrease of $0.2 million or 5% lower when compared to the same prior year period. Revenue recognized in the first quarter of fiscal 2024 changed because of a different proportionate mix of projects. We realized fewer direct labor hours in the first quarter with a slight decrease in average price. The defense backlog for Ranor remains strong as new orders for components related to a variety of programs, including the U.S. Navy submarine programs, continue to flow down from our existing customer base of prime defense contractors. The backlog at Ranor on June 30, 2023 was $21.8 million.
Stadco - Net sales were $3.0 million for the three months ended June 30, 2023 compared with net sales of $2.4 million for the three months ended June 30, 2022, an increase of $0.6 million, or 26%. We made better progress on new projects where revenue is recognized over time. The increase was driven by an increase in the average price, offset in part by a decline in labor hours. Our defense backlog for Stadco remains strong with orders for components related to a variety of programs, including components for heavy lift helicopters. Stadco’s backlog was $24.5 million as of June 30, 2023.
Gross Profit and Gross Margin
Consolidated – Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the three months ended June 30, 2023, was $6.7 million, or 7% higher when compared to the three months ended June 30, 2022. The increase in cost of sales was primarily the result of under-absorbed overhead at Stadco and a less favorable project mix at Ranor. As a result, gross profit decreased by $0.1 million, or 15% when compared to the same period a year ago. Gross margin for the three months ended June 30, 2023 was 9.4% compared to 11.5% in the same period a year ago.
Ranor – Gross profit decreased by $0.6 million or 30% due primarily to lower revenue on a less favorable project mix in the first quarter of fiscal 2024. Factory overhead added to our work-in-progress was also less than the overhead applied in the prior-year first quarter. As such, the gross margin was lower in the first quarter of fiscal 2024. Notwithstanding the above, our project backlog remains strong with profitable business.
21
Stadco – Gross profit and gross margin were negative for the three months ended June 30, 2023, but our losses narrowed when compared to the three months ended June 30, 2022. Production issues related to equipment down-time were resolved in the first quarter of fiscal 2024. Losses at Stadco narrowed year over year on improved overall margins on projects, partially offset by increased under-absorbed factory overhead. With continued revenue growth, we should see gradual improvement in gross profit and gross margin.
Selling, General and Administrative (SG&A) Expenses
| June 30, 2023 | | June 30, 2022 | | Changes |
| ||||||||||
| | | | | Percent of | | | | | Percent of | | | | | | |
(dollars in thousands) |
| Amount |
| Net Sales |
| Amount |
| Net Sales |
| Amount |
| Percent |
| |||
Ranor | | $ | 406 | | 6 | % | $ | 404 | | 5 | % | $ | 2 | | — | % |
Stadco | | | 317 | | 4 | % | | 436 | | 6 | % | | (119) | | (27) | % |
Corporate and unallocated | | | 551 | | 7 | % | | 535 | | 8 | % | | 16 | | 3 | % |
Consolidated SG&A | | $ | 1,274 | | 17 | % | $ | 1,375 | | 19 | % | $ | (101) | | (7) | % |
June 30, 2022 SG&A segment data is revised to reflect current period updates to unallocated corporate administrative expense.
Consolidated – Total selling, general and administrative expenses for the three months ended June 30, 2023, decreased by approximately $101,000, or 7%. Ranor and corporate expense increased slightly but was more than offset by lower Stadco SG&A due to staff reductions.
Ranor – An increase in compensation and payroll taxes of approximately $23,000 more than offset a decrease in outside advisory fees and office costs of $21,000 for the comparable three-month periods.
Stadco – SG&A expense for the three months ended June 30, 2023, decreased by approximately $119,000. The SG&A expenses for compensation and office costs decreased by approximately $145,000 due to staff reductions, offset in part by an increase in outside advisory services of approximately $26,000.
Corporate and unallocated – SG&A increased by approximately $16,000, due primarily to the increased expenditures for insurance, outside services for software upgrades, and business taxes, which more than offset a reduction in stock-based compensation.
Operating (loss) income
|
| June 30, 2023 |
| June 30, 2022 |
| Changes | | |||||||||
| | | |
| Percent of |
| | |
| Percent of | | | |
| | |
(dollars in thousands) | | Amount | | net sales | | Amount | | net sales | | Amount | | Percent | | |||
Ranor | | $ | 876 | | 12 | % | $ | 1,436 | | 19 | % | $ | (560) | | (39) | % |
Stadco |
| | (905) |
| (12) | % | | (1,459) |
| (21) | % | | 554 |
| 38 | % |
Corporate and unallocated |
| | (551) |
| (8) | % | | (535) |
| (6) | % | | (16) |
| (3) | % |
Operating loss | | $ | (580) |
| (8) | % | $ | (558) |
| (8) | % | $ | (22) |
| (4) | % |
Consolidated – As a result of the foregoing, for the three months ended June 30, 2023, we reported an operating loss of $0.6 million, only slightly higher than the operating loss for the three months ended June 30, 2022. Operating income at Ranor was not enough to offset operating losses at Stadco due primarily to unfavorable throughput and unabsorbed overhead.
Ranor – Operating income was lower when compared to the same period a year ago, due primarily to lower revenue and unabsorbed overhead.
Stadco – Operating losses narrowed as certain projects with production issues, including equipment downtime, were resolved. Despite the better throughput, we recorded an operating loss in the first quarter.
Corporate and unallocated – SG&A increased by approximately $16,000, due primarily to the increased expenditures for insurance, outside services for software upgrades, and business taxes, which more than offset a reduction in stock-based compensation.
22
Other Income (Expense), net
The following table presents other income (expense) for the three months ended:
|
| June 30, 2023 |
| June 30, 2022 |
| $ Change |
| % Change |
| |||
Other income (expense), net | | $ | 1 | | $ | (33,225) | | $ | 33,224 |
| nm | % |
Interest expense | | $ | (75,325) | | $ | (70,246) | | $ | (5,079) |
| (7) | % |
Amortization of debt issue costs | | $ | (18,761) | | $ | (13,399) | | $ | (5,362) |
| (40) | % |
Interest expense was slightly higher when compared with the three months ended June 30, 2022. Interest expense increased slightly year over year under the term loans. Interest expense increased by $33,248 due to higher amounts borrowed under the Revolver Loan (as defined below), but that amount was almost entirely offset by capitalized interest of $28,168. We expect any future interest expense increases will correlate directly with the borrowing levels under the Revolver Loan.
Amortization of debt issue costs for the three months ended June 30, 2023 were higher when compared to three months ended June 30, 2022. New amortization periods commenced in December 2022 for costs incurred to extend the Ranor Term Loan and renew the Revolver Loan.
Other expense, net, in the table above, for the three months ended June 30, 2022, includes an expense accrual for contingent consideration of $33,474 in connection with the Stadco acquisition that was settled in fiscal 2023.
Income Taxes
For the three months ended June 30, 2023, the Company recorded a tax benefit $146,430, compared with a tax benefit of $173,714 for the three months ended June 30, 2022.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The valuation allowance on deferred tax assets at June 30, 2023 was approximately $2.1 million. We believe that it is more likely than not that the benefit from certain state 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 Loss
As a result of the foregoing, for the three months ended June 30, 2023, we recorded a net loss of $527,455, or $0.06 per share basic and fully diluted, compared with a net loss of $501,165, or $0.06 per share basic and fully diluted for the three months ended June 30, 2022.
Liquidity and Capital Resources
Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income. For the three months ended June 30, 2023 we reported a net loss of $527,455.
The Company is the borrower under the amended and restated loan agreement with Berkshire Bank, or the “Loan Agreement”. There was $7.6 million outstanding under the agreement on June 30, 2023. The Company has determined it is in compliance with the debt covenants as of June 30, 2023. However, it is probable that the Company will not be in compliance with the debt covenants at subsequent compliance dates, in which case the Company will request a waiver from the lender.
Without such a waiver, the lender would have the right, but not the obligation, to demand repayment from the Company for noncompliance with the debt covenants. In addition, the bank retains the right to act on covenant violations that occur after the date of delivery of any waiver. If the lender were to decline to grant us a waiver and instead demand repayment, we would need to seek alternative financing to pay these obligations as the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations.
23
In order for us to continue operations beyond the next twelve months and be able to discharge our liabilities and commitments in the normal course of business, we must mitigate our recurring operating losses at our Stadco subsidiary. We must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process, so our direct labor hours (inputs) allow us to recognize more revenue over time (outputs) and improve job performance. We plan to closely monitor our expenses and, if required, will reduce operating costs to enhance liquidity.
The uncertainty associated with the recurring operating losses at Stadco and expected debt covenant violation at subsequent compliance dates raise substantial doubt about our ability to continue as a going concern.
As of June 30, 2023, we had $2.7 million in total available liquidity, consisting of $0.3 million in cash and cash equivalents, and $2.4 million in undrawn capacity under our Revolver Loan. At of March 31, 2023, we had $4.7 million in total available liquidity, consisting of $0.5 million in cash and cash equivalents, and $4.2 million in undrawn capacity under our Revolver Loan.
There was $2.3 million outstanding under the Revolver Loan at June 30, 2023, as the Company borrowed more at higher rates to finance working capital requirements. Interest payments made under the Revolver Loan were $29,678 for the three months ended June 30, 2023. The weighted average interest rate at June 30, 2023 was 7.31%.
At June 30, 2023 our working capital was $4.9 million, a decrease compared to $5.6 million at March 31, 2023.
The table below presents selected liquidity and capital measures at the fiscal years ended:
|
| June 30, |
| March 31, |
| Change | |||
(dollars in thousands) | | 2023 | | 2023 | | Amount | |||
Cash and cash equivalents | | $ | 272 | | $ | 534 | | $ | (262) |
Working capital | | $ | 4,935 | | $ | 5,559 | | $ | (624) |
Total debt | | $ | 7,596 | | $ | 6,113 | | $ | 1,483 |
Total stockholders’ equity | | $ | 14,067 | | $ | 14,594 | | $ | (527) |
The next table summarizes changes in cash by primary component in the cash flows statements for the fiscal years ended:
|
| June 30, |
| June 30, |
| Change | |||
(dollars in thousands) | | 2023 | | 2022 | | Amount | |||
Operating activities | | $ | 115 | | $ | 1,448 | | $ | (1,333) |
Investing activities | |
| (1,854) | | | (763) | | | (1,091) |
Financing activities | |
| 1,476 | | | (1,164) | | | 2,640 |
Net decrease in cash | | $ | (263) | | $ | (479) | | $ | 216 |
Operating activities
Apart from our loan facilities, our primary sources of cash are from accounts receivable collections. Our customers make advance payments and progress payments under the terms of each manufacturing contract. The composition of our accounts receivable collections mix changes between advance payments and customer payments made after shipment of finished goods. Our cash flows can fluctuate significantly from period to period as we mark progress with customer projects and the timing of progress payments.
Cash provided by operating activities for the three months ended June 30, 2023 was approximately $115,000. Cash provided by operating activities included reimbursements under a certain customer project program and was almost entirely offset by payments for obligations for goods and services that had been acquired on open account from suppliers.
Cash provided by operating activities for the three months ended June 30, 2022, was approximately $1.4 million, as operating cash inflows exceeded outflows as work on new projects commenced and customer cash advances and collections increased. Our fiscal 2023 first quarter was marked by favorable project performance progress and delivery schedules that led to timely customer payments.
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Investing activities
For the three months ended June 30, 2023, we invested $1.9 million in new factory machinery and equipment, primarily for the installation and construction of equipment for contract project work with a certain customer at our Ranor segment.
We are subject to certain financial debt covenants and may not spend more than $1.5 million for new machinery and equipment during any single fiscal year, tested on an annual basis at the end of each fiscal year.
We estimate our spending on new machinery and equipment in fiscal 2024, which we expect will include expenditures for the installation and construction of equipment for contract project work with a certain customer, will again exceed the spending limitation.
On June 12, 2023, we executed a waiver with the lender under which the lender agreed to waive the Company’s noncompliance with this capital spending limit covenant, as it relates to the period ended March 31, 2023. The waiver also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.
We invested approximately $0.8 million in new factory machinery and equipment for the first three months of fiscal 2023.
Financing activities
For the three months ended June 30, 2023 we drew down $4.5 million of proceeds under the Revolver Loan and repaid $2.9 million during the same period. We also used approximately $154,000 of cash to pay down debt principal and make periodic lease payments.
We drew down $1.8 million of proceeds under our Revolver Loan during the three months ended June 30, 2022 and repaid $2.8 million during the same period. We also used approximately $177,000 of cash to make periodic lease payments and pay off certain lease and debt obligations.
All of the above activity resulted in a net decrease in cash of $262,556 for the three months ended June 30, 2023 compared with a net decrease in cash of $478,501 for the three months ended June 30, 2022.
Berkshire Bank Loans
On August 25, 2021, the Company entered into the Loan Agreement. Under the Loan Agreement, Berkshire Bank continues as lender of the “Ranor Term Loan”, as defined below, and the revolving line of credit, or the “Revolver Loan”. In addition, Berkshire Bank provided to Stadco a term loan in the original amount of $4.0 million, or the “Stadco Term Loan”. The proceeds of the original Ranor Term Loan of $2.85 million were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. The proceeds of the Stadco Term Loan were to be used to support the acquisition of Stadco and refinance existing indebtedness of Stadco.
On August 25, 2021, Stadco borrowed $4.0 million from Berkshire Bank under the Stadco Term Loan. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021, at a fixed rate per annum equal to the 7-year Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Since September 25, 2021, and on the 25th day of each month thereafter, Stadco has made and will continue to make monthly payments of principal and interest in the amount of $54,390 each, with all outstanding principal and accrued interest due and payable on August 25, 2028.
Payments for the original Ranor Term Loan began on January 20, 2017, and until the facility was amended in December 2022, the Company paid monthly installments of $19,260 each, inclusive of interest at a fixed rate of 5.21% per annum. Since the effectiveness of the most recent amendment in December 2022, the Company now makes monthly installment payments of $16,601 each, inclusive of interest at a fixed rate of 6.05% per annum. All outstanding principal and accrued interest is due and payable on the maturity date of December 15, 2027.
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Under the Loan Agreement, Berkshire Bank also makes available to Ranor the Revolver Loan, which has a maximum principal amount available of $5.0 million. There was approximately $2.3 million and $650,000 outstanding under the Revolver Loan at June 30, 2023 and March 31, 2023, respectively. The maturity date of the Revolver Loan is December 20, 2023.
Under the amended promissory note for the Revolver Loan, the Company can elect to pay interest at the Term SOFR-based rate or an Adjusted Prime Rate, each determined and defined according to the terms of the agreement. The prior LIBOR-based rate expired on December 20, 2022.
The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or collectively, the “Berkshire Loans,” may be accelerated upon the occurrence of an event of default as defined in the Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the Loan Agreement, the unpaid principal amount outstanding under the facility, together with accrued interest and all other obligations, would become immediately due and payable without presentment, demand, protest, or further notice of any kind.
The Company agreed to maintain compliance with certain financial covenants under the Loan Agreement. Namely, the Company agreed to maintain a ratio of Cash Flow-to-Total Debt Service of not less than 1.20 to 1.00, measured quarterly on the last day of each fiscal quarter or annual period on a trailing 12-month basis. Calculations are based on the audited (year-end) and unaudited (quarterly) consolidated financial statements of the Company. Quarterly tests will be measured based on the financial statements included in the Company’s quarterly reports on Form 10-Q within 60 days of the end of each quarter, and annual tests will be measured based on the financial statements included in the Company’s annual reports on Form 10-K within 120 days after the end of each fiscal annual period. For purposes of the covenant, “Cash Flow” means an amount, without duplication, equal to the sum of net income of TechPrecision plus (i) interest expense, plus (ii) taxes, plus (iii) depreciation and amortization, plus (iv) stock-based compensation expense taken by TechPrecision, plus (v) non-cash losses and charges and one time or non-recurring expenses at Berkshire Bank’s discretion, less (vi) the amount of cash distributions, if any, made to stockholders or owners of TechPrecision, less (vii) cash taxes paid by the TechPrecision, all as determined in accordance with U.S. GAAP. For purposes of the covenant, “Total Debt Service” means an amount, without duplication, equal to the sum of (i) all amounts of cash interest paid on liabilities, obligations and reserves of TechPrecision paid by TechPrecision, (ii) all amounts paid by TechPrecision in connection with current maturities of long-term debt and preferred dividends, and (iii) all payments on account of capitalized leases, all as determined in accordance with U.S. GAAP.
Additionally, the Company agreed to cause its Balance Sheet Leverage to be less than or equal 2.50 to 1.00. Compliance with this covenant is tested quarterly, as of the last day of each fiscal quarter. For purposes of the covenant, “Balance Sheet Leverage” means, at any date of determination, the ratio of the Company’s (a) Total Liabilities, less Subordinated Debt, to (b) Net Worth, plus Subordinated Debt. The Company also agreed that its combined annual capital expenditures will not exceed $1.5 million, subject to certain exclusions discussed below. Compliance is tested annually.
Finally, the Company agreed to maintain a Loan-to-Value Ratio of not greater than 0.75 to 1.00. For purposes of the covenant, “Loan-to-Value Ratio” means the ratio of (a) the sum of the outstanding balance of the Ranor Term Loan and the Stadco Term Loan to (b) the fair market value of the property pledged as collateral for the loan, as determined by an appraisal obtained from time to time by Berkshire Bank.
At March 31, 2023, the Company was in violation of the Loan Agreement as it exceeded the capital expenditure limit of $1.5 million as defined in the agreement. On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company’s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures. The Company was otherwise in compliance with all the financial covenants on June 30, 2023 and March 31, 2023.
Collateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets.
26
Commitments and Contractual Obligations
The following contractual obligations associated with our normal business activities are expected to result in cash payments in future periods, and include the following material items on June 30, 2023:
| ● | Our long-term debt obligations, including fixed and variable-rate debt, totaled $7.6 million, with $2.0 million due as a balloon payment in December 2027. In addition, approximately $0.6 to $0.7 million is due annually for each of the next five years. |
| ● | We enter into various commitments with suppliers for the purchase of raw materials and work supplies. Our outstanding unconditional contractual commitments, including for the purchase of raw materials and supplies goods, totaled approximately $5.7 million, all of it due to be paid within the next twelve months. These purchase commitments are in the normal course of business. |
| ● | Our lease obligations, including imputed interest, totaled $6.6 million for buildings through 2030, with approximately $0.9 million due annually for each of the next seven years. |
There are no off-balance sheet arrangements as of June 30, 2023.
EBITDA Non-GAAP Financial Measure
To complement our condensed consolidated statements of operations and condensed consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net loss 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 U.S. GAAP.
We define EBITDA as net loss plus interest, income taxes, depreciation, and amortization. Net loss was $0.5 million for the three months ended June 30, 2023 and 2022. EBITDA, a non-GAAP financial measure, was negative for the three months ended June 30, 2023 and 2022. The following table provides a reconciliation of EBITDA to net income (loss), the most directly comparable U.S. GAAP measure reported in our consolidated financial statements for the three months ended:
| June 30, |
| June 30, |
| Change | ||||
(Dollars in thousands) | | 2023 | | 2022 | | Amount | |||
Net loss | | $ | (527) | | $ | (501) | | $ | (26) |
Income tax benefit | | | (146) | | | (174) | | | 28 |
Interest expense (1) | | | 94 | | | 84 | | | 10 |
Depreciation and amortization | | | 560 | | | 585 | | | (25) |
EBITDA | | $ | (19) | | $ | (6) | | $ | (13) |
| (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.
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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 June 30, 2023, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.
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.
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Material Weaknesses
We identified two material weaknesses in our internal control over financial reporting as of March 31, 2023, which still existed at June 30, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for the Annual Report on Form 10-K for the fiscal year ended March 31, 2023, management identified the following material weaknesses:
| 1) | we did not maintain proper controls, processes and procedures over the initial purchase accounting and the fair value accounting associated with our acquisition of Stadco that were adequately designed, documented, and executed to support the accurate and timely reporting of our financial results regarding the initial purchase accounting and the fair value accounting associated with the Stadco acquisition; and |
| 2) | we did not maintain a sufficient complement of tax accounting personnel necessary to perform management review controls related to activities for extracting information to determine the valuation allowance at Stadco on a timely basis. Because of this material weakness, we made a late or post-closing adjustment to our valuation allowance while preparing the consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2023. |
Notwithstanding the material weaknesses, management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.
Management’s Remediation Plan
Our management, with the oversight of our audit committee, has initiated steps and plans to take additional measures to remediate the underlying causes of the material weaknesses, which we currently believe will be primarily through the development and implementation of new procedures, policies, processes, including revising the precision level of management review controls and gaining additional assurance regarding timely completion of our quality control procedures. It is possible that we may determine that additional remediation steps will be necessary in the future.
Our remediation plan will require that, going forward, management will utilize a valuation specialist with the requisite knowledge to perform all required valuations for all acquisitions of businesses, and utilize a tax specialist with the requisite knowledge to perform the required basic and detailed tax calculations so that all the parties can make a timely assessment of the Company’s tax provision.
The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We can provide no assurance as to when the remediation of these material weaknesses will be completed to provide for an effective control environment.
Changes in Internal Control over Financial Reporting
Except as disclosed under “Management’s Remediation Plan”, for the quarter ended June 30, 2023, 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.
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PART II. Other Information.
Item 1A. Risk Factors
We have listed below, as well as under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (the “2023 Form 10-K”), supplemented by the disclosure below, a number of risks that may materially affect our business, financial condition or results of operations. You should carefully consider these Risk Factors and other information elsewhere in this Quarterly Report on Form 10-Q. These risks do not constitute all the risks that may be applicable to us. New risks may emerge from time to time, and it is not possible for us to predict all potential risks or to assess the likely impact of all risks.
We believe it is probable that we will be in breach of certain of the covenants under our loan agreement with Berkshire Bank within the next 12 months, which raises substantial doubt about our ability to continue as a going concern.
Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income. The Company is the borrower under the amended and restated loan agreement with Berkshire Bank (the “Loan Agreement”). The Company has determined it is in compliance with the financial covenants in the Loan Agreement as of June 30, 2023. However, our management believes it is probable that the Company will not be in compliance with these financial covenants at September 30, 2023. Without a waiver, noncompliance with these financial and related covenants permits the lender to demand repayment in full of all outstanding amounts from the Company. In addition, the lender retains the right to act on covenant violations that occur after the date of delivery of any waiver. If the lender were to demand repayment, the Company would not be able to pay the obligation because the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations.
In order to satisfy the financial covenants in the Loan Agreement, we must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process so our direct labor hours (inputs) allow us to recognize more revenue over time (outputs) and improve job performance. We plan to closely monitor our expenses and, if required, will reduce operating costs and capital spending to enhance liquidity. There can be no assurance that we will be successful in these efforts. If we are unable to achieve compliance with the financial covenants in the Loan Agreement by making operational changes to our business, then we might alternatively seek waivers or forbearances from our lender prior to any covenant violation or raise additional funds in one or more equity financing transactions. Any covenant waiver or forbearance may lead to increased costs, increased interest rates, additional restrictive covenants and the imposition of other lender protections that impact us negatively. There can be no assurance that we would be able to obtain waivers or forbearances in a timely manner, on acceptable terms, or at all. Alternatively, the terms of any equity financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. The sale of additional shares of our common stock, or securities convertible into shares of our common stock, would also dilute all of our stockholders.
There was $7.6 million outstanding under the Loan Agreement on June 30, 2023. If we are unable to achieve compliance with the covenants in the Loan Agreement and unable to obtain a waiver or forbearance from our lender, any such default would allow the lender to accelerate this debt sooner than the applicable maturity dates. In the event that the lender accelerates the repayment of this indebtedness during the next 12 months as the result of one or more breaches of covenant, we do not expect to have funds available to repay these amounts in full, which raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued. The consequences of any default, waiver or forbearance, or the securing of additional equity financing, could materially and adversely affect our business, financial condition, and results of operations.
30
Item 6. Exhibits.
Exhibit Index
Exhibit No. |
| Description |
| Incorporated |
| File No. |
| Date Filed |
| Exhibit |
| Filed or Furnished Herewith |
3.1 | | | SB-2 | | 333-133509 | | August 28, 2006 | | 3.1 | | | |
3.2 | | | 8-K | | 000-51378 | | February 3, 2014 | | 3.1 | | | |
3.3 | | Certificate of Designation for Series A Convertible Preferred Stock of the Registrant | | 8-K | | 000-51378 | | March 3, 2006 | | 3.1 | | |
3.4 | | | 10-Q | | 000-51378 | | November 12, 2009 | | 3.5 | | | |
10.1 | | Employment Agreement, dated July 17, 2023, between TechPrecision Corporation and Barbara M. Lilley. | | 8-K | | 000-51378 | | July 21, 2023 | | 10.1 | | |
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X |
32.1 | | | | | | | | | | | X | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | | | X |
101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | X |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X |
104 | | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | | | X |
31
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 |
|
|
|
August 21, 2023 | By: | /s/ Barbara M. Lilley |
|
| Barbara M. Lilley |
|
| Chief Financial Officer |
32
Exhibit 31.1
CERTIFICATION
I, Alexander Shen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TechPrecision Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: August 21, 2023 | /s/ Alexander Shen |
| Alexander Shen |
| Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Barbara M. Lilley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TechPrecision Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and, |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: August 21, 2023 | /s/ Barbara M. Lilley |
| Barbara M. Lilley |
| Chief Financial Officer |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of TechPrecision Corporation (the “Company”) for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alexander Shen, the Chief Executive Officer of the Company, and I, Barbara M. Lilley, the Chief Financial Officer of the Company, do hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
Dated: August 21, 2023 | /s/ Alexander Shen |
| Alexander Shen |
| Chief Executive Officer |
| (Principal Executive Officer) |
|
|
Dated: August 21, 2023 | /s/ Barbara M. Lilley |
| Barbara M. Lilley |
| Chief Financial Officer (Principal Financial Officer) |