For the transition period from             to           

 

Commission File Number 0-51378000-51378

 

TECHPRECISION CORPORATION

 

 

(484) 693-1700

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.    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 of the Registrant’s common stock, par value $0.0001 per share, issued and outstanding at November 7, 2014August 10, 2015 was 24,669,958.25,446,187.

 

 

 

TABLE OF CONTENTS

 

 

ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS

 TECHPRECISION CORPORATION

(Unaudited)

 

See accompanying notes to the condensed consolidated financial statements.

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

See accompanying notes to the condensed consolidated financial statements.

 

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)

 

 

Three Months Ended June 30, 2014

For the sixthree months ended SeptemberJune 30, 2014, the Company issued 718,954 shares of common stock in connection with the conversion of 550,000 shares of Series A Convertible Preferred Stock.

See accompanying notes to the condensed consolidated financial statements.

 

 

 

TECHPRECISION CORPORATION

(Unaudited)

 

TechPrecision Corporation, or TechPrecision, is a custom manufacturerDelaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. The name was changed to TechPrecision Corporation on March 6, 2006. TechPrecision is the parent company of Ranor, Inc., or Ranor, a Delaware corporation and Wuxi Critical Mechanical Components Co., Ltd., or WCMC, a wholly foreign owned enterprise (WFOE). TechPrecision, WCMC and Ranor are collectively referred to as the “Company”, “we”, “us” or “our”.

We manufacture large scale metal fabricated and machined precision components and equipment. We offer a full range of services required to transform metallic raw materials into precise finished products. We sell these finished products to customers in three main industry groups: naval/maritime, energy and precision industrial. These products are used in a variety of markets including the alternative energy, medical, nuclear, defense, commercial, and aerospace industries. TechPrecision is the parent company of Ranor, Inc., or Ranor, a Delaware corporation. On November 4, 2010, TechPrecision announced it completed the formation of a wholly foreign owned enterprise (WFOE), under the laws of the People’s Republic of China, Wuxi Critical Mechanical Components Co., Ltd., or WCMC, to meet demand for local manufacturing of components in China. TechPrecision, WCMC and Ranor are collectively referred to as “the Company,” “we,” “us” or “our.”

Liquidity and Capital Resources

At June 30, 2015, we had cash and cash equivalents of $1.5 million, of which $16,005 is located in China and may not be able to be repatriated for use in the United States without undue cost or expense, if at all. Net cash provided by operating activities was $379,309 for the three months ended June 30, 2015, which includes an advance payment of $507,835 received on April 17, 2015 under an Assignment of Claim Agreement described below. We continue to reduce our operating expenses to stay in line with current business conditions. Our profit margins have improved significantly for the three months ended June 30, 2015, when compared with the three months ended June 30, 2014. As a result, we recorded net income of $206,351 for the three months ended June 30, 2015 compared with a net loss of $1.3 million for the three months ended June 30, 2014.

We incurred an operating loss of $3.6 million for the year ended March 31, 2013,2015, or fiscal 2015. In fiscal 2014, we were notrecorded a provision for potential contract losses of $2.4 million in complianceconnection with the fixed chargesbankruptcy filing of GT Advanced Technologies, Inc., or GTAT, and filed a proof of claim with the bankruptcy court to recover all of our costs under the terms of a purchase agreement with GTAT. The claim is now considered an unsecured creditor claim within GTAT’s overall bankruptcy proceedings.

On April 17, 2015, the Company, through Ranor, entered into an Assignment of Claim Agreement, or the Assignment Agreement, with Citigroup Financial Products Inc., or Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor agreed to sell, transfer, convey and assign to Citigroup all of Ranor’s right, title and interest coverage financial covenants under our Loanin and Securityto Ranor’s $3,740,956 unsecured claim against GTAT. Pursuant to the Assignment Agreement, Citigroup paid to Ranor an initial amount equal to $507,835. The Assignment Agreement provides for Citigroup to pay to Ranor up to an additional $614,452 upon either (A) receipt of written notice that Ranor’s claim (or any portion thereof) has been fully and finally allowed against GTAT as a non-contingent, liquidated, and undisputed general unsecured claim, been listed as non-contingent, liquidated, and undisputed on schedules filed by GTAT with the bankruptcy court, or appeared on the claims agent’s, or trustee’s or other estate representative’s records, or has otherwise been conclusively and finally treated in GTAT’s bankruptcy, as “allowed” or “accepted as filed”; or (B) the expiration of the time period during which any party (including GTAT) is permitted to file an objection, dispute or challenge with respect to Ranor’s claim without any such objection, dispute or challenge having been filed. If Ranor’s claim against GTAT is allowed in its entirety, then Citigroup will pay Ranor an additional $614,452. If the amount of Ranor’s claim that is allowed is greater than $1,692,782 but less than the full amount or Ranor’s claim, then Citigroup will pay Ranor an additional amount equal to $614,452 minus the product of 30% multiplied by the difference between Ranor and Santander Bank, or the Bank, dated February 24, 2006, as amended, or the Loan Agreement,total amount of Ranor’s claim and the Bank did not agreeamount of such claim that is actually allowed. If the total amount of Ranor’s claim against GTAT that is allowed is less than $1,692,782, then Ranor may be obligated repay to waive the non-compliance with the covenants. The Loan Agreement was amended by the Forbearance and Modification Agreement, dated January 16, 2014, or the First Forbearance Agreement. Under the First Forbearance Agreement, the Bank agreed to forbear from exercising certain of its rights and remedies arising as a resultCitigroup 30% of the Company’s non-compliance with certain financial covenants under the Loan Agreement until March 31, 2014. The First Forbearance Agreement expired on March 31, 2014,difference between $1,692,782 and the Bank did not agree to waiveamount of Ranor’s claim that is actually allowed plus interest at 7% per annum from April 21, 2015 through the non-compliance with the covenants at March 31, 2014. Since we were in default, the Bank had the right to accelerate paymentdate of the debtrepurchase.

The Company cannot predict the amount of Ranor’s claim that will be finally allowed or admitted in full upon 60 days written notice. As a consequence, we classified all amounts under the Loan Agreement, $4.2 million at March 31, 2014 as a current liability.GTAT bankruptcy proceeding and cannot guarantee that Ranor will receive any additional payment on its claim. The Company continues to vigorously pursue its legal remedies in respect to the case described above; however, an adverse decision in any proceeding could significantly harm our business and our consolidated financial position, results of operations and cash flows.

On May 30, 2014, TechPrecision and Ranor entered into a Loan and Security Agreement, or the LSA, with Utica Leasco, LLC, or Utica. Pursuant to the LSA, Utica agreed to loan $4.15 million to Ranor under a Credit Loan Note, which is collateralized by a first secured interest in certain machinery and equipment at Ranor.  Payments under the LSA and Credit Loan Note are due in monthly installments with an interest rate on the unpaid principal balance of the Credit Loan Note at an interest rate equal to 7.5% plus the greater of 3.3% andor the six-month LIBOR interest rate, as described in the Credit Loan Note. Ranor’s obligations under the LSA and the Credit Loan Note are guaranteed by TechPrecision.

Pursuant to the LSA, Ranor is subject to certain restrictive covenants which, among other things, restrict Ranor’s ability to (1) declare or pay any dividend or other distribution on its equity, purchase or retire any of its equity, or alter its capital structure; (2) make any loan or guaranty or assume any obligation or liability; (3) default in payment of any debt in excess of $5,000 to any person; (4) sell any of the collateral outside the normal course of business orbusiness; and (5) enter into any transaction that would materially or adversely affect the collateral or Ranor’s ability to repay the obligations under the LSA and the Credit Loan Note.  The restrictions ofcontained in these covenants are subject to certain exceptions specified in the LSA and in some cases may be waived by the written consent of Utica.  Any failure to comply with the covenants outlined in the LSA without waiver by Utica or certain other provisions in the LSA would beconstitute an event of default, pursuant to which Utica may accelerate the repayment of the loan.

In connection with the execution of the LSA, we paid approximately $0.24 million in fees and associated costs and utilized approximately $2.65 million of the proceeds of the Credit Loan Note to pay off debt obligations owed to theSantander Bank N.A. under thea  Loan and Security Agreement.  Additionally, the Company retained approximately $1.27 million of the proceeds of the Credit Loan Note for general corporate purposes.

On May 30,December 22, 2014, the Company and the BankRanor entered into a new forbearanceTerm Loan and modification agreement,Security Agreement, or TLSA, with Revere High Yield Fund, LP, or Revere. Pursuant to the TLSA, Revere agreed to loan an aggregate of $2.25 million to Ranor under a term loan note in the aggregate principal amount of $1.5 million, or the First Loan Note, and a term loan note in the aggregate principal amount of $750,000, or the Second Forbearance Agreement. UnderLoan Note. The First Loan Note is collateralized by a secured interest in Ranor’s Massachusetts facility and certain machinery and equipment at Ranor. The Second Loan Note is collateralized by a secured interest in certain accounts, inventory and equipment of Ranor. Payments under the TLSA, the First Loan Note and the Second ForbearanceLoan Note are due as follows: (a) payments of interest only on advanced principal on a monthly basis on the first day of each month from February 1, 2015 until December 31, 2015 with an annual interest rate on the unpaid principal balance of the First Loan Note and the Second Loan Note equal to 12% per annum and (b) the principal balance plus accrued and unpaid interest payable on December 31, 2015. Ranor’s obligations under the TLSA, the First Loan Note and the Second Loan Note are guaranteed by TechPrecision pursuant to a Guaranty Agreement with Revere. Ranor utilized approximately $1.45 million of the proceeds of the First Loan Note and the Second Loan Note to repay in full loan obligations owed to the Bank, agreed to forbear from exercising certainplus breakage fees on a related interest swap of its rights$217,220 under the Loan and remedies arising as a resultSecurity Agreement with Santander Bank N.A. The remaining proceeds of the Company’s non-compliance withFirst Loan Note and the Second Loan Note were retained by the Company to be used for general corporate purposes. Pursuant to the TLSA, Ranor is subject to certain financialaffirmative covenants more fully described in Note 9 – Debt.

If we were to violate any of the covenants under the Loan Agreement commencing retroactively on April 1, 2014 and extending until no later than June 30, 2014, orabove debt agreements, the Second Forbearance Period. During the Second Forbearance Period, we agreed to comply with the terms, covenants and provisions in the Loan Agreement and related documents, as amended by the Second Forbearance Agreement.  The Second Forbearance Agreement amends the Loan Agreement to, among other things, prohibit the Company’s Leverage Ratio  (as such term is defined in the Loan Agreement) to be greater than 1.75 to 1.0.  

At September 30, 2014,Our liquidity is highly dependent on our available financing facilities and our ability to improve our gross profit and operating income. Our TLSA with Revere expires on December 31, 2015, and must be extended or refinanced with another lender. If we hadsuccessfully secure additional acceptable financing facilities, execute on our business plans, improve gross profit and operating income, and reduce our operating costs, then we believe that our available cash and cash equivalents of $849,264, of which $15,613 is located in China and which we may not be able to repatriate for use in the U.S. without undue cost or expense, if at all. Our cash and cash equivalents total includes $180,000 of restricted cash with the Bank that may be used toward funding operating activities with the Bank’s approval. Approximately 55% and 24% of our accounts receivable and work-in-process, respectively, are at risk of not being converted to cash in a timely manner due to a contract dispute with one of our customers. We have recorded a provision for potential contract losses of $2.7 million, and, in one case, filed a demand for arbitration under a customer’s purchase agreement to recover all of our costs under the contract terms. We cannot be certain that we will be successful in recoveringsufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the full amount of our losses. We have incurred an operating loss of $1.9 million for the six months ended September 30, 2014.next twelve months.

These factors raise substantial doubt about our ability to continue as a going concern. 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 secure long-term financing on terms consistent with our near-term business plans. In addition, we must increase our backlog and change the composition of our revenues to focus on recurring unit of delivery projects rather than custom first article and prototyping projects, which do not efficiently useutilize our manufacturing capacity, and reduce our operating expenses to be in line with current business conditions in order to increase profit margins and decrease the amount of cash used in operations. If successful in changing the composition of revenue and reducing costs, we anticipate that the year ending March 31, 2015, or fiscal 2015, operating results should reflect positive cash flows.capacity. We plan to closely monitor our expenses and, if required, will further reduce operating costs and capital spending to enhance liquidity. 

The condensed consolidated financial statements for the three and six months ended SeptemberJune 30, 20142015 and for the year ended March 31, 2014,2015, or fiscal 2014,2015, 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 total current liabilities of $12.0$7.4 million at SeptemberJune 30, 20142015 and to continue as a going concern is dependent upon the availabilitysuccessful execution of our operating plan and our ability to timely secure additional long-term financing and the successful execution of an effective operating plan.financing. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

 

The accompanying condensed consolidated financial statements include the accounts of TechPrecision, WCMC and Ranor. Intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of SeptemberJune 30, 2014,2015, the condensed consolidated statements of operations and comprehensive lossincome (loss) for the three and six month periods ended SeptemberJune 30, 20142015 and 2013,2014, and the condensed consolidated statements of cash flows for the sixthree months ended SeptemberJune 30, 20142015 and 20132014 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.

 

 

 

 

 

The Notes to Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for Quarterly Reports on Form 10-Q. Certain information and note 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 our consolidated financial statements included with our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, or 2014the 2015 Form 10-K, filed with the SEC for the year ended March 31, 2014.on June 29, 2015.

Our significant accounting policies are set forth in detail in Note 2 to the 20142015 Form 10-K.

 

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET

Depreciation expense for the three and six months ended SeptemberJune 30, 2015 and 2014 was $197,228 and 2013 was $211,751 and $427,267, and $220,604 and $469,044,$215,516, respectively.

 

NOTE 7 – OTHER NONCURRENT ASSETS

NOTE 8 –- ACCRUED EXPENSES

Our contract loss provision at both June 30, 2015 and March 31, 2015 includes approximately $2.4$0.5 million for estimated contract losses in connection with a certain customer purchase agreement. We filed a demand for arbitration under the contract to recover damages, together with attorney's fees, interest and costs, subsequent to the customer’s request to reduce the number of units ordered under the purchase agreement. As a result of the customer filing a voluntary bankruptcy claim, the demand is now considered an unsecured creditor claim within the customer’s overall bankruptcy proceedings. It is more likely than not that we will not be able to recover the full amount of our claim. As such, part of the total reduction in the liability reflects the netting of approximately $0.8 million of accumulated costs in work-in-progress and $1.1 million of accounts receivable with the loss provision. Accrued compensation at September 30, 2014 includes $220,000 of unpaid Executive Chairman compensation and Board of Director fees.interest expense is for deferred interest costs accounted for under the effective interest method in connection with the Utica Credit Loan Note due November 2018.

NOTE 9 – DEBT

 

Loan and Security Agreement

On May 30, 2014, TechPrecision and Ranor entered into the LSA with Utica. Pursuant to the LSA, Utica agreed to loan $4.15 million to Ranor under a Credit Loan Note, which is collateralized by a first secured interest in certain machinery and equipment at Ranor.  Payments under the LSA and the Credit Loan Note are due in monthly installments with an interest rate on the unpaid principal balance of the Credit Loan Note at an interest rate equal to 7.5% plus the greater of 3.3% or the six-month LIBOR interest rate, as described in the Credit Loan Note. At June 30, 2015, the rate of interest on the debt under the LSA was 10.8%. In addition, if the obligations under the LSA and the Credit Loan Note are paid in full prior to the maturity date, Ranor will be required to pay Utica deferred interest in an amount ranging from $166,000 during the first twelve months of the term of the loan to $498,000 at any time after the forty-eighth month of the term of the loan. Ranor’s obligations under the LSA and the Credit Loan Note are guaranteed by TechPrecision.

Pursuant to the LSA, Ranor is subject to certain restrictive covenants which, among other things, restrict Ranor’s ability to (1) declare or pay any dividend or other distribution on its equity, purchase or retire any of its equity, or alter its capital structure; (2) make any loan or guaranty or assume any obligation or liability; (3) default in payment of any debt in excess of $5,000 to any person; (4) sell any of the collateral outside the normal course of business orbusiness; and (5) enter into any transaction that would materially or adversely affect the collateral or Ranor’s ability to repay the obligations under the LSA and the Credit Loan Note.  The restrictions ofcontained in these covenants are subject to certain exceptions specified in the LSA and in some cases may be waived by written consent of Utica.  Any failure to comply with the covenants outlined in the LSA without waiver by Utica or certain other provisions in the LSA would beconstitute an event of default, pursuant to which Utica may accelerate the repayment of the loan.

Capital Lease

We entered into a new capital lease in April 2012 for certain office equipment. The lease has a term is forof 63 months, bears interest at 6.0% and requires monthly payments of principal and interest of $860. This lease was amended in fiscal 2014 when we purchased anothera replacement copier at Ranor. The revised lease term was extended by nine months and will expire in March 2018 and the required monthly payments of principal and interest increased to $1,117. The amount of the lease recorded in property, plant and equipment, net as of SeptemberJune 30, 20142015 and March 31, 20142015 was $40,654$31,889 and $46,420,$38,027, respectively.

 

 

 

 

 

NOTE 10 - INCOME TAXES

At September 30, 2014,March 31, 2015, our federal net operating loss carryforwardcarry-forward was approximately $7.6$10.0 million. If not utilized, the federal net operating loss carryforwardcarry-forward will begin to expire in 2025. Section 382 of the Internal Revenue Code, as amended, provides for a limitation on the annual use of net operating loss carryforwards following certain ownership changes that could limit our ability to utilize some of these carryforwards on a yearly basis due to an ownership change in connection with the acquisition of Ranor in 2006.

We file income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. Our foreign subsidiary files separate income tax returns in China, the foreign jurisdiction in which it is located.  Tax years 20112012 and forward remain open for examination.  We recognize interest and penalties accrued related to income tax liabilities in selling, general and administrative expense in our Condensed Consolidated Statements of Operations.Operations and Comprehensive Income (Loss).

 

Ranor has a 401(k) profit sharing plan that covers substantially all Ranor employees who have completed 90 days of service. Ranor retains the option to match employee contributions. Our contributions were $4,234$3,083 and $10,703$2,678 for the sixthree months ended SeptemberJune 30, 20142015 and 2013,2014, respectively.

Preferred Stock

We have 10,000,000 authorized shares of preferred stock and the Boardour board of Directorsdirectors has broad power to create one or more series of preferred stock and to designate the rights, preferences, privileges and limitationlimitations of the holders of such series. The BoardOur board of Directorsdirectors has created one series of preferred stock - the Series A Convertible Preferred Stock.

 

Each share of Series A Convertible Preferred Stock was initially convertible into one share of common stock. As a result of our failure to meet certain levels of earnings before interest, taxes, depreciation and amortization for the years ended March 31, 2006 and 2007, the conversion rate changed, and at December 31, 2009, each share of Series A Convertible Preferred Stock wasbecame convertible into 1.3072 shares of common stock, with an effective conversion price of $0.218.  Based on the current conversion ratio, as of September 30, 2014 and March 31, 2014, there were 2,519,6381,743,409 and 3,238,5982,519,638  common shares respectively, underlying the Series A Convertible Preferred Stock. Stock as of June 30, 2015 and March 31, 2015, respectively.

Upon any liquidation, we would be required to pay $0.285 for each share of Series A Convertible Preferred Stock. The payment willwould be made before any payment to holders of any junior securities and after payment to holders of securities that are senior to the Series A Convertible Preferred Stock.

Common Stock

 

We had 90,000,000 authorized common shares at SeptemberJune 30, 20142015 and March 31, 2014,2015.  There were 25,446,187 and there were 24,669,958 and 23,951,004 shares of common stock outstanding at SeptemberJune 30, 20142015 and March 31, 2015, respectively. For the three months ended June 30, 2015 we issued 776,229 shares of common stock in connection with conversions of Series A Convertible Preferred Stock. For the three months ended June 30, 2014, respectively.

 

 

 

 

 

 

In 2006, our board of directors adopted, and our stockholders approved, the Company’s2006 long-term incentive plan, or the Plan, covering 1,000,000 shares of common stock. On August 5, 2010, the Plan was amended to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,000,000 shares. On September 15, 2011, the directors adopted and the Company’s stockholdersshareholders approved an amendment to increase the 2006 TechPrecision Corporation Long-Term Incentive Plan, or, as amended, the Plan.maximum number of shares of common stock that may be issued to an aggregate of 3,300,000 shares. The Plan provides for the grant of incentive and non-qualified options, stock grants, stock appreciation rights and other equity-based incentives to employees, including officers, and consultants. The Plan is to be administered by a committee of not less than two directors each of whom is to be an independent director. In the absence of a committee, the Plan is administered by the Boardour board of Directors.directors. Independent directors are not eligible for discretionary options. The maximum number of shares of common stock that may be issued under the Plan is 3,300,000 shares.

Pursuant to the Plan, each newly elected independent director receives, at the time of his or her election, ana five-year option to purchase 50,000 shares of common stock at the market price on the date of his or her election.  In addition, the Plan provides for the annual grant of an option to purchase 10,000 shares of common stock on July 1st1 of each year following the third anniversary of the date of his or her first election.  

The fair value of the options we granted was estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The risk-free interest rate was selected based upon yields of five-year U.S. Treasury issues. The assumptions utilized for option grants during the period presented ranged from 125% to 134% for volatility and a risk free rate of 1.39% to 1.71% and an expected term of approximately six years.

The following table summarizes information about options for the most recent annual income statements presented:periods presented below: 

At SeptemberJune 30, 2014,2015, there was $140,542$12,697 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over the next 21 months.two years. The total fair value of shares vested during the sixthree months ended SeptemberJune 30, 20142015 was $178,685. $31,266.

The following table summarizes the activity of our stock options outstanding but not vested for the three months ended June 30, 2014:2015:  

 

 

 

 

 

NOTE 14 - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

We maintain bank account balances, which, at times, may exceed Federal Deposit Insurance Corporation insured limits. We have not experienced any losses with these accounts and believe that we are not exposed to any significant credit risk on cash.

At SeptemberJune 30, 2014,2015, there were accounts receivable balances outstanding from foursix customers comprising 72%98% of the total receivables balance. The following table sets forth information as to accounts receivable from customers who accounted for more than 10% of our accounts receivable balance as of: 

We have been dependent in 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 information as to net sales from customers who accounted for more than 10% of our revenue for the sixthree months ended:

*customer total is less than 10% of total

NOTE 15 – SEGMENT INFORMATION

We operateconsider our business underto consist of one segment large scale fabricated- metal fabrication and machined metal components and systems equipment.precision machining. A significant amount of our operations, assets and customers are located in the United States. The following table presents our geographic information (net sales and net property, plant and equipment)equipment, net) by the country in which the legal subsidiary is domiciled and assets are located:

NOTE 16 – COMMITMENTS

Termination of Ranor untilLease

We have employment agreements with each of our executive officers. Such agreements provide for minimum salary levels, adjusted annually, as well as forcertain guaranteed bonuses, and incentive bonuses that are payable if specified company goals are attained. The aggregate annual commitment at SeptemberJune 30, 20142015 for future compensationexecutive salaries during the next twelve months, excludingincluding fiscal 2015 bonuses payable after March 31, 2015, was approximately $0.9 million. The aggregate commitment at June 30, 2015 was approximately $0.4 million for accrued payroll, vacation and holiday pay for the remainder of our employees.

Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average shares outstanding. Diluted EPS also includes the effect of dilutive potential common shares.convertible preferred stock, warrants, and stock options that would be dilutive. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted lossearnings per share computations, as required under FASB ASC 260. 

All potential common share equivalents that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the three months ended June 30, 2015, there were 2,693,909 of potential common share equivalents that were out-of-the-money and six month periodswere not included in the EPS calculations above. For the three months ended SeptemberJune 30, 2014, there were 2,105,467 and 2,491,658 shares, respectively, and for the three and six months ended September 30, 2013 there were 5,011,341 and 5,359,626 shares, respectively,2,192,220, of potentially anti-dilutive stock options warrants and convertible preferred stock, none of which were included in the EPS calculations above.  

 

 

 

We offer a full range of services required to transform metallic raw materials into precise 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 U.S. manufacturing is done at Ranor in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications. Ranor holds several certificates of authorization issued by the American Society of Mechanical Engineers and the National Board of Boiler and Pressure Vessel Inspectors. The standards used are specific to the customers’ needs, and our manufacturing operations are conducted in accordance with these standards.

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

We historically have experienced, and continue to experience, customer concentration. For the sixthree months ended SeptemberJune 30, 2015 and 2014, our largest customer accounted for approximately 27% and 2013,30% of reported net sales, respectively, and our fiveten largest customers, accounted for approximately 73%99% and 71%96% of reported net sales.our revenue, respectively. Our sales order backlog at SeptemberJune 30, 20142015 was approximately $12.9$13.9 million compared with a backlog of $22.9$14.3 million at March 31, 2015.

For the three months ended June 30, 2015, our net sales and net income were $4.4 million and $0.2 million, respectively, compared with net sales of $6.2 million and net loss of $1.3 million, respectively, for the three months ended June 30, 2014.  Our Septembergross margins for the three months ended June 30, 2015 were 29.0% compared with gross margins of 3.5% for the three months ended June 30, 2014. Gross margins for the three months ended June 30, 2015 improved as the number of units shipped or in production under certain loss contracts were significantly lower. Gross margins for the three months ended June 30, 2014 backlog includeswere negatively impacted by a large volume of lower margin production furnaces, under absorbed overhead of $1.0 million and approximately $0.8$0.4 million of ordersnew contract losses.

We incurred an operating loss of $3.6 million for sapphire production furnaces.   the fiscal year ended March 31, 2015. During fiscal 2014, we recorded a provision for potential contract losses of approximately $2.4 million in connection with the bankruptcy filing of GTAT and filed a proof of claim with the bankruptcy court to recover all of our costs under the terms of a purchase agreement. The claim is now considered an unsecured creditor claim within GTAT’s overall bankruptcy proceedings.

 

 

 

 

 

At March 31, 2014, we were not in compliance with our financial covenantsThe Company cannot predict the amount of Ranor’s claim that will be finally allowed or admitted in the LoanGTAT bankruptcy proceeding and Security Agreement betweencannot guarantee that Ranor will receive any additional payment on its claim. The Company continues to vigorously pursue its legal remedies in respect to the case described above; however, an adverse decision in any proceeding could significantly harm our business and Santander Bank, dated February 24, 2006, as amended, or the Loan Agreement,our consolidated financial position, results of operations and the Bank did not agree to waive the non-compliance with the covenants. As a result, we were in default at March 31, 2014.cash flows.

These factors raise substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.Resources” and Part II – Item 1A “Risk Factors.”

The preparation of the unaudited 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 contract accounting, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. These estimates and assumptions require management’s most difficult, subjective or complex judgments. Actual results may differ under different assumptions or conditions.

 

See Note 3 – Recently Issued and Adopted Accounting Pronouncements to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently adopted accounting guidance and other new accounting guidance.

Our results of operations are affected by a number of external factors including the availability of raw materials commodity prices (particularly steel), commodity prices, 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 foreign markets. Our order and revenue stream is uneven and reflects an irregular pattern of orders we receive from our customers as they gauge their customer’scustomers’ demand for new and existing products. Our results of operations are affected by our success in booking new contracts, and when we are able to recognize the relatedtiming of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress in the fulfillment offulfilling our obligations under our contracts. A delay in deliveries or cancellations of orders would cause us to have inventories in excess of our short-term needs, and may delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. We continue to execute to the business plan we developed early in our first quarter thatfiscal 2015, which has the immediate goal of realigning and stabilizing our cost structure so we can return to and sustain profitability, even at current lower revenue levels. WeIn connection with the execution of this business plan, we need to rebuild our backlog with orders from our key customers. 

Three Months Ended SeptemberJune 30, 2014 and 20132015

The following table sets forth information from our statements of operations in dollars and as a percentage of revenue:  

Net Sales

Cost of Sales and Gross Margin

Actual production levels were lower than planned and resulted in under absorbed overheads for the period. Our cost of sales for the three months ended SeptemberJune 30, 20142015 decreased by $0.8$2.9 million, or 17%, on lower sales volume.49%.  Gross margins during the three months ended SeptemberJune 30, 2015 were 29.3% compared with 3.5% for the same three month period in 2014. Gross margins for the three months ended June 30, 2015 were higher because of decreased materials and labor costs, and the absence of contract losses on custom first article projects. Our product mix for the three months ended June 30, 2015 primarily included orders for recurring business from our customers. Gross margins for the three months ended June 30, 2014 were 18.9% compared with 14.0% forlower because of a heavy volume of low margin production furnaces shipped during the same period, in fiscal 2014. Fiscal 2015 margins were dampened by under absorbed overhead of approximately $1.9 million. Fiscal 2014 margins were impacted by low margin contracts, under absorbed overhead$1.0 million, and new contract losses of $0.8 million on custom first article projects.$0.4 million. Gross margin in any reporting period is impacted by the mix of services we provide on projects completed and in-process within that period. Actual production levels were lower than planned in the three months ended June 30, 2014 and resulted in under absorbed overheads for the period.

Total selling, general and administrative expenses, or SG&A, for the three months ended SeptemberJune 30, 20142015 were $0.3$0.8 million or 18%40% lower when compared with the same period in fiscalthree months ended June 30, 2014. SG&A compensation and administrative expense was $0.4 millionexpenses were lower due to reduced headcount. This decrease was offsetheadcount in part by a $0.1 million increase as we engagedthe United States ($0.2 million), lower outside advisors to help find alternative sources of financing.advisory services ($0.2 million), and reduced rental and office expense from our downsized corporate headquarters facility ($0.1 million).

 

 

 

 

 

 

The following table reflects other income (expense) and interest expense for the three months ended:

We de-designated our Series A Bond interest rate swap hedge and reclassified the change in fair value from other comprehensive income to the statement of operations. We will record all future changes in fair value related to the interest rate swap in our statement of operations. Interest expense for the three months ended SeptemberJune 30, 2014 was2015 is higher due to higher rates related to our newlevels of debt financing under an LSA with Utica.and higher interest rates. Non–cash interest expense primarily reflects higher amountsthe amortization of amortization for deferred loan costs in connection with the LSA.Credit Loan Note, the First Loan Note and the Second Loan Note. Interest expense for the three months ended June 30, 2014 includes a breakage fee of $29,448 in connection with an interest rate swap on certain indebtedness of the Company that was repaid.

Income Taxes

For the three months ended SeptemberJune 30, 2015 and 2014, we recorded azero tax benefitexpense.  The zero tax expense recorded for the three months periods ended was the result of $152,792 as we reclassified losses on an interest rate swap to our statement of operations. We maintainmaintaining a full valuation allowance on our net deferred tax assets. A valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized. The assessment was based on the weight of negative evidence at the balance sheet date, our recent operating losses and unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes. Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.

As a result of the foregoing, ourwe had net loss was $0.6 million,income of $206,351, or $0.03$0.01 per share basic and fully diluted, for the three months ended SeptemberJune 30, 2014,2015, as compared to net loss of $0.8$1.3 million, or $0.04$0.05 per share basic and fully diluted, for the three months ended SeptemberJune 30, 2013. 2014.

 

At June 30, 2015, we had cash and cash equivalents of $1.5 million, of which $16,004 is located in China and may not be able to be repatriated for use in the United States without undue cost or expense, if at all. Net cash provided by operating activities was $379,309 for the three months ended June 30, 2015, which includes an advance payment of $507,835 received under the Assignment Agreement with Citigroup. We continue to reduce our operating expenses to stay in line with current business conditions. Our profit margins have improved significantly for the three months ended June 30, 2015, when compared with the three months ended June 30, 2014. As a result, we recorded net income of $206,351 for the three months ended June 30, 2015 compared with a net loss of $1.3 million for the three months ended June 30, 2014.

We incurred an operating loss of $3.6 million for the year ended March 31, 2015. During fiscal 2014, we recorded a provision for potential contract losses of $2.4 million in connection with the bankruptcy filing and 2013filed a proof of claim with the bankruptcy court to recover all of our costs under the terms of a purchase agreement with GTAT. The claim is now considered an unsecured creditor claim within GTAT’s overall bankruptcy proceedings.

The following table sets forth information fromCompany cannot predict the amount of Ranor’s claim that will be finally allowed or admitted in the GTAT bankruptcy proceeding and cannot guarantee that Ranor will receive any additional payment on its claim. The Company continues to vigorously pursue its legal remedies in respect to the case described above, however, an adverse decision in any proceeding could significantly harm our statementsbusiness and our consolidated financial position, results of operations for the six months ended September 30, 2014 and 2013, in dollars and as a percentage of revenue:   

 

 

 

 

 

On May 30, 2014, TechPrecision and Ranor entered into the LSA with Utica. Pursuant to the LSA, Utica agreed to loan $4.15 million to Ranor under a Credit Loan Note, which is collateralized by a first secured interest in certain machinery and equipment at Ranor.  Payments under the LSA and the Credit Loan Note are due in monthly installments with an interest rate on the unpaid principal balance of the Credit Loan Note at an interest rate equal to 7.5% plus the greater of 3.3% or the six-month LIBOR interest rate, as described in the Credit Loan Note. Ranor’s obligations under the LSA and the Credit Loan Note are guaranteed by TechPrecision.

Pursuant to the LSA, Ranor is subject to certain restrictive covenants which, among other things, restrict Ranor’s ability to (1) declare or pay any dividend or other distribution on its equity, purchase or retire any of its equity, or alter its capital structure; (2) make any loan or guaranty or assume any obligation or liability; (3) default in payment of any debt in excess of $5,000 to any person; (4) sell any of the collateral outside the normal course of business orbusiness; and (5) enter into any transaction that would materially or adversely affect the collateral or Ranor’s ability to repay the obligations under the LSA and the Credit Loan Note.  The restrictions ofcontained in these covenants are subject to certain exceptions specified in the LSA and in some cases may be waived by the written consent of Utica.  Any failure to comply with the covenants outlined in the LSA without waiver by Utica or certain other provisions in the LSA would beconstitute an event of default, pursuant to which Utica may accelerate the repayment of the loan.

In connection with the execution of the LSA, the Companywe paid approximately $0.24 million in fees and associated costs and utilized approximately $2.65 million of the proceeds of the Credit Loan Note to pay off debt obligations owed to theSantander Bank N.A. under thea Loan and Security Agreement.  Additionally, the Company retained approximately $1.27 million of the proceeds of the Credit Loan Note for general corporate purposes.

On May 30, 2014, the Company and the Bank entered into the Second Forbearance Agreement. Under the Second Forbearance Agreement, the Bank agreedIf we were to forbear from exercising certain of its rights and remedies arising as a resultviolate any of the Company’s non-compliance with certain financial covenants under the Loan Agreement commencing retroactively on April 1, 2014 and extending until no later than June 30, 2014.

Our liquidity is highly dependent on our available financing facilities and our ability to improve our gross profit and operating income. Our TLSA with certain financial covenants under the Loan Agreement commencingRevere expires on July 1, 2014December 31, 2015, and extending until no later than July 31, 2014. The Third Forbearance Agreement expiredmust be extended or refinanced with another lender. If we successfully secure additional acceptable financing facilities, execute on its own terms on July 31, 2014.

The condensed consolidated financial statements for the three and six months ended SeptemberJune 30, 2014,2015 and for the year ended March 31, 2014,2015 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 total current liabilities of $12.0$7.4 million at SeptemberJune 30, 20142015 and to continue as a going concern is dependent upon the availability of and our ability to timely secure long-term financing and the successful execution of our operating plan. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

Our failure to service our current debt and obtain new or additional financing could impair our ability to both serve our existing customer base and develop new customers and could result in our failure to continue to operate as a going concern. To the extent that we require new or additional financing, we cannot assure you that we will be able to get such financing on terms equal to or better than the terms of the LSA or the Fourth Forbearance Agreement.TLSA. If we are unable to raise funds through a credit facility, it may be necessary for us to conduct an offering of debt and/or equity securities on terms which may be disadvantageous to us or have a negative impact on our outstanding securities and the holders of such securities.  In the event of an equity offering, it may be necessary that we offer such securities at a price that is significantly below our current trading levelsprice which may result in substantial dilution to our investors that do not participate in the offering and a new low trading levelprice for our common stock.