UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020June 30, 2021
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number: 000-51378
TechPrecision Corporation
(Exact name of registrant as specified in its charter)
Delaware | 51-0539828 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
1 Bella Drive | ||
Westminster, MA | 01473 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code | (978) 874-0591 |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
⌧ | Yes | ◻ | No |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
⌧ | Yes | ◻ | No |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ◻ | Accelerated filer | ◻ | ||
Non-accelerated filer | ⌧ | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ | Yes | ☒ | No |
The number of shares outstanding of the registrant’s common stock as of February 8,August 6, 2021 was 29,498,662.
TABLE OF CONTENTS
2
PART I
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
December 31, 2020 | March 31, 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,255,320 | $ | 930,856 | ||||
Accounts receivable, net | 1,173,376 | 990,300 | ||||||
Contract assets | 5,314,653 | 4,504,621 | ||||||
Raw materials | 503,636 | 561,572 | ||||||
Work-in-process | 694,848 | 656,041 | ||||||
Other current assets | 442,024 | 606,151 | ||||||
Total current assets | 9,383,857 | 8,249,541 | ||||||
Property, plant and equipment, net | 4,208,329 | 4,182,861 | ||||||
Deferred income taxes | 2,016,816 | 2,115,480 | ||||||
Other noncurrent assets, net | 16,086 | 32,600 | ||||||
Total assets | $ | 15,625,088 | $ | 14,580,482 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 510,434 | $ | 185,065 | ||||
Accrued expenses | 1,306,109 | 1,554,524 | ||||||
Contract liabilities | 308,358 | 805,049 | ||||||
Current portion of long-term debt | 3,088,553 | 109,829 | ||||||
Total current liabilities | 5,213,454 | 2,654,467 | ||||||
Long-term debt | 717,559 | 2,456,560 | ||||||
Commitments and contingent liabilities (Note 13) | ||||||||
Stockholders’ Equity: | ||||||||
Common stock - par value $.0001 per share, 90,000,000 shares authorized, 29,498,662 and 29,354,594 shares issued and outstanding, at December 31, 2020 and March 31, 2020 | 2,949 | 2,935 | ||||||
Additional paid in capital | 8,911,160 | 8,793,062 | ||||||
Accumulated other comprehensive income | 21,838 | 21,688 | ||||||
Retained earnings | 758,128 | 651,770 | ||||||
Total stockholders’ equity | 9,694,075 | 9,469,455 | ||||||
Total liabilities and stockholders’ equity | $ | 15,625,088 | $ | 14,580,482 |
| | | | | | |
|
| June 30, |
| March 31, | ||
| | 2021 | | 2021 | ||
ASSETS | | | |
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 2,236,375 | | $ | 2,130,711 |
Accounts receivable | |
| 1,155,403 | |
| 608,059 |
Contract assets | |
| 4,815,808 | |
| 5,532,408 |
Raw materials | | | 472,486 | | | 503,636 |
Work-in-process | | | 559,658 | | | 767,520 |
Other current assets | |
| 375,830 | |
| 379,437 |
Total current assets | |
| 9,615,560 | |
| 9,921,771 |
Property, plant and equipment, net | |
| 3,884,729 | |
| 4,063,209 |
Deferred income taxes | |
| 1,907,835 | |
| 1,934,415 |
Other noncurrent assets, net | |
| 82,596 | |
| 84,624 |
Total assets | | $ | 15,490,720 | | $ | 16,004,019 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 169,769 | | $ | 500,848 |
Accrued expenses | |
| 1,066,671 | |
| 1,526,270 |
Contract liabilities | |
| 428,367 | |
| 218,152 |
Current portion of long-term debt | |
| 2,449,979 | |
| 2,474,963 |
Total current liabilities | |
| 4,114,786 | |
| 4,720,233 |
Long-term debt, net | |
| 29,452 | |
| 1,341,938 |
Commitments and contingent liabilities (Note 14) | |
|
| |
|
|
Stockholders’ Equity: | |
|
| |
|
|
Common stock - par value $.0001 per share, 90,000,000 shares authorized, 29,498,662 shares issued and outstanding, at June 30, 2021 and March 31, 2021 | |
| 2,949 | |
| 2,949 |
Additional paid in capital | |
| 8,978,160 | |
| 8,944,660 |
Accumulated other comprehensive income | |
| 21,880 | |
| 21,838 |
Retained earnings | |
| 2,343,493 | |
| 972,401 |
Total stockholders’ equity | |
| 11,346,482 | |
| 9,941,848 |
Total liabilities and stockholders’ equity | | $ | 15,490,720 | | $ | 16,004,019 |
See accompanying notes to the condensed consolidated financial statements.
3
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) INCOME (unaudited)
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net sales | $ | 3,569,718 | $ | 3,667,276 | $ | 11,566,176 | $ | 11,075,620 | ||||||||
Cost of sales | 2,864,274 | 3,352,962 | 9,034,858 | 9,238,287 | ||||||||||||
Gross profit | 705,444 | 314,314 | 2,531,318 | 1,837,333 | ||||||||||||
Selling, general and administrative | 716,361 | 662,675 | 2,205,739 | 2,145,055 | ||||||||||||
(Loss) income from operations | (10,917 | ) | (348,361 | ) | 325,579 | (307,722 | ) | |||||||||
Other (expense) income | (219 | ) | 185 | 1,237 | 21,063 | |||||||||||
Interest expense | (50,405 | ) | (69,328 | ) | (159,885 | ) | (218,447 | ) | ||||||||
Total other expense, net | (50,624 | ) | (69,143 | ) | (158,648 | ) | (197,384 | ) | ||||||||
(Loss) income before income taxes | (61,541 | ) | (417,504 | ) | 166,931 | (505,106 | ) | |||||||||
Income tax (benefit) expense | (13,369 | ) | (97,734 | ) | 60,573 | (115,092 | ) | |||||||||
Net (loss) income | $ | (48,172 | ) | $ | (319,770 | ) | $ | 106,358 | $ | (390,014 | ) | |||||
Other comprehensive income (loss), before tax: | ||||||||||||||||
Foreign currency translation adjustments | $ | 1,252 | $ | 9 | $ | 151 | $ | (329 | ) | |||||||
Other comprehensive income (loss), net of tax | $ | 1,252 | $ | 9 | $ | 151 | $ | (329 | ) | |||||||
Comprehensive (loss) income | $ | (46,920 | ) | $ | (319,761 | ) | $ | 106,509 | $ | (390,343 | ) | |||||
Net (loss) income per share basic | $ | (0.00 | ) | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | |||||
Net (loss) income per share diluted | $ | (0.00 | ) | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | |||||
Weighted average number of shares outstanding: Basic | 29,498,662 | 29,254,594 | 29,430,206 | 29,254,230 | ||||||||||||
Diluted | 29,498,662 | 29,254,594 | 31,021,384 | 29,254,230 |
| | | | | | |
| | Three months ended | ||||
| | June 30, | ||||
|
| 2021 |
| 2020 | ||
Net sales | | $ | 3,412,229 | | $ | 3,282,525 |
Cost of sales | |
| 2,579,561 | |
| 2,585,511 |
Gross profit | |
| 832,668 | |
| 697,014 |
Selling, general and administrative | |
| 732,608 | |
| 793,362 |
Income (loss) from operations | |
| 100,060 | |
| (96,348) |
Other income | |
| 10,390 | |
| 652 |
Interest expense | |
| (29,878) | |
| (57,898) |
PPP loan forgiveness | | | 1,317,100 | | | — |
Total other income (expense), net | |
| 1,297,612 | |
| (57,246) |
Income (loss) before income taxes | |
| 1,397,672 | |
| (153,594) |
Income tax provision (benefit) | |
| 26,580 | |
| (37,360) |
Net income (loss) | | $ | 1,371,092 | | $ | (116,234) |
Other comprehensive income (loss): | |
| | |
| |
Foreign currency translation adjustments | | | 42 | | | (97) |
Other comprehensive income (loss), net of tax | | | 42 | | | (97) |
Comprehensive income (loss) | | $ | 1,371,134 | | $ | (116,331) |
Net income (loss) per share - basic | | $ | 0.05 | | $ | (0.01) |
Net income (loss) per share - diluted | | $ | 0.04 | | $ | (0.01) |
Weighted average number of shares outstanding - basic | | | 29,498,662 | | | 29,359,921 |
Weighted average number of shares outstanding – diluted | | | 31,054,110 | | | 29,359,921 |
See accompanying notes to the condensed consolidated financial statements.
4
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
Common Stock | Par Value | Additional Capital | Accumulated Other |
Retained | Total | |||||||||||||||||||
Balance 3/31/2019 | 29,234,594 | $ | 2,923 | $ | 8,693,106 | $ | 21,940 | $ | 993,339 | $ | 9,711,308 | |||||||||||||
Stock-based compensation | 30,625 | 30,625 | ||||||||||||||||||||||
Shares issued under LTIP | 20,000 | 2 | 7,198 | 7,200 | ||||||||||||||||||||
Net income | 220,777 | 220,777 | ||||||||||||||||||||||
Currency translation adjustment | (179 | ) | (179 | ) | ||||||||||||||||||||
Balance 6/30/2019 | 29,254,594 | $ | 2,925 | $ | 8,730,929 | $ | 21,761 | $ | 1,214,116 | $ | 9,969,731 | |||||||||||||
Stock-based compensation | 30,625 | 30,625 | ||||||||||||||||||||||
Net loss | (291,021 | ) | (291,021 | ) | ||||||||||||||||||||
Currency translation adjustment | (159 | ) | (159 | ) | ||||||||||||||||||||
Balance 9/30/2019 | 29,254,594 | $ | 2,925 | $ | 8,761,554 | $ | 21,602 | $ | 923,095 | $ | 9,709,176 | |||||||||||||
Stock-based compensation | 20,417 | 20,417 | ||||||||||||||||||||||
Net loss | (319,770 | ) | (319,770 | ) | ||||||||||||||||||||
Currency translation adjustment | 9 | 9 | ||||||||||||||||||||||
Balance 12/31/2019 | 29,254,594 | $ | 2,925 | $ | 8,781,971 | $ | 21,611 | $ | 603,325 | $ | 9,409,832 | |||||||||||||
Balance 3/31/2020 | 29,354,594 | $ | 2,935 | $ | 8,793,062 | $ | 21,688 | $ | 651,770 | $ | 9,469,455 | |||||||||||||
Stock-based compensation | 55,500 | 55,500 | ||||||||||||||||||||||
Shares issued under LTIP | 44,068 | 4 | (4 | ) | -- | |||||||||||||||||||
Net loss | (116,234 | ) | (116,234 | ) | ||||||||||||||||||||
Currency translation adjustment | (97 | ) | (97 | ) | ||||||||||||||||||||
Balance 6/30/2020 | 29,398,662 | $ | 2,939 | $ | 8,848,558 | $ | 21,591 | $ | 535,536 | $ | 9,408,624 | |||||||||||||
Stock-based compensation | 57,417 | 57,417 | ||||||||||||||||||||||
Restricted stock award | 100,000 | 10 | 133,990 | 134,000 | ||||||||||||||||||||
Non-vested restricted stock | (134,000 | ) | (134,000 | ) | ||||||||||||||||||||
Net income | 270,764 | 270,764 | ||||||||||||||||||||||
Currency translation adjustment | (1,005 | ) | (1,005 | ) | ||||||||||||||||||||
Balance 9/30/2020 | 29,498,662 | $ | 2,949 | $ | 8,905,965 | $ | 20,586 | $ | 806,300 | $ | 9,735,800 | |||||||||||||
Stock-based compensation | 33,500 | 33,500 | ||||||||||||||||||||||
Taxes on exercised options | (28,305 | ) | (28,305 | ) | ||||||||||||||||||||
Net loss | (48,172 | ) | (48,172 | ) | ||||||||||||||||||||
Currency translation adjustment | 1,252 | 1,252 | ||||||||||||||||||||||
Balance 12/31/2020 | 29,498,662 | $ | 2,949 | $ | 8,911,160 | $ | 21,838 | $ | 758,128 | $ | 9,694,075 |
| | | | | | | | | | | | | | | | | |
|
| |
| | |
| | |
| Accumulated |
| | |
| | | |
| | Common | | | | | Additional | | Other | | | | Total | ||||
| | Stock | | Par | | Paid in | | Comprehensive | | Retained | | Stockholders’ | |||||
| | Outstanding | | Value | | Capital | | Income | | Earnings | | Equity | |||||
Balance 3/31/2020 |
| 29,354,594 |
| $ | 2,935 |
| $ | 8,793,062 |
| $ | 21,688 |
| $ | 651,770 |
| $ | 9,469,455 |
Stock-based compensation | | — | | | — | | | 55,500 | | | — | | | — | | | 55,500 |
Shares issued under LTIP |
| 44,068 | |
| 4 | |
| (4) | |
| — | | | — | |
| — |
Net loss |
| — | |
| — | | | — | | | — | |
| (116,234) | |
| (116,234) |
Foreign currency translation adjustment |
| — | |
| — | | | — | |
| (97) | | | — | |
| (97) |
Balance 6/30/2020 |
| 29,398,662 | | $ | 2,939 | | $ | 8,848,558 | | $ | 21,591 | | $ | 535,536 | | $ | 9,408,624 |
| | | | | | | | | | | | | | | | | |
Balance 3/31/2021 |
| 29,498,662 | | $ | 2,949 | | $ | 8,944,660 | | $ | 21,838 | | $ | 972,401 | | $ | 9,941,848 |
Stock-based compensation | | — | | | — | | | 33,500 | | | — | | | — | | | 33,500 |
Net income |
| — | |
| — | |
| — | |
| — | |
| 1,371,092 | |
| 1,371,092 |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| 42 | |
| — | |
| 42 |
Balance 6/30/2021 |
| 29,498,662 | | $ | 2,949 | | $ | 8,978,160 | | $ | 21,880 | | $ | 2,343,493 | | $ | 11,346,482 |
See accompanying notes to the condensed consolidated financial statements.
5
TECHPRECISION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended December 31, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | 106,358 | $ | (390,014 | ) | |||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||||
Depreciation | 521,422 | 548,038 | ||||||
Amortization of debt issue costs | 45,099 | 31,280 | ||||||
Stock based compensation expense | 146,417 | 81,667 | ||||||
Change in contract loss provision | (175,365 | ) | 216,039 | |||||
Deferred income taxes | 60,573 | (115,092 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (183,076 | ) | 257,459 | |||||
Contract assets | (810,032 | ) | (271,767 | ) | ||||
Inventories | 19,129 | 589,904 | ||||||
Other current assets | 164,127 | (296,328 | ) | |||||
Other noncurrent assets | 38,092 | (9,419 | ) | |||||
Accounts payable | 325,369 | (138,463 | ) | |||||
Accrued expenses | (101,028 | ) | 18,282 | |||||
Contract liabilities | (496,691 | ) | 87,815 | |||||
Net cash (used in) provided by operating activities | (339,606 | ) | 609,401 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property, plant and equipment | (546,890 | ) | (35,225 | ) | ||||
Net cash used in investing activities | (546,890 | ) | (35,225 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Debt issue costs | (24,610 | ) | (32,209 | ) | ||||
Proceeds from payroll protection program loan | 1,317,100 | -- | ||||||
Proceeds from revolver loan | 1,000,000 | -- | ||||||
Repayment of revolver loan | (1,000,000 | ) | -- | |||||
Repayment of long-term debt | (81,352 | ) | (610,515 | ) | ||||
Net cash provided by (used in) financing activities | 1,211,138 | (642,724 | ) | |||||
Effect of exchange rate on cash and cash equivalents | (178 | ) | 307 | |||||
Net increase (decrease) in cash and cash equivalents | 324,464 | (68,241 | ) | |||||
Cash and cash equivalents, beginning of period | 930,856 | 2,036,646 | ||||||
Cash and cash equivalents, end of period | $ | 1,255,320 | $ | 1,968,405 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION | ||||||||
Cash paid during the year for: | ||||||||
Interest (net of amounts capitalized) | $ | 106,342 | $ | 187,085 | ||||
Income taxes | $ | -- | $ | -- |
| | | | | | |
| | Three Months Ended June 30, | ||||
|
| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | | |
| | |
|
Net income (loss) | | $ | 1,371,092 | | $ | (116,234) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
| | |
| |
Depreciation | |
| 182,678 | |
| 169,237 |
Amortization of debt issue costs | |
| 8,824 | |
| 15,141 |
Stock based compensation expense | |
| 33,500 | |
| 55,500 |
Change in contract loss provision | |
| (69,951) | |
| (64,699) |
Deferred income taxes | |
| 26,580 | |
| (37,360) |
PPP loan forgiveness | | | (1,317,100) | | | — |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | |
| (547,344) | |
| 73,771 |
Contract assets | |
| 716,600 | |
| (692,842) |
Inventories | | | 239,012 | | | (79,834) |
Other current assets | |
| 3,607 | |
| 187,261 |
Accounts payable | |
| (331,079) | |
| 370,914 |
Accrued expenses | |
| (389,586) | |
| 38,614 |
Contract liabilities | |
| 210,215 | |
| (288,712) |
Net cash provided by (used in) operating activities | |
| 137,048 | |
| (369,243) |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| |
Purchases of property, plant and equipment | |
| (4,198) | |
| (41,768) |
Net cash used in investing activities | |
| (4,198) | |
| (41,768) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| |
Debt issue costs | |
| — | |
| (8,282) |
Proceeds from payroll protection program | |
| — | |
| 1,317,100 |
Proceeds from revolver loan | | | — | | | 1,000,000 |
Repayment of revolver loan | |
| — | |
| (1,000,000) |
Repayment of long-term debt | | | (27,166) | | | (26,618) |
Net cash (used in) provided by financing activities | |
| (27,166) | |
| 1,282,200 |
Effect of exchange rate on cash and cash equivalents | |
| (20) | |
| (6) |
Net increase in cash and cash equivalents | |
| 105,664 | |
| 871,183 |
Cash and cash equivalents, beginning of period | |
| 2,130,711 | |
| 930,856 |
Cash and cash equivalents, end of period | | $ | 2,236,375 | | $ | 1,802,039 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION | |
| | |
| |
Cash paid during the year for: | | | | | | |
Interest | | $ | 32,746 | | $ | 40,024 |
Income taxes | | $ | — | | $ | — |
See accompanying notes to the condensed consolidated financial statements.
SUPPLEMENTAL INFORMATION - NONCASH INVESTING AND FINANCING TRANSACTIONS:
NineThree months ended December 31,June 30, 2020
On June 16,13, 2020, our executive officers exercised options to purchase 150,000 shares of the Company’s common stock, par value $0.0001 per share, in a cashless transaction, pursuant to option awards granted under the Company’s 2016 Long-Term Incentive Plan.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
TechPrecision Corporation, or TechPrecision, is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. The name was changed to TechPrecision Corporation on March 6, 2006. TechPrecision is the parent company of Ranor, Inc., or Ranor, a Delaware corporation, Stadco New Acquisition, LLC, and Wuxi Critical Mechanical Components Co., Ltd., or WCMC, a wholly foreign owned enterprise. WCMC has no customers or operations, and we have initiated a plan of termination to legally dissolve this subsidiary. TechPrecision, WCMC, Stadco New Acquisition, LLC, and Ranor are collectively referred to as the “Company”, “we”, “us” or “our”.
We manufacture large-scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets including defense and aerospace, nuclear, medical, and precision industrial. We consider our business to consist of one segment - metal fabrication and precision machining. All of our operations and customers are located in the United States.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the accounts of TechPrecision, Ranor, Stadco New Acquisition, LLC, and WCMC. Intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheets as of December 31, 2020June 30, 2021 and March 31, 2020,2021, the condensed consolidated statements of operations and comprehensive income (loss) income and stockholders’ equity for the three and nine months ended December 31,June 30, 2021 and 2020, and 2019, and the condensed consolidated statements of cash flows for the ninethree months ended December 31,June 30, 2021 and 2020 and 2019 are unaudited, but, in the opinion of management, include all adjustments that are necessary for a fair presentation of our financial statements for interim periods in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The results of operations for an interim period are not necessarily indicative of the results of operations to be expected for the fiscal year.
These notes to the condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements and related notes should be read in conjunction with the consolidated financial statements included with our Annual Report on Form 10-K for the fiscal year ended March 31, 2020,2021, or the 20202021 Form 10-K, filed with the SEC on June 11, 2020.10, 2021.
Use of Estimates in the Preparation of Financial Statements -In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the reported period. We continually evaluate our estimates, including those related to contract accounting, accounts receivable, inventories, the recovery of long-lived assets, income taxes and the valuation of equity transactions. We base our estimates on historical and current experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.
The COVID-19 pandemic has negatively affected certain customers, suppliers and their labor force. For example, travel restrictions in connection with the pandemic have delayed inspections, deliveries and impacted some supply chain providers. The future financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time as its impact depends on future developments, which are highly uncertain and cannot be predicted.
The directives imposed by federal, state and local governments as a result of the COVID-19 pandemic did not impair our ability to maintain operations during the first nine months of fiscal 2021 as the Company was designated an essential service. Our estimates at the end of the first nine months of fiscal 2021 assumed no material impact from the disruptions caused by COVID-19.
NOTE 3 –- ACCOUNTING STANDARDS UPDATE
New Accounting Standards Recently Adopted
On April 1, 2020 we adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820 by removing, modifying or adding certain disclosures. The amendments for changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are applied prospectively. All other amendments are applied retrospectively to all periods presented upon their effective date. The adoption did not have a significant impact on our consolidated financial statement disclosures.
Issued Standards Not Yet Adopted
In December, 2019, the Financial Accounting Standards Board (FASB)(“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, expected to reduce cost and complexity related to the accounting for income taxes. This ASU removes specific exceptions to the general principles in Topic 740 under U.S. GAAP and removes the limitation on the tax benefit recognized on pre-tax losses in interim periods. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The
7
Company plans to adopt the standardadopted ASU 2019-12 on April 1, 2021 and is currently evaluating the amendments in this update to determine thedid not have a significant impact it may have on itsour financial statements and disclosures.
NOTE 4 - REVENUE
The Company generates its revenuesrevenue primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can range from be between three to and thirty-six months. The Company invoices and receives related payments based upon performance progress not less frequently than monthly.
Revenue is recognized over-time or at a point-in-time given the terms and conditions of the related contracts. The Company utilizes an inputs methodology based on estimated labor hours to measure performance progress. This model best depicts the transfer of control to the customer.
The Company’s contract portfolio is comprised of fixed-price contracts and providesprovide for product type sales only. The following table presents net sales on a disaggregated basis by market and contract type:
Net Sales by market | Defense | Industrial | Totals | |||||||||
Three months ended December 31, 2020 | $ | 2,885,753 | $ | 683,965 | $ | 3,569,718 | ||||||
Three months ended December 31, 2019 | $ | 3,200,671 | $ | 466,605 | $ | 3,667,276 | ||||||
Nine months ended December 31, 2020 | $ | 9,314,846 | $ | 2,251,330 | $ | 11,566,176 | ||||||
Nine months ended December 31, 2019 | $ | 9,725,635 | $ | 1,349,985 | $ | 11,075,620 | ||||||
Net Sales by contract type | Over-time | Point-in-time | Totals | |||||||||
Three months ended December 31, 2020 | $ | 3,141,416 | $ | 428,302 | $ | 3,569,718 | ||||||
Three months ended December 31, 2019 | $ | 3,439,367 | $ | 227,909 | $ | 3,667,276 | ||||||
Nine months ended December 31, 2020 | $ | 9,251,284 | $ | 2,314,892 | $ | 11,566,176 | ||||||
Nine months ended December 31, 2019 | $ | 9,104,395 | $ | 1,971,225 | $ | 11,075,620 |
| | | | | | | | | |
Net Sales by market |
| Defense |
| Industrial |
| Totals | |||
Three months ended June 30, 2021 | | $ | 3,103,132 | | $ | 309,097 | | $ | 3,412,229 |
Three months ended June 30, 2020 | | $ | 3,203,590 | | $ | 78,935 | | $ | 3,282,525 |
| | | | | | | | | |
Net Sales by contract type |
| Over-time |
| Point-in-time |
| Totals | |||
Three months ended June 30, 2021 | | $ | 3,122,649 | | $ | 289,580 | | $ | 3,412,229 |
Three months ended June 30, 2020 | | $ | 3,027,897 | | $ | 254,628 | | $ | 3,282,525 |
As of December 31, 2020,June 30, 2021, the Company had $18.4$17.6 million of remaining performance obligations, of which $13.0 million were less than 50% complete. The Company expects to recognize all of its remaining performance obligations as revenue over-time or at a point-in-time duringwithin the next thirty-six months.
We have beenare dependent in each year on a small number of customers who generate a significant portion of our business, and these customers can change from year to year. The following table presentssets forth revenues from customers who accounted for more than 10% or more of our net sales for the following periods:three months ended:
Three months ended December 31, 2020 | Three months ended December 31, 2019 | Nine months ended December 31, 2020 | Nine months ended December 31, 2019 | |||||||||||||||||||||||||||||
Customer | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||
A | $ | 398,011 | 11 | % | $ | 404,062 | 11 | % | $ | 2,106,998 | 18 | % | $ | 1,790,311 | 16 | % | ||||||||||||||||
B | $ | 530,583 | 15 | % | $ | * | * | % | $ | 1,871,256 | 16 | % | $ | * | * | % | ||||||||||||||||
C | $ | 609,114 | 17 | % | $ | 1,215,737 | 33 | % | $ | 1,679,814 | 15 | % | $ | 2,320,485 | 21 | % | ||||||||||||||||
D | $ | 682,337 | 19 | % | $ | 727,084 | 20 | % | $ | 1,631,010 | 14 | % | $ | 1,825,213 | 16 | % | ||||||||||||||||
E | $ | 550,096 | 15 | % | $ | * | * | % | $ | * | * | % | $ | * | * | % | ||||||||||||||||
F | $ | * | * | % | $ | * | * | % | $ | * | * | % | $ | 1,136,146 | 10 | % | ||||||||||||||||
G | $ | * | * | % | $ | * | * | % | $ | * | * | % | $ | 1,148,242 | 10 | % |
| | | | | | | | | | | |
| | June 30, 2021 | | June 30, 2020 | | ||||||
Customer |
| Amount |
| Percent |
| Amount |
| Percent |
| ||
A | | $ | 1,303,772 | | 38 | % | $ | 570,780 | | 17 | % |
B | | $ | * |
| * | % | $ | 1,014,655 |
| 31 | % |
C | | $ | 938,856 |
| 28 | % | $ | 654,187 |
| 20 | % |
D | | $ | * |
| * | % | $ | 390,512 |
| 12 | % |
*Less than 10% of total
OnIn our condensed consolidated balance sheet, contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In fiscalFor the three months ended June 30, 2021, we recognized revenue of $0.8less than $0.1 million related to our contract liabilities at March 31, 2020. At December 31, 2020 contractApril 1, 2021. Contract assets consisted of the following:following at:
Contract assets | Unbilled | Less:Progress payments | Total | |||||||||
December 31, 2020 | $ | 10,074,902 | $ | 4,760,249 | $ | 5,314,653 | ||||||
March 31, 2020 | $ | 10,635,588 | $ | 6,130,967 | $ | 4,504,621 |
| | | | | | | | | |
| | | | Progress | | | |||
|
| Unbilled |
| payments |
| Total | |||
June 30, 2021 | | $ | 8,638,677 | | $ | (3,822,869) | | $ | 4,815,808 |
March 31, 2021 | | $ | 11,392,948 | | $ | (5,860,540) | | $ | 5,532,408 |
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NOTE 5 - INCOME TAXES
We accountThe Company accounts for income taxes under the provisions of FASB ASC 740, Income Taxes.Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. The income tax provision for income taxes was $26,580 for the ninethree months ended December 31, 2020 was $60,573,June 30, 2021 and the income tax benefit was $37,360 for the ninethree months ended December 31, 2019 was $115,092.June 30, 2020. The Company's estimatedCompany’s effective tax rate for the ninethree months ended December 31, 2020June 30, 2021 was 36.3%.
approximately 2%, due to the nontaxable PPP loan forgiveness item of $1.3 million disclosed in the condensed consolidated statement of operations.
The valuation allowance on deferred tax assets was approximately $1.7 million at December 31, 2020.June 30, 2021. We believe that it is more likely than not that the benefit from certain state and foreign net operating losses, or NOL, carryforwards and other deferred tax assets will not be realized. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.
NOTE 6 - EARNINGS PER SHARE
Basic earnings per shareEPS is computed by dividing reported earnings available to stockholders by the weighted average number of shares outstanding. Diluted earnings per shareEPS 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 as required under FASB ASC 260.for the three months ended:
Three months ended December 31, 2020 | Three months ended December 31, 2019 | Nine months ended December 31, 2020 | Nine months ended December 31, 2019 | |||||||||||||
Basic EPS: | ||||||||||||||||
Net (loss) income | $ | (48,172 | ) | $ | (319,770 | ) | $ | 106,358 | $ | (390,014 | ) | |||||
Weighted average shares | 29,498,662 | 29,254,594 | 29,430,206 | 29,254,230 | ||||||||||||
Basic (loss) income per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) | |||||
Diluted EPS: | ||||||||||||||||
Net (loss) income | $ | (48,172 | ) | $ | (319,770 | ) | $ | 106,358 | $ | (390,014 | ) | |||||
Dilutive effect of stock options | -- | -- | 1,591,178 | -- | ||||||||||||
Diluted weighted average shares | 29,498,662 | 29,254,594 | 31,021,384 | 29,254,230 | ||||||||||||
Diluted (loss) income per share | $ | (0.00 | ) | $ | (0.01 | ) | $ | 0.00 | $ | (0.01 | ) |
| | | | | | |
|
| June 30, 2021 |
| June 30, 2020 | ||
Basic EPS | | |
| | |
|
Net income (loss) | | $ | 1,371,092 | | $ | (116,234) |
Weighted average shares | |
| 29,498,662 | |
| 29,359,921 |
Net income (loss) per share | | $ | 0.05 | | $ | (0.01) |
Diluted EPS | |
| | |
| |
Net income (loss) | | $ | 1,371,092 | | $ | (116,234) |
Dilutive effect of stock options | |
| 1,555,448 | |
| — |
Weighted average shares | |
| 31,054,110 | |
| 29,359,921 |
Net income (loss) per share | | $ | 0.04 | | $ | (0.01) |
All potential common stock equivalents that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share.EPS. For the three months ended December 31,June 30, 2020, there were 2,814,0002,816,000 of potentially anti-dilutive stock options, none of which were included in the EPS calculations above. For the nine months ended December 31, 2020, there were 94,000 of common stock equivalents that were out-of-the-money and not included in the above earnings per share calculations. For the three and nine months ended December 31, 2019, there were 2,967,000 of potentially anti-dilutive stock options, none of which were included in the EPS calculations above.
NOTE 7 -– STOCK-BASED COMPENSATION
Our board of directors, upon the recommendation of the compensation committee of our board of directors, approved the 2016 TechPrecision Equity Incentive Plan, or the 2016 Plan, on November 10, 2016. Our stockholders approved the 2016 Plan at the Company’s Annual Meeting of Stockholders on December 8, 2016. The 2016 Plan succeeds the 2006 Plan and applies to awards granted after the 2016 Plan’s adoption by the Company’s stockholders. We have designed the 2016 Plan to reflect our commitment to having best practices in both compensation and corporate governance. The 2016 Plan provides for a share reserve of 5,000,000 shares of common stock.
The 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates. 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 5,000,000
9
shares (inclusive of awards issued under the 2006 Long-Term Incentive Plan, or the 2006 Plan, that remained outstanding as of the effective date of the 2016 Plan). Shares of our common stock subject to awards that expire unexercised or are otherwise forfeited shall again be available for awards under the 2016 Plan.
At December 31, 2020June 30, 2021, there were 1,376,0001,470,000 shares available for grant under the 2016 Plan. The following table summarizes information about stock option activity:options granted during the most recently completed periods:
Number Of | Weighted Average | Aggregate | Weighted | |||||||||||||||||||||||
Options | Exercise Price | Value | (in years) | |||||||||||||||||||||||
Outstanding at 3/31/2019 | 2,938,000 | $ | 0.416 | $ | 1,869,200 | 6.74 | ||||||||||||||||||||
| | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | Weighted | ||||||||||||||||
| | | | | | | | | | Average | ||||||||||||||||
| | | | Weighted | | Aggregate | | Remaining | ||||||||||||||||||
| | Number Of | | Average | | Intrinsic | | Contractual Life | ||||||||||||||||||
|
| Options |
| Exercise Price |
| Value |
| (in years) | ||||||||||||||||||
Outstanding at 3/31/2020 | | 2,916,000 | | $ | 0.415 | | $ | 2,546,800 | | 6.21 | ||||||||||||||||
Exercised | (20,000 | ) | 0.360 | | (150,000) | | | 0.800 | | | | | | |||||||||||||
Canceled | (2,000 | ) |
| (47,000) | | | | |
| | | | ||||||||||||||
Outstanding at 3/31/2020 | 2,916,000 | $ | 0.415 | $ | 2,546,800 | 6.21 | ||||||||||||||||||||
Outstanding at 3/31/2021 | | 2,719,000 | | $ | 0.372 | | $ | 2,476,300 | | 5.62 | ||||||||||||||||
Canceled | (2,000 | ) | | (49,000) | | | | | | | | | ||||||||||||||
Exercised | (150,000 | ) | 0.800 | |||||||||||||||||||||||
Outstanding at 12/31/2020 | 2,764,000 | $ | 0.393 | $ | 2,743,300 | 5.81 | ||||||||||||||||||||
Vested or expected to vest at 12/31/2020 | 2,764,000 | $ | 0.393 | $ | 2,743,300 | 5.81 | ||||||||||||||||||||
Exercisable and vested at 12/31/2020 | 2,764,000 | $ | 0.393 | $ | 2,743,300 | 5.81 | ||||||||||||||||||||
Vested or expected to vest at 6/30/2021 |
| 2,670,000 | | $ | 0.343 | | $ | 2,422,900 | | 5.39 | ||||||||||||||||
Exercisable and vested at 6/30/2021 | | 2,670,000 | | $ | 0.343 | | $ | 2,422,900 | | 5.39 |
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 thirdfirst quarter of fiscal 20212022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2020.June 30,2021. This amount changes based on the fair market value of the Company’s common stock.
At December 31, 2020,June 30,2021, there was no0 remaining unrecognized compensation cost related to stock options. The maximum contractual term is ten years for option grants. Other information relating to stock options outstanding at December 31, 2020June 30,2021 is as follows:
| | | | | | | | | | | | | ||||||||||||||||||||
| | | | Weighted | | | | | | | | | ||||||||||||||||||||
| | | | Average | | | | | | | | | ||||||||||||||||||||
| | | | Remaining | | Weighted | | | | Weighted | ||||||||||||||||||||||
| | Options | | Contractual | | Average | | Options | | Average | ||||||||||||||||||||||
Range of Exercise Prices: | Options | Weighted Contractual | Weighted | Options | Weighted |
| Outstanding |
| Term |
| Exercise Price |
| Exercisable |
| Exercise Price | |||||||||||||||||
$0.01-$1.00 | 2,670,000 | 5.87 | $ | 0.34 | 2,670,000 | $ | 0.34 | |||||||||||||||||||||||||
$1.01-$1.96 | 94,000 | 0.26 | $ | 1.84 | 94,000 | $ | 1.84 | |||||||||||||||||||||||||
$0.01‑$0.49 | | 1,270,000 | | 4.35 | | $ | 0.12 | | 1,270,000 | | $ | 0.12 | ||||||||||||||||||||
$0.50‑$0.99 |
| 1,400,000 |
| 5.90 | | $ | 0.55 |
| 1,400,000 | | $ | 0.55 | ||||||||||||||||||||
Totals | 2,764,000 | 2,764,000 |
| 2,670,000 |
| | |
| |
| 2,670,000 | |
| |
Restricted Stock Awards
On September 1, 2020 we granted a total of 100,000 shares of restricted stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $134,000 for service-based restricted stock was measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. The shares of restricted stock fully vest and cease to be subject to forfeiture on August 31, 2021, or twelve months following the grant date. Each grantee must be serving as a director on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee is not permitted to sell, transfer, pledge, assign or otherwise encumber the shares of restricted stock and if the grantee’s service with the Company terminates prior to the vesting date, the grantee’s restricted stock will be forfeited automatically. Total recognized compensation cost related to the restricted stock award was $44,667 for the ninethree months ended December 31, 2020.June 30, 2021 was $33,500. At December 31, 2020June 30, 2021 there was $89,333$22,333 of unrecognized compensation cost related to these restricted stock awards.
On March 16, 2020 we granted a total10
NOTE 8 - CONCENTRATION OF CREDIT RISK
We maintain bank account balances, which, at times, may exceed insured limits. We have not experienced any losses with these accounts and believe that we are not exposed to any significant credit risk on cash.
At December 31, 2020,June 30, 2021, there were trade accounts receivable balances outstanding from five3 customers comprising 93%75% of the total trade receivables balance. The following table sets forth information as to trade accounts receivable from customers who accounted for more than 10% of the totalour accounts receivable balance at:as of:
December 31, 2020 | March 31, 2020 | ||||||||||||||
Customer | Dollars | Percent | Dollars | Percent | |||||||||||
A | $ | 356,228 | 30 | % | $ | * | * | ||||||||
B | $ | 243,938 | 21 | % | $ | * | * | ||||||||
C | $ | 193,750 | 17 | % | $ | * | * | ||||||||
D | $ | * | * | $ | 365,636 | 37 | % | ||||||||
E | $ | 167,152 | 14 | % | $ | 254,637 | 26 | % | |||||||
F | $ | * | * | $ | 123,000 | 12 | % | ||||||||
G | $ | 123,909 | 11 | % | $ | * | * |
June 30, 2021 March 31, 2021 Customer Dollars Percent Dollars Percent A $ 503,250 44 % $ * * % B $ * * % $ 399,692 66 % C $ * * % $ 193,368 32 % D $ 222,982 19 % $ * * % E $ 135,300 12 % $ * * % * less than 10% of total *less
NOTE 9 - OTHER CURRENT ASSETS
December 31, 2020 | March 31, 2020 | |||||||||||||
| | | | | | | ||||||||
Other current assets included the following as of: |
| June 30, 2021 |
| March 31, 2021 | ||||||||||
Payments advanced to suppliers | $ | 31,268 | $ | 272,070 | | $ | 18,918 | | $ | 17,010 | ||||
Prepaid insurance | 358,029 | 250,073 |
| | 210,146 |
| | 312,669 | ||||||
Prepaid subscriptions | 22,057 | 14,440 |
| | 40,395 |
| | 25,967 | ||||||
Refundable AMT credits | 22,748 | 22,748 | ||||||||||||
Employee advances | -- | 18,173 |
| | 29,419 |
| | 16,526 | ||||||
Deposits | | | 72,400 | | | — | ||||||||
Other | 7,922 | 28,647 |
| | 4,552 |
| | 7,265 | ||||||
Total | $ | 442,024 | $ | 606,151 | | $ | 375,830 | | $ | 379,437 |
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT, NET
| | | | | | |
Property, plant and equipment, net included the following as of: |
| June 30, 2021 |
| March 31, 2021 | ||
Land | | $ | 110,113 | | $ | 110,113 |
Building and improvements | |
| 3,249,577 | |
| 3,249,577 |
Machinery equipment, furniture and fixtures | |
| 10,699,776 | |
| 10,695,578 |
Equipment under finance leases | |
| 45,663 | |
| 45,663 |
Total property, plant and equipment | |
| 14,105,129 | |
| 14,100,931 |
Less: accumulated depreciation | |
| (10,220,400 | ) |
| (10,037,722) |
Total property, plant and equipment, net | | $ | 3,884,729 | | $ | 4,063,209 |
NOTE 1011 - ACCRUED EXPENSES
December 31, 2020 | March 31, 2020 | |||||||||||||
| | | | | | | ||||||||
Accrued expenses included the following as of: |
| June 30, 2021 |
| March 31, 2021 | ||||||||||
Accrued compensation | | $ | 542,455 | | $ | 496,320 | ||||||||
Provision for claims settlement | $ | 495,000 | $ | 495,000 | | | — | | | 495,000 | ||||
Accrued compensation | 316,490 | 383,555 | ||||||||||||
Provision for contract losses | 110,115 | 285,480 |
| | 94,213 |
| | 164,164 | ||||||
Accrued professional fees | 244,703 | 279,657 |
| | 284,477 |
| | 213,213 | ||||||
Accrued project costs | 109,062 | 76,059 |
| | 95,675 |
| | 114,611 | ||||||
Other | 30,739 | 34,773 |
| | 49,851 |
| | 42,962 | ||||||
Total | $ | 1,306,109 | $ | 1,554,524 | | $ | 1,066,671 | | $ | 1,526,270 |
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
11
provision are recorded in cost of sales. Accrued project costs are estimates for certain project expenses during the reporting period.
NOTE 11 -12 – DEBT
Total debt included the following as of: | December 31, 2020 | March 31, 2020 | ||||||||||||
| | | | | | | ||||||||
Long-term debt included the following as of: |
| June 30, 2021 |
| March 31, 2021 | ||||||||||
Berkshire Term Loan at 5.21% interest, due December 2021 | $ | 2,491,835 | $ | 2,564,389 | | $ | 2,441,355 | | $ | 2,466,408 | ||||
Berkshire SBA PPP loan at 1% interest, due May 2022 | 1,317,100 | -- | |
| — | |
| 1,317,100 | ||||||
Finance lease obligations at 8% interest, due January 2022 | 13,662 | 22,460 | ||||||||||||
Obligations under finance lease | |
| 43,550 | |
| 45,663 | ||||||||
Total debt | $ | 3,822,597 | $ | 2,586,849 | | $ | 2,484,905 | | $ | 3,829,171 | ||||
Less: debt issue costs unamortized | $ | 16,485 | $ | 20,460 | | $ | 5,474 | | $ | 12,270 | ||||
Total debt, net | $ | 3,806,112 | $ | 2,566,389 | | $ | 2,479,431 | | $ | 3,816,901 | ||||
Less: Current portion of long-term debt | $ | 3,088,553 | $ | 109,829 | | $ | 2,449,979 | | $ | 2,474,963 | ||||
Total long-term debt, net | $ | 717,559 | $ | 2,456,560 | | $ | 29,452 | | $ | 1,341,938 |
Small Business Administration Loan
On May 8, 2020, the Company, through its wholly owned subsidiary Ranor, issued a promissory note, or the Note, evidencing an unsecured loan in the amount of $1,317,100 made to Ranor under the Paycheck Protection Program, or the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and is administered by the U.S. Small Business Administration, or the SBA. The loan to Ranor was made through Berkshire Bank.
Principal and accrued interest are payable monthly in equal installments commencing at a future date in calendar year 2021 and continuing through the maturity date, unless the Note is forgiven as described below. To be available for loan forgiveness, the Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligations that existed before February 15, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties and contains events of default and other conditions customary for a Note of this type. For example, the Note contains events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Berkshire Bank or breaching the terms of the loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or the SBA or Berkshire Bank filing suit and obtaining judgment against the Company and/or Ranor.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, certain group health care benefits and insurance premiums, and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.
On June 5, 2020, the PPP was amended to give borrowers more time to spend loan proceeds and still obtain loan forgiveness. The amendments extended the length of the covered period as defined in the CARES Act from eight to twenty-four weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week covered period. In addition, the amendments provide that if the borrower does not apply for forgiveness of a loan within ten months after the last day of the covered period, the PPP loan is no longer deferred and the borrower must begin paying principal and interest. As provided under the amendments, our first payment, if required, would not be due until September 11, 2021.
Berkshire Term Loan Facility
On December 21, 2016, TechPrecision, through Ranor, closed on a Loan Agreement, or the Berkshire Loan Agreement, with Berkshire Bank. Pursuant to the Berkshire Loan Agreement, Berkshire Bank made a term loan to Ranor in the amount of $2,850,000, or the Term Loan, and made available to Ranor a revolving line of credit in the amount of $1,000,000, underor the Revolver Loan, orand together with the Term Loan, the Berkshire Loans. The Berkshire Loans are secured by a first lien on all personal and real property of Ranor.
Payments on the Term Loan began on January 20, 2017 and will be made in 60 monthly installments of $19,260 each, inclusive of interest at a fixed rate of 5.21% per annum, with all outstanding principal and accrued interest due and payable on the maturity date. A balloon principal payment of approximately $2,400,000 is due on December 20, 2021 under the Term Loan. A prepayment penalty will apply during the loan term but will not apply if a prepayment is made from either casualty loss insurance proceeds or a condemnation award applicable to any collateral or if a full prepayment is made during the 45-day period immediately preceding the maturity date. Advances under the Revolver Loan were originally subject to a borrowing base equal to the lesser of (A) $1,000,000 and (B) the sum of (i) 80% of eligible accounts receivable, and (ii) the lesser of (a) 25% of eligible raw material inventory and (b) $250,000.
On December 23, 2019, TechPrecision, through Ranor, entered into a Third Modification to Loan Agreement, or the Third Modification, and an Amended and Restated Promissory Note with Berkshire Bank. Under the Third Modification, Ranor and Berkshire agreed to increase the maximum principal amount available under the Revolver Loan from $1,000,000 to $3,000,000. Advances under the Revolver Loan are now subject to a borrowing base equal to the lesser of (a) $3,000,000 or (b) the sum of (i) 80% of eligible accounts receivable, plus (ii) the lesser of (x) 25% of Eligible Raw Material Inventory, and (y) $250,000, plus (iii) 50% of the Appraised Value of the Eligible Equipment. The loan agreement is available for refinancing existing indebtedness and for working capital and general corporate purposes. Additionally, the parties agreed to lower the interest rate on advances made under the Revolver Loan at a variable rate equal to the one-month LIBOR plus 225 basis points. The Third Modification contains customary LIBOR replacement provisions.
The Company pays, as consideration for the bank’s commitment to make advances under the Revolver Loan, a nonrefundable commitment fee equal to 0.25% per annum on the average daily difference between the amount of $3,000,000 and the aggregate amount of all advances made under the Revolver Loan as of each quarterly period. The Third Modification also excludes the balance of the Revolver Loan from the Loan-to-Value Ratio covenant calculations.
On December 18, 2020, TechPrecision, through Ranor, entered into a Fourth Modification to Loan Agreement and First Modification and Allonge to Amended and Restated Promissory Note, or the Fourth Modification, with Berkshire Bank. The Modification amends and modifies the Berkshire Loan Agreement. The Fourth Modification also amends the Amended and Restated Promissory Note dated December 23, 2019 made by Ranor in favor of Berkshire in the stated principal amount of $3,000,000. As of the date of the Fourth Modification, there was approximately $2.5 million in remaining principal outstanding under the Term Loan and nowere 0 amounts outstanding under the Revolver Loan.
Under the Fourth Modification, Ranor and Berkshire agreed to revise the minimum interest rate payable on the Revolver Loan. Under the promissory note for the Revolver Loan, the Company can elect to pay interest at an adjusted LIBOR-basedLIBOR-
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based rate or an Adjusted Prime Rate. Under the Fourth Modification, the minimum adjusted LIBOR-based rate is 2.75% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The maturity date of the Revolver Loan was also extended to December 20, 2022. All other material terms of the Berkshire Loan Agreement and the promissory note for the Revolver Loan were unchanged.
The Company borrowed $1.0 millionThere were 0 interest payments and no advances made under the Revolver Loan on April 3, 2020 and repaid principal of $1.0 million onduring the three months ended June 30, 2020.2021. Unused borrowing capacity at June 30, 2021 and March 31, 2021 was $3.0 and $2.7 million, respectively. There were no0 borrowed amounts outstanding under the Revolver Loan at December 31, 2020June 30, 2021 and March 31, 2020. Interest payments on advances made2021.
The Berkshire Loans may be accelerated upon the occurrence of an “Event of Default” (as defined in the Berkshire Loan Agreement). Events of Default include (i) the failure to pay any monthly installment payment before the tenth day following the due date of such payment; (ii) the failure of Ranor or TechPrecision to observe, perform or pay any obligations under the RevolverBerkshire Loan duringAgreement or any other obligation to Berkshire; (iii) the nine months endedfailure of Ranor or TechPrecision to pay any indebtedness in excess of $100,000 (other than the Berkshire Loans) when due; (iv) any representation or warranty of Ranor or TechPrecision in the Berkshire Loan Agreement and related documents, or the Loan Documents, being proven to have been incorrect, in any material respect, when made; (v) the failure of Ranor to discharge any attachment, levy or distraint on its property; (vi) any default by Ranor or TechPrecision under any of the collateral security documents executed in connection with the Berkshire Loan Agreement past any applicable grace period; (vii) the failure of Ranor or TechPrecision to file or pay taxes when due, unless such taxes are being contested in a manner permitted under the Loan Documents; (viii) a change in ownership or control of Ranor or change in management of Ranor where either the chief executive officer or chief financial officer as of December 21, 2016 is replaced without Berkshire Bank’s prior consent; (ix) Ranor or TechPrecision ceasing to do business as a going concern, making an assignment for the benefit of creditors, or commencing a bankruptcy or other similar insolvency proceeding; and (x) the entry of a judgment against Ranor or TechPrecision in excess of $150,000. Some of the Events of Default are subject to certain cure periods. Subject to the lapse of any applicable cure period, a default under the Berkshire Loans could cause the acceleration of all outstanding obligations under the Berkshire Loans.
Pursuant to the Berkshire Loan Agreement, the Company covenants to cause its balance sheet leverage to be less than or equal to 2.50 to 1.00 for the fiscal year ending March 31, 2020 were $6,664 at a weighted average interest rate of 2.67%. Unused borrowing capacity at December 31, 2020 was $3.0 million.
2019 and each fiscal year end thereafter. The Berkshire Loan Agreement also contains a covenant whereby the Company is required to maintain a debt service coverage ratio, or DSCR, of at least 1.2 to 1.0 during the term of the Berkshire Loans. The DSCR is measured at the end of each fiscal quarter of the Company. The Company was in compliance with all of the financial covenants at December 31, 2020 and March 31, 2020.
The Berkshire Loan Agreement also contains covenants to cause its balance sheet leverage to be less than or equal to 2.50 to 1.00 for each fiscal year end, and requirean additional covenant whereby Ranor is required to maintain a loan-to-value ratio of not greater than 0.75 to 1.00, to be measured by appraisal not more frequently than one time during each 365-day period.period, and annual capital expenditures cannot exceed $1,500,000. The Company was in compliance with all of the financial covenants at June 30, 2021 and March 31, 2021.
Unamortized debt issue costs at June 30, 2021 and March 31, 2021 were $17,448 and $26,272, respectively.
Finance LeaseCollateral securing the above obligations comprises all personal and real property of TechPrecision and Ranor, including cash, accounts receivable, inventories, equipment, and financial assets.
See Note 12 for information regarding our obligations under the finance lease.
Fair Value Measurements
We account for fair value measurements in accordance with ASC Topic 820, Fair Value Measurement, which defines fair value and establishes a framework to measure fair value and the related disclosures about fair value. The carrying value of short and long-term borrowings approximates their fair value at December 31, 2020 and March 31, 2020. The fair value of the long-term debt was calculated based on interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements.value. The Company’s short-term and long-term debt with Berkshire bank is all privately held with no public market for thethis debt and is considered to be Level 3 under the fair value hierarchy.
Small Business Administration Loan
On May 8, 2020, the Company, through its wholly owned subsidiary Ranor, issued a promissory note, or the Note, evidencing an unsecured loan in the amount of $1,317,100 made to Ranor under the Paycheck Protection Program, or the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act and is administered by the U.S. Small Business Administration, or the SBA. The loan to Ranor was made through Berkshire Bank.
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Principal and accrued interest were set to be payable monthly in equal installments commencing in September 2021 and continuing through the maturity date, unless the Note was forgiven as described below.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, certain group health care benefits and insurance premiums, and any payments of mortgage interest, rent, and utilities.
On June 5, 2020, the PPP was amended to give borrowers more time to spend loan proceeds and still obtain loan forgiveness. The amendments extended the length of the covered period as defined in the CARES Act from eight to twenty-four weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week covered period.
The Company applied for loan forgiveness with the SBA under the Paycheck Protection Program on March 26, 2021. On May 12, 2021, as authorized by Section 1106 of the CARES Act, the SBA remitted to Berkshire Bank, the lender of record, a payment of principal and interest in the amount of $1,317,100 and $13,207, respectively, for forgiveness of the Company’s Paycheck Protection Program (PPP) loan. The funds credited to the bank paid this loan off in full. Loan forgiveness is recorded as a gain under other income and expense in the condensed consolidated statement of operations.
Finance Lease
We leased certain office equipment during fiscal 2021 under an old finance lease that was cancelled in March 2021. We entered into a new finance lease on March 31, 2021 in the amount of $45,663 for certain office equipment. The lease term is for 60 months, bears interest at 3.2% and requires monthly payments of principal and interest of $825. The amount of the lease recorded as a right-of-use asset in property, plant and equipment was $45,663 as of March 31, 2021.
See Note 13 for more information regarding our obligations under the finance lease.
NOTE 1213 – LEASES
Leases that are economically similar to the purchase of an asset are classified as finance leases. The leased, or right-of-use assets in finance lease arrangements are reported in net property, plant and equipment on our condensed consolidated balance sheet. Right-of-useThe following table lists our right-of-use assets and liabilities on our condensed consolidated balance sheet at December 31, 2020 were:at:
| | | | | | | ||||
|
| June 30, 2021 |
| March 31, 2021 | ||||||
Finance lease: | December 31, 2020 | | | | | | | |||
Property, plant and equipment | $ | 54,376 | | $ | 45,663 | | $ | 45,663 | ||
Accumulated depreciation | 43,501 | |
| (2,283) | |
| — | |||
Net property, plant and equipment | $ | 10,875 | | $ | 43,380 | | $ | 45,663 | ||
Current portion of long-term debt | $ | 12,569 | | $ | 8,624 | | $ | 8,555 | ||
Long-term debt | $ | 1,093 | | $ | 34,926 | | $ | 37,108 | ||
Total finance lease liabilities | $ | 13,662 | | $ | 43,550 | | $ | 45,663 |
In December 2019, we signed a one-year operating lease for office space which expired in December 2020 and was amortized on a straight line basis. Since the expiration of the one-year term of the lease, we have continued to lease this office
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space on a month-to-month basis. Other supplemental information regarding our leases are contained in the following tables:
Components of lease expense for the period ended: | December 31, 2020 | |||||||||
| | | | | | | ||||
Components of lease expense for the three months ended: |
| June 30, 2021 |
| June 30, 2020 | ||||||
Operating lease amortization | $ | 2,878 | | $ | 1,234 | | $ | 949 | ||
Finance lease amortization | $ | 8,156 | | $ | 2,283 | | $ | 2,719 | ||
Finance lease interest | $ | 1,102 | | $ | 362 | | $ | 2,674 |
| | | | | | |
Weighted average lease term and discount rate at: |
| June 30, 2021 | |
| June 30, 2020 | |
Lease term (years) |
| 5.00 | |
| 1.75 | |
Lease rate |
| 3.2 | % |
| 8.0 | % |
Supplemental cash flow information related to leases for the period ended: | December 31, 2020 | |||||||||
| | | | | | | ||||
Supplemental cash flow information related to leases for the three months ended: |
| June 30, 2021 |
| June 30, 2020 | ||||||
Cash used in operating activities | $ | 2,878 | | $ | 1,596 | | $ | 949 | ||
Cash used in financing activities | $ | 8,798 | | $ | 2,113 | | $ | 2,875 |
NOTE 1314 - COMMITMENTS
Retirement Benefits
Ranor has a defined contribution and savings plan that covers substantially all Ranor employees who have completed 90 days of service. Ranor retains the option to match employee contributions. The Company contributed $21,897$21,388 and $64,167$20,725 for the three and nine months ended December 31, 2020.June 30, 2021 and 2020, respectively.
Provision for claims settlement
On March 16, 2020, the Company reached an agreement to settle all outstanding claims for $495,000 related to a civil action brought by former employees for past wages claimed under a paid time-off program. The claim is to be paid within sixty days following Court approval of the settlement. Such approval has not yet occurred.
NOTE 14 –15 - SUBSEQUENT EVENTS
Securities Purchase Agreement
OnAs previously disclosed, on October 16, 2020, the Company entered into a stock purchase agreement or(as subsequently amended, the SPA,SPA) with Stadco New Acquisition, LLC, a wholly owned subsidiary of the Company, or the Acquisition Sub, Stadco,STADCO, Stadco Acquisition, LLC, or the Target,Holdco, and each stockholder of Target.Holdco. The SPA provides for the Company, through Acquisition Sub, to acquire all of the issued and outstanding capital stock of StadcoSTADCO from Target. Stadco,Holdco. STADCO, the operating subsidiary of Target,Holdco, is a California corporation in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, research and commercial customers. As consideration for the acquisition of all of Target’s common stock, the Company, on behalf of Acquisition Sub, will issue 1,000,000 shares of the Company’s common stock to Target. The Company, Stadco and Target are also working, through negotiation with creditors of Stadco and Target, to substantially reduce the approximately $14 million of Stadco liabilities that would otherwise be added to the consolidated balance of the combined company after closing of the acquisition. Reaching agreements with these creditors to the satisfaction of the Company is required for the closing of the deal to occur. The Company expects that a percentage of these liabilities will be satisfied in part or full through the issuance of additional shares of the Company’s common stock.
The SPA contains customary representations and warranties of Stadco, Target, the Company and Acquisition Sub, and Stadco and Target have agreed to customary covenants relating to the conduct of their business during the interim period between the execution of the SPA and the closing of the acquisition. The consummation of the acquisition and the related transactions contemplated by the SPA is subject to certain customary conditions.
On February 2,July 23, 2021, the Company entered into an amendmentthe Third Amendment to Stock Purchase Agreement effective as of December 15, 2020, to the previously disclosed stock purchase agreement providing for the AcquisitionJuly 20, 2021, with Acquisition Sub, Stadco, TargetSTADCO, Holdco and each stockholderDouglas A. Paletz, as representative of Target.the STADCO stockholders of Holdco. Under the terms of SPA, if the Acquisition was not closed by DecemberJuly 31, 2020,2021, either the Company or Stadco could have terminated the SPA. The Third Amendment effected a change to this provision by extending until February 28,August 31, 2021 the date after which the parties may terminate if the Acquisition has not closed.
The Third Amendment also effected changes to the consideration payable for STADCO’s securities in the Acquisition. Previously, the SPA provided that the consideration payable by the Company for 100% of the shares of common stock of STADCO in the Acquisition would be 1,000,000 shares of the Company’s common stock. Under the Third Amendment, at the closing of the Acquisition, the Company will issue 666,666 shares of the Company’s common stock, or the Consideration Shares, as consideration for 100% of the shares of common stock of STADCO. However, if one year following the closing of the Acquisition, the Company’s stock price does not have an average closing price of at least $1.65 per share, then the Company must (i) issue additional shares to Holdco that have an aggregate market value equal to the difference between the market value of the Consideration Shares and the value of the Consideration Shares if they had traded at $1.65 per share, (ii) pay such difference in cash or (iii) undertake any combination of the foregoing. The Amendment also effected certain other minor changes to the SPA.
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Loan Purchase and Sale Agreement
On January 29, 2021, in connection with securities purchase agreement described above, Acquisition Sub entered into a Loan Purchase and Sale Agreement, effective January 26, 2021, with Sunflower Bank, N.A., and agreed to by Stadco, Target, and Stadco Mexico, Inc. Under the termsTable of the Loan Purchase Agreement, Acquisition Sub agreed to purchase certain indebtedness obligations of Stadco consisting of long-term indebtedness and revolving credit line indebtedness owed to Sunflower Bank. The current amount outstanding under these indebtedness obligations is approximately $9.8 million. In exchange, Acquisition Sub agreed to pay $2 million less than the aggregate amount of the indebtedness that is then outstanding on the date of the closing of the transactions contemplated under the Loan Purchase Agreement. The closing of the indebtedness purchase is subject to the closing of the acquisition contemplated under the SPA and will take place on or about February 15, 2021, with an optional grace period of up to an additional 15 days. In connection with the closing, Acquisition Sub will also guaranty repayment by Stadco to Sunflower Bank of any of the original approximately $1.5 million in principal indebtedness under Stadco’s Paycheck Protection Program Loan that is not forgiven under the terms of the Coronavirus Aid, Relief, and Economic Security Act. The Loan Purchase Agreement contains customary representations and warranties of each party, as well as mutual indemnification provisions.Contents
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Statement Regarding Forward Looking Disclosure
The following discussion of the results of our operations and financial condition should be read in conjunction with our condensed consolidated financial statements and the related notes, which appear elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may contain predictive or “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical fact contained in this quarterly report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions, as they relate to us, are intended to identify forward-looking statements.
These statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, the forward-looking statements due to numerous risks and uncertainties. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:
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the risk that the proposed acquisition of Stadco may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of Company’s common stock; |
the failure of either party to satisfy any of the conditions to the consummation of the proposed acquisition of Stadco and uncertainties as to the timing of the consummation of the proposed acquisition; |
the occurrence of any event, change or other circumstance that could give rise to the termination of the securities purchase agreement governing the proposed acquisition of Stadco; |
the effect of the announcement or pendency of the proposed acquisition of Stadco on the Company’s business relationships, operating results and business generally; |
those risks discussed in |
Any forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. Investors should evaluate any statements made by us in light of these important factors.
Overview
Contract Manufacturing
We offer a full range of services required to transform raw materials into precision finished products. Our manufacturing capabilities include: fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting) and final assembly.
All manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications. Ranor holds several certificates of authorization issued by the American Society of Mechanical Engineers and the National Board of Boiler and Pressure Vessel Inspectors. The standards used are specific to the customers’ needs, and our manufacturing operations are conducted in accordance with these standards.
Because our revenues are derived from the sale of goods manufactured pursuant to a contract, and we do not sell from inventory, it is necessary for us to constantly seek new contracts. There may be a time lag between our completion of one contract and commencement of work on another contract. During such periods, we may continue to incur overhead expense but with lower revenue resulting in lower operating margins. Furthermore, changes in either the scope of an existing contract or related delivery schedules may impact the revenue we receive under the contract and the allocation of manpower. Although we provide manufacturing services for large governmental programs, we usually do not work directly for the government or its agencies. Rather, we perform our services for large governmental contractors. Our business is dependent in part on the continuation of governmental programs whichthat 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.
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Financial Results
Our results of operations are affected by a number of external factors including the availability of raw materials, commodity prices (particularly steel), macroeconomic factors, including the availability of capital that may be needed by our customers, and political, regulatory and legal conditions in the United States and in foreign markets. Generally, our projects are made up of short-term contracts with a production timeline that can range from three to as much as thirty-six months. Units manufactured under the majority of our customer contracts are delivered on time and with a positive gross margin. Our results of operations for any specific period are also affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress fulfilling obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog.
If revenue for a particular quarter is below our expectations, we may not be able to proportionally reduce operating expenses for that quarter. Therefore, a revenue shortfall would have a disproportionate effect on our operating results for that quarter. We have reported operating losses in four of the last seven quarters. In Fiscal 2020 we reported a loss from operations of $0.1 million, due primarily to an increase in cost of sales for losses on certain customer projects. Until we complete and deliver the final units from these projects, they will continue to dampen gross margin in future quarterly periods.
For the ninethree months ended December 31, 2020, ourJune 30, 2021, we recorded net sales and net income were $11.6of $3.4 million and $0.1$1.4 million, respectively, compared with net sales of $11.1$3.3 million and net loss of $0.4$0.1 million, for the ninethree months ended December 31, 2019.June 30, 2020. Our gross margin for the ninethree months ended December 31, 2020 and 2019June 30, 2021 was 21.9% and 16.6%, respectively. We used $0.3 million24.4% compared with gross margin of cash in operations21.2% for the ninethree months ended December 31, 2020 and had a cash balance of $1.3 million at December 31,June 30, 2020. Our sales order backlog at December 31, 2020 and March 31, 2020 was approximately $18.4 million and $16.8 million, respectively.
Acquisition of Stadco
We recently announced an agreement to purchase a company that manufactures precision parts for the defense and aerospace industries. Incremental costs incurred for due diligenceOn May 12, 2021, as a result of this agreement could impact earnings in future quarterly periods. Becauseauthorized by Section 1106 of the sizeCoronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the Small Business Administration, or the SBA, remitted to Berkshire Bank, the lender of this acquisition target relative to our business, following closing, we expect to report that our resultsrecord, a payment of operations, cash flowsprincipal and financial condition will differ materially from those reported to date. The acquisition agreement is subject to certain conditions, and may or may not be completed unless all of the conditions set forthinterest in the agreement are completed. Failure to successfully integrateamount of $1,317,100 and realize the expected benefits of such acquisitions or to implement our acquisition strategy, including successfully integrating acquired businesses, could have an adverse effect on our business, financial condition and results of operations.
COVID-19
At the end of March 2020, the outbreak of coronavirus (COVID-19) had spread worldwide as a pandemic. The full extent of the outbreak, related business and travel restrictions and changes to social behavior intended to reduce its spread remain uncertain and subject to change as the health crisis continues to evolve in the U.S. and abroad. The directives imposed by federal, state and local governments did not impair our ability to maintain operations during the first nine months of fiscal 2021 as the Company was designated an “Essential Service.” The pandemic has nevertheless negatively affected certain$13,207, respectively, for forgiveness of the Company’s customers, suppliers and labor force, and withPaycheck Protection Program loan or PPP loan. The funds credited to the changing conditionsbank paid this loan off in full. Loan forgiveness is recorded as a result of the COVID-19 outbreak, the impact on our operations and financial results for the remainder of calendar year 2021 remains uncertain.
We and our customers have been designated essential services as national critical infrastructure companies by the U.S. Department of Homeland Security. Additionally, we believe that the long term outlook for the defense industry remains positive as we continue to see meaningful opportunities in our defense sector, primarilygain in the nuclear submarine business for the next twelve months and beyond.condensed consolidated statement of operations.
Critical Accounting Policies
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, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. These estimates and assumptions require management'smanagement’s most difficult, subjective or complex judgments. Actual results may differvary under different assumptions or conditions.
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 20202021 Annual Report on Form 10-K. We consider the policies relating to revenue recognition to be a critical accounting policy.10-K. There have been no significant changes to our critical accounting policies during the ninethree months ended December 31, 2020.June 30, 2021.
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Accounting Pronouncements
New Accounting Standards
See Note 3, Accounting Standards Update, in the Notes to the condensed consolidated financial statements in “Item 1. Financial Statements” for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted.
guidance.
Key Performance Indicators
While we prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, we also utilize and present certain financial measures that are not based on or included in U.S. GAAP. We refer to these as Non-GAAP financial measures. Please see the section “EBITDA Non-GAAP financial measure” below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the most directly comparable U.S. GAAP financial measures.
Three Months Ended December 31,June 30, 2021 and 2020 and 2019
The following table sets forth information from our condensed consolidated statements of operations and comprehensive income (loss) income,, in dollars and as a percentage of revenue:
December 31, 2020 | December 31, 2019 | Changes | ||||||||||||||||||||||
(dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||
Net sales | $ | 3,569 | 100 | % | $ | 3,667 | 100 | % | $ | (98 | ) | (3 | )% | |||||||||||
Cost of sales | 2,864 | 80 | % | 3,353 | 91 | % | (489 | ) | (15 | )% | ||||||||||||||
Gross profit | 705 | 20 | % | 314 | 9 | % | 391 | 124 | % | |||||||||||||||
Selling, general and administrative | 716 | 20 | % | 663 | 18 | % | 53 | 8 | % | |||||||||||||||
Loss from operations | (11 | ) | - | % | (349 | ) | (9 | )% | 338 | 97 | % | |||||||||||||
Other expense, net | (50 | ) | (1 | )% | (69 | ) | (2 | )% | 19 | 28 | % | |||||||||||||
Loss before taxes | (61 | ) | (2 | )% | (418 | ) | (11 | )% | 357 | 85 | % | |||||||||||||
Income tax benefit | (13 | ) | (1 | )% | (98 | ) | (3 | )% | 85 | 87 | % | |||||||||||||
Net loss | $ | (48 | ) | (1 | )% | $ | (320 | ) | (8 | )% | $ | 272 | 85 | % |
| | | | | | | | | | | | | | | | |
| | June 30, 2021 | | June 30, 2020 | | Changes | | |||||||||
(dollars in thousands) |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent | | |||
Net sales |
| $ | 3,412 |
| 100 | % | $ | 3,283 |
| 100 | % | $ | 129 | | 4 | % |
Cost of sales | |
| 2,579 |
| 76 | % |
| 2,586 |
| 79 | % |
| (7) | | — | % |
Gross profit | |
| 833 |
| 24 | % |
| 697 |
| 21 | % |
| 136 | | 20 | % |
Selling, general and administrative | |
| 733 |
| 21 | % |
| 793 |
| 24 | % |
| (60) | | (8) | % |
Operating income (loss) | |
| 100 |
| 3 | % |
| (96) |
| (3) | % |
| 196 | | 204 | % |
Other income, net | |
| 11 |
| — | % |
| 1 |
| — | % |
| 10 | | nm | % |
Interest expense | |
| (30) |
| (1) | % |
| (58) |
| (2) | % |
| 28 | | 48 | % |
PPP loan forgiveness | |
| 1,317 |
| 39 | % |
| — |
| — | % |
| 1,317 | | nm | % |
Income (loss) before taxes | |
| 1,398 |
| 41 | % |
| (153) |
| (5) | % |
| 1,551 | | nm | % |
Income tax provision (benefit) | |
| 27 |
| 1 | % |
| (37) |
| (1) | % |
| 64 | | 173 | % |
Net income (loss) | | $ | 1,371 |
| 40 | % | $ | (116) |
| (4) | % | $ | 1,487 | | nm | % |
Net Sales
The Company records most of its revenue over time as it completes performance obligations. We measure progress for performance obligations satisfied over time using input methods (e.g., labor hours expended and time elapsed).
Net sales were $3.6 million for the three months ended December 31, 2020, or 3% lower when compared to net sales for the three months ended December 31, 2019 of $3.7 million. Net sales in our defense markets decreased by $0.3 million when compared to the three months ended December 31, 2019. However, our defense backlog remains strong as new orders for components continue to flow down from our prime defense contractors. Net sales to other commercial markets increased by $0.2 million when compared to the three months ended December 31, 2019, primarily on new projects for components built for a certain nuclear energy customer. We have experienced repeat business in these markets, but the order flow is uneven and difficult to forecast.
Cost of Sales and Gross Margin
Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Cost of sales for the three months ended December 31, 2020 were $0.5 million lower when compared to the three months ended December 31, 2019, primarily because of the absence of any significant contract losses. The fiscal 2020 third quarter included a higher loss provision for certain customer projects.
As a result, gross profit was $0.7 million for the three months ended December 31, 2020, or $0.4 million higher when compared to the three months ended December 31, 2019. Gross margin was 19.8% for the three months ended December 31, 2020 and 8.6% for the three months ended December 31, 2019.
We continue to solve learning-curve challenges on a limited number of projects in the manufacturing schedule which had an unfavorable financial impact in fiscal 2020. Progress notwithstanding, until we complete and deliver the final units from these projects, they could have an unfavorable impact on gross margin in future quarterly periods.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses for the three months ended December 31, 2020 increased by $54,172 compared to the three months ended December 31, 2019, due primarily to an increase in outside advisory services, which included expenses for the proposed Stadco acquisition.
Other Expense, net
Interest expense was lower for the three months ended December 31, 2020 when compared to the three months ended December 31, 2019, and should continue to be lower than the prior year, barring any additional borrowings for working capital purposes under our revolving credit facility, or any new credit facility to meet our changing capital resource needs. Debt issue costs increased as the Company began to amortize costs associated with increasing the borrowing limit under the Revolver loan with Berkshire bank and borrowings under the payroll protection program, or PPP. The following table reflects other income and expense, interest expense and amortization of debt issue costs for the three months ended:
December 31, 2020 | December 31, 2019 | $ Change | % Change | |||||||||||||
Other (expense) income, net | $ | (219 | ) | $ | 185 | $ | (404 | ) | (218 | )% | ||||||
Interest expense | $ | (36,391 | ) | $ | (58,817 | ) | $ | 22,426 | 38 | % | ||||||
Amortization of debt issue costs | $ | (14,014 | ) | $ | (10,511 | ) | $ | (3,503 | ) | (33 | )% |
Income Taxes
For the three months ended December 31, 2020 and December 31, 2019, we recorded a tax benefit of $13,369 and $97,734, respectively. The tax benefit was the result of an operating loss.
Net Loss
As a result of the foregoing, for the three months ended December 31, 2020, we recorded a net loss of $48,172, compared with a net loss of $319,770 for the three months ended December 31, 2019.
Nine Months Ended December 31, 2020 and 2019
The following table sets forth information from our condensed consolidated statements of operations and comprehensive (loss) income, in dollars and as a percentage of revenue:
December 31, 2020 | December 31, 2019 | Changes | ||||||||||||||||||||||
(dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||
Net sales | $ | 11,566 | 100 | % | $ | 11,075 | 100 | % | $ | 491 | 4 | % | ||||||||||||
Cost of sales | 9,035 | 78 | % | 9,238 | 83 | % | (203 | ) | (2 | )% | ||||||||||||||
Gross profit | 2,531 | 22 | % | 1,837 | 17 | % | 694 | 38 | % | |||||||||||||||
Selling, general and administrative | 2,206 | 19 | % | 2,145 | 19 | % | 61 | 3 | % | |||||||||||||||
Income (loss) from operations | 325 | 3 | % | (308 | ) | (3 | )% | 633 | 206 | % | ||||||||||||||
Other expense, net | (159 | ) | (1 | )% | (197 | ) | (2 | )% | 38 | 20 | % | |||||||||||||
Income (loss) before taxes | 166 | 2 | % | (505 | ) | (5 | )% | 671 | 133 | % | ||||||||||||||
Income tax expense (benefit) | 60 | 1 | % | (115 | ) | (1 | )% | 175 | 152 | % | ||||||||||||||
Net income (loss) | $ | 106 | 1 | % | $ | (390 | ) | (4 | )% | $ | 496 | 127 | % |
nm - not meaningful
Net Sales
The Company records most of its revenue over time as it completes performance obligations. We measure progress for performance obligations satisfied over time using input methods (e.g., labor hours expended and time elapsed).
Changes in net sales generally reflect a different product mix and project volume when comparing the current and prior year periods. Net sales were 4% higher$3.4 million for the ninethree months ended December 31, 2020June 30, 2021, or 4% higher when compared to net sales for the ninethree months ended December 31, 2019.June 30, 2020. For the ninethree months ended December 31, 2020,June 30, 2021, net sales in our defense markets decreased by $0.4$0.1 million or 3% when compared to the ninethree months ended December 31, 2019. However, ourJune 30, 2020. Our defense backlog remains strong as new orders for components, including the U.S Navy submarine programs, continue to flow down from our prime defense contractors. contractors as these submarine-building programs accelerate.
Net sales to other commercialindustrial markets increased by $0.9$0.2 million when compared to the ninethree months ended December 31, 2019 on projects completed for customers in the nuclear energy and medical markets.June 30, 2020, due primarily to a higher level of project volume. We have experienced repeat business in this sector, but the order flow can be uneven and difficult to forecast.
For the three months ended June 30, 2021, revenue recognized over time was $3.1 million, an increase of 3% when compared to the three months ended June 30, 2020. Fiscal 2022 first quarter revenue recognized over time was generated by a favorable project mix with profitable gross margins.
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Remaining performance obligations reflect future revenue that will be recorded in subsequent periods as projects in progress are completed. At June 30, 2021 the Company had a backlog of $17.6 million, compared with a backlog of $18.6 million at March 31, 2021.
Cost of Sales and Gross Margin
Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the ninethree months ended December 31, 2020 were $0.2June 30, 2021 was $2.6 million, slightly lower when compared to the ninethree months ended December 31, 2019, primarily onJune 30, 2020.
Project throughput was better for the absence of any significant contract losses. The fiscal 2020 nine month periodthree months ended June 30, 2021 than the same quarter a year ago. Decreases in labor costs and factory overhead, more than offset higher material costs for the three months ended June 30, 2021.
Gross margin was marked by new project startup activities24.2% for the three months ended June 30, 2021 and higher provisions21.2% for contract losses.
the three months ended June 30, 2020. Gross profit was $2.5$0.8 million for the ninethree months ended December 31, 2020,June 30, 2021, or 38%20% higher when compared to the ninethree months ended December 31, 2019. Gross margin was 21.9% forJune 30, 2020, the nine months ended December 31, 2020result of higher revenue and 16.6% for the nine months ended December 31, 2019.
lower cost of sales.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses for the ninethree months ended December 31, 2020 increasedJune 30, 2021 decreased by $60,684 as$60,754 due to lower compensation and benefit costs, and lower spending for outside advisory services. These decreases more than offset an increase in compensationtravel and office costs more than offset a decreaseas coronavirus travel restrictions began to subside in travel expenses when compared to the nine months ended December 31, 2019.
first quarter of fiscal 2022.
Other Expense, net
Interest expense was lower for the nine months ended December 31, 2020 when compared to the nine months ended December 31, 2019, and should continue to be lower than the prior year, barring any additional borrowings for working capital purposes under our revolving credit facility, or any new credit facility to meet our changing capital resource needs. Debt issue costs increased as we began to amortize costs associated with amendments to the existing Berkshire loan agreement bank and new borrowings under the payroll protection program, or PPP.
Other income for the nine months ended December 31, 2019 included proceeds from the sale of machinery and equipment of $16,000. The following table reflects other income, interest expense, and amortization of debt issue costs and other income, net for the ninethree months ended:
| | | | | | | | | | | | |
|
| June 30, 2021 |
| June 30, 2020 |
| $Change |
| % Change |
| |||
Other income, net | | $ | 10,390 | | $ | 652 | | $ | 9,738 |
| nm | |
Interest expense | | $ | (21,054) | | $ | (42,757) | | $ | 21,703 |
| 51 | % |
Amortization of debt issue costs | | $ | (8,824) | | $ | (15,141) | | $ | 6,317 |
| 42 | % |
nm – not meaningful
December 31, 2020 | December 31, 2019 | $ Change | % Change | |||||||||||||
Other income, net | $ | 1,237 | $ | 21,063 | $ | (19,826 | ) | (94 | )% | |||||||
Interest expense | $ | (114,786 | ) | $ | (187,167 | ) | $ | 72,381 | 39 | % | ||||||
Amortization of debt issue costs | $ | (45,099 | ) | $ | (31,280 | ) | $ | (13,819 | ) | (44 | )% |
Interest expense and amortized debt issue costs were lower for the three months ended June 30, 2021, due to lower levels of debt, when compared to the three months ended June 30, 2020. The interest expense line includes a reversal of accrued interest of $11,692 for the PPP loan, which was forgiven in May 2021. Also, the three months ended June 30, 2020 included $6,664 of interest expense for borrowings under the revolver loan. There were no amounts outstanding under the revolver loan during the three months ended June 30, 2021. Other income for the three months ended June 30, 2021 includes a return of $10,000 for a retainer fee previously paid for outside advisory fees in connection with a class action settlement in March 2021.
PPP Loan Forgiveness
On May 12, 2021, as authorized by Section 1106 of the CARES Act, the SBA remitted to Berkshire Bank, the lender of record, a payment of principal in the amount of $1,317,100, for forgiveness of the Company’s PPP loan. The funds credited to the PPP loan paid this loan off in full.
Income Taxes
For the ninethree months ended December 31, 2020June 30, 2021 we recorded a tax expenseprovision of $60,573 and$26,580, compared to a tax benefit of $115,092$37,360 for the ninethree months ended December 31, 2019. The tax benefit forJune 30, 2020. This resulted from our generation of net income during the ninethree months ended December 31, 2019 wasJune 30, 2021, compared to a net loss during the resultthree months ended June 30, 2020.
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Table of an operating loss.Contents
The valuation allowance on deferred tax assets at December 31, 2020 was approximately $1.7 million. We believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.
Net Income (Loss)
As a result of the foregoing, for the ninethree months ended December 31, 2020,June 30, 2021, we recorded net income of $0.1$1.4 million compared withto a net loss of $0.4$0.1 million for the ninethree months ended December 31, 2019.
June 30, 2020.
Liquidity and Capital Resources
Small Business Administration Loan
On May 8, 2020, the Company, through Ranor, issued a promissory note, or the Note, evidencing an unsecured loan in the amount of $1,317,100 made to Ranor under the Paycheck Protection Program, or the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and is administered by the U.S. Small Business Administration, or the SBA. The loan to Ranor was made through Berkshire Bank.
The Note provides for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are payable monthly in equal installments commencing on the date that is approximately six months after the date funds are first disbursed on the loan and continuing through the maturity date, unless the Note is forgiven as described below. To be available for loan forgiveness, the Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that existed before February 15, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties and contains events of default and other conditions customary for a Note of this type.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, certain group health care benefits and insurance premiums, and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to further requirements in any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.
On June 5, 2020, the PPP was amended to give borrowers more time to spend loan proceeds and still obtain loan forgiveness. The amendments extended the length of the covered period as defined in the CARES Act from eight to twenty-four weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week covered period. In addition, the amendments provide that if the borrower does not apply for forgiveness of a loan within ten months after the last day of the covered period, the PPP loan is no longer deferred and the borrower must begin paying principal and interest. As provided under the amendments, our first payment, if required, would not be due until September 11, 2021.
Berkshire Term Loan Facility
On December 21, 2016, TechPrecision, through Ranor, closed on a Loan Agreement with Berkshire Bank. Pursuant to the Berkshire Loan Agreement, Berkshire Bank made a term loan to Ranor in the amount of $2,850,000, and made available to Ranor a revolving line of credit of $1,000,000 under the Revolver Loan. The debt matures on December 20, 2021, with a balloon payment of approximately $2.4 million due under the terms of the Term Loan with Berkshire bank. We anticipate that we will be able to refinance that debt with Berkshire Bank.
On December 23, 2019, TechPrecision, through Ranor, entered into a Third Modification to Loan Agreement, and an Amended and Restated Promissory Note with Berkshire Bank. Under the Third Modification, Ranor and Berkshire agreed to increase the maximum principal amount available under the Revolver Loan from $1,000,000 to $3,000,000.
The Company borrowed $1.0 million under the Revolver Loan on April 3, 2020 and repaid that principal onAt June 30, 2020. There were no borrowed amounts outstanding under the Revolver Loan at December 31, 2020 and March 31, 2020. Interest-only payments on advances made under the Revolver Loan during the nine months ended December 31, 2020 totaled $6,664 at a weighted average interest rate of 2.67%.
On December 18, 2020, under the Fourth Modification, Ranor and Berkshire Bank agreed to revise the minimum interest rate payable on the Revolver Loan. Under the Line of Credit Note, the Company can elect to pay interest at an adjusted LIBOR-based rate or an Adjusted Prime Rate. Under the Fourth Modification, the minimum adjusted LIBOR-based rate is 2.75% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The maturity date of the Revolver Loan was also extended to December 20, 2022. All other material terms of the Loan Agreement and Line of Credit Note were unchanged. Unused borrowing capacity at December 31, 2020 was $3.0 million.
At December 31, 2020,2021, we had cash and cash equivalents of $1.3$2.2 million and working capital of $4.2$5.5 million. We believe our available cash plus cash expected to be provided by operations during fiscal 2021,2022, and borrowing capacity available under the Revolver Loanrevolver loan will be sufficient to fund our operations,expected capital expenditures for our business as it exists today and principal and interest payments under our debt obligations through the 12 months from the issuance date of our financial statements. However, following the closing of the potential acquisition of Stadco, or in connection therewith, we may need to reevaluateexpect our financing needs to increase in light of the significant changes we expect to the combined company’sCompany’s capital resource needs. As a result, we may decideexpect to seek new debt and/or equity financing.
There were no borrowed amounts outstanding under the revolver loan at June 30, 2021 and March 31, 2021. Unused borrowing capacity at June 30, 2021 was $3.0 million. The maturity date of the revolver loan is December 20, 2022.
The Company intends to refinance the term loan with Berkshire Bank. There is a balloon payment of $2.4 million due on December 20, 2021 under the term loan with Berkshire Bank. We expect to refinance this debt with the bank before the maturity date. Until then, the Company will continue to pay down principal and make interest payments in the ordinary course.
The table below presents selected liquidity and capital measures atfor the indicated dates:period ended:
| | | | | | | | | | ||||||||||||
|
| | |
| | |
| Change | |||||||||||||
(dollars in thousands) | December 31, 2020 | March 31, 2020 | Change Amount | | June 30, 2021 | | March 31, 2021 | | Amount | ||||||||||||
Cash and cash equivalents | $ | 1,255 | $ | 931 | $ | 324 | | $ | 2,236 | | $ | 2,131 | | $ | 105 | ||||||
Working capital | $ | 4,170 | $ | 5,595 | $ | (1,425 | ) | | $ | 5,501 | | $ | 5,202 | | $ | 299 | |||||
Total debt | $ | 3,823 | $ | 2,587 | $ | 1,236 | | $ | 2,485 | | $ | 3,829 | | $ | (1,344) | ||||||
Total stockholders’ equity | $ | 9,694 | $ | 9,469 | $ | 225 | | $ | 11,346 | | $ | 9,942 | | $ | 1,404 |
The following table summarizes the primary components of cash flows for the ninethree months ended:
| | | | | | | | | | ||||||||||||
|
| | |
| | |
| Change | |||||||||||||
(dollars in thousands) | December 31, 2020 | December 31, 2019 | Change Amount | | June 30, 2021 | | June 30, 2020 | | Amount | ||||||||||||
Cash flows provided by (used in): |
| |
|
| |
|
| |
| ||||||||||||
Operating activities | $ | (340 | ) | $ | 609 | $ | (949 | ) | | $ | 137 | | $ | (369) | | $ | 506 | ||||
Investing activities | (547 | ) | (35 | ) | (512 | ) | |
| (4) | |
| (42) | |
| 38 | ||||||
Financing activities | 1,211 | (642 | ) | 1,853 | |
| (27) | |
| 1,282 | |
| (1,309) | ||||||||
Net increase (decrease) in cash | $ | 324 | $ | (68 | ) | $ | 392 | ||||||||||||||
Net increase in cash and cash equivalents | | $ | 106 | | $ | 871 | | $ | (765) |
Operating activities
Our primary sources of cash are from accounts receivable collections, customer advance payments and project progress payments. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments progress payments and customer payments made after shipment of finished goods. Cash used inprovided by operations for the ninethree months ended December 31, 2020June 30, 2021 was $0.3$0.1 million compared with cash provided byused in operations of $0.6$0.4 million for the three months ended June 30, 2020. Cash outlays for the three months ended June 30, 2021 includes a payment of $0.5 million to plaintiffs for a court approved final class action settlement.
The first quarter of fiscal 2020.
We used2022 was marked by favorable project performance progress and delivery schedules which generated higher amounts of cash, in operations duringcompared to the same quarter of fiscal 2021. During our first nine monthsquarter of fiscal 2021 as accounts receivable and contract assets increased and contract liabilities decreased due to a changing production mix. We have we
21
encountered some delayed inspections, delayed deliveries, and disrupted supply chain, issues, due to travel restrictions in connection with the COVID-19 pandemic. The future financial impactIn addition, we expended more direct labor hours on low margin projects. All of these events resulted in a slower payment flow from customers during the COVID-19 pandemic cannot be reasonably estimated at this time as its impact depends on future developments, which are highly uncertain and cannot be predicted.first quarter of fiscal 2021.
Investing activities
We do not anticipate any additional expenditures forthat we will spend approximately $1.1 million in new factory machinery and equipment for Ranor during the last quarterremainder of fiscal 2021.2022. Net cash used in investing activities for purchases of property, plant and equipment in the ninethree months ended December 31,June 30, 2021 and 2020 was $4,198 and 2019 totaled $546,890 and $35,225,$41,768, respectively. The increase in
Financing activities
For the ninethree months ended December 31,June 30, 2021 and 2020, occurred because the Company purchased new robotic equipment during fiscal 2021.
Financing activities
we made paid down debt principal of $27,166 and $26,618 for our term debt and finance lease obligations.
On May 8, 2020 we borrowed $1.3 million under the CARES Act payroll protection program. On April 3, 2020 we borrowed $1.0 million under our RevolverPPP. This PPP loan then paid down $1.0 million in principalwas forgiven by the SBA on June 30, 2020.
For the nine months ended December 31, 2020 and 2019 we made monthly principal payments of $81,352 and $610,515 in connection with our term debt and finance lease obligations.
May 12, 2021.
All of the above activity resulted in a net increase in cash of $0.3 million for the nine months ended December 31, 2020 compared with a decrease in cash of $0.1 million for the ninethree months ended December 31, 2019.June 30, 2021 compared with a net increase in cash of $0.9 million for the three months ended June 30, 2020.
Small Business Administration PPP Loan
On May 8, 2020, the Company, through its wholly owned subsidiary Ranor, Inc., issued a promissory note evidencing an unsecured PPP loan in the amount of $1,317,100 made to Ranor under the CARES Act. The PPP loan to Ranor was made through Berkshire Bank.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs, certain group health care benefits and insurance premiums, and any payments of mortgage interest, rent, and utilities.
The Company applied for loan forgiveness with the SBA under the Paycheck Protection Program on March 26, 2021. On May 12, 2021, as authorized by Section 1106 of the CARES Act, the SBA remitted to Berkshire Bank, the lender of record, a payment of principal and interest in the amount of $1,317,100 and $13,207, respectively, for forgiveness of the Company’s PPP loan. The funds credited to the PPP loan paid this loan off in full. Loan forgiveness is recorded as a gain under other income and expense in the condensed consolidated statement of operations.
Off-Balance Sheet Arrangements
We do not currently have, and have not had, any off-balance sheet assets, liabilities or arrangements at December 31, 2020.
June 30, 2021.
EBITDA Non-GAAP Financial Measure
To complement our condensed consolidated statements of operations and comprehensive income (loss) income and condensed consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net income (loss) income is the financial measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to EBITDA. We believe EBITDA provides our board of directors, management and investors with a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We also believe that EBITDA is a measure frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, and is a measure contained in our debt covenants. However, while we consider EBITDA to be an important measure of operating performance, EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.
22
We define EBITDA as net income (loss) income plus interest, income taxes, depreciation and amortization. Net income was $1.4 million for the three months ended June 30, 2021, as compared to net loss of $0.1 million for the three months ended June 30, 2020. EBITDA, a non-GAAP financial measure, was $0.8$1.6 million for the ninethree months ended December 31, 2020,June 30, 2021, as compared to $0.3$0.1 million for the ninethree months ended December 31, 2019.June 30, 2020. The following table provides a reconciliation of EBITDA to net income (loss) income,, the most directly comparable GAAP measure reported in our condensed consolidated financial statements for the following periods:three months ended:
Three Months ended December 31, | Nine Months ended December 31, | ||||||||||||||||||||||||||||||||
| | | | | | | | | | ||||||||||||||||||||||||
|
| | |
| | |
| Change | |||||||||||||||||||||||||
(dollars in thousands) | 2020 | 2019 | Change | 2020 | 2019 | Change | | June 30, 2021 | | June 30, 2020 | | Amount | |||||||||||||||||||||
Net (loss) income | $ | (48 | ) | $ | (320 | ) | $ | 272 | $ | 106 | $ | (390 | ) | $ | 496 | ||||||||||||||||||
Income tax (benefit) expense | (13 | ) | (98 | ) | 85 | 61 | (115 | ) | 176 | ||||||||||||||||||||||||
Net income (loss) | | $ | 1,371 | | $ | (116) | | $ | 1,487 | ||||||||||||||||||||||||
Income tax provision (benefit) | |
| 27 | |
| (37) | |
| 64 | ||||||||||||||||||||||||
Interest expense (1) | 50 | 69 | (19 | ) | 160 | 218 | (58 | ) | |
| 30 | |
| 58 | |
| (28) | ||||||||||||||||
Depreciation and amortization | 182 | 168 | 14 | 521 | 548 | (27 | ) | ||||||||||||||||||||||||||
Depreciation | |
| 183 | |
| 169 | |
| 14 | ||||||||||||||||||||||||
EBITDA | $ | 171 | $ | (181 | ) | $ | 352 | $ | 848 | $ | 261 | $ | 587 | | $ | 1,611 | | $ | 74 | | $ | 1,537 |
(1) Includes amortization of debt issue costs.
Item 3.Quantitative and Qualitative Disclosure About Market Risk. |
As a smaller reporting company, we have elected not to provide the information required by this Item.
Item 4.Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures.
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and procedures that are designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and includes controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, an evaluation was carried out, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020,June 30, 2021, our disclosure controls and procedures were effective at a reasonable assurance level.
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
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relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
For the quarter ended December 31, 2020,June 30, 2021, 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 6.Exhibits.
Exhibit Index
Our ability to complete the acquisition of Stadco is subject to closing conditions, including the receipt of consents and approvals from third parties, which may impose conditions that could adversely affect us or cause the acquisition not to be completed.
Our acquisition of Stadco and its affiliates is subject to a number of closing conditions as specified in the stock purchase agreement entered into with Stadco and its holding company. These include, among others, the entry into arrangements with certain lenders of Stadco and its affiliates and the absence of governmental restraints or prohibitions preventing the consummation of the acquisition. No assurance can be given that the required consents and approvals will be obtained or that the closing conditions will be satisfied in a timely manner or at all. Any delay in completing the acquisition could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve. In addition, we can provide no assurance that these conditions will not result in the abandonment or delay of the acquisition. The occurrence of any of these events could have a material adverse effect on our results of operations, cash flows, financial condition and/or the trading price of our common stock.
We may not achieve the intended benefits of our acquisition of Stadco, and the acquisition may disrupt our current plans or operations.
We may not be able to successfully integrate Stadco’s business and assets or otherwise realize the expected benefits of the transaction, including anticipated annual operating cost and capital synergies to the extent currently anticipated, or at all. To realize these anticipated benefits, our business and Stadco’s business must be successfully combined, which is subject to our ability to consolidate operations, corporate cultures and systems and our ability to eliminate redundancies and costs. Difficulties in integrating Stadco into our operations may result in the combined company performing differently than expected, in operational challenges or in the failure to realize anticipated synergies and efficiencies in the expected time frame or at all. The integration of the two companies may result in material challenges, including the diversion of management’s attention from ongoing business concerns; retaining key management and other employees; retaining existing business and operational relationships, including customers and other counterparties, and attracting new business and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating geographically separate organizations; difficulties in the assimilation of employees and corporate cultures; unanticipated issues in integrating information technology, communications and other systems; as well as unforeseen expenses or delays associated with the acquisition. If we are not successful in integrating Stadco’s business and assets or otherwise fail to realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Stadco acquisition, our results of operations, cash flows and financial condition may be materially adversely affected.
Whether or not it is completed, the announcement and pendency of the acquisition of Stadco could cause disruptions in our business, which could have an adverse effect on our business and financial results.
Whether or not it is completed, the announcement and pendency of our acquisition of Stadco could cause disruptions in our business: our and Stadco’s current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect the ability to retain key employees; uncertainty regarding the completion of the acquisition may cause customers, suppliers, distributors, vendors, strategic partners or others to delay or defer entering into contracts, make other decisions or seek to change or cancel existing business relationships; and the attention of management may be directed toward the completion of the acquisition. If the acquisition is not completed, we will have incurred significant costs and diverted management resources, for which we will have received little or no benefit.
We are expected to incur substantial expenses related to the acquisition of Stadco and its affiliates and the integration of their business with ours.
We expect to incur substantial expenses in connection with the integration of our business with Stadco and its affiliates. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. In addition, our and Stadco’s businesses will continue to maintain a presence in Westminster, Massachusetts and Los Angeles, California, respectively. Some of these costs will be non-recurring expenses related to the acquisition itself, including legal and accounting costs and systems consolidation costs. We may also incur additional costs to attract, motivate or retain management personnel and other key employees. We have incurred and will continue to incur acquisition fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs.
Our stockholders may not realize a benefit from the acquisition of Stadco commensurate with the ownership dilution they will experience in connection with the transaction.
If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the acquisition of Stadco and its affiliates, our stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the acquisition.
The market price of our common stock following the acquisition of Stadco may decline as a result of the transaction.
The market price of our common stock may decline as a result of our acquisition of Stadco and its affiliates for a number of reasons, including if:
*Pursuant to Item 601(a)(5)
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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 12, 2021 | By: | |
/s/ Thomas Sammons | ||
Thomas Sammons | ||
Chief Financial Officer |
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