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, 2020September 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,November 12, 2021 was 29,498,662.34,287,450.
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 |
| | | | | | |
|
| September 30, |
| March 31, | ||
| | 2021 | | 2021 | ||
ASSETS | | | |
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 281,315 | | $ | 2,130,711 |
Accounts receivable | |
| 2,649,309 | |
| 608,059 |
Contract assets | |
| 9,306,862 | |
| 5,532,408 |
Raw materials | | | 926,524 | | | 503,636 |
Work-in-process | | | 766,007 | | | 767,520 |
Other current assets | |
| 611,648 | |
| 379,437 |
Total current assets | |
| 14,541,665 | |
| 9,921,771 |
Property, plant and equipment, net | |
| 12,306,401 | |
| 4,063,209 |
Right of use asset, net | | | 6,681,160 | | | — |
Deferred income taxes | |
| 1,986,297 | |
| 1,934,415 |
Goodwill | | | 1,174,429 | | | — |
Other noncurrent assets, net | |
| — | |
| 84,624 |
Total assets | | $ | 36,689,952 | | $ | 16,004,019 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | |
|
| |
|
|
Current liabilities: | |
|
| |
|
|
Accounts payable | | $ | 2,778,020 | | $ | 500,848 |
Accrued expenses | |
| 2,320,893 | |
| 1,526,270 |
Contract liabilities | |
| 1,113,920 | |
| 218,152 |
Current portion lease liability | | | 530,177 | | | — |
Current portion of long-term debt | |
| 3,790,525 | |
| 2,474,963 |
Total current liabilities | |
| 10,533,535 | |
| 4,720,233 |
Long-term debt, net | |
| 3,331,444 | |
| 1,341,938 |
Long-term lease liability | | | 6,168,642 | | | — |
Total liabilities | | | 20,033,621 | | | 6,062,171 |
Commitments and contingent liabilities (Note 14) | |
|
| |
|
|
Stockholders’ Equity: | |
|
| |
|
|
Common stock - par value $.0001 per share, 90,000,000 shares authorized, 34,267,450 and 29,498,662 shares issued and outstanding, at September 30, 2021 and March 31, 2021 | |
| 3,426 | |
| 2,949 |
Additional paid in capital | |
| 14,509,086 | |
| 8,944,660 |
Accumulated other comprehensive income | |
| 20,739 | |
| 21,838 |
Retained earnings | |
| 2,123,080 | |
| 972,401 |
Total stockholders’ equity | |
| 16,656,331 | |
| 9,941,848 |
Total liabilities and stockholders’ equity | | $ | 36,689,952 | | $ | 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 | | Six Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net sales | | $ | 4,797,410 | | $ | 4,713,933 | | $ | 8,209,639 | | $ | 7,996,458 |
Cost of sales | |
| 3,866,703 | |
| 3,585,073 | |
| 6,446,264 | |
| 6,170,584 |
Gross profit | |
| 930,707 | |
| 1,128,860 | |
| 1,763,375 | |
| 1,825,874 |
Selling, general and administrative | |
| 1,173,689 | |
| 696,016 | |
| 1,906,297 | |
| 1,489,378 |
Income (loss) from operations | |
| (242,982) | |
| 432,844 | |
| (142,922) | |
| 336,496 |
Other income | |
| 1,001 | |
| 804 | |
| 11,391 | |
| 1,456 |
Interest expense | |
| (56,894) | |
| (51,582) | |
| (86,772) | |
| (109,480) |
PPP loan forgiveness | | | — | | | — | | | 1,317,100 | | | — |
Total other (expense) income | |
| (55,893) | |
| (50,778) | |
| 1,241,719 | |
| (108,024) |
Income (loss) before income taxes | |
| (298,875) | |
| 382,066 | |
| 1,098,797 | |
| 228,472 |
Income tax expense (benefit) | |
| (78,462) | |
| 111,302 | |
| (51,882) | |
| 73,942 |
Net income (loss) | | $ | (220,413) | | $ | 270,764 | | $ | 1,150,679 | | $ | 154,530 |
Other comprehensive loss: | |
| | |
| | |
|
| |
| |
Foreign currency translation adjustments | | $ | (1,141) | | $ | (1,005) | | $ | (1,099) | | $ | (1,102) |
Other comprehensive loss | | $ | (1,141) | | $ | (1,005) | | $ | (1,099) | | $ | (1,102) |
Comprehensive income (loss) | | $ | (221,554) | | $ | 269,759 | | $ | 1,149,580 | | $ | 153,428 |
Net income (loss) per share basic | | $ | (0.01) | | $ | 0.01 | | $ | 0.04 | | $ | 0.01 |
Net income (loss) per share diluted | | $ | (0.01) | | $ | 0.01 | | $ | 0.04 | | $ | 0.01 |
Weighted average shares outstanding - basic | | | 31,359,941 | | | 29,431,629 | | | 30,424,216 | | | 29,395,791 |
Weighted average shares outstanding - diluted | | | 31,359,941 | | | 30,987,233 | | | 32,026,262 | | | 31,002,130 |
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 |
Stock-based compensation | | | | | | | | 57,417 | | | | | | | | | 57,417 |
Restricted stock award | | 100,000 | | | 10 | | | (10) | | | | | | | | | — |
Net income | | | | | | | | | | | | | | 270,764 | | | 270,764 |
Foreign 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 |
| | | | | | | | | | | | | | | | | |
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 |
Restricted stock award | | 100,000 | | | 10 | | | (10) | | | | | | | | | — |
Common stock issued for acquired business | | 1,466,061 | | | 147 | | | 2,268,853 | | | | | | | | | 2,269,000 |
Proceeds from sale of common stock, net | | 3,202,727 | | | 320 | | | 3,187,260 | | | | | | | | | 3,187,580 |
Issuance of warrants | | | | | | | | 46,256 | | | | | | | | | 46,256 |
Stock-based compensation | | | | | | | | 28,566 | | | | | | | | | 28,566 |
Net loss | | | | | | | | | | | �� | | | (220,413) | | | (220,413) |
Foreign currency translation adjustment | | | | | | | | | | | (1,141) | | | | | | (1,141) |
Balance 9/30/2021 | | 34,267,450 | | $ | 3,426 | | $ | 14,509,086 | | $ | 20,739 | | $ | 2,123,080 | | $ | 16,656,331 |
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 | $ | -- | $ | -- |
| | | | | | |
| | Six Months Ended September 30, | ||||
|
| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
| | |
|
Net income | | $ | 1,150,679 | | $ | 154,530 |
Adjustments to reconcile net income to net cash used in operating activities: | |
| | |
| |
Depreciation and amortization | |
| 515,804 | |
| 339,232 |
Amortization of debt issue costs | |
| 18,096 | |
| 31,086 |
Stock based compensation expense | |
| 62,066 | |
| 112,917 |
Change in contract loss provision | |
| (100,497) | |
| (49,553) |
Deferred income taxes | |
| (51,882) | |
| 73,942 |
PPP loan forgiveness | | | (1,317,100) | | | — |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | |
| (794,235) | |
| (388,317) |
Contract assets | |
| 56,153 | |
| (1,475,912) |
Inventories | | | 505,814 | | | 126,457 |
Other current assets | |
| 141,765 | |
| 320,847 |
Accounts payable | |
| (403,159) | |
| 25,308 |
Accrued expenses | |
| (1,588,991) | |
| 158,791 |
Contract liabilities | |
| 739,043 | |
| (168,854) |
Net cash used in operating activities | |
| (1,066,444) | |
| (739,526) |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
| |
Business acquisition, net of cash acquired | | | (7,795,810) | | | — |
Purchases of property, plant and equipment | |
| (362,986) | |
| (354,788) |
Net cash used in investing activities | |
| (8,158,796) | |
| (354,788) |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| |
Closing costs related to common stock sale | | | (335,419) | | | — |
Proceeds from sale of common stock | | | 3,523,000 | | | — |
Proceeds from term loan | | | 4,000,000 | | | — |
Debt issue costs | |
| (109,532) | |
| (8,282) |
Proceeds from payroll protection program loan | |
| — | |
| 1,317,100 |
Revolver loan borrowings | | | 865,049 | | | — |
Payments of principal for leases | |
| (475,440) | |
| — |
Repayments long-term debt | | | (91,781) | | | (53,614) |
Net cash provided by financing activities | |
| 7,375,877 | |
| 1,255,204 |
Effect of exchange rate on cash and cash equivalents | |
| (33) | |
| (133) |
Net (decrease) increase in cash and cash equivalents | |
| (1,849,396) | |
| 160,757 |
Cash and cash equivalents, beginning of period | |
| 2,130,711 | |
| 930,856 |
Cash and cash equivalents, end of period | | $ | 281,315 | | $ | 1,091,613 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: | |
| | |
| |
Cash paid for interest, net of amounts capitalized | | $ | 83,616 | | $ | 78,834 |
See accompanying notes to the condensed consolidated financial statements.
6
SUPPLEMENTAL INFORMATION -– NONCASH INVESTING AND FINANCING TRANSACTIONS:
NineSix months ended December 31,September 30, 2021 and 2020
On August 25, 2021 the Company acquired all of the issued and outstanding capital stock of Stadco in exchange for the issuance of 1,466,061 shares of common stock and warrants. Consideration transferred was $2,269,000 and based on the closing market price of the Company’s common stock on the closing date, August 25, 2021.
In connection with the Stadco acquisition, the Company became party to an amended and restated lease agreement to rent buildings and property at the Stadco manufacturing location, and recorded a right-of-use asset and liability of approximately $6.7 million.
On June 16, 2020, our executive officers exercised options to purchase 150,000 shares of the Company’s common stock, par value $0.0001 per share, in a cashless transaction, pursuant to option awards granted under the Company’s 2016 Long-Term Incentive Plan.
7
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,Westminster Credit Holdings, LLC, or WCH, Stadco New Acquisition, LLC, or Acquisition Sub, Stadco and Wuxi Critical Mechanical Components Co., Ltd., or WCMC, a wholly foreign owned enterprise. WCMC has no customers or operations, and we have initiated a plan of termination to legally dissolve this subsidiary. TechPrecision, Ranor, WCH, WCMC, Acquisition Sub and RanorStadco are collectively referred to as the “Company”, “we”, “us” or “our”.
On August 25, 2021, pursuant to the stock purchase agreement among TechPrecision, Acquisition Sub, Stadco and certain affiliates of Stadco, TechPrecision completed its previously announced acquisition of Stadco. Stadco is a company in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, research and industrial customers. See Note 3 below for more information regarding the Stadco acquisition.
We manufactureThe Company manufactures 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, WCH, WCMC, Acquisition Sub and WCMC.Stadco. Intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheets as of December 31, 2020 and March 31, 2020,September 30, 2021, the condensed consolidated statements of operations and comprehensive income (loss) income and stockholders’ equity for the three and ninesix months ended December 31,September 30, 2021 and 2020, and 2019, and the condensed consolidated statements of cash flows for the ninesix months ended December 31,September 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 business combinations, 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.
8
Accounting for Goodwill – The Company allocates the purchase price of an acquired company, including, when applicable, the acquisition date fair value of contingent consideration, between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill.
Goodwill of a reporting unit is not amortized, but tested for impairment at least annually, or on an interim basis whenever circumstances indicate that the carrying value of these assets may not be recoverable. A goodwill impairment charge would reflect the amount by which the carrying amount of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill.
The COVID-19 pandemicCompany has negatively affectednot formed a conclusion on the issue of tax deductibility for goodwill. We are evaluating certain customers, supplierstax election options under the Stadco stock purchase agreement and their labor force. For example, travel restrictionswill make a determination as soon as practicable.
NOTE 3 – BUSINESS COMBINATION
On August 25, 2021, the closing date, the Company completed its previously announced acquisition of Stadco, pursuant to the stock purchase agreement, dated as of October 16, 2020, among TechPrecision, Acquisition Sub, Stadco Acquisition, LLC, or Holdco, and each stockholder of Holdco, or the SPA. Stadco is a company in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, and industrial customers.
Also on the closing date, the Company completed its previously announced acquisition of certain indebtedness obligations of Stadco, pursuant to that certain Amended and Restated Loan Purchase and Sale Agreement, dated as of April 23, 2021, with Sunflower Bank, N.A., as amended by Amendment to Amended and Restated Loan Purchase and Sale Agreement, dated as of June 28, 2021, together, the Loan Purchase Agreement. On August 25, 2021, WCH, as assignee of Acquisition Sub, paid $7.9 million in the aggregate to Sunflower Bank, N.A., under the terms of the Loan Purchase Agreement, to purchase the indebtedness.
Pursuant to the SPA, and upon the terms and subject to the conditions therein, the Company acquired all of the issued and outstanding capital stock of Stadco in exchange for the issuance of 666,666 shares of the Company’s common stock to Holdco. In connection with the pandemic have delayed inspections, deliveries and impacted some supply chain providers. The future financial impactacquisition of Stadco, the Company reached an agreement with the holders of certain other non-bank indebtedness of Stadco, under which each such lender agreed to forgive such indebtedness in exchange for an aggregate of 199,395 shares of the COVID-19 pandemic cannotCompany’s common stock. In addition, the Company reached an agreement with a certain other security holder who agreed to sell its Stadco securities to the Company in exchange for the issuance by the Company of 600,000 shares of the Company’s common stock and a warrant to purchase 100,000 shares of the Company’s common stock. The fair value of the 1,466,061 shares of common stock issued as consideration transferred was $2.3 million based on the closing market price of the Company’s common stock on the August 25, 2021 closing date.
On August 25, 2021, the Company entered into a Securities Purchase Agreement with a limited number of institutional and other accredited investors, pursuant to which investors committed to subscribe for and purchase 3,202,727 shares of the Company’s common stock at a purchase price of $1.10. Costs directly attributable to this offering of securities totaled $0.3 million.
The accounting for a business combination is dependent upon obtaining valuations and other information for certain assets and liabilities which have not yet been completed or obtained to a point where definitive estimates can be reasonablymade. The process for estimating the fair values of identified intangible assets, certain tangible assets and assumed liabilities require the use of judgment to determine the appropriate assumptions. Until the Company finalizes estimates of the fair value of assets acquired and liabilities assumed substantially all of the purchase price allocation for Stadco is provisional. Additional purchase price adjustments will be recorded during the measurement period not to exceed one year beyond the acquisition date. These adjustments may have a material impact on the Company’s results of operations and financial position.
9
Included in the total consideration transferred is $113,890 related to a contingent provision in the agreements based on the difference between the TechPrecision stock price and contract target stock price. The contingent provision allows the issuer, TechPrecision, to settle the contingency with stock or cash, or a combination of each. If after one year following the closing of the acquisition, the fair value of the consideration stock is less than the target stock price stated in each agreement, TechPrecision will issue to the holder additional shares of consideration stock or cash, or some combination of stock and cash. The target stock price stated in the agreements are guaranteed, only the number of shares issued can vary, with the final measurement date and amount to be determined on the one-year anniversary date. Since the contract does not specify a fixed maximum number of shares to be issued on the anniversary date, should the company determine to satisfy the contingent consideration with shares, then a number of shares higher than the amount currently authorized by the company’s certificate of incorporation may be required to be issued. In any case, the maximum value of the contingent consideration will be $2,269,000, whether paid in shares of common stock or in cash, or both. The estimated liability associated with the contingent consideration had a 0 balance at this timeSeptember 30, 2021.
The table below presents the provisional estimated fair value of assets acquired and liabilities assumed on the acquisition date based on the best information it has received to date, in accordance with Accounting Standards Codification, or ASC, 805. Acquisition related costs totaled approximately $320,000 and are included under general and administrative expenses in our statement of operations. The allocation of the purchase price of the Stadco acquisition is not complete and the amounts below represent the Company’s best estimate of fair value:
| | | |
Total consideration transferred | | $ | 10,163,164 |
Recognized amounts of identifiable assets acquired and liabilities assumed: | |
|
|
Accounts receivable | | $ | 1,247,015 |
Inventory and other current assets | |
| 5,250,781 |
Property, plant and equipment including right of use assets | |
| 15,074,273 |
Accounts payable, accrued expenses, and other current liabilities | |
| (5,882,048) |
Lease obligations | |
| (6,701,286) |
Net assets | | $ | 8,988,735 |
Goodwill | |
| 1,174,429 |
Total | | $ | 10,163,164 |
Supplemental Pro Forma Information
The pro forma results presented below were prepared as itsif the acquisition had been consummated on April 1, 2020. The pro forma results have been prepared for comparative purposes only and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on April 1, 2020. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved from the acquisition.
The pro forma results include adjustments for the estimated purchase accounting impact, depends on future developments,including, but not limited to, depreciation and amortization associated with the acquired tangible and intangible assets, and an adjustment for interest expense related to the new long-term debt, the alignment of accounting policies, and the elimination of transactions between TechPrecision and Stadco.
Other adjustments reflected in the pro forma results are as follows:
• | For the three and six months ended September 30, 2020, we excluded $1.0 million from cost of goods sold, the net change in depreciation and amortization resulting from a reversal of amortization for an asset deemed to have zero fair value based on revaluation of the Stadco intangible assets upon TechPrecision Corporation’s acquisition of Stadco. This amount was partially offset by depreciation and amortization resulting from a valuation adjustment to Stadco’s property, plant and equipment of $7.1 million plus the recognition of the right-of-use asset for Stadco’s property lease in the amount of $6.6 million against the reversal of historical rent expense |
• | For the three and six months ended September 30, 2021 and 2020, we excluded $0.7 million of management fees due to then preferred stockholders of Stadco |
10
• | For the three and six months ended September 30, 2021 and 2020, we excluded interest expense by $0.5 million, reflecting a reduction of Stadco’s bank debt and interest rates. |
The following table discloses the actual results of Stadco since the August 25, 2021 acquisition which are highly uncertainincluded in the Company’s condensed consolidated financial statements. Also presented in the table below are pro forma results for the combined entities, assuming the acquisition date had occurred on April 1, 2020, for the three and cannotsix months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | |
| | Stadco only | | Pro forma combined | |||||||||||
| | Actual August 26, 2021 | | Three months ended | | Six months ended | | Three months ended | | Six months ended | |||||
| | – September 30, | | September 30, | | September 30, | | September 30, | | September 30, | |||||
|
| 2021 |
| 2021 |
| 2021 |
| 2020 |
| 2020 | |||||
Net sales | | $ | 1,258,626 | | $ | 5,094,151 | | $ | 12,929,679 | | $ | 8,196,026 | | $ | 14,961,345 |
Operating income (loss) | | $ | 64,809 | | $ | (1,579,777) | | $ | (1,936,097) | | $ | 350,441 | | $ | 182,568 |
Income (loss) before income taxes | | $ | 22,113 | | $ | (1,832,508) | | $ | (954,261) | | $ | 199,520 | | $ | (139,609) |
Net income (loss) | | | | | $ | (1,753,993) | | $ | (903,274) | | $ | 86,458 | | $ | (215,311) |
EPS basic | | | | | $ | (0.05) | | $ | (0.03) | | $ | 0.00 | | $ | (0.01) |
EPS dilutive | | | | | $ | (0.05) | | $ | (0.03) | | $ | 0.00 | | $ | (0.01) |
Weighted average shares outstanding – basic | | | | | | 34,181,736 | | | 34,174,554 | | | 34,100,059 | | | 34,064,579 |
Weighted average shares outstanding - diluted | | | | | | 34,181,736 | | | 34,174,554 | | | 35,638,754 | | | 34,064,579 |
NOTE 4 - REVENUE
The Company generates revenue primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can be predicted.between three and thirty-six months.
The directives imposed by federal, stateRevenue is recognized over-time or at a point-in-time given the terms and local governments as a resultconditions of the COVID-19 pandemic did not impair our abilityrelated contracts. The Company utilizes an inputs methodology based on estimated labor hours to maintain operations duringmeasure performance progress. This model best depicts the first nine monthstransfer of fiscalcontrol to the customer.
The Company’s contract portfolio is comprised of fixed-price contracts and provide for product type sales only. The following table presents net sales on a disaggregated basis by market and contract type:
| | | | | | | | | |
Net Sales by market |
| Defense |
| Industrial |
| Totals | |||
Three months ended September 30, 2021 | | $ | 4,403,156 | | $ | 394,254 | | $ | 4,797,410 |
Three months ended September 30, 2020 | | $ | 3,225,503 | | $ | 1,488,430 | | $ | 4,713,933 |
Six months ended September 30, 2021 | | $ | 7,506,287 | | $ | 703,352 | | $ | 8,209,639 |
Six months ended September 30, 2020 | | $ | 6,429,093 | | $ | 1,567,365 | | $ | 7,996,458 |
| | | | | | | | | |
Net Sales by contract type |
| Over-time |
| Point-in-time |
| Totals | |||
Three months ended September 30, 2021 | | $ | 3,757,988 | | $ | 1,039,422 | | $ | 4,797,410 |
Three months ended September 30, 2020 | | $ | 3,081,971 | | $ | 1,631,962 | | $ | 4,713,933 |
Six months ended September 30, 2021 | | $ | 6,880,637 | | $ | 1,329,002 | | $ | 8,209,639 |
Six months ended September 30, 2020 | | $ | 6,109,868 | | $ | 1,886,590 |
| $ | 7,996,458 |
As of September 30, 2021, as the Company was designated an essential service. Our estimateshad $26.4 million of remaining performance obligations, of which $17.1 million were less than 50% complete. The Company expects to recognize all of its remaining performance obligations as revenue within the next thirty-six months.
11
We are dependent each year on a small number of customers who generate a significant portion of our business, and these customers change from year to year. The following table sets forth revenues from customers who accounted for more than 10% of our net sales.
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Three months ended | | Six months ended | | Six months ended |
| ||||||||||||
| | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
| ||||||||||||
Customer |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| ||||
A | | $ | 1,175,893 | | 25 | % | $ | 499,921 | | 11 | % | $ | 2,479,665 | | 30 | % | $ | 1,070,701 | | 13 | % |
B | | $ | 721,405 |
| 15 | % | $ | 686,486 |
| 15 | % | $ | 1,660,261 | | 20 | % | $ | 1,340,673 |
| 17 | % |
C | | $ | 648,954 |
| 14 | % | $ | 459,441 |
| 10 | % | $ | 938,534 |
| 11 | % | $ | * |
| * | % |
D | | $ | * |
| * | % | $ | 726,921 |
| 15 | % | $ | * |
| * | % | $ | * |
| * | % |
E | | $ | * | | * | % | $ | 694,332 | | 15 | % | $ | * | | * | % | $ | 1,708,987 | | 21 | % |
F | | $ | * | | * | % | $ | 575,315 | | 12 | % | $ | * | | * | % | $ | * | | * | % |
G | | $ | * | | * | % | $ | 558,160 | | 12 | % | $ | * | | * | % | $ | 948,672 | | 12 | % |
*Less than 10% of total
In our condensed consolidated balance sheet, contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. For the first ninesix months ended September 30, 2021, we recognized revenue of fiscalless than $0.2 million related to our contract liabilities at April 1, 2021. Contract assets consisted of the following at:
| | | | | | | | | |
| | | | Progress | | | |||
|
| Unbilled |
| payments |
| Total | |||
September 30, 2021 | | $ | 12,725,048 | | $ | (3,418,186) | | $ | 9,306,862 |
March 31, 2021 | | $ | 11,392,948 | | $ | (5,860,540) | | $ | 5,532,408 |
NOTE 5 - INCOME TAXES
The Company accounts for income taxes under ASC 740, Income Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. The income tax benefit for the three and six months ended September 30, 2021 assumed no material impactwas $78,462 and $51,882. The Company’s effective tax rate for the three and six months ended September 30, 2021 was 26.3% and 5.0%, respectively. The Company’s effective tax rate for the six months ended September 30, 2021 was lower due to the nontaxable loan forgiveness item of $1.3 million disclosed in the condensed consolidated statement of operations. Income tax expense for the three and six months ended September 30, 2020 was $111,302 and $73,942.
The valuation allowance on deferred tax assets was approximately $1.8 million at September 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 disruptions caused by COVID-19.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.
12
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) issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, expected to reduce cost and complexity related to the accounting for income taxes. This ASU removes specific exceptions to the general principles in Topic 740 under U.S. GAAP and removes the limitation on the tax benefit recognized on pre-tax losses in interim periods. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company plans to adopt the standard on April 1, 2021, and is currently evaluating the amendments in this update to determine the impact it may have on its financial statements and disclosures.
NOTE 4 - REVENUE
The Company generates its revenues primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can range from three to thirty-six months. The Company invoices and receives related payments based upon performance progress not less frequently than monthly.
Revenue is recognized over-time or at a point-in-time given the terms and conditions of the related contracts. The Company utilizes an inputs methodology based on estimated labor hours to measure performance progress. This model best depicts the transfer of control to the customer.
The Company’s contract portfolio is comprised of fixed-price contracts and provides for product type sales only. The following table presents net sales on a disaggregated basis by market and contract type:
Net Sales by market | Defense | Industrial | Totals | |||||||||
Three months ended December 31, 2020 | $ | 2,885,753 | $ | 683,965 | $ | 3,569,718 | ||||||
Three months ended December 31, 2019 | $ | 3,200,671 | $ | 466,605 | $ | 3,667,276 | ||||||
Nine months ended December 31, 2020 | $ | 9,314,846 | $ | 2,251,330 | $ | 11,566,176 | ||||||
Nine months ended December 31, 2019 | $ | 9,725,635 | $ | 1,349,985 | $ | 11,075,620 | ||||||
Net Sales by contract type | Over-time | Point-in-time | Totals | |||||||||
Three months ended December 31, 2020 | $ | 3,141,416 | $ | 428,302 | $ | 3,569,718 | ||||||
Three months ended December 31, 2019 | $ | 3,439,367 | $ | 227,909 | $ | 3,667,276 | ||||||
Nine months ended December 31, 2020 | $ | 9,251,284 | $ | 2,314,892 | $ | 11,566,176 | ||||||
Nine months ended December 31, 2019 | $ | 9,104,395 | $ | 1,971,225 | $ | 11,075,620 |
As of December 31, 2020, the Company had $18.4 million of remaining performance obligations, of which $13.0 million were less than 50% complete. The Company expects to recognize all of its remaining performance obligations as revenue over-time or at a point-in-time during the next thirty-six months.
We have been dependent in each year on a small number of customers who generate a significant portion of our business, and these customers can change from year to year. The following table presents customers who accounted for 10% or more of our net sales for the following periods:
Three months ended December 31, 2020 | Three months ended December 31, 2019 | Nine months ended December 31, 2020 | Nine months ended December 31, 2019 | |||||||||||||||||||||||||||||
Customer | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||
A | $ | 398,011 | 11 | % | $ | 404,062 | 11 | % | $ | 2,106,998 | 18 | % | $ | 1,790,311 | 16 | % | ||||||||||||||||
B | $ | 530,583 | 15 | % | $ | * | * | % | $ | 1,871,256 | 16 | % | $ | * | * | % | ||||||||||||||||
C | $ | 609,114 | 17 | % | $ | 1,215,737 | 33 | % | $ | 1,679,814 | 15 | % | $ | 2,320,485 | 21 | % | ||||||||||||||||
D | $ | 682,337 | 19 | % | $ | 727,084 | 20 | % | $ | 1,631,010 | 14 | % | $ | 1,825,213 | 16 | % | ||||||||||||||||
E | $ | 550,096 | 15 | % | $ | * | * | % | $ | * | * | % | $ | * | * | % | ||||||||||||||||
F | $ | * | * | % | $ | * | * | % | $ | * | * | % | $ | 1,136,146 | 10 | % | ||||||||||||||||
G | $ | * | * | % | $ | * | * | % | $ | * | * | % | $ | 1,148,242 | 10 | % |
*Less than 10% of total
On our condensed consolidated balance sheet, contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In fiscal 2021, we recognized revenue of $0.8 million related to our contract liabilities at March 31, 2020. At December 31, 2020 contract assets consisted of the following:
Contract assets | Unbilled | Less:Progress payments | Total | |||||||||
December 31, 2020 | $ | 10,074,902 | $ | 4,760,249 | $ | 5,314,653 | ||||||
March 31, 2020 | $ | 10,635,588 | $ | 6,130,967 | $ | 4,504,621 |
NOTE 5 - INCOME TAXES
We account for income taxes under the provisions of FASB ASC 740, Income Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. The income tax provision for the nine months ended December 31, 2020 was $60,573, the income tax benefit for the nine months ended December 31, 2019 was $115,092. The Company's estimated effective tax rate for the nine months ended December 31, 2020 was 36.3%.
The valuation allowance on deferred tax assets was approximately $1.7 million at December 31, 2020. We believe that it is more likely than not that the benefit from certain state and foreign net operating losses, or NOL, carryforwards and other deferred tax assets will not be realized. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.
NOTE 6 - EARNINGS PER SHARE
Basic earnings per share, or EPS, 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.computations:
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 | ) |
| | | | | | | | | | | | |
| | Three Months ended | | Three Months ended | | Six Months ended | | Six Months ended | ||||
|
| September 30, 2021 |
| September 30, 2020 |
| September 30, 2021 |
| September 30, 2020 | ||||
Basic EPS | | |
| | |
| | |
| | |
|
Net income (loss) | | $ | (220,413) | | $ | 270,764 | | $ | 1,150,679 | | $ | 154,530 |
Weighted average shares | |
| 31,359,941 | |
| 29,431,629 | |
| 30,424,216 | |
| 29,395,791 |
Net income (loss) per share | | $ | (0.01) | | $ | 0.01 | | $ | 0.04 | | $ | 0.01 |
Diluted EPS | |
| | |
| | |
| | |
| |
Net income (loss) | | $ | (220,413) | | $ | 270,764 | | $ | 1,150,679 | | $ | 154,530 |
Dilutive effect of stock options | |
| — | |
| 1,555,604 | |
| 1,602,046 | |
| 1,606,339 |
Weighted average shares | |
| 31,359,941 | |
| 30,987,233 | |
| 32,026,262 | |
| 31,002,130 |
Net income (loss) per share | | $ | (0.01) | | $ | 0.01 | | $ | 0.04 | | $ | 0.01 |
All of the restricted stock issued in September 2021 is included in the weighted average basic and diluted shares calculation. 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, 2020September 30, 2021, there were 2,814,0001,660,922 of potentially anti-dilutive stock options and warrants, 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 Long-Term Incentive Plan, or the 2006 Plan, and applies to awards granted after the 2016 Plan’s adoption by the Company’s stockholders. The 2016 Plan provides for a share reserve of 5,000,000 shares of common stock.
The 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates. 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 shares (inclusive of awards issued under 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.
On June 16, 2020, our executive officers exercised options to purchase 150,000 shares of the Company’s common stock, par value $0.0001 per share, in a cashless transaction, pursuant to option awards granted under the Company’s 2016 Long-Term Incentive Plan.
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At December 31, 2020September 30, 2021, there were 1,376,0001,370,000 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 9/30/2021 |
| 2,670,000 | | $ | 0.343 | | $ | 4,372,000 | | 5.14 | ||||||||||||||||
Exercisable and vested at 9/30/2021 | | 2,670,000 | | $ | 0.343 | | $ | 4,372,000 | | 5.14 |
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 thirdsecond 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.September 30,2021. This amount changes based on the fair market value of the Company’s common stock.
At December 31, 2020,September 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, 2020September 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 | | 4.10 | | $ | 0.12 | | 1,270,000 | | $ | 0.12 | ||||||||||||||||||||
$0.50‑$0.99 |
| 1,400,000 |
| 5.64 | | $ | 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, subject to certain exceptions, the grantee’s restricted stock will be forfeited automatically. Total recognized compensation cost related to the restricted stock award was $44,667 for the nine months ended December 31, 2020. At December 31, 2020 there was $89,333 of unrecognized compensation cost related to these restricted stock awards.
On March 16, 2020September 17, 2021, we granted a total of 100,000 shares of restricted stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $111,000$175,000 for service-based restricted stock was measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. The shares of restricted stock fully vested and ceased to be subject to forfeiture on September 1, 2020, or approximately six months following the grant date. Each grantee must have been serving as a director on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee was not permitted to sell, transfer, pledge, assign or otherwise encumber the shares of restricted stock and if the grantee’s service with the Company had terminated prior to the vesting date, the grantee’s restricted stock would have been forfeited automatically.
Total recognized compensation cost related to the restricted stock award was $101,750awards for the ninethree and six months ended December 31, 2020. ThereSeptember 30, 2021 was no$28,566 and $62,066, respectively. At September 30, 2021 there was $168,767 of unrecognized compensation cost related only to these restrictedthe September 17, 2021 stock awardsaward.
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Warrants
On August 25, 2021, we issued warrants to purchase 100,000 shares of our common stock in connection with the Stadco acquisition. The warrants vested in full on the issue date, have a three year term and exercise price of $1.43 per share. The fair value of the warrants was $46,256 and estimated using the Black-Scholes option-pricing model based on the closing stock prices at December 31, 2020.the grant date and the weighted average assumptions specific to the grant. Expected volatility of 46.7% was based on the historical volatility of our common stock. The risk-free interest rate of 0.4% was selected based upon yields of three-year U.S. Treasury bond.
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,September 30, 2021, there were trade accounts receivable balances outstanding from five3 customers comprising 93%74% 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 | |||||||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||
| | September 30, 2021 | | March 31, 2021 |
| |||||||||||||||||||||
Customer | Dollars | Percent | Dollars | Percent |
| Amount |
| Percent |
| Amount |
| Percent |
| |||||||||||||
A | $ | 356,228 | 30 | % | $ | * | * | | $ | 1,079,264 | | 41 | % | $ | * | | * | % | ||||||||
B | $ | 243,938 | 21 | % | $ | * | * | | $ | * |
| * | % | $ | 399,692 |
| 66 | % | ||||||||
C | $ | 193,750 | 17 | % | $ | * | * | | $ | 576,640 |
| 22 | % | $ | 193,368 |
| 32 | % | ||||||||
D | $ | * | * | $ | 365,636 | 37 | % | | $ | 290,503 | | 11 | % | $ | * | | * | % | ||||||||
E | $ | 167,152 | 14 | % | $ | 254,637 | 26 | % | ||||||||||||||||||
F | $ | * | * | $ | 123,000 | 12 | % | |||||||||||||||||||
G | $ | 123,909 | 11 | % | $ | * | * |
*less*less than 10% of total
NOTE 9 - OTHER CURRENT ASSETS
December 31, 2020 | March 31, 2020 | |||||||||||||
| | | | | | | ||||||||
Other current assets included the following at: |
| September 30, 2021 |
| March 31, 2021 | ||||||||||
Payments advanced to suppliers | $ | 31,268 | $ | 272,070 | | $ | 22,377 | | $ | 17,010 | ||||
Prepaid insurance | 358,029 | 250,073 |
| | 291,141 |
| | 312,669 | ||||||
Prepaid subscriptions | 22,057 | 14,440 |
| | 52,961 |
| | 25,967 | ||||||
Refundable AMT credits | 22,748 | 22,748 | ||||||||||||
Employee advances | -- | 18,173 |
| | 26,985 |
| | 16,526 | ||||||
Deposits | | | 145,979 | | | — | ||||||||
Prepaid taxes | | | 64,194 | | | — | ||||||||
Other | 7,922 | 28,647 |
| | 8,011 |
| | 7,265 | ||||||
Total | $ | 442,024 | $ | 606,151 | | $ | 611,648 | | $ | 379,437 |
NOTE 10 - PROPERTY, PLANT AND EQUIPMENT, NET
| | | | | | |
Property, plant and equipment, net included the following at: |
| September 30, 2021 |
| March 31, 2021 | ||
Land | | $ | 110,113 | | $ | 110,113 |
Building and improvements | |
| 3,289,901 | |
| 3,249,577 |
Machinery equipment | |
| 17,883,604 | |
| 10,113,670 |
Furniture, fixtures, auto equipment | |
| 1,503,041 | |
| 627,571 |
Total property, plant and equipment | |
| 22,786,659 | |
| 14,100,931 |
Less: accumulated depreciation | |
| (10,480,258) | |
| (10,037,722) |
Total property, plant and equipment, net | | $ | 12,306,401 | | $ | 4,063,209 |
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NOTE 1011 - ACCRUED EXPENSES
December 31, 2020 | March 31, 2020 | |||||||||||||
| | | | | | | ||||||||
Accrued expenses included the following at: |
| September 30, 2021 |
| March 31, 2021 | ||||||||||
Accrued compensation | | $ | 994,838 | | $ | 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 |
| | 343,763 |
| | 164,164 | ||||||
Accrued professional fees | 244,703 | 279,657 |
| | 333,366 |
| | 213,213 | ||||||
Accrued project costs | 109,062 | 76,059 |
| | 436,070 |
| | 114,611 | ||||||
Other | 30,739 | 34,773 |
| | 212,856 |
| | 42,962 | ||||||
Total | $ | 1,306,109 | $ | 1,554,524 | | $ | 2,320,893 | | $ | 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 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 | ||||||||||||
Berkshire Term Loan at 5.21% interest, due December 2021 | $ | 2,491,835 | $ | 2,564,389 | ||||||||||
Berkshire SBA PPP loan at 1% interest, due May 2022 | 1,317,100 | -- | ||||||||||||
Finance lease obligations at 8% interest, due January 2022 | 13,662 | 22,460 | ||||||||||||
| | | | | | | ||||||||
Long-term debt included the following at: |
| September 30, 2021 |
| March 31, 2021 | ||||||||||
Stadco Term Loan at 3.79% interest, due August 2028 | | $ | 3,958,664 | | $ | — | ||||||||
Ranor Term Loan at 5.21% interest, due December 2021 | | | 2,415,964 | | | 2,466,408 | ||||||||
Revolver loan | | | 865,049 | | | — | ||||||||
SBA PPP loan at 1% interest, due May 2022 | |
| — | |
| 1,317,100 | ||||||||
Finance lease liability | |
| — | |
| 45,663 | ||||||||
Total debt | $ | 3,822,597 | $ | 2,586,849 | | $ | 7,239,677 | | $ | 3,829,171 | ||||
Less: debt issue costs unamortized | $ | 16,485 | $ | 20,460 | | $ | 117,708 | | $ | 12,270 | ||||
Total debt, net | $ | 3,806,112 | $ | 2,566,389 | | $ | 7,121,969 | | $ | 3,816,901 | ||||
Less: Current portion of long-term debt | $ | 3,088,553 | $ | 109,829 | | $ | 3,790,525 | | $ | 2,474,963 | ||||
Total long-term debt, net | $ | 717,559 | $ | 2,456,560 | | $ | 3,331,444 | | $ | 1,341,938 |
Small Business AdministrationAmended and Restated Berkshire Loan Agreement
On August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank, or the Loan Agreement. Under the Loan Agreement, Berkshire Bank will continue to provide the Ranor Term Loan (as defined below) and the revolving line of credit, or the Revolver Loan. In addition Berkshire Bank provided the Stadco Term Loan (as defined below) in the original amount of $4,000,000. The proceeds of the original Ranor Term Loan of $2,850,000 were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. The proceeds of the Stadco Term Loan were to be used to support the acquisition of Stadco and refinance existing indebtedness of Stadco. For purposes of the discussion of the Loan Agreement, Ranor and Stadco are referred to together as the “Borrowers.”
Stadco Term Loan
On May 8, 2020,August 25, 2021, the Company through its wholly owned subsidiary Ranor, issued a promissory note,borrowed $4,000,000 from Berkshire Bank, or the Note, evidencing an unsecured loanStadco Term Loan. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021 at a fixed rate per annum equal to the 7 year Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Commencing on September 25, 2021 and on the 25th day of each month thereafter, Stadco shall make monthly payments of principal and interest in the amount of $1,317,100$54,390 each, with all outstanding principal and accrued interest due and payable on August 25, 2028. Interest shall be calculated on the basis of actual days elapsed and a 360-day year.
16
The Company shall pay a late charge in the amount of 5% of each payment due under the Stadco Term Loan (other than the balloon payment due at maturity) which is more than ten days in arrears. In addition, from and after the date on which the Stadco Term Loan becomes, or at Berkshire Bank’s option, could become due and payable (whether accelerated or not), at maturity, upon default or otherwise, interest shall accrue and shall be immediately due and payable at the default rate equal to 5% per annum greater than the interest rate otherwise in effect, but in no event higher than the maximum interest rate permitted by law.
Ranor Term Loan
A term loan was 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 Ranor Term Loan,Loan. Payments began on January 20, 2017 and will be made availablein 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 Ranorany collateral or if a revolving line of credit of $1,000,000full prepayment is made during the 45-day period immediately preceding the maturity date.
RevolverLoan
In accordance with the amended loan agreement, the maximum amount that can now be borrowed under the Revolver Loan, or together, the Berkshire Loans. The Berkshire Loans are secured by a first lien on all personal and real property of Ranor.
On December 23, 2019, TechPrecision, through Ranor, entered into a Third Modification to Loan Agreement, or the Third Modification, and an Amended and Restated Promissory Note with Berkshire Bank. Under the Third Modification, Ranor and Berkshire agreed to increase the maximum principal amount available under the Revolver Loan from $1,000,000 to $3,000,000.loan is $5,000,000. Advances under the Revolver Loan are now subject to a borrowing base equal to the lesser of (a) $3,000,000$5,000,000 or (b) the sum of (i)80% of eligible accounts receivable, the net outstanding amount of Base Accounts, plus (ii) the lesser of (x) 25% of Eligible Raw Material Inventory, and (y) $250,000, plus (iii) 50%80% of the Appraised Value of the Eligible Equipment. Equipment, as such terms are defined in the Loan Agreement.
The loanCompany agrees to pay to Berkshire Bank, as consideration for Berkshire Bank’s 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 undermake the Revolver Loan atavailable, a variable ratenonrefundable Revolver Loan fee equal to 0.25% per annum (computed on the one-month LIBOR plus 225 basis points. The Third Modification contains customary LIBOR replacement provisions.
On December 18, 2020, TechPrecision, through Ranor, entered intoof a Fourth Modification to Loan Agreementyear of 360 days and First Modificationactual days elapsed) on the difference between the amount of: (a) $5,000,000, and Allonge to Amended and Restated Promissory Note, or(b) 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. Asaverage daily outstanding balance of the Revolver Loan during the quarterly period then ended. All Revolver Loan fees shall be payable quarterly in arrears on the first day of each January, April, July and October after the amendment date of the Fourth Modification, there was approximately $2.5 million in remaining principal outstanding under the Term Loancommencing October 1, 2021 and no amounts outstanding under the Revolver Loan.
Under the Fourth Modification, Ranor and Berkshire agreed to revise the minimum interest rate payable on the Revolver Loan. Maturity Date, or upon acceleration of the Revolver Loan, if earlier.
Under the promissory note for the Revolver Loan, the Company can elect to pay interest at an adjusted LIBOR-based rate or an Adjusted Prime Rate. Under the Fourth Modification, the minimum adjusted LIBOR-based rate is 2.75% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The maturity date of the Revolver Loan was also extended tois December 20, 2022. All other material terms of the Berkshire Loan Agreement and the promissory note for the Revolver Loan were unchanged.This agreement contains customary LIBOR replacement provisions
The CompanyThere was $865,049 borrowed $1.0 million under the Revolver Loan on April 3, 2020 and repaid principal of $1.0 million on June 30, 2020. There were no borrowed amounts outstanding under the Revolver Loan at December 31, 2020 and March 31, 2020.September 30, 2021. Interest payments on advances made under the Revolver Loan duringwas $1,444 for the ninesix months ended December 31, 2020 were $6,664 at a weighted average interest rate of 2.67%.September 30, 2021. Unused borrowing capacity at DecemberSeptember 30, 2021 and March 31, 20202021 was $3.0 million.
approximately $3.5 and $2.7 million, respectively.
The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or together, the Berkshire Loans, may be accelerated upon the occurrence of an event of default as defined in the Berkshire Loan Agreement.
17
Pursuant to the Berkshire Loan Agreement, contains a covenant whereby the Company is requiredagrees to maintain a debt service coveragethe ratio or DSCR, of at least 1.2 to 1.0 during the term of the Berkshire Loans. The DSCR isCash Flow (as defined below) of the Company to the Total Debt Service (as defined below) of the Company of not less than 1.20 to 1.00, measured atquarterly on the last day of each fiscal quarter-annual period of the Company on a trailing twelve (12) month basis, commencing with the fiscal quarter ending as of September 30, 2021. Calculations will be based on the audited (year-end) and unaudited (quarterly) consolidated financial statements of the Company. Quarterly tests will be measured based on the Form 10-Q reports within sixty (60) days of the end of each quarter, and annual tests will be measured based on Form 10-K reports within one hundred twenty days (120) after the end of each fiscal annual period. Cash Flow means an amount, without duplication, equal to the sum of net income of the Company plus (i) interest expense, plus (ii) taxes, plus (iii) depreciation and amortization, plus (iv) stock based compensation expense taken by the Company, plus (v) non-cash losses and charges and one time or non-recurring expenses at Berkshire Bank’s discretion, less (vi) the amount of cash distributions, if any, made to stockholders or owners of the Company, less (vii) cash taxes paid by the Company, all as determined in accordance with GAAP. Total Debt Service shall mean an amount, without duplication, equal to the sum of (i) all amounts of cash interest paid on liabilities, obligations and reserves of the Company paid by the Company, (ii) all amounts paid by the Company in connection with current maturities of long-term debt and preferred dividends, and (iii) all payments on account of capitalized leases, all as determined in accordance with GAAP.
The Company agrees to cause its Balance Sheet Leverage to be less than or equal 2.50 to 1.00. Compliance with the foregoing shall be tested quarterly, as of the last day of each fiscal quarter of the Company. Company, commencing with the fiscal quarter ending September 30, 2021. Balance Sheet Leverage means, at any date of determination, the ratio of Borrowers’ (a) Total Liabilities, less Subordinated Debt, to (b) Net Worth, plus Subordinated Debt.
The Borrowers agree to maintain a Loan to Value Ratio of not greater than 0.75 to 1.00. Loan to Value Ratio means the ratio of (a) the sum of the outstanding balance of the Ranor Term Loan and the Stadco Term Loan, to (b) the fair market value of the Property, as determined by an appraisal obtained from time to time by Berkshire Bank, but not more frequently than one time during each 365 day period (provided that Berkshire Bank may obtain an appraisal at any time after either the Ranor Term Loan or the Stadco Term Loan has been accelerated), which appraisals shall be at the expense of the Borrowers.
The Borrowers agree that their combined annual capital expenditures shall not exceed $1,500,000. Compliance shall be tested annually, commencing with the fiscal year ending March 31, 2022.
The Company was in compliance with all of the financial covenants at December 31, 2020September 30, 2021 and March 31, 2020.2021.
Unamortized debt issue costs at September 30, 2021 and March 31, 2021 were $117,708 and $26,272, respectively.
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,Collateral securing the above obligations comprises all personal and require Ranor to maintain a loan-to-value ratioreal property of not greater than 0.75 to 1.00, to be measured by appraisal not more frequently than one time during each 365-day period.
Finance Lease
See Note 12 for information regarding our obligations under the finance lease.
Fair Value Measurements
We account for fair value measurements in accordance with ASC Topic 820, Fair Value Measurement, which defines fair valueCompany, including cash, accounts receivable, inventories, equipment, and establishes a framework to measure fair value and the related disclosures about fair value. Thefinancial assets.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 PPP 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 were set to be payable monthly in equal installments commencing in September 2021 and continuing through the maturity date, unless the PPP Note was forgiven as described below.
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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 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.
NOTE 1213 – LEASES
After we settled certain default amounts, Stadco became party to an amended building and property operating lease and recorded a right of use asset and liability of $6.6 million. Monthly base rent for the property will be $78,233 per month, with a 20% discount through November 30, 2022. The term of the lease will expire on June 30, 2030. The lease contains customary default provisions allowing the Landlord to terminate the lease if the lessee fails to remedy a breach of its obligations under the lease within the time period specified in the lease, or upon certain events of bankruptcy or seizure or attachment of the lessee’s assets or interest in the lease. The lease also contains other customary provisions for real property leases of this type.
Leases that are economically similar to the purchase of an asset are classified as finance leases. The leased, or right-of-use assets in finance lease arrangements are reported in net property, plant and equipment on our condensed consolidated balance sheet. Right-of-use assets and liabilities on our condensed consolidated balance sheet at December 31, 2020 were:
Finance lease: | December 31, 2020 | |||
Property, plant and equipment | $ | 54,376 | ||
Accumulated depreciation | 43,501 | |||
Net property, plant and equipment | $ | 10,875 | ||
Current portion of long-term debt | $ | 12,569 | ||
Long-term debt | $ | 1,093 | ||
Total finance lease liabilities | $ | 13,662 |
In December 2019, we signed a one-year operating lease for office space which expired in December 2020 and was amortized on a straight line basis. Since the expiration of the term of the lease,date, we have continued to lease this office space on a month-to-month basis.
The following table lists our right-of-use assets and lease liabilities in our condensed consolidated balance sheet at:
| | | | | | |
|
| September 30, 2021 |
| March 31, 2021 | ||
Right of use asset – operating lease | | $ | 6,655,724 | | $ | — |
Right of use asset – finance leases | | | 98,704 | | | 45,663 |
Amortization | |
| (73,268) | |
| — |
Right of use asset, net | | $ | 6,681,160 | | $ | 45,663 |
Lease liability – operating lease | | $ | 6,590,614 | | $ | — |
Lease liability – finance leases | | $ | 108,205 | | $ | 45,663 |
Total lease liability | | $ | 6,698,819 | | $ | 45,663 |
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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 six months ended: |
| September 30, 2021 |
| September 30, 2020 | ||||||
Operating lease amortization | $ | 2,878 | | $ | 68,702 | | $ | 1,883 | ||
Finance lease amortization | $ | 8,156 | | $ | 4,566 | | $ | 5,438 | ||
Finance lease interest | $ | 1,102 | | $ | 1,212 | | $ | 793 |
| | | | | | |
Weighted average lease term and discount rate at: |
| September 30, 2021 | |
| September 30, 2020 | |
Lease term (years) – operating lease | | 8.75 | | | — | |
Lease term (years) – finance leases |
| 2.82 | |
| 1.75 | |
Lease rate – operating lease | | 4.5 | % | | — | |
Lease rate – finance leases |
| 3.9 | % |
| 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 six months ended: |
| September 30, 2021 |
| September 30, 2020 | ||||||
Cash used in operating activities | $ | 2,878 | | $ | 66,023 | | $ | 1,883 | ||
Cash used in financing activities | $ | 8,798 | | $ | 475,440 | | $ | 5,807 |
Maturities of lease liabilities at September 30, 2021 for the next five years and thereafter:
| | | |
2022 |
| $ | 818,817 |
2023 | | | 925,766 |
2024 | | | 951,171 |
2025 | | | 948,701 |
2026 | | | 943,752 |
Thereafter | | | 3,520,506 |
Total lease payments | | $ | 8,108,713 |
Less: imputed interest | | | 1,409,894 |
Total | | $ | 6,698,819 |
NOTE 1314 - COMMITMENTS
Employment Agreements
We have employment agreements with each of our executive officers. Such agreements provide for minimum salary levels, adjusted annually, and incentive bonuses that are payable if specified company goals are attained. The aggregate commitment at September 30, 2021 for future executive salaries and bonus was approximately $1.2 million. The aggregate commitment at September 30, 2021 for accrued payroll, vacation and holiday pay was approximately $0.8 million for the remainder of our employees.
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$43,240 and $64,167$42,270 for the three and ninesix months ended December 31, 2020.September 30, 2021 and 2020, respectively.
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NOTE 15 – ACCOUNTING STANDARDS UPDATE
ProvisionNew Accounting Standards Recently Adopted
In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for claims settlementIncome Taxes
On March 16, 2020, the Company reached an agreement, expected to settle all outstanding claims for $495,000reduce cost and complexity related to the accounting for income taxes. This ASU removes specific exceptions to the general principles in Topic 740 under U.S. GAAP and removes the limitation on the tax benefit recognized on pre-tax losses in interim periods. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company adopted ASU 2019-12 on April 1, 2021 and the amendments in this update did not have a civil action brought by former employeessignificant impact on our financial statements and disclosures.
Issued Standards Not Yet Adopted
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for past wages claimed underContract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a paid time-off program. The claim isbusiness combination to be paid within sixty days following Court approval ofrecognized and measured by the settlement. Such approval has not yet occurred.
NOTE 14 – SUBSEQUENT EVENTS
Securities Purchase Agreement
On October 16, 2020,acquirer on the Company entered into a stock purchase agreement, or the SPA,acquisition date in accordance with Stadco New Acquisition, LLC, a wholly owned subsidiary of the Company, or the Acquisition Sub, Stadco, Stadco Acquisition, LLC, or the Target, and each stockholder of Target. The SPA provides for the Company, through Acquisition Sub, to acquire all of the issued and outstanding capital stock of StadcoASC 606, Revenue from Target. Stadco, the operating subsidiary of Target, is a California corporationContracts with Customers. Generally, this new guidance will result in the business of manufacturing high-precision parts, assembliesacquirer recognizing contract assets and toolingcontract liabilities at the same amounts recorded by the acquiree. The amendments in this update are effective 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.fiscal years beginning after December 15, 2022, including interim periods within these fiscal years. The Company Stadcois currently evaluating the impact that this new guidance may have on our financial statements and Target are also working, through negotiation with creditorsdisclosures.
In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of StadcoFreestanding Equity-Classified Written Call Options Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB issued this update to clarify and Target, to substantially reduce the approximately $14 milliondiversity in issuer’s accounting for modifications or exchanges of Stadco liabilitiesfreestanding equity-classified written call options (for example, warrants) that would otherwise be addedremain equity classified after modification or exchange. The amendments that relate to the consolidated balancerecognition and measurement of EPS for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the combined company after closing of the acquisition. Reaching agreements with these creditors to the satisfaction of theguidance in Topic 260, Earnings Per Share. The Company is required forcurrently evaluating the closing of the deal to occur. The Company expectsimpact 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.this new guidance may have on our financial statements and disclosures.
The SPA contains customary representations and warranties of Stadco, Target, the Company and Acquisition Sub, and Stadco and Target have agreed to customary covenants relating to the conduct of their business during the interim period between the execution of the SPA and the closing of the acquisition. The consummation of the acquisition and the related transactions contemplated by the SPA is subject to certain customary conditions.
On February 2, 2021, the Company entered into an amendment effective as of December 15, 2020, to the previously disclosed stock purchase agreement providing for the Acquisition with Acquisition Sub, Stadco, Target and each stockholder of Target. Under the terms of SPA, if the Acquisition was not closed by December 31, 2020, either the Company or Stadco could have terminated the SPA. The Amendment effected a change to this provision by extending until February 28, 2021 the date after which the parties may terminate if the Acquisition has not closed. The Amendment also effected certain other minor changes to the SPA.
Loan Purchase and Sale Agreement
On January 29, 2021, in connection with securities purchase agreement described above, Acquisition Sub entered into a Loan Purchase and Sale Agreement, effective January 26, 2021, with Sunflower Bank, N.A., and agreed to by Stadco, Target, and Stadco Mexico, Inc. Under the terms of the Loan Purchase Agreement, Acquisition Sub agreed to purchase certain indebtedness obligations of Stadco consisting of long-term indebtedness and revolving credit line indebtedness owed to Sunflower Bank. The current amount outstanding under these indebtedness obligations is approximately $9.8 million. In exchange, Acquisition Sub agreed to pay $2 million less than the aggregate amount of the indebtedness that is then outstanding on the date of the closing of the transactions contemplated under the Loan Purchase Agreement. The closing of the indebtedness purchase is subject to the closing of the acquisition contemplated under the SPA and will take place on or about February 15, 2021, with an optional grace period of up to an additional 15 days. In connection with the closing, Acquisition Sub will also guaranty repayment by Stadco to Sunflower Bank of any of the original approximately $1.5 million in principal indebtedness under Stadco’s Paycheck Protection Program Loan that is not forgiven under the terms of the Coronavirus Aid, Relief, and Economic Security Act. The Loan Purchase Agreement contains customary representations and warranties of each party, as well as mutual indemnification provisions.
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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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
WeThrough our Ranor and Stadco subsidiaries, 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,contracts, and we do not sell from inventory, it is necessary for us to constantly seek new contracts. There may be a time lag between our completion of one contract and commencement of work on another contract. During such periods, we may continue to incur overhead expense but with lower revenue resulting in lower operating margins. Furthermore, changes in either the scope of an existing contract or related delivery schedules may impact the revenue we receive under the contract and the allocation of manpower. Although we provide manufacturing services for large governmental programs, we usually do not work directly for the government or its agencies. Rather, we perform our services for large governmental contractors. Our business is dependent in part on the continuation of governmental programs 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.
On August 25, 2021, the Company completed its previously announced acquisition of Stadco, a company in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, research and commercial customers. We believe that the Stadco operation fits our primary defense focus and brings a complementary customer list for our defense and industrial markets.
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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, ourSeptember 30, 2021, we recorded net sales and net loss of $4.8 million and $0.2 million, compared with net sales of $4.7 million and net income of $0.3 million, for the three months ended September 30, 2020. For the six months ended September 30, 2021, we recorded net sales and net income were $11.6of $8.2 million and $0.1$1.2 million, respectively, compared with net sales of $11.1$8.0 million and net lossincome of $0.4$0.2 million, for the ninesix months ended December 31, 2019.September 30, 2020. Our gross marginfinancial statements for the ninethree and six months ended December 31, 2020 and 2019 was 21.9% and 16.6%, respectively. We used $0.3 million of cash in operations forSeptember 30, 2021 include the nine months ended December 31, 2020 and had a cash balance of $1.3 million at December 31, 2020. Our sales order backlog at December 31, 2020 and March 31, 2020 was approximately $18.4 million and $16.8 million, respectively.
Acquisition of Stadco
We recently announced an agreement to purchase a company that manufactures precision parts for the defense and aerospace industries. Incremental costs incurred for due diligence as a result of this agreement could impact earnings in future quarterly periods. Becauseresults of the size of this acquisition target relative to our business, following closing, we expect to report that our results of operations, cash flows and financial condition will differ materiallyStadco operation from those reported to date. The acquisition agreement is subject to certain conditions, and may or may not be completed unless allAugust 26, 2021 through September 30, 2021.
On May 12, 2021, as authorized by Section 1106 of the conditions set forthCoronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the Small Business Administration, or the SBA, remitted to Berkshire Bank, the lender of record, a payment of principal and interest 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. 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 consider10-K. Except for the policies relating to revenue recognition to be a critical accounting policy. There have beenaddition of our Goodwill policy, there were no significant changes to our critical accounting policies during the ninesix months ended December 31, 2020.September 30, 2021.
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Accounting PronouncementsTable of Contents
New Accounting Standards
See Note 3,15, 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,September 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:
| | | | | | | | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 | | Changes | | |||||||||
(dollars in thousands) |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent | | |||
Net sales |
| $ | 4,797 |
| 100 | % | $ | 4,714 |
| 100 | % | $ | 83 | | 2 | % |
Cost of sales | |
| 3,866 |
| 80 | % |
| 3,585 |
| 76 | % |
| 281 | | 8 | % |
Gross profit | |
| 931 |
| 20 | % |
| 1,129 |
| 24 | % |
| (198) | | (18) | % |
Selling, general and administrative | |
| 1,174 |
| 24 | % |
| 696 |
| 15 | % |
| 478 | | 69 | % |
Operating income (loss) | |
| (243) |
| (5) | % |
| 433 |
| 9 | % |
| (676) | | (156) | % |
Other expense, net | |
| (56) |
| (1) | % |
| (51) |
| (1) | % |
| (5) | | (10) | % |
Income (loss) before taxes | |
| (299) |
| (6) | % |
| 382 |
| 8 | % |
| (681) | | (178) | % |
Income tax provision (benefit) | |
| (79) |
| (2) | % |
| 111 |
| 2 | % |
| (190) | | (170) | % |
Net income (loss) | | $ | (220) |
| (5) | % | $ | 271 |
| 6 | % | $ | (491) | | (181) | % |
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 | % |
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 | % |
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$4.8 million for the ninethree months ended December 31, 2020September 30, 2021, or 2% higher when compared to net sales for the ninethree months ended December 31, 2019. For the nine months ended December 31, 2020, net sales in our defense markets decreased by $0.4 million when compared to the nine months ended December 31, 2019. However, ourSeptember 30, 2020.
Our defense backlog remains strong as new orders for components continue to flow down from our prime defense contractors. Netcontractors, including in connection with the U.S. Navy submarine programs. We saw a near dollar-for-dollar offset change between defense and precision industrial sales to other commercial markets increased by $0.9 million when compared to the ninesame quarter in fiscal 2021. For the three months ended December 31, 2019 on projects completedSeptember 30, 2021, net sales to our defense markets increased by $1.2 million or 37% when compared to the three months ended September 30, 2020. The primary reason for customersthe increase were new defense sales recorded for the first time by our Stadco subsidiary over the last 36 days of the quarter. With our recent acquisition of Stadco now complete, we expect to report higher revenues in future periods.
Net sales to industrial markets decreased by $1.1 million, or 73%, when compared to the nuclear energy and medical markets.three months September 30, 2020, due to lower project activity as the Company replenishes its industrial market backlog following a period of above normal revenue for the last three quarters of fiscal 2021. We have experienced repeat business in this sector, but the order flow can be uneven and difficult to forecast.
25
For the three months ended September 30, 2021, revenue recognized over time and at a point in time was $3.8 and $1.0 million, respectively, compared to revenue recognized over time and at a point in time of $3.1 and $1.6 million, respectively, for the three months ended September 30, 2020.
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 $0.2September 30, 2021 was $3.9 million, or 8% higher when compared to the three months ended September 30, 2020. Gross margin was 19.4% for the three months ended September 30, 2021 and 24.0% for the three months ended September 30, 2020. Gross profit was $0.9 million for the three months ended September 30, 2021, or 18% lower, when compared to the ninethree months ended December 31, 2019,September 30, 2020, primarily on the absenceresult of any significant contract losses. The fiscal 2020 ninehigher labor and overhead costs which more than offset lower material costs. These higher costs dampened our margin during the final month period was marked byof the quarter when we included our new project startup activities and higher provisions for contract losses.
Gross profit was $2.5 millionStadco operation for the nine months ended December 31, 2020, or 38% higher when compared tofirst time. We anticipate that the nine months ended December 31, 2019. Gross margin was 21.9% for the nine months ended December 31, 2020 and 16.6% for the nine months ended December 31, 2019.
inclusion of Stadco’s operations in future periods will result in increased cost of sales in future periods.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses for the ninethree months ended December 31, 2020September 30, 2021 increased by $60,684 as69% or $0.5 million. The increase was primarily due to an increase in compensation, andinsurance costs, office costs, more than offset a decreaseand outside advisory fees in travel expenses when compared toconnection with the nine months ended December 31, 2019.
Stadco acquisition.
Other Expense, net
The following table reflects interest expense, amortization of debt issue costs and other income, net for the three months ended:
| | | | | | | | | | | | |
|
| September 30, 2021 |
| September 30, 2020 |
| $ Change |
| % Change |
| |||
Other income, net | | $ | 1,001 | | $ | 804 | | $ | 197 |
| 25 | % |
Interest expense | | $ | (48,341) | | $ | (35,975) | | $ | (12,366) |
| (34) | % |
Amortization of debt issue costs | | $ | (8,553) | | $ | (15,607) | | $ | 7,054 |
| 45 | % |
Interest expense was lowerhigher for the ninethree months ended December 31, 2020 when compared toSeptember 30, 2021. The increase in interest expense for the ninethree months ended December 31, 2019, and should continueSeptember 30, 2021 was due primarily to be lower than the prior year, barring any additional borrowings$15,138 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 borrowingsinterest under the payroll protection program, or PPP.
Other income fornew Berkshire term loan, net of capitalized interest booked in 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 amortizationsame period. Amortization of debt issue costs for the ninethree months ended:ended September 30, 2020 were higher because of higher debt issue costs incurred for the third Berkshire loan modification. We expect to record higher interest expense in the future due to new borrowings under our new Berkshire revolver and term loans.
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 | )% |
Income Taxes
For the ninethree months ended December 31,September 30, 2021 we recorded a tax benefit of $78,642, a result of a pre-tax loss in our second quarter. For the three months ended September 30, 2020 we recorded tax expense of $60,573 and a tax benefit of $115,092 for the nine months ended December 31, 2019. The tax benefit for the nine months ended December 31, 2019 was the result of an operating loss.
The valuation allowance on deferred tax assets at December 31, 2020 was approximately $1.7 million. We believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.
$111,302.
Net Income (Loss)
As a result of the foregoing, for the ninethree months ended December 31,September 30, 2021, we recorded a net loss of $220,413 compared to net income of $270,764 for the three months ended September 30, 2020.
26
Six Months Ended September 30, 2021 and 2020
The following table sets forth information from our condensed consolidated statements of operations and comprehensive income (loss), in dollars and as a percentage of revenue:
| | | | | | | | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 | | Changes |
| |||||||||
(dollars in thousands) |
| Amount |
| Percent |
| Amount |
| Percent |
| Amount |
| Percent | | |||
Net sales | | $ | 8,209 |
| 100 | % | $ | 7,996 |
| 100 | % | $ | 213 |
| 3 | % |
Cost of sales | |
| 6,446 |
| 78 | % |
| 6,170 |
| 77 | % |
| 276 |
| 4 | % |
Gross profit | |
| 1,763 |
| 22 | % |
| 1,826 |
| 23 | % |
| (63) |
| (3) | % |
Selling, general and administrative | |
| 1,906 |
| 23 | % |
| 1,489 |
| 19 | % |
| 417 |
| 28 | % |
Operating income (loss) | |
| (143) |
| (1) | % |
| 337 |
| 4 | % |
| (480) |
| (142) | % |
Other expense, net | |
| (75) |
| (1) | % |
| (108) |
| (1) | % |
| 33 |
| 31 | % |
PPP loan forgiveness | |
| 1,317 |
| 16 | % |
| — |
| — | % |
| 1,317 |
| nm | % |
Income before taxes | |
| 1,099 |
| 13 | % |
| 229 |
| 3 | % |
| 870 |
| 380 | % |
Income tax provision (benefit) | |
| (52) |
| (1) | % |
| 74 |
| 1 | % |
| (126) |
| (170) | % |
Net income (loss) | | $ | 1,151 |
| 14 | % | $ | 155 |
| 2 | % | $ | 996 |
| 643 | % |
nm - not meaningful
Net Sales
Changes in net sales generally reflect a different product mix and project volume when comparing the current and prior periods. Net sales were $8.2 million for the six months ended September 30, 2021, or 3% higher when compared to net sales for the six months ended September 30, 2020.
Our defense backlog remains strong as new orders for components continue to flow down from prime defense contractors, including in connection with the U.S. Navy submarine programs and new customer projects from our recent business combination. For the six months ended September 30, 2021, net sales in our defense markets increased by $1.1 million or 17% when compared to the six months ended September 30, 2020. The primary reason for the increase were new defense sales recorded for the first time by our Stadco subsidiary over the last 36 days of the second quarter. With our recent acquisition of Stadco now complete, we expect to report higher revenues in future periods.
Net sales to industrial markets decreased by $0.9 million or 55% when compared to the six months ended September 30, 2020, due to lower project activity as the Company replenishes its industrial market backlog following a period of above normal revenue for the last three quarters of fiscal 2021. We have repeat business in this sector, but the order flow can be uneven and difficult to forecast.
For the six months ended September 30, 2021, revenue recognized over time and at a point in time was $6.9 and $1.3 million, respectively, compared to revenue recognized over time and at a point in time of $6.1 and $1.9 million, respectively, for the six months ended September 30, 2020.
Remaining performance obligations reflect future revenue that will be recorded in subsequent periods as projects in progress are completed. At September 30, 2021, the Company had $17.3 million of remaining performance obligations, of which $13.3 million were less than 50% complete. The Company expects to recognize all of its remaining performance obligations as revenue within the next thirty-six months.
Cost of Sales and Gross Margin
Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our manufacturing operations continued to execute effectively with project throughput, notwithstanding higher cost of sales which dampened gross margin for the first six months of fiscal 2022, as we brought our new Stadco operations on-line in the month of September.
27
Our cost of sales for the six months ended September 30, 2021 was $6.4 million, higher by 4% when compared to the six months ended September 30, 2020, primarily the result of higher labor and overhead costs which more than offset lower material costs. Gross margin was 21.5% for the six months ended September 30, 2021 and 22.8% for the six months ended September 30, 2020. Gross profit was $1.8 million for both six month periods ended September 30, 2021 and 2020.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses for the six months ended September 30, 2021 increased by $0.4 million or 28% when compared with the six months ended September 30, 2020. The increase was primarily due to an increase in compensation, insurance costs, office costs, and outside advisory fees in connection with the Stadco acquisition.
Other Expense, net
The following table reflects interest expense, amortization of debt issue costs and other income, net for the six months ended:
| | | | | | | | | | | | |
|
| September 30, 2021 |
| September 30, 2020 |
| $ Change |
| % Change |
| |||
Other income, net | | $ | 11,391 | | $ | 1,456 | | $ | 9,935 |
| nm | |
Interest expense | | $ | (68,676) | | $ | (78,394) | | $ | 9,718 |
| 12 | % |
Amortization of debt issue costs | | $ | (18,096) | | $ | (31,086) | | $ | 12,990 |
| 42 | % |
nm – not meaningful
Other income for the six months ended September 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.
Interest expense for the six months ended September 30, 2021 was lower when compared to the six months ended September 30, 2020. The decrease was due to 1) the reversal of accrued interest for $11,692 for the PPP loan, which was forgiven in May 2021, and 2) lower accruals for interest expense on lower average levels of debt when compared to the same prior year period. These decreases were offset in part by interest expense accrued on new borrowings in connection with the Stadco acquisition in the month of September 2021.
Amortization of debt issue costs for the six months ended September 30, 2021 were lower when compared to the six months ended September 30, 2020. The six months ended September 30, 2020 included higher amortization amounts related to higher debt issue costs related to the third revolver loan modification in 2019.
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 six months ended September 30, 2021 we recorded a tax benefit of $51,882, compared to a tax provision of $73,942 for the six months ended September 30, 2020. The tax benefit is the result of operating pretax losses. The gain from the forgiveness of the Company’s PPP loan is a discrete nontaxable event.
Net Income
As a result of the foregoing, for the six months ended September 30, 2021, we recorded net income of $0.1$1.2 million compared with ato net lossincome of $0.4$0.2 million for the ninesix months ended December 31, 2019.September 30, 2020.
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Liquidity and Capital Resources
At September 30, 2021, we had cash and cash equivalents of $0.3 million and working capital of $4.0 million, a significant decrease when compared to March 31, 2021. We believe our available cash plus cash expected to be provided by operations during fiscal 2022, and borrowing capacity available under the revolver loan will be sufficient to fund 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.
On August 25, 2021, we completed the acquisition of Stadco, closed on a private placement financing and closed on a new loan with Berkshire Bank. We raised $3.5 million of cash by selling 3,202,727 shares of common stock at $1.10 per share via a private placement financing, sourced $4.0 million in new debt with Berkshire bank, drew down $0.1 million under the revolver loan, and sourced $1.8 million from available cash. We issued 1.5 million shares of our common stock and warrants to satisfy Stadco’s indebtedness to its shareholders and certain other debt holders and acquired all outstanding shares of Stadco.
In addition, we purchased Stadco’s loan from Sunflower Bank, for a total amount of $7.9 million in cash. Concurrent with the closing of the Stadco acquisition, we entered into an amended and restated loan agreement with Berkshire Bank. Under the amended facility, our term loan in the original principal amount of $2.85 million, of which $2.4 million remains outstanding, will remain, and we will have access to a revolving line of credit of up to $5.0 million, and borrowed $4.0 million under a new term loan with Berkshire bank.
There was $865,049 outstanding under the revolver loan at September 30, 2021. There were no borrowed amounts outstanding under the revolver loan at March 31, 2021. Unused borrowing capacity at September 30, 2021 was approximately $3.5 million. The maturity date of the revolver loan is December 20, 2022.
There is a balloon payment of approximately $2.4 million due on December 20, 2021 under the Ranor 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 at:
| | | | | | | | | |
|
| | |
| | |
| Change | |
(dollars in thousands) | | September 30, 2021 | | March 31, 2021 | | Amount | |||
Cash and cash equivalents | | $ | 281 | | $ | 2,131 | | $ | (1,850) |
Working capital | | $ | 4,008 | | $ | 5,202 | | $ | (1,194) |
Total debt | | $ | 7,240 | | $ | 3,829 | | $ | 3,411 |
Lease liabilities | | $ | 6,698 | | $ | — | | $ | (6,698) |
Total stockholders’ equity | | $ | 16,656 | | $ | 9,942 | | $ | 6,714 |
The following table summarizes the primary components of cash flows for the six months ended:
| | | | | | | | | |
|
| | |
| | |
| Change | |
(dollars in thousands) | | September 30, 2021 | | September 30, 2020 | | Amount | |||
Cash flows provided by (used in): |
| |
|
| |
|
| |
|
Operating activities | | $ | (1,066) | | $ | (739) | | $ | (327) |
Investing activities | |
| (8,159) | |
| (355) | |
| (7,804) |
Financing activities | |
| 7,376 | |
| 1,255 | |
| 6,121 |
Net (decrease) increase in cash and cash equivalents | | $ | (1,849) | | $ | 161 | | $ | (2,010) |
29
Operating activities
Apart from our loan facilities, 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 we mark progress with customer projects and the composition of our receivables collections mix changes between advance payments and customer payments made after shipment of finished goods.
Cash used by operations for the six months ended September 30, 2021 was $1.1 million compared with cash used in operations of $0.7 million for the six months ended September 30, 2020. Cash outlays for the six months ended September 30, 2021 includes a payment of $0.5 million to plaintiffs for a court approved final class action settlement, and $0.7 million of cash used to pay past due rent on the Stadco property and buildings.
The first half of fiscal 2022 was marked by favorable project performance progress and delivery schedules which provided a small amount of cash from operations before the above mentioned payments for $1.2 million in the aggregate. During the first half of fiscal 2021 we encountered some delayed inspections, delayed deliveries, and disrupted supply chain, due to travel restrictions in connection with the COVID-19 pandemic. In 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 first half of fiscal 2021.
Investing activities
We anticipate that we will spend approximately $0.8 million in new factory machinery and equipment during the remainder of fiscal 2022. Net cash used in investing activities for purchases of property, plant and equipment in the six months ended September 30, 2021 and 2020 was $0.4 million for each period. In addition, we purchased Stadco’s loan from Sunflower Bank, for $7.9 million in cash.
Financing activities
We sourced $3.5 million of cash by selling 3,202,727 shares of common stock at $1.10 per share via a private placement financing and $4.0 million in new debt with Berkshire bank. In addition we drew down $0.9 million under the revolver loan used to fund the acquisition and operating activities in the second quarter of fiscal 2022.
We used $0.5 million of cash to pay off certain lease and debt obligations. We also used $0.5 million of cash to pay private placement closing costs, debt issue costs, repay debt principal and make periodic lease payments.
All of the above activity resulted in a net decrease in cash of $1.8 million for the six months ended September 30, 2021 compared with a net increase in cash of $0.2 million for the six months ended September 30, 2020.
Small Business Administration PPP Loan
On May 8, 2020, the Company, through its wholly owned subsidiary Ranor, Inc., issued a promissory note or the Note, evidencing an unsecured PPP loan in the amount of $1,317,100 made to Ranor under the Paycheck Protection Program, or the PPP.CARES Act. 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 loanloans 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.
30
The terms of anyCompany applied for loan forgiveness may also be subject to further requirements in any regulations and guidelineswith 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 forgivenessPaycheck Protection Program on March 26, 2021. On May 12, 2021, as authorized by Section 1106 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 eightthe SBA remitted to twenty-four weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to useBerkshire Bank, the original eight-week covered period. In addition, the amendments provide that if the borrower does not apply for forgivenesslender of record, a loan within ten months after the last daypayment 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 Ranorinterest in the amount of $2,850,000,$1,317,100 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$13,207, respectively, for forgiveness 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.
Company’s PPP loan. The Company borrowed $1.0 million under the Revolver Loan on April 3, 2020 and repaid that principal on June 30, 2020. There were no borrowed amounts outstanding under the Revolver Loan at December 31, 2020 and March 31, 2020. Interest-only payments on advances made under the Revolver Loan during the nine months ended December 31, 2020 totaled $6,664 at a weighted average interest rate of 2.67%.
On December 18, 2020, under the Fourth Modification, Ranor and Berkshire Bank agreed to revise the minimum interest rate payable on the Revolver Loan. Under the Line of Credit Note, the Company can elect to pay interest at an adjusted LIBOR-based rate or an Adjusted Prime Rate. Under the Fourth Modification, the minimum adjusted LIBOR-based rate is 2.75% and the Adjusted Prime Rate is the greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. The maturity date of the Revolver Loan was also extended to December 20, 2022. All other material terms of the Loan Agreement and Line of Credit Note were unchanged. Unused borrowing capacity at December 31, 2020 was $3.0 million.
At December 31, 2020, we had cash and cash equivalents of $1.3 million and working capital of $4.2 million. We believe our available cash plus cash expected to be provided by operations during fiscal 2021, and borrowing capacity available under the Revolver Loan will be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the 12 months from the issuance date of our financial statements. However, following the closing of the acquisition of Stadco, or in connection therewith, we may need to reevaluate our financing needs in light of the significant changes we expectfunds credited to the combined company’s capital resource needs. AsPPP loan paid this loan off in full. Loan forgiveness is recorded as a result, we may decide to seek new debt and/or equity financing.
The table below presents selected liquiditygain under other income and capital measures at the indicated dates:
(dollars in thousands) | December 31, 2020 | March 31, 2020 | Change Amount | |||||||||
Cash and cash equivalents | $ | 1,255 | $ | 931 | $ | 324 | ||||||
Working capital | $ | 4,170 | $ | 5,595 | $ | (1,425 | ) | |||||
Total debt | $ | 3,823 | $ | 2,587 | $ | 1,236 | ||||||
Total stockholders’ equity | $ | 9,694 | $ | 9,469 | $ | 225 |
The following table summarizes the primary components of cash flows for the nine months ended:
(dollars in thousands) | December 31, 2020 | December 31, 2019 | Change Amount | |||||||||
Cash flows provided by (used in): | ||||||||||||
Operating activities | $ | (340 | ) | $ | 609 | $ | (949 | ) | ||||
Investing activities | (547 | ) | (35 | ) | (512 | ) | ||||||
Financing activities | 1,211 | (642 | ) | 1,853 | ||||||||
Net increase (decrease) in cash | $ | 324 | $ | (68 | ) | $ | 392 |
Operating activities
Our primary sources of cash are from accounts receivable collections, customer advance payments and project progress payments. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments, progress payments and payments made after shipment of finished goods. Cash used in operations for the nine months ended December 31, 2020 was $0.3 million compared with cash provided by operations of $0.6 million for fiscal 2020.
We used cash in operations during the first nine months of fiscal 2021, as accounts receivable and contract assets increased and contract liabilities decreased due to a changing production mix. We have encountered some delayed inspections, deliveries, and disrupted supply chain issues, due to travel restrictions in connection with the COVID-19 pandemic. The future financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time as its impact depends on future developments, which are highly uncertain and cannot be predicted.
Investing activities
We do not anticipate any additional expenditures for new factory machinery and equipment during the last quarter of fiscal 2021. Net cash used in investing activities for purchases of property, plant and equipmentexpense in the nine months ended December 31, 2020 and 2019 totaled $546,890 and $35,225, respectively. The increase in the nine months ended December 31, 2020 occurred because the Company purchased new robotic equipment during fiscal 2021.
Financing activities
On May 8, 2020 we borrowed $1.3 million under the CARES Act payroll protection program. On April 3, 2020 we borrowed $1.0 million under our Revolver loan, then paid down $1.0 million in principal on June 30, 2020.
For the nine months ended December 31, 2020 and 2019 we made monthly principal paymentscondensed consolidated statement of $81,352 and $610,515 in connection with our term debt and finance lease obligations.
All of the above activity resulted in a net increase in cash of $0.3 million for the nine months ended December 31, 2020 compared with a decrease in cash of $0.1 million for the nine months ended December 31, 2019.
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.
September 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.
We define EBITDA as net income (loss) income plus interest, income taxes, depreciation and amortization. Net income was $1.2 million for the six months ended September 30, 2021, as compared to net income of $0.2 million for the six months ended September 30, 2020. EBITDA, a non-GAAP financial measure, was $0.8$1.7 million for the ninesix months ended December 31, 2020,September 30, 2021, as compared to $0.3$0.7 million for the ninesix months ended December 31, 2019.September 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 December 31, | Nine Months ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | Three Months ended September 30, |
| Six Months ended September 30, | ||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | 2020 | 2019 | Change | 2020 | 2019 | Change |
| 2021 |
| 2020 |
| Change |
| 2021 |
| 2020 |
| Change | ||||||||||||||||||||||||
Net (loss) income | $ | (48 | ) | $ | (320 | ) | $ | 272 | $ | 106 | $ | (390 | ) | $ | 496 | |||||||||||||||||||||||||||
Income tax (benefit) expense | (13 | ) | (98 | ) | 85 | 61 | (115 | ) | 176 | |||||||||||||||||||||||||||||||||
Net income (loss) | | $ | (220) | | $ | 271 | | $ | (491) | | $ | 1,151 | | $ | 155 | | $ | 996 | ||||||||||||||||||||||||
Income tax expense (benefit) | |
| (79) | |
| 111 | |
| (190) | |
| (52) | |
| 74 | |
| (126) | ||||||||||||||||||||||||
Interest expense (1) | 50 | 69 | (19 | ) | 160 | 218 | (58 | ) | |
| 57 | |
| 52 | |
| 5 | |
| 87 | |
| 110 | |
| (23) | ||||||||||||||||
Depreciation and amortization | 182 | 168 | 14 | 521 | 548 | (27 | ) | |||||||||||||||||||||||||||||||||||
Depreciation | |
| 333 | |
| 170 | |
| 163 | |
| 516 | |
| 339 | |
| 177 | ||||||||||||||||||||||||
EBITDA | $ | 171 | $ | (181 | ) | $ | 352 | $ | 848 | $ | 261 | $ | 587 | | $ | 91 | | $ | 604 | | $ | (513) | | $ | 1,702 | | $ | 678 | | $ | 1,024 |
(1) Includes amortization of debt issue costs.
As a smaller reporting company, we have elected not to provide the information required by this Item.
Item 3.Quantitative and Qualitative Disclosure About Market Risk.
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 designedAs a smaller reporting company, we have elected not to ensure thatprovide 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 participationItem.
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Inherent Limitations Over Internal Controls
The Company’s internal control over financial reporting is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
For the quarter ended December 31, 2020, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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) of Regulation S-K, certain schedules have been omitted. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.
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.
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 September 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 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 September 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, except for the acquisition of Stadco. The Company is in the process of evaluating Stadco’s the internal controls over financial reporting and integrating such with its own internal controls over financial reporting.
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PART II. Other Information.
Item 6.Exhibits.
Exhibit Index
Exhibit No. | Description | |
2.1 | | |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.7 | | |
10.8 | | |
10.9 | | |
10.10 | | |
10.11 | | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | ||
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | XBRL Taxonomy Extension Schema Document. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
104 | | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
* Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and attachments have been omitted. A copy of any omitted schedule or attachment will be furnished supplementally to the Securities and Exchange Commission upon request.
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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 | ||
December 9, 2021 | By: | /s/ Thomas Sammons |
Thomas Sammons | ||
Chief Financial Officer |
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