TechPrecision 10Q 2024 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2023

☐ 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
Common Stock, par value $0.0001 per share	TPCS	Nasdaq Capital Market

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 28, 2024, was 8,777,432.

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PART I

ITEM 1. FINANCIAL STATEMENTS

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	(unaudited)
	December 31,		March 31,
	2023		2023
ASSETS
Current assets:
Cash and cash equivalents	$	391,245	$	534,474
Accounts receivable, net		2,192,061		2,336,481
Contract assets		8,372,183		8,947,811
Raw materials		2,054,348		1,692,852
Work-in-process		1,586,187		719,736
Other current assets		653,603		348,983
Total current assets		15,249,627		14,580,337
Property, plant and equipment, net		15,429,441		13,914,024
Right-of-use assets, net		5,149,898		5,660,938
Deferred income taxes		2,494,544		1,931,186
Other noncurrent assets, net		121,256		121,256
Total assets	$	38,444,766	$	36,207,741
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable	$	1,727,108	$	2,224,320
Accrued expenses		2,716,088		2,533,185
Contract liabilities		4,035,384		2,333,591
Current portion of long-term lease liability		727,683		711,727
Current portion of long-term debt, net		7,434,623		1,218,162
Total current liabilities		16,640,886		9,020,985
Long-term debt, net		—		4,749,139
Long-term lease liability		4,595,170		5,143,974
Other noncurrent liability		4,373,494		2,699,492
Total liabilities		25,609,550		21,613,590
Commitments and contingencies (see Note 14)
Stockholders’ Equity:
Common stock - par value $.0001 per share, shares authorized: 50,000,000; Shares issued and outstanding: 8,762,432 at December 31, 2023 and 8,613,408 at March 31, 2023		876		861
Additional paid in capital		15,111,901		14,949,729
Accumulated deficit		(2,277,561)		(356,439)
Total stockholders’ equity		12,835,216		14,594,151
Total liabilities and stockholders’ equity	$	38,444,766	$	36,207,741

See accompanying notes to the condensed consolidated financial statements.

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TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2023		2022		2023		2022
Net sales	$	7,649,663	$	8,327,345	$	22,990,989	$	23,926,349
Cost of sales		6,488,859		6,828,458		20,101,221		19,870,572
Gross profit		1,160,804		1,498,887		2,889,768		4,055,777
Selling, general and administrative		2,156,866		1,224,572		5,062,983		4,426,894
(Loss) income from operations		(996,062)		274,315		(2,173,215)		(371,117)
Other income		1		254		40,877		40,590
Interest expense		(109,503)		(93,603)		(352,142)		(260,978)
Refundable employee retention tax credits		—		—		—		624,045
Total other (expense) income		(109,502)		(93,349)		(311,265)		403,657
(Loss) income before income taxes		(1,105,564)		180,966		(2,484,480)		32,540
Income tax (benefit) expense		(240,230)		46,991		(563,358)		8,786
Net (loss) income	$	(865,334)	$	133,975	$	(1,921,122)	$	23,754
Net (loss) earnings per share basic	$	(0.10)	$	0.02	$	(0.22)	$	0.00
Net (loss) earnings per share diluted	$	(0.10)	$	0.01	$	(0.22)	$	0.00
Weighted average shares outstanding - basic		8,759,171		8,610,990		8,698,034		8,590,838
Weighted average shares outstanding - diluted		8,759,171		9,033,677		8,698,034		9,009,867

See accompanying notes to the condensed consolidated financial statements.

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TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)


						Retained
	Common			Additional		Earnings		Total
	Stock	Par		Paid in		(Accumulated		Stockholders’
	Outstanding	Value		Capital		Deficit)		Equity
Balance March 31, 2022	8,576,863	$	858	$	14,640,343	$	622,567	$	15,263,768
Stock-based compensation	—		—		52,107		—		52,107
Net loss	—		—		—		(501,165)		(501,165)
Balance June 30, 2022	8,576,863	$	858	$	14,692,450	$	121,402	$	14,814,710
Stock-based compensation	—		—		46,539		—		46,539
Stock issued for contingent consideration	9,127		1		56,309		—		56,310
Stock award nonemployee directors	25,000		2		143,998		—		144,000
Net income	—		—		—		390,944		390,944
Balance September 30, 2022	8,610,990	$	861	$	14,939,296	$	512,346	$	15,452,503
Stock-based compensation	—		—		8,663		—		8,663
Net income	—		—		—		133,975		133,975
Balance December 31, 2022	8,610,990	$	861	$	14,945,376	$	646,321	$	15,595,141

Balance March 31, 2023	8,613,408	$	861	$	14,949,729	$	(356,439)	$	14,594,151
Net loss							(527,455)		(527,455)
Balance June 30, 2023	8,613,408	$	861	$	14,949,729	$	(883,894)	$	14,066,696
Stock issued for exercised options	109,024		11		(11)		—		—
Stock used for tax withholding at exercise	—		—		(34,013)		—		(34,013)
Restricted stock award	15,000		2		9,222		—		9,224
Net loss	—		—		—		(528,333)		(528,333)
Balance September 30, 2023	8,737,432	$	874		14,924,927	$	(1,412,227)	$	13,513,574
Stock-based compensation	—		—		9,226		—		9,226
Restricted stock award	25,000		2		177,748		—		177,750
Net loss	—		—		—		(865,334)		(865,334)
Balance December 31, 2023	8,762,432		876		15,111,901		(2,277,561)		12,835,216

See accompanying notes to the condensed consolidated financial statements.

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TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended December 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,921,122)	$	23,754
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		1,758,925		1,666,741
Amortization of debt issue costs		54,820		39,961
Stock-based compensation expense and restricted awards		196,200		307,619
Change in contract loss provision		155,317		100,880
Deferred income taxes		(563,358)		8,785
Gain on disposal of fixed assets		(40,399)		(468)
Change in fair value for contingent consideration		—		63,436
Changes in operating assets and liabilities:
Accounts receivable		144,420		81,842
Contract assets		575,628		(1,006,010)
Work-in-process and raw materials		(1,227,947)		(57,450)
Other current assets		(304,620)		435,435
Accounts payable		(497,212)		(166,749)
Accrued expenses		(526,899)		(1,741,606)
Contract liabilities		1,701,793		139,944
Other noncurrent liabilities		1,674,002		974,737
Net cash provided by operating activities		1,179,548		870,851
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from insurance claim and sale of fixed assets		61,944		7,000
Fixed asset deposit		—		(605,200)
Purchases of property, plant and equipment		(2,782,346)		(663,033)
Net cash used in investing activities		(2,720,402)		(1,261,233)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issue costs		(39,963)		(43,945)
Revolver loan payments and borrowings, net		1,900,000		187,998
Payments of principal for leases		(14,877)		(31,058)
Repayments of long-term debt		(447,535)		(458,567)
Net cash provided by (used in) financing activities		1,397,625		(345,572)
Net decrease in cash and cash equivalents		(143,229)		(735,954)
Cash and cash equivalents, beginning of period		534,474		1,052,139
Cash and cash equivalents, end of period	$	391,245	$	316,185
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for interest, net of amounts capitalized	$	297,322	$	216,881

See accompanying notes to the condensed consolidated financial statements.

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SUPPLEMENTAL INFORMATION – NONCASH FINANCING TRANSACTIONS:

Nine Months ended December 31, 2023

On July 13, 2023, our former CFO exercised an option to purchase 125,000 shares of the Company’s common stock pursuant to option awards previously granted under the 2016 Plan. The option was exercised as a cashless net settlement transaction and resulted in the delivery of 109,024 shares of common stock on July 13, 2023.

Nine Months Ended December 31, 2022

Stadco entered into a payment arrangement agreement (the “Payment Agreement”) with the Department of Water and Power of the City of Los Angeles (the “LADWP”), to settle previously outstanding amounts for water, water service, electric energy and/or electric service in the aggregate amount of $1,770,201 that are delinquent and unpaid. This liability amount was included in accounts payable on the Company’s balance sheet as of March 31, 2022, and was reclassified as a current liability for $221,272 to accrued expenses and to noncurrent liabilities for $1,548,929 in December 2022.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

TechPrecision Corporation, or “TechPrecision”, is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. On February 24, 2006, we acquired all of the issued and outstanding capital stock of our wholly owned subsidiary Ranor, Inc., or “Ranor.” Ranor, together with its predecessors, has been in continuous operation since 1956. The company’s name was changed to TechPrecision Corporation on March 6, 2006.

On August 25, 2021, the Company completed its previously announced acquisition of Stadco, pursuant to that certain stock purchase agreement with Stadco New Acquisition, LLC, or “Acquisition Sub”, Stadco Acquisition, LLC, Stadco and each equity holder of Stadco Acquisition, LLC. On the closing date, the Company, through Acquisition Sub, acquired all of the issued and outstanding capital stock of Stadco from Stadco Acquisition, LLC in exchange for the issuance of shares of the Company’s common stock to Stadco Acquisition, LLC. As a result of the acquisition, Stadco is now our wholly owned indirect subsidiary.

TechPrecision is the parent company of Ranor, Westminster Credit Holdings, LLC, or “WCH”, Acquisition Sub, and Stadco. TechPrecision, Ranor, WCH, Acquisition Sub and Stadco are collectively referred to as the “Company”, “we”, “us” or “our”.

We manufacture large-scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets, primarily defense and aerospace, and secondarily precision industrial. All our operations and customers are in the United States, or “U.S.”.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the accounts of TechPrecision, Ranor, Stadco, WCH, and Acquisition Sub. All intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of December 31, 2023, the condensed consolidated statements of operations and stockholders’ equity for the three and nine months ended December 31, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended December 31, 2023 and 2022 are unaudited, but, in the opinion of management, include all adjustments that are necessary for a fair presentation of our financial statements for interim periods in accordance with U.S. Generally Accepted Accounting Principles, or “U.S. GAAP”. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The results of operations for an interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. On February 23, 2023, the Company effected a one-for-four reverse stock split with respect to the issued and outstanding shares of TechPrecision common stock. All share and per-share amounts included in this Form 10-Q are presented as if the stock split had been effective from the beginning of the earliest period presented.

These notes to the condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the “SEC”, for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements and related notes should be read in conjunction with the consolidated financial statements included with our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with the SEC on June 15, 2023.

Use of Estimates in the Preparation of Financial Statements - In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the reporting period. We continually evaluate our estimates, including those related to revenue recognition and income taxes. We base our estimates on historical and current experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Liquidity and Going Concern - Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income. For the nine months ended December 31, 2023 we reported a net loss ($1,921,122).

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As of December 31, 2023, we had approximately $2.8 million in total available liquidity, consisting of $0.4 million in cash and cash equivalents, and approximately $2.4 million in undrawn capacity under our revolver loan. As of March 31, 2023, we had $4.7 million in total available liquidity, consisting of $0.5 million in cash and cash equivalents, and $4.2 million in undrawn capacity under our revolver loan.

The Company is the borrower under a Loan Agreement which was amended on December 20, 2023 (as defined below; see Note 11 – Debt). On that date, Ranor and certain affiliates of the Company entered into a Sixth Amendment to Amended and Restated Loan Agreement and Second Amendment to Second Amended and Restated Promissory Note, or the “Sixth Amendment”.

The original maturity date of the revolver loan under the Loan Agreement was December 20, 2023. Berkshire Bank is the lender under the Loan Agreement and agreed to extend the maturity date of the revolver loan to March 20, 2024. There was $7.6 million outstanding under the agreement on December 31, 2023.

In addition to extending the maturity date of the revolver loan, the Sixth Amendment limits the amount of proceeds borrowed to $1.0 million in the aggregate for due diligence and professional costs incurred prior to March 20, 2024 in connection with any potential acquisitions. The Company acknowledges that a certain event of default has occurred and is continuing under the Loan Agreement as a result of the Company’s failure to satisfy the Debt Service Coverage Ratio, or DSCR, for the twelve-month period ending December 31, 2023. The lender reserves any and all rights and remedies available to it under the Loan Agreement, including, without limitation, its right to choose to accelerate and demand the outstanding indebtedness evidenced by the loan documents, and to seek immediate repayment in full.

Without a waiver, the lender has the right, but not the obligation, to demand repayment from the Company for noncompliance with the debt covenants. In addition, the bank retains the right to act on covenant violations that occur after the date of delivery of any waiver. The lender has not granted us a waiver. As such, we need to seek alternative financing to pay these obligations as the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations. It is also probable that the Company will not be in compliance with the same debt covenants at subsequent measurement dates within the next twelve months. As a result of the above, all of our long-term debt has been classified as current in our condensed consolidated balance sheet.

The Company is exploring various means of strengthening its liquidity position and ensuring compliance with its debt financing covenants, amending our facility, renewing our revolver loan, or entering into one or more alternative facilities.

In order for us to continue operations beyond the next twelve months from the date of issuance of the financial statements and to be able to discharge our liabilities and commitments in the normal course of business, we must renew our revolver loan by March 20, 2024 and mitigate our recurring operating losses at our Stadco subsidiary. We must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process. We plan to closely monitor our expenses and, if required, will reduce operating costs to enhance liquidity.

The uncertainty associated with the recurring operating losses at Stadco, the revolver loan renewal, the need for alternative financing, compliance with debt covenants, and the expected debt covenant violation at subsequent compliance dates raise substantial doubt about our ability to continue as a going concern for at least one-year after the date the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued.

The condensed consolidated financial statements for the nine months ended December 31, 2023, were prepared on the basis of a going concern which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should we be required to liquidate assets. Our ability to satisfy our current liabilities and to continue as a going concern is dependent upon the Company’s compliance with the debt covenants, renewing the revolver loan, and its ability to grow revenue and reduce costs at Stadco. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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New Accounting Standards Recently Adopted

In December 2023, the Financial Accounting Standards Board, or “FASB”, issued Accounting Standards Update, or “ASU”, 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in ASU 2023-09 address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This standard update is effective for annual reporting periods beginning after December 15, 2024. The Company is currently evaluating this update to determine the impact it may have on its condensed consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures. The guidance in this update enhances segment reporting by expanding the breadth and frequency of segment disclosures required for public entities and allows registrants to disclose multiple measures of segment profit or loss. This update requires a public entity to disclose its significant segment expense categories and amounts for each reportable segment. A significant segment expense is any significant expense incurred by the segment, including direct expenses, shared expenses, allocated corporate overhead, or interest expense that is regularly reported to the Chief Operating Decision Maker, or CODM, and is included in the measure of segment profit or loss. This standard update is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. The Company is currently evaluating this update to determine the impact it may have on its condensed consolidated financial statements and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended subsequently by ASUs 2018-19, 2019-04, 2019-05, 2019-10, 2019-11 and 2020-03. The guidance in these ASUs requires that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used. The standard also establishes additional disclosures related to credit risks. This standard was effective for fiscal years beginning after December 15, 2022. The adoption of this ASU on April 1, 2023 did not have a significant impact on the Company’s condensed consolidated financial statements and disclosures.

NOTE 3 – REVENUE

The Company generates revenue primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can be between three and thirty-six months. 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, 2023	$	7,649,663	$	—	$	7,649,663
Three months ended December 31, 2022	$	8,316,711	$	10,634	$	8,327,345
Nine months ended December 31, 2023	$	22,808,695	$	182,294	$	22,990,989
Nine months ended December 31, 2022	$	23,543,077	$	383,272	$	23,926,349


Net Sales by contract type	Over-time		Point-in-time		Totals
Three months ended December 31, 2023	$	7,548,094	$	101,569	$	7,649,663
Three months ended December 31, 2022	$	7,813,273	$	514,072	$	8,327,345
Nine months ended December 31, 2023	$	21,763,438	$	1,227,551	$	22,990,989
Nine months ended December 31, 2022	$	22,672,048	$	1,254,301	$	23,926,349

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As of December 31, 2023, the Company had $50.8 million of remaining performance obligations, of which $43.9 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.

We are dependent each year on a small number of customers which 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				Nine months ended				Nine months ended
	December 31, 2023				December 31, 2022				December 31, 2023				December 31, 2022
Customer	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
A	$	1,904,403	25	%	$	1,448,547	17	%	$	6,749,881	29	%	$	4,182,984	18	%
B	$	942,199	12	%	$	*	*	%	$	2,684,976	12	%	$	*	*	%
C	$	*	*	%	$	1,451,713	17	%	$	*	*	%	$	4,495,028	19	%
D	$	1,176,312	15	%	$	1,385,871	16	%	$	2,487,749	11	%	$	4,764,391	20	%
E	$	915,060	12	%	$	*	*	%	$	2,357,445	10	%	$	*	*	%
F	$	910,901	12	%	$	*	*	%	$	2,321,405	10	%	$	*	*	%

*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 nine months ended December 31, 2023, we recognized revenue of $1.2 million related to our contract liabilities at April 1, 2023. Contract assets consisted of the following at:


			Progress
	Unbilled		payments		Total
December 31, 2023	$	20,949,269	$	(12,577,086)	$	8,372,183
March 31, 2023	$	19,485,914	$	(10,538,103)	$	8,947,811

NOTE 4 – INCOME TAXES

The Company accounts for income taxes under ASC 740, Income Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. We recorded an income tax benefit for the three ($240,230) and nine months ($563,358) ended December 31, 2023. For the three and nine months ended December 31, 2022, we recorded income tax expense of $46,991 and $8,786, respectively. The Company’s effective tax rate for the nine months ended December 31, 2023 and 2022 was 22.7% and 27.0%, respectively.

The valuation allowance on deferred tax assets was approximately $2.2 million at December 31, 2023. We believe that it is more likely than not that the benefit from certain state net operating losses, or “NOLs”, 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.

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NOTE 5 – EARNINGS PER SHARE (EPS)

Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average number of shares outstanding. Diluted EPS also includes the effect of stock options that would be dilutive. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations for the periods ended:


	Three Months ended		Three Months ended		Nine Months ended		Nine Months ended
	December 31, 2023		December 31, 2022		December 31, 2023		December 31, 2022
Basic EPS
Net (loss) income	$	(865,334)	$	133,975	$	(1,921,122)	$	23,754
Weighted average shares		8,759,171		8,610,990		8,698,034		8,590,838
Net (loss) earnings per share	$	(0.10)	$	0.02	$	(0.22)	$	0.00
Diluted EPS
Net (loss) income	$	(865,334)	$	133,975	$	(1,921,122)	$	23,754
Dilutive effect of stock options		—		422,687		—		419,029
Weighted average shares		8,759,171		9,033,677		8,698,034		9,009,867
Net (loss) earnings per share	$	(0.10)	$	0.01	$	(0.22)	$	0.00

All potential common stock equivalents that have an anti-dilutive effect are excluded from the calculation of diluted EPS (i.e., those that increase income per share or decrease loss per share). For the three months and nine months ended December 31, 2023 there were anti-dilutive stock options and warrants of 567,500 and 567,500, respectively, none of which were included in the earnings per share calculations above.

NOTE 6 – STOCK-BASED COMPENSATION

The 2016 TechPrecision Equity Incentive Plan, or the “2016 Plan”, is designed to reflect our commitment to having best practices in both compensation and corporate governance. The 2016 Plan provides for a share reserve of 1,250,000 shares of common stock.

The following table summarizes information about options granted during the most recently completed periods:


						Weighted
						Average
		Weighted		Aggregate		Remaining
	Number Of	Average		Intrinsic		Contractual Life
	Options	Exercise Price		Value		(in years)
Outstanding at March 31, 2023	667,500	$	1.37	$	3,804,625	3.70
Exercised	(125,000)	$	0.68		846,250	—
Outstanding at December 31, 2023	542,500	$	1.53	$	1,980,550	3.16
Vested or expected to vest at December 31, 2023	542,500	$	1.53	$	1,980,550	3.16
Exercisable and vested at December 31, 2023	542,500	$	1.53	$	1,980,550	3.16

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The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the third quarter of fiscal 2024 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2023. This amount changes based on the fair market value of the Company’s common stock. The maximum contractual term is ten years for option grants. Other information relating to stock options outstanding at December 31, 2023 is as follows:


		Weighted
		Average
		Remaining	Weighted			Weighted
	Options	Contractual	Average		Options	Average
Range of Exercise Prices:	Outstanding	Term	Exercise Price		Exercisable	Exercise Price
$0.01-$0.99	192,500	1.61	$	0.32	192,500	$	0.32
$2.00-$2.99	350,000	3.41	$	2.19	350,000	$	2.19
Totals	542,500				542,500

On August 3, 2023 the Company issued 15,000 shares of restricted common stock to the Company’s new CFO. Under the terms of the employment agreement, provided she remains employed by the Company from the grant date through the applicable vesting dates, 5,000 shares of the restricted stock will vest on each of the first, second, and third anniversaries of the effective employment date of July 17, 2023. Fair value of $110,700 was measured 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. Stock-based compensation expense will be recognized ratably over the vesting period.

On October 11, 2023, we granted a total of 25,000 shares of restricted common stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $177,750 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.

Total recognized compensation cost related to the restricted stock awards for the three and nine months ended December 31, 2023, was $186,975 and $196,200, respectively. On December 31, 2023, there was $92,250 of unrecognized compensation cost related to the restricted stock awards. Total recognized compensation cost related to the restricted stock awards for the three and nine months ended December 31, 2022, was $8,663 and $107,309, respectively.

At December 31, 2023, there were 272,500 shares available for grant under the 2016 Plan.

NOTE 7 - CONCENTRATION OF CREDIT RISK

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

On December 31, 2023, there were trade accounts receivable balances outstanding from four customers comprising 67% of the total trade receivables balance. The following table sets forth information as to trade accounts receivable from customers which accounted for more than 10% of our accounts receivable balance as of:


	December 31, 2023				March 31, 2023
Customer	Dollars		Percent		Dollars		Percent
A	$	*	*	%	$	730,514	31	%
B	$	*	*	%	$	260,177	11	%
C	$	522,661	24	%	$	*	*	%
D	$	*	*	%	$	265,755	11	%
E	$	442,837	20	%	$	*	*	%
F	$	253,437	12	%	$	*	*	%
G	$	233,685	11	%	$	*	*	%

*less than 10% of total

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NOTE 8 - OTHER CURRENT ASSETS


Other current assets included the following as of:	December 31, 2023		March 31, 2023
Prepaid taxes	$	86,983	$	9,616
Prepaid insurance		352,431		162,075
Prepaid subscriptions		73,770		120,570
Deposits		21,176		21,706
Supplier advances		109,554		170
Other prepaid expenses		9,689		34,846
Total	$	653,603	$	348,983

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT, NET


Property, plant and equipment, net consisted of the following as of:	December 31, 2023		March 31, 2023
Land	$	110,113	$	110,113
Building and improvements		3,293,986		3,293,986
Machinery equipment, furniture, and fixtures		25,759,540		23,018,713
Construction-in-progress		114,733		149,576
Total property, plant, and equipment		29,278,372		26,572,388
Less: accumulated depreciation and amortization		(13,848,931)		(12,658,364)
Total property, plant and equipment, net	$	15,429,441	$	13,914,024

We capitalize interest on borrowings during active construction periods for major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Interest capitalized for the nine months ended December 31, 2023 was $18,642.

In September 2023, the Company signed an agreement to make additional equipment upgrades for a certain customer. We recognize new purchases as a fixed asset and billings for reimbursement from the customer as a contra-asset. Future depreciation of the asset will be offset directly by the amortization of the contra-asset on a net basis in the statement of operations. The amortization period will match the schedule of depreciation set forth under the fixed asset ledger.

NOTE 10 - ACCRUED EXPENSES


Accrued expenses included the following as of:	December 31, 2023		March 31, 2023
Accrued compensation	$	1,035,521	$	1,257,245
Provision for claims		234,472		256,227
Provision for contract losses		258,271		102,954
Accrued professional fees		595,778		241,195
Accrued project costs		441,204		440,550
Other		150,842		235,014
Total	$	2,716,088	$	2,533,185

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.

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NOTE 11 – DEBT


Long-term debt included the following as of:	December 31, 2023		March 31, 2023
Stadco Term Loan, at 3.79% interest, due August 2028	$	2,784,080	$	3,186,495
Ranor Term Loan, at 6.05% interest, due December 2027		2,231,398		2,276,518
Ranor Revolver Loan, at 7.72% interest, due December 2023		2,550,000		650,000
Total debt	$	7,565,478	$	6,113,013
Less: debt issue costs unamortized	$	130,855	$	145,712
Total debt, net	$	7,434,623	$	5,967,301
Less: Current portion of long-term debt	$	7,434,623	$	1,218,162
Total long-term debt, net	$	—	$	4,749,139

Amended and Restated Loan Agreement

On August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank, or the “Loan Agreement”. Under the Loan Agreement, Berkshire Bank will 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 $4.0 million. The proceeds of the original Ranor Term Loan of $2.85 million were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. The proceeds of the Stadco Term Loan were to be used to support the acquisition of Stadco and refinance existing indebtedness of Stadco.

Stadco Term Loan

On August 25, 2021, Stadco borrowed $4.0 million from Berkshire Bank, or the “Stadco Term Loan”, under the Loan Agreement. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021 at a fixed rate per annum equal to the 7 year Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Since September 25, 2021 and on the 25th day of each month thereafter, Stadco is required to make monthly payments of principal and interest in the amount of $54,390 each, with all remaining outstanding principal and accrued interest due and payable on August 25, 2028. Interest shall be calculated based on actual days elapsed and a 360-day year.

Unamortized debt issue costs on December 31, 2023 and March 31, 2023 were $33,376 and $44,482, respectively.

Ranor Term Loan and Revolver Loan

A term loan was made to Ranor by Berkshire Bank in 2016 in the amount of $2.85 million, or the “Ranor Term Loan”. Payments began on January 20, 2017, and were made in 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 original maturity date, December 20, 2021, which was extended to December 20, 2022.

On December 23, 2022, Ranor and certain affiliates of the Company entered into a Fifth Amendment to Amended and Restated Loan Agreement, Fifth Amendment to Promissory Note and First Amendment to Second Amended and Restated Promissory Note, or the “Fifth Amendment”. Effective as of December 20, 2022, the Fifth Amendment, among other things (i) extends the maturity date of the Ranor Term Loan to December 15, 2027, (ii) extends the maturity date of the Revolver Loan from December 20, 2022 to December 20, 2023, (iii) increases the interest rate on the Ranor Term Loan from 5.21% to 6.05% per annum, (iv) decreases the monthly payment on the Ranor Term Loan from $19,260 to $16,601, (v) replaces LIBOR as an option for the benchmark interest rate for the Revolver Loan with the Secured Overnight Financing Rate, or “SOFR”, (vi) replaces LIBOR-based interest pricing conventions with SOFR-based pricing conventions, including benchmark replacement provisions, and (vii) solely with respect to the fiscal quarter ending December 31, 2022, lowers the debt service coverage ratio from at least 1.2 to 1.0 to 1.1 to 1.0.

Under the Loan Agreement, Berkshire Bank also makes available to Ranor the Revolver Loan, which has a maximum principal amount available of $5.0 million. Advances under the Revolver Loan are subject to a borrowing base equal to the lesser of (a) $5.0 million or (b) the sum of (i)80% of 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) 80% of the Appraised Value of the Eligible Equipment, as such terms are defined in the Loan Agreement.

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On December 20, 2023, Ranor and certain affiliates of the Company entered into a Sixth Amendment to Amended and Restated Loan Agreement and Second Amendment to Second Amended and Restated Promissory Note, or the “Sixth Amendment”.

Effective December 20, 2023, the Sixth Amendment, among other things (i) extends the maturity date of the Revolver Loan from December 20, 2023 to March 20, 2024; (ii) limits the use of proceeds from the Revolver Loan by the Company or its affiliates to $1,000,000 in the aggregate for due diligence and related professional costs incurred on or prior to March 20, 2024 in connection with any acquisitions; and (iii) makes certain changes to the amount and methods of valuation of equipment securing repayment of the borrowed funds.

There was approximately $2.6 million outstanding under the Revolver Loan at December 31, 2023. Interest paid and accrued under the Revolver Loan for the nine months ended December 31, 2023 and 2022 was $116,844 and $22,898, respectively. The weighted average interest rate for the first nine months of fiscal 2024 was 7.54%. Unused borrowing capacity at December 31, 2023 and March 31, 2023 was approximately $2.4 million and $4.2 million, respectively.

Unamortized debt issue costs at December 31, 2023 and March 31, 2023 were $97,479 and $101,230, respectively.

Berkshire Loan Covenants

Ranor and Stadco are referred to together as the “Borrowers” under the Loan Agreement. The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or together, the “Berkshire Loans”, may be accelerated upon the occurrence of an event of default as defined in the Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the Loan Agreement, the unpaid principal amount of the Berkshire Loans together with accrued interest and all other obligations owing by the Borrowers to Berkshire Bank would become immediately due and payable without presentment, demand, protest, or further notice of any kind.

The Company agreed to maintain compliance with certain financial covenants under the Loan Agreement. Namely, the Borrowers agree to maintain the ratio of the Cash Flow of TechPrecision-to-the Total Debt Service of TechPrecision of not less than 1.20 to 1.00 (except for the fiscal quarter ended December 31, 2022, in which case such ratio of Cash Flow to Total Debt Service was to be not less than 1.10 to 1.00), measured quarterly on the last day of each fiscal quarter, or annual period of TechPrecision on a trailing 12-month basis, commencing with the fiscal quarter ending as of September 30, 2021. Calculations are based on the audited (year-end) and unaudited (quarterly) consolidated financial statements of TechPrecision. Quarterly tests will be measured based on the financial statements included in the Company’s quarterly reports on Form 10-Q within 60 days of the end of each quarter, and annual tests will be measured based on the financial statements included in the Company’s annual reports on Form 10-K within 120 days after the end of each fiscal annual period. Cash Flow means an amount, without duplication, equal to the sum of net income of TechPrecision plus (i) interest expense, plus (ii) taxes, plus (iii) depreciation and amortization, plus (iv) stock based compensation expense taken by TechPrecision, plus (v) non-cash losses and charges and one time or non-recurring expenses at Berkshire Bank’s discretion, less (vi) the amount of cash distributions, if any, made to stockholders or owners of TechPrecision, less (vii) cash taxes paid by the TechPrecision, all as determined in accordance with U.S. GAAP. “Total Debt Service” means an amount, without duplication, equal to the sum of (i) all amounts of cash interest paid on liabilities, obligations, and reserves of TechPrecision paid by TechPrecision, (ii) all amounts paid by TechPrecision in connection with current maturities of long-term debt and preferred dividends, and (iii) all payments on account of capitalized leases, all as determined in accordance with U.S. GAAP.

The Borrowers agree to cause their Balance Sheet Leverage to be less than or equal 2.50 to 1.00. For purposes of this covenant, “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 pledged as collateral for the loan, 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 $1.5 million, subject to certain agreed-upon exclusions. Compliance is tested annually.

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On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company’s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024 any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.

As a result of the Borrowers’ failure to satisfy the required minimum Debt Service Coverage Ratio for the twelve (12) month period ending December 31, 2023 as set forth in the Loan Agreement, or the “Existing Default”, the borrowers acknowledge that a certain Event of Default has occurred and is continuing under the Loan Agreement. The borrowers further acknowledge that the Sixth Amendment to the Agreement constitutes written notice pursuant to the Loan Documents of such Existing Default. Regardless of entering into this Agreement or any discussions between Borrowers and Lender, Lender expressly reserves any and all rights and remedies available to it under the Loan Documents, the Collateral Documents, and under applicable law, including, without limitation, its right to choose to accelerate and demand the outstanding indebtedness evidenced by the Loan Documents and seek immediate repayment in full, and institute the default rate of interest as of the date of the occurrence of the default or at any time thereafter, as a result of any default or event of default, including, without limitation, the Existing Default, that have arisen or may arise. No such discussions or the entering into of this Agreement shall imply any course of conduct or any agreement on the part of Lender to waive any of its rights and remedies or to forbear from taking any action authorized by the Loan Documents, the Collateral Documents, or by applicable law while discussions continue. It is probable that the Company will not be in compliance with certain debt covenants at subsequent measurement dates. As a result of the above, all of our long-term debt has been classified as current in our condensed consolidated balance sheet as of December 31, 2023.

Collateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets. The carrying value of short and long-term borrowings approximates their fair value. The Company’s short-term and long-term debt is all privately held with no public market for this debt and is considered to be Level 3 under the fair value hierarchy.

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NOTE 12 - OTHER NONCURRENT LIABILITIES

Under an addendum to a contract purchase order, one of our customers agreed to reimburse the Company for the cost of certain new equipment. Payments are received as the Company’s incurs construction costs. We received the first payment in January 2022, with additional payments received during fiscal 2023 and the nine months ended December 31, 2023. In case of a contract breach, at the time of the breach, the customer may claw back the funds based on a prorated ten-year straight-line annual declining balance recovery period. This liability amount was included in the Company’s condensed consolidated balance sheets as a noncurrent liability as of December 31, 2023 and March 31, 2023 for $3.1 million and $1.2 million, respectively.

Stadco entered into the Payment Agreement with the Department of Water and Power of the City of Los Angeles, the “LADWP”, to settle previously outstanding amounts for water, water service, electric energy and/or electric service in the aggregate amount of $1,770,201 that were delinquent and unpaid. Under the Payment Agreement, Stadco will make monthly installment payments on the unpaid balance beginning on December 15, 2022, in an aggregate amount of $18,439 per month until the earlier of November 15, 2030, or the amount due is paid in full. Late payments under the Payment Agreement accrue a late payment charge equal to an 18% annual rate on the unpaid balance. This liability amount was included in the Company’s balance sheet as a current and noncurrent liability as of December 31, 2023 and March 31, 2023 for $0.2 million and $1.3 million, and $0.2 million, and $1.5 million, respectively.

NOTE 13 – LEASES

On August 25, 2021, Stadco became party to an amended building and property operating lease and recorded a right of use asset and liability of $6.6 million. Monthly base rent for the property is $82,998 per month. The term of the lease will expire on June 30, 2030, and the lessee has no right of renewal beyond the expiration date. 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 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.

The following table lists our right-of-use assets and liabilities on our condensed consolidated balance sheets at:


	December 31, 2023		March 31, 2023
Finance lease:
Right of use asset – operating lease	$	6,629,396	$	6,629,396
Right of use asset – finance leases		65,016		65,016
Amortization		(1,544,514)		(1,033,474)
Right of use asset, net	$	5,149,898	$	5,660,938
Lease liability – operating lease	$	5,301,394	$	5,819,365
Lease liability – finance leases		21,459		36,336
Total lease liability	$	5,322,853	$	5,855,701

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Other supplemental information regarding our leases is contained in the following tables:


Components of lease expense for the nine months ended:	December 31, 2023		December 31, 2022
Operating lease amortization	$	498,108	$	480,817
Finance lease amortization	$	12,932	$	16,334
Finance lease interest	$	681	$	1,171


Weighted average lease term and discount rate at:	December 31, 2023		December 31, 2022
Lease term (years) – operating lease	6.50		7.58
Lease term (years) – finance lease	2.25		1.00
Lease rate – operating lease	4.5	%	4.5	%
Lease rate – finance lease	3.2	%	4.5	%


Supplemental cash flow information related to leases for the nine months ended:	December 31, 2023		December 31, 2022
Cash used in operating activities	$	704,101	$	612,411
Cash used in financing activities	$	14,877	$	31,058

Maturities of lease liabilities at December 31, 2023 for the next five years and thereafter:


2024	$	948,701
2025		948,701
2026		941,276
2027		938,802
2028		938,802
Thereafter		1,407,542
Total lease payments	$	6,123,824
Less: imputed interest		800,971
Total	$	5,322,853

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Employment Agreements

We have employment agreements with each of our executive officers. Such agreements provide for minimum salary levels, adjustable annually, and incentive bonuses that are payable if specified company goals are attained. The aggregate commitment at December 31, 2023 for future executive salaries and bonus was approximately $0.6 million. The aggregate commitment at December 31, 2023 for accrued payroll, vacation and holiday pay was approximately $0.9 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. For the three and nine months ended December 31, 2023, the Company contributed $21,194 and $64,191, respectively, and for the three and nine months ended December 31, 2022, the Company contributed $19,233 and $63,354, respectively.

Legal Proceeding

On October 30, 2023, a former employee filed suit against Stadco asserting individual wage and hour claims, claims for age and disability discrimination under California law, and a collective action on behalf of all non-exempt Stadco employees pursuant to the California Private Attorneys General Act of 2004 (“PAGA”) [Cal. Lab. Code, ss. 2698, et seq.], to impose civil penalties for certain violations of the California Labor Code. Stadco has retained outside legal counsel to defend this action. The claim is in early stages, and has been stayed pending completion of mediation, currently scheduled for June 26, 2024. The amount of any loss or exposure cannot be reasonably estimated at this date. The former employee’s individual claims will be subject to private arbitration, while the PAGA claim is not subject to arbitration.

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NOTE 15 – SEGMENT INFORMATION

The Company has two wholly owned subsidiaries, Ranor and Stadco, that are reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. All of the Company’s operations, assets, and customers are located in the U.S.

Each reportable segment focuses on the manufacture and assembly of specific components, primarily for defense, aerospace and other precision industrial customers. However, both segments have separate operating, engineering, and sales teams. The CODM, or our Chief Executive Officer, evaluates the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs. Corporate costs include executive and director compensation, stock-based compensation, and other corporate and administrative expenses not allocated to the segments. The segment operating profit metric is what the CODM uses in evaluating our results of operations and the financial measure that provides insight into our overall performance and financial position. The following table provides summarized financial information for our segments:


	Three Months Ended				Nine Months Ended
	Decemebr 31,				Decemebr 31
	2023		2022		2023		2022
Net Sales
Ranor	$	4,296,471	$	4,735,459	$	13,291,315	$	14,395,043
Stadco		3,369,497		3,591,886		9,942,644		9,531,306
Intersegment elimination		(16,305)		—		(242,970)		—
Net sales from external customers		7,649,663		8,327,345		22,990,989		23,926,349
Operating (loss) income	��
Ranor		1,014,681		1,334,565		2,561,885		4,077,962
Stadco		(514,067)		(561,291)		(1,741,331)		(2,775,382)
Corporate and unallocated (1) (2)		(1,496,676)		(498,959)		(2,993,769)		(1,673,697)
Total operating (loss) income		(996,062)		274,315		(2,173,215)		(371,117)
ERTC refundable credits		—		—		—		624,045
Other income		1		254		40,877		40,590
Interest expense		(109,503)		(93,603)		(352,142)		(260,978)
Consolidated (loss) income before income taxes	$	(1,105,564)	$	180,966	$	(2,484,480)	$	32,540
Depreciation and amortization:
Ranor					$	481,029	$	391,172
Stadco						1,277,896		1,275,569
Totals					$	1,758,925	$	1,666,741
Capital expenditures
Ranor					$	2,755,886	$	175,873
Stadco						26,460		487,160
Totals					$	2,782,346	$	663,033

(1)	Corporate general costs include executive and director compensation, and other corporate administrative expenses not allocated to the segments. Prior period segment data is revised to reflect current period updates to unallocated corporate administrative expense.

(2)	For the three and nine months ended December 31, 2023, includes $1.0 million of expenditures for outside advisory services in connection with a potential acquisition.

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NOTE 16 – STOCK PURCHASE AGREEMENT

On November 22, 2023, the Company entered into a Stock Purchase Agreement, the “Purchase Agreement” with Doerfer Corporation, an Iowa corporation, or the “Seller”, pursuant to which the Seller has agreed to sell, and the Company has agreed to purchase, all of the issued and outstanding common stock of Votaw Precision Technologies, Inc., an Iowa corporation with all of its operations in Southern California and a wholly owned subsidiary of the Seller, or “Votaw” the “Acquisition”.

The Company’s board of directors unanimously approved the Purchase Agreement, the Acquisition and the other transactions contemplated by the Purchase Agreement.

The total consideration payable by the Company to the Seller in connection with the Acquisition is comprised of: (i) $70,000,000, less the amount of indebtedness and transaction expenses of Votaw, plus the amount of unrestricted cash of Votaw to be paid on the date of the closing of the Acquisition, or the “Closing Date”; (ii) less $200,000 if the Closing occurs on or before December 31, 2023; (iii) plus $15,000,000 to be paid pursuant to a promissory note in six payments of $2,500,000 over the three-year period following the Closing Date, subject to certain working capital adjustments; and (iv) up to $25,000,000 to be paid following the Closing Date if Votaw’s EBITDA for its fiscal year ended October 31, 2024 exceeds $11,175,000 (with the maximum amount of $25,000,000 being payable if EBITDA meets or exceeds $14,100,000).

The Purchase Agreement may be terminated by, among other things, (i) written notice from the Company to the Seller delivered on or prior to the date that is 45 days after the date of the Purchase Agreement, if the Company is dissatisfied, in its sole and absolute discretion, with the results of its ongoing financial, legal or other due diligence investigation of Votaw and (ii) by the Company or the Seller if the Closing has not occurred on or prior to March 31, 2024, or the “Outside Date Termination”, subject to the party terminating having complied with the other required closing conditions.

If the Seller terminates the Purchase Agreement pursuant to the Outside Date Termination, the Company must pay to the Seller a termination fee, as the Seller’s exclusive remedy, consisting of 320,000 shares of the Company’s common stock to be issued into the name of the Seller, or the “Stock Termination Fee”; provided, however, that the Stock Termination Fee will increase by 48,000 additional shares of the Company’s common stock, if the Company fails to (i) issue the Stock Termination Fee to the Seller within 30 calendar days following the Seller’s proper termination of the Purchase Agreement pursuant to the Outside Date Termination, and (ii) file a registration statement to effect the resale of such shares of the Company’s common stock included in the Stock Termination Fee within 30 calendar days following the Seller’s proper termination of the Purchase Agreement pursuant to the Outside Date Termination and/or thereafter use commercially reasonable efforts to cause such registration to become effective as soon as practicable.

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

Statement Regarding Forward Looking Disclosure

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

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

●

our reliance on individual purchase orders, rather than long-term contracts, to generate revenue;

●

our ability to balance the composition of our revenues and effectively control operating expenses;

●

external factors that may be outside our control: including health emergencies, like epidemics or pandemics, the conflicts in Eastern Europe and the Middle East, price inflation, interest rates increases, and supply chain inefficiencies;

●

the availability of appropriate financing facilities impacting our operations, financial condition and/or liquidity;

●

our ability to receive contract awards through competitive bidding processes;

●

our ability to maintain standards to enable us to manufacture products to exacting specifications;

●

our ability to enter new markets for our services;

●

our reliance on a small number of customers for a significant percentage of our business;

●

competitive pressures in the markets we serve;

●

changes in the availability or cost of raw materials and energy for our production facilities;

●

restrictions in our ability to operate our business due to our outstanding indebtedness;

●

government regulations and requirements;

●

pricing and business development difficulties;

●

changes in government spending on national defense;

●

our ability to make acquisitions and successfully integrate those acquisitions with our business;

●

our failure to maintain effective internal controls over financial reporting;

●

general industry and market conditions and growth rates, and

●

those risks discussed in “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K, as well as those described in any other filings which we make with the SEC.

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

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Overview

On November 22, 2023, the Company entered into a Stock Purchase Agreement with Doerfer Corporation, or the “Seller”, pursuant to which the Seller has agreed to sell, and the Company has agreed to purchase, all of the issued and outstanding common stock of Votaw Precision Technologies, Inc. All of Votaw operations are located in Southern California.

The Votaw acquisition should more than double the Company’s revenue and increase the Company’s already established defense and aerospace presence. Also, as part of the Company’s plan, the current Votaw facilities has available space to physically merge Votaw with our Stadco subsidiary at a single location. The Company believes the transaction will provide a pathway for significant growth.

Contract Manufacturing

Through our two wholly owned subsidiaries, Ranor and Stadco, each of which is a reportable segment, we offer a full range of services required to transform raw materials into precision finished products. Our manufacturing capabilities include fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, testing, and finishing) and machining operations including CNC (computer numerical controlled) horizontal and vertical machining centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), CNC programming, materials procurement, quality control (material traceability, material receipt inspection, NDT (non-destructive testing) dimensional inspection, and document control), production control (scheduling and project management) and final packaging.

All manufacturing is done in accordance with our quality assurance programs, in conjunction with customer flow-downs and specifications. The customer flow-downs of specifications and standards are specific to each customer purchase order, and our manufacturing operations are conducted in accordance with each specific purchase order.

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

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

All the Company’s operations, assets, and customers are located in the U.S.

Critical Accounting Policies and Estimates

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

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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.

Changes in profitability may occur via adjustments to estimates at completion on individual projects. These adjustments result from increases or decreases to the estimated costs to complete the project. When total estimated costs at completion on a given project change without a corresponding change in the project value, the profitability of that contract may be impacted.

In a multi-project production cycle, changes in profit, both favorable and unfavorable, may be caused by using inputs (direct labor and materials) in ratios different from standard proportions. Possible causes of unfavorable profit variances can be caused by 1) capacity restraints, 2) poor production scheduling, 3) lack of certain types of labor, and 4) materials delivered late or in short supply.

Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2023 Annual Report on Form 10-K. There were no significant changes to our critical accounting policies during the nine months ended December 31, 2023.

New Accounting Standards

See Note 2, Basis of Presentation and Significant Accounting Policies, in the Notes to the Unaudited Condensed Consolidated Financial Statements under “Item 1. Financial Statements”, for a discussion of recently adopted new accounting guidance.

Results of Operations

Our results of operations are affected by a number of external factors including the availability of customer furnished material, raw materials, commodity prices (particularly steel), macroeconomic factors, including the availability of capital that may be needed by our customers, and political, regulatory and legal conditions in the United States and in foreign markets. It generally takes approximately twelve months or less to complete our manufacturing projects. However, contracts for larger complex components can take up to thirty-six months or more to complete. Units manufactured under the majority of our customer contracts have historically been delivered on time and with a positive gross margin, with some exceptions. Our results of operations are also affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress fulfilling obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog.

We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that we consider not representative of ongoing operations, such as refundable employee retention tax credits.

Key Performance Indicators

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

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Percentages in the following tables and throughout this “Results of Operations” section may reflect rounding adjustments. Prior period segment data is revised to reflect new allocations. Prior period Selling, General and Administrative, or “SG&A”, segment data is revised to reflect current period updates to unallocated corporate administrative expense.

Three Months Ended December 31, 2023 and 2022

The following table presents net sales, cost of sales and gross profit, consolidated and by reportable segment:


	Three Months Ended				Three Months Ended
	December 31, 2023				December 31, 2022				Changes
			Percent of				Percent of
(dollars in thousands)	Amount		Net sales		Amount		Net sales		Amount		Percent
Net sales
Ranor	$	4,296	56	%	$	4,735	57	%	$	(439)	(9)	%
Stadco		3,370	44	%		3,592	43	%		(222)	(6)	%
Intersegment elimination		(16)	—	%		—	—	%		(16)	nm	%
Consolidated Net sales	$	7,650	100	%	$	8,327	100	%	$	(677)	(8)	%
Cost of sales
Ranor	$	2,919	38	%	$	3,056	37	%	$	(137)	(4)	%
Stadco		3,570	47	%		3,773	45	%		(203)	(5)	%
Consolidated Cost of sales	$	6,489	85	%	$	6,828	82	%	$	(339)	(5)	%
Gross profit (loss)
Ranor	$	1,377	18	%	$	1,680	20	%	$	(303)	(18)	%
Stadco		(216)	(3)	%		(181)	(2)	%		(35)	(19)	%
Consolidated Gross profit	$	1,161	15	%	$	1,499	18	%	$	(338)	(23)	%

nm - not meaningful

Net Sales

Consolidated - Period-to-period revenue reflects production performance under new and ongoing contracts with changes in net sales due to varying levels of throughput. For both segments, almost all net sales are to the defense sector, where we have customers in the aerospace, military and shipbuilding industries. Generally, fewer labor hours are expended in the third quarter because of the year-end holiday calendar.

Consolidated net sales were $7.7 million for the three months ended December 31, 2023, or 8% lower when compared to net sales of $8.3 million for the three months ended December 31, 2022. Both segments logged a different mix of products, average selling price, and labor hours when comparable to the same periods in 2022.

Ranor – Net sales were $4.3 million for the three months ended December 31, 2023, a decrease of $0.4 million or 9%, as lower volume more than offset an increase in average selling price. We processed a different mix of products for the U.S. Navy submarine programs in the fiscal 2024 third quarter when compared with the same period a year ago.

Stadco - Net sales were $3.4 million for the three months ended December 31, 2023, a decrease of $0.2 million when compared to the three months ended December 31, 2022, primarily due to lower average selling prices and slightly lower volume.

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Cost of Sales and Gross Profit

Consolidated – Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the three months ended December 31, 2023, was $6.5 million, or 5% lower when compared to the three months ended December 31, 2022. The decrease in cost of sales was primarily the result of lower revenue at Ranor and Stadco. Gross profit decreased by $0.3 million, or 5% when compared to the same period a year ago. Gross margin for the three months ended December 31, 2023 was 15.2% compared to 18.0% in the same period a year ago.

Ranor – Cost of sales was lower by $0.1 million when compared to the same period a year ago. Gross profit was lower by $0.3 million when compared to the same period a year ago. A smaller number of direct labor hours were utilized during the fiscal year third quarter, which resulted in under-applied overhead. The change in reported revenue essentially fell directly to the gross profit line.

Stadco – Cost of sales were 5% lower when compared to the same period a year ago. A smaller number of direct labor hours were utilized during the fiscal year third quarter, with lower absorption. Losses totaled $0.2 million for the period, compared with $0.2 million for the same period a year ago.

Selling, General and Administrative (SG&A) Expenses


	December 31, 2023				December 31, 2022				Changes
			Percent of				Percent of
(dollars in thousands)	Amount		Net Sales		Amount		Net Sales		Amount		Percent
Ranor	$	362	5	%	$	316	4	%	$	46	15	%
Stadco		298	4	%		381	5	%		(83)	(22)	%
Corporate and unallocated		1,497	19	%		528	6	%		969	184	%
Consolidated SG&A	$	2,157	28	%	$	1,225	15	%	$	932	76	%

December 31, 2022 SG&A segment data is revised to reflect current period updates to unallocated corporate administrative expense.

Consolidated – Total selling, general and administrative expenses for the three months ended December 31, 2023, increased by approximately $932,000, or 76%, primarily due to outside advisory and business development expenses in connection with a potential acquisition.

Ranor – The change for the comparable three-month periods was driven by an increase in compensation, and travel costs, offset in part by lower outside advisory fees and office costs for a net change of $46,000.

Stadco - SG&A expense decreased by approximately $83,000 as spending for compensation, office costs and outside advisory all declined.

Corporate and unallocated – SG&A increased by approximately $1.0 million, due primarily to increased expenditures for outside advisory services in connection with a potential acquisition, and board of director’s stock-based compensation.

Operating (loss) income


	December 31, 2023				December 31, 2022				Changes
			Percent of				Percent of
(dollars in thousands)	Amount		net sales		Amount		net sales		Amount		Percent
Ranor	$	1,015	13	%	$	1,363	16	%	$	(348)	(26)	%
Stadco		(514)	(7)	%		(561)	(7)	%		47	8	%
Corporate and unallocated		(1,497)	(19)	%		(528)	(6)	%		(969)	(184)	%
Operating (loss) income	$	(996)	(13)	%	$	274	3	%	$	(1,270)	(464)	%

Consolidated – As a result of the foregoing, for the three months ended December 31, 2023, we reported an operating loss of $1.0 million. Operating income at Ranor was not enough to offset the operating loss at Stadco and corporate and unallocated expenses.

Ranor – Operating income was lower when compared to the same period a year ago, due primarily to lower revenue.

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Stadco – Operating losses were smaller as management endeavors to work out utilization and throughput challenges.

Corporate and unallocated – Operating loss reflected SG&A expense which increased by approximately $1.0 million, due primarily to the increased expenditures for outside advisory services and board of director’s stock-based compensation.

Other Income (Expense), net

The following table presents other income (expense) for the three months ended:


	December 31, 2023		December 31, 2022		$ Change		% Change
Other income (expense), net	$	1	$	254	$	(253)	(99)	%
Interest expense	$	(92,157)	$	(80,389)	$	(11,768)	(15)	%
Amortization of debt issue costs	$	(17,346)	$	(13,214)	$	(4,132)	(31)	%

Interest expense increased year over year primarily due to higher interest rates and higher borrowings under the Revolver Loan (as defined below) and lower amounts of interest capitalized. We expect any future interest expense increases will correlate directly with the borrowing levels under the Revolver Loan.

Amortization of debt issue costs increased for the comparable periods as new amortization periods commenced in December 2022 for costs incurred to extend the Ranor Term Loan and renew the Revolver Loan.

Income Taxes

For the three months ended December 31, 2023, the Company recorded a tax benefit $240,230, compared with tax expense of $46,991 for the three months ended December 31, 2022.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The valuation allowance on deferred tax assets at December 31, 2023 was approximately $2.2 million. We believe that it is more likely than not that the benefit from certain state NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.

Net (Loss) Income

As a result of the foregoing, for the three months ended December 31, 2023, we recorded a net loss of $865,334, or $0.10 per share basic and diluted, compared with net income of $133,975 or $0.02 per share basic and $0.01 per share diluted for the three months ended December 31, 2022.

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Nine Months Ended December 31, 2023 and 2022

The following table presents net sales, cost of sales and gross profit, consolidated and by reportable segment:


	Nine Months Ended				Nine Months Ended
	December 31, 2023				December 31, 2022				Changes
			Percent of				Percent of
(dollars in thousands)	Amount		Net sales		Amount		Net sales		Amount		Percent
Net sales
Ranor	$	13,291	58	%	$	14,395	60	%	$	(1,104)	(8)	%
Stadco		9,943	43	%		9,531	40	%		412	4	%
Intersegment elimination		(243)	(1)	%		—	—	%		(243)	nm	%
Consolidated Net sales	$	22,991	100	%	$	23,926	100	%	$	(935)	(4)	%
Cost of sales
Ranor	$	9,364	40	%	$	8,849	37	%	$	515	6	%
Stadco		10,737	47	%		11,022	46	%		(285)	(3)	%
Consolidated Cost of sales	$	20,101	87	%	$	19,871	83	%	$	230	1	%
Gross profit (loss)
Ranor	$	3,703	16	%	$	5,546	23	%	$	(1,843)	(33)	%
Stadco		(813)	(3)	%		(1,491)	(6)	%		678	45	%
Consolidated Gross profit	$	2,890	13	%	$	4,055	17	%	$	(1,165)	(29)	%

nm – not meaningful

Net Sales

Consolidated – Period-to-period revenue reflects production performance under new and ongoing contracts with changes in net sales due to varying levels of throughput. For the nine months ended December 31, 2023, almost 100% of our sales were to the defense sector, where we have customers in the aerospace, military and shipbuilding industries.

Consolidated net sales were $23.0 million for the nine months ended December 31, 2023, or 4% lower when compared to consolidated net sales for the nine months ended December 31, 2022. Net sales decreased by $1.1 million at Ranor, offset in part by an increase $0.4 million at Stadco. Both segments logged a different proportionate mix of products for the comparable periods.

Ranor – Net sales were $13.3 million for the nine months ended December 31, 2023, a decrease of $1.1 million or 8% lower when compared to the same prior-year period. In the nine months ended December 31, 2023, fewer direct labor hours were charged to projects. Average selling price was higher but note enough to offset lower volume. Also, certain supply chain impacts on customer furnished material were evident during part of the reporting period. The defense backlog remains strong as new orders for components related to a variety of programs, including the U.S. Navy submarine programs continue to flow down from our existing base of prime defense contractors. Backlog at Ranor on December 31, 2023 was $18.5 million.

Stadco - Net sales were $9.9 million for the nine months ended December 31, 2023 compared with net sales of $9.5 million for the nine months ended December 31, 2022, an increase of $0.4 million, or 4%. Direct labor hours charged to projects was virtually even with the prior year period. We are making incremental improvements with throughput on projects where revenue is recognized over time. In the nine months ended December 31, 2023, average selling price was higher and more than offset a lower number of labor hours. The defense backlog remains strong as new orders for components related to a variety of programs, including the U.S. Marine Corps heavy lift helicopter programs, continue to flow down from our existing customer base of prime defense contractors. Stadco’s backlog was $32.3 million as of December 31, 2023.

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Cost of Sales and Gross Profit

Consolidated – Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the nine months ended December 31, 2023, was $20.1 million, or 1% higher compared to the nine months ended December 31, 2022. Gross profit decreased by $1.2 million, or 29% when compared to the same period a year ago. Gross margin for the nine months ended December 31, 2023 was 12.6% compared to 16.9% in the same period a year ago.

Ranor – Gross profit decreased by $1.8 million or 33% due primarily to lower revenue and higher cost of sales. We realized fewer direct labor hours of input for the nine months ended December 31, 2023 due to employee turnover and training and factory overhead was under-applied to our work-in-progress.

Stadco – Gross profit was negative for the nine months ended December 31, 2023. Our losses narrowed by 45% when compared to the nine months ended December 31, 2022. Production problems related to equipment down-time were resolved in the first quarter of fiscal 2024. Absorption improved when compared to the same period a year ago. Work force utilization can slowly improve over-time with a favorable project mix and more direct labor hours charged to projects.

Selling, General and Administrative (SG&A) Expenses


	December 31, 2023				December 31, 2022				Changes
			Percent of				Percent of
(dollars in thousands)	Amount		Net Sales		Amount		Net Sales		Amount		Percent
Ranor	$	1,141	5	%	$	1,189	5	%	$	(48)	(4)	%
Stadco		928	4	%		1,285	5	%		(357)	(28)	%
Corporate and unallocated		2,994	13	%		1,953	8	%		1,041	53	%
Consolidated SG&A	$	5,063	22	%	$	4,427	18	%	$	636	14	%

December 31, 2022 SG&A segment data is revised to reflect current period updates to unallocated corporate administrative expense.

Consolidated - Total selling, general and administrative expenses for the nine months ended December 31, 2023 increased by approximately $636,000, or 14% due primarily to corporate outside advisory and business development expenses in connection with a potential acquisition.

Ranor – A decrease in outside advisory fees and office costs of $126,000 was offset in part by an increase in compensation and payroll taxes of approximately $78,000 for the comparable nine-month periods. The prior year nine-month period includes a one-time fee for services rendered in connection with securing the Employee Retention Tax Credit refund.

Stadco - SG&A expense for the nine months ended December 31, 2023, decreased by approximately $357,000 in the aggregate for compensation, a result of staff reductions, and outside advisory and office costs.

Corporate and unallocated - SG&A increased by approximately $1.0 million, due primarily for outside advisory and business development expenses in connection with a potential acquisition.

Operating (loss) income


	December 31, 2023				December 31, 2022				Changes
			Percent of				Percent of
(dollars in thousands)	Amount		net sales		Amount		net sales		Amount		Percent
Ranor	$	2,562	11	%	$	4,357	18	%	$	(1,795)	(41)	%
Stadco		(1,741)	(8)	%		(2,775)	(12)	%		1,034	37	%
Corporate and unallocated		(2,994)	(13)	%		(1,953)	(8)	%		(1,041)	(53)	%
Operating loss	$	(2,173)	(10)	%	$	(371)	(2)	%	$	(1,802)	(486)	%

Consolidated - As a result of the foregoing, for the nine months ended December 31, 2023, we reported an operating loss of $2.2 million, or $1.8 million higher than the operating loss for the nine months ended December 31, 2022. Operating income at Ranor was not enough to offset the corporate expenses and operating losses at Stadco.

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Ranor – Operating income was lower when compared to the same period a year ago, due primarily to lower revenue and higher cost of sales.

Stadco – Operating losses were smaller as certain projects with production issues, including equipment downtime, were resolved early in the nine-month period. Revenue growth and better throughput must be achieved to eliminate recurring losses at Stadco.

Corporate and unallocated – Operating loss reflected the increase in SG&A due primarily from outside advisory and business development expenses.

Other Income (Expense), net

The following table presents other income (expense) for the nine months ended:


	December 31, 2023		December 31, 2022		$ Change		% Change
Other income (expense), net	$	40,877	$	40,590	$	287	1	%
Interest expense	$	(297,321)	$	(221,017)	$	(76,304)	(35)	%
Amortization of debt issue costs	$	(54,821)	$	(39,961)	$	(14,860)	(37)	%

Interest expense under the Revolver Loan (as defined below) was higher by $93,946 when compared with the nine months ended December 31, 2022 due primarily to higher interest rates and higher amounts borrowed. We expect that future interest expense increases will likely correlate directly with borrowing levels under the Revolver Loan. Capitalized interest was also $18,642 higher when compared to the same period a year ago.

Amortization of debt issue costs for the nine months ended December 31, 2023 was higher when compared to nine months ended December 31, 2022, as new amortization periods commenced in December 2022 for costs incurred to extend the Ranor Term Loan and renew the Revolver Loan.

Other income, net for the nine months ended December 31, 2023 includes a gain from the sale of fixed assets for $40,399. Other income, net, in the table above, for the nine months ended December 31, 2022, includes income for the change in fair value for contingent consideration of $63,436 and other tax rebates for $33,223, offset in part by the fair value of the stock issued for $56,310 in connection with the Stadco acquisition.

Income Taxes

For the nine months ended December 31, 2023, the Company recorded a tax benefit of $563,358, compared with a tax expense of $8,786 for the nine months ended December 31, 2022.

Net (Loss) Income

As a result of the foregoing, for the nine months ended December 31, 2023, we recorded a net loss of $1.9 million, or $0.22 per share basic and diluted, compared with net income of $23,754, or $0.00 per share basic and diluted for the nine months ended December 31, 2022.

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Liquidity and Capital Resources

Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income. For the nine months ended December 31, 2023 we reported a net loss of $1.9 million.

As of December 31, 2023, we had $2.8 million in total available liquidity, consisting of $0.4 million in cash and cash equivalents, and approximately $2.4 million in undrawn capacity under our Revolver Loan. At of March 31, 2023, we had $4.7 million in total available liquidity, consisting of $0.5 million in cash and cash equivalents, and $4.2 million in undrawn capacity under our Revolver Loan.

The Company is the borrower under the amended and restated loan agreement with Berkshire Bank, or the “Loan Agreement”. which was amended on December 20, 2023. On that date, Ranor and certain affiliates of the Company entered into a Sixth Amendment to the Amended and Restated Loan Agreement and Second Amendment to Second Amended and Restated Promissory Note, or the “Sixth Amendment”. There was $7.6 million outstanding under the agreement on December 31, 2023. The original maturity date of the revolver loan under the Loan Agreement is December 20, 2023. Berkshire Bank agreed to extend the maturity date to March 20, 2024.

In addition to extending the maturity date of the revolver loan, the sixth amendment limits the amount of proceeds borrowed to $1.0 million in the aggregate for due diligence and professional costs incurred prior to March 20, 2024 in connection with any potential acquisitions. The Company acknowledges that a certain event of default has occurred and is continuing under the Loan Agreement as a result of the Company’s failure to satisfy the Debt Service Coverage Ratio, or DSCR, for the twelve-month period ending December 31, 2023. The lender reserves any and all rights and remedies available to it under the Loan Agreement, including, without limitation, its right to choose to accelerate and demand the outstanding indebtedness evidenced by the loan documents, and to seek immediate repayment in full.

In order for us to continue operations beyond the next twelve months from the date of issuance of the financial statements and to be able to discharge our liabilities and commitments in the normal course of business, we must mitigate our recurring operating losses at our Stadco subsidiary. We must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process, so our direct labor hours (inputs) allow us to recognize more revenue over time (outputs) and improve job performance. We plan to closely monitor our expenses and, if required, will reduce operating costs to enhance liquidity.

The uncertainty associated with the recurring operating losses at Stadco, the revolver loan renewal, the need for alternative financing, compliance with debt covenants, and the expected debt covenant violation at subsequent compliance dates raise substantial doubt about our ability to continue as a going concern within one-year after the date the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued.

There was approximately $2.6 million outstanding under the Revolver Loan at December 31, 2023, as the Company borrowed more at higher rates to finance working capital requirements. Interest paid and accrued under the Revolver Loan was $116,844 for the nine months ended December 31, 2023. The weighted average interest rate at December 31, 2023 was 7.54%. At December 31, 2023 our working capital was negative because of the reclassification of our long-term debt from noncurrent to current in the condensed consolidated balance sheet. Working capital was $5.6 million at March 31, 2023.

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The table below presents selected liquidity and capital measures at:


	December 31,		March 31,		Change
(dollars in thousands)	2023		2023		Amount
Cash and cash equivalents	$	391	$	534	$	(143)
Working capital	$	(1,391)	$	5,559	$	(6,950)
Total debt	$	7,565	$	6,113	$	1,452
Total stockholders’ equity	$	12,835	$	14,594	$	(1,759)

The next table summarizes changes in cash by primary component in the cash flows statements at:


	December 31,		December 31,		Change
(dollars in thousands)	2023		2022		Amount
Operating activities	$	1,180	$	871	$	309
Investing activities		(2,720)		(1,261)		(1,459)
Financing activities		1,397		(346)		1,743
Net decrease in cash	$	(143)	$	(736)	$	593

Operating activities

Apart from our loan facilities, our primary sources of cash are from accounts receivable collections. Our customers make advance payments and progress payments under the terms of each manufacturing contract. The composition of our accounts receivable collections mix changes between advance payments and customer payments made after shipment of finished goods. Our cash flows can fluctuate significantly from period to period as we mark progress with customer projects and the timing of progress payments.

Cash provided by operating activities for the nine months ended December 31, 2023 was approximately $1.2 million. In addition to customer advances and progress payments, cash provided by operating activities included reimbursements under a certain customer project program. The sum of these customer payments was partially offset by payments for obligations for goods and services that had been acquired on open account from suppliers.

Cash provided by operating activities for the nine months ended December 31, 2022 was $0.9 million, as customer cash advances and collections exceeded cash outflows on both short and long duration projects in-progress.

Investing activities

For the nine months ended December 31, 2023, we invested $2.8 million in new factory machinery and equipment, primarily on the construction and installation of equipment for contract project work with a certain customer at our Ranor segment. We invested approximately $1.3 million in new factory machinery and equipment for the first nine months of fiscal 2023.

We are subject to certain financial debt covenants and may not spend more than $1.5 million for new machinery and equipment during any single fiscal year, tested on an annual basis at the end of each fiscal year.

We estimate our spending on new machinery and equipment in fiscal 2024, which we expect will include expenditures for the installation and construction of equipment for contract project work with a certain customer, will again exceed the spending limitation.

On June 12, 2023, we executed a waiver with the lender under which the lender agreed to waive the Company’s noncompliance with this capital spending limit covenant, as it relates to the period ended March 31, 2023. The waiver also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.

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Financing activities

For the nine months ended December 31, 2023 we drew down $10.2 million of proceeds under the Revolver Loan and repaid $8.3 million during the same period. We also used approximately $0.5 million of cash to pay down debt principal and make periodic lease payments.

For the nine months ended December 31, 2022, we drew down $6.7 million of proceeds under the Revolver Loan and repaid $6.5 million during the same period. We also used $0.5 million of cash to pay down debt principal and make periodic lease payments and pay off certain lease obligations.

All of the above activity resulted in a net decrease in cash of $143,229 for the nine months ended December 31, 2023 compared with a net decrease in cash of $735,954 for the nine months ended December 31, 2022.

Berkshire Bank Loans

On August 25, 2021, the Company entered into the Loan Agreement. Under the Loan Agreement, Berkshire Bank continues as lender of the Ranor Term Loan, as defined below, and the revolving line of credit, or the “Revolver Loan”. In addition, Berkshire Bank provided to Stadco a term loan in the original amount of $4.0 million, or the “Stadco Term Loan”. The proceeds of the original Ranor Term Loan of $2.85 million were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. The proceeds of the Stadco Term Loan were to be used to support the acquisition of Stadco and refinance existing indebtedness of Stadco.

On August 25, 2021, Stadco borrowed $4.0 million from Berkshire Bank under the Stadco Term Loan. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021, at a fixed rate per annum equal to the 7-year Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Since September 25, 2021, and on the 25th day of each month thereafter, Stadco is required to make monthly payments of principal and interest in the amount of $54,390 each, with all outstanding principal and accrued interest due and payable on August 25, 2028.

Payments for the original Ranor Term Loan began on January 20, 2017, and until the facility was amended in December 2022, the Company paid monthly installments of $19,260 each, inclusive of interest at a fixed rate of 5.21% per annum. Since the effectiveness of the most recent amendment in December 2022, the Company now makes monthly installment payments of $16,601 each, inclusive of interest at a fixed rate of 6.05% per annum. All outstanding principal and accrued interest is due and payable on the maturity date of December 15, 2027.

Under the Loan Agreement, Berkshire Bank also makes available to Ranor the Revolver Loan, which has a maximum principal amount available of $5.0 million. There was approximately $2.6 million and $0.7 million outstanding under the Revolver Loan at December 31, 2023 and March 31, 2023, respectively.

Under the amended promissory note for the Revolver Loan, the Company can elect to pay interest at the Term SOFR-based rate or an Adjusted Prime Rate, each determined and defined according to the terms of the agreement. The prior LIBOR-based rate expired on December 20, 2022.

The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or collectively, the “Berkshire Loans,” may be accelerated upon the occurrence of an event of default as defined in the Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the Loan Agreement, the unpaid principal amount outstanding under the facility, together with accrued interest and all other obligations, would become immediately due and payable without presentment, demand, protest, or further notice of any kind.

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As a result of Borrowers’ failure to satisfy the required minimum Debt Service Coverage Ratio for the twelve (12) month period ending December 31, 2023 as set forth in the Loan Agreement, or the “Existing Default”, the borrowers acknowledge that a certain Event of Default has occurred and is continuing under the Loan Agreement. The borrowers further acknowledge that the sixth amendment to the Agreement constitutes written notice pursuant to the Loan Documents of such Existing Default. Regardless of entering into this Agreement or any discussions between Borrowers and Lender, the Lender expressly reserves any and all rights and remedies available to it under the Loan Documents, the Collateral Documents, and under applicable law, including, without limitation, its right to choose to accelerate and demand the outstanding indebtedness evidenced by the Loan Documents and seek immediate repayment in full, and institute the default rate of interest as of the date of the occurrence of the default or at any time thereafter, as a result of any default or event of default, including, without limitation, the Existing Default, that have arisen or may arise. No such discussions or the entering into of this Agreement shall imply any course of conduct or any agreement on the part of Lender to waive any of its rights and remedies or to forbear from taking any action authorized by the Loan Documents, the Collateral Documents, or by applicable law while discussions continue.

Collateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets.

Commitments and Contractual Obligations

The following contractual obligations associated with our normal business activities are expected to result in cash payments in future periods, and include the following material items on December 31, 2023:

●

Our long-term debt obligations, including fixed and variable-rate debt, totaled $7.6 million, and, because of current and probable future debt covenant violations, are classified as current in the condensed consolidated balance sheets. Otherwise, except for $2.6 million due under the expiring revolver loan in March 2024, approximately $0.6 million is due annually for each of the next four years, plus a balloon payment of $2.0 million in year four (December 2027) and $0.4 million due in year five.

●

We enter into various commitments with suppliers for the purchase of raw materials and work supplies. Our outstanding unconditional contractual commitments, including for the purchase of raw materials and supplies goods, totaled approximately $6.0 million, all of it due to be paid within the next twelve months. These purchase commitments are in the normal course of business.

●

Our lease obligations, including imputed interest, totaled $6.1 million for buildings through 2030, with approximately $0.9 million due annually for each of the next six years, and $0.5 million due in year seven.

There are no off-balance sheet arrangements as of December 31, 2023.

EBITDA Non-GAAP Financial Measure

To complement our condensed consolidated statements of operations and condensed consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net (loss) 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 U.S. GAAP.

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We define EBITDA as net loss plus interest, income taxes, depreciation, and amortization. Net loss was $0.9 million and $1.9 million for the three and nine months ended December 31, 2023. EBITDA, a non-GAAP financial measure, was negative for the three and nine months ended December 31, 2023. The following table provides a reconciliation of EBITDA to net income (loss), the most directly comparable U.S. GAAP measure reported in our consolidated financial statements for the three and nine months ended:


	Three Months ended December 31,						Nine Months ended December 31,
(dollars in thousands)	2023		2022		Change		2023		2022			Change
Net (loss) income	$	(865)	$	134		(999)	$	(1,921)	$	24	$	(1,945)
Income tax (benefit) expense		(240)		47		(287)		(563)		9		(572)
Interest expense (1)		109		94		15		352		261		91
Depreciation and amortization		631		550		81		1,759		1,667		92
EBITDA	$	(365)	$	825		(1,190)	$	(373)	$	1,961	$	(2,334)

(1)	Includes amortization of debt issue costs.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

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

As of the end of the period covered by this report, an evaluation was carried out, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.

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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.

Material Weaknesses

We identified two material weaknesses in our internal control over financial reporting as of March 31, 2023, which still exists at December 31, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for the Annual Report on Form 10-K for the fiscal year ended March 31, 2023, management identified the following material weaknesses:

we did not maintain proper controls, processes and procedures over the initial purchase accounting and the fair value accounting associated with our acquisition of Stadco that were adequately designed, documented, and executed to support the accurate and timely reporting of our financial results regarding the initial purchase accounting and the fair value accounting associated with the Stadco acquisition; and

we did not maintain a sufficient complement of tax accounting personnel necessary to perform management review controls related to activities for extracting information to determine the valuation allowance at Stadco on a timely basis. Because of this material weakness, we made a late or post-closing adjustment to our valuation allowance while preparing the consolidated financial statements and footnotes included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Notwithstanding the material weaknesses, management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.

Management’s Remediation Plan

Our management, with the oversight of our audit committee, has initiated steps and plans to take additional measures to remediate the underlying causes of the material weaknesses, which we currently believe will be primarily through the development and implementation of new procedures, policies, processes, including revising the precision level of management review controls and gaining additional assurance regarding timely completion of our quality control procedures. It is possible that we may determine that additional remediation steps will be necessary in the future.

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Under our remediation plan, management has engaged a valuation specialist with the requisite knowledge to perform all required valuations for all potential acquisitions of businesses, and a tax specialist with the requisite knowledge to perform the required basic and detailed tax calculations so that all the parties can make a timely assessment of the Company’s tax provision.

The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We can provide no assurance as to when the remediation of these material weaknesses will be completed to provide for an effective control environment.

Changes in Internal Control over Financial Reporting

Except as disclosed under “Management’s Remediation Plan”, for the quarter ended December 31, 2023, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. Other Information.

Item 1. Legal Proceedings

On October 30, 2023, the Company and one of its employees were named as defendants in an action alleging individual claims of discrimination and wage and hour violations, along with representative wage and hour claims brought pursuant to the California Private Attorneys General Act of 2004 (“PAGA”) [Cal. Lab. Code, ss. 2698, et seq.] in California Superior Court for the County of Los Angeles. In the complaint, captioned Ibarra v. Stadco (LASC Case No. 23STCV26591), a former employee of Stadco, seeks to recover alleged damages (including backpay from his date of termination and emotional distress), unpaid underpaid wages, penalties, attorney’s fees and costs of suit on his own behalf based on allegations of age and disability discrimination and wage and hour violations. The former employee’s individual claims will be subject to private arbitration. In addition, the former employee seeks to recover civil penalties under PAGA on behalf of a group of similarly situated aggrieved employees based upon all paychecks issues since July 21, 2022, together with his attorney’s fees and costs of suit, for certain violations of the California Labor Code. For purposes of this action, “aggrieved employees” means all non-exempt employees of Stadco in California since July 21, 2022. The PAGA claim may not be privately arbitrated and any settlement must be approved by the court. Stadco has retained outside legal counsel to defend this action. The parties have stipulated to stay the action pending completion of mediation, currently scheduled for June 26, 2024.

Item 1A. Risk Factors

We have listed below, as well as under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (the “2023 Form 10-K”), supplemented by the disclosure below, a number of risks that may materially affect our business, financial condition or results of operations. You should carefully consider these Risk Factors and other information elsewhere in this Quarterly Report on Form 10-Q. These risks do not constitute all the risks that may be applicable to us. New risks may emerge from time to time, and it is not possible for us to predict all potential risks or to assess the likely impact of all risks.

We are not currently in compliance with certain financial covenants under our loan agreement with Berkshire Bank and it is probable that we will not be in compliance within the next 12 months, which raises substantial doubt about our ability to continue as a going concern.

Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income. The Company is the borrower under the amended and restated loan agreement with Berkshire Bank (the “Loan Agreement”). The Company has determined that it was not in compliance with the financial covenants in the Loan Agreement as of December 31, 2023. Additionally, our management believes it is probable that the Company will not be in compliance with these financial covenants in future periods. Without a waiver, noncompliance with these financial and related covenants permits the lender to demand repayment in full of all outstanding amounts from the Company. In addition, the lender retains the right to act on covenant violations that occur after the date of delivery of any waiver. If the lender were to demand repayment, the Company would not be able to pay the obligation because the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations.

In order to satisfy the future financial covenants in the Loan Agreement, we must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process, such that our direct labor hours (inputs) allow us to recognize more revenue over time (outputs) and improve job performance. We plan to closely monitor our expenses and, if required, will reduce operating costs and capital spending to enhance liquidity. There can be no assurance that we will be successful in these efforts. If we are unable to achieve compliance in the future with the financial covenants in the Loan Agreement by making operational changes to our business, then we might alternatively seek additional waivers or forbearances from our lender prior to any covenant violation or raise additional funds in one or more equity financing transactions. Any covenant waiver or forbearance may lead to increased costs, increased interest rates, additional restrictive covenants and the imposition of other lender protections that impact us negatively. There can be no assurance that we would be able to obtain waivers or forbearances in a timely manner, on acceptable terms, or at all. Alternatively, the terms of any equity financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. The sale of additional shares of our common stock, or securities convertible into shares of our common stock, would also dilute all of our stockholders.

There was $7.6 million outstanding under the Loan Agreement on December 31, 2023. Berkshire Bank is the lender under the Loan Agreement and has agreed to extend the maturity date of the revolver loan to March 20, 2024. The original maturity date of the revolver loan under the loan agreement was December 20, 2023.

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In addition to extending the maturity date of the revolver loan, the Company acknowledges that a certain event of default has occurred and is continuing under the Loan Agreement as a result of the Company’s failure to satisfy the Debt Service Coverage Ratio, or DSCR, for the twelve-month period ending December 31, 2023. The lender reserves any and all rights and remedies available to it under the Loan Agreement, including, without limitation, its right to choose to accelerate and demand the outstanding indebtedness evidenced by the loan documents, and to seek immediate repayment in full.

Our ability to complete the acquisition of Votaw Precision Technologies is subject to closing conditions, including the receipt of consents and approvals from third parties, which may not be satisfied in a timely manner, or at all.

Our acquisition of Votaw Precision Technologies (“Votaw”) is subject to a number of closing conditions as specified in the stock purchase agreement dated November 22, 2023 by and between us and Doerfer Corporation. These include, among others, 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 planned acquisition of Votaw, and the acquisition may disrupt our current plans or operations.

We may not be able to successfully integrate Votaw’s business and assets or otherwise realize the expected benefits of the transaction, including anticipated annual operating cost to the extent currently anticipated, or at all. To realize these anticipated benefits, our business and Votaw’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 Votaw into our operations may result in the combined company performing differently than expected, in operational challenges or in the failure to realize anticipated 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 Votaw’s business and assets or otherwise fail to realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the acquisition of Votaw, 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 Votaw 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 the acquisition of Votaw could cause disruptions in our business; and our and Votaw’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; and 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.

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We are expected to incur substantial expenses related to the acquisition of Votaw and the integration of Votaw’s business with ours.

We expect to incur substantial expenses in connection with the integration of our business with Votaw 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 Votaw’s businesses will continue to maintain a presence in Westminster, Massachusetts and Southern 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.

Item 5. Other Information.

Rule 10b5-1 Trading Plans

Our executive officers and directors may from time to time enter into plans or arrangements for the purchase or sale of our Common Stock that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. During the three months ended December 31, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

In the event that the lender accelerates the repayment of this indebtedness during the next 12 months as the result of one or more breaches of covenant, we do not expect to have funds available to repay these amounts in full, which raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued. The consequences of any default, waiver or forbearance, or the securing of additional equity financing, could materially and adversely affect our business, financial condition, and results of operations.

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Item 6. Exhibits.

Exhibit Index

Exhibit No.

Description

Incorporated
by Reference
Form

File No.

Date Filed

Exhibit
No.

Filed or Furnished Herewith

2.1^*

Stock Purchase Agreement, dated November 22, 2023, by and between TechPrecision Corporation and Doerfer Corporation

8-K

000-51378

November 29, 2023

2.1

3.1

Certificate of Incorporation of the Registrant

SB-2

333-133509

August 28, 2006

3.1

3.2

Amended and Restated By-laws of the Registrant

8-K

000-51378

February 3, 2014

3.1

3.3

Certificate of Designation for Series A Convertible Preferred Stock of the Registrant

8-K

000-51378

March 3, 2006

3.1

3.4

Certificate of Amendment to Certificate of Designation for Series A Convertible Preferred Stock of the Registrant

10-Q

000-51378

November 12, 2009

3.5

10.1

Sixth Amendment to Amended and Restated Loan Agreement and Second Amendment to Second Amended and Restated Promissory Note, effective as of December 20, 2023, by and among Ranor, Inc., Stadco New Acquisition, LLC, Stadco, Westminster Credit Holdings, LLC and Berkshire Bank

8-K

000-51378

January 5, 2024

10.1

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.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.

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

* Exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted exhibits and schedules to the SEC upon its 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

February 29, 2024	By:	/s/ Barbara M. Lilley
		Barbara M. Lilley
		Chief Financial Officer

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TechPrecision (TPCS) 10-Q2024 Q3 Quarterly report

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