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TechPrecision .(TPCS) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited condensed consolidated financial statements for TechPrecision Corporation for the three and nine months ended December 31, 2020, detail financial position and performance Condensed Consolidated Balance Sheets Total assets increased, driven by contract assets and cash, while liabilities rose due to increased long-term debt, slightly increasing stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Dec 31, 2020 | Mar 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $9,384 | $8,250 | | Total Assets | $15,625 | $14,580 | | Total Current Liabilities | $5,213 | $2,654 | | Total Liabilities | $5,931 | $5,111 | | Total Stockholders' Equity | $9,694 | $9,469 | Condensed Consolidated Statements of Operations Net loss significantly improved for Q3 2020, and the company achieved net income for the nine months, reversing prior-year losses due to higher gross profit Key Operational Results (in thousands) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $3,570 | $3,667 | $11,566 | $11,076 | | Gross Profit | $705 | $314 | $2,531 | $1,837 | | (Loss) Income from Operations | $(11) | $(348) | $326 | $(308) | | Net (Loss) Income | $(48) | $(320) | $106 | $(390) | | Net (Loss) Income per Share (Basic) | $(0.00) | $(0.01) | $0.00 | $(0.01) | Condensed Consolidated Statements of Cash Flows Operating activities used cash, investing activities funded equipment, while financing activities, primarily a PPP loan, led to a net cash increase Cash Flow Summary for Nine Months Ended Dec 31 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(340) | $609 | | Net Cash Used in Investing Activities | $(547) | $(35) | | Net Cash Provided by (Used in) Financing Activities | $1,211 | $(643) | | Net Increase (Decrease) in Cash | $324 | $(68) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, debt, and subsequent events, including revenue disaggregation, debt facilities, and the Stadco acquisition - The company manufactures large-scale metal fabricated and machined precision components for defense, aerospace, nuclear, medical, and precision industrial markets, with all operations and customers located in the United States18 - The company's operations were designated an essential service, allowing it to maintain operations during the first nine months of fiscal 2021 despite the COVID-19 pandemic23 Net Sales by Market (Nine Months Ended Dec 31) | Market | 2020 | 2019 | | :--- | :--- | :--- | | Defense | $9,314,846 | $9,725,635 | | Industrial | $2,251,330 | $1,349,985 | | Total | $11,566,176 | $11,075,620 | - As of December 31, 2020, the company had $18.4 million of remaining performance obligations (backlog), which it expects to recognize as revenue over the next thirty-six months27 - On October 16, 2020, the company entered into a stock purchase agreement to acquire Stadco, a manufacturer of high-precision parts for aerospace and defense, for 1,000,000 shares of common stock and a reduction of Stadco's liabilities62 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes financial performance for the three and nine months ended December 31, 2020, covering key drivers for sales, gross margin, net income, liquidity, capital resources, debt, and the Stadco acquisition Results of Operations - Three Months Ended December 31, 2020 and 2019 Q3 FY21 net sales decreased, but gross margin dramatically improved due to the absence of contract loss provisions, leading to a substantially reduced net loss Q3 Financial Performance Comparison (in thousands) | Metric | Q3 2020 | Q3 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $3,569 | $3,667 | $(98) | (3)% | | Gross Profit | $705 | $314 | $391 | 124% | | Loss from Operations | $(11) | $(349) | $338 | 97% | | Net Loss | $(48) | $(320) | $272 | 85% | - The significant improvement in gross profit and margin was primarily due to the absence of major contract loss provisions in Q3 2020, which had negatively impacted the same period in the prior fiscal year8788 Results of Operations - Nine Months Ended December 31, 2020 and 2019 Net sales for the nine months increased, driven by commercial markets, while gross margin expanded due to a better product mix and absence of prior-year losses, resulting in a swing to net income Nine-Month Financial Performance Comparison (in thousands) | Metric | Nine Months 2020 | Nine Months 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $11,566 | $11,075 | $491 | 4% | | Gross Profit | $2,531 | $1,837 | $694 | 38% | | Income (Loss) from Operations | $325 | $(308) | $633 | 206% | | Net Income (Loss) | $106 | $(390) | $496 | 127% | - Sales to commercial markets, particularly in nuclear energy and medical, increased by $0.9 million, driving the overall revenue growth for the nine-month period96 Liquidity and Capital Resources Liquidity is strong with cash and working capital, bolstered by a PPP loan and unused revolving credit, deemed sufficient for 12 months, though new financing may be sought for the Stadco acquisition Key Liquidity Measures (in thousands) | Measure | Dec 31, 2020 | Mar 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,255 | $931 | | Working capital | $4,170 | $5,595 | | Total debt | $3,823 | $2,587 | - In May 2020, the company's subsidiary Ranor received a $1,317,100 unsecured loan under the Paycheck Protection Program (PPP), which may be partially or fully forgiven10645 - The company's revolving line of credit with Berkshire Bank was increased to $3.0 million and its maturity was extended to December 20, 2022, with $3.0 million unused capacity at December 31, 2020111114 Quantitative and Qualitative Disclosure About Market Risk TechPrecision Corporation, as a smaller reporting company, has elected not to provide the required market risk disclosures - The company has opted out of providing market risk disclosures, as permitted for a smaller reporting company125 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective127 - There were no changes in the company's internal control over financial reporting during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls131 PART II. OTHER INFORMATION Risk Factors This section outlines significant risks associated with the pending Stadco acquisition, including completion uncertainty, integration challenges, operational disruption, and potential stockholder dilution without expected benefits - The completion of the Stadco acquisition is subject to closing conditions, including arrangements with Stadco's lenders, and there is no assurance these conditions will be met132 - The company may face difficulties integrating Stadco's operations, corporate culture, and systems, which could prevent the realization of anticipated synergies and benefits133 - The announcement and pendency of the acquisition could disrupt business by causing uncertainty for employees, customers, and suppliers, and by diverting management's attention134 - Stockholders face the risk of substantial ownership dilution from the shares issued for the acquisition, which may not be matched by a commensurate benefit if the combined company fails to achieve its strategic and financial goals136 Exhibits This section lists exhibits filed with the Form 10-Q, including the Stock Purchase Agreement for the Stadco acquisition, corporate governance documents, loan modifications, and CEO/CFO certifications - Key exhibits filed include the Stock Purchase Agreement for the Stadco acquisition and the Fourth Modification to the Loan Agreement with Berkshire Bank139