TechPrecision .(TPCS) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion, market risk disclosures, and internal controls ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents unaudited consolidated financial statements and notes, highlighting a going concern risk due to debt maturities CONDENSED CONSOLIDATED BALANCE SHEETS This table provides a snapshot of the company's assets, liabilities, and equity at two specific points in time CONDENSED CONSOLIDATED BALANCE SHEETS (in $) | ASSETS (in $) | Sep 30, 2022 | Mar 31, 2022 | | :------------------------ | :----------- | :----------- | | Cash and cash equivalents | 235,384 | 1,052,139 | | Accounts receivable | 2,040,420 | 3,009,249 | | Contract assets | 9,220,084 | 8,350,231 | | Total current assets | 15,022,181 | 16,067,753 | | Total assets | 36,802,074 | 37,852,559 | | LIABILITIES & EQUITY (in $) | Sep 30, 2022 | Mar 31, 2022 | | Accounts payable | 3,699,475 | 3,426,921 | | Accrued expenses | 2,476,655 | 3,435,866 | | Total current liabilities | 11,685,673 | 13,314,993 | | Total liabilities | 21,349,571 | 22,588,791 | | Total stockholders' equity| 15,452,503 | 15,263,768 | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) This statement details the company's revenues, expenses, and net income or loss over specific reporting periods CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in $) | Metric (in $) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net sales | 8,522,647 | 4,797,410 | 15,599,004 | 8,209,639 | | Gross profit | 1,739,672 | 930,707 | 2,556,890 | 1,763,375 | | Loss from operations | (87,423) | (242,982) | (645,432) | (142,922) | | Net income (loss) | 390,944 | (220,413) | (110,221) | 1,150,679 | | Net income (loss) per share basic | 0.01 | (0.01) | (0.00) | 0.04 | | Net income (loss) per share diluted | 0.01 | (0.01) | (0.00) | 0.04 | CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY This statement outlines changes in the company's equity, reflecting net income, stock compensation, and other adjustments - Total stockholders' equity increased from $15,263,768 at March 31, 2022, to $15,452,503 at September 30, 2022, primarily due to net income of $390,944 and stock-based compensation and awards totaling $246,849, partially offset by a net loss of $501,165 in the prior quarter[12] CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS This statement summarizes cash inflows and outflows from operating, investing, and financing activities CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in $) | Cash Flow Activity (in $) | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | 1,623,266 | (1,066,444) | | Net cash used in investing activities | (1,073,484) | (8,158,796) | | Net cash (used in) provided by financing activities | (1,366,537) | 7,375,877 | | Net decrease in cash and cash equivalents | (816,755) | (1,849,396) | | Cash and cash equivalents, end of period | 235,384 | 281,315 | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS These notes provide detailed explanations and additional information supporting the condensed consolidated financial statements NOTE 1 - DESCRIPTION OF BUSINESS This note describes the company's core business, manufacturing activities, and its operating subsidiaries - TechPrecision Corporation manufactures large-scale metal fabricated and machined precision components and equipment for defense, aerospace, nuclear, medical, and precision industrial markets, with all operations and customers located in the U.S.[19] - The Company's subsidiaries include Ranor, Westminster Credit Holdings, LLC (WCH), Stadco New Acquisition, LLC (Acquisition Sub), and Stadco. Wuxi Critical Mechanical Components Co., Ltd. (WCMC) was dissolved in November 2021[17] NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES This note outlines the financial statement preparation basis, key accounting policies, and going concern considerations - The financial statements are unaudited and prepared in accordance with U.S. GAAP, with management making estimates and assumptions that affect reported amounts[20][22] - The Company reported a net loss of $0.1 million for the six months ended September 30, 2022, and $0.3 million for the fiscal year ended March 31, 2022, raising substantial doubt about its ability to continue as a going concern due to upcoming debt maturities[24][31] - As of September 30, 2022, total available liquidity was $3.8 million, comprising $0.2 million in cash and $3.6 million in undrawn revolver loan capacity. The Ranor Term Loan and Revolver Loan mature in December 2022, requiring successful refinancing or renewal to continue operations beyond the next twelve months[25][26][30] NOTE 3 – BUSINESS COMBINATION This note details the acquisition of Stadco, including consideration, valuation, and pro forma financial impacts - On August 25, 2021, the Company acquired Stadco, a manufacturer of high-precision parts for aerospace, defense, and industrial customers, through the issuance of 1,466,061 shares of common stock and warrants, valued at $2.3 million and $46,256 respectively[33][35] - The acquisition also involved WCH purchasing Stadco's indebtedness obligations for $7.9 million. Contingent consideration of $113,890 was settled on August 25, 2022, by issuing 36,509 shares of common stock valued at $56,310[34][38] Pro Forma Combined Results (assuming acquisition on April 1, 2021) (in $) | Metric (in $) | Three months ended Sep 30, 2021 | Six months ended Sep 30, 2021 | | :-------------- | :------------------------------ | :---------------------------- | | Net sales | 5,094,151 | 12,929,679 | | Operating loss | (1,579,777) | (1,624,192) | | Net loss | (1,753,993) | (591,368) | | EPS basic | (0.05) | (0.02) | NOTE 4 - REVENUE This note explains the company's revenue recognition policies, contract types, and customer concentration - Revenue is generated from fixed-price contracts in defense and precision industrial markets, recognized over-time (based on estimated labor hours) or at a point-in-time[44][46] Net Sales by Market (in $) | Market | Three months ended Sep 30, 2022 | Three months ended Sep 30, 2021 | Six months ended Sep 30, 2022 | Six months ended Sep 30, 2021 | | :-------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Defense | 8,385,441 | 4,403,156 | 15,226,365 | 7,506,287 | | Industrial| 137,206 | 394,254 | 372,639 | 703,352 | | Totals| 8,522,647 | 4,797,410 | 15,599,004 | 8,209,639 | - As of September 30, 2022, the Company had $49.4 million in remaining performance obligations, with $44.4 million less than 50% complete, expected to be recognized within 36 months[46] - Customer concentration is significant, with a small number of customers accounting for a large portion of net sales, which varies year-to-year[47][48] NOTE 5 - INCOME TAXES This note provides details on income tax expense, benefits, and the valuation allowance on deferred tax assets - The Company recorded income tax expense of $135,509 for the three months ended September 30, 2022, and an income tax benefit of $38,205 for the six months ended September 30, 2022, with an effective tax rate of 25.7% for the six-month period[50] - A valuation allowance of approximately $2.0 million was maintained on deferred tax assets at September 30, 2022, due to uncertainty regarding the realization of certain state net operating losses (NOLs) and other deferred tax assets[51] NOTE 6 - EARNINGS PER SHARE This note presents the calculation of basic and diluted earnings per share, including anti-dilutive exclusions Earnings Per Share (EPS) | EPS Type | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Basic | $0.01 | $(0.01) | $(0.00) | $0.04 | | Diluted | $0.01 | $(0.01) | $(0.00) | $0.04 | - Potential common stock equivalents with an anti-dilutive effect (1,668,495 for six months ended Sep 30, 2022, and 1,660,922 for three months ended Sep 30, 2021) were excluded from diluted EPS calculations[52] NOTE 7 – STOCK-BASED COMPENSATION This note describes the company's equity incentive plan, stock awards, and recognized compensation costs - The 2016 TechPrecision Equity Incentive Plan has a share reserve of 5,000,000 shares, with 1,350,000 shares available for grant at September 30, 2022[53][55] - On September 15, 2022, the board of directors granted 100,000 fully vested common stock awards to non-employee directors, valued at $144,000[58] - Total recognized compensation cost for restricted stock awards was $46,539 for the three months and $98,646 for the six months ended September 30, 2022[62] NOTE 8 - CONCENTRATION OF CREDIT RISK This note highlights the significant concentration of trade accounts receivable among a few key customers - As of September 30, 2022, four customers accounted for 76% of the total trade accounts receivable balance, indicating a significant concentration of credit risk[64] NOTE 9 - OTHER CURRENT ASSETS This note itemizes various other current assets, including prepaid expenses and refundable credits Other Current Assets (in $) | Item | Sep 30, 2022 | Mar 31, 2022 | | :---------------------- | :----------- | :----------- | | Prepaid taxes | 64,806 | 26,497 | | ERTC refundable credits | 624,045 | 1,093,661 | | Prepaid insurance | 166,792 | 184,275 | | Prepaid subscriptions | 40,371 | 66,098 | | Payments advanced to suppliers | 21,100 | 21,100 | | Employee advances | 15,279 | 9,668 | | Prepaid advisory fees, other | 77,296 | 20,160 | | Total | 1,009,689| 1,421,459| NOTE 10 - PROPERTY, PLANT AND EQUIPMENT, NET This note details the composition and net book value of the company's property, plant, and equipment Property, Plant and Equipment, Net (in $) | Item | Sep 30, 2022 | Mar 31, 2022 | | :---------------------------------- | :----------- | :----------- | | Land | 110,113 | 110,113 | | Building and improvements | 3,289,901 | 3,289,901 | | Machinery equipment, furniture, and fixtures | 21,085,929 | 20,860,152 | | Construction in progress | 273,564 | -- | | Total property, plant, and equipment| 24,759,507 | 24,260,166 | | Less: accumulated depreciation | (11,894,664) | (11,107,001) | | Total property, plant and equipment, net | 12,864,843 | 13,153,165 | NOTE 11 - ACCRUED EXPENSES This note provides a breakdown of accrued liabilities, including compensation, claims, and professional fees Accrued Expenses (in $) | Item | Sep 30, 2022 | Mar 31, 2022 | | :------------------------ | :----------- | :----------- | | Accrued compensation | 1,040,331 | 947,938 | | Provision for claims | 60,355 | 935,382 | | Provision for contract losses | 313,644 | 340,272 | | Accrued professional fees | 332,831 | 513,379 | | Accrued project costs | 484,353 | 487,869 | | Contingent consideration | -- | 63,436 | | Other | 245,141 | 147,590 | | Total | 2,476,655| 3,435,866| NOTE 12 – DEBT This note details the company's debt obligations, including term loans, revolver loans, and their maturity dates Long-term Debt (in $) | Item | Sep 30, 2022 | Mar 31, 2022 | | :---------------------------------- | :----------- | :----------- | | Stadco Term Loan (3.79%, due Aug 2028) | 3,449,165 | 3,705,792 | | Ranor Term Loan (5.21%, due Dec 2022) | 2,309,901 | 2,363,126 | | Ranor Revolver Loan (due Dec 2022) | 275,000 | 1,287,002 | | Total debt | 6,034,066| 7,355,920| | Less: debt issue costs unamortized | 140,020 | 147,905 | | Total debt, net | 5,894,046| 7,208,015| | Less: Current portion of long-term debt | 3,030,238 | 4,093,079 | | Total long-term debt, net | 2,863,808| 3,114,936| - The Ranor Term Loan maturity date was extended to December 15, 2022, with a balloon payment of approximately $2.3 million due. The Revolver Loan also matures on December 20, 2022, with $0.3 million outstanding and $3.6 million unused capacity at September 30, 2022[76][79][80] - Berkshire Bank waived noncompliance with certain financial covenants at September 30, 2022, but retains the right to act on future violations. The company's ability to continue as a going concern is dependent on refinancing these loans[87][31] NOTE 13 - OTHER NONCURRENT LIABILITY This note explains a noncurrent liability related to customer payments for equipment, subject to clawback provisions - A noncurrent liability of $1.3 million at September 30, 2022, represents customer payments received for new equipment purchased for contract project work, subject to clawback based on a prorated ten-year declining balance recovery period in case of contract breach[89] NOTE 14 – LEASES This note outlines the company's right-of-use assets, lease liabilities, and future lease payment maturities Right-of-Use Assets and Liabilities (in $) | Item | Sep 30, 2022 | Mar 31, 2022 | | :------------------------------ | :----------- | :----------- | | Right of use asset – operating lease | 6,649,744 | 6,649,744 | | Right of use asset – finance leases | 125,032 | 125,032 | | Amortization | (720,100) | (391,161) | | Right of use asset, net | 6,054,676| 6,383,615| | Lease liability – operating lease | 6,127,628 | 6,374,691 | | Lease liability – finance leases| 47,088 | 72,908 | | Total lease liability | 6,174,716| 6,447,599| - Stadco's operating lease for building and property has a term expiring on June 30, 2030, with monthly base rent of $78,233 (20% discount through November 30, 2022)[90] Maturities of Lease Liabilities (in $) | Year | Amount | | :-------- | :----------- | | 2023 | 947,926 | | 2024 | 950,791 | | 2025 | 948,701 | | 2026 | 943,751 | | 2027 | 938,801 | | Thereafter| 2,503,471 | | Total lease payments | 7,233,441| NOTE 15 – COMMITMENTS This note details the company's contractual commitments, including employment agreements, purchase obligations, and retirement plan contributions - The Company has employment agreements with executive officers, totaling approximately $0.6 million in future salaries and bonuses, and $1.0 million for accrued payroll, vacation, and holiday pay for other employees at September 30, 2022[92] - Outstanding purchase obligations for raw materials and supplies totaled approximately $7.2 million as of September 30, 2022, all due within the next twelve months[93] - Ranor contributed $44,122 to its defined contribution and savings plan for the six months ended September 30, 2022[94] NOTE 16 – SEGMENT INFORMATION This note provides financial data for the company's two reportable segments, Ranor and Stadco - The Company operates two reportable segments: Ranor and Stadco, both manufacturing and assembling components primarily for defense, aerospace, and industrial customers in the U.S.[95][96] Segment Net Sales (in $) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Ranor | 4,933,653 | 3,538,784 | 9,659,584 | 6,951,013 | | Stadco | 3,588,994 | 1,258,626 | 5,939,420 | 1,258,626 | | Total | 8,522,647 | 4,797,410 | 15,599,004 | 8,209,639 | Segment Operating Profit (Loss) (in $) | Segment | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2021 | | :------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Ranor | 1,493,395 | 379,882 | 2,746,467 | 830,457 | | Stadco | (755,299) | 41,004 | (2,214,090) | 41,004 | | Corporate & Unallocated | (825,519) | (663,868) | (1,177,809) | (1,014,383) | | Total Operating Loss | (87,423) | (242,982) | (645,432) | (142,922) | NOTE 17 – ACCOUNTING STANDARDS UPDATE This note discusses the adoption of new accounting standards and their impact on financial statements - The Company adopted ASU No. 2021-10 (Government Assistance) and ASU 2021-04 (Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options) on April 1, 2022, neither of which had a significant or material impact on its financial statements and disclosures[100][101] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, liquidity, and capital resources for the three and six months ended September 30, 2022 Statement Regarding Forward Looking Disclosure This statement cautions that forward-looking information is subject to various risks and uncertainties that could affect future results - The report contains forward-looking statements based on current expectations and projections, which are subject to risks and uncertainties, including reliance on purchase orders, ability to control expenses, external factors (inflation, interest rates, supply chain), COVID-19 impacts, financing availability, competitive bidding, raw material costs, and government spending[102][103][104] Overview This overview describes TechPrecision's core business, its reliance on new contracts, and the impact of the COVID-19 pandemic - TechPrecision, through Ranor and Stadco, provides contract manufacturing services, including fabrication and machining, for precision finished products in defense, aerospace, and industrial markets, with all operations in the U.S.[105][109] - The business relies on securing new contracts, as revenue is derived from manufactured goods rather than inventory sales, leading to potential revenue fluctuations between projects[107][108] - The COVID-19 pandemic did not materially affect operations or cash flows for the six months ended September 30, 2022 and 2021, as the company was designated an 'Essential Service' and maintained operations with enhanced safety measures[110][111][112] Critical Accounting Policies and Estimates This section discusses the company's critical accounting policies, particularly revenue recognition, and any recent changes - Revenue recognition is a critical accounting estimate, with most revenue recognized over time using input methods (e.g., labor hours) or at a point-in-time, which can cause quarterly fluctuations[114][115][116] - No significant changes were made to critical accounting policies during the six months ended September 30, 2022[117] New Accounting Standards This section refers to Note 17 for details on recently adopted and new accounting guidance - Refer to Note 17 for details on recently adopted and new accounting guidance[118] Results of Operations This section analyzes the company's financial performance, including key metrics and segment-specific results, for the reported periods Key Performance Indicators This section explains the use of EBITDA as a non-GAAP financial measure for evaluating operating performance and debt covenants - The Company uses EBITDA, a non-GAAP financial measure, to evaluate operating performance and compare with other companies, and it is also a measure contained in debt covenants[121] Three Months Ended September 30, 2022 and 2021 This section provides a detailed comparison of financial results for the three months ended September 30, 2022, and 2021 Net Sales, Gross Profit, and Gross Margin (Three Months Ended Sep 30) (in thousands $) | Metric (in thousands $) | Sep 30, 2022 | % of Net Sales | Sep 30, 2021 | % of Net Sales | Change ($) | Change (%) | | :---------------------- | :----------- | :------------- | :----------- | :------------- | :--------- | :--------- | | Ranor Net Sales | 4,934 | 58% | 3,538 | 74% | 1,396 | 39% | | Stadco Net Sales | 3,589 | 42% | 1,259 | 26% | 2,330 | 185% | | Consolidated Net Sales | 8,523 | 100% | 4,797 | 100% | 3,726 | 78% | | Ranor Gross Profit | 2,027 | 23% | 733 | 17% | 1,294 | 177% | | Stadco Gross Profit | (287) | (3)% | 198 | 2% | (485) | (245)% | | Consolidated Gross Profit | 1,740 | 20% | 931 | 19% | 809 | 87% | - Consolidated net sales increased by $3.7 million (78%) year-over-year, driven by a $4.0 million increase in defense markets, while precision industrial markets decreased by $0.3 million[124] - Ranor's net sales increased by 39% due to repeat business and strong defense backlog. Stadco's net sales significantly increased due to a full quarter of operations compared to five weeks in the prior year[125][126] - Consolidated gross profit increased by 87%, with gross margin improving to 20.4% from 19.4%. Ranor's gross profit and margin improved due to throughput and project mix, while Stadco's gross margin turned negative due to unprofitable projects and new project startups[128][129][130] Selling, General and Administrative (SG&A) Expenses (Three Months Ended Sep 30) (in thousands $) | Metric (in thousands $) | Sep 30, 2022 | % of Net Sales | Sep 30, 2021 | % of Net Sales | Change ($) | Change (%) | | :---------------------- | :----------- | :------------- | :----------- | :------------- | :--------- | :--------- | | Ranor | 534 | 6% | 353 | 7% | 181 | 51% |\ | Stadco | 468 | 5% | 157 | 3% | 311 | 198% |\ | Corporate and unallocated | 825 | 10% | 664 | 14% | 161 | 24% |\ | Consolidated SG&A | 1,827 | 21% | 1,174 | 24% | 653 | 56% | - Consolidated SG&A expenses increased by $0.7 million (56%) due to a full quarter of Stadco expenses and a return to pre-pandemic levels of spending on advisory services and business travel[131][132][133] Operating Income (Loss) (Three Months Ended Sep 30) (in thousands $) | Segment (in thousands $) | Sep 30, 2022 | % of Net Sales | Sep 30, 2021 | % of Net Sales | Change ($) | Change (%) | | :----------------------- | :----------- | :------------- | :----------- | :------------- | :--------- | :--------- | | Ranor | 1,493 | 18% | 380 | 8% | 1,113 | 293% | | Stadco | (755) | (9)% | 41 | 1% | (796) | nm | | Corporate and unallocated | (825) | (10)% | (664) | (14)% | (161) | (24)% | | Operating loss | (87) | (1)% | (243) | (5)% | 156 | 64% | - Consolidated operating loss improved to $0.1 million from $0.2 million, driven by Ranor's improved operating income, which offset Stadco's operating loss due to new project startups and poorly priced projects[134][135] Other Income (Expense) (Three Months Ended Sep 30) (in $) | Item (in $) | 2022 | 2021 | $ Change | % Change | | :---------------------- | :------- | :------- | :------- | :------- | | Other income, net | 73,561 | 1,001 | 72,560 | nm | | Interest expense | (70,382) | (48,341) | (22,041) | (46)% | | Amortization of debt issue costs | (13,348) | (8,553) | (4,795) | (56)% | - Interest expense increased due to new Stadco Term Loan borrowings and higher Revolver Loan amounts. Other income included a $624,045 accrual for Employee Retention Tax Credit[138][141] - Net income for the three months ended September 30, 2022, was $0.4 million, compared to a net loss of $0.2 million in the prior year, primarily due to the ERTC refund[142][144] Six Months Ended September 30, 2022 and 2021 This section provides a detailed comparison of financial results for the six months ended September 30, 2022, and 2021 Net Sales, Gross Profit, and Gross Margin (Six Months Ended Sep 30) (in thousands $) | Metric (in thousands $) | Sep 30, 2022 | % of Net Sales | Sep 30, 2021 | % of Net Sales | Change ($) | Change (%) | | :---------------------- | :----------- | :------------- | :----------- | :------------- | :--------- | :--------- | | Ranor Net Sales | 9,660 | 62% | 6,951 | 85% | 2,709 | 39% | | Stadco Net Sales | 5,939 | 38% | 1,258 | 15% | 4,681 | 372% | | Consolidated Net Sales | 15,599 | 100% | 8,209 | 100% | 7,390 | 90% | | Ranor Gross Profit | 3,867 | 25% | 1,565 | 19% | 2,302 | 147% | | Stadco Gross Profit | (1,310) | (8)% | 198 | 2% | (1,508) | (761)% | | Consolidated Gross Profit | 2,557 | 16% | 1,763 | 21% | 794 | 45% | - Consolidated net sales increased by $7.4 million (90%) year-over-year, primarily due to $4.7 million from Stadco and $2.7 million from Ranor[146] - Ranor's net sales increased by 39% due to new orders in defense, while Stadco's net sales significantly grew due to a full 26 weeks of business activity compared to five weeks in the prior year[147][148] - Consolidated gross profit increased by 45%, but gross margin decreased to 16.4% from 21.5%, as strong performance at Ranor was offset by weak operating results and negative gross margin at Stadco due to unprofitable projects and under-absorbed overhead[149][150][151] Selling, General and Administrative (SG&A) Expenses (Six Months Ended Sep 30) (in thousands $) | Metric (in thousands $) | Sep 30, 2022 | % of Net Sales | Sep 30, 2021 | % of Net Sales | Change ($) | Change (%) | | :---------------------- | :----------- | :------------- | :----------- | :------------- | :--------- | :--------- | | Ranor | 1,120 | 7% | 735 | 9% | 385 | 52% | | Stadco | 904 | 6% | 157 | 2% | 747 | 476% | | Corporate and unallocated | 1,178 | 8% | 1,014 | 12% | 164 | 16% | | Consolidated SG&A | 3,202 | 21% | 1,906 | 23% | 1,296 | 68% | - Consolidated SG&A increased by $1.3 million (68%) due to a full six months of Stadco expenses and a return to pre-pandemic spending levels for advisory services and business travel[153][154][155] Operating (Loss) Income (Six Months Ended Sep 30) (in thousands $) | Segment (in thousands $) | Sep 30, 2022 | % of Net Sales | Sep 30, 2021 | % of Net Sales | Change ($) | Change (%) | | :----------------------- | :----------- | :------------- | :----------- | :------------- | :--------- | :--------- | | Ranor | 2,746 | 18% | 830 | 10% | 1,916 | 230% | | Stadco | (2,214) | (14)% | 41 | 0% | (2,255) | nm | | Corporate and unallocated | (1,177) | (8)% | (1,014) | (12)% | (163) | (16)% | | Operating (loss) income | (645) | (4)% | (143) | (2)% | (502) | (351)% | - Consolidated operating loss widened to $0.7 million from $0.1 million, as Stadco's significant operating loss offset Ranor's improved operating income[156][157] Other Income (Expense) (Six Months Ended Sep 30) (in $) | Item (in $) | 2022 | 2021 | $ Change | % Change | | :---------------------- | :--------- | :--------- | :--------- | :------- | | Other income, net | 40,336 | 11,391 | 28,945 | 254% | | Interest expense | (140,628) | (68,676) | (71,952) | (105)% | | Amortization of debt issue costs | (26,747) | (18,096) | (8,651) | (48)% | - Interest expense increased due to new Stadco Term Loan and higher Revolver Loan borrowings. Other income included a $624,045 accrual for Employee Retention Tax Credit and $1.3 million PPP loan forgiveness in the prior year[159][162][163] - Net loss for the six months ended September 30, 2022, was $110,221, compared to net income of $1.2 million in the prior year, primarily due to the absence of the PPP loan forgiveness recognized in 2021[166] Liquidity and Capital Resources This section analyzes the company's cash position, working capital, debt, and equity, highlighting going concern risks - The Company reported a net loss of $0.1 million for the six months ended September 30, 2022, and $0.3 million for the fiscal year ended March 31, 2022, with liquidity highly dependent on financing facilities and maintaining gross profit and operating income[167] Selected Liquidity and Capital Measures (in thousands $) | Metric | Sep 30, 2022 | Mar 31, 2022 | Change ($) | | :---------------------- | :----------- | :----------- | :--------- | | Cash and cash equivalents | 235 | 1,052 | (817) | | Working capital | 3,337 | 2,753 | 584 | | Total debt | 6,034 | 7,356 | (1,322) | | Total stockholders' equity | 15,453 | 15,264 | 189 | - Total available liquidity at September 30, 2022, was $3.8 million, consisting of $0.2 million in cash and $3.6 million in undrawn revolver loan capacity. The Ranor Term Loan and Revolver Loan mature in December 2022, raising substantial doubt about the Company's ability to continue as a going concern without successful refinancing or renewal[168][169][174] - Cash provided by operating activities was $1.6 million for the six months ended September 30, 2022, compared to cash used of $1.1 million in the prior year, driven by timely customer payments and advances[178] - Investing activities used $1.1 million for new factory machinery and equipment in fiscal 2023, limited by debt covenants to $1.5 million annually[179] - Financing activities used $1.4 million, including $1.0 million net repayment on the Revolver Loan and $0.4 million for lease and debt obligations. In the prior year, $7.2 million was raised from stock sales and new debt for the Stadco acquisition[180] - The Company has $7.2 million in purchase obligations due within 12 months and $6.0 million in long-term debt obligations, with $3.1 million due in the next 12 months[188] EBITDA Non-GAAP Financial Measure This section defines EBITDA as a non-GAAP financial measure used for performance comparison and debt covenant compliance - EBITDA is used as a non-GAAP financial measure to compare operating performance, especially given different financing and capital structures or tax rates, and is included in debt covenants[189] EBITDA Reconciliation to Net Income (in thousands $) | Metric | Three Months ended Sep 30, 2022 | Three Months ended Sep 30, 2021 | Six Months ended Sep 30, 2022 | Six Months ended Sep 30, 2021 | | :---------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income (loss) | 391 | (220) | (110) | 1,151 | | Income tax expense (benefit) | 136 | (79) | (38) | (52) | | Interest expense | 84 | 57 | 167 | 87 | | Depreciation and amortization | 532 | 333 | 1,117 | 516 | | EBITDA | 1,143 | 91 | 1,136 | 1,702 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As a smaller reporting company, TechPrecision Corporation has elected not to provide the information typically required for quantitative and qualitative disclosure about market risk - The Company, as a smaller reporting company, has elected not to provide quantitative and qualitative disclosure about market risk[191] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2022, due to a material weakness related to the initial purchase accounting and continuing fair value accounting of the Stadco acquisition. Remediation plans are underway, but the material weakness is not yet resolved Evaluation of Disclosure Controls and Procedures This section reports management's conclusion on the effectiveness of the company's disclosure controls and procedures - As of September 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[193] Inherent Limitations over Internal Controls This section acknowledges that internal controls provide reasonable, not absolute, assurance and have inherent limitations - Internal controls are designed to provide reasonable, not absolute, assurance regarding financial reporting reliability, acknowledging inherent limitations such as resource constraints and the possibility that controls may not prevent or detect all errors or fraud[194][195] Material Weakness This section identifies a material weakness in internal control over financial reporting related to the Stadco acquisition - A material weakness was identified as of March 31, 2022, and persisted through September 30, 2022, concerning inadequate controls, processes, and procedures over the initial purchase accounting and continuing fair value accounting associated with the Stadco acquisition[196] - Despite the material weakness, management believes the condensed consolidated financial statements fairly present the Company's financial condition, results of operations, and cash flows in accordance with U.S. GAAP[197] Management's Remediation Plan This section outlines management's plan to address and remediate the identified material weakness in internal controls - Management is implementing new procedures, policies, and processes, including revising management review controls and enhancing quality control, to remediate the material weakness. Remediation will be confirmed once controls operate effectively for a sufficient period[198][199] Changes in Internal Control over Financial Reporting This section confirms that no other material changes in internal control over financial reporting occurred during the quarter - Except for the disclosed material weakness and remediation plan, there were no other changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting for the quarter ended September 30, 2022[200] PART II. OTHER INFORMATION This section includes exhibits and official signatures related to the company's regulatory filing ITEM 6. EXHIBITS This section lists the exhibits filed as part of the Form 10-Q, including corporate organizational documents, loan agreements, and certifications required by the Sarbanes-Oxley Act - The exhibits include the Certificate of Incorporation, Amended and Restated By-laws, Certificate of Designation for Series A Convertible Preferred Stock, Fourth Amendment to Amended and Restated Loan Agreement, and certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[201] SIGNATURES This section contains the official signatures, certifying the due authorization and filing of the report on behalf of TechPrecision Corporation - The report was signed on November 17, 2022, by Thomas Sammons, Chief Financial Officer, on behalf of TechPrecision Corporation[204]