# Techprecision Corp: Form 10-Q for the period ended Jun 30, 2015

- Company: [Techprecision Corp](/companies/tpcs.md) (CIK 1328792)
- Form: 10-Q
- Filed: 2015-08-14
- Accepted by EDGAR: Aug 14, 2015, 16:10 ET
- Period: 2015-06-30
- Accession: 0000950159-15-000262
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1328792/000095015915000262/tpcs10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1328792/000095015915000262/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-04-01 to 2015-06-30 | $4.4m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2015-04-01 to 2015-06-30 | $3.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2015-04-01 to 2015-06-30 | $1.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2015-04-01 to 2015-06-30 | $804.2k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-04-01 to 2015-06-30 | $478.7k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2015-04-01 to 2015-06-30 | $272.1k | us-gaap:InterestExpense |
| Income tax | 3 months, 2015-04-01 to 2015-06-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-04-01 to 2015-06-30 | $206.4k | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2015-04-01 to 2015-06-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-04-01 to 2015-06-30 | $0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-04-01 to 2015-06-30 | 24,867,019 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2015-04-01 to 2015-06-30 | $379.3k | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2015-04-01 to 2015-06-30 | $17.6k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-06-30 | $1.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-06-30 | $5.5m | us-gaap:AssetsCurrent |
| Total assets | at 2015-06-30 | $11.0m | us-gaap:Assets |
| Current liabilities | at 2015-06-30 | $7.4m | us-gaap:LiabilitiesCurrent |
| Short-term borrowings | at 2015-06-30 | $2.3m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2015-06-30 | $509.3k | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,109 characters.

### Statement Regarding Forward Looking Disclosure

The following discussion of the results of our operations and financial condition should be read in conjunction with our condensed consolidated financial statements and the related notes which appear elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including this section entitled “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. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. 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 the forward-looking statements due to numerous factors. Those factors include those risks discussed in Part II – Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and those discussed in Item 1A “Risk Factors” in the 2015 Form 10-K for the year ended March 31, 2015, as well as those described in any other filings which we make with the SEC. In addition, such statements could be affected by risks and uncertainties related to recurring operating losses and the availability of appropriate financing facilities impacting our ability to continue as a going concern, our ability to change the composition of our revenues and effectively reduce our operating expenses, 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, marketing and customer acceptance of our products, our reliance on a small number of customers for a significant percentage of our business, competition, government regulations and requirements, pricing and development difficulties, our ability to make acquisitions and successfully integrate those acquisitions with our business, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Quarterly report on Form 10-Q except as required by applicable law. Investors should evaluate any statements made by us in light of these important factors.

### Overview

We offer a full range of services required to transform raw materials into precise finished products. Our manufacturing capabilities include: fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting) and final assembly.

All U.S. manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications. Ranor holds several certificates of authorization issued by the American Society of Mechanical Engineers and the National Board of Boiler and Pressure Vessel Inspectors. The standards used are specific to the customers’ needs, and our manufacturing operations are conducted in accordance with these standards.

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

We historically have experienced, and continue to experience, customer concentration. For the three months ended June 30, 2015 and 2014, our largest customer accounted for approximately 27% and 30% of reported net sales, respectively, and our ten largest customers, accounted for approximately 99% and 96% of our revenue, respectively. Our sales order backlog at June 30, 2015 was approximately $13.9 million compared with a backlog of $14.3 million at March 31, 2015.

All of our sales recorded for the three months ended June 30, 2015 are from our U.S. segment. There were no sales generated from WCMC, our subsidiary in China, during the first quarter of fiscal 2016. At June 30, 2015, we did not have any open customer orders for WCMC in our backlog. We are evaluating how we utilize the WCMC entity moving forward.

On May 30, 2014 and on December 22, 2014 we entered into two new debt agreements with new lenders (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”). The proceeds from these debt agreements ($6.4 million in total) were used to pay off amounts outstanding under a prior Loan Agreement and Mortgage Loan and Security Agreement, with Santander Bank, N.A. The proceeds from the new borrowings have allowed us to emerge from provisions we were in default of under our previous debt agreements. At June 30, 2015 and March 31, 2015, we were not in default under any of our debt agreements.

For the three months ended June 30, 2015, our net sales and net income were $4.4 million and $0.2 million, respectively, compared with net sales of $6.2 million and net loss of $1.3 million, respectively, for the three months ended June 30, 2014. Our gross margins for the three months ended June 30, 2015 were 29.0% compared with gross margins of 3.5% for the three months ended June 30, 2014. Gross margins for the three months ended June 30, 2015 improved as the number of units shipped or in production under certain loss contracts were significantly lower. Gross margins for the three months ended June 30, 2014 were negatively impacted by a large volume of lower margin production furnaces, under absorbed overhead of $1.0 million and approximately $0.4 million of new contract losses.

We incurred an operating loss of $3.6 million for the fiscal year ended March 31, 2015. During fiscal 2014, we recorded a provision for potential contract losses of approximately $2.4 million in connection with the bankruptcy filing of GTAT and filed a proof of claim with the bankruptcy court to recover all of our costs under the terms of a purchase agreement. The claim is now considered an unsecured creditor claim within GTAT’s overall bankruptcy proceedings.

On April 17, 2015, the Company, through Ranor, entered into the Assignment Agreement with Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor agreed to sell, transfer, convey and assign to Citigroup all of Ranor’s right, title and interest in and to Ranor’s $3,740,956 unsecured claim against GTAT. Pursuant to the Assignment Agreement, Citigroup paid to Ranor an initial amount equal to $507,834. The Assignment Agreement provides for Citigroup to pay to Ranor up to an additional $614,452 upon either (A) receipt of written notice that Ranor’s claim (or any portion thereof) has been fully and finally allowed against GTAT as a non-contingent, liquidated, and undisputed general unsecured claim, been listed as non-contingent, liquidated, and undisputed on schedules filed by GTAT with the bankruptcy court, or appeared on the claims agent’s, or trustee’s or other estate representative’s records, or has otherwise been conclusively and finally treated in GTAT’s bankruptcy proceedings, as “allowed” or “accepted as filed”; or (B) the expiration of the time period during which any party (including GTAT) is permitted to file an objection, dispute or challenge with respect to Ranor’s claim without any such objection, dispute or challenge having been filed. If Ranor’s claim against GTAT is allowed in its entirety, then Citigroup will pay Ranor an additional $614,452. If the amount of Ranor’s claim that is allowed is greater than $1,692,782 but less than the full amount or Ranor’s claim, then Citigroup will pay Ranor an additional amount equal to $614,452 minus the product of 30% multiplied by the difference between the total amount of Ranor’s claim and the amount of such claim that is actually allowed. If the total amount of Ranor’s claim against GTAT that is allowed is less than $1,692,782, then Ranor may be obligated to repay to Citigroup 30% of the difference between $1,692,782 and the amount of Ranor’s claim that is actually allowed, plus interest at 7% per annum from April 21, 2015 through the date of the repurchase.

The Company cannot predict the amount of Ranor’s claim that will be finally allowed or admitted in the GTAT bankruptcy proceeding and cannot guarantee that Ranor will receive any additional payment on its claim. The Company continues to vigorously pursue its legal remedies in respect to the case described above; however, an adverse decision in any proceeding could significantly harm our business and our consolidated financial position, results of operations and cash flows.

At June 30, 2015, we had cash and cash equivalents of $1.4 million, of which $16,005 is located in China and may not able to be repatriated for use in the United States without undue cost or expense, if at all. Net cash provided by operating activities was $379,309 for the three months ended June 30, 2015, which includes an advance payment of $507,835 received under the Assignment Agreement.

These factors raise substantial doubt regarding our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and Part II – Item 1A “Risk Factors.”

### Critical Accounting Policies and Estimates

The preparation of the unaudited 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 contract accounting, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. These estimates and assumptions require management’s most difficult, subjective or complex judgments. Actual results may differ under different assumptions or conditions.

Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2015 Form 10-K. There were no significant changes in the critical accounting policies during the three months ended June 30, 2015, nor did we make any changes to our accounting policies that would have changed these critical accounting policies.

### New Accounting Pronouncements

See Note 3 – Recently Issued and Adopted Accounting Pronouncements to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently adopted accounting guidance and other new accounting guidance.

### Results of Operations

Our results of operations are affected by a number of external factors including the availability of raw materials (particularly steel), commodity prices, 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 foreign markets. Our order and revenue stream is uneven and reflects an irregular pattern of orders we receive from our customers as they gauge their customers’ demand for new and existing products. Our results of operations are 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 our obligations under our contracts. A delay in deliveries or cancellations of orders would cause us to have inventories in excess of our short-term needs, and may delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. We continue to execute the business plan we developed in fiscal 2015, which has the immediate goal of realigning and stabilizing our cost structure so we can return to and sustain profitability, even at current lower revenue levels. In connection with the execution of this business plan, we need to rebuild our backlog with orders from our key customers.

### Three Months Ended June 30, 2015

The following table sets forth information from our statements of operations in dollars and as a percentage of revenue:

*(dollars in thousands)*

|  | Three Months Ended June 30, 2015 Amount | Percent | Three Months Ended June 30, 2014 Amount | Percent | Changes Period Ended June 30, 2015 to 2014 Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $4,374 | 100% | $6,230 | 100% | $(1,856) | (30 ) % |
| Cost of sales | 3,092 | 71% | 6,012 | 97% | (2,920) | (49 ) % |
| Gross profit | 1,282 | 29% | 218 | 3% | 1,064 | nm% |
| Selling, general and administrative | 804 | 18% | 1,329 | 21% | (525) | (40 ) % |
| Income (loss) from operations | 478 | 11% | (1,111) | (18)% | 1,589 | 143% |
| Other income (expense), net | -- | --% | 1 | --% | (1) | --% |
| Interest expense | (272) | (6)% | (161) | (2)% | (111) | (69 ) % |
| Total other expense, net | (272) | (6)% | (160) | (2)% | (112) | (69 ) % |
| Income (loss) before income taxes | 206 | 5% | (1,271) | (20)% | 1,477 | 116% |
| Income tax expense | -- | --% | -- | --% | -- | --% |
| Net Income (loss) | $206 | 5% | $(1,271) | (20)% | $1,477 | 116% |

### Net Sales

The following increases and decreases in net sales reflect an irregular order flow from our customers as they measure their demand for new and existing products. For the three months ended June 30, 2015, net sales decreased by $1.9 million, or 30%, to $4.4 million. Net Sales in our defense group decreased by $0.6 million on lower shipments of components to our largest customer. Net sales in our energy group increased by $0.5 million as a result of higher volume to all customers in this group. Net Sales in our precision industrial group decreased by $1.8 million, primarily on lower volume for certain prototypes, medical components and production furnaces. We shipped $1.8 million of production furnace components for the three months ended June 30, 2014 as required under a purchase agreement with GTAT. GTAT significantly reduced the number of units ordered under the contract and we filed a demand for arbitration under the terms of the agreement. We recorded a provision for potential contract losses in connection with GTAT’s subsequent bankruptcy filing and filed a proof of claim with the bankruptcy court to recover all of our costs under the contract terms. The claim is now considered an unsecured creditor claim within the customer’s overall bankruptcy proceedings. We have entered into the Assignment Agreement with Citigroup whereby we assigned our unsecured claim to Citigroup, but we cannot predict the amount of the claim that will be recovered in GTAT’s bankruptcy proceeding or the amount that will be received pursuant to the Assignment Agreement.

### Cost of Sales and Gross Margin

Our cost of sales for the three months ended June 30, 2015 decreased by $2.9 million, or 49%. Gross margins during the three months ended June 30, 2015 were 29.3% compared with 3.5% for the same three month period in 2014. Gross margins for the three months ended June 30, 2015 were higher because of decreased materials and labor costs, and the absence of contract losses on custom first article projects. Our product mix for the three months ended June 30, 2015 primarily included orders for recurring business from our customers. Gross margins for the three months ended June 30, 2014 were lower because of a heavy volume of low margin production furnaces shipped during the period, under absorbed overhead of $1.0 million, and new contract losses of $0.4 million. Gross margin in any reporting period is impacted by the mix of services we provide on projects completed and in-process within that period. Actual production levels were lower than planned in the three months ended June 30, 2014 and resulted in under absorbed overheads for the period.

### Selling, General and Administrative Expenses

Total selling, general and administrative expenses, or SG&A, for the three months ended June 30, 2015 were $0.8 million or 40% lower when compared with the three months ended June 30, 2014. SG&A compensation expenses were lower due to reduced headcount in the United States ($0.2 million), lower outside advisory services ($0.2 million), and reduced rental and office expense from our downsized corporate headquarters facility ($0.1 million).

### Other Income (Expense)

The following table reflects other income (expense) and interest expense for the three months ended:

*(dollars in thousands)*

|  | June 30, 2015 | June 30, 2014 | $ Change | % Change |
| --- | ---: | ---: | ---: | --- |
| Other income (expense), net | $(179) | $53 | $(232) | nm% |
| Interest expense | $(159,324) | $(115,056) | $(44,268) | 38% |
| Interest expense: non-cash | $(112,798) | $(45,533) | $(67,265) | nm% |

Interest expense for the three months ended June 30, 2015 is higher due to higher levels of debt and higher interest rates. Non–cash interest expense primarily reflects the amortization of deferred loan costs in connection with the Credit Loan Note, the First Loan Note and the Second Loan Note. Interest expense for the three months ended June 30, 2014 includes a breakage fee of $29,448 in connection with an interest rate swap on certain indebtedness of the Company that was repaid.

### Income Taxes

For the three months ended June 30, 2015 and 2014, we recorded zero tax expense. The zero tax expense recorded for the three months periods ended was the result of maintaining a full valuation allowance on our net deferred tax assets. A valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized. The assessment was based on the weight of negative evidence at the balance sheet date, our recent operating losses and unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes. Our future effective tax rate would be affected if earnings were lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.

### Net Income (Loss)

As a result of the foregoing, we had net income of $206,351, or $0.01 per share basic and fully diluted, for the three months ended June 30, 2015, as compared to net loss of $1.3 million, or $0.05 per share basic and fully diluted, for the three months ended June 30, 2014.

### Liquidity and Capital Resources

At June 30, 2015, we had cash and cash equivalents of $1.5 million, of which $16,004 is located in China and may not be able to be repatriated for use in the United States without undue cost or expense, if at all. Net cash provided by operating activities was $379,309 for the three months ended June 30, 2015, which includes an advance payment of $507,835 received under the Assignment Agreement with Citigroup. We continue to reduce our operating expenses to stay in line with current business conditions. Our profit margins have improved significantly for the three months ended June 30, 2015, when compared with the three months ended June 30, 2014. As a result, we recorded net income of $206,351 for the three months ended June 30, 2015 compared with a net loss of $1.3 million for the three months ended June 30, 2014.

We incurred an operating loss of $3.6 million for the year ended March 31, 2015. During fiscal 2014, we recorded a provision for potential contract losses of $2.4 million in connection with the bankruptcy filing and filed a proof of claim with the bankruptcy court to recover all of our costs under the terms of a purchase agreement with GTAT. The claim is now considered an unsecured creditor claim within GTAT’s overall bankruptcy proceedings.

On April 17, 2015, the Company, through Ranor, entered into the Assignment Agreement with Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor agreed to sell, transfer, convey and assign to Citigroup all of Ranor’s right, title and interest in and to Ranor’s $3,740,956 unsecured claim against GTAT. Pursuant to the Assignment Agreement, Citigroup paid to Ranor an initial amount equal to $507,834. The Assignment Agreement provides for Citigroup to pay to Ranor up to an additional $614,452 upon either (A) receipt of written notice that Ranor’s claim (or any portion thereof) has been fully and finally allowed against GTAT as a non-contingent, liquidated, and undisputed general unsecured claim, been listed as non-contingent, liquidated, and undisputed on schedules filed by GTAT with the bankruptcy court, or appeared on the claims agent’s, or trustee’s or other estate representative’s records, or has otherwise been conclusively and finally treated in GTAT’s bankruptcy, as “allowed” or “accepted as filed”; or (B) the expiration of the time period during which any party (including GTAT) is permitted to file an objection, dispute or challenge with respect to Ranor’s claim without any such objection, dispute or challenge having been filed. If Ranor’s claim against GTAT is allowed in its entirety, then Citigroup will pay Ranor an additional $614,452. If the amount of Ranor’s claim that is allowed is greater than $1,692,782 but less than the full amount or Ranor’s claim, then Citigroup will pay Ranor an additional amount equal to $614,452 minus the product of 30% multiplied by the difference between the total amount of Ranor’s claim and the amount of such claim that is actually allowed. If the total amount of Ranor’s claim against GTAT that is allowed is less than $1,692,782, then Ranor may be obligated repay to Citigroup 30% of the difference between $1,692,782 and the amount of Ranor’s claim that is actually allowed plus interest at 7% per annum from April 21, 2015 through the date of the repurchase.

The Company cannot predict the amount of Ranor’s claim that will be finally allowed or admitted in the GTAT bankruptcy proceeding and cannot guarantee that Ranor will receive any additional payment on its claim. The Company continues to vigorously pursue its legal remedies in respect to the case described above, however, an adverse decision in any proceeding could significantly harm our business and our consolidated financial position, results of operations and cash flows.

On May 30, 2014, TechPrecision and Ranor entered into the LSA with Utica. Pursuant to the LSA, Utica agreed to loan $4.15 million to Ranor under a Credit Loan Note, which is collateralized by a first secured interest in certain machinery and equipment at Ranor. Payments under the LSA and Credit Loan Note are due in monthly installments with an interest rate on the unpaid principal balance of the Credit Loan Note equal to 7.5% plus the greater of 3.3% or the six-month LIBOR interest rate, as described in the Credit Loan Note. Ranor’s obligations under the LSA and the Credit Loan Note are guaranteed by TechPrecision.

Pursuant to the LSA, Ranor is subject to certain restrictive covenants which, among other things, restrict Ranor’s ability to (1) declare or pay any dividend or other distribution on its equity, purchase or retire any of its equity, or alter its capital structure; (2) make any loan or guaranty or assume any obligation or liability; (3) default in payment of any debt in excess of $5,000 to any person; (4) sell any of the collateral outside the normal course of business; and (5) enter into any transaction that would materially or adversely affect the collateral or Ranor’s ability to repay the obligations under the LSA and the Credit Loan Note. The restrictions contained in these covenants are subject to certain exceptions specified in the LSA and in some cases may be waived by the written consent of Utica. Any failure to comply with the covenants outlined in the LSA without waiver by Utica or certain other provisions in the LSA would constitute an event of default, pursuant to which Utica may accelerate the repayment of the loan.

In connection with the execution of the LSA, we paid approximately $0.24 million in fees and associated costs and utilized approximately $2.65 million of the proceeds of the Credit Loan Note to pay off debt obligations owed to Santander Bank N.A. under a Loan and Security Agreement. Additionally, the Company retained approximately $1.27 million of the proceeds of the Credit Loan Note for general corporate purposes.

On December 22, 2014, Ranor entered into the TLSA, with Revere. Pursuant to the TLSA, Revere agreed to loan an aggregate of $2.25 million to Ranor under the First Loan Note in the aggregate principal amount of $1.5 million, or the Second Loan Note, in the aggregate principal amount of $750,000. The First Loan Note is collateralized by a secured interest in Ranor’s Massachusetts facility and certain machinery and equipment at Ranor. The Second Loan Note is collateralized by a secured interest in certain accounts, inventory and equipment of Ranor. Payments under the TLSA, the First Loan Note and the Second Loan Note are due as follows: (a) payments of interest only on advanced principal on a monthly basis on the first day of each month from February 1, 2015 until December 31, 2015 with an annual interest rate on the unpaid principal balance of the First Loan Note and the Second Loan Note equal to 12% per annum and (b) the principal balance plus accrued and unpaid interest payable on December 31, 2015. Ranor’s obligations under the TLSA, the First Loan Note and the Second Loan Note are guaranteed by TechPrecision pursuant to a Guaranty Agreement with Revere. Ranor utilized approximately $1.45 million of the proceeds of the First Loan Note and the Second Loan Note to repay in full loan obligations owed to the Bank, plus breakage fees on a related interest swap of $217,220 under the Loan and Security Agreement with the Santander Bank N.A. The remaining proceeds of the First Loan Note and the Second Loan Note were retained by the Company to be used for general corporate purposes. Pursuant to the TLSA, Ranor is subject to certain affirmative and negative covenants, including a cash covenant, which requires that we maintain minimum month end cash balances that range from $400,000 to $820,000. We were required to maintain a cash balance of $775,000 and $500,000 at June 30, 2015 and March 31, 2015, respectively. We were in compliance with all covenants under the TLSA at June 30, 2015.

If we were to violate any of the covenants under the above debt agreements, the lenders could demand full repayment of the amounts we owe. As such, we would need to seek alternative financing to pay these obligation as we do not have existing facilities or sufficient cash on hand to satisfy these obligations, and there is no guarantee that we would be able to obtain such alternative financing.

Our liquidity is highly dependent on our available financing facilities and our ability to improve our gross profit and operating income. Our TLSA with Revere expires on December 31, 2015, and must be extended or refinanced with another lender. If we successfully secure additional acceptable financing facilities, execute on our business plans, improve gross profit and operating income, and reduce our operating costs, then we believe that our available cash will be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the next twelve months.

These factors raise substantial doubt about our ability to continue as a going concern. In order for us to continue operations beyond the next twelve months and be able to discharge our liabilities and commitments in the normal course of business, we must secure long-term financing on terms consistent with our near-term business plans. In addition, we must increase our backlog and change the composition of our revenues to focus on recurring unit of delivery projects rather than custom first article and prototyping projects, which do not efficiently utilize our manufacturing capacity. We plan to closely monitor our expenses and, if required, will further reduce operating costs and capital spending to enhance liquidity.

The condensed consolidated financial statements for the three months ended June 30, 2015 and for the year ended March 31, 2015 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 total current liabilities of $7.4 million at June 30, 2015 and to continue as a going concern is dependent upon the availability of and our ability to timely secure long-term financing and the successful execution of our operating plan. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Our failure to service our current debt and obtain new or additional financing could impair our ability to both serve our existing customer base and develop new customers and could result in our failure to continue to operate as a going concern. To the extent that we require new or additional financing, we cannot assure you that we will be able to get such financing on terms equal to or better than the terms of the LSA or the TLSA. If we are unable to raise funds through a credit facility, it may be necessary for us to conduct an offering of debt and/or equity securities on terms which may be disadvantageous to us or have a negative impact on our outstanding securities and the holders of such securities. In the event of an equity offering, it may be necessary that we offer such securities at a price that is significantly below our current trading price which may result in substantial dilution to our investors that do not participate in the offering and a new low trading price for our common stock.

At June 30, 2015 and March 31, 2015, we had negative working capital of $1.9 million and $2.0 million, respectively. The following table sets forth the principal changes in the components of our working capital:

*(dollars in thousands)*

|  | June 30, 2015 | March 31, 2015 | Change Amount | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $1,465 | $1,336 | $129 | 10% |
| Accounts receivable, less allowance for doubtful accounts | $822 | $826 | $(4) | (1 ) % |
| Costs incurred on uncompleted contracts, in excess of progress billings | $1,800 | $2,008 | $(208) | (10)% |
| Inventory - raw materials | $136 | $135 | $1 | 1% |
| Current deferred taxes | $827 | $827 | $- | --% |
| Other current assets | $466 | $538 | $(72) | (14)% |
| Accounts payable | $1,204 | $1,526 | $(322) | (21)% |
| Trade notes payable | $74 | $138 | $(64) | (46)% |
| Accrued expenses | $1,700 | $1,666 | $34 | 2% |
| Advanced claims payment | $508 | $-- | $508 | nm% |
| Deferred revenues | $715 | $1,212 | $(497) | (41)% |
| Short-term debt | $2,250 | $2,250 | $-- | --% |
| Current portion of long-term debt | $934 | $934 | $-- | --% |

The following table summarizes our primary cash flows for the periods presented:

*(dollars in thousands)*

| Cash flows provided by (used in): | June 30, 2015 | June 30, 2014 | Change Amount |
| --- | ---: | ---: | ---: |
| Operating activities | $379 | $(1,558) | $1,937 |
| Investing activities | $(18) | $(54) | $36 |
| Financing activities | $(233) | $1,412 | $(1,645) |
| Effects of foreign exchange rates on cash and cash equivalents | $-- | $-- | $-- |
| Net increase (decrease) in cash and cash equivalents | $128 | $(200) | $328 |

#### Operating activities

Cash provided by operations for the three months ended June 30, 2015 was $379,309 compared with cash used in operations of $1.6 million for the three months ended June 30, 2014. For the three months ended June 30, 2015 we recorded net income of $206,351 compared with a net loss of $1.3 million for the three months ended June 30, 2014. Our primary source of cash is from accounts receivable collections, customer advance payments, and project progress payments. Cash provided by operations for the three months ended June 30, 2015 was augmented by an advance payment of $507,835 received under the Assignment Agreement with Citigroup on April 17, 2015. There were no significant customer advance or project progress payments made on our projects in progress during the first quarter of fiscal 2015. Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments and customer payments made after shipment of finished goods.

#### Investing activities

The three month period ended June 30, 2015 and 2014 were marked by cash outflows for capital spending for new equipment of $17,600 and $54,093, respectively.

#### Financing activities

For the three months ended June 30, 2015, cash used in financing activities was $0.2 million, consisting of amounts used to make principal payments on our outstanding debt. On May 30, 2014, TechPrecision and Ranor entered into the LSA, with Utica, pursuant to which Utica agreed to loan $4.15 million to Ranor under a Credit Loan Note, which is collateralized by a first secured interest in certain machinery and equipment at Ranor. Ranor used approximately $2.65 million of the proceeds of the Credit Loan Note to pay off debt obligations owed to Santander Bank N.A. under a Loan and Security Agreement, while the remaining proceeds were used to fund our operations and investing activities.

All of the above activity resulted in a net increase in cash for the three months ended June 30, 2015 of $128,435, compared with a net decrease in cash of $199,813 for the three months ended June 30, 2014. We have no off-balance sheet assets or liabilities.

A table summarizing the amounts and estimated timing of future cash payments from commitments and contractual obligations was provided in the 2015 Form 10-K. During the three months ended June 30, 2015 there were no material changes to our commitments and contractual obligations.

## Controls and procedures

As filed, 2,535 characters.

### Evaluation of Disclosure Controls and Procedures

As of June 30, 2015, we carried out an evaluation, 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 (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act). Based on the evaluation, our chief executive officer and chief financial officer have concluded that, as of June 30, 2015, our disclosure controls and procedures and internal control over financial reporting were not effective because of the material weakness described in Item 9A of the 2015 Form 10-K.

Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

We are making progress remediating the material weakness identified in the 2015 Form 10-K as described in the next section. Notwithstanding this material weakness, we believe our condensed consolidated statements presented in this Quarterly Report on Form 10-Q fairly represent, in all material respects, our financial position, results of operations and cash flows for all periods presented herein.

### Changes in Internal Controls

Except as identified below, there has been no change to our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the three months ended June 30, 2015 we continued to monitor our control environment and improve manual controls that support our financial reporting process by providing guidelines for account reconciliations and enhancing documentation to support sub-ledger account reconciliations. As we continue to remediate the material weakness described in Item 9A of the 2015 Form 10-K, we will determine the appropriate complement of corporate and divisional accounting personnel required to consistently operate management review controls.

## Risk factors

As filed, 4,271 characters.

Except for the risk factor below, which supplements the risk factors discussed in Item 1A. “Risk Factors," in the 2015 Form 10-K, there have been no material changes to the risk factors discussed in Item 1A. “Risk Factors," in the 2015 Form 10-K. You should carefully consider the risks described in this Quarterly Report on Form 10-Q and the 2015 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q and the 2015 Form 10-K, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of these risks actually occur, our business, financial condition and/or results of operations could be negatively affected.

***We require additional capital to fund our operations. Our TLSA with Revere expires on December 31, 2015, and must be extended or refinanced with another lender. In the event that we determine that we are unable to secure additional funding when required, we may need to downsize or wind down our operations through liquidation, bankruptcy or a sale of our assets.***

As of June 30, 2015, we had $1.5 million of cash and cash equivalents. Cash provided by operations for the three months ended June 30, 2015 was $379,309 compared with cash used in operations of $1.6 million for the three months ended June 30, 2014. Cash provided by operations for the three months ended June 30, 2015 was augmented by an advance payment of $507,835 received under the Assignment Agreement with Citigroup on April 17, 2015.

Our TLSA with Revere expires on December 31, 2015, and must be extended or refinanced with another lender. If we do not successfully secure additional acceptable financing facilities, execute on our business plans, improve gross profit and operating income, and reduce our operating costs, then our available cash may not be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the next twelve months.

Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments for materials and customer payments made after shipment of finished goods. If no additional debt or equity financing is consummated, it is possible that our existing cash and cash equivalents and expected revenue from operations may not be sufficient to meet our operating and capital requirements through the near-term, although changes in our business, whether or not initiated by us, may cause us to deplete such cash and cash equivalents available to us at a quicker rate. We must obtain additional financing in order to continue our operations beyond the near-term. There are no assurances that funding will be available when we need it on terms that we find favorable, if at all. If we are unable to secure additional financing on terms acceptable to us and on a timely basis, we may seek stockholder approval to dissolve or we may file for, or be forced to resort to, bankruptcy protection. Any decision to seek stockholder approval to dissolve or to file for, or be forced to resort to bankruptcy protection, may occur at any point during the near-term. In addition, if we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced and they may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of our common stock and our preferred stock, and the terms of such debt securities could impose significant restrictions on our operations. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, and otherwise respond to competitive pressures could be significantly delayed or limited, and we may need to downsize or halt our operations.

Filed Aug 14, 2015.
Source: SEC EDGAR, the filing index for accession 0000950159-15-000262. Last ingested by Listed: Nov 10, 2026, 04:27 ET. No prices; not investment advice.