# Techprecision Corp: Form 10-Q for the period ended Jun 30, 2016

- Company: [Techprecision Corp](/companies/tpcs.md) (CIK 1328792)
- Form: 10-Q
- Filed: 2016-08-15
- Accepted by EDGAR: Aug 15, 2016, 16:31 ET
- Period: 2016-06-30
- Accession: 0000950159-16-000697
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1328792/000095015916000697/tpcs10q6-30.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1328792/000095015916000697/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-04-01 to 2016-06-30 | $4.6m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-04-01 to 2016-06-30 | $3.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2016-04-01 to 2016-06-30 | $1.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-04-01 to 2016-06-30 | $888.2k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-04-01 to 2016-06-30 | $647.2k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-04-01 to 2016-06-30 | $193.2k | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-04-01 to 2016-06-30 | $9.5k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-04-01 to 2016-06-30 | $445.3k | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2016-04-01 to 2016-06-30 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-04-01 to 2016-06-30 | $0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-04-01 to 2016-06-30 | 27,711,919 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-04-01 to 2016-06-30 | $1.4m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Current assets | at 2016-06-30 | $6.5m | us-gaap:AssetsCurrent |
| Total assets | at 2016-06-30 | $12.0m | us-gaap:Assets |
| Current liabilities | at 2016-06-30 | $4.6m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2016-06-30 | $2.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,213 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 I Item 1A "Risk Factors" in the 2016 Form 10-K, 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 the availability of appropriate financing facilities, 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, 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 industrial 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 also pursue more long-term projects with predictable cost structures.

We historically have experienced, and continue to experience, customer concentration. For the three months ended June 30, 2016 and 2015, our largest customer accounted for approximately 32% and 27% of reported net sales, respectively, and our ten largest customers accounted for approximately 99% and 99% of our revenue, respectively. Our sales order backlog at June 30, 2016 was approximately $17.1 million compared with a backlog of $19.8 million at March 31, 2016.

All of our sales recorded for the three months ended June 30, 2016 are from our U.S. segment. There were no sales generated from WCMC, our subsidiary in China, during the first quarter of fiscal 2017. At June 30, 2016, 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 April 26, 2016 we entered into a new debt agreement, the MLSA, with a new lender, People's (see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources"). The proceeds from the MLSA (approximately $3.0 million in total) were used to pay off amounts outstanding under a prior LSA with Utica. We retained $0.2 million of proceeds from the MLSA for general corporate purposes.

For the three months ended June 30, 2016, our net sales and net income were $4.6 million and $0.4 million, respectively, compared to net sales and net income of $4.4 million and $0.2 million, respectively, for the three months ended June 30, 2015. Our gross margins for the three months ended June 30, 2016 were 33.1% compared with gross margins of 29.3% for the three months ended June 30, 2015.

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 $507,835. The Assignment Agreement provides for Citigroup to pay to Ranor up to an additional $614,452 upon the occurrence of certain events. 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 repayment. GTAT emerged from bankruptcy on March 18, 2016.

The Company cannot predict the amount of Ranor's claim that will be finally allowed or admitted in connection with the GTAT bankruptcy 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, 2016, we had cash of $2.9 million, of which $4,179 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 $1.4 million for the three months ended June 30, 2016.

### 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 2016 Form 10-K. There were no significant changes in the critical accounting policies during the three months ended June 30, 2016, 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 continue to replenish our backlog with orders from our key customers.

### Three Months Ended June 30, 2016 and 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, 2016 Amount | Percent | Three Months Ended June 30, 2015 Amount | Percent | Changes Period Ended June 30, 2016 to 2015 Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $4,644 | 100% | $4,374 | 100% | $270 | 6% |
| Cost of sales | 3,109 | 67% | 3,092 | 71% | 17 | 1% |
| Gross profit | 1,535 | 33% | 1,282 | 29% | 253 | 20% |
| Selling, general and administrative | 888 | 19% | 804 | 18% | 84 | 10% |
| Income from operations | 647 | 14% | 478 | 11% | 169 | 35% |
| Other income (expense), net | 1 | --% | -- | --% | 1 | --% |
| Interest expense | (193) | (4)% | (272) | (6)% | 79 | 29% |
| Total other expense, net | (192) | (4)% | (272) | (6)% | 80 | 29% |
| Income before income taxes | 455 | 10% | 206 | 5% | 249 | nm% |
| Income tax expense | 10 | --% | -- | --% | 10 | nm% |
| Net Income | $445 | 10% | $206 | 5% | $239 | nm% |

### Net Sales

Overall, our first quarter shipments reflect steady demand for our services from our customers, albeit for different products and components than those shipped during the comparable period a year ago. For the three months ended June 30, 2016, net sales increased by approximately $0.3 million, or 6%, to $4.6 million. Net sales in our precision industrial markets increased by $0.9 million primarily on higher shipments of components for medical systems. Net sales in our defense markets decreased by $0.2 million as shipments of components to our key customers were down slightly when compared to the three months ended June 30, 2015. Net sales in our energy market decreased by $0.4 million as a result of lower volume shipped for nuclear power plant components.

### Cost of Sales and Gross Margin

Our cost of sales for the three months ended June 30, 2016 increased by 1%. Gross margins during the three months ended June 30, 2016 were 33.1% compared with 29.3% for the three months ended June 30, 2015. Our product mix for the three months ended June 30, 2016 included orders of higher margin business from our customers. Actual production levels were on par with previous quarters and resulted in normal overhead absorption for both reporting periods. Gross margin in any reporting period is impacted by the mix of products and services we provide on projects completed and in-process within that period.

### Selling, General and Administrative Expenses

Total selling, general and administrative expenses, or SG&A, for the three months ended June 30, 2016 were 10% higher when compared to the three months ended June 30, 2015. SG&A expenses were higher by $0.1 million due primarily to increased legal, audit and other advisory services.

### Other Income (Expense)

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

|  | June 30, 2016 | June 30, 2015 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income (expense), net | $751 | $(179) | $930 | nm% |
| Interest expense | $(116,167) | $(159,324) | $43,157 | 27% |
| Interest expense: non-cash | $(77,043) | $(112,798) | $35,755 | 32% |

Interest expense for the three months ended June 30, 2016 was lower due to lower interest rates. Non-cash interest expense reflects the amortization of deferred loan costs in connection with our outstanding debt and deferred interest costs in connection with the TLSA.

### Income Taxes

For the three months ended June 30, 2016, we recorded tax expense of $9,453 in connection with an accrual for alternative minimum tax due on taxable income in excess of net operating losses. For the three months ended June 30, 2015, we recorded zero tax expense. The zero tax expense recorded for the three months ended June 30, 2015 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 tax jurisdictions where we have lower statutory rates and higher than anticipated in tax jurisdictions 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

As a result of the foregoing, we had net income of $445,303, or $0.02 per share basic and fully diluted, for the three months ended June 30, 2016, as compared to net income of $206,351, or $0.01 per share basic and fully diluted, for the three months ended June 30, 2015.

### Liquidity and Capital Resources

On April 26, 2016, TechPrecision through Ranor, executed and closed the MLSA with People's. Loan proceeds were disbursed to Ranor on April 26, 2016. Pursuant to the MLSA, People's loaned $3,011,648 to Ranor under the People's Loan. The People's Loan is secured by a first lien on the Equipment Collateral. Payments on the People's Loan will be made in 60 monthly installments of $60,921 each, inclusive of interest at a fixed rate of 7.90% per annum. The first monthly installment payment was paid on May 26, 2016. A prepayment penalty will apply during the first four years of the loan term. Ranor's obligations under the MLSA are guaranteed by TechPrecision. The Company covenants to maintain a DSCR of at least 1.5 to 1.0 during the term of the People's Loan. The DSCR will be measured at the end of each fiscal year of the Company.

The People's Loan may be accelerated upon the occurrence of an "Event of Default" (as defined in the MLSA). Events of Default include (i) the failure to pay any monthly installment payment before the fifth day following the due date of such payment, (ii) the sale, transfer or encumbrance of any Equipment Collateral or other assets of Ranor or TechPrecision (except as otherwise permitted by the terms of the MLSA), (iii) failure to maintain insurance as provided in the MLSA, (iv) failure of Ranor or TechPrecision to observe or perform any obligations under the MLSA or any other obligation to People's, (v) failure to pay any indebtedness (other than the People's Loan) or to perform any covenant relating to any such indebtedness, (vi) Ranor's default under any lease for property where any of the Equipment Collateral is located, (vii) Ranor or TechPrecision cease doing business as a going concern, make an assignment for the benefit of creditors, or commence a bankruptcy or other similar insolvency proceeding, (viii) Ranor or TechPrecision terminate their existence, sell all or substantially all of their assets, or merge into another entity, and (ix) the entry of a judgment against Ranor or TechPrecision in excess of $50,000 which is not fully covered by insurance and which could have a material adverse effect on Ranor or TechPrecision. Some of the Events of Default are subject to certain cure periods.

In connection with the MLSA, $2,653,353 of the proceeds from the People's Loan were disbursed to Utica, as payment in full for principal and interest under the LSA. People's retained a holdback in the amount of $182,763. The holdback was released to Ranor in July, 2016 after the Company reported a DSCR of 1.82 to 1.0 as of March 31, 2016. Ranor retained $175,532 of the proceeds from the People's Loan for general corporate purposes.

On December 22, 2014, TechPrecision, Ranor and Revere entered into the TLSA, pursuant to which Revere loaned an aggregate of $2.25 million to Ranor under two promissory notes that were secured by certain assets of Ranor. On January 22, 2016, TechPrecision and Ranor entered into the Second Modification Agreement. In connection with the Second Modification Agreement, Ranor executed the Amended and Restated Notes in favor of Revere.

The Second Modification Agreement (a) extends the maturity date of the term loans made pursuant to the TLSA to January 22, 2018, (b) amends the amortization schedule such that payments under the TLSA and Amended and Restated Notes are due as follows: (i) payments of interest only on advanced principal on a monthly basis on the first day of each month from March 1, 2016 until January 1, 2017 and (ii) payments of $9,375 in principal plus accrued interest on a monthly basis on the first day of each month from February 1, 2017 until January 22, 2018, (c) reduces the Interest Rate to 10% per annum from 12% per annum, (d) amends the definition of the Minimum Guaranteed Interest payable by Ranor to Revere on the earlier of prepayment in full of the loans or payment in full of the loans on the maturity date to the greater of (i) 12 months interest at the Interest Rate on the amount outstanding on the loans or (ii) interest due on any amount advanced under the TLSA at the Interest Rate, (e) adds a restrictive covenant whereby Ranor must maintain monthly minimum cash balances, with failure to comply with such restrictive covenant an event of default pursuant to which Revere may accelerate the repayment of the loans, and (f) includes a reaffirmation of TechPrecision's guarantee of Ranor's obligations under the TLSA and the Amended and Restated Notes pursuant to a Guaranty Agreement between TechPrecision and Revere.

On April 26, 2016, TechPrecision and Ranor executed and closed on a Loan Documents Modification Agreement No. 3, or the Third Modification Agreement, with Revere. The Third Modification Agreement, dated and effective as of March 31, 2016, further amends the TLSA. The Third Modification Agreement, among other things, (i) permits Ranor to pay off in its entirety the indebtedness owed under the LSA with Utica with proceeds from the People's Loan, (ii) adds the People's security interest as a "Permitted Lien" under the TLSA, (iii) deletes certain references to Utica, the LSA with Utica and loan documents related to the LSA with Utica and replaces those references with new definitions relating to the People's Loan, (iv) adds the People's Loan and TechPrecision's guaranty of the People's Loan as "Existing Indebtedness" under the TLSA, (v) requires Ranor, People's and Revere to enter into an Intercreditor and Subordination Agreement to, among other things, establish the relative priorities between Revere and People's with regard to certain assets of Ranor, (vi) requires Ranor to cause People's and Revere to enter into a Mortgagee's Disclaimer and Consent to, among other things, require that Revere permit People's access to certain real property owned by Ranor and mortgaged to Revere as collateral for the TLSA in the event that Ranor defaults on the People's Loan and Revere has taken possession of the real property, and (vii) includes a reaffirmation of TechPrecision's guarantee of Ranor's obligations under the TLSA.

Other than as so amended by the First Modification Agreement, the Second Modification Agreement, and the Third Modification Agreement, the terms and conditions of the TLSA remain in full force and effect.

Pursuant to the TLSA, as amended by the Second Modification Agreement and the Third Modification Agreement, Ranor is subject to certain affirmative and negative covenants, including a minimum cash balance covenant, which requires that we maintain minimum month end cash balances that range from $640,000 to $1,000,000. We were required to maintain a cash balance of $779,968 and $786,212 at June 30, 2016 and March 31, 2016, respectively. We were in compliance with all covenants under the TLSA at June 30, 2016 and March 31, 2016.

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.

At June 30, 2016, we had cash of $2.9 million, of which $4,179 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 $1.4 million for the three months ended June 30, 2016. Net cash provided by operating activities for the three months ended June 30, 2015 was $379,309, which included an advance payment of $507,835 received under the Assignment Agreement with Citigroup. Our profit margins continue to improve, as we have scaled our operating expenses with our recent revenue volume. As a result, we recorded net income of $445,303 for the three months ended June 30, 2016 compared with a net income of $206,351 for the three months ended June 30, 2015.

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 repayment. GTAT has since emerged from bankruptcy on March 18, 2016.

The Company cannot predict the amount of Ranor's claim that will be finally allowed or admitted in connection with GTAT's bankruptcy 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.

We may need to refinance or secure additional long-term financing on terms consistent with our business plans. In addition, we must replenish our backlog and balance our revenue mix to ensure recurring unit of delivery projects, rather than custom first article and prototyping projects which, in the past, did not efficiently utilize our manufacturing capacity. We must also maintain a level of operating expenses in line with current business conditions in order to increase profit margins and decrease the amount of cash used in operations. We plan to closely monitor our expenses and, if required, will further reduce operating costs and capital spending to enhance liquidity.

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, as well as a lower trading price for our common stock.

Our liquidity is highly dependent on the availability of financing facilities and our ability to improve our gross profit and operating income. If we successfully execute on our business plans, improve gross profit and operating income, and reduce our operating costs, then we believe our available cash will be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the 12 months from the issuance date of our financial statements.

At June 30, 2016 and March 31, 2016, we had working capital of $1.9 million and $0.5 million, respectively. The table below presents selected liquidity and capital measures as of:

*(dollars in thousands)*

|  | June 30, 2016 | March 31, 2016 | Change Amount |
| --- | ---: | ---: | ---: |
| Cash | $2,858 | $1,332 | $1,526 |
| Working capital | $1,937 | $510 | $1,427 |
| Total debt | $5,202 | $4,736 | $466 |
| Total stockholders' equity | $2,184 | $1,728 | $456 |

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

*(dollars in thousands)*

| Cash flows provided by (used in): | June 30, 2016 | June 30, 2015 | Change Amount |
| --- | ---: | ---: | ---: |
| Operating activities | $1,386 | $379 | $1,007 |
| Investing activities | -- | (18) | 18 |
| Financing activities | 140 | (233) | 373 |
| Effects of foreign exchange rates on cash | -- | -- | -- |
| Net increase in cash | $1,526 | $128 | $1,398 |

18

#### Operating activities

Our primary sources of cash are from accounts receivable collections, customer advance payments, and project progress payments. Our ability to convert cash expended for materials, labor and overhead to finished goods ready for shipment and collecting the cash back from our trade receivables has improved significantly. Improved turnover rates helped us to generate higher amounts of cash in the three months ended June 30, 2016. Cash provided by operations for the three months ended June 30, 2016 was $1.4 million compared with cash provided by operations of $0.4 million for the three months ended June 30, 2015. For the three months ended June 30, 2016 we recorded net income of $445,303 compared with a net income of $206,351 for the three months ended June 30, 2015. 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.

#### Investing activities

There were no expenditures made for fixed assets during the three months ended June 30, 2016. The three month period ended June 30, 2015 was marked by cash outflows for capital spending for new equipment of $17,600.

#### Financing activities

For the three months ended June 30, 2016 cash provided by financing activities was $139,862. We received proceeds of $2.8 million from our MLSA with People's. In connection with the MLSA, $2,459,259 of the proceeds from the People's Loan were disbursed to Utica, as payment in full of the principal obligations under the LSA. We also paid $144,338 in loan closing costs. People's retained a holdback in the amount of $182,763. The holdback was released to Ranor on July 6, 2016 after the Company reported a DSCR of 1.82 to 1.0 as of March 31, 2016.

For the three months ended June 30, 2015, cash used in financing activities was $233,349, the total used to make principal payments on our outstanding debt.

All of the above activity resulted in a net increase in cash for the three months ended June 30, 2016 of $1,526,112, compared with a net increase in cash of $128,435 for the three months ended June 30, 2015. 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 2016 Form 10-K. During the three months ended June 30, 2016 there were no material changes to our commitments and contractual obligations.

## Controls and procedures

As filed, 1,762 characters.

Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting.

### Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our CEO and CFO have concluded that, as of June 30, 2016, our disclosure controls and procedures are effective.

### Changes in Internal Controls

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, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Aug 15, 2016.
Source: SEC EDGAR, the filing index for accession 0000950159-16-000697. Last ingested by Listed: Nov 10, 2026, 04:27 ET. No prices; not investment advice.