# Techprecision Corp: Form 10-Q for the period ended Dec 31, 2016

- Company: [Techprecision Corp](/companies/tpcs.md) (CIK 1328792)
- Form: 10-Q
- Filed: 2017-02-14
- Accepted by EDGAR: Feb 14, 2017, 16:31 ET
- Period: 2016-12-31
- Accession: 0000950159-17-000056
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1328792/000095015917000056/tpcs10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1328792/000095015917000056/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-10-01 to 2016-12-31 | $5.3m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2016-04-01 to 2016-12-31 | $13.6m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-10-01 to 2016-12-31 | $3.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2016-04-01 to 2016-12-31 | $8.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2016-10-01 to 2016-12-31 | $2.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2016-04-01 to 2016-12-31 | $5.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-10-01 to 2016-12-31 | $2.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2016-04-01 to 2016-12-31 | $3.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-10-01 to 2016-12-31 | $1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2016-04-01 to 2016-12-31 | $2.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2016-10-01 to 2016-12-31 | $207.5k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2016-04-01 to 2016-12-31 | $584.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2016-10-01 to 2016-12-31 | $20.6k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2016-04-01 to 2016-12-31 | $41.6k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-10-01 to 2016-12-31 | $992.1k | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Net income | 9 months, 2016-04-01 to 2016-12-31 | $2.0m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2016-10-01 to 2016-12-31 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2016-04-01 to 2016-12-31 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2016-10-01 to 2016-12-31 | $0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2016-04-01 to 2016-12-31 | $0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2016-10-01 to 2016-12-31 | 28,873,237 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2016-04-01 to 2016-12-31 | 28,261,110 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Capital expenditure | 9 months, 2016-04-01 to 2016-12-31 | $452.8k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2016-12-31 | $8.1m | us-gaap:AssetsCurrent |
| Total assets | at 2016-12-31 | $13.7m | us-gaap:Assets |
| Current liabilities | at 2016-12-31 | $3.1m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2016-12-31 | $4.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,880 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 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.

All of our sales recorded for the nine months ended December 31, 2016 are from our U.S. segment. There were no sales generated from WCMC, our subsidiary in China, during the nine months ended December 31, 2016. At December 31, 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.

We historically have experienced, and continue to experience, customer concentration. For the nine months ended December 31, 2016, our largest customer accounted for approximately 47% of net sales, and our ten largest customers accounted for approximately 99% of our net sales. Our sales order backlog at December 31, 2016 was approximately $15.6 million compared with a backlog of $19.8 million at March 31, 2016.

For the nine months ended December 31, 2016, our net sales and net income were $13.6 million and $2.0 million, respectively, compared to net sales and net income of $12.0 million and $0.5 million, respectively, for the nine months ended December 31, 2015. Our gross margin for the nine months ended December 31, 2016 was 37.2% compared with gross margin of 31.4% for the nine months ended December 31, 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 sold, transferred, conveyed and assigned 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, which was classified as a current liability on our balance sheet. The Assignment Agreement provided for Citigroup to pay to Ranor up to an additional $614,452 upon receipt of written notice that Ranor's claim has been fully and finally allowed against GTAT without objection. On November 7, 2016, GTAT's legal counsel notified Citigroup that Ranor's unsecured claim was fully allowed without objection. In accordance with the terms of the Assignment Agreement, Citigroup paid Ranor an additional $614,452 on November 8, 2016. The resolution of this claim under the Assignment Agreement was recognized as a $1,122,287 gain in the three months ended December 31, 2016.

On April 26, 2016 we entered into the MLSA with People's. The proceeds from the MLSA totaled $3,377,500 and were used to pay off amounts outstanding under the LSA with Utica (see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources").

On December 21, 2016 we closed the Commerce Loan Agreement with Commerce. Pursuant to the Commerce Loan Agreement, Commerce made the Term Loan to Ranor in the amount of $2,850,000 and made available to Ranor the Revolver Loan in the amount of $1,000,000. Proceeds of $2,394,875 from Term Loan were disbursed to Revere as payment in full of Ranor's indebtedness owed to Revere pursuant to the TLSA (see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources").

We generated $1.9 million of cash from operating activities for the nine months ended December 31, 2016 and had a cash balance of $3.8 million at December 31, 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 nine months ended December 31, 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 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, our rate of progress fulfilling our obligations under our contracts, the timing of revenue recognition, delays in customer acceptances of products, and delays in deliveries of ordered products. 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 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 December 31, 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 December 31, 2016 Amount | Percent | Three Months Ended December 31, 2015 Amount | Percent | Changes from 2016 to 2015 Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $5,319 | 100% | $3,507 | 100% | $1,812 | 52% |
| Cost of sales | 3,267 | 61% | 2,435 | 69% | 832 | 34% |
| Gross profit | 2,052 | 39% | 1,072 | 31% | 980 | 91% |
| Selling, general and administrative | 1,955 | 37% | 768 | 22% | 1,187 | nm% |
| Gain from claims assignment settlement | (1,122) | 21% | -- | --% | (1,122) | nm% |
| Income from operations | 1,219 | 23% | 304 | 9% | 915 | nm% |
| Other income | 1 | --% | -- | --% | 1 | --% |
| Interest expense | (207) | (4)% | (292) | (8)% | 85 | 29% |
| Total other expense, net | (206) | (4)% | (292) | (8)% | 86 | 29% |
| Income before income taxes | 1,013 | 19% | 12 | --% | 1,001 | nm% |
| Income tax expense | 21 | --% | -- | --% | 21 | nm% |
| Net income | $992 | 19% | $12 | --% | $980 | nm% |

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### Net Sales

For the three months ended December 31, 2016, net sales increased by approximately $1.8 million, or 52%, to $5.3 million. Our third quarter shipments reflect steady demand from our defense customers, albeit for different products and components than those shipped during the comparable period a year ago. For the three months ended December 31, 2016, net sales in our defense markets increased by $1.9 million on higher volume of components shipped to one of our largest customers, and net sales in our precision industrial markets increased by $0.2 million primarily on higher volume of components shipped for medical systems. However, net sales in our energy markets decreased by $0.3 million for the three months ended December 31, 2016 compared to the three months ended December 31, 2015, as the Company worked to replenish backlog and start up new projects. Our backlog in the energy market has increased by $2.3 million from March 31, 2016 to December 31, 2016.

### Cost of Sales and Gross Margin

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. Our cost of sales for the three months ended December 31, 2016 increased by 34% compared to the three months ended December 31, 2015 on higher shipment volume. Gross margins during the three months ended December 31, 2016 were 38.6% compared with 30.6% for the three months ended December 31, 2015. Actual production activity during the three months ended December 31, 2016 resulted in normal overhead absorption for the reporting period.

### Selling, General and Administrative Expenses

Total selling, general and administrative expenses, or SG&A, increased by $1.2 million for the three months ended December 31, 2016. Non-cash share based compensation totaled $1.1 million for the three months ended December 31, 2016 as the Company remunerated its board members and chief executive officer, or CEO, for past service. Stock based compensation totaled $9,873 for the three months ended December 31, 2015. Professional fees increased by $134,952, primarily for outside advisory services rendered in connection with the Company's Annual Meeting in December 2016 and the expansion of the size of our board of directors. Salaries and related expenses decreased by $8,981 in the three months ended December 31, 2016 compared to the three months ended December 31, 2015.

### Gain from Claims Assignment Settlement

On April 17, 2015, the Company entered into the Assignment Agreement with Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor sold, transferred, conveyed and assigned to Citigroup all of Ranor's right, title and interest in and to Ranor's $3,740,956 unsecured claim against GTAT. On November 8, 2016, the claim was resolved to the benefit of the Company. As a result, we recorded a gain of $1.1 million in the three months ended December 31, 2016 representing all of the proceeds received as a settlement under the Assignment Agreement.

### Interest Expense and Other Income

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

|  | December 31, 2016 | December 31, 2015 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income | $1,130 | $471 | $659 | nm% |
| Interest expense | $(157,112) | $(213,188) | $56,076 | 26% |
| Interest expense: non-cash | $(50,409) | $(78,720) | $28,311 | 36% |

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Interest expense for the three months ended December 31, 2016 was lower compared to the three months ended December 31, 2015 due to lower interest rates. Non-cash interest expense reflects the amortization of deferred loan costs and deferred interest costs in connection with our outstanding debt.

### Income Taxes

For the three months ended December 31, 2016, we recorded income tax expense of $20,598 in connection with an accrual for alternative minimum tax due on taxable income in excess of net operating losses. For the three months ended December 31, 2015, we recorded zero income tax expense. The zero income tax expense recorded for the three months ended December 31, 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, primarily our past operating losses, which cause uncertainty as to whether we will generate sufficient taxable income to utilize the deferred tax assets. We have determined that it is more likely than not that certain future tax benefits may not be realized. A change in the estimates used to make this determination could require an increase in deferred tax assets if they become realizable.

### Net Income

As a result of the foregoing, we had net income of $992,094, or $0.03 per share basic and fully diluted, for the three months ended December 31, 2016, as compared to net income of $12,003, or $0.00 per share basic and fully diluted, for the three months ended December 31, 2015.

### Nine Months Ended December 31, 2016 and 2015

The following table sets forth information from our statements of operations for the nine months ended December 31, 2016 and 2015, in dollars and as a percentage of revenue:

*(dollars in thousands)*

|  | Nine Months Ended December 31, 2016 Amount | Percent | Nine Months Ended December 31, 2015 Amount | Percent | Changes from 2016 to 2015 Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $13,620 | 100% | $11,985 | 100% | $1,635 | 14% |
| Cost of sales | 8,559 | 63% | 8,223 | 69% | 336 | 4% |
| Gross profit | 5,061 | 37% | 3,762 | 31% | 1,299 | 35% |
| Selling, general and administrative | 3,583 | 26% | 2,482 | 21% | 1,101 | 44% |
| Gain from claims assignment settlement | (1,122) | 8% | -- | --% | (1,122) | nm% |
| Income from operations | 2,600 | 19% | 1,280 | 11% | 1,320 | 103% |
| Other income | 9 | --% | 1 | --% | 8 | nm% |
| Interest expense | (584) | (4)% | (808) | (7)% | 224 | 28% |
| Total other expense, net | (575) | (4)% | (807) | (7)% | 232 | 29% |
| Income before income taxes | 2,025 | 15% | 473 | 4% | 1,552 | nm% |
| Income tax expense | 42 | --% | -- | --% | 42 | nm% |
| Net income | $1,983 | 15% | $473 | 4% | $1,510 | nm% |

nm - *not meaningful*

### Net Sales

Our shipments for the nine months ended December 31, 2016 reflect steady demand from our customers for our services, albeit for different products and components than those shipped during the comparable period a year ago. For the nine months ended December 31, 2016, net sales increased by $1.6 million, or 14%, to $13.6 million. For the nine months ended December 31, 2016, net sales to our defense customers, our largest market group, increased by $1.8 million compared to the nine months ended December 31, 2015, primarily on a higher volume of components shipped to defense contractors. Net sales in our precision industrial group increased by $1.7 million compared to the nine months ended December 31, 2015, primarily on a higher shipment volume for medical components, and net sales in our energy group decreased by $1.9 million compared to the nine months ended December 31, 2015 as a result of a slower order flow as our customers gauge their demand for new components. Our backlog in the energy market has increased by $2.3 million from March 31, 2016 to December 31, 2016.

### Cost of Sales and Gross Margin

Gross margin in any reporting period is impacted by the mix of services we provide on projects completed within that period. Cost of sales consists primarily of raw materials, parts, labor, overhead, and subcontracting costs. Our cost of sales for the nine months ended December 31, 2016 increased by $0.3 million compared to the nine months ended December 31, 2015 to $8.6 million primarily on higher sales volume. Gross margins were 37.1% for the nine months ended December 31, 2016 and 31.4% for the nine months ended December 31, 2015. Gross profit was $5.1 million in the nine months ended December 31, 2016, or $1.3 million higher compared with the nine months ended December 31, 2015.

### Selling, General and Administrative Expenses

Total SG&A expenses increased by $1.1 million for the nine months ended December 31, 2016. Non-cash share based compensation totaled $1.1 million for the nine months ended December 31, 2016, as the Company remunerated its board members and CEO for past services. Stock based compensation totaled $51,100 for the three months ended December 31, 2015. Professional fees increased by $302,685, primarily for outside advisory services rendered in connection with the Company's Annual Meeting in December 2016 and the expansion of the size of our board of directors. Salaries and related expenses decreased by $244,880 because of lower headcount in the nine months ended December 31, 2016 when compared with the nine months ended December 31, 2015.

### Gain from Claims Assignment Settlement

On April 17, 2015, the Company entered into the Assignment Agreement with Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor sold, transferred, conveyed and assigned to Citigroup all of Ranor's right, title and interest in and to Ranor's $3,740,956 unsecured claim against GTAT. On November 8, 2016, the claim was resolved to the benefit of the Company. As a result, we recorded a gain of $1.1 million for the nine months ended December 31, 2016 representing all of the proceeds received as a settlement under the Assignment Agreement.

### Interest Expense and Other Income

The following table reflects interest expense and other income for the nine months ended:

|  | December 31, 2016 | December 31, 2015 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other income | $8,705 | $1,561 | $7,144 | nm% |
| Interest expense | $(443,541) | $(525,450) | $81,909 | 16% |
| Interest expense: non-cash | $(140,458) | $(282,759) | $142,301 | 50% |

nm - *not meaningful*

The Company refinanced its long-term debt during the nine months ended December 31, 2016. As a result, interest expense decreased by 28% due to lower interest rates when compared to the nine months ended December 31, 2015. Non-cash interest expense for the nine months ended December 31, 2016 reflects lower amounts of amortization for deferred loan costs in connection with our outstanding long-term debt.

### Income Taxes

For the nine months ended December 31, 2016, we recorded income tax expense of $41,556 in connection with an accrual for alternative minimum tax due on taxable income in excess of net operating losses. For the nine months ended December 31, 2015, we recorded zero income tax expense, 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, primarily our past operating losses, which cause uncertainty as to whether we will generate sufficient taxable income to utilize the deferred tax assets. We have determined that it is more likely than not that certain future tax benefits may not be realized. A change in the estimates used to make this determination could require an increase in deferred tax assets if they become realizable.

### Net Income

As a result of the factors described above, our net income was $2.0 million, or $0.07 per share basic and fully diluted, for the nine months ended December 31, 2016. For the nine months ended December 31, 2015, our net income was $472,960, or $0.02 per share basic and fully diluted.

### Liquidity and Capital Resources

On December 21, 2016 we closed the Commerce Loan Agreement with Commerce. Pursuant to the Commerce Loan Agreement, Commerce made the Term Loan to Ranor in the amount of $2,850,000 and made available to Ranor the Revolver Loan in the amount of $1,000,000. Starting on January 20, 2017, payments on the Term Loan will be made in 60 monthly installments of $19,260.46 each, inclusive of interest at a fixed rate of 5.21% per annum, with all outstanding principal and accrued interest due and payable on December 20, 2021. Advances under the Revolver Loan will be subject to a borrowing base equal to the lesser of (A) $1,000,000 and (B) the sum of (i) 80% of eligible accounts receivable, and (ii) the lesser of (a) 25% of eligible raw material inventory and (b) $250,000. Advances made under the Revolver Loan bear interest at a variable rate equal to the one-month LIBOR plus 275 basis points. Interest-only payments on advances made under the Revolver Loan will be payable monthly in arrears. The Revolver Loan will mature on December 21, 2018. There were no amounts outstanding under the Revolver Loan at December 31, 2016.

In connection with the Commerce Loan Agreement, $2,394,875 of the proceeds from Term Loan were disbursed to Revere as payment in full of Ranor's indebtedness owed to Revere pursuant to the TLSA. Ranor retained $426,467 of the proceeds from the Term Loan for general corporate purposes. The balance of the proceeds from the Term Loan were used to pay loan-related expenses.

The Company, through Ranor, entered into the Assignment Agreement with Citigroup on April 17, 2015. Pursuant to the terms of the Assignment Agreement, Ranor sold, transferred, conveyed and assigned 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, which amount was classified as a current liability on our balance sheet. The Assignment Agreement provided for Citigroup to pay to Ranor up to an additional $614,452 upon receipt of written notice that Ranor's claim has been fully and finally allowed against GTAT without objection. On November 7, 2016, GTAT's legal counsel notified Citigroup that Ranor's unsecured claim was fully allowed without objection. In accordance with the terms of the Assignment Agreement, Citigroup paid Ranor an additional $614,452 on November 8, 2016. The resolution of this claim under the Assignment Agreement was recognized as a $1,122,287 gain in the three months ended December 31, 2016.

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. 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 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.

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 October 4, 2016, TechPrecision and Ranor became committed to Schedule 2 to the MLSA. Pursuant to Schedule 2, People's made the Additional People's Loan in the amount of $365,852 to Ranor upon the terms and conditions set forth in the MLSA and Schedule 2. Ranor will repay the Additional People's Loan in monthly installments of principal and interest over 60 months. The Additional People's Loan is guaranteed by TechPrecision pursuant to the original Corporate Guaranty from TechPrecision in favor of People's dated March 31, 2016. The Additional People's Loan is secured by a security interest in certain machinery and equipment of Ranor as provided in Schedule 2.

On December 21, 2016, TechPrecision and Ranor closed on the MLSA Amendment to the MLSA with People's. The MLSA Amendment amends the definition of "Permitted Liens" under the MLSA to include the liens held by Commerce pursuant to the terms of the Commerce Loan Agreement and to delete the reference to the liens held by Revere.

At December 31, 2016, we had cash of $3.8 million. Net cash provided by operating activities was $1.9 million for the nine months ended December 31, 2016. Net cash provided by operating activities for the nine months ended December 31, 2015 was $373,278. The Company is in compliance with all covenants, including financial covenants, contained in all of its debt agreements. 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 December 31, 2016 and March 31, 2016, we had working capital of $5.0 million and $0.5 million, respectively. The table below presents selected liquidity and capital measures as of:

*(dollars in thousands)*

|  | December 31, 2016 | March 31, 2016 | Change |
| --- | ---: | ---: | ---: |
| Cash | $3,795 | $1,332 | $2,463 |
| Working capital | $4,996 | $510 | $4,486 |
| Total debt | $5,899 | $4,736 | $1,163 |
| Total stockholders' equity | $4,803 | $1,728 | $3,075 |

The following table summarizes our primary cash flows for the nine months ended:

*(dollars in thousands)*

| Cash flows provided by (used in): | December 31, 2016 | December 31, 2015 | Change |
| --- | ---: | ---: | ---: |
| Operating activities | $1,912 | $373 | $1,539 |
| Investing activities | (453) | (192) | (261) |
| Financing activities | 1,004 | (700) | 1,704 |
| Effects of foreign exchange rates on cash | -- | (1) | 1 |
| Net increase (decrease) in cash | $2,463 | $(520) | $2,983 |

#### 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 of accounts receivable helped us to generate higher amounts of cash in the nine months ended December 31, 2016 when compared to the nine months ended December 31, 2015. Cash provided by operations for the nine months ended December 31, 2016 was $1.9 million compared with cash provided by operations of $0.4 million for the nine months ended December 31, 2015. For the nine months ended December 31, 2016 we recorded net income of $2.0 million compared with a net income of $0.5 million for the nine months ended December 31, 2015. Cash provided by operations for the nine months ended December 31, 2016 was augmented by the final payment of $614,452 received under the Assignment Agreement with Citigroup.

#### Investing activities

Net cash used in investing activities totaled $452,820 for fixed assets for the nine months ended December 31, 2016. The nine month period ended December 31, 2015 was marked by cash outflows for capital spending for new equipment of $192,215.

#### Financing activities

Net cash provided by financing activities was $1,003,618 for the nine months ended December 31, 2016. During the nine months ended December 31, 2016, we received proceeds from our MLSA with People's and Term Loan with Commerce of $3,377,500 and $2,850,000, respectively. 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. In connection with the Commerce Loan Agreement, $2,250,000 of the proceeds from Term Loan were disbursed to Revere, as payment in full of Ranor's indebtedness owed to Revere. During the nine months ended December 31, 2016 we paid $159,137 in loan closing costs and $355,486 for monthly principal payments on our outstanding debt.

For the nine months ended December 31, 2015, cash used in financing activities was $700,174, all of which was used to make principal payments on our outstanding debt.

All of the above activity resulted in a net increase in cash for the nine months ended December 31, 2016 of $2.5 million, compared with a net decrease in cash of $520,024 for the nine months ended December 31, 2015. We have no off-balance sheet assets or liabilities.

As noted above, the Company refinanced all of its long-term debt during the nine month period ended December 31, 2016. As a result there was an increase in long-term borrowings. However, because of a decrease in the interest rates on the new long-term debt, the Company's obligation for interest on long-term fixed-rate debt will decrease compared to its obligation at March 31, 2016. During the nine months ended December 31, 2016 there were no other material changes to our commitments and contractual obligations. 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.

## Controls and procedures

As filed, 1,741 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 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 December 31, 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 December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Filed Feb 14, 2017.
Source: SEC EDGAR, the filing index for accession 0000950159-17-000056. Last ingested by Listed: Nov 10, 2026, 04:27 ET. No prices; not investment advice.