# Techprecision Corp: Form 10-K for the period ended Mar 31, 2017 - Company: [Techprecision Corp](/companies/tpcs.md) (CIK 1328792) - Form: 10-K - Filed: 2017-06-29 - Accepted by EDGAR: Jun 29, 2017, 17:05 ET - Period: 2017-03-31 - Accession: 0001144204-17-034937 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1328792/000114420417034937/v469151_10k.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1328792/000114420417034937/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2017-03-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2017-01-01 to 2017-03-31 | $4.9m | us-gaap:SalesRevenueNet | | Revenue | 12 months, 2016-04-01 to 2017-03-31 | $18.6m | us-gaap:SalesRevenueNet | | Cost of revenue | 12 months, 2016-04-01 to 2017-03-31 | $12.5m | us-gaap:CostOfGoodsAndServicesSold | | Gross profit | 3 months, 2017-01-01 to 2017-03-31 | $1.0m | us-gaap:GrossProfit | | Gross profit | 12 months, 2016-04-01 to 2017-03-31 | $6.1m | us-gaap:GrossProfit | | Research and development | 12 months, 2016-04-01 to 2017-03-31 | $0 | us-gaap:ResearchAndDevelopmentExpense | | Selling, general and administrative | 12 months, 2016-04-01 to 2017-03-31 | $4.3m | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 12 months, 2016-04-01 to 2017-03-31 | $2.9m | us-gaap:OperatingIncomeLoss | | Interest expense | 12 months, 2016-04-01 to 2017-03-31 | $644.0k | us-gaap:InterestExpense | | Income tax | 12 months, 2016-04-01 to 2017-03-31 | −$2.8m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2017-01-01 to 2017-03-31 | $3.1m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic | | Net income | 12 months, 2016-04-01 to 2017-03-31 | $5.1m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic | | Diluted EPS | 3 months, 2017-01-01 to 2017-03-31 | $0.11 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 12 months, 2016-04-01 to 2017-03-31 | $0.18 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2017-01-01 to 2017-03-31 | $0.11 | us-gaap:EarningsPerShareBasic | | Basic EPS | 12 months, 2016-04-01 to 2017-03-31 | $0.18 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2016-04-01 to 2017-03-31 | 28,611,074 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Capital expenditure | 12 months, 2016-04-01 to 2017-03-31 | $787.8k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2017-03-31 | $3.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2017-03-31 | $7.6m | us-gaap:AssetsCurrent | | Total assets | at 2017-03-31 | $16.0m | us-gaap:Assets | | Current liabilities | at 2017-03-31 | $2.6m | us-gaap:LiabilitiesCurrent | | Shareholders' equity | at 2017-03-31 | $8.0m | us-gaap:StockholdersEquity | ## Business As filed, 16,034 characters. ### Our Business We are a manufacturer of precision, large-scale fabricated and machined metal components and systems. We offer a full range of services required to transform raw materials into precision finished products. We sell these finished products to customers in three main industry groups: defense, energy and precision industrial. The finished products are used in a variety of markets including: defense, aerospace, nuclear, medical and precision industrial. Our mission is to be the leading end-to-end service provider to our markets by furnishing custom, fully integrated solutions for complete products that require custom fabrication, precision machining, assembly, integration, inspection, non-destructive evaluation and testing. We work with our customers to manufacture products in accordance with the customers’ drawings and specifications. Our work complies with specific national and international codes and standards applicable to our industry. We believe that we have earned our reputation through outstanding technical expertise, attention to detail, and a total commitment to quality and excellence in customer service. ### About Us We are a Delaware corporation, organized in 2005 under the name Lounsberry Holdings II, Inc. On February 24, 2006, we acquired all of the issued and outstanding capital stock of our wholly-owned subsidiary Ranor, Inc., or Ranor. Ranor, together with its predecessors, has been in continuous operation since 1956. Since February 24, 2006, our primary business has been the business of Ranor. On March 6, 2006, following the acquisition of Ranor, we changed our corporate name to TechPrecision Corporation. Our acquisition of Ranor was accounted for as a reverse acquisition. Wuxi Critical Mechanical Components Co., Ltd., or WCMC, a limited company organized under the laws of the People’s Republic of China, or China, located in Wuxi City, Jiangsu Province, China, is our other wholly-owned subsidiary. Our executive offices are located at 1 Bella Drive, Westminster, Massachusetts 01473, and our telephone number is (978) 874-0591. Our website is www.techprecision.com. Information on our website, or any other website, is not incorporated by reference in this annual report. References in this annual report to “the Company,” “we,” “us,” “our” and similar words refer to TechPrecision Corporation and its subsidiaries, Ranor and WCMC, unless the context indicates otherwise, while references to “TechPrecision” refer to TechPrecision Corporation and not its subsidiaries. ### General Our manufacturing operations within the United States are situated on approximately 65 acres in North Central Massachusetts. Our 145,000 square foot facility houses state-of-the-art equipment which gives us the capability to manufacture products as large as 100 tons. We offer a full range of services required to transform raw material into precision 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, and manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting), and final assembly. All U.S. based manufacturing is done in accordance with our written quality assurance program, which meets specific national codes, 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 customer’s needs, and we have implemented such standards into our manufacturing operations. Our operations in China are conducted through WCMC. Since 2011, WCMC, through its subcontractors, has historically provided large-scale precision component fabrication and machining solutions. At March 31, 2017, we did not have any open customer orders for WCMC in our backlog. We are evaluating how we will utilize the WCMC entity moving forward. ### Products We manufacture a wide variety of products pursuant to customer contracts and based on individual customer needs. We also provide manufacturing engineering services to assist customers in optimizing their engineering designs for manufacturing efficiency. We do not design the products we manufacture, but rather manufacture according to “build-to-print” requirements specified by our customers. Accordingly, we do not distribute the products that we manufacture on the open market and we do not market any specific products on an on-going basis. We do not own the intellectual property rights to any proprietary marketed product, and we do not manufacture products in anticipation of orders. Manufacturing operations do not commence on any project before we receive a customer’s purchase order. All contracts cover specific products within the capability of our resources. Although our focus is to provide long-term integrated solutions to our customers on continuous production programs, our activities include a variety of both custom-based and production-based requirements. The custom-based work is typically either a prototype or unique, one-of-a-kind product. The production-based work is repeat work or a single product with multiple quantity releases. Changes in market demand for our manufacturing expertise can be significant and sudden and require us to be able to adapt to the collective needs of the customers and industries that we serve. Understanding this dynamic, we have developed the capability to transform our workforce to manufacture products for customers across different industries. We serve our customers in the defense, aerospace, nuclear, medical and precision industrial markets. Examples of products we have manufactured within such industries during recent years include, but are not limited to custom components for ships and submarines, aerospace equipment, components for nuclear power plants and components for large scale medical systems. ### Source of Supply Our manufacturing operations are partly dependent on the availability of raw materials. Most of our contracts with customers require the use of customer-supplied raw materials in the manufacture of their product. Accordingly, raw material requirements vary with each contract and are dependent upon customer requirements and specifications. We have established relationships with numerous suppliers. When we do buy raw materials, we endeavor to establish alternate sources of material supply to reduce our dependency on any one supplier. Our projects include the manufacturing of products from various traditional as well as specialty metal alloys. These materials may include, but are not limited to: steel, nickel, monel, inconel, aluminum, stainless steel, and other alloys. Certain of these materials are subject to long-lead time delivery schedules. In the fiscal year ended March 31, 2017, or fiscal 2017, two suppliers accounted for 10% or more of our purchased material. In the fiscal year ended March 31, 2016, or fiscal 2016, no single supplier accounted for 10% or more of our purchased material. ### Marketing While we have significant customer concentration, we endeavor to broaden our customer base as well as the industries we serve. We market to our existing customer base and also initiate contacts with new potential customers through various sources including personal contacts and customer referrals. A significant portion of our business is the result of competitive bidding processes and a significant portion of our business is from contract negotiation. We believe that the reputation we have developed with our current customers represents an important part of our marketing effort. Requests for quotations received from customers are reviewed to determine the specific requirements and our ability to meet such requirements. Quotations are prepared by estimating the material and labor costs and assessing our current backlog to determine our delivery commitments. Competitive bid quotations are submitted to the customer for review and award of contract. Negotiation bids typically require the submission of additional information to substantiate the quotation. The bidding process can range from several weeks for a competitive bid to several months for a negotiation bid before the customer awards a contract. ### Research and Product Development Many of our customers generate drawings illustrating their projected unit design and technology requirements. Our research and product development activities are limited and focused on delivering robust production solutions to such projected unit design and technology requirements. We follow this product development methodology in all our major product lines. We incurred no expenses for research and development in fiscal 2017 and fiscal 2016. ### Principal Customers A significant portion of our business is generated by a small number of major customers. The balance of our business consists of discrete projects for numerous other customers. As industry and market demand changes, our major customers may also change. Our ten largest customers generated approximately 98% and 96% of our total revenue in fiscal 2017 and fiscal 2016, respectively. Our group of largest customers can change from year to year. However, our largest single customer in fiscal 2017 and fiscal 2016 was the same prime defense contractor and accounted for 41% and 21% of our net sales during fiscal 2017 and fiscal 2016, respectively. Our defense and aerospace customers are engaged in the development, delivery and support of advanced defense, security and aerospace systems. We also serve customers who supply components to the nuclear power industry; and we build components and major assemblies for large scale medical systems being installed at certain medical institutions throughout North America. We historically have experienced, and continue to experience, customer concentration. A significant loss of business from our largest customer or a combination of several of our significant customers could result in lower operating profitability and/or operating losses if we are unable to replace such lost revenue from other sources. The revenue derived from all of our customers in the designated industry groups for the fiscal years ended March 31, 2017 and 2016 are displayed in the table below: *(dollars in thousands)* | Net Sales | 2017 Amount | Percent | 2016 Amount | Percent | | --- | ---: | ---: | ---: | ---: | | Defense | $14,466 | 78% | $12,260 | 73% | | Energy | $1,822 | 10% | $3,496 | 21% | | Precision Industrial | $2,262 | 12% | $1,098 | 6% | The following table displays revenue generated by individual customers in specific industry sectors that accounted for 10% or more of our revenue in either fiscal 2017 or fiscal 2016: *(dollars in thousands)* | Net Sales | 2017 Amount | Percent | 2016 Amount | Percent | | --- | ---: | ---: | ---: | ---: | | Defense Customer 1 | $7,516 | 41% | $3,519 | 21% | | Defense Customer 2 | $2,424 | 13% | $2,958 | 18% | | Energy Customer 1 | $\* | \*% | $1,802 | 11% | | Precision Industrial Customer 1 | $2,166 | 12% | $\* | \*% | *\* Revenue from the customer in this market was less than 10% of our total revenue during the period.* At March 31, 2017, we had a backlog of orders totaling approximately $15.8 million. We expect to deliver the backlog over the course of the next two fiscal years. The comparable backlog at March 31, 2016 was $19.8 million. There was no revenue generated by WCMC in fiscal 2017 or fiscal 2016. At March 31, 2017, we did not have any open customer orders for WCMC in our backlog. ### Competition We face competition from both domestic and foreign manufacturers in the manufacture of metal fabricated and machined precision components and equipment. The industry in which we compete is fragmented with no one dominant player. We compete against companies that are both larger and smaller in size and capacity. Some competitors may be better known, have greater resources at their disposal, and have lower production costs. For certain products, being a domestic manufacturer may play a role in determining whether we are awarded a certain contract. For other products, we may be competing against foreign manufacturers who have a lower cost of production. If a contracting party has a relationship with a vendor and is required to place a contract for bids, the preferred vendor may provide or assist in the development of the specification for the product which may be tailored to that vendor’s products. In such event, we would be at a disadvantage in seeking to obtain that contract. We believe that customers focus on such factors as the quality of work, the reputation of the vendor, the perception of the vendor’s ability to meet the required schedule, and price in selecting a vendor for their products. ### Government Regulations Although we have a limited number of contracts with government agencies, a significant portion of our manufacturing services are provided as a subcontractor to prime government contractors. Such prime government contractors are subject to government procurement and acquisition regulations which give the government the right to terminate these contracts for convenience, certain renegotiation rights, and rights of inspection. Any government action which affects our customers who are prime government contractors would affect us. Because of the nature and use of our products, we are subject to compliance with quality assurance programs, compliance with which is a condition for our ability to bid on government contracts and subcontracts. We believe we are in compliance with all of these programs. We are also subject to laws and regulations applicable to manufacturing operations, such as federal and state occupational health and safety laws, and environmental laws, which are discussed in more detail below under “Environmental Compliance.” WCMC operates under a business license granted by the appropriate government authorities in China. WCMC must operate under the terms and scope of that license in order to maintain its right to conduct business operations in China. ### Environmental Compliance We are subject to compliance with U.S. federal, state and local environmental laws and regulations that involve the use, disposal and cleanup of substances regulated by those laws and the filing of reports with environmental agencies, and we are subject to periodic inspections to monitor our compliance. We believe that we are currently in compliance with applicable environmental regulations. As part of our normal business practice we are required to develop and file reports and maintain logbooks that document all environmental issues within our organization. We may engage outside consultants to assist us in keeping current on developments in environmental regulations. Expenditures for environmental compliance purposes during fiscal 2017 and 2016 were not material. ### Intellectual Property Rights Presently, we have no registered intellectual property rights other than certain trademarks for our name and other business and marketing materials. In the course of our business we develop know-how for use in the manufacturing process. Although we have non-disclosure policies in place with respect to our personnel and in our contractual relationships, we cannot assure you that we will be able to protect our intellectual property rights with respect to this know-how. ### Personnel As of March 31, 2017, we had approximately 102 employees, of whom all are full time employees, 23 are salaried and 79 are hourly. None of our employees is represented by a labor union. ## Risk factors As filed, 43,330 characters. Our business, results of operations and financial condition and the industry in which we operate are subject to various risks. We have listed below (not necessarily in order of importance or probability of occurrence) the most significant risk factors applicable to us, but they do not constitute all of the risks that may be applicable to us. New risks may emerge from time to time, and it is not possible for us to predict all potential risks or to assess the likely impact of all risks. More information concerning certain of these risks is contained in other sections of this annual report on Form 10-K, including in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” #### We face strong competition in our markets. We face competitive pressures from both domestic and foreign manufacturers in each of the markets we serve. No one company dominates the industry in which we operate. Our competitors include international, national, and local manufacturers, some of whom may have greater financial, manufacturing, marketing and technical resources than we do, or greater penetration in or familiarity with a particular geographic market than we have. Some competitors may be better known or have greater resources at their disposal, and some may have lower production costs. For certain products, being a domestic manufacturer may play a role in determining whether we are awarded a certain contract. For other products, we may be competing against foreign manufacturers who have a lower cost of production. If a contracting party has a relationship with a vendor and is required to place a contract for bids, the preferred vendor may provide or assist in the development of the specification for the product which may be tailored to that vendor’s products. In such event, we would be at a disadvantage in seeking to obtain that contract. We believe that customers focus on such factors as quality of work, reputation of the vendor, perception of the vendor’s ability to meet the required schedule, and price in selecting a vendor for their products. Some of our customers have moved manufacturing operations or product sourcing overseas, which can negatively impact our sales. To remain competitive, we will need to invest continuously in our manufacturing capabilities and customer service, and we may need to reduce our prices, particularly with respect to customers in industries that are experiencing downturns, which may adversely affect our results of operations. We cannot provide assurance that we will be able to maintain our competitive position in each of the markets that we serve. *Because most of our contracts are individual purchase orders and not long-term agreements, there is no guarantee that we will be able to generate a similar amount of revenue in the future.* We must bid or negotiate each of our contracts separately, and when we complete a contract, there is generally no continuing source of revenue under that contract. As a result, we cannot assure you that we will have a continuing stream of revenue from any contract. Our failure to generate new business on an ongoing basis would materially impair our ability to operate profitably. Because a significant portion of our revenue is derived from services rendered for the defense, aerospace, nuclear, medical and precision industrial markets, our operating results may suffer from conditions affecting these industries, including any budgeting, economic or other trends that have the effect of reducing the requirements for our services. *Because of our dependence on a limited number of customers, our failure to generate major contracts from a small number of customers may impair our ability to operate profitably.* We have, in the past, been dependent in each year on a small number of customers who generate a significant portion of our business, and these customers change from year to year. For the year ended March 31, 2017 our largest customer accounted for 41% of our revenue and our three largest customers accounted for approximately 65% of our revenue. For the year ended March 31, 2016, our three largest customers accounted for approximately 49% of our revenue, with the largest accounting for 21% of our revenue. In addition, our backlog at March 31, 2017 was $15.8 million, of which 84% was attributable to five customers. As a result, we may have difficulty operating profitably if there is a default in payment by any of our major customers, we lose an existing order, or we are unable to generate orders from new customers. Furthermore, to the extent that any one customer accounts for a large percentage of our revenue, the loss of that customer could materially affect our ability to operate profitably. Since one customer accounted for 41% of our revenue in the fiscal year ended March 31, 2017, the loss of this customer could have a material adverse effect upon our business and may impair our ability to operate profitably. We anticipate that our dependence on a limited number of customers in any given fiscal year will continue for the foreseeable future. There is always a risk that existing customers will elect not to do business with us in the future or will experience financial difficulties. Furthermore, certain of our customers are early stage companies and are dependent on the equity capital markets to finance their purchase of our products. As a result, these customers could experience financial difficulties or business reversals, or lose orders or anticipated orders, which would reduce or eliminate the need for the products which they ordered from us, and as a result they could be unable or unwilling to fulfill their contracts with us. There is also a risk that our customers will attempt to impose new or additional requirements on us that reduce the profitability of the orders placed by those customers with us. Further, even if the orders are not changed, these orders may not generate margins equal to our recent historical or targeted results. If we do not develop relationships with new customers, we may not be able to increase, or even maintain, our revenue, and our financial condition, results of operations, business and/or prospects may be materially adversely affected. *Our backlog figures may not accurately predict future sales or recognizable revenue.* We expect to fill most items of backlog within the following 12 months. However, because orders may be rescheduled or canceled and a significant portion of our net sales is derived from a small number of customers, backlog is not necessarily indicative of future sales levels. Moreover, we cannot be sure of when during the future 12-month period we will be able to recognize revenue corresponding to our backlog nor can we be certain that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon. *Any decrease in the availability, or increase in the cost, of raw materials could materially affect our earnings.* The availability of certain critical raw materials, such as steel, nickel, monel, inconel, aluminum, stainless steel, and other alloys, is subject to factors that are not within our control. At any given time, we may be unable to obtain an adequate supply of these critical raw materials on a timely basis, at prices and other terms acceptable to us, or at all. If suppliers increase the price of critical raw materials or are unwilling or unable to meet our demand, we may not have alternative sources of supply. In addition, to the extent that we have existing contracts or have quoted prices to customers and accepted customer orders for products prior to purchasing the necessary raw materials, we may be unable to raise the price of products to cover all or part of the increased cost of the raw materials. The manufacture of some of our products is a complex process and requires long lead times. As a result, we may experience delays or shortages in the supply of raw materials. If we are unable to obtain adequate and timely deliveries of required raw materials, we may be unable to timely manufacture sufficient quantities of products. This could cause us to lose sales, incur additional costs, delay new product introductions or suffer harm to our reputation. In addition, costs of certain critical raw materials have been volatile due to factors beyond our control. Raw material costs are included in our contracts with customers but in some cases we are exposed to changes in raw material costs from the time purchase orders are placed to when we purchase the raw materials for production. Changes in business conditions could adversely affect our ability to recover rapid increases in raw material costs and may adversely affect our results of operations. *All of our manufacturing and production is situated in a single location in Massachusetts, which increases our exposure to significant disruption to our business as a result of unforeseeable developments in a single geographic area.* We operate a single manufacturing and production facility in Westminster, Massachusetts. It is possible that we could experience prolonged periods of reduced production due to unforeseen catastrophic events occurring in or around our manufacturing and production facility in Massachusetts. As a result, we may be unable to shift manufacturing capabilities to alternate locations, accept materials from suppliers, meet customer shipment needs or address other severe consequences that may be encountered, and we may suffer damage to our reputation. Our financial condition and results of our operations could be materially adversely affected were such events to occur. *Our manufacturing processes are complex, must constantly be upgraded to remain competitive and depend upon critical, high cost equipment for which there may be only limited or no production alternatives.* It is possible that we could experience prolonged periods of reduced production due to unplanned equipment failures, and we could incur significant repair or replacement costs in the event of those failures. It is also possible that operations could be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, accidents and severe weather conditions. We must make regular capital investments and changes to our manufacturing processes to lower production costs, improve productivity, manufacture new or improved products and remain competitive. We may not be in a position to take advantage of business opportunities or respond to competitive pressures if we fail to update, replace or make additions to our equipment or our manufacturing processes in a timely manner. The cost to repair or replace much of our equipment or facilities could be significant. We cannot be certain that we will have sufficient internally generated cash or acceptable external financing to make necessary capital expenditures in the future. *Our production facilities are energy-intensive and we rely on third parties to supply energy consumed at our production facilities.* The prices for and availability of electricity, natural gas, oil and other energy resources are subject to volatile market conditions. These market conditions often are affected by political and economic factors beyond our control. Disruptions or lack of availability in the supply of energy resources could temporarily impair our ability to operate our production facility. Further, increases in energy costs, or changes in costs relative to energy costs paid by competitors, may adversely affect our profitability. To the extent that these uncertainties cause suppliers and customers to be more cost sensitive, increased energy prices may have an adverse effect on our results of operations and financial condition. *The dangers inherent in our operations and the limits on insurance coverage could expose us to potentially significant liability costs and materially interfere with the performance of our operations.* The fabrication of large steel structures involves operating hazards that can cause personal injury or loss of life, severe damage to and destruction of property and equipment and suspension of operations. The failure of such structures during and after installation can result in similar injuries and damages. Although we believe that our insurance coverage is adequate, there can be no assurance that we will be able to maintain adequate insurance in the future at rates we consider reasonable or that our insurance coverage will be adequate to cover future claims that may arise. Claims for which we are not fully insured may adversely affect our working capital and profitability. In addition, changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage. The availability of insurance that covers risks we and our competitors typically insure against may decrease, and the insurance that we are able to obtain may have higher deductibles, higher premiums and more restrictive policy terms. *Our operating results may fluctuate significantly from quarter to quarter. While we recorded a net profit in fiscal 2016 and fiscal 2017, we recorded a net loss in fiscal 2015. We cannot be certain that we will maintain profitability in the future.* Our operating results historically have been difficult to predict and have at times significantly fluctuated from quarter to quarter due to a variety of factors, many of which are outside of our control. As a result of these factors, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our operating expenses do not always vary directly with revenue and may be difficult to adjust in the short term. As a result, if revenue for a particular quarter is below our expectations, we may not be able to proportionately reduce operating expenses for that quarter, and therefore such a revenue shortfall would have a disproportionate effect on our operating results for that quarter. *Demand in our end-use markets can be cyclical, impacting the demand for the products we produce.* Demand in our end-use markets, including companies in the defense, aerospace, industrial, and nuclear industries, can be cyclical in nature and sensitive to general economic conditions, competitive influences and fluctuations in inventory levels throughout the supply chain. Our sales are sensitive to the market conditions present in the industries in which the ultimate consumers of our products operate, which in some cases have been highly cyclical and subject to substantial downturns. As a result of the cyclical nature of these markets, we have experienced, and in the future we may experience, significant fluctuations in our sales and results of operations with respect to a substantial portion of our total product offering, and such fluctuations could be material and adverse to our overall financial condition, results of operations and liquidity. #### We could be adversely affected by reductions in defense spending. Because certain of our products are used in a variety of military applications, including ships and submarines, we derive a significant portion of our revenue from the defense industry. In fiscal 2017, 78% of our revenue was derived from customers in the defense industry, and in fiscal 2016, 73% of our revenue was derived from customers in the defense industry. Although many of the programs under which we sell products to prime U.S. government contractors extend several years, they are subject to annual funding through congressional appropriations. Changes in military strategy and priorities, or reductions in defense spending, may affect current and future funding of these programs and could reduce the demand for our products, which could adversely affect our financial position, results of operations and cash flows. *Failure to obtain and retain skilled technical personnel could adversely affect our operations.* Our production facilities require skilled personnel to operate and provide technical services and support for our business. Competition for the personnel required for our business intensifies as activity increases. In periods of high utilization, it may become more difficult to find and retain qualified individuals, and there can be no assurance that we will be successful in attracting and retaining qualified personnel to fulfill our current or future needs. This could increase our costs or have other adverse effects on our operations. *The extensive environmental, health and safety regulatory regimes applicable to our manufacturing operations create potential exposure to significant liabilities.* The nature of our manufacturing business subjects our operations to numerous and varied federal, state, local and international laws and regulations relating to pollution, protection of public health and the environment, natural resource damages and occupational safety and health. Failure to comply with these laws and regulations, or with the permits required for our operations, could result in fines or civil or criminal sanctions, third party claims for property damage or personal injury, and investigation and cleanup costs. Potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future. We have used, and currently use, certain substances that are considered hazardous, extremely hazardous or toxic under worker safety and health laws and regulations. Although we implement controls and procedures designed to reduce continuing risk of adverse impacts and health and safety issues, we could incur substantial cleanup costs, fines and civil or criminal sanctions, and third party property damage or personal injury claims as a result of violations, non-compliance or liabilities under these regulatory regimes. As a manufacturing business, we also must comply with federal and state environmental laws and regulations which relate to the manner in which we store and dispose of materials and the reports that we are required to file. We cannot assure you that we will not incur additional costs to maintain compliance with environmental laws and regulations or that we will not incur significant penalties for failure to be in compliance. *We are subject to regulations related to conflict minerals which could adversely impact our business.* We are subject to SEC rules regarding disclosure of the use of tin, tantalum, tungsten, gold and certain other minerals, known as conflict minerals, in products manufactured by public companies. These rules require that public companies conduct due diligence to determine whether such minerals originated from the Democratic Republic of Congo, or the DRC, or an adjoining country and whether such minerals helped finance the armed conflict in the DRC. These rules require ongoing due diligence efforts, along with annual conflict minerals reports. There are costs associated with complying with these disclosure requirements, including costs to determine the origin of conflict minerals used in our products. In addition, these rules could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering conflict-free minerals, we cannot be sure that we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if the due diligence procedures we implement do not enable us to verify the origins for all conflict minerals or to determine that such minerals are DRC conflict-free. We may also encounter challenges to satisfy customers that may require all of the components of products purchased to be certified as DRC conflict-free because our supply chain is complex. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier. We currently do not use any conflict minerals in the production of our products, but from time to time we may receive a customer order necessitating the use of conflict minerals. In the event we produce any products utilizing conflict minerals, we will be required to comply with the rules discussed above. *Changes in delivery schedules and order specifications may affect our revenue stream.* Although we perform manufacturing services pursuant to orders placed by our customers, we have in the past experienced delays in the scheduling and changes in the specification of our products. These changes may result from a number of factors, including a determination by the customer that the product specifications need to be changed after receipt of an initial product or prototype. As a result of these changes, we may suffer a delay in the recognition of revenue from projects and may incur contract losses. We cannot assure you that our results of operations will not be affected in the future by delays or changes in specifications or that we will ever be able to recoup revenue which was lost as a result of the delays or changes. Further, if we cannot allocate our personnel to a different project, we will continue to incur expenses relating to the initial project, including labor and overhead. Thus, if orders are postponed, our results of operations would be impacted by our need to maintain staffing and other expense generating aspects of production for the postponed projects, even though they were not fully utilized, and revenue associated with the project will not be recognized, during this period. We cannot assure that our operating results will not decline in future periods as a result of changes in customers’ orders. *Negative economic conditions may adversely impact the demand for our services and the ability of our customers to meet their obligations to us on a timely basis. Any disputes with customers could also have an adverse impact on our income and cash flows.* Negative economic conditions, including tightening of credit in financial markets, may lead businesses to postpone spending, which may impact our customers, causing them to cancel, decrease or delay their existing and future orders with us. Declines in economic conditions may further impact the ability of our customers to meet their obligations to us on a timely basis. If customers are unable to meet their obligations to us on a timely basis, it could adversely impact the realization of receivables, the valuation of inventories and the valuation of long lived assets. Additionally, we may be negatively affected by contractual disputes with customers, which could have an adverse impact on our income and cash flows. *If our customers successfully assert product liability claims against us due to defects in our products, our operating results may suffer and our reputation may be harmed.* Due to the circumstances under which many of our products are used and the fact that some of our products are relied upon by our customers in their facilities or operations, we face an inherent risk of exposure to claims in the event that the failure, use or misuse of our products results, or is alleged to result, in bodily injury, property damage or economic loss. We have been subject to claims in the past, and we may be subject to claims in the future. A successful product liability claim or series of claims against us, or a significant warranty claim or series of claims against us could materially decrease our liquidity and impair our financial condition. *Our business may be impacted by external factors that we may not be able to control.* War, civil conflict, terrorism, natural disasters and public health issues including domestic or international pandemic have caused and could cause damage or disruption to domestic or international commerce by creating economic or political uncertainties. Additionally, the volatility in the financial markets and disruptions or downturns in other areas of the global or U.S. economies could negatively impact our business. These events could result in a decrease in demand for our products, make it difficult or impossible to deliver orders to customers or receive materials from suppliers, affect the availability or pricing of energy sources or result in other severe consequences that may or may not be predictable. As a result, our business, financial condition and results of operations could be materially adversely affected. *We maintain a substantial amount of outstanding indebtedness, which could impair our ability to operate our business and react to changes in our business, remain in compliance with debt covenants and make payments on our debt.* Our level of indebtedness could have important consequences, including, without limitation: - increasing our vulnerability to general economic and industry conditions because our debt payment obligations may limit our ability to use our cash to respond to or defend against changes in the industry or the economy; - requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; - limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; - limiting our ability to pursue our growth strategy, including restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; - placing us at a disadvantage compared to our competitors who are less leveraged and may be better able to use their cash flow to fund competitive responses to changing industry, market or economic conditions; and - making us more vulnerable in the event of a downturn in our business, our industry or the economy in general. In addition, our current credit facilities contain, and any future credit facilities will likely contain, covenants and other provisions that restrict our operations. These restrictive covenants and provisions could limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business, or the economy in general, or otherwise conduct necessary corporate activities, and may prevent us from taking advantage of business opportunities that arise in the future. If we refinance our credit facilities, we cannot guarantee that any new credit facility will not contain similar covenants and restrictions. *Any deterioration or disruption of the credit and capital markets may adversely affect our access to sources of funding.* Disruptions in the credit markets have severely restricted access to capital for companies. When credit markets deteriorate or are disrupted, our ability to incur additional indebtedness to fund a portion of our working capital needs and other general corporate purposes, or to refinance maturing obligations as they become due, may be constrained. This risk could be exacerbated by future deterioration in the Company’s credit ratings. In addition, if the counterparty backing our existing credit facilities were unable to perform on its commitments, our liquidity could be impacted, which could adversely affect funding of working capital requirements and other general corporate purposes. In the event that we need to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time, if at all. Our inability to obtain financing on terms and within a time acceptable to us could have an adverse impact on our operations, financial condition, and liquidity. *Our common stock is quoted on the OTC Markets which may have an unfavorable impact on our stock price and liquidity.* Our common stock is quoted on the OTC Markets. The OTC Markets is a significantly more limited market than the New York Stock Exchange or NASDAQ. The quotation of our shares on the OTC Markets may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future. #### Our stock price may fluctuate significantly. The stock market can experience significant volatility, and the volatility of stocks often does not relate to the operating performance of the companies represented by the stock. The market price of our common stock could be subject to significant fluctuations because of general market conditions and because of factors specifically related to our businesses. Factors that could cause volatility in the market price of our common stock include market conditions affecting our customers’ businesses, including the level of mergers and acquisitions activity, and actual and anticipated fluctuations in our quarterly operating results, rumors relating to us or our competitors, actions of stockholders, including sales of shares by our directors and executive officers, additions or departures of key personnel, and developments concerning current or future strategic alliances or acquisitions. These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock at a profit and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, even if the lawsuit is without merit, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management. *The issuance of shares of our common stock as compensation may dilute the value of existing stockholders and may affect the market price of our stock.* We may use, and have in the past used, stock options, stock grants and other equity-based incentives to provide motivation and compensation to our directors, officers, employees and key independent consultants. The award of any such incentives will result in immediate and potentially substantial dilution to our existing stockholders and could result in a decline in the value of our stock price. The exercise of these options and the sale of stock issued upon such exercise or pursuant to stock grants may have an adverse effect upon the price of our stock. *We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.* The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital. For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock. There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest. *Trading volume of our common stock has fluctuated from time to time and is typically low, which may make it difficult for investors to sell their shares at times and prices that investors feel are appropriate.* To date, the trading volume of our common stock has fluctuated, and there is typically a low volume of trading in our common stock. Generally, lower trading volumes adversely affect the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock. *Because of our cash requirements and restrictions in our debt agreements, we may be unable to pay dividends.* In view of the cash requirements of our business, we expect to use any cash flow generated by our business to finance our operations and growth and to service our indebtedness. Further, we are subject to certain affirmative and negative covenants under our debt agreements which restrict our ability to declare or pay any dividend or other distribution on equity, purchase or retire any equity, or alter our capital structure. *The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock.* Our certificate of incorporation gives our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that are superior to the rights associated with our common stock, which could adversely affect the voting power and equity interest of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. *If securities analysts do not publish research or reports about our business, if they issue unfavorable commentary or downgrade their rating on our common stock, or if we fail to meet projections and estimates of earnings developed by such analysts, the price of our common stock could decline.* The trading market for our common stock will rely in part on the research and reports that securities analysts publish about us and our business. The price of our common stock could decline if one or more analysts downgrade their rating on our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business. In addition, although we do not make projections relating to our future operating results, our operating results may fall below the expectations of securities analysts and investors. In this event, the market price of our common stock would likely be adversely affected. *We are limited by our inability to use a short form registration statement on Form S-3, which may affect our ability to access the capital markets, if needed.* A Registration Statement on Form S-3 permits an eligible issuer to incorporate by reference its past and future filings and reports made under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings "off the shelf" under Rule 415 of the Securities Act of 1933, as amended, or the Securities Act. The shelf registration process under Form S-3 combined with the ability to incorporate information on a forward basis, allows issuers to avoid additional delays and interruptions in the offering process and to access the capital markets in a more expeditious and efficient manner than raising capital in a standard offering on Form S-1. To be eligible to use Form S-3 for a registered offering of our securities to investors, either (1) the aggregate market value of our common stock held by non-affiliates would have to exceed $75 million or (2) our common stock would have to be listed and registered on a national securities exchange. Currently, we do not meet either of those eligibility requirements and are therefore precluded from using a Form S-3 in connection with a registered offering of our securities to investors. Due to our present inability to use Form S-3, if we wanted to conduct a registered offering of securities to investors, we will be required to use long form registration and may experience delays. In addition, our ability to undertake certain types of financing transactions may be limited or unavailable to us without the ability to use Form S-3. Furthermore, because of the delay associated with long form registration and the limitations on the financing transactions we may undertake, the terms of any financing transaction we are able to conduct may not be advantageous to us or may cause us not to obtain capital in a timely fashion to execute our business strategies and continue to operate as a going concern. *Laws and regulations governing international operations, including the FCPA, may require us to develop and implement costly compliance programs and the failure to comply with such laws may result in substantial penalties.* We must comply with laws and regulations relating to international business operations. The creation and implementation of compliance programs for international business practices is costly and such programs are difficult to enforce, particularly where reliance on third parties is required. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, for the purpose of influencing any act or decision of the foreign official in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the company, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the U.S. Department of Justice. Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long term disqualification as a government contractor. The termination of a government contract or customer relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. We currently maintain an office in China. Accordingly, we, through our WCMC subsidiary, are subject to other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. China also strictly prohibits bribery of government officials. Violations of Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. *Our revenues may include international sales, which are associated with various risks.* Risks associated with international sales include without limitation: political and economic instability, including weak conditions in the world’s economies; difficulty in collecting accounts receivable; unstable or unenforced export controls; changes in legal and regulatory requirements; policy changes affecting the markets for our products; changes in tax laws and tariffs; and exchange rate fluctuations (which may affect sales to international customers and the value of profits earned on international sales when converted into U.S. dollars). Any of these factors could materially adversely affect our results for the period in which they occur. *Our ability to repatriate cash to the United States from China may be limited by foreign country laws regulating the distribution of cash and earnings.* Any restrictions on currency exchanges may limit our ability to use future revenue generated by WCMC in Chinese yuan renminbi, or RMB, to fund any business activities outside China or to make dividends or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, particularly the restriction that foreign enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents at those banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB in the future. ## Properties As filed, 610 characters. We own approximately 145,000 square feet of office and manufacturing space at 1 Bella Drive, Westminster, Massachusetts. Our current facilities in Westminster are adequate for our present operational requirements. Our loans from the Commerce Bank and Trust Company are secured by a first lien on all personal and real property of Ranor, including our space in Westminster, Massachusetts. In November 2015, we leased approximately 1,000 square feet of office space in Wuxi City, Jiangsu Province, China, which currently houses WCMC. The lease has a two-year term and base rent of approximately $4,000 annually. ## Legal proceedings As filed, 710 characters. #### Class Action Lawsuit On or about February 26, 2016, nine former employees (“Plaintiffs”) of Ranor filed a complaint in the Massachusetts Superior Court, Worcester County, against former and current executive officers of Ranor, alleging violations of the Massachusetts Wage Act, breach of contract and conversion. Plaintiffs claim that Ranor’s modification to its personal time off (“PTO”) policy in April 2014 caused these employees to forfeit earned PTO. Plaintiffs purport to assert their claims on behalf of a class of all current and former employees of Ranor who were affected by the modification to Ranor’s PTO policy. The pre-trial discovery phase ended on June 21, 2017. No trial date has been set. ## Management's discussion and analysis As filed, 39,580 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 audited consolidated financial statements and the related notes, which appear elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K, 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. All statements other than statements of current or historical fact contained in this annual report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. 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 risks and uncertainties. Factors that could cause such outcomes and results to differ include, but are not limited to: - our ability to change the composition of our revenues and effectively reduce operating expenses; - the availability of appropriate financing facilities impacting our operations, financial condition and/or liquidity; - 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; - our reliance on a small number of customers for a significant percentage of our business; - competitive pressures in the markets we serve; - changes in the availability or cost of raw materials and energy for our production facilities; - restrictions in our ability to our operate our business due to our outstanding indebtedness; - government regulations and requirements; - pricing and business development difficulties; - our ability to make acquisitions and successfully integrate those acquisitions with our business; - general industry and market conditions and growth rates; - general economic conditions; and - those risks discussed in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K, as well as those described in any other filings which we make with the SEC. 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 Annual Report on Form 10-K, 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 precision 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. 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 predictable cost structures. All of our sales recorded for fiscal 2017 were generated in the U.S. There were no sales generated from WCMC, our subsidiary in China, during fiscal 2017. At March 31, 2017, we did not have any open customer orders for WCMC in our backlog. We are evaluating how to utilize the WCMC entity moving forward. We historically have experienced, and continue to experience, customer concentration. For fiscal 2017 and fiscal 2016, our largest customer accounted for approximately 41% and 21% of reported net sales, respectively. For fiscal 2017, we had six customers, who each generated in excess of $1.0 million in revenue for the Company, which accounted for approximately 91% of our revenue, in the aggregate. Our sales order backlog at March 31, 2017 was approximately $15.8 million compared with a backlog of $19.8 million at March 31, 2016. #### Recent Developments On April 17, 2015, the Company, through Ranor, entered into that certain Assignment of Claim Agreement, or the Assignment Agreement, with Citigroup Financial Products, Inc., or 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 GT Advanced Technologies, or GTAT, a customer Ranor had been involved with in arbitration proceedings. 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 our statement of operations for the fiscal year ended March 31, 2017. On April 26, 2016 we entered into that certain Master Loan and Security Agreement No. 4180, or the MLSA, with People’s Capital and Leasing Corp., or People’s. The proceeds from the MLSA totaled $3,377,500 and were used to pay off amounts outstanding under our previous Loan and Security Agreement with Utica LeaseCo., LLC, or Utica (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”). On December 21, 2016 we closed that certain Loan Agreement, or the Commerce Loan Agreement, with Commerce Bank and Trust Company, or Commerce. Pursuant to the Commerce Loan Agreement, Commerce made a term loan to Ranor in the amount of $2,850,000 and made available to Ranor a revolving line of credit in the amount of $1,000,000. Proceeds of $2,394,875 from the term loan were disbursed to Revere High Yield Fund, LP, or Revere, as payment in full of Ranor’s indebtedness owed to Revere pursuant to a prior agreement with Revere (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”). For fiscal 2017, our net sales and net income were $18.6 million and $5.1 million, respectively, compared with net sales of $16.9 million and net income of $1.4 million, for fiscal 2016. Our gross margins for fiscal 2017 were 32.9% compared with gross margins of 32.6% in fiscal 2016. We generated $1.7 million of cash from operating activities in fiscal 2017 and had a cash balance of $3.1 million at March 31, 2017. ### Strategy We aim to establish our expertise in program and project management and develop and expand a repeatable customer business model in all of our markets. We concentrate our sales and marketing activities on customers under three main industry groups, defense, energy and precision industrial. Our strategy is to leverage our core competence as a manufacturer of high-precision, large-scale metal fabrications and machined components to optimize profitability of our current business and expand with key customers into markets that have shown increasing demand. #### Defense Our Ranor subsidiary performs precision fabrication and machining for the defense and aerospace industries, delivering defense components meeting our customers’ stringent design specifications, as well as quality and safety manufacturing standards specifically for defense component fabrication and machining. Ranor has in recent years delivered components consisting of critical sonar housings and fairings, missile tubes, and other critical components. In addition, the team at Ranor has successfully developed new, effective approaches to fabrication that continue to be utilized at our facility and at our customer’s own defense component manufacturing facilities. We have endeavored to increase our business development efforts with large prime defense contractors. Based upon these efforts, we believe there are additional opportunities to secure increased business with existing and new defense contractors who are actively looking to increase outsourced content on certain defense programs over the next several years. We believe that the military quality certifications Ranor maintains and its ability to offer fabrication and manufacturing services at a single facility position it as an attractive outsourcing partner for prime contractors looking to increase outsourced production. #### Energy The power generation businesses among our energy market customers are impacted by pricing and demand for various forms of energy (e.g. coal, natural gas, oil, and nuclear), and our customers are typically dependent upon the need for new construction, maintenance, and overhaul and repair by nuclear energy providers. Also, changes in regulation may impact demand and supply. As such, we cannot assure you that we will be able to develop any significant business from the nuclear industry. However, our Ranor subsidiary has the certifications required to produce the necessary components for new nuclear power plants. Because of our manufacturing capabilities, our certification from the American Society of Mechanical Engineers and our historic relationships with suppliers in the nuclear power industry, we believe that we are well positioned to benefit from any increased activity in the nuclear sector. #### Precision Industrial We serve a number of different customers in our precision industrial group. Included in this group is a key customer who installs proprietary proton beam radiotherapy systems. We manufacture components for these large scale medical systems for this customer. The customers within this market are impacted primarily by general economic conditions which may include changes in consumer consumption or demand for commercial construction for infrastructure. ### Critical Accounting Policies #### Revenue and Related Cost Recognition We have written agreements or purchase orders with our customers that specify contract prices and delivery terms. Revenue recognition requires the existence of a contract to provide the persuasive evidence of an arrangement and a determinable selling price, delivery of the product and reasonable collection prospects. The Company manufactures components under production-type contracts in a production process which meets our customer’s specifications. We account for revenues and earnings using the percentage of completion units of delivery method of accounting. Under this method, we recognize contract revenue and gross profit when the products are produced and delivered, or when services are rendered. We determine progress toward completion on production contracts based on output measures, such as units delivered, or in some cases, input measures, such as labor hours incurred. In fiscal 2017 and 2016, all of our revenue was recognized under the units of delivery method. We may combine contracts for accounting purposes when they are negotiated as a package with an overall profit margin objective. These essentially represent an agreement to do a single project for a single customer, involve interrelated construction activities with substantial common costs, and are performed concurrently or sequentially. When a group of contracts is combined, revenue and profit are earned when the products are produced and delivered. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability are recognized in the period in which the revisions are determined. Costs incurred on uncompleted contracts consist of labor, overhead, and materials. Work in process is stated at the lower of cost or market. Costs allocable to undelivered units are reported in the consolidated balance sheet as costs incurred on uncompleted contracts. Amounts in excess of the agreed upon contract price for customer directed changes, construction changes, customer delays or other causes of additional contract costs are recognized in contract value if it is probable that a claim for such amounts will result in additional revenue and the amounts can be reliably estimated. Revenues from such claims are recorded only to the extent that contract costs have been incurred. Revisions in cost and profit estimates are reflected in the period in which the facts requiring the revision become known and are estimable. When we can only estimate a range of revenues and costs, we use the most likely estimate within the range. If we cannot determine which estimate in the range is most likely, the amounts within the range that would result in the lowest profit margin is used (the lowest contract revenue estimate and the highest contract cost estimate). In some situations, it may be impractical for us to estimate either specific amounts or ranges of contract revenues and costs. However, if we can at least determine that we will not incur a loss, a zero profit model is adopted. The zero profit model results in the recognition of an equal amount of revenues and costs. This method is only used if more precise estimates cannot be made and its use is discontinued when such estimates are obtainable. When we obtain more precise estimates, the change is treated as a change in an accounting estimate. #### Income Taxes We provide for federal and state income taxes currently payable, as well as those deferred because of temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable. The effect of the change in the tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income taxes to the amount that is more likely than not to be realized. In assessing the recoverability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. If we determine that it is more likely than not that certain future tax benefits may not be realized, a valuation allowance will be recorded against deferred tax assets that are unlikely to be realized. Realization of the remaining deferred tax assets will depend on the generation of sufficient taxable income in the appropriate jurisdiction, the reversal of deferred tax liabilities, tax planning strategies and other factors prior to the expiration date of the carryforwards. A change in the estimates used to make this determination could require a reduction in the valuation allowance for deferred tax assets if they become realizable. For fiscal 2017, the Company has recorded a deferred tax asset of $3.4 million, which includes the benefit of $2.7 million in loss carryforwards, which expire in varying amounts between 2026 and 2036. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Although the realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Our tax accounts for fiscal 2016 included a full valuation allowance on our deferred tax assets. As of March 31, 2017, our federal net operating loss carryforward was approximately $6.6 million. If not utilized, the federal net operating loss carryforward will expire in 2035. Furthermore, because of the over fifty-percent change in ownership as a consequence of the reverse acquisition of Ranor in February 2006, the amount of net operating loss carryforward used in any one year in the future is substantially limited. This limitation applies to net operating losses accumulated prior to the ownership change in February 2006. ### New Accounting Pronouncements See Note 2, Significant Accounting Policies, in the Notes to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.” ### Results of Operations Our results of operations are affected by a number of external factors including the availability of raw materials, commodity prices (particularly steel), 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 in foreign markets. Generally, our product mix is made up of short-term contracts with a production timeline of less than twelve months. Units manufactured under the majority of our customer contracts are delivered on time and with a positive gross margin. Our results of operations are also 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 obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. ### Key Performance Indicators While we prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, we also utilize and present certain financial measures that are not based on or included in U.S. GAAP. We refer to these as Non-GAAP financial measures. Please see the section “EBITDA Non-GAAP financial measures” below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the nearest U.S. GAAP financial measures. ### Years Ended March 31, 2017 and 2016 The following table sets forth information from our Consolidated Statements of Operations and Comprehensive Income, in dollars and as a percentage of revenue: *(dollars in thousands)* | | 2017 Amount | Percent | 2016 Amount | Percent | Changes Year Ended March 31, 2017 to 2016 Amount | Percent | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Net sales | $18,550 | 100% | $16,854 | 100% | $1,696 | 10% | | Cost of sales | 12,454 | 67% | 11,360 | 67% | 1,094 | 10% | | Gross profit | 6,096 | 33% | 5,494 | 33% | 602 | 11% | | Selling, general and administrative | 4,336 | 24% | 3,385 | 20% | 951 | 28% | | Gain from claims assignment settlement | (1,122) | (6)% | — | — | (1,122) | nm | | Income from operations | 2,882 | 15% | 2,109 | 13% | 773 | 37% | | Other income | 8 | —% | 1 | —% | 7 | nm | | Interest expense | (644) | (3)% | (752) | (5)% | 108 | 14% | | Total other expense, net | (636) | (3)% | (751) | (5)% | 115 | 15% | | Income before income taxes | 2,246 | 12% | 1,358 | 8% | 888 | 65% | | Income tax benefit | (2,834) | (15)% | — | —% | (2,834) | nm | | Net income | $5,080 | 27% | $1,358 | 8% | $3,722 | nm | #### nm – not meaningful ### Net Sales Our shipments in fiscal 2017 included orders for new and repeat business from existing key customers. Generally, increases and decreases in net sales reflect changes in product mix as our customers gauge their demand for new components. Customer acceptance and the timing of delivery dates play a significant role as to when we can recognize revenue in any given period. For fiscal 2017, net sales increased by $1.7 million, or 10%, to $18.6 million compared to fiscal 2016. Net sales in our defense market, increased by $2.2 million in fiscal 2017 compared to fiscal 2016, primarily on higher shipments of new product components to our largest defense customers. Net sales in our precision industrial market increased by $1.2 million when compared to fiscal 2016, primarily on a higher shipment volume of medical components. Net sales in our energy market decreased by $1.7 million when compared to fiscal 2016 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 $1.3 million from March 31, 2016 to March 31, 2017. ### Cost of Sales and Gross Margin Cost of sales consists primarily of raw materials, parts, labor, overhead, and subcontracting costs. Gross margin in any reporting period is impacted by the mix of products and services we provide on projects completed within that period. Our cost of sales for fiscal 2017 increased by $1.1 million compared to fiscal 2016 primarily on higher sales volume. Gross margins were 32.9% for fiscal 2017 and 32.6% for fiscal 2016. Gross profit was $6.1 million in fiscal 2017, or $0.6 million higher compared to fiscal 2016. New contract losses totaled $0.1 million in fiscal 2017, and are included in cost of sales. ### Selling, General and Administrative Expenses Total SG&A expenses increased by $1.0 million for fiscal 2017, primarily the result of non-cash share based compensation totaling $1.2 million for fiscal 2017, as the Company remunerated its board members and CEO for past services. Stock based compensation totaled $88,041 for fiscal 2016. Professional fees increased by $0.4 million, 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 $0.5 million because of lower headcount in fiscal 2017 when compared with fiscal 2016. ### Gain from Claims Assignment Settlement The Company 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. On November 8, 2016, Ranor’s unsecured claim in GTAT’s bankruptcy was fully allowed without objection. As a result, we recorded a one-time gain of $1.1 million for the fiscal year ended March 31, 2017, representing all of the proceeds received as a settlement under the Assignment Agreement. ### Other Income (Expense) The following table reflects other income, interest expense and amortization of debt issue costs for the fiscal years ended March 31: | | 2017 | 2016 | $ Change | % Change | | --- | ---: | ---: | ---: | ---: | | Other income | $8,439 | $1,229 | $7,210 | nm | | Interest expense | $(542,741) | $(512,199) | $(30,542) | (6)% | | Amortization of debt issue costs | $(101,280) | $(240,081) | $138,801 | 58% | #### nm – not meaningful The amount of interest expense recorded in future years is expected to be lower due to lower interest rates in connection with our debt refinancing transactions. Interest expense in fiscal 2016 included the reversal of deferred interest expense for $240,741, which reduced total interest expense recorded in fiscal 2016. We avoided the payment of the deferred interest when we refinanced our long-term debt in fiscal 2017. ### Income Taxes For the year ended March 31, 2017 we recorded a tax benefit of $2.8 million, which included current tax expense of $37,361 and deferred tax expense $0.8 million, net of the release of a valuation allowance of $3.6 million. The release of the valuation allowance was based on the weight of positive evidence at the balance sheet date, primarily the result of improving business performance and financial trends and achieving sustained profitability in certain tax jurisdictions. Our future effective tax rate will be affected if earnings are lower than anticipated in tax jurisdictions with lower statutory rates and higher than anticipated in tax jurisdictions with 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. We regularly assess the effects resulting from these factors to determine the adequacy of our provision for income taxes. ### Net Income As a result of the foregoing, for fiscal 2017, our net income was $5.1 million or $0.18 per share basic and fully diluted, compared with net income of $1.4 million, or $0.05 per share basic and fully diluted, for fiscal 2016. ### Liquidity and Capital Resources On December 21, 2016 we closed the Commerce Loan Agreement with Commerce Bank. Pursuant to the Commerce Loan Agreement, Commerce made a term loan to Ranor in the amount of $2,850,000 and made available to Ranor a revolving line of credit 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 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 revolving line of credit 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 any revolving 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 revolving credit facility will be payable monthly in arrears. All outstanding loans under the revolving credit facility will mature on December 21, 2018. There were no amounts outstanding under the revolving credit facility at March 31, 2017. In connection with the Commerce Loan Agreement, $2,394,875 of the proceeds from the term loan were disbursed to Revere as payment in full of Ranor’s indebtedness owed to Revere pursuant to a prior agreement with Revere. 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. 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 debt service coverage ratio, or 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 an additional 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 loan in monthly installments of $7,399 for principal and interest over 60 months. The additional 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. 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. At March 31, 2017, we had cash and cash equivalents of $3.1 million. Net cash provided by operating activities was $1.7 million for fiscal 2017. Net cash provided by operating activities for fiscal 2016 was $1.0 million. We believe that the Company is in material 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 March 31, 2017, we had working capital of $5.0 million as compared with working capital of $0.5 million at March 31, 2016. The table below presents selected liquidity and capital measures as of: *(dollars in thousands)* | | March 31, 2017 | March 31, 2016 | Change Amount | | --- | ---: | ---: | ---: | | Cash and cash equivalents | $3,066 | $1,332 | $1,734 | | Working capital | $4,979 | $510 | $4,469 | | Total debt | $5,781 | $4,735 | $1,046 | | Total stockholders’ equity | $8,214 | $1,728 | $6,486 | The following table summarizes our primary cash flows for the periods presented: *(dollars in thousands)* | Cash flows provided by (used in): | March 31, 2017 | March 31, 2016 | Change Amount | | --- | ---: | ---: | ---: | | Operating activities | $1,730 | $1,048 | $682 | | Investing activities | (788) | (222) | (566) | | Financing activities | 792 | (830) | 1,622 | | Net increase (decrease) in cash | $1,734 | $(4) | $1,738 | 19 #### Operating activities Our primary sources of cash are from accounts receivable collections, customer advance payments, and project progress payments. Our customers make advance payments and progress payments under the terms of each manufacturing contract. 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. Cash provided by operations for fiscal 2017 was $1.7 million compared with cash provided by operations of $1.0 million for the fiscal 2016. Cash provided by operations for the fiscal years 2017 and 2016 were augmented by payments of $614,452 and $507,835, respectively, received under the Assignment Agreement with Citigroup. #### Investing activities Fiscal 2017 was marked by a year of increased investment in the Company’s plant and equipment. Net cash used in investing activities totaled $787,808, primarily for new factory machinery and auto equipment during the fiscal year ended March 31, 2017. Fiscal 2016 cash outflows for capital spending was $17,600 for new equipment. In addition, in fiscal 2016, we spent $204,064 to replace all of the fluorescent lighting in our fabrication and machine shops with LED lighting. The project was completed as planned in accordance with all applicable terms and conditions. #### Financing activities Net cash provided by financing activities was $792,434 for the fiscal year ended March 31, 2017. In fiscal 2017 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 our previous Loan and Security Agreement with Utica. 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. In addition, in fiscal 2017, we paid $198,449 in loan closing costs and $527,358 for monthly principal payments on our outstanding debt. In fiscal 2016, net cash used in financing activities was $0.8 million. In fiscal 2016 we used $0.9 million to meet our normal monthly debt obligations, and $0.1 million on costs in connection with our long-term debt refinancing program. In addition, our LED lighting project qualified for a capital incentive grant of $146,000 and a financing component of $58,064 (included in accrued expenses current and noncurrent) for a total of $204,064. All of the above activity resulted in a net increase in cash of $1.7 million in fiscal 2017 compared with a decrease in cash of $4,159 in fiscal 2016. Collateral securing such notes comprises all personal and real property of TechPrecision and Ranor, including cash, accounts receivable, inventories, equipment, financial and intangible assets. The following table sets forth information as of March 31, 2017 as to our contractual obligations: *(dollars in thousands)* | | Payments due by period Total | Less than 1 Year | 2-3 Years | 4-5 Years | After 5 Years | | --- | ---: | ---: | ---: | ---: | ---: | | Debt and capital lease obligations | $5,781 | $717 | $1,612 | $3,452 | $— | | Interest on debt and capital leases | 1,179 | 359 | 544 | 276 | — | | Employee compensation | 1,185 | 1,185 | — | — | — | | Purchase obligations | 890 | 890 | — | — | — | | Non-cancellable operating leases | 2 | 2 | — | — | — | | Total | $9,037 | $3,153 | $2,156 | $3,728 | $— | ### Off-Balance Sheet Arrangements We do not currently have, and have not had during the fiscal year ended March 31, 2017, any off-balance sheet assets, liabilities or arrangements. ### EBITDA Non-GAAP Financial Measure To complement our consolidated statements of operations and comprehensive income and consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net income is the financial measure calculated and presented in accordance with U.S. GAAP that is most directly comparable to EBITDA. We believe EBITDA provides our board of directors, management and investors with a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We also believe that EBITDA is a measure frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, and is a measure contained in our debt covenants. However, while we consider EBITDA to be an important measure of operating performance, EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We define EBITDA as net income plus interest, income taxes, depreciation and amortization. Net income was $5.1 million for the year ended March 31, 2017, as compared to $1.4 million for the year ended March 31, 2016. EBITDA, a non-GAAP financial measure, was $3.6 million for the year ended March 31, 2017, as compared to $2.9 million for the year ended March 31, 2016. Net income and EBITDA increased $3.7 million and $0.7 million, respectively, over the prior period. The following table provides a reconciliation of EBITDA to net income, the most directly comparable GAAP measure reported in our consolidated financial statements: *(dollars in thousands)* | | Year ended March 31, 2017 | Year ended March 31, 2016 | Change Amount | | --- | ---: | ---: | ---: | | Net income | $5,080 | $1,358 | $3,722 | | Income tax benefit | (2,834) | (1) | (2,833) | | Interest expense (1) | 644 | 752 | (108) | | Depreciation | 689 | 748 | (59) | | EBITDA | $3,579 | $2,857 | $722 | #### (1) Includes amortization of debt issue costs. ## Controls and procedures As filed, 4,619 characters. #### Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and procedures that are designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and includes controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was carried out, 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. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2017, our disclosure controls and procedures were effective at a reasonable assurance level. #### Inherent Limitations Over Internal Controls The Company’s internal control over financial reporting is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, or GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate. #### Management’s Report of Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2017 based on the 1992 framework established by the Committee of Sponsoring Organizations of the Treadway Commission in *Internal Control - Integrated Framework*. Based on that assessment, management concluded that, as of March 31, 2017, the Company’s internal control over financial reporting is effective based on the criteria established in *Internal Control - Integrated Framework.* #### Changes in Internal Control over Financial Reporting For the quarter ended March 31, 2017, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting. Filed Jun 29, 2017. Source: SEC EDGAR, the filing index for accession 0001144204-17-034937. Last ingested by Listed: Nov 10, 2026, 04:27 ET. No prices; not investment advice.