美國
證券交易委員會
華盛頓特區20549
表格
（標記一）
截至季度結束日期的財務報告
or
過渡期從 至
委託文件編號：001-39866
(根據其章程規定的註冊人準確名稱)
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（國家或其他管轄區的 |
| （IRS僱主 |
公司成立或組織） |
| 唯一識別號碼） |
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，（主要行政辦公地址） |
| (郵政編碼) |
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公司電話號碼，包括區號 |
| ( |
根據證券法第12(b)條註冊的證券：
每個類別的名稱 |
| 交易標誌 |
| 註冊交易所的名稱 |
請在檢查標記處註明註冊人（1）是否已在證券交易法第13或15（d）條所規定的過去12個月（或註冊人需要提交此類報告的較短期間）內提交了所有必須提交的報告，並且（2）自過去90天以來一直受到此類提交要求的限制。
☒
請勾選是否在前12個月（或註冊人被要求提交這些文件的較短期間）的交互式數據文件的每個文件都是根據本章節規則405和s-t法規（§232.405）要求提交的。
☒
請通過複選標記表明註冊人是大型快速備案人、加速備案人、非加速備案人、更小報告公司還是新興增長公司。請在Exchange Act的規則120億.2中查看「大型快速備案人」、「加速備案人」、「更小報告公司」和「新興增長公司」的定義。
大型加速報告人 | ☐ |
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| 加速文件提交人 | ☐ |
☒ |
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| 較小的報告公司 | ||
新興成長公司 | |||||
如果屬於新興成長型企業，請勾選表示該註冊人已選擇不使用根據交易所法第13（a）條規定的用於符合任何新的或修訂的財務會計準則的延長過渡期。☐
請勾選以下項目，指示註冊人是否爲殼公司（在證券交易法案規則12b-2中定義）。
☐ 是的
截至2024年10月31日，發行人普通股流通的股份數量爲
2
第一部分
項目1.基本報表
TECHPRECISION公司
簡明合併資產負債表
(未經審計) | ||||||
6月30日, | [12月31日] | |||||
| 2024 |
| 2024 | |||
資產 | ||||||
流動資產： | ||||||
現金及現金等價物 | $ | | $ | | ||
2,687,823 |
| |
| | ||
合同資產 |
| |
| | ||
原材料 | | | ||||
在製品 | | | ||||
其他資產 |
| |
| | ||
總流動資產 |
| |
| | ||
物業、廠房和設備，淨值 |
| |
| | ||
租賃權資產，淨額 | | | ||||
其他非流動資產 |
| |
| | ||
資產總額 | $ | | $ | | ||
負債和股東權益： | ||||||
流動負債: | ||||||
應付賬款 | $ | | $ | | ||
應計費用 |
| |
| | ||
合同負債 |
| |
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長期租賃負債的流動部分 |
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長期負債及償還計劃的流動部分，淨額 | | | ||||
流動負債合計 |
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長期租賃負債 | | | ||||
其他非流動負債 | | | ||||
負債合計 | | | ||||
承諾（請參閱註釋14） | ||||||
股東權益： | ||||||
普通股 - 面值 $ |
| |
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股票認購應收款項。 |
| |
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累計虧損 |
| ( |
| ( | ||
股東權益總額 |
| |
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負債和股東權益總額 | $ | | $ | | ||
請參見簡明合併財務報表的附註。
3
精密科技公司
簡明合併運營報表（未經審計）
截至6月30日的三個月 | ||||||
| 2024 |
| 2023 | |||
收入 | $ | | $ | | ||
收入成本 |
| |
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毛利潤 |
| |
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銷售、一般和管理 |
| |
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運營損失 | ( | ( | ||||
其他收入 |
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利息支出 |
| ( |
| ( | ||
其他支出總額 |
| ( |
| ( | ||
所得稅前虧損 |
| ( |
| ( | ||
所得稅優惠 | — |
| ( | |||
淨虧損 | $ | ( | $ | ( | ||
每股淨虧損—基本 | $ | ( | $ | ( | ||
每股淨虧損——攤薄 | $ | ( | $ | ( | ||
加權平均已發行股票數量——基本 | |
| | |||
加權平均已發行股票數量——攤薄 | | | ||||
參見簡明合併財務報表的附註。
4
TECHPRECISION公司
未經審計的壓縮綜合股東權益報表
| 普通股 |
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| 額外的 |
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| 總計 | |||||||
| 股票 | Par |
| 實繳 |
| 累積的 |
| 股東的 | ||||||
| 未償還金額 |
| 數值 |
| 資本 |
| $ |
| 股權 | |||||
截至2023年3月31日的餘額 | | $ | | $ | | $ | ( | $ | | |||||
淨損失 | — | — | — | ( | ( | |||||||||
6月份結餘2023年6月30日 | | $ | | $ | | $ | ( | $ | | |||||
2024年3月31日餘額 | | $ | | $ | | $ | ( | $ | | |||||
發行股票以支付終止費用 | | | | — | | |||||||||
以股票爲基礎的補償 | — | — | | — | | |||||||||
每股數據 | — | — | — | ( | ( | |||||||||
2024年6月30日結餘 | | $ | | $ | | $ | ( | $ | | |||||
請參見簡明合併財務報表的附註。
5
TECHPRECISION公司
未經審計的簡明合併現金流量表
截至6月30日的三個月 | ||||||
| 2024 |
| 2023 | |||
經營活動產生的現金流量： |
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|
|
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淨損失 | $ | ( | $ | ( | ||
調整使淨損失轉化爲經營活動產生的現金流量： |
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折舊和攤銷 |
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債務發行成本的攤銷 |
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股票收購終止費公允價值變動 |
| |
| — | ||
股票補償費用 |
| |
| — | ||
合同損失準備金變動 |
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延遲所得稅 |
| — |
| ( | ||
經營性資產和負債變動: |
| |||||
應收賬款 |
| ( |
| ( | ||
合同資產 |
| ( |
| | ||
在製品和原材料 |
| ( |
| ( | ||
其他資產 |
| |
| | ||
應付賬款 |
| |
| ( | ||
應計費用 |
| ( |
| ( | ||
合同負債 |
| ( |
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其他非流動負債 | | | ||||
經營活動產生的現金流量淨額 |
| |
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投資活動產生的現金流量： |
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| ||||
購置固定資產 |
| ( |
| ( | ||
購買固定資產和設備的報銷 | | — | ||||
投資活動產生的淨現金流出 | ( | ( | ||||
籌資活動產生的現金流量： |
|
| ||||
債務發行成本 | ( | — | ||||
反轉借款借款 | | | ||||
轉動貸款付款 | ( | ( | ||||
租賃本金支付 | ( | ( | ||||
長期負債還款 |
| ( | ( | |||
籌資活動的淨現金流量(使用)/提供的淨現金流量 |
| ( |
| | ||
現金及現金等價物淨減少 |
| ( |
| ( | ||
現金及現金等價物期初餘額 |
| |
| | ||
現金及現金等價物期末餘額 | $ | | $ | | ||
現金流補充披露： |
|
| ||||
支付利息的現金；減去資本化金額 | $ | | $ | | ||
請參見簡明合併財務報表的附註。
附錄信息–非現金交易:
非現金營運
2024年4月29日，我們清償了$
非現金融資
於2024年4月29日，我們發行
6
未經審計的簡明綜合基本報表附註
注1 - 業務描述
TechPrecision克公司，全稱爲「TechPrecision」，是一家設在特拉華州的公司，於2005年2月以Lounsberry Holdings II，Inc.的名義組織成立。2006年2月24日，我們收購了我們全資子公司Ranor，Inc.的全部已發行並流通的股票。Ranor自1956年以來一直在連續運營。公司名稱於2006年3月6日改爲TechPrecision克公司。
TechPrecision克公司是Ranor，Westminster Credit Holdings，LLC，或簡稱爲「WCH」，Stadco New Acquisition，LLC，或簡稱爲「Acquisition Sub」，和Stadco的母公司。TechPrecision，Ranor，WCH，Acquisition Sub和Stadco共同稱爲「公司」，「我們」，「我們」或「我們的」。
我們是一家提供精密、大規模製造元件以及精密、大規模加工金屬結構元件的定製製造商。我們製造的元件是根據客戶設計的。我們向兩個主要行業板塊的客戶銷售：軍工股和精密工業市場。
註釋2-報表基礎和重要會計政策
報表基礎和合並 附帶的簡易合併財務報表包括TechPrecision、Ranor、Stadco、WCH和Acquisition Sub的帳戶。合併中的公司間交易和餘額已予以清除。截至2024年6月30日的簡化合並資產負債表，截至2024年6月30日和2023年的三個月的簡化合並利潤表和股東權益變動表，以及截至2024年和2023年的三個月的簡化合並現金流量表均未經審計，並據管理層意見，已包括了所有對於根據美國通用會計準則或「美國GAAP」編制中期財務報表所必需的調整，以便公正地展示我們的財務報表。所有調整均系正常、經常性調整，除另有披露外。中期經營結果並不一定預示着預期的財年運營結果。
這些簡易合併財務報表附註是根據證券交易委員會或「SEC」關於10-Q表格季度報告的規定和法規編制的。根據這些規定和法規，通常包括在根據美國GAAP編制的財務報表中的某些信息和披露已被簡化或省略。這些未經審計的財務報表和相關附註應與我們於2024年9月13日向SEC提交的截至2024年3月31日財年的年度報告10-k中包含的合併財務報表一起閱讀。
財務報表編制中的估計使用- 在符合美國GAAP編制簡易合併財務報表時，管理層被要求對在簡化合並財務報表日期的資產和負債的報告金額、以及披露在報告期間的權益和費用的估計和假設做出影響的。我們持續評估我們的估計，包括與營業收入確認和所得稅有關的估計。我們的估計基於歷史和當前經驗以及我們認爲在具體情況下是合理的各種其他假設。實際結果可能會有所不同。
流動性和持續經營能力 - 我們的流動性高度依賴融資設施的可用性和我們產生正面營業現金流的能力。截至2024年6月30日的三個月，我們報告了淨損失$
截至2024年6月30日，我們有未確認的期權支出$
公司是貸款協議下的借款人，在2024年5月28日修訂了該協議，Ranor和公司的某些關聯公司簽署了修訂後的第八次修約和修訂借據的第四次修約，簡稱「第八次修約」（請參閱注11 - 萬美元 債務除了將循環貸款的到期日延長到2024年8月30日外，第八修正案還將最大本金金額從$
7
2024年9月4日，Ranor和其他借款人與Berkshire銀行簽署了《第九次修正和重訂貸款協議及第五次修正和重訂本票，或稱爲「第九次修正」》。自2024年8月30日起，《第九次修正》延長了循環貸款的到期日，從2024年8月30日延長至2025年1月15日，等等。
公司承認根據貸款協議，由於公司未能滿足債務服務覆蓋比率（DSCR），截至2024年6月30日的十二個月期間發生了某一違約事件，並且持續存在。貸款人保留根據貸款協議可行的全部權利和救濟措施，包括但不限於選擇加速並要求債務人贖回貸款文件中所證明的未償債務，並要求立即全額償還。
截止到2024年3月30日，營業收入爲$。
公司正在探索通過使Stadco運營盈利，更新我們的循環貸款，或者簽訂替代債務融資等手段來增強其流動性狀況並確保符合債務融資契約。
於2024年7月3日，公司與某些合格投資者簽訂了證券購買協議，公司同意以私募定向增發的方式出售，總購買價格約爲
爲了使我們能夠在財務報表發行之日起的下一個十二個月內繼續經營，並能夠按照正常業務流程償還我們的債務和承諾，我們必須在2025年1月15日之前更新我們的循環貸款，或者在貸款機構要求提前清償貸款時尋求替代融資。我們必須減少Stadco子公司不斷髮生的運營虧損，提高我們的製造能力利用率，並改進製造流程。我們計劃密切監控我們的支出，如有需要，將減少運營成本以增強流動性。
與Stadco不斷髮生的運營虧損、循環貸款續約、需要替代融資以及在後續計量日期遵守債務契約相關的不確定性，對我們能否至少在本季度報告中所包含的這份簡明合併財務報表發行後的一年內作爲持續經營產生了重大疑慮。
截至2024年6月30日三個月的簡明合併財務報表是基於持續經營的基礎編制的，該基礎設想了我們能夠在正常業務流程中實現資產和清償負債。因此，它們未考慮應對資產清算可能會需要的調整。我們滿足當前負債並能夠持續作爲持續經營主體的能力取決於公司遵守債務契約、續約循環貸款以及增長Stadco的營收和降低成本的能力。簡明合併財務報表未包括可能由這些不確定性結果導致的任何調整。
未採用新會計準則
2023年12月，FASB發佈了ASU 2023-09，關於所得稅（第740號主題）：所得稅披露的改進。ASU 2023-09的修訂涉及通過改進所得稅披露主要涉及稅率調解和所支付所得稅信息，以響應投資者對所得稅信息更透明的要求。該標準更新適用於2024年12月15日之後開始的年度報告期。公司目前正在評估此更新，以判斷其對合並財務報表披露可能產生的影響。
8
2023年11月，FASb發佈了ASU 2023-07《分部報告-改善可報告分部披露》。本更新中的指導通過擴大要求公衆實體披露的分部披露的廣度和頻率，增強了分部報告，並允許申報人披露分部利潤或損失的多個度量。此次更新要求公衆實體披露其每個可報告分部的重要分部費用類別和金額。重要分部費用是指分部發生的任何重要費用，包括直接費用、共享費用、分配的公司總部費用或定期報告給首席經營決策者（CODm）的利息費用，並納入分部利潤或損失的度量中。該標準更新適用於2023年12月15日後開始的財政年度以及2024年12月15日後開始的財政年度的中期時段。公司目前正在評估這一更新，以確定其可能對其簡明綜合財務報表的披露產生的影響，並將回顧性地應用指導。
注意事項 3 - 營業收入
公司主要通過完成與客戶合同下的履約義務在兩個主要市場部門：軍工股和精密工業中產生營收。公司履行其義務的週期通常爲 和營業收入根據相關合同條款和條件在逐步或一次性確認。公司利用基於估算勞動小時的輸入方法來衡量績效進展。該模型最能準確展示向客戶的控制轉移。公司的合同組合包括固定價格合同，並僅提供產品類型的營業收入。以下表格按市場和合同類型詳細列出了營業收入：
24,088 |
| 國防股 |
| 製造業 |
| 總計 | |||
2024年6月30日結束的三個月 | $ | | $ | | $ | | |||
截至2023年6月30日的三個月 | $ | | $ | | $ | | |||
Revenue by contract type |
| 逐步 |
| 點時間 |
| 總計 | |||
2024年6月30日結束的三個月 | $ | | $ | | $ | | |||
截至2023年6月30日的三個月 | $ | | $ | | $ | | |||
截至2024年6月30日，公司剩餘履行責任爲$
我們每年依賴少數客戶爲我們的業務貢獻了相當大的部分資產，而這些客戶每年都在變化。以下表格展示了貢獻超過我們營業收入10%的客戶的營業收入。
三個月結束 | 三個月結束 | ||||||||||
2024年6月30日 | 2023年6月30日 |
| |||||||||
客戶 |
| 數量 |
| 百分比 |
| 數量 |
| 百分比 | |||
A | $ | |
| | % | $ | |
| | % | |
B | |
| | |
| | |||||
C | | | | | |||||||
D | * | * | | | |||||||
E | | | | | |||||||
*總計不足10%
在我們的簡明綜合資產負債表中，合同資產和合同負債在每個報告期末以每份合同爲基礎的淨額報告。合同資產包括以下內容：
Progress | |||||||||
| 未開票 |
| 支付 |
| 總計 | ||||
2024年6月30日 | $ | | $ | ( | $ | | |||
酒精飲料銷售 $ 32,907 45.5％ $ 30,136 42.1％ $ 66,223 | $ | | $ | ( | $ | | |||
9
截至2024年6月30日和2023年，我們確認$的營業收入
|
| 客戶 |
|
| |||||
遞延營業收入 | 存款 | 總計 | |||||||
2024年6月30日 | $ | | $ | | $ | | |||
酒精飲料銷售 $ 32,907 45.5％ $ 30,136 42.1％ $ 66,223 | $ | | $ | | $ | | |||
注4 - 所得稅
暫時期間的稅收準備金是根據當前全年稅前收益的估計有效合併稅率確定的，經調整以考慮離散季度項目的影響。
在評估遞延稅資產的收回能力時，我們考慮是否更可能出現一部分或所有遞延稅資產無法實現。我們已經確定未來某些稅收益更可能無法實現。這一評估是基於資產負債表日負面證據的權重，我們最近的經營虧損以及未解決的情況，如果不利解決將對未來運營和利潤水平產生不利影響。因此，已針對可能無法實現的遞延稅資產記錄了一項減值準備金。遞延稅資產的實現將取決於在適當轄區產生足夠的應稅收入，遞延稅負債的逆轉，稅收籌劃策略以及在稅前抵消期限屆滿之前的其他因素。更改用於做出這一決定的估計可能需要增加或減少當前記錄在這些遞延稅資產上的減值準備金。遞延稅資產的減值準備金約爲$
For the three months ended June 30, 2024, there was no change in our judgment about the realizability of deferred tax assets in future years, and, therefore, no expense or benefit provided for income taxes. For the three months ended June 30, 2023, the Company recorded an income tax benefit of ($
NOTE 5 – EARNINGS PER SHARE (EPS)
Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average number of shares outstanding. Diluted EPS also includes the effect of stock options and restricted stock that would be dilutive. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations for the periods ended:
| 截止日期爲三個月 |
| 截止日期爲三個月 | |||
2024年6月30日 | 2023年6月30日 | |||||
每股收益 |
| |||||
淨損失 | $ | ( | $ | ( | ||
加權平均股數 |
| |
| | ||
每股淨虧損 | $ | ( | $ | ( | ||
攤薄後每股收益 | ||||||
淨損失 | $ | ( | $ | ( | ||
期權的稀釋效應 |
| — |
| — | ||
加權平均股數 |
| |
| | ||
每股淨虧損 | $ | ( | $ | ( | ||
所有可能對攤薄後每股收益產生反攤薄效應的普通股等價物在攤薄後每股收益的計算中被排除（即那些增加每股收入或減少每股虧損的）。截至2024年6月30日止三個月，存在潛在的反攤薄股票期權、認股權證和受限股票。
10
註釋6 – 股票基礎補償
2016年TechPrecision股權激勵計劃，即「2016計劃」，旨在反映我們致力於在薪酬和企業治理方面的最佳實踐。2016計劃提供了一個股票儲備，
2016計劃授權向爲TechPrecision或其關聯公司提供服務的員工、董事、顧問和其他個人授予激勵和非合格期權、限制性和無限制股票獎勵、限制性股票單位和績效獎勵。2016計劃的目的是：(a)使TechPrecision及其關聯公司能夠招聘和留住高素質的員工、董事和顧問；(b)爲這些員工、董事和顧問提供生產力激勵；以及(c)爲這些員工、董事和顧問提供分享公司增長和價值的機會。根據2016計劃提供的調整，根據2016計劃授予的獎勵，可以發行的普通股股票的最大數量爲
截至2024年6月30日，2022計劃下有
已授予和預期於2021年1月2日授予股份 | ||||||||||
平均數 | ||||||||||
已授予和預期於2021年1月2日授予股份 | 總計 | 剩餘 | ||||||||
數量 | 平均數 | 截至2023年7月29日的餘額 | 合約期限 | |||||||
| Options |
| 行權價格 |
| 數值 |
| （以年爲單位） | |||
截至2024年3月31日，所有板塊均已激勵、授予並可行使 | | $ | | $ | | |||||
截至2024年6月30日，所有板塊均已激勵、授予並可行使 | | $ | | $ | | |||||
上表中的總內在價值代表了總稅前內在價值（2025財年第一季度最後交易日收盤股價與行權價格之間的差額乘以實值期權數量），即如果所有期權持有人在2024年6月30日行使了他們的期權，他們將獲得的金額。該金額根據公司普通股的公允市值而變化。最長合約期限爲
已授予和預期於2021年1月2日授予股份 | ||||||||||
| Options |
| 平均數 |
|
| |||||
未償還金額 |
| 剩餘 |
| 已授予和預期於2021年1月2日授予股份 |
| 已授予和預期於2021年1月2日授予股份 | ||||
and |
| 加權 | 平均數 | 平均數 | ||||||
行權價格區間： |
| 可行使的 |
| 術語 |
| 行權價格 |
| 行權價格 | ||
$ |
| |
| $ | | $ | | |||
$ |
| |
| $ | | $ | | |||
總計 |
| |
|
|
|
|
| |||
受限股票獎勵
2023年8月3日，我們發行
11
注7-信貸風險集中度
我們保持銀行帳戶餘額，有時可能超過保險限額。我們未在這些帳戶中經歷過任何損失，並相信我們不承擔任何現金重大信用風險。
2024年6月30日，來自交易賬款應收餘額未結清的
2024年6月30日 | 2024年3月31日 |
| |||||||||
客戶 |
| 數量 |
| 百分比 |
| 數量 |
| 百分比 |
| ||
A | $ | |
| | % | $ | * |
| * | % | |
B | |
| | * |
| * | |||||
C | * |
| * | |
| | |||||
D | |
| | * |
| * | |||||
E | |
| | |
| | |||||
*總資產的不到10%
NOTE 8 - 其他流動資產
其他流動資產截至以下時間爲： |
| 2024年6月30日 |
| 2024年3月31日 | ||
預付保險 | $ | | $ | | ||
預付訂閱 |
| |
| | ||
預繳稅款 |
| |
| | ||
供應商預付款 | | | ||||
存款 | | | ||||
員工預付款 |
| |
| | ||
預付諮詢費用，其他 |
| |
| | ||
總計 | $ | | $ | | ||
注意9 - 資產、施工和設備淨值
截至目前，房地產、設備和設施的淨值如下所示： |
| 2024年6月30日 |
| 2024年3月31日 | ||
土地 | $ | | $ | | ||
建築和改進 |
| |
| | ||
機械設備、傢俱和固定裝置 |
| |
| | ||
在建工程 |
| |
| | ||
不動產、廠房和設備總額 |
| |
| | ||
減：累計折舊 |
| ( |
| ( | ||
固定資產、淨額 | $ | | $ | | ||
截至2024年6月30日和2023年，我們記錄的折舊費用爲$
我們在主要資本項目的施工活動期間對借款利息進行資本化。資本化的利息將被加入到相關資產的成本中，並按照資產的預期使用壽命分期攤銷。截至2024年6月30日和2023年三個月的資本化利息爲$
2023年9月，公司簽署協議，爲某一客戶進行額外的設備升級。我們將新購買的設備視爲固定資產，並將從客戶處獲得的報銷款項作爲對資產的抵消資產。資產的未來折舊將通過損益表中抵銷抵消資產的攤銷進行淨額抵消。攤銷期將與我們政策中規定的折舊計劃相匹配。
12
NOTE 10 - ACCRUED EXPENSES
Accrued expenses included the following as of: |
| June 30, 2024 |
| March 31, 2024 | ||
Accrued compensation | $ | | $ | | ||
Provision for claims | | | ||||
Provision for contract losses |
| |
| | ||
Accrued professional fees |
| |
| | ||
Accrued project costs |
| |
| | ||
Accrued breakup fee | — | | ||||
Other |
| |
| | ||
Total | $ | | $ | | ||
Accrued compensation includes amounts for executive bonuses, payroll and vacation and holiday pay. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in the provision are recorded in cost of revenue. Accrued project costs are estimates for certain project expenses during the reporting period.
Due to a change in certain conditions and events, it became probable that on March 31, 2024, the Company would not be able to close on the acquisition of Votaw Precision Technologies, Inc. and accrued a breakup fee of $
NOTE 11 – DEBT
Long-term debt included the following as of: |
| June 30, 2024 |
| March 31, 2024 | ||
Stadco Term Loan, at | $ | | $ | | ||
Ranor Term Loan, at | | | ||||
Ranor Revolver Loan, at | | | ||||
Total debt | $ | | $ | | ||
Less: debt issue costs unamortized | $ | | $ | | ||
Total debt, net | $ | | $ | | ||
Less: Current portion of long-term debt | $ | | $ | | ||
Total long-term debt, net | $ | — | $ | — | ||
Amended and Restated Loan Agreement
On August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank, or the “Loan Agreement”. Under the Loan Agreement, Berkshire Bank will continue to provide the Ranor Term Loan (as defined below) and the revolving line of credit, or the “Revolver Loan”. In addition, Berkshire Bank provided the Stadco Term Loan (as defined below) in the original amount of $
Stadco Term Loan
On August 25, 2021, Stadco borrowed $
Unamortized debt issue costs on June 30, 2024, and March 31, 2024 were $
13
Ranor Term Loan and Revolver Loan
A term loan was made to Ranor by Berkshire Bank in 2016 in the amount of $
Since December 20, 2021, Ranor and certain affiliates of the Company entered into five separate amendments to the Amended and Restated Loan Agreement and First Amendment to Promissory Note to extend the maturity date of the Ranor Term Loan and Revolver Loan to December 15, 2027 and January 15, 2025, respectively.
On December 23, 2022, Ranor and certain affiliates of the Company entered into a Fifth Amendment to Amended and Restated Loan Agreement, Fifth Amendment to Promissory Note and First Amendment to Second Amended and Restated Promissory Note, or the “Amendment”. Effective as of December 20, 2022, the Amendment, among other things (i) extended the maturity date of the Ranor Term Loan to December 15, 2027, (ii) extended the maturity date of the Revolver Loan from December 20, 2022 to December 20, 2023, (iii) increases the interest rate on the Ranor Term Loan from
On December 20, 2023, Ranor and certain affiliates of the Company entered into a Sixth Amendment to Amended and Restated Loan Agreement and Second Amendment to Second Amended and Restated Promissory Note, or the “Sixth Amendment”. Effective December 20, 2023, the Sixth Amendment, among other things (i) extended the maturity date of the Revolver Loan from December 20, 2023 to March 20, 2024; (ii) limited the use of proceeds from the Revolver Loan by the Company or its affiliates to $
On March 20, 2024, Ranor and certain affiliates of the Company entered into a Seventh Amendment to Amended and Restated Loan Agreement and Third Amendment to Second Amended and Restated Promissory Note, or the “Seventh Amendment”. Effective March 20, 2024, the Seventh Amendment, among other things (i) extended the maturity date of the Revolver Loan from March 20, 2024 to May 20, 2024; (ii) limited the use of proceeds from the Revolver Loan by the Company or its affiliates to $
The Company agrees to pay to Berkshire Bank, as consideration for Berkshire Bank’s agreement to make the Revolver Loan available, a nonrefundable Revolver Loan fee equal to
On May 28, 2024, Ranor and the other Borrowers entered into an Eighth Amendment to Amended and Restated Loan Agreement and Fourth Amendment to Second Amended and Restated Promissory Note with Berkshire Bank. Effective May 24, 2024, the Eighth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from May 24, 2024 to August 30, 2024; (ii) amends the maximum principal amount of the Revolver Loan from $
14
On September 4, 2024, Ranor and the other Borrowers entered into a Ninth Amendment to Amended and Restated Loan Agreement and Fifth Amendment to Second Amended and Restated Promissory Note, or the “Ninth Amendment”, with Berkshire Bank. Effective August 30, 2024, the Ninth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from August 30, 2024 to January 15, 2025.
Interest payments made under the Revolver Loan for the quarter ended June 30, 2024 and 2023 were $
Unamortized debt issue costs at June 30, 2024 and March 31, 2024 were $
Berkshire Loan Covenants
For purposes of this discussion, Ranor and Stadco are referred to together as the “Borrowers”. The Ranor Term Loan, the Stadco Term Loan and the Revolver Loan, or together, the “Berkshire Loans”, may be accelerated upon the occurrence of an event of default as defined in the Loan Agreement. Upon the occurrence and during the continuance of certain default events, at the option of Berkshire Bank, or automatically without notice or any other action upon the occurrence of certain other events specified in the Loan Agreement, the unpaid principal amount of the Berkshire Loans together with accrued interest and all other obligations owing by the Borrowers to Berkshire Bank would become immediately due and payable without presentment, demand, protest, or further notice of any kind.
The Company agreed to maintain compliance with certain financial covenants under the Loan Agreement. Namely, the Borrowers agree to maintain the ratio of the Cash Flow of TechPrecision-to-the Total Debt Service of TechPrecision of not less than
The Borrowers agree to cause their Balance Sheet Leverage to be less than or equal
The Borrowers agree to maintain a Loan-to-Value Ratio of not greater than
The Borrowers agree that their combined annual capital expenditures shall not exceed $
15
On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company’s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.
The Company was not in compliance with the debt service and balance sheet leverage tests at June 30, 2024. It is also probable that the Company will not be in compliance with the same debt covenants at subsequent measurement dates within the next twelve months. As a result of the above, all of our long-term debt has been classified as current in our consolidated balance sheet.
Collateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets. The carrying value of short and long-term borrowings approximates their fair value. The Company’s short-term and long-term debt is all privately held with no public market for this debt and is considered to be Level 3 under the fair value hierarchy.
NOTE 12 - OTHER NONCURRENT LIABILITIES
Under an addendum to a contract purchase order, one of our customers agreed to reimburse the Company for the cost of certain new equipment. Payments are received as the Company’s incurs construction costs. All payments were received under this contract during the fiscal years ended March 31, 2024, 2023 and 2022. In case of a contract breach, at the time of the breach, the customer may claw back the funds based on a prorated ten-year straight-line annual declining balance recovery period. This liability amount is included in the Company’s condensed consolidated balance sheets as a noncurrent liability.
In September 2023, we signed an agreement to purchase new equipment for another customer who agreed to reimburse the Company for the cost of the equipment. We received the first payment in fiscal 2024, with additional payments received during the three months ended June 30, 2024. Advance payments from the customer accrue in the Company’s condensed consolidated balance sheets as a noncurrent liability.
As of June 30, 2024, and March 31, 2024, a total of $
In fiscal year 2023, Stadco entered into the Payment Agreement with the Los Angeles Department of Water and Power, or “LADWP”, to settle previously outstanding amounts for water, water service, electric energy and/or electric service in the aggregate amount of $
NOTE 13 – LEASES
On August 25, 2021, Stadco became party to an amended building and property operating lease and recorded a right of use asset and liability of $
16
The following table lists our right-of-use assets and liabilities on our condensed consolidated balance sheets at:
| June 30, 2024 |
| March 31, 2024 | |||
Right of Use Asset |
|
| ||||
Right of use asset – operating lease | $ | | $ | | ||
Right of use asset – finance leases | |
| | |||
Amortization | ( | ( | ||||
Right of use assets net | $ | | $ | | ||
Lease liability – operating lease | $ | | $ | | ||
Lease liability – finance leases | | | ||||
Total lease liability | $ | | $ | | ||
Other supplemental information regarding our leases is contained in the following tables:
Components of lease expense for the three months ended: |
| June 30, 2024 |
| June 30, 2023 | ||
Operating lease amortization | $ | | $ | | ||
Finance lease amortization | $ | | $ | | ||
Finance lease interest | $ | | $ | | ||
Weighted average lease term and discount rate at: |
| June 30, 2024 |
| June 30, 2023 |
|
Lease term (years) – operating lease |
| ||||
Lease term (years) – finance lease | |||||
Lease rate – operating lease | | % | | % | |
Lease rate – finance lease |
| | % | | % |
Supplemental cash flow information related to leases for the three months ended: |
| June 30, 2024 |
| June 30, 2023 | ||
Cash used in operating activities | $ | | $ | | ||
Cash used in financing activities | $ | | $ | | ||
Maturities of lease liabilities at June 30, 2024 for the next five years and thereafter:
2024 |
| $ | |
2025 |
| | |
2026 |
| | |
2027 |
| | |
2028 | | ||
Thereafter |
| | |
Total lease payments | $ | | |
Less: imputed interest |
| | |
Total | $ | |
NOTE 14 – COMMITMENTS
Purchase Commitments
As of June 30, 2024, we had approximately $
17
Retirement Benefits
The Company has a defined contribution and savings plan that covers substantially all employees who have completed 90 days of service. Ranor retains the option to match employee contributions. The Company contributed $
Legal Proceeding
The estimated amounts of liabilities recorded for pending and threatened litigation are recorded in other current liabilities in our consolidated balance sheets. In accordance with the accounting standard for contingencies, we record a liability when management believes that it is both probable that a liability has been incurred and we can reasonably estimate the amount of the loss. Generally, the loss is recorded for the amount we expect to resolve the liability. We believe we have recorded adequate provisions for our litigation matters. We review and adjust these provisions quarterly to reflect the effect of negotiations, settlements, rulings, and advice.
On October 30, 2023, a former employee filed suit against Stadco asserting individual wage and hour claims, claims for age and disability discrimination under California law, and a collective action on behalf of all non-exempt Stadco employees pursuant to the California Private Attorneys General Act of 2004 (“PAGA”) [Cal. Lab. Code, ss. 2698, et seq.], to impose civil penalties for certain violations of the California Labor Code. Stadco has retained outside legal counsel to defend this action. The case has been stayed and was resolved in principle at mediation on June 26, 2024. The former employee’s individual claims were also resolved at mediation, and final settlement payment on the individual claims was due and paid in August 2024.
On October 8, 2024, the Los Angeles County (CA) Superior Court approved the settlement of the Plaintiff’s claim for imposition of civil penalties pursuant to the PAGA. Accordingly, under the terms of the PAGA Settlement Agreement, Stadco must pay the sum of $
NOTE 15 – SEGMENT INFORMATION
The Company has
18
Each reportable segment focuses on the manufacture and assembly of specific components, primarily for defense, aerospace and other industrial customers. However, both segments have separate operating, engineering, and sales teams. Our Chief Executive Officer, or “CEO”, is the Chief Operating Decision Maker, or “CODM”, and evaluates the performance of our segments based upon, among other things, segment revenue and operating profit. Segment operating profit excludes general corporate costs. Corporate costs include executive and director compensation, stock-based compensation, and other corporate and administrative expenses not allocated to the segments. The following table provides summarized financial information for our segments:
Three Months Ended | ||||||
June 30, | ||||||
| 2024 |
| 2023 | |||
Ranor | $ | | $ | | ||
Stadco |
| |
| | ||
Eliminate intersegment revenue | — | ( | ||||
Revenue from external customers |
| | | |||
Ranor operating income |
| |
| | ||
Stadco operating loss | ( |
| ( | |||
Corporate and unallocated (1) | ( | ( | ||||
Total operating loss | ( | ( | ||||
Other (expense) income | | | ||||
Interest expense |
| ( |
| ( | ||
Consolidated loss before income taxes | $ | ( | $ | ( | ||
Depreciation and amortization: |
|
|
|
| ||
Ranor | $ | | $ | | ||
Stadco | |
| | |||
Totals | $ | | $ | | ||
Capital expenditures |
| |||||
Ranor | $ | | $ | | ||
Stadco | — |
| — | |||
Totals | $ | | $ | | ||
| (1) | Corporate general costs include executive and director compensation, and other corporate administrative expenses not allocated to the segments. |
NOTE 16 – SUBSEQUENT EVENTS
Amendment to Amended and Restated Loan Agreement and Promissory Note
On September 4, 2024, Ranor and the other Borrowers entered into a Ninth Amendment to Amended and Restated Loan Agreement and Fifth Amendment to Second Amended and Restated Promissory Note, or the “Ninth Amendment”, with Berkshire Bank. Effective August 30, 2024, the Ninth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from August 30, 2024 to January 15, 2025. (see Note 11 - Debt).
Private Placement of Common Stock and Warrants
On July 3, 2024, the Company entered into a Securities Purchase Agreement, or the “Purchase Agreement”, with certain accredited investors, or the “Purchasers”, pursuant to which the Company sold common stock and warrants in a private placement at an aggregate purchase price of approximately $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Statement Regarding Forward Looking Disclosure
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes, which appear elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including this section titled “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 quarterly 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 forward-looking 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, or implied by, the forward-looking statements due to numerous risks and uncertainties. As discussed below under “Liquidity and Capital Resources”, certain events and conditions, when examined in the aggregate, indicate substantial doubt about our ability to continue as a going concern for at least one year beyond the date of the financial statements. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:
| ● | our reliance on individual purchase orders, rather than long-term contracts, to generate revenue; |
| ● | our ability to balance the composition of our revenue and effectively control operating expenses; |
| ● | external factors that may be outside of our control, including health emergencies, like epidemics or pandemics, the conflicts in Eastern Europe and the Middle East, price inflation, increasing interest rates, and supply-chain inefficiencies; |
| ● | 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 operate our business due to our outstanding indebtedness; |
| ● | government regulations and requirements; |
| ● | pricing and business development difficulties; |
| ● | changes in government spending on national defense; |
| ● | our ability to make acquisitions and successfully integrate those acquisitions with our business; |
| ● | our failure to maintain effective internal controls over financial reporting; |
| ● | general industry and market conditions and growth rates, |
| ● | unexpected costs, charges or expenses resulting from the recently terminated Stock Purchase Agreement; and |
| ● | those risks discussed in “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K, as well as those described in any other filings which we make with the SEC. |
20
Overview
The manufacturing operations of our Ranor subsidiary are situated on approximately 65 acres in North Central Massachusetts. Leveraging our 145,000 square foot facilities, Ranor provides a full range of custom solutions to transform material into precision finished welded components and precision finished machined components up to 100 tons: manufacturing engineering, materials management and traceability, high-precision heavy fabrication (in-house fabrication operations include cutting, press and roll forming, welding, heat treating, assembly, blasting and painting), heavy high-precision machining (in-house machining operations include CNC programming, finishing, and assembly), QC inspection including portable CMM, NonDestructive Testing, and final packaging.
All manufacturing at Ranor is performed in accordance with customer requirements. Ranor is an ISO 9001:2015 certificate holder. Ranor is a US defense-centric company with over 95% of its revenue in the defense sector. Ranor is registered and compliant with ITAR.
The manufacturing operations of our Stadco subsidiary are situated in an industrial self-contained multi-building complex comprised of approximately 183,000 square feet under roof in Los Angeles, California. Stadco manufactures large mission-critical components on several high-profile military aircraft, military helicopter, and military space programs. Stadco has been a critical supplier to a blue-chip customer base that includes some of the largest OEMs and prime contractors in the defense and aerospace industries. Stadco also manufactures tooling, molds, fixtures, jigs and dies used in the production of defense-centric aircraft components.
Our Stadco subsidiary, similar to Ranor, provides a full range of custom solutions: manufacturing engineering, materials management and traceability, high-precision fabrication (in-house fabrication operations include waterjet cutting, press forming, welding, and assembly) and high-precision machining (in-house machining operations include CNC programming, finishing, and assembly), QC inspection including both fixed and portable CMM NonDestructive Testing, and final packaging. In addition, Stadco features a large electron beam welding cell, and two NonDestructive Testing work cells, a unique mission-critical technology set.
All manufacturing at Stadco is performed in accordance with customer requirements. Stadco is an AS 9100 D and ISO 9001:2015 certificate holder and a NADCAP NonDestructive Testing certificate holder. Stadco is a US defense-centric company with over 60% of its revenue in the defense sector. Stadco is registered and compliant with ITAR.
Custom Manufacturing
We manufacture a variety of components in accordance with our internal core competencies and external customer needs and requirements. We also provide manufacturing engineering services to assist customers in optimizing their engineering designs for manufacturability. We do not design the components we manufacture; we custom manufacture according to customer “build-to-print” requirements and specifications. Accordingly, we do not distribute the components that we manufacture on the open market, and we do not market any products. We do not own the intellectual property rights to any proprietary marketed product, and we do not manufacture in anticipation of orders. Our custom manufacturing operations do not commence on any project before we receive and accept a customer’s purchase order. We only accept contracts that cover specific components within the capability of our resources.
We primarily target repeating custom programs with relatively mature and stable designs in order to provide long-term solutions for our customers. The multi-unit work is repeat work or a single product with multiple quantity releases. Secondarily, our activities include a variety of both multi-unit and one-off requirements. The one-off work is typically either a prototype or a unique, one-of-a-kind component.
Changes in regulations and market demand for our manufacturing expertise can be significant and sudden, and require us to adapt to the needs of the customers that we serve Understanding this dynamic, we focus on the defense industry in order to reliably pivot with our defense customers to jointly develop the capability to transform our workforce to manufacture components in accordance with our own and our external customers’ changing requirements.
We primarily serve customers in the defense and aerospace; secondarily in the nuclear, and precision industrial sectors. Within these sectors, we have manufactured custom components for US Navy submarines and aircraft carriers, USMC military helicopters, US defense and civilian aerospace programs, and components for nuclear power plants.
21
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.
All the Company’s operations, assets, and customers are located in the U.S.
Recent Developments
Termination of Votaw Acquisition
On November 22, 2023 we and the Seller, entered into the Purchase Agreement, pursuant to which, we would acquire all of the issued and outstanding common stock of Votaw Precision Technologies, Inc. (“Votaw”) and after giving effect to such purchase, Votaw was to become our wholly owned subsidiary.
Due to a change in certain conditions and events, it became probable that on March 31, 2024, the Company would be unable to close on the acquisition. On April 2, 2024, the Seller delivered to the Company written notice of its election to terminate the Purchase Agreement under Section 7.01(f) effective immediately. Pursuant to Section 7.01(f) of the Purchase Agreement, in the event that the Closing had not occurred by March 31, 2024, either we or the Seller had the right to terminate the Purchase Agreement, subject to the party terminating having complied with the other required closing conditions.
Since the Seller validly terminated the Purchase Agreement pursuant to Section 7.01(f), the Company was required to pay to the Seller the Stock Termination Fee. Under the Purchase Agreement, the Stock Termination Fee can increase by 48,000 additional shares of the Company’s common stock under certain conditions, including if the Company fails to use commercially reasonable efforts to cause a registration statement to effect the resale of the shares of common stock composing the Stock Termination Fee to be declared effective by the Securities and Exchange Commission as soon as practicable. Such registration was filed with the Securities and Exchange Commission on May 2, 2024, but cannot be declared effective until we have filed all of the required financial statements with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024.
On April 29, 2024, we issued 320,000 shares of our common stock as the Stock Termination Fee.
Amendments to Amended and Restated Loan Agreement and to Second Amended and Restated Promissory Note
On May 28, 2024, Ranor and the other Borrowers entered into an Eighth Amendment to Amended and Restated Loan Agreement and Fourth Amendment to Second Amended and Restated Promissory Note, or the “Eighth Amendment”, with Berkshire Bank. Effective May 24, 2024, the Eighth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from May 24, 2024 to August 30, 2024; (ii) amends the maximum principal amount of the Revolver Loan from $5,000,000 to $4,500,000; and (iii) effective on June 1, 2024, increases the Term SOFR Margin (as defined in the Amendment) used to calculate the interest rate from 2.25% per annum to 2.50% per annum.
On September 4, 2024, Ranor and the other Borrowers entered into a Ninth Amendment to Amended and Restated Loan Agreement and Fifth Amendment to Second Amended and Restated Promissory Note, or the “Ninth Amendment”, with Berkshire Bank. Effective August 30, 2024, the Ninth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from August 30, 2024 to January 15, 2025.
Read about the Berkshire Bank Loans under the “Liquidity and Capital Resources” section below, for a discussion of the amended debt agreement and its impact on the Company’s liquidity and on-going operations.
22
July Private Placement
On July 3, 2024, the Company entered into a Securities Purchase Agreement (the “PIPE Agreement”), with certain accredited investors (the “PIPE Purchasers”) pursuant to which we agreed to sell in a private placement (the “July Private Placement”) at an aggregate purchase price of $2,298,045, (i) 666,100 shares of our common stock (the “PIPE Shares”), and (ii) common stock purchase warrants to purchase up to 666,100 shares of our common stock (the “PIPE Warrants”). The combined purchase price for one PIPE Share and one PIPE Warrant was $3.45. The purpose of the July Private Placement was to raise working capital for use by the Company. The closing of the July Private Placement occurred on July 8, 2024 (the “PIPE Closing Date”). Placement agent fees totaled $126,014. Proceeds under the agreement were received after June 30, 2024.
Pursuant to the PIPE Agreement, we have agreed to have a registration statement registering for resale the PIPE Shares and the shares underlying the PIPE Warrants declared effective with 60 days of the PIPE Closing Date. If such registration statement is not declared effective in a timely manner, we will be subject to liquidated damages as described in the PIPE Agreement.
Any forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. Investors should evaluate any statements made by us in light of these important factors.
Critical Accounting Policies and Estimates
The preparation of the condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We continually evaluate our estimates, including those related to revenue recognition and income taxes. These estimates and assumptions require management’s most difficult, subjective or complex judgments. Actual results may vary under different assumptions or conditions.
We consider the principles and estimates applied for revenue recognition as one of our most critical accounting estimates. Our revenue can fluctuate from quarter-to-quarter as we measure revenue recognition over the duration of a project, or at the end of the project. The Company records most of its revenue over-time as it completes performance obligations or at a point-in-time, for example, at the delivery date, when control of the promised goods is transferred to the customer. Project volume for revenue recognized at a point-in-time is generally smaller, can fluctuate from period-to-period, and is difficult to forecast.
We measure progress for performance obligations satisfied over time using input methods such as labor hours expended. As a result, we review inputs and outputs and can estimate the remaining amounts of inputs needed to complete the work and therefore report an accurate amount of revenue each reporting period. The amount of revenue period-to-period will fluctuate based on project volume.
Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2024 Annual Report on Form 10-K. There were no significant changes to our critical accounting policies during the three months ended June 30, 2024.
New Accounting Standards
See Note 2, Basis of Presentation and Significant Accounting Policies, in the Notes to the Unaudited Condensed Consolidated Financial Statements under “Item 1. Financial Statements”, for a discussion of recently adopted new accounting guidance.
23
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. It generally takes approximately twelve months or less to complete our manufacturing projects. However, contracts for larger complex components can take up to thirty-six months in general to complete. Units manufactured under the majority of our customer contracts have historically been 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. Delays in any of these items 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.
We evaluate the performance of our segments based upon, among other things, segment revenue, operating profit, and certain key performance indicators. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, certain retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments.
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 titled “EBITDA Non-GAAP financial measure” 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 most directly comparable U.S. GAAP financial measures.
Percentages in the following tables and throughout this “Results of Operations” section may reflect rounding adjustments.
Three Months Ended June 30, 2024 and 2023
The following table presents revenue, cost of revenue and gross profit, consolidated and by reportable segment:
June 30, 2024 | June 30, 2023 | Changes | ||||||||||||||
Percent of | Percent of | |||||||||||||||
(dollars in thousands) |
| Amount |
| Net sales |
| Amount |
| Net sales |
| Amount |
| Percent |
| |||
Revenue | ||||||||||||||||
Ranor | $ | 4,382 |
| 55 | % | $ | 4,499 |
| 61 | % | $ | (117) |
| (3) | % | |
Stadco | 3,604 |
| 45 | % | 2,967 |
| 40 | % | 637 |
| 21 | % | ||||
Intersegment elimination |
| — |
| — | % |
| (95) |
| (1) | % |
| 95 |
| 100 | % | |
Consolidated Revenue | $ | 7,986 |
| 100 | % | $ | 7,371 |
| 100 | % | $ | 615 |
| 8 | % | |
Cost of revenue | ||||||||||||||||
Ranor | $ | 3,145 |
| 39 | % | $ | 3,217 |
| 44 | % | $ | (72) |
| (2) | % | |
Stadco |
| 4,602 |
| 58 | % |
| 3,555 |
| 48 | % |
| 1,047 |
| 29 | % | |
Intersegment elimination | — |
| — | % |
| (95) |
| (1) | % |
| 95 |
| 100 | % | ||
Consolidated Cost of revenue | $ | 7,747 |
| 98 | % | $ | 6,677 |
| 91 | % | $ | 1,070 |
| 16 | % | |
Gross profit | ||||||||||||||||
Ranor | $ | 1,237 | 16 | % | $ | 1,282 | 17 | % | $ | (45) | (4) | % | ||||
Stadco |
| (998) | (13) | % |
| (588) | (8) | % |
| (410) | (70) | % | ||||
Consolidated Gross profit | $ | 238 | 3 | % | $ | 694 | 9 | % | $ | (455) | (66) | % | ||||
24
Revenue
Consolidated – Revenue was $8.0 million for the three months ended June 30, 2024, or 8% higher when compared to revenue of $7.4 million for the three months ended June 30, 2023. Revenue increased by $0.6 million at Stadco offset in part by a decrease of $0.1 million at Ranor. As explained below, we realized fewer direct labor hours at both Ranor and Stadco on projects executed during the first quarter of 2024 as compared with the same period a year ago. However, the projects executed had overall relatively higher contract values as compared with the same period a year ago. As described in the gross profit and gross margin section, higher relative contracts prices do not necessarily have higher gross profit or gross margin.
Ranor – Revenue was $4.4 million for the three months ended June 30, 2024, a decrease of $0.1 million or 3% lower when compared to the same period a year ago. We realized fewer direct labor hours during the first quarter of 2024 as compared with the same period a year ago.
The backlog for Ranor remains strong as new orders continue to flow to us from our existing customer base of prime defense contractors. The backlog at Ranor on June 30, 2024 and 2023 was $18.8 million and $21.8 million, respectively.
Stadco - Revenue was $3.6 million for the three months ended June 30, 2024, compared with revenue of $3.0 million for the three months ended June 30, 2023, an increase of $0.6 million, or 21%. We realized fewer direct labor hours during the first quarter of 2024 as compared with the same period a year ago. However, the projects executed on during the first quarter had overall relatively higher contract values during the first quarter of 2024 as compared with the same period a year ago.
The backlog remains strong as new orders for components related to a variety of programs, including the U.S. Marine Corps heavy lift helicopter programs, continue to flow to us from our existing customer base of prime defense contractors. Stadco’s backlog was $22.4 million and $24.5 million as of June 30, 2024 and 2023, respectively.
Gross Profit and Gross Margin
Consolidated – Cost of revenue consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of revenue for the three months ended June 30, 2024, was $7.7 million, or 16% higher when compared to the three months ended June 30, 2023. The increase in cost of revenue was primarily the result of higher production costs and under-absorbed overhead at Stadco. As a result, gross profit decreased by $0.5 million, or 66% when compared to the same period a year ago. Gross margin for the three months ended June 30, 2024 was 3.0% compared to 9.4% in the same period a year ago.
Ranor – Gross profit decreased by $45,000, basically flat, when compared to the same period a year ago. Cost of revenue was $72,000 lower, as an increase in material costs was more than offset by higher absorbed overhead added to our work-in-progress when compared with the same period in the prior-year.
Stadco – Gross profit was negative $1.0 million for the three months ended June 30, 2024, as our losses increased when compared to the same period a year ago. Direct labor hours charged to projects were lower compared with the same prior year period a year ago. Therefore, factory overhead was under absorbed, and other production costs, repairs and maintenance and certain project losses increased year-over-year.
Selling, General and Administrative (SG&A) Expenses
| June 30, 2024 |
| June 30, 2023 | Changes |
| |||||||||||
Percent of | Percent of |
| ||||||||||||||
(dollars in thousands) |
| Amount |
| Net Sales |
| Amount |
| Net Sales |
| Amount |
| Percent |
| |||
Ranor | $ | 324 | 4 | % | $ | 406 | 6 | % | $ | (82) | (20) | % | ||||
Stadco |
| 336 | 4 | % | 317 | 4 | % | 19 | 6 | % | ||||||
Corporate and unallocated |
| 920 | 12 | % | 551 | 7 | % | 369 | 67 | % | ||||||
Consolidated SG&A | $ | 1,580 | 20 | % | $ | 1,274 | 17 | % | $ | 306 | 24 | % | ||||
25
Consolidated – Total selling, general and administrative expenses for the three months ended June 30, 2024, increased by approximately $0.3 million, or 24%, primarily due to a $0.4 million change in fair value to the accrual for the breakup fee in connection with the terminated Votaw acquisition.
Ranor – SG&A expense decreased by $82,000 for compensation and payroll taxes due to staff reductions.
Stadco – SG&A expense for the three months ended June 30, 2024, increased by approximately $19,000. The SG&A expenses for office costs and outside advisory fees increased by approximately $46,000, offset in part by a decrease in compensation and payroll taxes due to staff reductions.
Corporate and unallocated – SG&A increased by approximately $0.4 million, primarily for a change in fair value to the accrual for the breakup fee in connection with the terminated Votaw acquisition.
Operating (loss) income
| June 30, 2024 | June 30, 2023 | Changes |
| ||||||||||||
Percent of | Percent of |
| ||||||||||||||
(dollars in thousands) |
| Amount |
| net sales |
| Amount |
| net sales |
| Amount |
| Percent |
| |||
Ranor | $ | 913 | 11 | % | $ | 876 | 12 | % | $ | 37 | 4 | % | ||||
Stadco |
| (1,334) | (17) | % | (905) |
| (12) | % | (429) | (47) | % | |||||
Corporate and unallocated |
| (920) | (12) | % | (551) |
| (8) | % | (369) | (67) | % | |||||
Operating loss | $ | (1,341) | (17) | % | $ | (580) |
| (8) | % | $ | (761) | (131) | % | |||
Consolidated – As a result of the foregoing, for the three months ended June 30, 2024, we reported an operating loss of $1.3 million, or $0.8 million higher than the operating loss for the three months ended June 30, 2023. The change was primarily due to operating losses at Stadco and an accrual for the change in fair value to the breakup fee in connection with the terminated Votaw acquisition.
Ranor – Operating income was slightly higher when compared to the same period a year ago, due primarily to lower selling, general and administrative costs.
Stadco – Operating loss increased by $0.4 million as certain projects with production issues disrupted throughput for the three months ended June 30, 2024.
Corporate and unallocated – Operating loss increased by approximately $0.4 million, due primarily for a change in the fair value for the breakup fee in connection with the terminated Votaw acquisition.
Other Income (Expense), net
The following table presents other income (expense) for the three months ended:
| June 30, 2024 |
| June 30, 2023 |
| $ Change |
| % Change |
| ||||
Other income | $ | 12,724 | $ | 1 | $ | 12,723 | nm | % | ||||
Interest expense | (114,638) | (75,325) | (39,313) | (52) | ||||||||
Amortization of debt issue costs | (17,139) | (18,761) | 1,622 | 9 | ||||||||
nm – not meaningful
Interest expense increased by approximately $40,000 when compared with the three months ended June 30, 2023, due primarily to an increase in borrowings under the revolver loan, and a reduction in capitalized interest. That increase was offset in part by lower amounts of interest expense paid in connection with the term loans.
Amortization of debt issue costs for the three months ended June 30, 2024, was slightly lower when compared to three months ended June 30, 2023, according to the term loan periods.
Other income, net, in the table above, for the three months ended June 30, 2024, includes a vendor rebate for approximately $11,000.
26
Income Tax expense (benefit)
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The valuation allowance on deferred tax assets at June 30, 2024 was approximately $5.6 million. We believe that it is more likely than not that the benefit from certain state NOL carryforwards and other deferred tax assets will not be realized. The assessment was based on the weight of negative evidence at the balance sheet date, our recent operating losses and unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels. In recognition of this risk, we continue to provide a valuation allowance on these items.
For the three months ended June 30, 2024, there has been no change in our judgment about the realizability of deferred tax assets in future years, and, therefore, no expense or benefit provided for income taxes. For the three months ended June 30, 2023, the Company recorded an income tax benefit of ($146,430) with an effective tax rate of 21.7%.
Net Loss
As a result of the foregoing, for the three months ended June 30, 2024, we recorded a net loss of $1.5 million, or $0.16 per share basic and fully diluted, compared with a net loss of $527,455, or $0.06 per share basic and fully diluted for the three months ended June 30, 2023.
Liquidity, Capital Resources and Going Concern
Our liquidity is highly dependent on the availability of financing facilities and our ability to generate positive operating cash flow.
As of June 30, 2024, we had approximately $1.6 million in total available liquidity, consisting primarily of $1.5 million in undrawn capacity under our Revolver Loan. As of March 31, 2024, we had $2.3 million in total available liquidity, consisting of $0.1 million in cash and cash equivalents, and approximately $2.2 million in undrawn capacity under our Revolver Loan.
There was $2.8 million and $2.8 million outstanding under the Revolver Loan at June 30, 2024 and March 31, 2024, respectively. The Company pays interest at an adjusted SOFR-based rate. Interest-only payments on advances made under the Revolver Loan will continue to be payable monthly in arrears. Interest-only payments on advances made under the Revolver Loan during the three months ended June 30, 2024, and 2023 totaled $56,678 and $29,678, respectively. The weighted average interest rate at June 30, 2024 and March 31, 2024 was 7.71% and 7.60%, respectively. The weighted average amount outstanding during the period ending June 30, 2024 was $2.9 million. Unused borrowing capacity at June 30, 2024 and March 31, 2024 was approximately $1.5 million and $0.5 million, respectively.
At June 30, 2024 and March 31, 2024 our working capital was negative in part because of the reclassification of our long-term debt from noncurrent to current in the condensed consolidated balance sheet.
The table below presents selected liquidity and capital measures at:
| June 30, |
| March 31, |
| Change | ||||
(dollars in thousands) | 2024 | 2024 | Amount | ||||||
Cash and cash equivalents | $ | 45 | $ | 138 | $ | (93) | |||
Revolver loan – available borrowing capacity | $ | 1,545 | $ | 524 | $ | 1,021 | |||
Working capital | $ | (1,661) | $ | (2,904) | $ | 1,243 | |||
Total debt | $ | 7,491 | $ | 7,648 | $ | (157) | |||
Total stockholders’ equity | $ | 7,821 | $ | 7,803 | $ | 8 | |||
27
The next table summarizes changes in cash by primary component in the cash flows statements for the fiscal years ended:
| June 30, |
| June 30, |
| Change | ||||
(dollars in thousands) | 2024 | 2023 | Amount | ||||||
Operating activities | $ | 107 | $ | 115 | $ | (8) | |||
Investing activities |
| (31) |
| (1,854) |
| 1,823 | |||
Financing activities |
| (170) |
| 1,476 |
| (1,646) | |||
Net decrease in cash | $ | (94) | $ | (263) | $ | 169 | |||
Operating activities
Apart from our loan facilities, our primary sources of cash are from customer revenue, customer contract advances, and associated accounts receivable collections. Many of our customers make advance payments and progress payments under the terms of each manufacturing contract. The composition of our accounts receivable collections mix changes between advance payments and customer payments made after shipment of finished goods. Our cash flows can fluctuate from period to period as we mark progress with customer project milestones and the timing of progress payments.
Cash provided by operating activities for the three months ended June 30, 2024, was approximately $0.1 million. Our net loss adjusted by our non-cash adjustments used $0.2 million of cash during the three months ended June 30, 2024, as compared to a use of cash of $79,000 to the same period a year ago. Working capital changes to our balance sheet provided $0.3 million of cash during the three months ended June 30, 2024, as compared to $0.2 million provided by during the same period a year ago.
Cash provided by operating activities for the three months ended June 30, 2023, was approximately $0.1 million. Cash provided by operating activities included reimbursements under a certain customer project program and was almost entirely offset by payments for obligations for goods and services that had been acquired on open account from suppliers.
Investing activities
For the three months ended June 30, 2024, we invested approximately $0.2 million in new factory machinery and equipment and were reimbursed for $0.2 million of certain purchases under a supplier development fund.
We are subject to certain financial debt covenants and may not spend more than $1.5 million for new machinery and equipment during any single fiscal year, tested on an annual basis at the end of each fiscal year. We estimate that our spending on new machinery and equipment in fiscal 2025 will not exceed the spending limitation.
For the three months ended June 30, 2023, we invested $1.9 million in new factory machinery and equipment.
Financing activities
We drew down $2.8 million of proceeds under our Revolver Loan during the three months ended June 30, 2024, and repaid $2.8 million during the same period. We also used approximately $0.2 million of cash to pay down debt principal and make periodic lease payments.
For the three months ended June 30, 2023, we drew down $4.5 million of proceeds under the Revolver Loan and repaid $2.9 million during the same period. We also used approximately $154,000 of cash to pay down debt principal and make periodic lease payments.
All of the above activity resulted in a net decrease in cash of $0.1 million for the three months ended June 30, 2024 compared with a net decrease in cash of $0.3 million for the three months ended June 30, 2023.
Berkshire Bank Loans
On August 25, 2021, the Company entered into an amended and restated loan agreement with Berkshire Bank (as amended to date, the “Loan Agreement”). Under the Loan Agreement, Berkshire Bank will continue to provide the Ranor Term Loan (as defined below) and the revolving line of credit, or the “Revolver Loan”. In addition, Berkshire Bank provided the Stadco Term Loan (as defined below) in the original amount of $4.0 million. The proceeds of the original Ranor Term Loan of $2.85 million were previously used to refinance existing mortgage debt of Ranor. The proceeds of the Revolver Loan are used for working capital and general corporate purposes of the Company. Payments for the original Ranor Term Loan began on January 20, 2017, and until the facility was amended in December 2022, the Company paid monthly installments of $19,260 each, inclusive of interest at a fixed rate of 5.21% per annum.
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In addition, Berkshire Bank provided to Stadco a term loan in the original amount of $4.0 million, or the “Stadco Term Loan”. On August 25, 2021, Stadco borrowed $4.0 million from Berkshire Bank under the Stadco Term Loan. The proceeds of the Stadco Term Loan were used to support the acquisition of Stadco and refinance existing indebtedness of Stadco. Interest on the Stadco Term Loan is due on unpaid balances beginning on August 25, 2021, at a fixed rate per annum equal to the 7-year Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Since September 25, 2021, and on the 25th day of each month thereafter, Stadco has made and will continue to make monthly payments of principal and interest in the amount of $54,390 each, with all outstanding principal and accrued interest due and payable on August 25, 2028.
On December 23, 2022, Ranor and certain affiliates of the Company entered into a Fifth Amendment to Amended and Restated Loan Agreement, Fifth Amendment to Promissory Note and First Amendment to Second Amended and Restated Promissory Note, or the “Amendment”. Effective as of December 20, 2022, the Amendment, among other things (i) extends the maturity date of the loan originally made to Ranor by Berkshire Bank in 2016, or the “Ranor Term Loan”, to December 15, 2027, (ii) extends the maturity date of the Revolver Loan from December 20, 2022 to December 20, 2023, (iii) increases the interest rate on the Ranor Term Loan from 5.21% to 6.05% per annum, (iv) decreases the monthly payment on the Ranor Term Loan from $19,260 to $16,601, (v) replaces LIBOR as an option for the benchmark interest rate for the Revolver Loan with SOFR, (vi) replaces LIBOR-based interest pricing conventions with SOFR-based pricing conventions, including benchmark replacement provisions, and (vii) solely with respect to the fiscal quarter ending December 31, 2022, lowers the debt service coverage ratio from at least 1.2 to 1.0 to 1.1 to 1.0. Our capital expenditures are limited to $1.5 million annually and contain loan-to-value, and balance sheet leverage covenants.
On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company’s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures.
On December 20, 2023, Ranor and certain affiliates of the Company entered into a Sixth Amendment to Amended and Restated Loan Agreement and Second Amendment to Second Amended and Restated Promissory Note, or the “Sixth Amendment”. The Sixth Amendment, among other things (i) extended the maturity date of the Revolver Loan from December 20, 2023 to March 20, 2024; (ii) limits the use of proceeds from the Revolver Loan by the Company or its affiliates to $1,000,000 in the aggregate for due diligence and related professional costs incurred on or prior to March 20, 2024 in connection with any acquisitions; and (iii) makes certain changes to the amount and methods of valuation of equipment securing repayment of the borrowed funds.
On March 20, 2024, Ranor and certain affiliates of the Company entered into a Seventh Amendment to Amended and Restated Loan Agreement and Third Amendment to Second Amended and Restated Promissory Note, or the “Seventh Amendment”. Effective March 20, 2024, the Seventh Amendment, among other things (i) extended the maturity date of the Revolver Loan from March 20, 2024 to May 20, 2024; (ii) limits the use of proceeds from the Revolver Loan by the Company or its affiliates to $2,000,000 in the aggregate for due diligence and related professional costs incurred on or prior to May 10, 2024 in connection with any acquisitions.
On May 28, 2024, Ranor and the other Borrowers entered into an Eighth Amendment to Amended and Restated Loan Agreement and Fourth Amendment to Second Amended and Restated Promissory Note with Berkshire Bank. Effective May 24, 2024, the Eighth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from May 24, 2024 to August 30, 2024; (ii) amends the maximum principal amount of the Revolver Loan from $5,000,000 to $4,500,000; and (iii) effective on June 1, 2024, increases the Term SOFR Margin (as defined in the Amendment) used to calculate the interest rate from 2.25% per annum to 2.50% per annum.
On September 4, 2024, Ranor and the other Borrowers entered into a Ninth Amendment to Amended and Restated Loan Agreement and Fifth Amendment to Second Amended and Restated Promissory Note, or the “Ninth Amendment”, with Berkshire Bank. Effective August 30, 2024, the Ninth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from August 30, 2024 to January 15, 2025.
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As a result of Borrowers’ failure to satisfy the required minimum Debt Service Coverage Ratio for the twelve (12) month period ending March 31, 2024 and June 30, 2024, as set forth in the Loan Agreement, or the “Existing Default”, the borrowers acknowledge that a certain Event of Default has occurred and is continuing under the Loan Agreement. The borrowers further acknowledge that the sixth amendment to the Agreement constitutes written notice pursuant to the Loan Documents of such Existing Default. Regardless of entering into this Agreement or any discussions between Borrowers and Lender, the Lender expressly reserves any and all rights and remedies available to it under the Loan Documents, the Collateral Documents, and under applicable law, including, without limitation, its right to choose to accelerate and demand the outstanding indebtedness evidenced by the Loan Documents and seek immediate repayment in full, and institute the default rate of interest as of the date of the occurrence of the default or at any time thereafter, as a result of any default or event of default, including, without limitation, the Existing Default, that have arisen or may arise. No such discussions or the entering into of this Agreement shall imply any course of conduct or any agreement on the part of Lender to waive any of its rights and remedies or to forbear from taking any action authorized by the Loan Documents, the Collateral Documents, or by applicable law while discussions continue.
On March 31, 2023, the Company was in violation of the Loan Agreement as it exceeded the capital expenditure limit of $1.5 million as defined in the agreement. On June 12, 2023, the Company and Berkshire Bank executed a waiver under which Berkshire Bank waived the Company’s noncompliance with the capital expenditure limit on March 31, 2023. The waiver document also contains an agreement by the parties to exclude from the calculation of capital expenditures for purposes of the Loan Agreement during the year ending March 31, 2024, any such expenditures made by the Company to the extent they are made using funds provided by customers of the Company for the purpose of making such capital expenditures. The Company was otherwise in compliance with all the financial covenants on March 31, 2023.
There was $7.5 million and $7.6 million outstanding under the Loan Agreement on June 30, 2024 and March 31, 2024, respectively. Without a waiver, the lender has the right, but not the obligation, to demand repayment from the Company for noncompliance with the debt covenants. In addition, the bank retains the right to act on covenant violations that occur after the date of delivery of any waiver. The lender has not granted us a waiver. As such, we need to seek alternative financing to pay these obligations as the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations. It is also probable that the Company will not be in compliance with the same debt covenants at subsequent measurement dates within the next twelve months. As a result of the above, all of our long-term debt has been classified as current in our condensed consolidated balance sheet.
The Company is exploring various means of strengthening its liquidity position and ensuring compliance with its debt financing covenants by making Stadco operations profitable, renewing our revolver loan, or entering into alternative debt facilities.
On July 3, 2024, the Company entered into the PIPE Agreement with certain accredited investors, pursuant to which the Company agreed to sell in a private placement at an aggregate purchase price of approximately $2.3 million, the PIPE Shares and the PIPE Warrants. The combined purchase price for one PIPE Share and one PIPE Warrant was $3.45. The purpose of the sale of the PIPE Shares and the PIPE Warrants under the PIPE Agreement is to raise working capital for use by the Company. The closing of the offering occurred on July 8, 2024.
In order for us to continue operations beyond the next twelve months from the date of issuance of the financial statements and to be able to discharge our liabilities and commitments in the normal course of business, we must renew our revolver loan or seek alternative financing by January 15, 2025. We must mitigate our recurring operating losses at our Stadco subsidiary, efficiently increase utilization of our manufacturing capacity at Stadco and improve the manufacturing process. We plan to closely monitor our expenses and, if required, will reduce operating costs to enhance liquidity.
The uncertainty associated with the recurring operating losses at Stadco, the revolver loan renewal, the need for alternative financing, and compliance with debt covenants at subsequent measurement dates raise substantial doubt about our ability to continue as a going concern for at least one-year after the date the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are issued.
Collateral securing all the above obligations comprises all personal and real property of the Company, including cash, accounts receivable, inventories, equipment, and financial assets.
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Commitments and Contractual Obligations
The following contractual obligations associated with our normal business activities are expected to result in cash payments in future periods, and include the following material items on June 30, 2024:
| ● | Our debt obligations, including fixed and variable-rate debt, totaled $7.5 million, and, because of current debt covenant violations, are classified as current in the consolidated balance sheets. |
| ● | We enter into various commitments with suppliers for the purchase of raw materials and work supplies. Our outstanding unconditional contractual commitments, including for the purchase of raw materials and supplies goods, totaled approximately $8.7 million, all of it due to be paid within the next twelve months. These purchase commitments are in the normal course of business. |
| ● | Our lease obligations, including imputed interest, totaled $5.6 million for buildings through 2030, with approximately $0.9 million due annually for each of the next six years. |
There are no off-balance sheet arrangements as of June 30, 2024.
EBITDA Non-GAAP Financial Measure
To complement our condensed consolidated statements of operations and condensed consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net loss 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 U.S. GAAP.
We define EBITDA as net loss plus interest, income taxes, depreciation, and amortization. Net loss was $1.5 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively. EBITDA, a non-GAAP financial measure, was negative for the three months ended June 30, 2024 and 2023. The following table provides a reconciliation of EBITDA to net income (loss), the most directly comparable U.S. GAAP measure reported in our condensed consolidated financial statements for the three months ended:
June 30, | June 30, | Change | |||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| Amount | |||
Net loss | $ | (1,460) | $ | (527) | $ | (933) | |||
Income tax benefit | — |
| (146) |
| 146 | ||||
Interest expense (1) | 132 |
| 94 |
| 38 | ||||
Depreciation and amortization | 694 |
| 560 |
| 134 | ||||
EBITDA | $ | (634) | $ | (19) | $ | (615) | |||
| (1) | Includes amortization of debt issue costs. |
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
As a smaller reporting company, we have elected not to provide the information required by this Item.
Item 4. Controls and Procedures.
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.
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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 June 30, 2024, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting described below.
Management’s Responsibility for 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 U.S. 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 U.S. 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.
Inherent Limitations Over Internal Controls
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.
Material Weaknesses
We identified three material weaknesses in our internal control over financial reporting as of March 31, 2024, which continues to exist at June 30, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for the Annual Report on Form 10-K, management identified the following material weaknesses:
(1) Purchase accounting - we did not maintain proper controls, processes and procedures over the initial purchase accounting and the fair value accounting associated with our acquisition of Stadco in the fiscal year ended March 31, 2022 that were adequately designed, documented, and executed to support the accurate and timely reporting of our financial results regarding the initial purchase accounting and the fair value accounting associated with the Stadco acquisition;
(2) Tax accounting – during fiscal 2023 and fiscal 2024 we did not maintain a sufficient complement of tax accounting personnel necessary to perform management review controls related to activities for extracting information to determine the valuation allowance at Stadco on a timely basis. These conditions led to certain omissions in the assessment of the valuation allowance during the third and fourth quarter of fiscal 2024. Because of this material weakness in fiscal 2023, we made a late or post-closing adjustment to our valuation allowance while preparing the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the period ended March 31, 2024;
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(3) Stadco accounting - we did not maintain a sufficient complement of resources and expertise on the Stadco accounting staff necessary to consistently perform management review controls over financial information and complete account reconciliations on a timely basis, to ensure all transactions are accurately captured and recorded prior to closing the books. The demand on our accounting resources is significant due to the manual nature of controls necessary to maintain effective control over Stadco’s legacy system. As a result of this material weakness, we made several post-closing adjustments for percentage-of-completion (POC) revenue projects. The adjustment corrected inputs for project revenue and costs in progress at Stadco, as the initial and correcting journal entries were not reconciled and posted in a timely manner during the year end reporting cycle. Because of the foregoing reasons, extra time was required to complete certain items with respect to the financial statement preparation, closing and review process for the year ended March 31, 2024.
Notwithstanding the material weaknesses, management believes the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.
Remediation of the Material Weaknesses
For the fiscal year ended March 31, 2024, we reviewed our entity level controls, staffing requirements and the cost/benefit for remediating our material weaknesses.
In fiscal 2024, our management, with the oversight of our audit committee, executed a plan to take measures to begin remediating the underlying causes of the material weaknesses through the development and implementation of a thorough review of our procedures, policies, processes, and review controls to gain additional assurance regarding the remediation our tax accounting, acquisition accounting procedures, and accounting closing cycle time at Stadco: (1) Purchase accounting - The Company enhanced its working framework with a memorandum that depicts a clear, explicit roadmap for the purchase accounting guidance at every step. We will follow that roadmap and will implement new controls in fiscal 2025. We engaged a third-party specialist in July 2023 with the requisite knowledge to perform all required valuations and accounting for business combinations. That specialist worked with the Company on all the pre-acquisition activities, or due diligence, in connection with the Votaw acquisition. The third-party specialist was hired primarily to assure that certain accounting issues that arose in the Stadco acquisition would not re-occur with the purchase accounting for the acquisition of Votaw; (2) Tax accounting - Management’s plan required that it utilize a tax specialist with the requisite knowledge and resources to perform the required basic and detailed tax calculations so that all the parties can make a timely assessment of the Company’s tax provision. The Company engaged a new tax specialist in July 2023, and that tax specialist now prepares our interim and annual tax provisions. We will implement new controls in fiscal 2025 to ensure a timely quarterly review of our deferred tax assets and liabilities and valuation allowance requirements as we facilitate remediation of the material weakness; (3) Stadco accounting - For the fiscal year ended March 31, 2024, we reviewed our entity level controls, staffing requirements and the cost/benefit for upgrading our legacy systems and accounting staff at Stadco. As a result of this review, we are transitioning accounting function to the office of the Chief Financial Officer in Massachusetts, where expert and experienced personnel are in-place to execute a plan to 1) improve the effectiveness and efficiency of the accounting operation, ensuring a timely closing cycle, 2) improve the reliability of financial reporting, and 3) continued compliance with generally accepted accounting principles and applicable laws and regulations. We began to implement these measures during fiscal 2024 and we will monitor progress during fiscal 2025 as we facilitate remediation of the material weakness.
Management believes that the above actions continue the process of remediation for the material weakness as disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. The material weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period and management has concluded, through testing, that these controls are operating effectively. We can provide no assurance as to when the remediation of these material weaknesses will be completed to provide for an effective control environment.
We are committed to continually improving our internal control process and will diligently review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may decide that additional measures are necessary to address control deficiencies.
Changes in Internal Control over Financial Reporting
Except as disclosed under “Management’s Remediation Plan”, for the quarter ended June 30, 2024, 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.
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Item 5. Other Information
During the three months ended June 30, 2024,
PART II. Other Information.
Item 1. Legal Proceedings.
We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. As of the date hereof, we are not a party to any material legal or administrative proceedings. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
On October 30, 2023, the Company and one of its employees were named as defendants in an action alleging individual claims of discrimination and wage and hour violations, along with representative wage and hour claims brought pursuant to the California Private Attorneys General Act of 2004 (“PAGA”) [Cal. Lab. Code, ss. 2698, et seq.] in California Superior Court for the County of Los Angeles. In the complaint, captioned Ibarra v. Stadco (LASC Case No. 23STCV26591), a former employee of Stadco, sought to recover alleged damages (including backpay from his date of termination and emotional distress), unpaid underpaid wages, penalties, attorney’s fees and costs of suit on his own behalf based on allegations of age and disability discrimination and wage and hour violations. The former employee’s individual claims would have been subject to private arbitration. In addition, the former employee seeks to recover civil penalties under PAGA on behalf of a group of similarly situated aggrieved employees based upon all paychecks issues since July 21, 2022, together with his attorney’s fees and costs of suit, for certain violations of the California Labor Code. For purposes of this action, “aggrieved employees” means all non-exempt employees of Stadco in California since July 21, 2022. The PAGA claim may not be privately arbitrated, and any settlement must be approved by the court. Stadco has retained outside legal counsel to defend this action. The parties participated in a mediation on June 26, 2024, and were able to reach a resolution within the Company’s expectations. Final settlement payment on the individual claims was due and paid in August 2024.
On October 8, 2024, the Los Angeles County (CA) Superior Court approved the settlement of the Plaintiff’s claim for imposition of civil penalties pursuant to the PAGA. Accordingly, under the terms of the PAGA Settlement Agreement, Stadco must pay the sum of $205,000 no later than November 7, 2024.
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Item 6. Exhibits.
Exhibit Index
Exhibit No. |
| Description |
| Incorporated |
| File No. |
| Date Filed |
| Exhibit |
| Filed or |
3.1 | SB-2 | 333-133509 | August 28, 2006 | 3.1 | ||||||||
3.2 | 8-K | 000-51378 | February 3, 2014 | 3.1 | ||||||||
3.3 | Certificate of Designation for Series A Convertible Preferred Stock of the Registrant | 8-K | 000-51378 | March 3, 2006 | 3.1 | |||||||
3.4 | 10-Q | 000-51378 | November 12, 2009 | 3.5 | ||||||||
10.1 | 8-K | 001-41698 | September 23, 2024 | 10.1 | ||||||||
10.2 | 8-K | 001-41698 | April 9, 2024 | 10.1 | ||||||||
10.3 | 8-K | 001-41698 | June 3, 2024 | 10.1 | ||||||||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
32.1 | X | |||||||||||
101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | ||||||||||
101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
104 | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | X |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| TechPrecision Corporation |
|
|
|
November 7, 2024 | By: | /s/ Richard D. Roomberg |
|
| Richard D. Roomberg |
|
| Chief Financial Officer |
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