Statement Regarding Forward Looking Disclosure
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes, which appear elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K, including this section 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 annual report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "should," "would" and similar expressions, as they relate to us, are intended to identify forward-looking statements. These 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. 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 change the composition of our revenues and effectively reduce
operating expenses;
? external factors, including the COVID-19 pandemic, that may be outside of our
control;
? the impacts of the COVID-19 pandemic and government-imposed lockdowns in
response thereto;
· the availability of appropriate financing facilities impacting our operations,
financial condition and/or liquidity;
· our ability to receive contract awards through competitive bidding processes;
15
· 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;
· operating in a single geographic location;
· 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;
· general industry and market conditions and growth rates;
· general economic conditions; and
· those risks discussed in "Item 1A. Risk Factors" and elsewhere in this Annual
Report on Form 10-K, as well as those described in any other filings which we
make with theSEC .
Any forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this Annual Report on Form 10-K, except as required by applicable law. Investors should evaluate any statements made by us in light of these important factors. Overview
We offer a full range of services required to transform raw materials into precision finished products. Our manufacturing capabilities include: fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers. We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting) and final assembly. All manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications.Ranor holds several certificates of authorization issued by theAmerican Society of Mechanical Engineers and theNational Board of Boiler and Pressure Vessel Inspectors . The standards used are specific to the customers' needs, and our manufacturing operations are conducted in accordance with these standards. Because our revenues are derived from the sale of goods manufactured pursuant to a contract, and we do not sell from inventory, it is necessary for us to constantly seek new contracts. There may be a time lag between our completion of one contract and commencement of work on another contract. During such periods, we may continue to incur overhead expense but with lower revenue resulting in lower operating margins. Furthermore, changes in either the scope of an existing contract or related delivery schedules may impact the revenue we receive under the contract and the allocation of manpower. Although we provide manufacturing services for large governmental programs, we usually do not work directly for the government or its agencies. Rather, we perform our services for large governmental contractors. Our business is dependent in part on the continuation of governmental programs that require our services and products. Our contracts are generated both through negotiation with the customer and from bids made pursuant to a request for proposal. Our ability to receive contract awards is dependent upon the contracting party's perception of such factors as our ability to perform on time, our history of performance, including quality, our financial condition and our ability to price our services competitively. Although some of our contracts contemplate the manufacture of one or a limited number of units, we continue to seek more long-term projects with predictable cost structures. All of our sales recorded for fiscal 2020 and 2019 were generated in theU.S. We have experienced, and continue to experience, customer concentration. For fiscal 2020 and fiscal 2019, our largest customer accounted for approximately 22% and 32% of reported net sales, respectively. For fiscal 2020, we had seven customers, who each generated in excess of$1.0 million in revenue for the Company, which accounted for approximately 88% of our revenue, in the aggregate. Our sales order backlog atMarch 31, 2020 was approximately$16.8 million compared with a backlog of$12.6 million atMarch 31, 2019 . For fiscal 2020, we recorded net sales and net loss of$16.0 million and$0.3 million , respectively, compared with net sales of$16.7 million and net income of$1.1 million , for fiscal 2019. Our gross margin for fiscal 2020 was 19.6% compared with gross margin of 27.6% in fiscal 2019. Our gross margin for the fiscal year endedMarch 31, 2020 was impacted by higher cost of sales primarily due to cost overruns on certain customer projects. Fiscal 2019 reflects a period of efficient project throughput and lower unabsorbed overhead. We generated$0.7 million of cash from operating activities in fiscal 2020 and had a cash balance of$0.9 million atMarch 31, 2020 . 16 Impact of COVID-19 Pandemic As discussed above (see "Business - COVID-19 Pandemic Update"), the COVID-19 pandemic and the government-imposed lockdowns have begun to affect our business. The Governor of theCommonwealth of Massachusetts , in which jurisdiction the Company's manufacturing and executive offices are located, issued an emergency order onMarch 31, 2020 , updated onApril 28, 2020 , imposing an emergency order generally shutting down the economy. However, the Company has been designated as a provider of a "COVID-19 Essential Service" and, accordingly, has continued it operations. As of the date of this Annual Report on Form 10-K, the COVID-19 pandemic has negatively affected the Company's customers, suppliers and labor force. With respect to customers, management has observed impacts from certain of its customers halting operations entirely for a period of time, shifting to remote work, and suspending on-site inspections - which delays customer acceptance of completed work, the making of milestone payments to us, and delivery of finished goods. The Company believes that the potential exists for other customer shutdowns or slowdowns to occur in the future. Management expects that the impact of the foregoing may negatively affect the Company's cash flows. With respect to suppliers, the Company has seen lead-times for delivery of certain critical supplies extended. Labor impacts have included a few issues related to employee attendance such as voluntary avoidance of work out of fear of contracting the coronavirus, certain employees becoming ill, and others self-quarantining as a result of potential exposure to other individuals with symptoms of COVID-19. This has had a minor impact on the Company's production levels, however if more employees become ill in the future, the Company could experience a more significant disruption. Nevertheless, our production facilities continued to operate during the fourth quarter of fiscal 2020 much as they had prior to the outbreak of the COVID-19 pandemic, other than the implementation of enhanced safety measures intended to prevent the spread of the virus. The remote working arrangements and travel restrictions imposed by applicable governmental authorities has not materially impaired our ability to maintain operations during the fourth quarter of fiscal 2020. Accordingly, our results of operations and cash flows during the fiscal year endedMarch 31, 2020 were not materially affected by the COVID-19 pandemic. However, we believe that our future financial condition, results of operations and cash flows in fiscal 2021 may be materially and adversely affected by the COVID-19 pandemic. However, given the speed and frequency of continuously evolving developments with respect to this pandemic, the extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of the outbreak and the effectiveness of actions globally to contain or mitigate its effects, we cannot reasonably estimate the magnitude of the impact on our financial condition and results of operations. Strategy We aim to establish our expertise in program and project management and develop and expand a repeatable customer business model in all of our markets. We concentrate our sales and marketing activities on customers under three main industry groups: defense, energy and precision industrial. Our strategy is to leverage our core competence as a manufacturer of high-precision, large-scale metal fabrications and machined components to optimize profitability of our current business and expand with key customers in markets that have shown increasing demand. Defense OurRanor subsidiary performs precision fabrication and machining for the defense and aerospace industries, delivering defense components meeting our customers' stringent design specifications, as well as quality and safety manufacturing standards specifically for defense component fabrication and machining.Ranor has in recent years delivered critical components in support of, among other projects, theU.S. Navy's Virginia-class fast attack submarine program and Columbia-class ballistic missile submarine program. In addition, the team atRanor has successfully developed new, effective approaches to fabrication that continue to be utilized at our facility and at our customer's own defense component manufacturing facilities. We have endeavored to increase our business development efforts with large prime defense contractors. Based upon these efforts, we believe there are opportunities to secure additional business with existing and new defense contractors who are actively looking to increase outsourced content on certain defense programs over the next several years. We believe that the military quality certificationsRanor maintains and its ability to offer fabrication and manufacturing services at a single facility position it as an attractive outsourcing partner for prime contractors looking to increase outsourced production. Sales to defense market customers have generated the largest proportion of our revenues for the last two fiscal years, and we expect sales to defense customers to be our strongest market during
fiscal 2021 as well. 17 Energy The power generation businesses among our energy market customers are impacted by pricing and demand for various forms of energy (e.g. coal, natural gas, oil, and nuclear). Our nuclear customers are typically dependent upon the need for new construction, maintenance, and overhaul and repair by nuclear energy providers. Also, changes in regulation may impact demand and supply. As such, we cannot assure that we will be able to develop any significant business from the nuclear industry. However, because of our manufacturing capabilities required to produce components for new nuclear power plants and our historic relationships with suppliers in the nuclear power industry, we believe that we are positioned to benefit from any increased demand in the nuclear sector.Precision Industrial
The customers within this market are impacted primarily by general economic conditions which may include changes in consumer consumption or demand for commercial construction for infrastructure. We serve a number of different customers in our precision industrial group. We also manufacture large-scale medical device components for a customer in this group who installs their proprietary systems at certain medical institutions.
Critical Accounting Policies Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in this 2020 Form 10-K. We consider the policies relating to revenue recognition to be a critical accounting policy. There have been no significant changes to our critical accounting policies during the year endedMarch 31, 2020 . The preparation of the consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We continually evaluate our estimates, including those related to revenue recognition, inventories, recovery of long-lived assets, income taxes and the valuation of equity transactions. These estimates and assumptions require management's most difficult, subjective or complex judgments. Actual results may differ under different assumptions or conditions.
Revenue and Related Cost Recognition
Accounting Standards Codification Topic 606, or ASC 606, sets forth five steps for revenue recognition: identification of the contract, identification of any separate performance obligations in the contracts, determination of the transaction price, allocation of the transaction price to separate performance obligations, and revenue recognition when performance obligations are satisfied. We recognize revenue over time based on the transfer of control of the promised goods or services to the customer, or at a point in time. This transfer will occur over time when the Company's performance does not create an asset that has an alternative use to the Company and we have an enforceable right to payment for performance completed to date. Otherwise, control to the promised goods or services transfers to customers at a point in time. The majority of the Company's contracts have a single performance obligation and provide title to, or grant a security interest in, work-in-process to the customer. In addition, these contracts contain enforceable rights to payment, allowing the Company to recover both its cost and a reasonable margin on performance completed to date. The combination of these factors indicates that the customer controls the asset (and revenue is recognized) as the asset is created or enhanced. The Company measures progress for performance obligations satisfied 1) over time using input methods (e.g., costs incurred, resources consumed, labor hours expended, time elapsed), or 2) at a point in time when units produced are delivered.
Under arrangements where the customer does not have title to, or a security interest in, the work-in-process, our evaluation of whether revenue should be recognized over time requires significant judgment about whether the asset has an alternative use and whether the entity has an enforceable right to payment for performance completed to date. When one or both of these factors is not present, the Company will recognize revenue at the point in time where control over the promised good or service transfers to the customer, i.e. when the customer has taken physical possession of the product the Company built for
the customer. When estimating contract costs, the Company takes into consideration a number of assumptions and estimates regarding risks related to technical requirements and scheduling. Management performs periodic reviews of the contracts to evaluate the underlying risks. Profit margin on any given project could increase if the Company is able to mitigate and retire such risks. Conversely, if the Company is not able to properly manage these risks, cost estimates may increase, resulting in a lower profit margin, or potentially, contract losses. The cost estimation process requires significant judgment and is based upon the professional knowledge and experience of the Company's engineers, program managers, and financial professionals. Factors considered in estimating the work to be completed and ultimate contract recovery include the availability, productivity, and cost of labor, the nature and complexity of the work to be performed, the effect of change orders, the availability of materials, the effect of any delays in performance, the availability and timing of funding from the customer, and the recoverability of any claims included in the estimates to complete. Costs allocable to undelivered units are reported as work in process, a component of inventory, in the consolidated balance sheet. Pre-contract fulfillment costs requiring capitalization are not material. 18
Changes in job performance, job conditions, and estimated profitability are recognized in the period in which the revisions are determined. Costs incurred on uncompleted contracts consist of labor, overhead, and materials. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Income Taxes
We provide for federal and state income taxes currently payable, as well as those deferred because of temporary differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable. The effect of the change in the tax rates is recognized as income or expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income taxes to the amount that is more likely than not to be realized. In assessing the recoverability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. If we determine that it is more likely than not that certain future tax benefits may not be realized, a valuation allowance will be recorded against deferred tax assets that are unlikely to be realized. Realization of the remaining deferred tax assets will depend on the generation of sufficient taxable income in the appropriate jurisdiction, the reversal of deferred tax liabilities, tax planning strategies and other factors prior to the expiration date of the carryforwards. A change in the estimates used to make this determination could require a reduction in the valuation allowance for deferred tax assets if they become realizable. For fiscal 2020, the Company has recorded a net deferred tax asset of$2.1 million , which includes the benefit of$2.3 million in loss carryforwards, which expire in varying amounts between 2026 and 2036. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards. Although the realization is not assured, management believes it is more likely than not that the deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. As ofMarch 31, 2020 , our federal net operating loss carryforward was approximately$7.5 million . If not utilized, the federal net operating loss carryforward will expire in 2038. Furthermore, because of the over fifty-percent change in ownership as a consequence of the reverse acquisition ofRanor inFebruary 2006 , the amount of net operating loss carryforward used in any one year in the future is substantially limited. This limitation applies to net operating losses accumulated prior to the ownership change inFebruary 2006 . Accounting Pronouncements New Accounting Standards See Note 3, Accounting Standards Update, in the Notes to the Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data", for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted. 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 inthe United States and in foreign markets. Generally, our product mix is made up of short-term contracts with a production timeline of twelve months, more or less. 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. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. Key Performance Indicators
While we prepare our financial statements in accordance withU.S. generally accepted accounting principles, orU.S. GAAP, we also utilize and present certain financial measures that are not based on or included inU.S. GAAP. We refer to these as Non-GAAP financial measures. Please see the section "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 nearestU.S. GAAP financial measures. 19
Fiscal Years Ended
The following table sets forth information from our Consolidated Statements of Operations and Comprehensive Income, in dollars and as a percentage of revenue: 2020 2019 Changes (dollars in thousands) Amount Percent Amount Percent Amount Percent Net sales$ 16,007 100 %$ 16,703 100 %$ (696 ) (4 )% Cost of sales 12,868 80 % 12,118 73 % 750 6 % Gross profit 3,139 20 % 4,585 27 % (1,446 ) (32 )% Selling, general and administrative 2,786 17 % 2,747 16 % 39 1 % Provision for claims 495 3 % -- -- % 495 nm % Operating (loss) income (142 ) (1 )% 1,838 11 % (1,980 ) (108 )% Other expense, net (273 ) (2 )% (314 ) (2 )% 41 13 % (Loss) income before tax (415 ) (3 )% 1,524 9 % (1,939 ) (127 )% Income tax (benefit) expense (73 ) (1 )% 423 2 % (496 ) (117 )% Net (loss) income$ (342 ) (2 )%$ 1,101 7 %$ (1,443 ) (131 )% nm - not meaningful Net Sales
Changes in net sales generally reflect a different product mix and project volume when comparing the current and prior periods. Net sales were$16.0 million for fiscal 2020, or 4% lower when compared to net sales for fiscal 2019 of$16.7 million . Net sales in defense and energy markets decreased by$1.7 million and$0.7 million , respectively, when compared to fiscal 2019. Net sales to industrial markets increased by$1.7 million when compared with fiscal 2019. The Company records most of its revenue over time as it completes performance obligations. We measure progress for performance obligations satisfied over time using input methods (e.g., labor hours expended and time elapsed). Our fiscal 2020 revenues were generated by product mix that included certain customer projects with little or no margin which has consumed a higher number of actual labor hours than originally estimated to complete over the past fiscal year. The higher actual labor hours had the effect of consuming more available hours, which could have been allocated to higher margin projects. This set of conditions has had a negative impact on revenue recognition and cost of sales primarily in our defense markets during fiscal 2020. Our defense backlog, however, remains strong as new orders for components continue to flow from
prime defense contractors. Remaining performance obligations reflect future revenue that will be recorded in subsequent periods as projects in progress are completed. AtMarch 31, 2020 , the Company had$16.8 million of remaining performance obligations, an increase of$4.2 million when compared withMarch 31, 2019 .
Cost of Sales and Gross Margin
Cost of sales consists primarily of raw materials, parts, labor, overhead and
subcontracting costs. Our cost of sales for fiscal 2020 were
In fiscal 2020, gross profit and gross margin were impacted by an increase of$1.0 million in cost of sales for losses on certain customer projects. The fiscal 2020 period was also marked by a higher number of new project startup activities, and more labor hours allocated to less profitable projects. Fiscal 2019 included a higher margin product mix and better overhead absorption in the fabrication and machining plants.
Selling, General and Administrative Expenses
Total selling, general and administrative expenses for the fiscal year endedMarch 31, 2020 increased by approximately$39,000 due primarily to an increase in legal fees associated with the claims settlement discussed below. This increase was almost entirely offset by decreases in compensation, benefits
and travel expenses. 20
Provision for Claims Settlement
We agreed to settle all outstanding claims for$495,000 under a civil action brought by former employees against the Company for past wages claimed under a paid time-off program. The settlement will be paid within 60 days following Court approval of the settlement. The Company was released from all claims raised in this litigation under the Massachusetts Wage Act. Other Income (Expense) InJanuary 2020 , as previously disclosed, we repaid in full our indebtedness under a capital equipment loan. This action reduced our debt load and overall interest rates on debt, and, as a result, interest expense and debt cost amortization will, barring any change to our indebtedness, including any change in response to the effects of the COVID-19 pandemic, continue to be lower moving forward into fiscal 2021. Fiscal 2020 includes a gain from the sale of retired machinery for$16,000 . Fiscal 2019 other income includes a gain from the disposal of retired fixed assets for$31,878 . The following table reflects other income, interest expense and amortization of debt issue costs for the fiscal years endedMarch 31 : 2020 2019 $ Change % Change Other income, net$ 22,750 $ 41,033 $ (18,283 ) (45 )% Interest expense$ (236,574 ) $ (299,579 ) $ 63,005
21 %
Amortization of debt issue costs
Income Taxes For fiscal year 2020 the Company recorded a tax benefit of$73,041 and in fiscal year 2019 tax expense of$423,357 . The fiscal 2020 tax benefit was primarily driven by pre-tax operating losses and certain permanent differences. 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 atMarch 31, 2020 was approximately$1.7 million . We believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management's estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company's effective tax rate. Net (Loss) Income As a result of the foregoing, for fiscal 2020, we recorded a net loss of$0.3 million , or$0.01 per share basic and fully diluted, compared with net income of$1.1 million , or$0.04 per share basic and fully diluted in fiscal 2019.
Liquidity and Capital Resources
OnJanuary 16, 2020 , as previously disclosed,TechPrecision throughRanor repaid in fullRanor's indebtedness under Schedule No. 002 to that certainMaster Loan and Security Agreement No. 4180, or the MSLA, withPeople's Capital and Leasing Corp. , or People's. Under Schedule 002 to the MSLA,Ranor had borrowed an initial principal amount of$365,852 , secured by certain machinery and equipment. The loan was required to be repaid in monthly installments of principal and interest of$7,399 over 60 months. Upon the payment of approximately$147,000 , which amount included a 1% prepayment penalty of approximately$1,400 , all commitments under Schedule 002 to the MSLA were terminated, and People's discharged and released all guarantees and liens existing in connection with such loan, thereby terminating such loan agreement schedule. OnJanuary 17, 2020 , the Company, throughRanor , repaid in fullRanor's indebtedness under Schedule 001 to the MSLA. Under Schedule 001 to the MSLA,Ranor had borrowed an initial principal amount of$3,011,648 , secured by certain machinery and equipment. The loan was required to be repaid in 60 monthly installments of$60,921 each, inclusive of interest at a fixed rate of 7.90% per annum. Upon the payment of approximately$936,000 , which amount included a 1% prepayment penalty of approximately$9,200 , all commitments under Schedule 001 to the MSLA were terminated, and People's discharged and released all guarantees and liens existing in connection with such loan, thereby terminating such loan agreement schedule. As all previously outstanding obligations under the MSLA have been satisfied in full,Ranor is no longer bound by any material terms
of the MSLA.
Net cash provided by operating activities was$0.7 million for fiscal 2020. AtMarch 31, 2020 , we had cash and cash equivalents of$0.9 million and working capital of$5.6 million . 21 We have a Revolver Loan withBerkshire Bank available as a resource, if necessary, and onApril 3, 2020 drew down$1.0 million under this facility for working capital purposes. We believe our available cash plus cash provided from operations will be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the 12 months from the issuance date of our financial statements. However, in light of further potential disruption to our business or the national economy as a result of the COVID-19 pandemic and resulting government-imposed lockdowns, we may determine that we need to make an additional draw of funds under our Revolver Loan or seek alternative sources of funding. In light of the foregoing uncertainty caused by the COVID-19 pandemic, the Company determined it necessary to obtain additional funds. As previously disclosed, onMay 8, 2020 , the Company, throughRanor , issued the Payroll Protection Program Note, or PPP Note, evidencing an unsecured loan in the amount of$1,317,100 made toRanor under the PPP, which was established under the federal Coronavirus Aid, Relief, and Economic Security Act and is administered by theU.S. Small Business Administration . The loan toRanor was made throughBerkshire Bank . The PPP Note provides for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are payable monthly in equal installments commencing on the date that is six months after the date funds are first disbursed on the loan and continuing through the maturity date, unless the PPP Note is forgiven. To be available for loan forgiveness, the PPP Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that existed beforeFebruary 15, 2020 . The table below presents selected liquidity and capital measures at the fiscal years ended: March 31, March 31, Change (dollars in thousands) 2020 2019 Amount Cash and cash equivalents$ 931 $ 2,037 $ (1,106 ) Working capital$ 5,595 $ 6,250 $ (655 ) Total debt$ 2,587 $ 4,297 $ (1,710 ) Total stockholders' equity$ 9,469 $ 9,711 $ (242 )
The next table summarizes cash provided by (used in) by primary component in the cash flows statements for the fiscal years ended:
March 31, March 31, Change (dollars in thousands) 2020 2019 Amount Operating activities$ 677 $ 531 $ 146 Investing activities (40 ) (411 ) 371 Financing activities (1,743 ) (772 ) (971 ) Net decrease in cash$ (1,106 ) $ (652 ) $ (454 ) Berkshire Bank Loan Facility OnDecember 23, 2019 we entered into a Third Modification to Loan Agreement, or the Third Modification, and an Amended and Restated Promissory Note withBerkshire Bank . The Third Modification amended and modified the Loan Agreement betweenRanor andBerkshire Bank datedDecember 20, 2016 , as amended by the First Modification to Loan Agreement datedJune 6, 2018 and the Second Modification to Loan Agreement and First Modification and Allonge to Promissory Note datedDecember 19, 2018 . Under the Third Modification,Ranor andBerkshire Bank agreed to increase the maximum principal amount available under the Revolver Loan from$1,000,000 to$3,000,000 , which is available for refinancing existing indebtedness and for working capital and general corporate purposes. Additionally, the parties agreed to lower the interest rate on advances made under the Revolver Loan based on LIBOR. Prior to the Third Modification, interest accrued on advances made under the Revolver Loan at a variable rate equal to the one-month LIBOR plus 275 basis points. Under the Third Modification, interest accrues on such advances at a variable rate equal to the one-month LIBOR plus 225 basis points. The Third Modification contains customary LIBOR replacement provisions.
The maturity date of the Revolver Loan remains
Operating activities Our primary sources of cash are from accounts receivable collections, customer advance payments and project progress payments. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments and customer payments made after shipment of finished goods. Cash provided by operations for fiscal 2020 and fiscal 2019 was$0.7 million and$0.5 million , respectively. 22 Favorable timing with customer advance payments and progress payments resulted in higher amounts of cash generated early in the fiscal 2020 period. Fiscal 2019 was marked by an increase in customer project activity which resulted in more cash expended to ramp up production offset in part by cash collected from customer advances and progress payments. Investing activities
We anticipate that we will spend approximately$0.5 million in new factory machinery and equipment over the next twelve months. Net cash used in investing activities totaled$39,831 for fiscal 2020. In fiscal 2019, we expended approximately$0.4 million for new factory machinery and equipment, offset in part by proceeds of$35,309 from the disposition of machinery and equipment. Financing activities
In fiscal 2020, we used
All of the above activity resulted in a net decrease in cash of
The following table sets forth information as ofMarch 31, 2020 as to our contractual obligations: Payments due by period (dollars in thousands) Less than 1 After 5 Contractual Obligations Total Year 1-3 Years 3-5 Years Years Debt obligations$ 2,587 $ 110$ 2,477 $
- $ - Interest on debt 233 135 98 - - Employee compensation 384 384 - - -
Purchase obligations 1,095 1,095 -
- - Claims settlement 495 495 - - - Total$ 4,794 $ 2,219 $ 2,575 $ - $ -
Off-Balance Sheet Arrangements
We do not currently have, and have not had during the fiscal year ended
EBITDA Non-GAAP Financial Measure
To complement our consolidated statements of operations and comprehensive income and consolidated statements of cash flows, we use EBITDA, a non-GAAP financial measure. Net income is the financial measure calculated and presented in accordance withU.S. GAAP that is most directly comparable to EBITDA. We believe EBITDA provides our board of directors, management and investors with a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We also believe that EBITDA is a measure frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, and is a measure contained in our debt covenants. However, while we consider EBITDA to be an important measure of operating performance, EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. We define EBITDA as net income plus interest, income taxes, depreciation and amortization. Net loss was$0.3 million for the fiscal year endedMarch 31, 2020 , as compared to net income of$1.1 million for the year endedMarch 31, 2019 . EBITDA, a non-GAAP financial measure, was$0.6 million for the year endedMarch 31, 2020 , as compared to$2.6 million for the year endedMarch 31, 2019 . The following table provides a reconciliation of EBITDA to net income, the most directly comparable GAAP measure reported in our consolidated financial statements for the fiscal years ended: 23 March 31, March 31, Change (dollars in thousands) 2020 2019 Amount Net (loss) income$ (342 ) $ 1,101 $ (1,443 ) Income tax (benefit) expense (73 ) 423 (496 ) Interest expense (1) 296 355 (59 ) Depreciation 718 750 (32 ) EBITDA$ 599 $ 2,629 $ (2,028 )
(1) Includes amortization of debt issue costs.
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