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Dynamic quotes 
OFFON

TECHPRECISION CORPORATION

(TPCS)
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TECHPRECISION : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

02/11/2021 | 04:23pm EDT

Statement Regarding Forward Looking Disclosure




The following discussion of the results of our operations and financial
condition should be read in conjunction with our condensed consolidated
financial statements and the related notes, which appear elsewhere in this
Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including
this section 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 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 balance the composition of our revenues and effectively control

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;

· 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;

· the risk that the proposed acquisition of Stadco may not be completed in a

timely manner or at all, which may adversely affect the Company's business and

the price of Company's common stock;

· the failure of either party to satisfy any of the conditions to the

consummation of the proposed acquisition of Stadco and uncertainties as to the

timing of the consummation of the proposed acquisition;

· the occurrence of any event, change or other circumstance that could give rise

to the termination of the securities purchase agreement governing the

acquisition of Stadco;

· the effect of the announcement or pendency of the proposed acquisition of

Stadco on the Company's business relationships, operating results and business

generally;

· risks related to diverting management's attention from the Company's ongoing

business operations;

· unexpected costs, charges or expenses resulting from the proposed acquisition

of Stadco; and

· those risks discussed in "Item 1A. Risk Factors" and elsewhere in our 2020

Annual Report on Form 10-K, as well as those described in any other filings

    which we make with the SEC.



Any forward-looking statements speak only as of the date on which they are made,
and we undertake no obligation to publicly update or revise any forward-looking
statements to reflect events or circumstances that may arise after the date of
this Quarterly Report on Form 10-Q, except as required by applicable law.
Investors should evaluate any statements made by us in light of these important
factors.



Overview



Contract Manufacturing


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.



                                       15




All manufacturing is done in accordance with our written quality assurance
program, which meets specific national and international codes, standards, and
specifications. Ranor holds several certificates of authorization issued by the
American Society of Mechanical Engineers and the National Board of Boiler and
Pressure Vessel Inspectors. The standards used are specific to the customers'
needs, and our manufacturing operations are conducted in accordance with these
standards.



Because our revenues are derived from the sale of goods manufactured pursuant to
a contract, and we do not sell from inventory, it is necessary for us to
constantly seek new contracts. There may be a time lag between our completion of
one contract and commencement of work on another contract. During such periods,
we may continue to incur overhead expense but with lower revenue resulting in
lower operating margins. Furthermore, changes in either the scope of an existing
contract or related delivery schedules may impact the revenue we receive under
the contract and the allocation of manpower. Although we provide manufacturing
services for large governmental programs, we usually do not work directly for
the government or its agencies. Rather, we perform our services for large
governmental contractors. Our business is dependent in part on the continuation
of governmental programs which require our services and products.



Our contracts are generated both through negotiation with the customer and from
bids made pursuant to a request for proposal. Our ability to receive contract
awards is dependent upon the contracting party's perception of such factors as
our ability to perform on time, our history of performance, including quality,
our financial condition and our ability to price our services
competitively. Although some of our contracts contemplate the manufacture of one
or a limited number of units, we continue to seek more long-term projects with
predictable cost structures.



Financial Results



Our results of operations are affected by a number of external factors including
the availability of raw materials, commodity prices (particularly steel),
macroeconomic factors, including the availability of capital that may be needed
by our customers, and political, regulatory and legal conditions in the United
States and in foreign markets. Generally, our projects are made up of short-term
contracts with a production timeline that can range from three to as much as
thirty-six months. Units manufactured under the majority of our customer
contracts are delivered on time and with a positive gross margin. Our results of
operations for any specific period 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.



If revenue for a particular quarter is below our expectations, we may not be
able to proportionally reduce operating expenses for that quarter. Therefore, a
revenue shortfall would have a disproportionate effect on our operating results
for that quarter. We have reported operating losses in four of the last seven
quarters. In Fiscal 2020 we reported a loss from operations of $0.1 million, due
primarily to an increase in cost of sales for losses on certain customer
projects. Until we complete and deliver the final units from these projects,
they will continue to dampen gross margin in future quarterly periods.



For the nine months ended December 31, 2020, our net sales and net income were
$11.6 million and $0.1 million, respectively, compared with net sales of $11.1
million and net loss of $0.4 million for the nine months ended December 31,
2019. Our gross margin for the nine months ended December 31, 2020 and 2019 was
21.9% and 16.6%, respectively. We used $0.3 million of cash in operations for
the nine months ended December 31, 2020 and had a cash balance of $1.3 million
at December 31, 2020. Our sales order backlog at December 31, 2020 and March 31,
2020 was approximately $18.4 million and $16.8 million, respectively.



Acquisition of Stadco


We recently announced an agreement to purchase a company that manufactures
precision parts for the defense and aerospace industries. Incremental costs
incurred for due diligence as a result of this agreement could impact earnings
in future quarterly periods. Because of the size of this acquisition target
relative to our business, following closing, we expect to report that our
results of operations, cash flows and financial condition will differ materially
from those reported to date. The acquisition agreement is subject to certain
conditions, and may or may not be completed unless all of the conditions set
forth in the agreement are completed. Failure to successfully integrate and
realize the expected benefits of such acquisitions or to implement our
acquisition strategy, including successfully integrating acquired businesses,
could have an adverse effect on our business, financial condition and results of
operations.



                                       16





COVID-19


At the end of March 2020, the outbreak of coronavirus (COVID-19) had spread
worldwide as a pandemic. The full extent of the outbreak, related business and
travel restrictions and changes to social behavior intended to reduce its spread
remain uncertain and subject to change as the health crisis continues to evolve
in the U.S. and abroad. The directives imposed by federal, state and local
governments did not impair our ability to maintain operations during the first
nine months of fiscal 2021 as the Company was designated an "Essential Service."
The pandemic has nevertheless negatively affected certain of the Company's
customers, suppliers and labor force, and with the changing conditions as a
result of the COVID-19 outbreak, the impact on our operations and financial
results for the remainder of calendar year 2021 remains uncertain.



We and our customers have been designated essential services as national
critical infrastructure companies by the U.S. Department of Homeland Security.
Additionally, we believe that the long term outlook for the defense industry
remains positive as we continue to see meaningful opportunities in our defense
sector, primarily in the nuclear submarine business for the next twelve months
and beyond.



Critical Accounting Policies


The preparation of the condensed consolidated financial statements requires that
we make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We base our estimates on historical experience and various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. We continually evaluate our estimates, including those related to
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.



Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2020 Annual Report on 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 nine months ended December 31, 2020.




Accounting Pronouncements



New Accounting Standards



See Note 3, Accounting Standards Update, in the Notes to the condensed consolidated financial statements in "Item 1. Financial Statements" for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted.




Key Performance Indicators



While we prepare our financial statements in accordance with U.S. generally
accepted accounting principles, or U.S. GAAP, we also utilize and present
certain financial measures that are not based on or included in U.S. GAAP. We
refer to these as Non-GAAP financial measures.  Please see the section "EBITDA
Non-GAAP financial 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.


Three Months Ended December 31, 2020 and 2019




The following table sets forth information from our condensed consolidated
statements of operations and comprehensive (loss) income, in dollars and as a
percentage of revenue:



                                  December 31, 2020               December 31, 2019                   Changes
(dollars in thousands)          Amount          Percent         Amount          Percent        Amount        Percent
Net sales                     $     3,569            100 %    $     3,667            100 %    $     (98 )          (3 )%
Cost of sales                       2,864             80 %          3,353             91 %         (489 )         (15 )%
Gross profit                          705             20 %            314              9 %          391           124 %
Selling, general and
administrative                        716             20 %            663             18 %           53             8 %
Loss from operations                  (11 )            - %           (349 )           (9 )%         338            97 %
Other expense, net                    (50 )           (1 )%           (69 )           (2 )%          19            28 %
Loss before taxes                     (61 )           (2 )%          (418 )          (11 )%         357            85 %
Income tax benefit                    (13 )           (1 )%           (98 )           (3 )%          85            87 %
Net loss                      $       (48 )           (1 )%   $      (320 )           (8 )%   $     272            85 %




                                       17





Net Sales



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).



Net sales were $3.6 million for the three months ended December 31, 2020, or 3%
lower when compared to net sales for the three months ended December 31, 2019 of
$3.7 million. Net sales in our defense markets decreased by $0.3 million when
compared to the three months ended December 31, 2019. However, our defense
backlog remains strong as new orders for components continue to flow down from
our prime defense contractors. Net sales to other commercial markets increased
by $0.2 million when compared to the three months ended December 31, 2019,
primarily on new projects for components built for a certain nuclear energy
customer. We have experienced repeat business in these markets, but the order
flow is uneven and difficult to forecast.



Cost of Sales and Gross Margin




Cost of sales consists primarily of raw materials, parts, labor, overhead and
subcontracting costs. Cost of sales for the three months ended December 31, 2020
were $0.5 million lower when compared to the three months ended December 31,
2019, primarily because of the absence of any significant contract losses. The
fiscal 2020 third quarter included a higher loss provision for certain customer
projects.


As a result, gross profit was $0.7 million for the three months ended December 31, 2020, or $0.4 million higher when compared to the three months ended December 31, 2019. Gross margin was 19.8% for the three months ended December 31, 2020 and 8.6% for the three months ended December 31, 2019.




We continue to solve learning-curve challenges on a limited number of projects
in the manufacturing schedule which had an unfavorable financial impact in
fiscal 2020. Progress notwithstanding, until we complete and deliver the final
units from these projects, they could have an unfavorable impact on gross margin
in future quarterly periods.


Selling, General and Administrative Expenses




Total selling, general and administrative expenses for the three months ended
December 31, 2020 increased by $54,172 compared to the three months ended
December 31, 2019, due primarily to an increase in outside advisory services,
which included expenses for the proposed Stadco acquisition.



Other Expense, net



Interest expense was lower for the three months ended December 31, 2020 when
compared to the three months ended December 31, 2019, and should continue to be
lower than the prior year, barring any additional borrowings for working capital
purposes under our revolving credit facility, or any new credit facility to meet
our changing capital resource needs. Debt issue costs increased as the Company
began to amortize costs associated with increasing the borrowing limit under the
Revolver loan with Berkshire bank and borrowings under the payroll protection
program, or PPP. The following table reflects other income and expense, interest
expense and amortization of debt issue costs for the three months ended:



                                         December 31, 2020       December 31, 2019       $ Change        % Change
Other (expense) income, net             $              (219 )   $               185     $      (404 )          (218 )%
Interest expense                        $           (36,391 )   $           (58,817 )   $    22,426              38 %
Amortization of debt issue costs        $           (14,014 )   $          
(10,511 )   $    (3,503 )           (33 )%




Income Taxes


For the three months ended December 31, 2020 and December 31, 2019, we recorded a tax benefit of $13,369 and $97,734, respectively. The tax benefit was the result of an operating loss.



Net Loss


As a result of the foregoing, for the three months ended December 31, 2020, we
recorded a net loss of $48,172, compared with a net loss of $319,770 for the
three months ended December 31, 2019.



                                       18




Nine Months Ended December 31, 2020 and 2019




The following table sets forth information from our condensed consolidated
statements of operations and comprehensive (loss) income, in dollars and as a
percentage of revenue:



                                  December 31, 2020               December 31, 2019                   Changes
(dollars in thousands)          Amount          Percent         Amount          Percent        Amount        Percent
Net sales                     $    11,566            100 %    $    11,075            100 %    $     491             4 %
Cost of sales                       9,035             78 %          9,238             83 %         (203 )          (2 )%
Gross profit                        2,531             22 %          1,837             17 %          694            38 %
Selling, general and
administrative                      2,206             19 %          2,145             19 %           61             3 %
Income (loss) from
operations                            325              3 %           (308 )           (3 )%         633           206 %
Other expense, net                   (159 )           (1 )%          (197 )           (2 )%          38            20 %
Income (loss) before taxes            166              2 %           (505 )
          (5 )%         671           133 %
Income tax expense
(benefit)                              60              1 %           (115 )           (1 )%         175           152 %
Net income (loss)             $       106              1 %    $      (390 )           (4 )%   $     496           127 %




Net Sales



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).



Changes in net sales generally reflect a different product mix and project
volume when comparing the current and prior year periods. Net sales were 4%
higher for the nine months ended December 31, 2020 when compared to net sales
for the nine months ended December 31, 2019. For the nine months ended
December 31, 2020, net sales in our defense markets decreased by $0.4 million
when compared to the nine months ended December 31, 2019. However, our defense
backlog remains strong as new orders for components continue to flow down from
our prime defense contractors. Net sales to other commercial markets increased
by $0.9 million when compared to the nine months ended December 31, 2019 on
projects completed for customers in the nuclear energy and medical markets. We
have experienced repeat business in this sector, but the order flow can be
uneven and difficult to forecast.



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 the nine months ended December 31,
2020 were $0.2 million lower when compared to the nine months ended December 31,
2019, primarily on the absence of any significant contract losses. The fiscal
2020 nine month period was marked by new project startup activities and higher
provisions for contract losses.



Gross profit was $2.5 million for the nine months ended December 31, 2020, or
38% higher when compared to the nine months ended December 31, 2019. Gross
margin was 21.9% for the nine months ended December 31, 2020 and 16.6% for the
nine months ended December 31, 2019.



Selling, General and Administrative Expenses




Total selling, general and administrative expenses for the nine months ended
December 31, 2020 increased by $60,684 as an increase in compensation and office
costs more than offset a decrease in travel expenses when compared to the nine
months ended December 31, 2019.



Other Expense, net


Interest expense was lower for the nine months ended December 31, 2020 when
compared to the nine months ended December 31, 2019, and should continue to be
lower than the prior year, barring any additional borrowings for working capital
purposes under our revolving credit facility, or any new credit facility to meet
our changing capital resource needs. Debt issue costs increased as we began to
amortize costs associated with amendments to the existing Berkshire loan
agreement bank and new borrowings under the payroll protection program, or PPP.



Other income for the nine months ended December 31, 2019 included proceeds from
the sale of machinery and equipment of $16,000. The following table reflects
other income, interest expense and amortization of debt issue costs for the
nine
months ended:



                                         December 31, 2020       December 31, 2019       $ Change       % Change
Other income, net                       $             1,237     $            21,063     $  (19,826 )           (94 )%
Interest expense                        $          (114,786 )   $          (187,167 )   $   72,381              39 %
Amortization of debt issue costs        $           (45,099 )   $          
(31,280 )   $  (13,819 )           (44 )%




                                       19





Income Taxes



For the nine months ended December 31, 2020 we recorded tax expense of $60,573
and a tax benefit of $115,092 for the nine months ended December 31, 2019. The
tax benefit for the nine months ended December 31, 2019 was the result of an
operating loss.



The valuation allowance on deferred tax assets at December 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 Income (Loss)


As a result of the foregoing, for the nine months ended December 31, 2020, we
recorded net income of $0.1 million, compared with a net loss of $0.4 million
for the nine months ended December 31, 2019.



Liquidity and Capital Resources

Small Business Administration Loan




On May 8, 2020, the Company, through Ranor, issued a promissory note, or the
Note, evidencing an unsecured loan in the amount of $1,317,100 made to Ranor
under the Paycheck Protection Program, or the PPP. The PPP was established under
the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and is
administered by the U.S. Small Business Administration, or the SBA. The loan to
Ranor was made through Berkshire Bank.



The 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 approximately six months after
the date funds are first disbursed on the loan and continuing through the
maturity date, unless the Note is forgiven as described below. To be available
for loan forgiveness, the 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 before February 15, 2020. The Note may be prepaid
at any time prior to maturity with no prepayment penalties and contains events
of default and other conditions customary for a Note of this type.



Under the terms of the CARES Act, PPP loan recipients can apply for and be
granted forgiveness for all or a portion of loan granted under the PPP, with
such forgiveness to be determined, subject to limitations, based on the use of
the loan proceeds for payment of payroll costs, certain group health care
benefits and insurance premiums, and any payments of mortgage interest, rent,
and utilities. The terms of any forgiveness may also be subject to further
requirements in any regulations and guidelines the SBA may adopt. While the
Company currently believes that its use of the Note proceeds will meet the
conditions for forgiveness under the PPP, no assurance is provided that the
Company will obtain forgiveness of the Note in whole or in part.



On June 5, 2020, the PPP was amended to give borrowers more time to spend loan
proceeds and still obtain loan forgiveness. The amendments extended the length
of the covered period as defined in the CARES Act from eight to twenty-four
weeks, while allowing borrowers that received PPP loans before June 5, 2020 to
elect to use the original eight-week covered period. In addition, the amendments
provide that if the borrower does not apply for forgiveness of a loan within ten
months after the last day of the covered period, the PPP loan is no longer
deferred and the borrower must begin paying principal and interest. As provided
under the amendments, our first payment, if required, would not be due until
September 11, 2021.



Berkshire Term Loan Facility



On December 21, 2016, TechPrecision, through Ranor, closed on a Loan Agreement
with Berkshire Bank. Pursuant to the Berkshire Loan Agreement, Berkshire Bank
made a term loan to Ranor in the amount of $2,850,000, and made available to
Ranor a revolving line of credit of $1,000,000 under the Revolver Loan. The debt
matures on December 20, 2021, with a balloon payment of approximately $2.4
million due under the terms of the Term Loan with Berkshire bank. We anticipate
that we will be able to refinance that debt with Berkshire Bank.



On December 23, 2019, TechPrecision, through Ranor, entered into a Third
Modification to Loan Agreement, and an Amended and Restated Promissory Note with
Berkshire Bank. Under the Third Modification, Ranor and Berkshire agreed to
increase the maximum principal amount available under the Revolver Loan from
$1,000,000 to $3,000,000.


The Company borrowed $1.0 million under the Revolver Loan on April 3, 2020 and
repaid that principal on June 30, 2020. There were no borrowed amounts
outstanding under the Revolver Loan at December 31, 2020 and March 31, 2020.
Interest-only payments on advances made under the Revolver Loan during the nine
months ended December 31, 2020 totaled $6,664 at a weighted average interest
rate of 2.67%.



                                       20





On December 18, 2020, under the Fourth Modification, Ranor and Berkshire Bank
agreed to revise the minimum interest rate payable on the Revolver Loan. Under
the Line of Credit Note, the Company can elect to pay interest at an adjusted
LIBOR-based rate or an Adjusted Prime Rate. Under the Fourth Modification, the
minimum adjusted LIBOR-based rate is 2.75% and the Adjusted Prime Rate is the
greater of (i) the Prime Rate minus 70 basis points or (ii) 2.75%. Interest-only
payments on advances made under the Revolver Loan will continue to be payable
monthly in arrears. The maturity date of the Revolver Loan was also extended to
December 20, 2022. All other material terms of the Loan Agreement and Line of
Credit Note were unchanged. Unused borrowing capacity at December 31, 2020
was
$3.0 million.


At December 31, 2020, we had cash and cash equivalents of $1.3 million and
working capital of $4.2 million. We believe our available cash plus cash
expected to be provided by operations during fiscal 2021, and borrowing capacity
available under the Revolver Loan 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, following the closing of the acquisition of Stadco, or in
connection therewith, we may need to reevaluate our financing needs in light of
the significant changes we expect to the combined company's capital resource
needs. As a result, we may decide to seek new debt and/or equity financing.



The table below presents selected liquidity and capital measures at the
indicated dates:



                             December 31,       March 31,       Change
(dollars in thousands)           2020             2020          Amount
Cash and cash equivalents    $       1,255     $       931     $    324
Working capital              $       4,170     $     5,595     $ (1,425 )
Total debt                   $       3,823     $     2,587     $  1,236
Total stockholders' equity   $       9,694     $     9,469     $    225




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



                                    December 31,       December 31,      Change
(dollars in thousands)                  2020               2019          Amount
Cash flows provided by (used in):
Operating activities                $        (340 )   $          609     $  (949 )
Investing activities                         (547 )              (35 )      (512 )
Financing activities                        1,211               (642 )     1,853

Net increase (decrease) in cash $ 324 $ (68 ) $

 392




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,
progress payments and payments made after shipment of finished goods. Cash used
in operations for the nine months ended December 31, 2020 was $0.3 million
compared with cash provided by operations of $0.6 million for fiscal 2020.



We used cash in operations during the first nine months of fiscal 2021, as
accounts receivable and contract assets increased and contract liabilities
decreased due to a changing production mix. We have encountered some delayed
inspections, deliveries, and disrupted supply chain issues, due to travel
restrictions in connection with the COVID-19 pandemic. The future financial
impact of the COVID-19 pandemic cannot be reasonably estimated at this time as
its impact depends on future developments, which are highly uncertain and cannot
be predicted.



Investing activities


We do not anticipate any additional expenditures for new factory machinery and
equipment during the last quarter of fiscal 2021. Net cash used in investing
activities for purchases of property, plant and equipment in the nine months
ended December 31, 2020 and 2019 totaled $546,890 and $35,225, respectively. The
increase in the nine months ended December 31, 2020 occurred because the Company
purchased new robotic equipment during fiscal 2021.



                                       21





Financing activities



On May 8, 2020 we borrowed $1.3 million under the CARES Act payroll protection
program. On April 3, 2020 we borrowed $1.0 million under our Revolver loan, then
paid down $1.0 million in principal on June 30, 2020.



For the nine months ended December 31, 2020 and 2019 we made monthly principal
payments of $81,352 and $610,515 in connection with our term debt and finance
lease obligations.



All of the above activity resulted in a net increase in cash of $0.3 million for
the nine months ended December 31, 2020 compared with a decrease in cash of $0.1
million for the nine months ended December 31, 2019.



Off-Balance Sheet Arrangements

We do not currently have, and have not had, any off-balance sheet assets, liabilities or arrangements at December 31, 2020.

EBITDA Non-GAAP Financial Measure




To complement our condensed consolidated statements of operations and
comprehensive (loss) income and condensed consolidated statements of cash flows,
we use EBITDA, a non-GAAP financial measure. Net (loss) income is the financial
measure calculated and presented in accordance with U.S. GAAP that is most
directly comparable to EBITDA. We believe EBITDA provides our board of
directors, management and investors with a helpful measure for comparing our
operating performance with the performance of other companies that have
different financing and capital structures or tax rates. We also believe that
EBITDA is a measure frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in our industry, and is a
measure contained in our debt covenants. However, while we consider EBITDA to be
an important measure of operating performance, EBITDA and other non-GAAP
financial measures have limitations, and investors should not consider them in
isolation or as a substitute for analysis of our results as reported under GAAP.



We define EBITDA as net (loss) income plus interest, income taxes, depreciation
and amortization. EBITDA, a non-GAAP financial measure, was $0.8 million for the
nine months ended December 31, 2020, as compared to $0.3 million for the nine
months ended December 31, 2019. The following table provides a reconciliation of
EBITDA to net (loss) income, the most directly comparable GAAP measure reported
in our condensed consolidated financial statements for the following periods:



                           Three Months ended December 31,                      Nine Months ended December 31,
(dollars in
thousands)            2020              2019              Change           2020              2019             Change
Net (loss)
income             $       (48 )     $      (320 )     $        272     $       106       $      (390 )     $       496
Income tax
(benefit)
expense                    (13 )             (98 )               85              61              (115 )             176
Interest expense
(1)                         50                69                (19 )           160               218               (58 )
Depreciation and
amortization               182               168                 14             521               548               (27 )
EBITDA             $       171       $      (181 )     $        352     $       848       $       261       $       587

(1) Includes amortization of debt issue costs.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 15,6 M - -
Net income 2021 0,32 M - -
Net Debt 2021 1,69 M - -
P/E ratio 2021 127x
Yield 2021 -
Capitalization 38,8 M 38,8 M -
EV / Sales 2020 2,42x
EV / Sales 2021 2,51x
Nbr of Employees 93
Free-Float 87,5%
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Managers and Directors
Alexander Shen Chief Executive Officer
Thomas C. Sammons Chief Financial Officer
Richard S. McGowan Non-Executive Chairman
Andrew A. Levy Independent Director
Robert A. Crisafulli Independent Director
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