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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-K)

06/10/2021 | 04:23pm EDT

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.



                                       17





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 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;

? 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 proposed

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 this Annual

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

  make with the SEC.



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



Overview


We offer a full range of services required to transform raw materials into
precision finished products. Our manufacturing capabilities include: fabrication
operations (cutting, press and roll forming, assembly, welding, heat treating,
blasting and painting) and machining operations including CNC (computer
numerical controlled) horizontal and vertical milling centers. We also provide
support services to our manufacturing capabilities: manufacturing engineering
(planning, fixture and tooling development, manufacturing), quality control
(inspection and testing), materials procurement, production control (scheduling,
project management and expediting) and final assembly.



All manufacturing is done in accordance with our written quality assurance
program, which meets specific national and international codes, standards, and
specifications. Ranor holds a certificate 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 that require our services and products.



                                       18




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 were generated in the U.S. and we continue to experience
customer concentration. For fiscal 2021, we had seven customers, who each
generated in excess of $1.0 million in revenue for the Company, which accounted
for approximately 89% of our revenue, in the aggregate. Our sales order backlog
at March 31, 2021 was approximately $18.6 million compared with a backlog of
$16.8 million at March 31, 2020.



For fiscal 2021, we recorded net sales and net income of $15.6 million and $0.3
million, respectively, compared with net sales of $16.0 million and net loss of
$0.3 million, for fiscal 2020. Our gross margin for fiscal 2021 was 22.2%
compared with gross margin of 19.6% in fiscal 2020. We generated $0.6 million of
cash from operating activities in fiscal 2021 and had a cash balance of $2.1
million at March 31, 2021.



Impact of COVID-19 Pandemic



As discussed above (see "Business - COVID-19 Pandemic Update"), the COVID-19
pandemic and the government-imposed lockdowns have affected our business. On
March 31, 2020, the Governor of the Commonwealth of Massachusetts, in which
jurisdiction the Company's manufacturing and executive offices are located,
issued an emergency order generally shutting down the economy. However, the
Company had been designated as a provider of a "COVID-19 Essential Service" and,
accordingly, has continued it operations during the pendency of the order, which
was rescinded on May 18, 2020.



Over the course of fiscal year 2021 and up to 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. Notwithstanding all of the above,
this set of circumstances has had a minor impact on the Company's production
levels, however if more employees were to become ill in the future, the Company
could experience a more significant disruption.



Nevertheless, our production facilities continued to operate 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 have not materially impaired our ability to maintain operations.
Accordingly, our results of operations and cash flows during the fiscal year
ended March 31, 2021 were not materially 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 future impact on our financial
condition and results of operations.



Proposed Acquisition of Stadco




In October 2020, we announced an agreement to purchase Stadco, 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.



                                       19





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 two main
industry groups: defense 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



Our Ranor subsidiary performs precision fabrication and machining for the
defense and aerospace industries, delivering defense components meeting our
customers' stringent design specifications, as well as quality and safety
manufacturing standards specifically for defense component fabrication and
machining. Ranor has in recent years delivered critical components in support
of, among other projects, the U.S. Navy's Virginia-class fast attack submarine
program and Columbia-class ballistic missile submarine program. In addition, the
team at Ranor has successfully developed new, effective approaches to
fabrication that continue to be utilized at our facility and at our customer's
own defense component manufacturing facilities. We have endeavored to increase
our business development efforts with large prime defense contractors. Based
upon these efforts, we believe there are 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, especially in connection with the submarine programs. We believe that the
military quality certifications Ranor maintains and its ability to offer
fabrication and manufacturing services at a single facility position it as an
attractive outsourcing partner for prime contractors looking to increase
outsourced production. 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 2022 as
well.



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.

For example, we manufacture large-scale medical device components for a customer in this group who installs their proprietary systems at certain medical institutions. In addition, we build components for customers in the power generation markets.




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.



Critical Accounting Policies




Our significant accounting policies are set forth in detail in Note 2 to the
consolidated financial statements included under "Item 8. Financial Statements
and Supplementary Data". 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 ended March 31,
2021.



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.



                                       20





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 over time using input methods (e.g., costs incurred, resources
consumed, labor hours expended, time elapsed).



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.



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.



As of March 31, 2021, our federal net operating loss carryforward was approximately $7.3 million. U.S. tax laws limit the time during which these carryforwards may be applied against future taxes.




The Company has recorded a net deferred tax asset of $1.9 million, which
includes the benefit of $2.2 million in loss carryforwards. 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.



                                       21





Accounting Pronouncements



New Accounting Standards


See Note 3, Accounting Standards Update, in the Notes to the Consolidated Financial Statements under "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 in the 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.
However, contracts for larger complex components can take up to thirty-six
months to complete. Units manufactured under the majority of our customer
contracts have historically been delivered on time and with a positive gross
margin, with some exceptions. Our results of operations are also affected by our
success in booking new contracts, the timing of revenue recognition, delays in
customer acceptances of our products, delays in deliveries of ordered products
and our rate of progress fulfilling obligations under our contracts. A delay in
deliveries or cancellations of orders could have an unfavorable impact on
liquidity, cause us to have inventories in excess of our short-term needs, and
delay our ability to recognize, or prevent us from recognizing, revenue on
contracts in our order backlog.



Key Performance Indicators


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


Fiscal Years Ended March 31, 2021 and 2020

The following table sets forth information from our Consolidated Statements of
Operations and Comprehensive Income (Loss), in dollars and as a percentage
of
revenue:



                                       2021                        2020                       Changes
(dollars in thousands)         Amount       Percent        Amount       Percent        Amount        Percent
Net sales                     $ 15,596           100 %    $ 16,007           100 %    $    (411 )          (3 )%
Cost of sales                   12,132            78 %      12,868            80 %         (736 )          (6 )%
Gross profit                     3,464            22 %       3,139            20 %          325            10 %
Selling, general and
administrative                   2,841            18 %       2,786            17 %           55             2 %
Provision for claims                --            -- %         495             3 %         (495 )        (100 )%
Operating income (loss)            623             4 %        (142 )          (1 )%         765           539 %
Other expense, net                (197 )          (1 )%       (273 )          (2 )%          76            28 %
Income (loss) before taxes         426             3 %        (415 )          (3 )%         841           203 %
Provision (benefit) for
income taxes                       105             1 %         (73 )          (1 )%         178           244 %
Net income (loss)             $    321             2 %    $   (342 )          (2 )%   $     663           194 %




Net Sales


Net sales were $15.6 million for fiscal 2021, or 3% lower when compared to net
sales for fiscal 2020 of $16.0 million. Net sales in defense markets decreased
by $0.7 million when compared to fiscal 2020, however, our defense backlog
remains strong as new orders for components continue to flow down from our
existing customer base of prime defense contractors. Net sales to industrial
markets increased by $0.3 million when compared with fiscal 2020 as a sales
increase to nuclear energy customers more than offset a decrease in sales to
medical markets. We have experienced repeat business in the industrial markets,
but the order flow can be uneven and difficult to forecast.



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). Fiscal 2021
revenue recognized over time was $12.9 million, an increase of 2% when compared
to fiscal 2020. Fiscal 2021 revenue recognized over time was generated by a
favorable product mix that included more customer projects with profitable gross
margins, consuming actual labor hours that were in-line with estimates to
complete.



                                       22





Remaining performance obligations reflect future revenue that will be recorded
in subsequent periods as projects in progress are completed. At March 31, 2021,
the Company had a backlog of $18.6 million, an increase of $1.8 million when
compared with March 31, 2020.



Cost of Sales and Gross Margin

Gross profit was $3.5 million for the fiscal year ended March 31, 2021, or 10%
higher when compared to the fiscal year ended March 31, 2020. Gross margin was
22.1% for the period ended March 31, 2021 and 19.6% for the period ended March
31, 2020.



Cost of sales consists primarily of raw materials, parts, labor, overhead and
subcontracting costs. Our cost of sales for the fiscal year ended March 31, 2021
were $0.7 million lower when compared to the fiscal year ended March 31, 2020.
The decrease in cost of sales was the result of lower contract losses and lower
material costs offset in part by an increase in under-applied overhead.



In fiscal 2020, our cost of sales included an increase in expense of $1.0
million for losses on certain customer projects, which dampened gross profit and
gross margin for the prior year period. 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.



Selling, General and Administrative Expenses




Total selling, general and administrative expenses for the fiscal year ended
March 31, 2021 increased by $55,549 as increases in expenses for share-based
compensation, employee benefits, and office costs more than offset a decrease in
professional fees and travel expenses due to the COVID-19 travel restrictions.



Provision for Claims Settlement




In fiscal 2020, we agreed to settle all outstanding claims for $495,000 under a
civil class action brought by former employees against the Company for past
wages claimed under a paid time-off program. The settlement was paid out in the
first quarter of fiscal 2022. The Company was released from all claims raised in
this litigation under the Massachusetts Wage Act.



Other Expense, net



Interest expense was lower for the fiscal year ended March 31, 2021 when
compared to the fiscal year ended March 31, 2020, and should continue to remain
at current levels, 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 decreased as certain costs
were retired in connection with amendments to the existing Berkshire loan
agreement. Fiscal 2020 included a gain from the sale of retired machinery for
$16,000. The following table presents costs for the fiscal years ended March 31:



                                      2021           2020        $ Change      % Change
Other income, net                  $    4,600     $   22,750     $ (18,150 )         (80 )%
Interest expense                   $ (150,938 )   $ (236,574 )   $  85,636            36 %
Amortization of debt issue costs   $  (51,399 )   $  (59,502 )   $   8,103 
          14 %




Provision for Income Taxes



For fiscal year 2021 the Company recorded tax expense of $104,880. In fiscal
2020, the Company recorded a tax benefit of $73,041. The fiscal 2021 tax expense
was driven by certain reversing temporary differences, which reduced the amount
of deferred tax assets.



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 March 31, 2021 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.



                                       23





Net Income (Loss)



As a result of the foregoing, for fiscal 2021, we recorded net income of $0.3
million, or $0.01 per share basic and fully diluted, compared with net loss of
$0.3 million, or $0.01 per share basic and fully diluted in fiscal 2020.



Liquidity and Capital Resources




At March 31, 2021, we had cash and cash equivalents of $2.1 million and working
capital of $5.2 million. We believe our available cash plus cash expected to be
provided by operations during fiscal 2022, 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 potential 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 fiscal
years ended:



                              March 31,       March 31,      Change
(dollars in thousands)          2021            2020         Amount
Cash and cash equivalents    $     2,131     $       931     $ 1,200
Working capital              $     5,202     $     5,595     $  (393 )
Total debt                   $     3,829     $     2,587     $ 1,242
Total stockholders' equity   $     9,942     $     9,469     $   473



The next table summarizes changes in cash by primary component in the cash flows statements for the fiscal years ended:



                                   March 31,       March 31,      Change
(dollars in thousands)               2021            2020         Amount
Operating activities              $       636     $       677     $   (41 )
Investing activities                     (608 )           (40 )      (568 )
Financing activities                    1,172          (1,743 )     2,915

Net increase (decrease) in cash $ 1,200 $ (1,106 ) $ 2,306




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 2021 was $0.6 million. Favorable timing
with customer advance payments and progress payments resulted in higher amounts
of cash generated in the fourth quarter of fiscal 2021. Fiscal 2020 was marked
by an increase in customer project activity which resulted in $0.7 million
of
cash provided by operations.



Investing activities



We invested approximately $0.6 million in new factory machinery and equipment in
fiscal 2021, and we estimate that we will spend approximately $1.1 million for
new machinery and equipment in fiscal 2022. In fiscal 2020, we expended
approximately $40,000 for new factory machinery and equipment.



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 fiscal year ended March 31, 2021 we made principal payments of $0.1 million in connection with our term debt and finance lease obligations.

In fiscal 2020, we used $1.6 million to repay in full Ranor's indebtedness under
a capital equipment loan with People's Capital and Leasing Corp. In addition, we
used $0.1 million for monthly principal payments in connection with our other
debt obligations.



                                       24




All of the above activity resulted in a net increase in cash of $1.2 million in fiscal 2021 compared with a decrease in cash of $1.1 million in fiscal 2020.

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 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. The Company
applied for loan forgiveness within the ten month period on March 26, 2021.



On May 12, 2021, the SBA remitted to Berkshire Bank, the lender of record of the
PPP loan, a payment of principal and interest in the amounts of $1,317,000 and
$13,207, respectively, for forgiveness of the Company's PPP loan. The funds
credited to the PPP loan pay this loan off in full.



Berkshire Bank 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, or the Term Loan, and
made available to Ranor a revolving line of credit of $1,000,000, or the
Revolver Loan. As amended, the Term Loan 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 March 31, 2021 and March 31, 2020.
Interest-only payments on advances made under the Revolver Loan during the
twelve months ended March 31, 2021 totaled $6,664 at a weighted average interest
rate of 2.67%.



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 March 31, 2021 was
$2.7
million.



                                       25





The following table sets forth information as of March 31, 2021 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 (1)      $ 3,829     $       3,792     $       27     $       10     $       -
Interest on debt              114               112              2              -             -
Employee compensation         496               496              -              -             -
Purchase obligations        1,286             1,286              -              -             -
Claims settlement             495               495              -              -             -
Total                     $ 6,220     $       6,181     $       29     $       10     $       -

(1) Includes the finance lease and the PPP loan for $1,317 which was forgiven by the SBA in May 2021.

Off-Balance Sheet Arrangements

We do not currently have, and have not had during the fiscal year ended March 31, 2021, any off-balance sheet assets, liabilities or arrangements.

EBITDA Non-GAAP Financial Measure




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



We define EBITDA as net income plus interest, income taxes, depreciation and
amortization. Net income was $0.3 million for the fiscal year ended March 31,
2021, as compared to net loss of $0.3 million for the year ended March 31, 2020.
EBITDA, a non-GAAP financial measure, was $1.3 million for the year ended March
31, 2021, as compared to $0.6 million for the year ended March 31, 2020. 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:



                                  March 31,       March 31,       Change
(dollars in thousands)              2021            2020          Amount
Net income (loss)                $       321     $      (342 )   $    663
Income tax provision (benefit)           105             (73 )        178
Interest expense (1)                     202             296          (94 )
Depreciation                             704             718          (14 )
EBITDA                           $     1,332     $       599     $    733

(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 40,9 M 40,9 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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