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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)

08/12/2021 | 04:21pm 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;

                                       16

Table of Contents

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 our 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.

All manufacturing is done in accordance with our written quality assurance
program, which meets specific national and international codes, standards, and
specifications. 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.

                                       17

  Table of Contents

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.

For the three months ended June 30, 2021, we recorded net sales and net income
of $3.4 million and $1.4 million, compared with net sales of $3.3 million and
net loss of $0.1 million, for the three months ended June 30, 2020. Our gross
margin for the three months ended June 30, 2021 was 24.4% compared with gross
margin of 21.2% for the three months ended June 30, 2020.

On May 12, 2021, as authorized by Section 1106 of the Coronavirus Aid, Relief,
and Economic Security Act, or the CARES Act, the Small Business Administration,
or the SBA, remitted to Berkshire Bank, the lender of record, a payment of
principal and interest in the amount of $1,317,100 and $13,207, respectively,
for forgiveness of the Company's Paycheck Protection Program loan or PPP loan.
The funds credited to the bank paid this loan off in full. Loan forgiveness is
recorded as a gain in the condensed consolidated statement of operations.

Critical Accounting Estimates

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 vary under different assumptions or conditions.

We consider the principles and estimates applied for revenue recognition to be
one of the most critical accounting estimates that we make. Our revenue can
fluctuate from quarter-to-quarter as we measure revenue recognition over the
duration of a project, or at the end of the project. The Company records most of
its revenue over time as it completes performance obligations or at a
point-in-time, for example, at the delivery date, when control of the promised
goods are transferred to the customer. Project volume for revenue recognized at
a point-in-time is generally smaller, can fluctuate from period to period, and
is difficult to forecast.

We measure progress for performance obligations satisfied over time using input
methods, for example, labor hours expended and time elapsed. As a result,
assuming a steady flow of project volume and labor hours, we have the ability to
deliver a fair and accurate flow of revenue over time. When project volume is
higher or lower, we may report higher or lower amounts of revenue for those
given quarterly periods.

Our significant accounting policies are set forth in detail in Note 2 to the
consolidated financial statements included in the 2021 Annual Report on
Form 10-K. There have been no significant changes to our critical accounting
policies during the three months ended June 30, 2021.

                                       18

  Table of Contents

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.

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 June 30, 2021 and 2020


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


                                           June 30, 2021         June 30, 2020            Changes
(dollars in thousands)                   Amount     Percent    Amount     Percent    Amount     Percent
Net sales                                $ 3,412        100 %  $ 3,283        100 %  $   129          4 %
Cost of sales                              2,579         76 %    2,586         79 %      (7)          - %
Gross profit                                 833         24 %      697         21 %      136         20 %
Selling, general and administrative          733         21 %      793         24 %     (60)        (8) %
Operating income (loss)                      100          3 %     (96)     
  (3) %      196        204 %
Other income, net                             11          - %        1          - %       10         nm %
Interest expense                            (30)        (1) %     (58)        (2) %       28         48 %
PPP loan forgiveness                       1,317         39 %        -          - %    1,317         nm %
Income (loss) before taxes                 1,398         41 %    (153)        (5) %    1,551         nm %
Income tax provision (benefit)                27          1 %     (37)     
  (1) %       64        173 %
Net income (loss)                        $ 1,371         40 %  $ (116)        (4) %  $ 1,487         nm %


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 $3.4 million
for the three months ended June 30, 2021, or 4% higher when compared to net
sales for the three months ended June 30, 2020. For the three months ended
June 30, 2021, net sales in our defense markets decreased by $0.1 million or 3%
when compared to the three months ended June 30, 2020. Our defense backlog
remains strong as new orders for components, including the U.S Navy submarine
programs, continue to flow down from our prime defense contractors as these
submarine-building programs accelerate.

Net sales to industrial markets increased by $0.2 million when compared to the
three months ended June 30, 2020, due primarily to a higher level of project
volume. We have repeat business in this sector, but the order flow can be uneven
and difficult to forecast.

For the three months ended June 30, 2021, revenue recognized over time was $3.1
million, an increase of 3% when compared to the three months ended June 30,
2020. Fiscal 2022 first quarter revenue recognized over time was generated by a
favorable project mix with profitable gross margins.

                                       19

Table of Contents


Remaining performance obligations reflect future revenue that will be recorded
in subsequent periods as projects in progress are completed. At June 30, 2021
the Company had a backlog of $17.6 million, compared with a backlog of $18.6
million at March 31, 2021.

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 three months ended June 30, 2021
was $2.6 million, slightly lower when compared to the three months ended
June 30, 2020.

Project throughput was better for the three months ended June 30, 2021 than the
same quarter a year ago. Decreases in labor costs and factory overhead, more
than offset higher material costs for the three months ended June 30, 2021.

Gross margin was 24.2% for the three months ended June 30, 2021 and 21.2% for the three months ended June 30, 2020. Gross profit was $0.8 million for the three months ended June 30, 2021, or 20% higher when compared to the three months ended June 30, 2020, the result of higher revenue and lower cost of sales.

Selling, General and Administrative Expenses


Total selling, general and administrative expenses for the three months ended
June 30, 2021 decreased by $60,754 due to lower compensation and benefit costs,
and lower spending for outside advisory services. These decreases more than
offset an increase in travel and office costs as coronavirus travel restrictions
began to subside in the first quarter of fiscal 2022.

Other Expense, net

The following table reflects interest expense, amortization of debt issue costs and other income, net for the three months ended:


                                                 June 30, 2021      June 30, 2020     $Change     % Change
Other income, net                               $        10,390    $           652    $  9,738          nm
Interest expense                                $      (21,054)    $      (42,757)    $ 21,703          51 %
Amortization of debt issue costs                $       (8,824)    $      (15,141)    $  6,317          42 %


nm - not meaningful

Interest expense and amortized debt issue costs were lower for the three months
ended June 30, 2021, due to lower levels of debt, when compared to the three
months ended June 30, 2020. The interest expense line includes a reversal of
accrued interest of $11,692 for the PPP loan, which was forgiven in May 2021.
Also, the three months ended June 30, 2020 included $6,664 of interest expense
for borrowings under the revolver loan. There were no amounts outstanding under
the revolver loan during the three months ended June 30, 2021. Other income for
the three months ended June 30, 2021 includes a return of $10,000 for a retainer
fee previously paid for outside advisory fees in connection with a class action
settlement in March 2021.

PPP Loan Forgiveness

On May 12, 2021, as authorized by Section 1106 of the CARES Act, the SBA remitted to Berkshire Bank, the lender of record, a payment of principal in the amount of $1,317,100, for forgiveness of the Company's PPP loan. The funds credited to the PPP loan paid this loan off in full.

Income Taxes


For the three months ended June 30, 2021 we recorded a tax provision of $26,580,
compared to a tax benefit of $37,360 for the three months ended June 30, 2020.
This resulted from our generation of net income during the three months ended
June 30, 2021, compared to a net loss during the three months ended June 30,
2020.

                                       20

  Table of Contents

Net Income (Loss)

As a result of the foregoing, for the three months ended June 30, 2021, we recorded net income of $1.4 million compared to a net loss of $0.1 million for the three months ended June 30, 2020.

Liquidity and Capital Resources


At June 30, 2021, we had cash and cash equivalents of $2.2 million and working
capital of $5.5 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 expected capital expenditures
for our business as it exists today 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 expect our financing needs
to increase in light of the significant changes we expect to the combined
Company's capital resource needs. As a result, we expect to seek new debt and/or
equity financing.

There were no borrowed amounts outstanding under the revolver loan at June 30,
2021 and March 31, 2021. Unused borrowing capacity at June 30, 2021 was $3.0
million. The maturity date of the revolver loan is December 20, 2022.

The Company intends to refinance the term loan with Berkshire Bank. There is a
balloon payment of $2.4 million due on December 20, 2021 under the term loan
with Berkshire Bank. We expect to refinance this debt with the bank before the
maturity date. Until then, the Company will continue to pay down principal and
make interest payments in the ordinary course.

The table below presents selected liquidity and capital measures for the period
ended:




                                                                      Change
(dollars in thousands)         June 30, 2021      March 31, 2021      Amount
Cash and cash equivalents     $         2,236    $          2,131    $     105
Working capital               $         5,501    $          5,202    $     299
Total debt                    $         2,485    $          3,829    $ (1,344)
Total stockholders' equity    $        11,346    $          9,942    $   1,404




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




                                                                                               Change
(dollars in thousands)                                   June 30, 2021      June 30, 2020       Amount
Cash flows provided by (used in):
Operating activities                                    $           137    $         (369)    $     506
Investing activities                                                (4)               (42)           38
Financing activities                                               (27)              1,282      (1,309)
Net increase in cash and cash equivalents               $           106   
$           871    $   (765)




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 the three months ended June 30, 2021 was $0.1 million compared
with cash used in operations of $0.4 million for the three months ended June 30,
2020. Cash outlays for the three months ended June 30, 2021 includes a payment
of $0.5 million to plaintiffs for a court approved final class action
settlement.

The first quarter of fiscal 2022 was marked by favorable project performance
progress and delivery schedules which generated higher amounts of cash, compared
to the same quarter of fiscal 2021. During our first quarter of fiscal 2021
we

                                       21

  Table of Contents

encountered some delayed inspections, delayed deliveries, and disrupted supply
chain, due to travel restrictions in connection with the COVID-19 pandemic. In
addition, we expended more direct labor hours on low margin projects. All of
these events resulted in a slower payment flow from customers during the first
quarter of fiscal 2021.

Investing activities
We anticipate that we will spend approximately $1.1 million in new factory
machinery and equipment for Ranor during the remainder of fiscal 2022. Net cash
used in investing activities for purchases of property, plant and equipment in
the three months ended June 30, 2021 and 2020 was $4,198 and $41,768,
respectively.

Financing activities

For the three months ended June 30, 2021 and 2020, we made paid down debt principal of $27,166 and $26,618 for our term debt and finance lease obligations.

On May 8, 2020 we borrowed $1.3 million under the CARES Act PPP. This PPP loan was forgiven by the SBA on May 12, 2021.


All of the above activity resulted in a net increase in cash of $0.1 million for
the three months ended June 30, 2021 compared with a net increase in cash of
$0.9 million for the three months ended June 30, 2020.

Small Business Administration PPP Loan


On May 8, 2020, the Company, through its wholly owned subsidiary Ranor, Inc.,
issued a promissory note evidencing an unsecured PPP loan in the amount of
$1,317,100 made to Ranor under the CARES Act. The PPP loan to Ranor was made
through Berkshire Bank.

Under the terms of the CARES Act, PPP loan recipients can apply for and be
granted forgiveness for all or a portion of loans 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 Company applied for loan forgiveness with the SBA under the Paycheck
Protection Program on March 26, 2021. On May 12, 2021, as authorized by Section
1106 of the CARES Act, the SBA remitted to Berkshire Bank, the lender of record,
a payment of principal and interest in the amount of $1,317,100 and $13,207,
respectively, for forgiveness of the Company's PPP loan. The funds credited to
the PPP loan paid this loan off in full. Loan forgiveness is recorded as a gain
under other income and expense in the condensed consolidated statement of
operations.

Off-Balance Sheet Arrangements

We do not currently have, and have not had, any off-balance sheet assets, liabilities or arrangements at June 30, 2021.

EBITDA Non-GAAP Financial Measure


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

                                       22

  Table of Contents

We define EBITDA as net income (loss) plus interest, income taxes, depreciation
and amortization. Net income was $1.4 million for the three months ended
June 30, 2021, as compared to net loss of $0.1 million for the three months
ended June 30, 2020. EBITDA, a non-GAAP financial measure, was $1.6 million for
the three months ended June 30, 2021, as compared to $0.1 million for the three
months ended June 30, 2020. The following table provides a reconciliation of
EBITDA to net income (loss), the most directly comparable GAAP measure reported
in our condensed consolidated financial statements for the three months ended:




                                                                        Change
(dollars in thousands)             June 30, 2021      June 30, 2020      Amount
Net income (loss)                 $         1,371    $         (116)    $  1,487
Income tax provision (benefit)                 27               (37)       
  64
Interest expense (1)                           30                 58        (28)
Depreciation                                  183                169          14
EBITDA                            $         1,611    $            74    $  1,537

(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 71,2 M 71,2 M -
EV / Sales 2020 2,43x
EV / Sales 2021 2,51x
Nbr of Employees 93
Free-Float 87,2%
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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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