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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board - Other OTC  >  TechPrecision Corporation    TPCS

TECHPRECISION CORPORATION

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

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06/11/2020 | 04:25pm 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.



These forward-looking statements are based on current expectations, estimates
and projections made by management about our business, our industry and other
conditions affecting our financial condition, results of operations or business
prospects. These statements are not guarantees of future performance and involve
risks, uncertainties and assumptions that are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in, or implied by, the forward-looking statements due to numerous
risks and uncertainties. Factors that could cause such outcomes and results to
differ include, but are not limited to, risks and uncertainties arising from:



· our reliance on individual purchase orders, rather than long-term contracts,

to generate revenue;

· our ability to change the composition of our revenues and effectively reduce

operating expenses;

? external factors, including the COVID-19 pandemic, that may be outside of our

control;

? the impacts of the COVID-19 pandemic and government-imposed lockdowns in

response thereto;

· the availability of appropriate financing facilities impacting our operations,

financial condition and/or liquidity;

· our ability to receive contract awards through competitive bidding processes;




                                       15




· our ability to maintain standards to enable us to manufacture products to

exacting specifications;

· our ability to enter new markets for our services;

· our reliance on a small number of customers for a significant percentage of

our business;

· competitive pressures in the markets we serve;

· changes in the availability or cost of raw materials and energy for our

production facilities;

· operating in a single geographic location;

· restrictions in our ability to operate our business due to our outstanding

    indebtedness;
  · government regulations and requirements;
  · pricing and business development difficulties;
  · changes in government spending on national defense;

· our ability to make acquisitions and successfully integrate those acquisitions

with our business;

· general industry and market conditions and growth rates;

· general economic conditions; and

· those risks discussed in "Item 1A. Risk Factors" and elsewhere in this Annual

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

    make with 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 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 that require our services and products.



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



All of our sales recorded for fiscal 2020 and 2019 were generated in the U.S. We
have experienced, and continue to experience, customer concentration. For fiscal
2020 and fiscal 2019, our largest customer accounted for approximately 22% and
32% of reported net sales, respectively. For fiscal 2020, we had seven
customers, who each generated in excess of $1.0 million in revenue for the
Company, which accounted for approximately 88% of our revenue, in the aggregate.
Our sales order backlog at March 31, 2020 was approximately $16.8 million
compared with a backlog of $12.6 million at March 31, 2019.



For fiscal 2020, we recorded net sales and net loss of $16.0 million and $0.3
million, respectively, compared with net sales of $16.7 million and net income
of $1.1 million, for fiscal 2019. Our gross margin for fiscal 2020 was 19.6%
compared with gross margin of 27.6% in fiscal 2019. Our gross margin for the
fiscal year ended March 31, 2020 was impacted by higher cost of sales primarily
due to cost overruns on certain customer projects. Fiscal 2019 reflects a period
of efficient project throughput and lower unabsorbed overhead. We generated $0.7
million of cash from operating activities in fiscal 2020 and had a cash balance
of $0.9 million at March 31, 2020.



                                       16





Impact of COVID-19 Pandemic



As discussed above (see "Business - COVID-19 Pandemic Update"), the COVID-19
pandemic and the government-imposed lockdowns have begun to affect our business.
The Governor of the Commonwealth of Massachusetts, in which jurisdiction the
Company's manufacturing and executive offices are located, issued an emergency
order on March 31, 2020, updated on April 28, 2020, imposing an emergency order
generally shutting down the economy. However, the Company has been designated as
a provider of a "COVID-19 Essential Service" and, accordingly, has continued it
operations.



As of the date of this Annual Report on Form 10-K, the COVID-19 pandemic has
negatively affected the Company's customers, suppliers and labor force. With
respect to customers, management has observed impacts from certain of its
customers halting operations entirely for a period of time, shifting to remote
work, and suspending on-site inspections - which delays customer acceptance of
completed work, the making of milestone payments to us, and delivery of finished
goods. The Company believes that the potential exists for other customer
shutdowns or slowdowns to occur in the future. Management expects that the
impact of the foregoing may negatively affect the Company's cash flows. With
respect to suppliers, the Company has seen lead-times for delivery of certain
critical supplies extended. Labor impacts have included a few issues related to
employee attendance such as voluntary avoidance of work out of fear of
contracting the coronavirus, certain employees becoming ill, and others
self-quarantining as a result of potential exposure to other individuals with
symptoms of COVID-19. This has had a minor impact on the Company's production
levels, however if more employees become ill in the future, the Company could
experience a more significant disruption.



Nevertheless, our production facilities continued to operate during the fourth
quarter of fiscal 2020 much as they had prior to the outbreak of the COVID-19
pandemic, other than the implementation of enhanced safety measures intended to
prevent the spread of the virus. The remote working arrangements and travel
restrictions imposed by applicable governmental authorities has not materially
impaired our ability to maintain operations during the fourth quarter of fiscal
2020. Accordingly, our results of operations and cash flows during the fiscal
year ended March 31, 2020 were not materially affected by the COVID-19 pandemic.
However, we believe that our future financial condition, results of operations
and cash flows in fiscal 2021 may be materially and adversely affected by the
COVID-19 pandemic. However, given the speed and frequency of continuously
evolving developments with respect to this pandemic, the extent to which
COVID-19 may adversely impact our business depends on future developments, which
are highly uncertain and unpredictable, including new information concerning the
severity of the outbreak and the effectiveness of actions globally to contain or
mitigate its effects, we cannot reasonably estimate the magnitude of the impact
on our financial condition and results of operations.



Strategy



We aim to establish our expertise in program and project management and develop
and expand a repeatable customer business model in all of our markets. We
concentrate our sales and marketing activities on customers under three main
industry groups: defense, energy and precision industrial. Our strategy is to
leverage our core competence as a manufacturer of high-precision, large-scale
metal fabrications and machined components to optimize profitability of our
current business and expand with key customers in markets that have shown
increasing demand.



Defense



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. 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 2021 as well.



                                       17





Energy



The power generation businesses among our energy market customers are impacted
by pricing and demand for various forms of energy (e.g. coal, natural gas, oil,
and nuclear). Our nuclear customers are typically dependent upon the need for
new construction, maintenance, and overhaul and repair by nuclear energy
providers. Also, changes in regulation may impact demand and supply. As such, we
cannot assure that we will be able to develop any significant business from the
nuclear industry. However, because of our manufacturing capabilities required to
produce components for new nuclear power plants and our historic relationships
with suppliers in the nuclear power industry, we believe that we are positioned
to benefit from any increased demand in the nuclear sector.



Precision Industrial

The customers within this market are impacted primarily by general economic conditions which may include changes in consumer consumption or demand for commercial construction for infrastructure. We serve a number of different customers in our precision industrial group. We also manufacture large-scale medical device components for a customer in this group who installs their proprietary systems at certain medical institutions.



Critical Accounting Policies



Our significant accounting policies are set forth in detail in Note 2 to the
consolidated financial statements included in this 2020 Form 10-K. We consider
the policies relating to revenue recognition to be a critical accounting
policy. There have been no significant changes to our critical accounting
policies during the year ended March 31, 2020.



The preparation of the consolidated financial statements requires that we make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. We
continually evaluate our estimates, including those related to revenue
recognition, inventories, recovery of long-lived assets, income taxes and the
valuation of equity transactions. These estimates and assumptions require
management's most difficult, subjective or complex judgments. Actual results may
differ under different assumptions or conditions.



Revenue and Related Cost Recognition




Accounting Standards Codification Topic 606, or ASC 606, sets forth five steps
for revenue recognition: identification of the contract, identification of any
separate performance obligations in the contracts, determination of the
transaction price, allocation of the transaction price to separate performance
obligations, and revenue recognition when performance obligations are satisfied.



We recognize revenue over time based on the transfer of control of the promised
goods or services to the customer, or at a point in time. This transfer will
occur over time when the Company's performance does not create an asset that has
an alternative use to the Company and we have an enforceable right to payment
for performance completed to date. Otherwise, control to the promised goods or
services transfers to customers at a point in time.



The majority of the Company's contracts have a single performance obligation and
provide title to, or grant a security interest in, work-in-process to the
customer. In addition, these contracts contain enforceable rights to payment,
allowing the Company to recover both its cost and a reasonable margin on
performance completed to date. The combination of these factors indicates that
the customer controls the asset (and revenue is recognized) as the asset is
created or enhanced. The Company measures progress for performance obligations
satisfied 1) over time using input methods (e.g., costs incurred, resources
consumed, labor hours expended, time elapsed), or 2) at a point in time when
units produced are delivered.


Under arrangements where the customer does not have title to, or a security
interest in, the work-in-process, our evaluation of whether revenue should be
recognized over time requires significant judgment about whether the asset has
an alternative use and whether the entity has an enforceable right to payment
for performance completed to date. When one or both of these factors is not
present, the Company will recognize revenue at the point in time where control
over the promised good or service transfers to the customer, i.e. when the
customer has taken physical possession of the product the Company built for
the
customer.



When estimating contract costs, the Company takes into consideration a number of
assumptions and estimates regarding risks related to technical requirements and
scheduling. Management performs periodic reviews of the contracts to evaluate
the underlying risks. Profit margin on any given project could increase if the
Company is able to mitigate and retire such risks. Conversely, if the Company is
not able to properly manage these risks, cost estimates may increase, resulting
in a lower profit margin, or potentially, contract losses.



The cost estimation process requires significant judgment and is based upon the
professional knowledge and experience of the Company's engineers, program
managers, and financial professionals. Factors considered in estimating the work
to be completed and ultimate contract recovery include the availability,
productivity, and cost of labor, the nature and complexity of the work to be
performed, the effect of change orders, the availability of materials, the
effect of any delays in performance, the availability and timing of funding from
the customer, and the recoverability of any claims included in the estimates to
complete. Costs allocable to undelivered units are reported as work in process,
a component of inventory, in the consolidated balance sheet. Pre-contract
fulfillment costs requiring capitalization are not material.



                                       18




Changes in job performance, job conditions, and estimated profitability are
recognized in the period in which the revisions are determined. Costs incurred
on uncompleted contracts consist of labor, overhead, and materials. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined.



Income Taxes


We provide for federal and state income taxes currently payable, as well as
those deferred because of temporary differences between reporting income and
expenses for financial statement purposes versus tax purposes. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
Deferred tax assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recoverable. The effect of the change in the tax
rates is recognized as income or expense in the period of the change. A
valuation allowance is established, when necessary, to reduce deferred income
taxes to the amount that is more likely than not to be realized.



In assessing the recoverability of deferred tax assets, we consider whether it
is more likely than not that some portion or all of the deferred tax assets will
not be realized. If we determine that it is more likely than not that certain
future tax benefits may not be realized, a valuation allowance will be recorded
against deferred tax assets that are unlikely to be realized. Realization of the
remaining deferred tax assets will depend on the generation of sufficient
taxable income in the appropriate jurisdiction, the reversal of deferred tax
liabilities, tax planning strategies and other factors prior to the expiration
date of the carryforwards. A change in the estimates used to make this
determination could require a reduction in the valuation allowance for deferred
tax assets if they become realizable.



For fiscal 2020, the Company has recorded a net deferred tax asset of $2.1
million, which includes the benefit of $2.3 million in loss carryforwards, which
expire in varying amounts between 2026 and 2036. Realization is dependent on
generating sufficient taxable income prior to the expiration of the loss
carryforwards. Although the realization is not assured, management believes it
is more likely than not that the deferred tax assets will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.



As of March 31, 2020, our federal net operating loss carryforward was
approximately $7.5 million. If not utilized, the federal net operating loss
carryforward will expire in 2038. Furthermore, because of the over fifty-percent
change in ownership as a consequence of the reverse acquisition of Ranor in
February 2006, the amount of net operating loss carryforward used in any one
year in the future is substantially limited. This limitation applies to net
operating losses accumulated prior to the ownership change in February 2006.



Accounting Pronouncements



New Accounting Standards



See Note 3, Accounting Standards Update, in the Notes to the Consolidated
Financial Statements in "Item 8. Financial Statements and Supplementary Data",
for a discussion of recently adopted new accounting guidance and new accounting
guidance not yet adopted.



Results of Operations



Our results of operations are affected by a number of external factors including
the availability of raw materials, commodity prices (particularly steel),
macroeconomic factors, including the availability of capital that may be needed
by our customers, and political, regulatory and legal conditions 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.
Units manufactured under the majority of our customer contracts have
historically been delivered on time and with a positive gross margin. Our
results of operations are also affected by our success in booking new contracts,
the timing of revenue recognition, delays in customer acceptances of our
products, delays in deliveries of ordered products and our rate of progress
fulfilling obligations under our contracts. A delay in deliveries or
cancellations of orders could have an unfavorable impact on liquidity, cause us
to have inventories in excess of our short-term needs, and delay our ability to
recognize, or prevent us from recognizing, revenue on contracts in our order
backlog.



Key Performance Indicators


While we prepare our financial statements in accordance 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 nearest U.S. GAAP financial
measures.



                                       19




Fiscal Years Ended March 31, 2020 and 2019




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

                                       2020                        2019                        Changes
(dollars in thousands)         Amount       Percent        Amount       Percent        Amount       Percent
Net sales                     $ 16,007           100 %    $ 16,703           100 %    $   (696 )          (4 )%
Cost of sales                   12,868            80 %      12,118            73 %         750             6 %
Gross profit                     3,139            20 %       4,585            27 %      (1,446 )         (32 )%
Selling, general and
administrative                   2,786            17 %       2,747            16 %          39             1 %
Provision for claims               495             3 %          --            -- %         495            nm %
Operating (loss) income           (142 )          (1 )%      1,838            11 %      (1,980 )        (108 )%
Other expense, net                (273 )          (2 )%       (314 )          (2 )%         41            13 %
(Loss) income before tax          (415 )          (3 )%      1,524             9 %      (1,939 )        (127 )%
Income tax (benefit)
expense                            (73 )          (1 )%        423             2 %        (496 )        (117 )%
Net (loss) income             $   (342 )          (2 )%   $  1,101             7 %    $ (1,443 )        (131 )%



 nm - not meaningful



Net Sales


Changes in net sales generally reflect a different product mix and project
volume when comparing the current and prior periods. Net sales were $16.0
million for fiscal 2020, or 4% lower when compared to net sales for fiscal 2019
of $16.7 million. Net sales in defense and energy markets decreased by $1.7
million and $0.7 million, respectively, when compared to fiscal 2019. Net sales
to industrial markets increased by $1.7 million when compared with fiscal 2019.



The Company records most of its revenue over time as it completes performance
obligations. We measure progress for performance obligations satisfied over time
using input methods (e.g., labor hours expended and time elapsed). Our fiscal
2020 revenues were generated by product mix that included certain customer
projects with little or no margin which has consumed a higher number of actual
labor hours than originally estimated to complete over the past fiscal year. The
higher actual labor hours had the effect of consuming more available hours,
which could have been allocated to higher margin projects. This set of
conditions has had a negative impact on revenue recognition and cost of sales
primarily in our defense markets during fiscal 2020. Our defense backlog,
however, remains strong as new orders for components continue to flow from
prime
defense contractors.



Remaining performance obligations reflect future revenue that will be recorded
in subsequent periods as projects in progress are completed. At March 31, 2020,
the Company had $16.8 million of remaining performance obligations, an increase
of $4.2 million when compared with March 31, 2019.



Cost of Sales and Gross Margin

Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for fiscal 2020 were $12.9 million compared to $12.1 million for fiscal 2019. Gross profit decreased by $1.4 million to $3.1 million. Gross margin decreased to 19.6% for fiscal 2020 compared with 27.6% for fiscal 2019.

In fiscal 2020, gross profit and gross margin were impacted by an increase of
$1.0 million in cost of sales for losses on certain customer projects. The
fiscal 2020 period was also marked by a higher number of new project startup
activities, and more labor hours allocated to less profitable projects. Fiscal
2019 included a higher margin product mix and better overhead absorption in the
fabrication and machining plants.



Selling, General and Administrative Expenses




Total selling, general and administrative expenses for the fiscal year ended
March 31, 2020 increased by approximately $39,000 due primarily to an increase
in legal fees associated with the claims settlement discussed below. This
increase was almost entirely offset by decreases in compensation, benefits
and
travel expenses.



                                       20




Provision for Claims Settlement




We agreed to settle all outstanding claims for $495,000 under a civil action
brought by former employees against the Company for past wages claimed under a
paid time-off program. The settlement will be paid within 60 days following
Court approval of the settlement. The Company was released from all claims
raised in this litigation under the Massachusetts Wage Act.



Other Income (Expense)



In January 2020, as previously disclosed, we repaid in full our indebtedness
under a capital equipment loan. This action reduced our debt load and overall
interest rates on debt, and, as a result, interest expense and debt cost
amortization will, barring any change to our indebtedness, including any change
in response to the effects of the COVID-19 pandemic, continue to be lower moving
forward into fiscal 2021. Fiscal 2020 includes a gain from the sale of retired
machinery for $16,000. Fiscal 2019 other income includes a gain from the
disposal of retired fixed assets for $31,878. The following table reflects other
income, interest expense and amortization of debt issue costs for the fiscal
years ended March 31:



                                      2020           2019        $ Change      % Change
Other income, net                  $   22,750$   41,033$ (18,283 )         (45 )%
Interest expense                   $ (236,574 )$ (299,579 )$  63,005

21 % Amortization of debt issue costs $ (59,502 )$ (55,246 )$ (4,256 ) (8 )%





Income Taxes



For fiscal year 2020 the Company recorded a tax benefit of $73,041 and in fiscal
year 2019 tax expense of $423,357. The fiscal 2020 tax benefit was primarily
driven by pre-tax operating losses and certain permanent differences.



Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences and carryforwards are expected to be recovered or settled. The
valuation allowance on deferred tax assets at March 31, 2020 was approximately
$1.7 million. We believe that it is more likely than not that the benefit from
certain state and foreign NOL carryforwards and other deferred tax assets will
not be realized. In recognition of this risk, we continue to provide a valuation
allowance on these items. In the event future taxable income is below
management's estimates or is generated in tax jurisdictions different than
projected, the Company could be required to increase the valuation allowance for
deferred tax assets. This would result in an increase in the Company's effective
tax rate.



Net (Loss) Income



As a result of the foregoing, for fiscal 2020, we recorded a net loss of $0.3
million, or $0.01 per share basic and fully diluted, compared with net income of
$1.1 million, or $0.04 per share basic and fully diluted in fiscal 2019.



Liquidity and Capital Resources




On January 16, 2020, as previously disclosed, TechPrecision through Ranor repaid
in full Ranor's indebtedness under Schedule No. 002 to that certain Master Loan
and Security Agreement No. 4180, or the MSLA, with People's Capital and Leasing
Corp., or People's. Under Schedule 002 to the MSLA, Ranor had borrowed an
initial principal amount of $365,852, secured by certain machinery and
equipment. The loan was required to be repaid in monthly installments of
principal and interest of $7,399 over 60 months. Upon the payment of
approximately $147,000, which amount included a 1% prepayment penalty of
approximately $1,400, all commitments under Schedule 002 to the MSLA were
terminated, and People's discharged and released all guarantees and liens
existing in connection with such loan, thereby terminating such loan agreement
schedule.



On January 17, 2020, the Company, through Ranor, repaid in full Ranor's
indebtedness under Schedule 001 to the MSLA. Under Schedule 001 to the MSLA,
Ranor had borrowed an initial principal amount of $3,011,648, secured by certain
machinery and equipment. The loan was required to be repaid in 60 monthly
installments of $60,921 each, inclusive of interest at a fixed rate of 7.90% per
annum. Upon the payment of approximately $936,000, which amount included a 1%
prepayment penalty of approximately $9,200, all commitments under Schedule 001
to the MSLA were terminated, and People's discharged and released all guarantees
and liens existing in connection with such loan, thereby terminating such loan
agreement schedule. As all previously outstanding obligations under the MSLA
have been satisfied in full, Ranor is no longer bound by any material terms
of
the MSLA.


Net cash provided by operating activities was $0.7 million for fiscal 2020. At
March 31, 2020, we had cash and cash equivalents of $0.9 million and working
capital of $5.6 million.



                                       21





We have a Revolver Loan with Berkshire Bank available as a resource, if
necessary, and on April 3, 2020 drew down $1.0 million under this facility for
working capital purposes. We believe our available cash plus cash provided from
operations will be sufficient to fund our operations, capital expenditures and
principal and interest payments under our debt obligations through the 12 months
from the issuance date of our financial statements.   However, in light of
further potential disruption to our business or the national economy as a result
of the COVID-19 pandemic and resulting government-imposed lockdowns, we may
determine that we need to make an additional draw of funds under our Revolver
Loan or seek alternative sources of funding.



In light of the foregoing uncertainty caused by the COVID-19 pandemic, the
Company determined it necessary to obtain additional funds. As previously
disclosed, on May 8, 2020, the Company, through Ranor, issued the Payroll
Protection Program Note, or PPP Note, evidencing an unsecured loan in the amount
of $1,317,100 made to Ranor under the PPP, which was established under the
federal Coronavirus Aid, Relief, and Economic Security Act and is administered
by the U.S. Small Business Administration. The loan to Ranor was made through
Berkshire Bank. The PPP Note provides for an interest rate of 1.00% per year and
matures two years after the issuance date. Principal and accrued interest are
payable monthly in equal installments commencing on the date that is six months
after the date funds are first disbursed on the loan and continuing through the
maturity date, unless the PPP Note is forgiven. To be available for loan
forgiveness, the PPP Note may only be used for payroll costs, costs related to
certain group health care benefits and insurance premiums, rent payments,
utility payments, mortgage interest payments and interest payments on any other
debt obligation that existed before February 15, 2020.



The table below presents selected liquidity and capital measures at the fiscal
years ended:



                              March 31,       March 31,       Change
(dollars in thousands)          2020            2019          Amount
Cash and cash equivalents    $       931$     2,037$ (1,106 )
Working capital              $     5,595$     6,250$   (655 )
Total debt                   $     2,587$     4,297$ (1,710 )
Total stockholders' equity   $     9,469$     9,711$   (242 )

The next table summarizes cash provided by (used in) by primary component in the cash flows statements for the fiscal years ended:



                          March 31,       March 31,      Change
(dollars in thousands)      2020            2019         Amount
Operating activities     $       677$       531$   146
Investing activities             (40 )          (411 )       371
Financing activities          (1,743 )          (772 )      (971 )
Net decrease in cash     $    (1,106 )$      (652 )$  (454 )




Berkshire Bank Loan Facility



On December 23, 2019 we entered into a Third Modification to Loan Agreement, or
the Third Modification, and an Amended and Restated Promissory Note with
Berkshire Bank. The Third Modification amended and modified the Loan Agreement
between Ranor and Berkshire Bank dated December 20, 2016, as amended by the
First Modification to Loan Agreement dated June 6, 2018 and the Second
Modification to Loan Agreement and First Modification and Allonge to Promissory
Note dated December 19, 2018.



Under the Third Modification, Ranor and Berkshire Bank agreed to increase the
maximum principal amount available under the Revolver Loan from $1,000,000 to
$3,000,000, which is available for refinancing existing indebtedness and for
working capital and general corporate purposes. Additionally, the parties agreed
to lower the interest rate on advances made under the Revolver Loan based on
LIBOR. Prior to the Third Modification, interest accrued on advances made under
the Revolver Loan at a variable rate equal to the one-month LIBOR plus 275 basis
points.  Under the Third Modification, interest accrues on such advances at a
variable rate equal to the one-month LIBOR plus 225 basis points.  The Third
Modification contains customary LIBOR replacement provisions.



The maturity date of the Revolver Loan remains December 20, 2020, and all other material terms of the Loan Agreement and Line of Credit Note were unchanged.




Operating activities



Our primary sources of cash are from accounts receivable collections, customer
advance payments and project progress payments. Our customers make advance
payments and progress payments under the terms of each manufacturing contract.
Our cash flows can fluctuate significantly from period to period as the
composition of our receivables collections mix changes between advance payments
and customer payments made after shipment of finished goods. Cash provided by
operations for fiscal 2020 and fiscal 2019 was $0.7 million and $0.5 million,
respectively.



                                       22





Favorable timing with customer advance payments and progress payments resulted
in higher amounts of cash generated early in the fiscal 2020 period. Fiscal 2019
was marked by an increase in customer project activity which resulted in more
cash expended to ramp up production offset in part by cash collected from
customer advances and progress payments.



Investing activities


We anticipate that we will spend approximately $0.5 million in new factory
machinery and equipment over the next twelve months. Net cash used in investing
activities totaled $39,831 for fiscal 2020. In fiscal 2019, we expended
approximately $0.4 million for new factory machinery and equipment, offset in
part by proceeds of $35,309 from the disposition of machinery and equipment.



Financing activities


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

All of the above activity resulted in a net decrease in cash of $1.1 million in fiscal 2020 compared with a decrease in cash of $0.7 million in fiscal 2019.




The following table sets forth information as of March 31, 2020 as to our
contractual obligations:



                                                  Payments due by period
(dollars in thousands)                 Less than 1                                       After 5
Contractual Obligations    Total          Year           1-3 Years       3-5 Years        Years
Debt obligations          $ 2,587     $         110     $     2,477     $  
      -     $       -
Interest on debt              233               135              98               -             -
Employee compensation         384               384               -               -             -
Purchase obligations        1,095             1,095               -        
      -             -
Claims settlement             495               495               -               -             -
Total                     $ 4,794$       2,219$     2,575     $         -     $       -



Off-Balance Sheet Arrangements

We do not currently have, and have not had during the fiscal year ended March 31, 2020, 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 loss was $0.3 million for the fiscal year ended March 31,
2020, as compared to net income of $1.1 million for the year ended March 31,
2019. EBITDA, a non-GAAP financial measure, was $0.6 million for the year ended
March 31, 2020, as compared to $2.6 million for the year ended March 31, 2019.
The following table provides a reconciliation of EBITDA to net income, the most
directly comparable GAAP measure reported in our consolidated financial
statements for the fiscal years ended:



                                       23





                                March 31,       March 31,       Change
 (dollars in thousands)           2020            2019          Amount
Net (loss) income              $      (342 )$     1,101$ (1,443 )
Income tax (benefit) expense           (73 )           423         (496 )
Interest expense (1)                   296             355          (59 )
Depreciation                           718             750          (32 )
EBITDA                         $       599$     2,629$ (2,028 )

(1) Includes amortization of debt issue costs.

© Edgar Online, source Glimpses


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Financials (USD)
Sales 2020 16,0 M - -
Net income 2020 -0,34 M - -
Net Debt 2020 1,64 M - -
P/E ratio 2020 -109x
Yield 2020 -
Capitalization 37,0 M 37,0 M -
EV / Sales 2019 1,91x
EV / Sales 2020 2,42x
Nbr of Employees 94
Free-Float 87,4%
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Alexander Shen Chief Executive Officer
Richard S. McGowan Non-Executive Chairman
Thomas C. Sammons Chief Financial Officer
Andrew A. Levy Independent Director
Robert A. Crisafulli Independent Director
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