TECHPRECISION CORP - FORM 10-Q

Attached files

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EX-32.1 - EXHIBIT 32.1 - TECHPRECISION CORP	tm2029666d1_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - TECHPRECISION CORP	tm2029666d1_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - TECHPRECISION CORP	tm2029666d1_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number: 000-51378

TechPrecision Corporation

(Exact name of registrant as specified in its charter)

Delaware		51-0539828
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1 Bella Drive
Westminster, MA		01473
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code		(978) 874-0591

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

The number of shares outstanding of the registrant’s common stock as of November 9, 2020 was 29,498,662.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3
	CONDENSED CONSOLIDATED BALANCE SHEETS	3
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)	4
	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	5
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	21
ITEM 4.	CONTROLS AND PROCEDURES	22
PART II.	OTHER INFORMATION	22
ITEM 6.	EXHIBITS	24
	SIGNATURES	25

PART I

ITEM 1. FINANCIAL STATEMENTS

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

	September 30, 2020		March 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,091,613	$	930,856
Accounts receivable, net		1,378,617		990,300
Contract assets		5,980,533		4,504,621
Raw materials		517,681		561,572
Work-in-process		573,475		656,041
Other current assets		285,304		606,151
Total current assets		9,827,223		8,249,541
Property, plant and equipment, net		4,198,417		4,182,861
Deferred income taxes		2,041,538		2,115,480
Other noncurrent assets, net		10,056		32,600
Total assets	$	16,077,234	$	14,580,482

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	210,373	$	185,065
Accrued expenses		1,664,732		1,554,524
Contract liabilities		636,195		805,049
Current portion of long-term debt		258,780		109,829
Total current liabilities		2,770,080		2,654,467
Long-term debt		3,571,354		2,456,560
Commitments and contingent liabilities (Note 13)
Stockholders’ Equity:
Common stock - par value $.0001 per share, 90,000,000 shares authorized, 29,498,662 and 29,354,594 shares issued and outstanding, at September 30, 2020 and March 31, 2020		2,949		2,935
Additional paid in capital		8,905,965		8,793,062
Accumulated other comprehensive income		20,586		21,688
Retained earnings		806,300		651,770
Total stockholders’ equity		9,735,800		9,469,455
Total liabilities and stockholders’ equity	$	16,077,234	$	14,580,482

See accompanying notes to the condensed consolidated financial statements.

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
	2020			2019			2020			2019
Net sales	$	4,713,933		$	3,074,076		$	7,996,458		$	7,408,344
Cost of sales		3,585,073			2,660,558			6,170,584			5,885,325
Gross profit		1,128,860			413,518			1,825,874			1,523,019
Selling, general and administrative		696,016			740,967			1,489,378			1,482,380
Income (loss) from operations		432,844			(327,449	)		336,496			40,639
Other income		804			1,448			1,456			20,878
Interest expense		(51,582	)		(72,596	)		(109,480	)		(149,119	)
Total other expense, net		(50,778	)		(71,148	)		(108,024	)		(128,241	)
Income (loss) before income taxes		382,066			(398,597	)		228,472			(87,602	)
Income tax expense (benefit)		111,302			(107,576	)		73,942			(17,358	)
Net income (loss)	$	270,764		$	(291,021	)	$	154,530		$	(70,244	)
Other comprehensive loss, before tax:
Foreign currency translation adjustments	$	(1,005	)	$	(159	)	$	(1,102	)	$	(338	)
Other comprehensive loss, net of tax	$	(1,005	)	$	(159	)	$	(1,102	)	$	(338	)
Comprehensive income (loss)	$	269,759		$	(291,180	)	$	153,428		$	(70,582	)
Net income (loss) per share basic	$	0.01		$	(0.01	)	$	0.01		$	(0.00	)
Net income (loss) per share diluted	$	0.01		$	(0.01	)	$	0.01		$	(0.00	)
Weighted average number of shares outstanding:
Basic		29,431,629			29,254,594			29,395,791			29,254,048
Diluted		30,987,233			29,254,594			31,002,130			29,254,048

See accompanying notes to the condensed consolidated financial statements.

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

	Common Stock Outstanding		Par Value		Additional Paid in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total Stockholders’ Equity
Balance 3/31/2019		29,234,594	$	2,923	$	8,693,106		$	21,940		$	993,339		$	9,711,308
Stock-based compensation						30,625									30,625
Shares issued under LTIP		20,000		2		7,198									7,200
Net income												220,777			220,777
Currency translation adjustment									(179	)					(179	)
Balance 6/30/2019		29,254,594	$	2,925	$	8,730,929		$	21,761		$	1,214,116		$	9,969,731
Stock-based compensation						30,625									30,625
Net loss												(291,021	)		(291,021	)
Currency translation adjustment									(159	)					(159	)
Balance 9/30/2019		29,254,594	$	2,925	$	8,761,554		$	21,602		$	923,095		$	9,709,176

Balance 3/31/2020		29,354,594	$	2,935	$	8,793,062		$	21,688		$	651,770		$	9,469,455
Stock-based compensation						55,500									55,500
Shares issued under LTIP		44,068		4		(4	)								--
Net loss												(116,234	)		(116,234	)
Currency translation adjustment									(97	)					(97	)
Balance 6/30/2020		29,398,662	$	2,939	$	8,848,558		$	21,591		$	535,536		$	9,408,624
Stock-based compensation						57,417									57,417
Restricted stock award		100,000		10		133,990									134,000
Non-vested restricted stock						(134,000	)								(134,000	)
Net income												270,764			270,764
Currency translation adjustment									(1,005	)					(1,005	)
Balance 9/30/2020		29,498,662	$	2,949	$	8,905,965		$	20,586		$	806,300		$	9,735,800

See accompanying notes to the condensed consolidated financial statements.

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Six Months Ended September 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	154,530		$	(70,244	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		339,232			380,030
Amortization of debt issue costs		31,086			20,770
Stock based compensation expense		112,917			61,250
Change in contract loss provision		(49,553	)		186,603
Deferred income taxes		73,942			(17,358	)
Changes in operating assets and liabilities:
Accounts receivable		(388,317	)		183,602
Contract assets		(1,475,912	)		801,811
Inventories		126,457			(662,650	)
Other current assets		320,847			(121,774	)
Accounts payable		25,308			174,311
Accrued expenses		158,791			(73,954	)
Contract liabilities		(168,854	)		75,438
Net cash (used in) provided by operating activities		(739,526	)		937,835
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment		(354,788	)		(11,544	)
Net cash used in investing activities		(354,788	)		(11,544	)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issue costs		(8,282	)		(5,835	)
Proceeds from payroll protection program		1,317,100			--
Proceeds from revolver loan		1,000,000			--
Repayment of revolver loan		(1,000,000	)		--
Repayment of long-term debt		(53,614	)		(402,889	)
Net cash provided by (used in) financing activities		1,255,204			(408,724	)
Effect of exchange rate on cash and cash equivalents		(133	)		299
Net increase in cash and cash equivalents		160,757			517,866
Cash and cash equivalents, beginning of period		930,856			2,036,646
Cash and cash equivalents, end of period	$	1,091,613		$	2,554,512
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the year for:
Interest (net of amounts capitalized)	$	78,834		$	128,267
Income taxes	$	--		$	--

See accompanying notes to the condensed consolidated financial statements.

SUPPLEMENTAL INFORMATION - NONCASH INVESTING AND FINANCING TRANSACTIONS:

Six months ended September 30, 2020

On June 16, 2020, our executive officers exercised options to purchase 150,000 shares of the Company’s common stock, par value $0.0001 per share, in a cashless transaction, pursuant to option awards granted under the Company’s 2016 Long-Term Incentive Plan.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

TechPrecision Corporation, or TechPrecision, is a Delaware corporation organized in February 2005 under the name Lounsberry Holdings II, Inc. The name was changed to TechPrecision Corporation on March 6, 2006. TechPrecision is the parent company of Ranor, Inc., or Ranor, a Delaware corporation, and Wuxi Critical Mechanical Components Co., Ltd., or WCMC, a wholly foreign owned enterprise. WCMC has no customers or operations, and we have initiated a plan of termination to legally dissolve this subsidiary. TechPrecision, WCMC and Ranor are collectively referred to as the “Company”, “we”, “us” or “our”.

We manufacture large-scale metal fabricated and machined precision components and equipment. These products are used in a variety of markets including defense and aerospace, nuclear, medical, and precision industrial. We consider our business to consist of one segment - metal fabrication and precision machining. All of our operations and customers are located in the United States.

NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation - The accompanying condensed consolidated financial statements include the accounts of TechPrecision, Ranor and WCMC. Intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated balance sheets as of September 30, 2020 and March 31, 2020, the condensed consolidated statements of operations and comprehensive income (loss) and stockholders’ equity for the three and six months ended September 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the six months ended September 30, 2020 and 2019 are unaudited, but, in the opinion of management, include all adjustments that are necessary for a fair presentation of our financial statements for interim periods in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The results of operations for an interim period are not necessarily indicative of the results of operations to be expected for the fiscal year.

These notes to the condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, for Quarterly Reports on Form 10-Q. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements and related notes should be read in conjunction with the consolidated financial statements included with our Annual Report on Form 10-K for the fiscal year ended March 31, 2020, or the 2020 Form 10-K, filed with the SEC on June 11, 2020.

Use of Estimates in the Preparation of Financial Statements - In preparing the condensed consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenues and expenses during the reported period. We continually evaluate our estimates, including those related to contract accounting, accounts receivable, inventories, the recovery of long-lived assets, income taxes and the valuation of equity transactions. We base our estimates on historical and current experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

The COVID-19 pandemic has negatively affected certain customers, suppliers and their labor force. For example, travel restrictions in connection with the pandemic have delayed inspections, deliveries and impacted some supply chain providers. The future financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time as its impact depends on future developments, which are highly uncertain and cannot be predicted.

The directives imposed by federal, state and local governments as a result of the COVID-19 pandemic did not impair our ability to maintain operations during the first six months of fiscal 2021 as the Company was designated an essential service. Our estimates at the end of the first six months of fiscal 2021 assumed no material impact from the disruptions caused by COVID-19.

NOTE 3 – ACCOUNTING STANDARDS UPDATE

New Accounting Standards Recently Adopted

On April 1, 2020 we adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements in Topic 820 by removing, modifying or adding certain disclosures. The amendments for changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are applied prospectively. All other amendments are applied retrospectively to all periods presented upon their effective date. The adoption did not have a significant impact on our consolidated financial statement disclosures.

Issued Standards Not Yet Adopted

In December, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, expected to reduce cost and complexity related to the accounting for income taxes. This ASU removes specific exceptions to the general principles in Topic 740 under U.S. GAAP and removes the limitation on the tax benefit recognized on pre-tax losses in interim periods. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company is currently evaluating the amendments in this update to determine the impact it may have on its financial statements and disclosures.

NOTE 4 - REVENUE

The Company generates its revenues primarily from performance obligations completed under contracts with customers in two main market sectors: defense and precision industrial. The period over which the Company performs its obligations can range from three to thirty-six months. The Company invoices and receives related payments based upon performance progress not less frequently than monthly.

Revenue is recognized over-time or at a point-in-time given the terms and conditions of the related contracts. The Company utilizes an inputs methodology based on estimated labor hours to measure performance progress. This model best depicts the transfer of control to the customer.

The Company’s contract portfolio is comprised of fixed-price contracts and provide for product type sales only. The following table presents net sales on a disaggregated basis by market and contract type:

Net Sales by market	Defense		Industrial		Totals
Three months ended September 30, 2020	$	3,225,503	$	1,488,430	$	4,713,933
Three months ended September 30, 2019	$	2,862,936	$	211,140	$	3,074,076
Six months ended September 30, 2020	$	6,429,093	$	1,567,365	$	7,996,458
Six months ended September 30, 2019	$	6,524,964	$	883,380	$	7,408,344

Net Sales by contract type	Over-time		Point-in-time		Totals
Three months ended September 30, 2020	$	3,081,971	$	1,631,962	$	4,713,933
Three months ended September 30, 2019	$	2,612,089	$	461,987	$	3,074,076
Six months ended September 30, 2020	$	6,109,868	$	1,886,590	$	7,996,458
Six months ended September 30, 2019	$	5,665,028	$	1,743,316	$	7,408,344

As of September 30, 2020, the Company had $14.8 million of remaining performance obligations, of which $12.8 million were less than 50% complete. The Company expects to recognize all of its remaining performance obligations as revenue over-time or at a point-in-time during the next thirty-six months.

We have been dependent in each year on a small number of customers who generate a significant portion of our business, and these customers can change from year to year. The following table presents customers who accounted for 10% or more of our net sales for the following periods:

	Three months ended September 30, 2020					Three months ended September 30, 2019					Six months ended September 30, 2020						Six months ended September 30, 2019
Customer	Amount		Percent			Amount		Percent			Amount			Percent			Amount			Percent
A	$	694,332		15	%	$	663,855		22	%		$	1,708,987		21	%		$	1,386,249		19	%
B	$	686,486		15	%	$	*		*	%		$	1,340,673		17	%		$	*		*	%
C	$	499,921		11	%	$	815,742		27	%		$	1,070,701		13	%		$	1,104,747		15	%
D	$	558,160		12	%	$	510,599		17	%		$	948,672		12	%		$	1,098,129		15	%
E	$	726,921		15	%	$	*		*	%		$	*		*	%		$	*		*	%
F	$	575,315		12	%	$	*		*	%		$	*		*	%		$	*		*	%
G	$	*		*	%	$	336,935		11	%		$	*		*	%		$	*		*	%
H	$	*		*	%	$	*		*	%		$	*		*	%		$	1,097,563		15	%
I	$	459,441		10	%	$	305,114		10	%		$	*		*	%		$	923,133		12	%

*Less than 10% of total

On our condensed consolidated balance sheet, contract assets and contract liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. In fiscal 2021, we recognized revenue of $0.8 million related to our contract liabilities at March 31, 2020. At September 30, 2020 contract assets consisted of the following:

Contract assets	Unbilled		Progress payments			Total
September 30, 2020	$	10,130,846	$	(4,150,313	)	$	5,980,533
March 31, 2020	$	10,635,588	$	(6,130,967	)	$	4,504,621

NOTE 5 - INCOME TAXES

We account for income taxes under the provisions of FASB ASC 740, Income Taxes. The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items. The income tax provision for the three and six months ended September 30, 2020 was $111,302 and $73,942, respectively. The Company's estimated effective tax rate for the six months ended September 30, 2020 was 32.4%. The income tax benefit for the three and six months ended September 30, 2019 was $107,576 and $17,358, respectively.

The valuation allowance on deferred tax assets was approximately $1.7 million at September 30, 2020. We believe that it is more likely than not that the benefit from certain state and foreign net operating losses, or NOL, carryforwards and other deferred tax assets will not be realized. 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.

NOTE 6 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing reported earnings available to stockholders by the weighted average number of shares outstanding. Diluted earnings per share includes the effect of stock options that would be dilutive. The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations, as required under FASB ASC 260.

	Three months ended September 30, 2020		Three months ended September 30, 2019			Six months ended September 30, 2020		Six months ended September 30, 2019
Basic EPS:
Net income (loss)	$	270,764	$	(291,021	)	$	154,530	$	(70,244	))
Weighted average shares		29,431,629		29,254,594			29,395,791		29,254,048
Basic income (loss) per share	$	0.01	$	(0.01	)	$	0.01	$	(0.00	))
Diluted EPS:
Net income (loss)	$	270,764	$	(291,021	)	$	154,530	$	(70,244	))
Dilutive effect of stock options		1,555,604		--			1,606,339		--
Diluted weighted average shares		30,987,233		29,254,594			31,002,130		29,254,048
Diluted income (loss) per share	$	0.01	$	(0.01	)	$	0.01	$	(0.00	))

All potential common stock equivalents that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share. For the three and six months ended September 30, 2020 there were 96,000 of potential common stock equivalents that were out-of-the-money and not included in the above earnings per share calculations. For the three and six months ended September 30, 2019, there were 2,968,000 of potentially anti-dilutive stock options, none of which were included in the EPS calculations above.

NOTE 7 - STOCK-BASED COMPENSATION

Our board of directors approved the 2016 TechPrecision Equity Incentive Plan, or the 2016 Plan, on November 10, 2016. Our stockholders approved the 2016 Plan at the Company’s Annual Meeting of Stockholders on December 8, 2016. The 2016 Plan succeeds the 2006 Plan and applies to awards granted after the 2016 Plan’s adoption by the Company’s stockholders. The 2016 Plan provides for a share reserve of 5,000,000 shares of common stock.

The 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates.

At September 30, 2020 there were 1,374,000 shares available for grant under the 2016 Plan. The following table summarizes information about stock option activity during the two most recently completed periods:

	Number Of Options			Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding at 3/31/2019		2,938,000		$	0.416	$	1,869,200		6.74
Exercised		(20,000	)		0.360
Canceled		(2,000	)
Outstanding at 3/31/2020		2,916,000		$	0.415	$	2,546,800		6.21
Exercised		(150,000	)		0.800
Outstanding at 9/30/2020		2,766,000		$	0.394	$	2,289,400		5.96
Vested or expected to vest at 9/30/2020		2,766,000		$	0.394	$	2,289,400		5.96
Exercisable and vested at 9/30/2020		2,766,000		$	0.394	$	2,289,400		5.96

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the second quarter of fiscal 2021 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2020. This amount changes based on the fair market value of the Company’s common stock.

At September 30, 2020, there was no remaining unrecognized compensation cost related to stock options. The maximum contractual term is ten years for option grants. Other information relating to stock options outstanding at September 30, 2020 is as follows:

Range of Exercise Prices:	Options Outstanding		Weighted Average Remaining Contractual Term		Weighted Average Exercise Price		Options Exercisable		Weighted Average Exercise Price
$0.01-$1.00		2,670,000		6.12	$	0.34		2,670,000	$	0.34
$1.01-$1.96		96,000		0.46	$	1.84		96,000	$	1.84
Totals		2,766,000						2,766,000

Restricted Stock Awards

On September 1, 2020 we granted a total of 100,000 shares of restricted stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $134,000 for service-based restricted stock was measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. The shares of restricted stock fully vest and cease to be subject to forfeiture on August 31, 2021, or twelve months following the grant date. Each grantee must be serving as a director on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee is not permitted to sell, transfer, pledge, assign or otherwise encumber the shares of restricted stock and if the grantee’s service with the Company terminates prior to the vesting date, the grantee’s restricted stock will be forfeited automatically. Total recognized compensation cost related to the restricted stock award was $11,167 for the period ended September 30, 2020. At September 30, 2020 there was $122,833 of unrecognized compensation cost related to the restricted stock awards.

On March 16, 2020 we granted a total of 100,000 shares of restricted stock under the 2016 Plan to the board of directors. The stock-based compensation expense of $111,000 for service-based restricted stock was measured at fair value on the date of grant based on the number of shares expected to vest and the quoted market price of the Company’s common stock. The shares of restricted stock fully vested and ceased to be subject to forfeiture on September 1, 2020, or approximately six months following the grant date. Each grantee must have been serving as a director on the vesting date and must have been continuously serving in such capacity from the grant date through the vesting date for the shares of restricted stock to vest. Prior to the vesting date, the grantee was not permitted to sell, transfer, pledge, assign or otherwise encumber the shares of restricted stock and if the grantee’s service with the Company had terminated prior to the vesting date, the grantee’s restricted stock would have been forfeited automatically. Total recognized compensation cost related to the restricted stock award was $101,750 for the six months ended September 30, 2020. There was no unrecognized compensation cost related to the restricted stock awards at September 30, 2020.

NOTE 8 - CONCENTRATION OF CREDIT RISK

We maintain bank account balances, which, at times, may exceed insured limits. We have not experienced any losses with these accounts and believe that we are not exposed to any significant credit risk on cash.

At September 30, 2020, there were trade accounts receivable balances outstanding from five customers comprising 96% of the total trade receivables balance. The following table sets forth information as to trade accounts receivable from customers who accounted for more than 10% of the total balance at:

	September 30, 2020					March 31, 2020
Customer	Dollars		Percent			Dollars		Percent
A	$	367,121		27	%	$	365,636		37	%
B	$	284,406		21	%	$	*			*
C	$	275,025		20	%	$	*			*
D	$	199,960		15	%	$	*			*
E	$	180,800		13	%	$	254,637		26	%
F	$	*		*	%	$	123,000		12	%

*less than 10% of total

NOTE 9 - OTHER CURRENT ASSETS

	September 30, 2020		March 31, 2020
Payments advanced to suppliers	$	--	$	272,070
Prepaid insurance		200,692		250,073
Prepaid subscriptions		16,105		14,440
Refundable AMT credits		22,748		22,748
Employee advances		24,917		18,173
Other		20,842		28,647
Total	$	285,304	$	606,151

NOTE 10 - ACCRUED EXPENSES

	September 30, 2020		March 31, 2020
Provision for claims settlement	$	495,000	$	495,000
Accrued compensation		549,246		383,555
Provision for contract losses		235,927		285,480
Accrued professional fees		253,669		279,657
Accrued project costs		99,909		76,059
Other		30,981		34,773
Total	$	1,664,732	$	1,554,524

Accrued compensation includes amounts for executive bonuses, payroll and vacation and holiday pay. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in the provision are recorded in cost of sales. Accrued project costs are estimates for certain project expenses during the reporting period.

NOTE 11 - DEBT

Total debt included the following as of:	September 30, 2020		March 31, 2020
Berkshire Term Loan at 5.21% interest, due December 2021	$	2,516,582	$	2,564,389
Berkshire SBA PPP loan at 1% interest, due May 2022		1,317,100		--
Finance lease obligations at 8% interest, due January 2022		16,653		22,460
Total debt	$	3,850,335	$	2,586,849
Less: debt issue costs unamortized	$	20,201	$	20,460
Total debt, net	$	3,830,134	$	2,566,389
Less: Current portion of long-term debt	$	258,780	$	109,829
Total long-term debt, net	$	3,571,354	$	2,456,560

Small Business Administration Loan

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

Principal and accrued interest are payable monthly in equal installments commencing at a future date in calendar year 2021 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 obligations 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. For example, the Note contains events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Berkshire Bank, or breaching the terms of the loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or the SBA or Berkshire Bank filing suit and obtaining judgment against the Company and/or Ranor.

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

On June 5, 2020, the PPP was amended to give borrowers more time to spend loan proceeds and still obtain loan forgiveness. The amendments extended the length of the covered period as defined in the CARES Act from eight to twenty-four weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week covered period. In addition, the amendments provide that if the borrower does not apply for forgiveness of a loan within ten months after the last day of the covered period, the PPP loan is no longer deferred and the borrower must begin paying principal and interest. As provided under the amendments, our first payment, if required, would not be due until August 25, 2021.

Berkshire Term Loan Facility

On December 21, 2016, TechPrecision, through Ranor, closed on a Loan Agreement, or the Berkshire 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 under the Revolver Loan, or together, the Berkshire Loans. The Berkshire Loans are secured by a first lien on all personal and real property of Ranor.

On December 23, 2019, TechPrecision, through Ranor, entered into a Third Modification to Loan Agreement, or the Third Modification, 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. Advances under the Revolver Loan are now subject to the lesser of (a) $3,000,000 or (b) the sum of (i) 80% of eligible accounts receivable, plus (ii) the lesser of (x) 25% of Eligible Raw Material Inventory, and (y) $250,000, plus (iii) 50% of the Appraised Value of the Eligible Equipment. The loan agreement 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 at a variable rate equal to the one-month LIBOR plus 225 basis points. The Third Modification contains customary LIBOR replacement provisions.

The Company borrowed $1.0 million under the Revolver Loan on April 3, 2020 and repaid principal of $1.0 million on June 30, 2020. There were no borrowed amounts outstanding under the Revolver Loan at September 30, 2020 and March 31, 2020. Interest payments on advances made under the Revolver Loan during the six months ended September 30, 2020 were $5,986 at a weighted average interest rate of 2.76%. Unused borrowing capacity at September 30, 2020 was $3.0 million, and the maturity date of the Revolver Loan is December 20, 2020.

The Berkshire Loan Agreement contains a covenant whereby the Company is required to maintain a debt service coverage ratio, or DSCR, of at least 1.2 to 1.0 during the term of the Berkshire Loans. The DSCR is measured at the end of each fiscal quarter of the Company. The Company was in compliance with all of the financial covenants at September 30, 2020 and March 31, 2020.

The Berkshire Loan Agreement also contains covenants to cause its balance sheet leverage to be less than or equal to 2.50 to 1.00 for each fiscal year end, and require Ranor to maintain a loan-to-value ratio of not greater than 0.75 to 1.00, to be measured by appraisal not more frequently than one time during each 365-day period.

Finance Lease

See Note 12 for information regarding our obligations under the finance lease.

Fair Value Measurements

We account for fair value measurements in accordance with ASC Topic 820, Fair Value Measurement, which defines fair value and establishes a framework to measure fair value and the related disclosures about fair value. The carrying value of short and long-term borrowings approximates their fair value at September 30, 2020 and March 31, 2020. The fair value of the long-term debt was calculated based on interest rates available for debt with terms and maturities similar to the Company's existing debt arrangements. The Company’s short-term and long-term debt with Berkshire bank is privately held with no public market for the debt and is considered to be Level 3 under the fair value hierarchy.

NOTE 12 – LEASES

Leases that are economically similar to the purchase of an asset are classified as finance leases. The leased, or right-of-use assets in finance lease arrangements are reported in net property, plant and equipment on our condensed consolidated balance sheet. Right-of-use assets and liabilities on our condensed consolidated balance sheet at September 30, 2020 were:

Finance lease:	September 30, 2020
Property, plant and equipment	$	54,376
Accumulated depreciation		40,782
Net property, plant and equipment	$	13,594
Current portion of long-term debt	$	12,324
Long-term debt	$	4,329
Total finance lease liabilities	$	16,653

In December 2019, we signed a one-year operating lease that expires in December 2020 and is amortized on a straight line basis. Other supplemental information regarding our leases are contained in the following tables:

Components of lease expense for the period ended:	September 30, 2020
Operating lease amortization	$	1,883
Finance lease amortization	$	5,438
Finance lease interest	$	793

Weighted average lease term and discount rate at:	September 30, 2020
Finance lease term (years)		1.75
Finance lease rate		8	%

Supplemental cash flow information related to leases for the period ended:	September 30, 2020
Cash used in operating activities	$	1,883
Cash used in financing activities	$	5,807

NOTE 13 - COMMITMENTS

Retirement Benefits

Ranor has a defined contribution and savings plan that covers substantially all Ranor employees who have completed 90 days of service. Ranor retains the option to match employee contributions. The Company contributed $42,270 and $39,663 for the six months ended September 30, 2020 and 2019, respectively.

Provision for claims settlement

On March 16, 2020, the Company reached an agreement to settle all outstanding claims for $495,000 related to a civil action brought by former employees for past wages claimed under a paid time-off program. The claim is to be paid within sixty days following Court approval of the settlement.

NOTE 14 – SUBSEQUENT EVENTS

On October 16, 2020, the Company entered into a stock purchase agreement, or the SPA, with Stadco New Acquisition, LLC, a wholly owned subsidiary of the Company, or the Acquisition Sub, Stadco, Stadco Acquisition, LLC, or the Target, and each stockholder of Target. The SPA provides for the Company, through Acquisition Sub, to acquire all of the issued and outstanding capital stock of Stadco from Target. Stadco, the operating subsidiary of Target, is a California corporation in the business of manufacturing high-precision parts, assemblies and tooling for aerospace, defense, research and commercial customers. As consideration for the acquisition of all of Target’s common stock, the Company, on behalf of Acquisition Sub, will issue 1,000,000 shares of the Company’s common stock to Target. The Company, Stadco and Target are also working, through negotiation with creditors of Stadco and Target, to substantially reduce the approximately $14 million of Stadco liabilities that would otherwise be added to the consolidated balance of the combined company after closing of the acquisition. Reaching agreements with these creditors to the satisfaction of the Company is required for the closing of the deal to occur. The Company expects that a percentage of these liabilities will be satisfied in part or full through the issuance of additional shares of the Company’s common stock.

The SPA contains customary representations and warranties of Stadco, Target, the Company and Acquisition Sub, and Stadco and Target have agreed to customary covenants relating to the conduct of their business during the interim period between the execution of the SPA and the closing of the acquisition. The consummation of the acquisition and the related transactions contemplated by the SPA is subject to certain customary conditions.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations Statement Regarding Forward Looking Disclosure

The following discussion of the results of our operations and financial condition should be read in conjunction with our condensed consolidated financial statements and the related notes, which appear elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may contain predictive or “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical fact contained in this quarterly report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions, as they relate to us, are intended to identify forward-looking statements.

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

	·	our reliance on individual purchase orders, rather than long-term contracts, to generate revenue;
	·	our ability to balance the composition of our revenues and effectively control operating expenses;
	·	external factors, including the COVID-19 pandemic, that may be outside of our control;
	·	the impacts of the COVID-19 pandemic and government-imposed lockdowns in response thereto;
	·	the availability of appropriate financing facilities impacting our operations, financial condition and/or liquidity;
	·	our ability to receive contract awards through competitive bidding processes;
	·	our ability to maintain standards to enable us to manufacture products to exacting specifications;
	·	our ability to enter new markets for our services;
	·	our reliance on a small number of customers for a significant percentage of our business;
	·	competitive pressures in the markets we serve;
	·	changes in the availability or cost of raw materials and energy for our production facilities;
	·	operating in a single geographic location;
	·	restrictions in our ability to operate our business due to our outstanding indebtedness;
	·	government regulations and requirements;
	·	pricing and business development difficulties;

	·	changes in government spending on national defense;
	·	our ability to make acquisitions and successfully integrate those acquisitions with our business;
	·	general industry and market conditions and growth rates;
	·	general economic conditions;
	·	the risk that the proposed acquisition of Stadco may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of Company’s common stock;
	·	the failure of either party to satisfy any of the conditions to the consummation of the proposed acquisition of Stadco and uncertainties as to the timing of the consummation of the proposed acquisition;
	·	the occurrence of any event, change or other circumstance that could give rise to the termination of the securities purchase agreement governing the acquisition;
	·	the effect of the announcement or pendency of the proposed acquisition 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; and
	·	those risks discussed in “Item 1A. Risk Factors” and elsewhere in our 2020 Annual Report on Form 10-K, as well as those described in any other filings which we make with the SEC.

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

Overview

Contract Manufacturing

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

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

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

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

Financial Results

Our results of operations are affected by a number of external factors including the availability of raw materials, commodity prices (particularly steel), macroeconomic factors, including the availability of capital that may be needed by our customers, and political, regulatory and legal conditions in the United States and in foreign markets. Generally, our projects are made up of short-term contracts with a production timeline that can range from three to as much as thirty-six months. Units manufactured under the majority of our customer contracts are delivered on time and with a positive gross margin. Our results of operations for any specific period are also affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress fulfilling obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog.

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

For the six months ended September 30, 2020, our net sales and net income were $8.0 million and $0.2 million, respectively, compared with net sales of $7.4 million and net loss of $0.1 million for the six months ended September 30, 2019. Our gross margin for the six months ended September 30, 2020 and 2019 was 22.8% and 20.6%, respectively. We used $0.7 million of cash in operations for the six months ended September 30, 2020 and had a cash balance of $1.1 million at September 30, 2020. Our sales order backlog at September 30, 2020 and March 31, 2020 was approximately $14.8 million and $16.8 million, respectively.

Acquisition of Stadco

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

COVID-19

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

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

Critical Accounting Policies

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

Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2020 Annual Report on Form 10-K. We consider the policies relating to revenue recognition to be a critical accounting policy. There have been no significant changes to our critical accounting policies during the six months ended September 30, 2020.

Accounting Pronouncements

New Accounting Standards

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

Key Performance Indicators

While we prepare our financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, we also utilize and present certain financial measures that are not based on or included in U.S. GAAP. We refer to these as Non-GAAP financial measures. Please see the section “EBITDA Non-GAAP financial measure” below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the most directly comparable U.S. GAAP financial measures.

Three Months Ended September 30, 2020 and 2019

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:

	September 30, 2020						September 30, 2019						Changes
(dollars in thousands)	Amount			Percent			Amount			Percent			Amount			Percent
Net sales	$	4,714			100	%	$	3,074			100	%	$	1,640			53	%
Cost of sales		3,585			76	%		2,660			87	%		925			35	%
Gross profit		1,129			24	%		414			13	%		715			173	%
Selling, general and administrative		696			15	%		741			24	%		(45	)		(6	)%
Operating income (loss)		433			9	%		(327	)		(11	)%		760			232	%
Other expense, net		(51	)		(1	)%		(71	)		(2	)%		20			28	%
Income (loss) before taxes		382			8	%		(398	)		(13	)%		780			196	%
Income tax expense (benefit)		111			2	%		(107	)		(4	)%		218			204	%
Net income (loss)	$	271			6	%	$	(291	)		(9	)%	$	562			193	%

Net Sales

The Company records most of its revenue over time as it completes performance obligations. We measure progress for performance obligations satisfied over time using input methods (e.g., labor hours expended and time elapsed).

Net sales were $4.7 million for the three months ended September 30, 2020, or 53% higher when compared to net sales for the three months ended September 30, 2019 of $3.1 million. Net sales in our defense markets increased by 13% when compared to the three months ended September 30, 2019, as our defense backlog remains strong as new orders for components continue to flow down from our prime defense contractors. Net sales to other commercial markets increased by $1.3 million when compared to the three months ended September 30, 2019, primarily on completed projects for components shipped to energy and medical customers. We have experienced repeat business in these markets, but the order flow is uneven and difficult to forecast.

Cost of Sales and Gross Margin

Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the three months ended September 30, 2020 were $3.6 million compared to $2.7 million for the three months ended September 30, 2019. Gross margin was 23.9% for the three months ended September 30, 2020 and 13.5% for the three months ended September 30, 2019. Gross profit was $1.1 million for the three months ended September 30, 2020, or $0.7 million higher when compared to the three months ended September 30, 2019.

Our fiscal 2021 second quarter gross profit was higher due to a favorable project product mix with higher margins and efficient throughput that included actual labor hours that were in-line with estimates to complete. Our fiscal 2020 second quarter included a loss provision for certain customer projects and under-absorbed factory overhead which dampened gross margin for that period.

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

Selling, General and Administrative Expenses

Total selling, general and administrative expenses for the three months ended September 30, 2020 decreased by $44,975 due primarily to a decrease in outside advisory services and travel expenses as a result of the COVID-19 pandemic when compared to the three months ended September 30, 2019.

Other Expense, net

Interest expense was lower for the three months ended September 30, 2020 when compared to the three months ended September 30, 2019, and should continue to be lower than the prior year, barring any additional borrowings for working capital purposes under our revolving credit facility. Debt issue costs increased as the Company began to amortize costs associated with increasing the borrowing limit under the Revolver loan with Berkshire bank and borrowings under the payroll protection program, or PPP. The following table reflects other income, interest expense and amortization of debt issue costs for the three months ended:

	September 30, 2020			September 30, 2019			$ Change			% Change
Other income, net	$	804		$	1,448		$	(644	)		(44	)%
Interest expense	$	(35,975	)	$	(64,515	)	$	28,540			44	%
Amortization of debt issue costs	$	(15,607	)	$	(8,081	)	$	(7,526	)		(93	)%

Income Taxes

For the three months ended September 30, 2020 we recorded tax expense of $111,302 compared to a tax benefit of $107,576 for the three months ended September 30, 2019. Tax benefit for the three months ended September 30, 2019 was the result of an operating loss.

Net Income (Loss)

As a result of the foregoing, for the three months ended September 30, 2020, we recorded net income of $0.3 million, compared with a net loss of $0.3 million, for the three months ended September 30, 2019.

Six Months Ended September 30, 2020 and 2019

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

	September 30, 2020						September 30, 2019						Changes
(dollars in thousands)	Amount			Percent			Amount			Percent			Amount		Percent
Net sales	$	7,996			100	%	$	7,408			100	%	$	588		8	%
Cost of sales		6,170			77	%		5,885			79	%		285		5	%
Gross profit		1,826			23	%		1,523			21	%		303		20	%
Selling, general and administrative		1,489			19	%		1,482			20	%		7		-	%
Operating income (loss)		337			4	%		41			1	%		296		728	%
Other expense, net		(108	)		(1	)%		(128	)		(2	)%		20		16	%
Income (loss) before taxes		229			3	%		(87	)		(1	)%		316		361	%
Income tax expense (benefit)		74			1	%		(17	)		-	%		91		526	%
Net income (loss)	$	155			2	%		(70	)		(1	)%	$	225		320	%

Net Sales

Changes in net sales generally reflect a different product mix and project volume when comparing the current and prior year periods. Net sales were $8.0 million for the six months ended September 30, 2020, or 8% higher when compared to net sales for the six months ended September 30, 2019 of $7.4 million. For the six months ended September 30, 2020, net sales in our defense markets decreased by $0.1 million when compared to the six months ended September 30, 2019. However, our defense backlog remains strong as new orders for components continue to flow down from our prime defense contractors. Net sales to other commercial markets increased by $0.7 million when compared to the six months ended September 30, 2019 on projects completed for customers in the energy and medical markets. We have repeat business in this sector, but the order flow can be uneven and difficult to forecast.

Cost of Sales and Gross Margin

Cost of sales consists primarily of raw materials, parts, labor, overhead and subcontracting costs. Our cost of sales for the six months ended September 30, 2020 were $6.2 million compared to $5.9 million for the six months ended September 30, 2019. Gross margin was 22.8% for the six months ended September 30, 2020 and 20.6% for the six months ended September 30, 2019. Gross profit was $1.8 million for the six months ended September 30, 2020, or 20% higher when compared to the six months ended September 30, 2019.

Overall, more labor hours were used on higher margin projects during the six month period. As a result, labor costs and factory overhead were lower as a percentage of revenue, due to the efficient throughput as actual labor hours were in line with original estimates to complete.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses for the six months ended September 30, 2020 increased by $6,988 as an increase in salaries and stock-based compensation more than offset a decrease in professional fees and travel expenses when compared to the six months ended September 30, 2019.

Other Expense, net

Interest expense was lower for the six months ended September 30, 2020 when compared to the six months ended September 30, 2019, and should continue to be lower than the prior year, barring any additional borrowings for working capital purposes under our revolving credit facility. Debt issue costs increased as we began to amortize costs associated with amendments to the existing Berkshire loan agreement bank and new borrowings under the payroll protection program, or PPP.

Other income for the six months ended September 30, 2019 included proceeds from the sale of machinery and equipment of $16,000. The following table reflects other income, interest expense and amortization of debt issue costs for the six months ended:

	September 30, 2020			September 30, 2019			$ Change			% Change
Other income, net	$	1,456		$	20,878		$	(19,422	)		(93	)%
Interest expense	$	(78,394	)	$	(128,349	)	$	49,955			39	%
Amortization of debt issue costs	$	(31,086	)	$	(20,770	)	$	(10,316	)		(50	)%

nm – not meaningful

Income Taxes

For the six months ended September 30, 2020 we recorded tax expense of $73,942 and a tax benefit of $17,358 for the six months ended September 30, 2019. The tax benefit for the six months ended September 30, 2019 was the result of an operating loss.

The valuation allowance on deferred tax assets at September 30, 2020 was approximately $1.7 million. We believe that it is more likely than not that the benefit from certain state and foreign NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management’s estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company’s effective tax rate.

Net Income (Loss)

As a result of the foregoing, for the six months ended September 30, 2020, we recorded net income of $0.2 million, compared with a net loss of $0.1 million for the six months ended September 30, 2019.

Liquidity and Capital Resources

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

The Note provides for an interest rate of 1.00% per year and matures two years after the issuance date. Principal and accrued interest are payable monthly in equal installments commencing on the date that is approximately six months after the date funds are first disbursed on the loan and continuing through the maturity date, unless the Note is forgiven as described below. To be available for loan forgiveness, the Note may only be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that existed before February 15, 2020. The Note may be prepaid at any time prior to maturity with no prepayment penalties and contains events of default and other conditions customary for a Note of this type.

We also have a revolving line of credit with Berkshire Bank available as a resource, if necessary. 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 September 30, 2020 and March 31, 2020. Interest-only payments on advances made under the Revolver Loan during the six months ended September 30, 2020 totaled $5,986 at a weighted average interest rate of 2.76%. Unused borrowing capacity at September 30, 2020 was $3.0 million. The maturity date of the Revolver Loan is December 20, 2020.

At September 30, 2020, we had cash and cash equivalents of $1.1 million and working capital of $7.1 million. We believe our available cash plus cash expected to be provided by operations during fiscal 2021, and borrowing capacity available under the Revolver Loan will be sufficient to fund our operations, capital expenditures and principal and interest payments under our debt obligations through the 12 months from the issuance date of our financial statements. However, following the closing of the acquisition of Stadco, or in connection therewith, we may need to reevaluate our financing needs in light of the significant changes we expect to the combined company’s capital resource needs. As a result, we may decide to seek new debt and/or equity financing.

The table below presents selected liquidity and capital measures at:

(dollars in thousands)	September 30, 2020		March 31, 2020		Change Amount
Cash and cash equivalents	$	1,092	$	931	$	161
Working capital	$	7,057	$	5,595	$	1,462
Total debt	$	3,850	$	2,587	$	1,263
Total stockholders’ equity	$	9,736	$	9,469	$	267

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

(*dollars in thousands)*	September 30, 2020			September 30, 2019			Change Amount
Cash flows provided by (used in):
Operating activities	$	(739	)	$	938		$	(1,677	)
Investing activities		(355	)		(11	)		(344	)
Financing activities		1,255			(409	)		1,664
Net increase in cash	$	161		$	518		$	(357	)

Operating activities

Our primary sources of cash are from accounts receivable collections, customer advance payments and project progress payments. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as the composition of our receivables collections mix changes between advance payments, progress payments and payments made after shipment of finished goods. Cash used in operations for the six months ended September 30, 2020 was $0.7 million compared with cash provided by operations of $0.9 million for fiscal 2020.

In the first six months of fiscal 2021, our accounts receivable and contract assets increased and contract liabilities decreased due to a period of efficient throughput and spending on new projects, improving turnover, but still resulting in a higher amount of cash used in operations for the period ended September 30, 2020. Also, we have encountered some delayed inspections, deliveries, and disrupted supply chain issues, due to travel restrictions in connection with the COVID-19 pandemic. The future financial impact of the COVID-19 pandemic cannot be reasonably estimated at this time as its impact depends on future developments, which are highly uncertain and cannot be predicted.

Investing activities

We anticipate that we will spend approximately $0.2 million in new factory machinery and equipment during the remainder of fiscal 2021. Net cash used in investing activities for purchases of property, plant and equipment in the six months ended September 30, 2020 and 2019 totaled $354,788 and $11,544, respectively.

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 six months ended September 30, 2020 and 2019 we made monthly principal payments of $53,614 and $402,889 in connection with our term debt and finance lease obligations.

All of the above activity resulted in a net increase in cash of $0.2 million for the six months ended September 30, 2020 compared with an increase in cash of $0.5 million for the six months ended September 30, 2019.

Off-Balance Sheet Arrangements

We do not currently have, and have not had, any off-balance sheet assets, liabilities or arrangements at September 30, 2020.

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.

We define EBITDA as net income (loss) plus interest, income taxes, depreciation and amortization. EBITDA, a non-GAAP financial measure, was $0.7 million for the six months ended September 30, 2020, as compared to $0.4 million for the six months ended September 30, 2019. 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 following periods:

	Three Months ended September 30,								Six Months ended September 30,
(dollars in thousands)	2020		2019			Change			2020		2019			Change
Net income (loss)	$	271	$	(291	)	$	562		$	155	$	(70	)	$	225
Income tax expense (benefit)		111		(107	)		218			74		(17	)		91
Interest expense (1)		52		73			(21	)		110		149			(39	)
Depreciation		170		190			(20	)		339		380			(41	)
EBITDA	$	604	$	(135	)	$	739		$	678	$	442		$	236

(1) Includes amortization of debt issue costs.

Item 3.

Quantitative and Qualitative Disclosure About Market Risk.

As a smaller reporting company, we have elected not to provide the information required by this Item.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are controls and procedures that are designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and includes controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, an evaluation was carried out, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020, our disclosure controls and procedures were effective at a reasonable assurance level.

Inherent Limitations Over Internal Controls

The Company’s internal control over financial reporting is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods is subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

For the quarter ended September 30, 2020, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information.

Item 1A.

Risk Factors

Our ability to complete the acquisition of Stadco is subject to closing conditions, including the receipt of consents and approvals from third parties, which may impose conditions that could adversely affect us or cause the acquisition not to be completed.

Our acquisition of Stadco and its affiliates is subject to a number of closing conditions as specified in the stock purchase agreement entered into with Stadco and its holding company. These include, among others, the entry into arrangements with certain lenders of Stadco and its affiliates and the absence of governmental restraints or prohibitions preventing the consummation of the acquisition. No assurance can be given that the required consents and approvals will be obtained or that the closing conditions will be satisfied in a timely manner or at all. Any delay in completing the acquisition could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve. In addition, we can provide no assurance that these conditions will not result in the abandonment or delay of the acquisition. The occurrence of any of these events could have a material adverse effect on our results of operations, cash flows, financial condition and/or the trading price of our common stock.

We may not achieve the intended benefits of our acquisition of Stadco, and the acquisition may disrupt our current plans or operations.

We may not be able to successfully integrate Stadco’s business and assets or otherwise realize the expected benefits of the transaction, including anticipated annual operating cost and capital synergies to the extent currently anticipated, or at all. To realize these anticipated benefits, our business and Stadco’s business must be successfully combined, which is subject to our ability to consolidate operations, corporate cultures and systems and our ability to eliminate redundancies and costs. Difficulties in integrating Stadco into our operations may result in the combined company performing differently than expected, in operational challenges or in the failure to realize anticipated synergies and efficiencies in the expected time frame or at all. The integration of the two companies may result in material challenges, including the diversion of management’s attention from ongoing business concerns; retaining key management and other employees; retaining existing business and operational relationships, including customers and other counterparties, and attracting new business and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating geographically separate organizations; difficulties in the assimilation of employees and corporate cultures; unanticipated issues in integrating information technology, communications and other systems; as well as unforeseen expenses or delays associated with the acquisition. If we are not successful in integrating Stadco’s business and assets or otherwise fail to realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the Stadco acquisition, our results of operations, cash flows and financial condition may be materially adversely affected.

Whether or not it is completed, the announcement and pendency of the acquisition of Stadco could cause disruptions in our business, which could have an adverse effect on our business and financial results.

Whether or not it is completed, the announcement and pendency of our acquisition of Stadco could cause disruptions in our business: our and Stadco’s current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect the ability to retain key employees; uncertainty regarding the completion of the acquisition may cause customers, suppliers, distributors, vendors, strategic partners or others to delay or defer entering into contracts, make other decisions or seek to change or cancel existing business relationships; and the attention of management may be directed toward the completion of the acquisition. If the acquisition is not completed, we will have incurred significant costs and diverted management resources, for which we will have received little or no benefit.

We are expected to incur substantial expenses related to the acquisition of Stadco and its affiliates and the integration of their business with ours.

We expect to incur substantial expenses in connection with the integration of our business with Stadco and its affiliates. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. In addition, our and Stadco’s businesses will continue to maintain a presence in Westminster, Massachusetts and Los Angeles, California, respectively. Some of these costs will be non-recurring expenses related to the acquisition itself, including legal and accounting costs and systems consolidation costs. We may also incur additional costs to attract, motivate or retain management personnel and other key employees. We have incurred and will continue to incur acquisition fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs.

Our stockholders may not realize a benefit from the acquisition of Stadco commensurate with the ownership dilution they will experience in connection with the transaction.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the acquisition of Stadco and its affiliates, our stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the acquisition.

The market price of our common stock following the acquisition of Stadco may decline as a result of the transaction.

The market price of our common stock may decline as a result of our acquisition of Stadco and its affiliates for a number of reasons, including if:

investors react negatively to the prospects of the combined company’s business and financial condition following the acquisition;

the effect of the acquisition on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

the combined company does not achieve the perceived benefits of the acquisition as rapidly or to the extent anticipated by management and the Company’s investors, or at all.

Item 6.

Exhibits.

Exhibit Index

Exhibit No.		Description
3.1		Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 to our registration statement on Form SB-2, filed with the Commission on August 28, 2006).
3.2		Amended and Restated By-laws of the Registrant (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the Commission on February 3, 2014).
3.3		Certificate of Designation for Series A Convertible Preferred Stock of the Registrant (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, filed with the Commission on March 3, 2006).
3.4		Certificate of Amendment to Certificate of Designation for Series A Convertible Preferred Stock of the Registrant (incorporated herein by reference to Exhibit 3.5 to our Quarterly Report on Form 10-Q, filed with the Commission on November 12, 2009).
10.1*		Stock Purchase Agreement among TechPrecision Corporation, Stadco New Acquisition, LLC, Stadco, Stadco Acquisition, LLC and the stockholders of Stadco, dated as of October 16, 2020 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K, filed with the Commission on October 20, 2020).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		The following financial information from this Quarterly Report on Form 10-Q for the three and six months ended September 30, 2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets at September 30, 2020 and March 31, 2020; (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended September 30, 2020 and 2019; (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the periods ended September 30, 2020 and 2019; (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2020 and 2019; and (v) the Notes to the Condensed Consolidated Financial Statements.

*Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules have been omitted. A copy of any omitted schedule will be furnished supplementally to the Securities and Exchange Commission upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		TechPrecision Corporation

November 12, 2020	By:	/s/ Thomas Sammons
		Thomas Sammons
		Chief Financial Officer

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