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DESCRIPTION OF BUSINESS | 3 Months Ended
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Jun. 30, 2014
DESCRIPTION OF BUSINESS |
DESCRIPTION OF BUSINESS | NOTE 1 — DESCRIPTION OF BUSINESS TechPrecision Corporation, or TechPrecision, is a custom manufacturer of large scale metal fabricated and machined precision components and equipment. We offer a full range of services required to transform metallic raw materials into precise finished products. We sell these finished products to customers in three main industry groups: naval/maritime, energy and precision industrial. These products are used in a variety of markets including the alternative energy, medical, nuclear, defense, commercial, and aerospace industries. TechPrecision is the parent company of Ranor, Inc., or Ranor, a Delaware corporation. On November 4, 2010, TechPrecision announced it completed the formation of a wholly foreign owned enterprise (WFOE), under the laws of the People’s Republic of China, Wuxi Critical Mechanical Components Co., Ltd., or WCMC, to meet demand for local manufacturing of components in China. TechPrecision, WCMC and Ranor are collectively referred to as “the Company,” “we,” “us” or “our.” Liquidity and Capital Resources At March 31, 2013, we were not in compliance with the fixed charges and interest coverage financial covenants under our Loan and Security Agreement between Ranor and Santander Bank, or the Bank, dated February 24, 2006, as amended, or the Loan Agreement, and the Bank did not agree to waive the non-compliance with the covenants. Since we were in default, the Bank had the right to accelerate payment of the debt in full upon 60 days written notice. On May 30, 2014, TechPrecision and Ranor entered into a Loan and Security Agreement, or the LSA, with Utica Leasco, LLC, or Utica. Pursuant to the LSA, Utica agreed to loan $4.15 million to Ranor under a Credit Loan Note, which is collateralized by a first secured interest in certain machinery and equipment at Ranor. Payments under the LSA and Credit Loan Note are due in monthly installments with interest on the unpaid principal balance of the Credit Loan Note at an interest rate equal to 7.5% plus the greater of 3.3% and the six-month LIBOR interest rate, as described in the Credit Loan Note. Ranor’s obligations under the LSA and the Credit Loan Note are guaranteed by TechPrecision. Pursuant to the LSA, Ranor is subject to certain restrictive covenants which, among other things, restrict Ranor’s ability to (1) declare or pay any dividend or other distribution on its equity, purchase or retire any of its equity, or alter its capital structure; (2) make any loan or guaranty or assume any obligation or liability; (3) default in payment of any debt in excess of $5,000 to any person; (4) sell any of the collateral outside the normal course of business or (5) enter into any transaction that would materially or adversely affect the collateral or Ranor’s ability to repay the obligations under the LSA and the Credit Loan Note. The restrictions of these covenants are subject to certain exceptions specified in the LSA and in some cases may be waived by written consent of Utica. Any failure to comply with the covenants outlined in the LSA without waiver by Utica or certain other provisions in the LSA would be an event of default, pursuant to which Utica may accelerate the repayment of the loan. In connection with the execution of the LSA, we paid approximately $0.24 million in fees and associated costs and utilized approximately $2.65 million to pay off debt obligations owed to the Bank, under the Loan Agreement. Additionally, the Company retained approximately $1.27 million for general corporate purposes. On January 16, 2014, we entered into a forbearance and modification agreement with the Bank, or the First Forbearance Agreement, in connection with the Loan Agreement. Under the First Forbearance Agreement, the Bank agreed to forbear from exercising certain of its rights and remedies arising as a result of the Company’s non-compliance with certain financial covenants under the Loan Agreement until March 31, 2014. On May 30, 2014, the Company and the Bank entered into a new forbearance and modification agreement, or the Second Forbearance Agreement. Under the Second Forbearance Agreement, the Bank agreed to forbear from exercising certain of its rights and remedies arising as a result of the Company’s non-compliance with certain financial covenants under the Loan Agreement commencing retroactively on April 1, 2014 and extending until no later than June 30, 2014, or the Second Forbearance Period. During the Second Forbearance Period, we agreed to comply with the terms, covenants and provisions in the Loan Agreement and related documents, as amended by the Second Forbearance Agreement. The Second Forbearance Agreement amends the Loan Agreement to, among other things, prohibit the Company’s Leverage Ratio (as such term is defined in the Loan Agreement) to be greater than 1.75 to 1.0. We were not in compliance with the leverage ratio covenant at June 30, 2014 or at March 31, 2014, as the actual leverage ratio was 4.3 to 1.0 and 3.8 to 1.0, respectively. The Second Forbearance Period was extended further subsequent to June 30, 2014 pursuant to an execution of a new forbearance and modification agreement (see Note 18). Since we are in default, the Bank has the right to accelerate payment of the debt in full upon 60 days written notice. As a consequence, we classified $4.4 million (includes $3.1 million for Utica) and $3.7 million under the Loan Agreement, the Series A Bonds, the Series B Bonds, and the LSA, as applicable, as a current liability at June 30, 2014 and March 31, 2014. In the event that we fail to pay off, or complete a refinancing of, the current outstanding obligations by the completion of the Second Forbearance Period (as extended by the forbearance and modification agreements entered into subsequent to June 30, 2014 — see Note 18), the interest rate on outstanding obligations will convert to the default interest rate of 65% of the sum of one month Libor plus 16%. If the Bank were to demand full repayment, we would be unable to pay the obligation as we do not have existing facilities or sufficient cash on hand to satisfy these obligations and would need to seek alternative financing. At June 30, 2014, we had cash and cash equivalents of $886,888, of which $11,356 is located in China and which we may not be able to repatriate for use in the U.S. without undue cost or expense, if at all. Our cash and cash equivalents total includes $505,000 of restricted cash with the Bank that may be used toward funding operating activities with the Bank’s approval. Approximately 36% of our accounts receivable were at risk of not being paid in a timely manner due to a contract dispute with one of our customers. We have incurred an operating loss of $1.3 million for the three months ended June 30, 2014. Our financial results for the past three years were impacted by significant new contract losses. We have recorded a provision for potential losses and, in one case, filed a demand for arbitration under a customer’s purchase agreement to recover all of our costs under the contract terms. We cannot be certain that we will be successful in recovering the full amount of our losses. These factors raise substantial doubt about our ability to continue as a going concern. In order for us to continue operations beyond the next twelve months and be able to discharge our liabilities and commitments in the normal course of business, we must secure long-term financing on terms consistent with our near-term business plans. In addition, we must increase our backlog and change the composition of our revenues to focus on recurring unit of delivery projects rather than custom first article and prototyping projects which do not efficiently use our manufacturing capacity, and reduce our operating expenses to be in line with current business conditions in order to increase profit margins and decrease the amount of cash used in operations. If successful in changing the composition of revenue and reducing costs, we anticipate that the year ending March 31, 2015, or fiscal 2015 operating results will reflect positive cash flows. We plan to closely monitor our expenses and, if required, will further reduce operating costs to enhance liquidity. The condensed consolidated financial statements for the three months ended June 30, 2014 and the year ended March 31, 2014, or fiscal 2014, were prepared on the basis of a going concern which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should we be required to liquidate assets. Our ability to satisfy our total current liabilities of $13.9 million at June 30, 2014 and to continue as a going concern is dependent upon the availability of and our ability to timely secure long-term financing and the successful execution of an effective operating plan. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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- Definition The entire disclosure for the nature of an entity's business, the major products or services it sells or provides and its principal markets, including the locations of those markets. If the entity operates in more than one business, the disclosure also indicates the relative importance of its operations in each business and the basis for the determination (for example, assets, revenues, or earnings). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6003-108592 + Details
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