What changed in TECHPRECISION CORP's 10-K — 2023 vs 2024

Termination of the Votaw Acquisition On November 22, 2023 we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Doerfer Corporation (the “Seller”), pursuant to which, we would acquire all of the issued and outstanding common stock of Votaw Precision Technologies, Inc.

(“Votaw”), and after giving effect to such purchase, Votaw was to become a wholly owned subsidiary of the Company. Due to a change in certain conditions and events, it became probable that on March 31, 2024, the Company would be unable to close on the acquisition.

On April 2, 2024, the Seller delivered to us written notice of its election to terminate the Purchase Agreement under Section 7.01(f) effective immediately.

Pursuant to Section 7.01(f) of the Purchase Agreement, in the event that the Closing (as defined in the Purchase Agreement) had not occurred by the Outside Date (as defined in the Purchase Agreement) either the Company or the Seller had the right to terminate the Purchase Agreement, subject to the party terminating having complied with the other required closing conditions.

Since the Seller validly terminated the Purchase Agreement pursuant to Section 7.01(f) therein, the Company was required to pay to the Seller a termination fee, as the Seller’s exclusive remedy, consisting of 320,000 shares of the Company’s common stock issued into the name of the Seller (the “Stock Termination Fee”).

The Purchase Agreement includes a provision that the Stock Termination Fee is increased by 48,000 additional shares of the Company’s common stock under certain circumstances, including if the Company fails to use commercially reasonable efforts to cause a registration statement to effect the resale of the shares composing the Stock Termination Fee to become effective as soon as practicable.

On April 29, 2024, we issued 320,000 shares of the Company’s common stock as the Stock Termination Fee.

On May 2, 2024, the Company filed a registration statement on Form S-1, related to the offer and resale by the Seller of up to 320,000 shares of our common stock that were issued to the Seller as the Stock Termination Fee, which cannot be declared effective by the Securities and Exchange Commission until we have filed all of the required financial statements, including our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024.

See Note 17, Subsequent Events , to our consolidated financial statements included in Item 8 and Item 1A, “Risk Factors ,” for additional information on the Stock Termination Fee. About Us We are a Delaware corporation organized in 2005 under the name Lounsberry Holdings II, Inc.

The custom-based work is typically either a prototype or unique, one-of-a-kind product.

We have also served customers who supply components to the nuclear power industry. 5 Table of Contents We historically have experienced, and continue to experience, customer concentration.

Item 1A. Risk Factors. Our business, results of operations and financial condition and the industry in which we operate are subject to various risks. We have listed below (not necessarily in order of importance or probability of occurrence) the most significant risk factors applicable to us, but they do not constitute all the risks that may be applicable to us.

New risks may emerge from time to time, and it is not possible for us to predict all potential risks or to assess the likely impact of all risks. More information concerning certain of these risks is contained in other sections of this Annual Report on Form 10-K, including in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Risks Related to Our Business and Industry Our auditors have indicated that there is substantial doubt about our ability to continue as a going concern. Our liquidity is highly dependent on the availability of financing facilities and our ability to maintain a gross profit and operating income.

The Company is the borrower under the amended and restated loan agreement with Berkshire Bank (the “Loan Agreement”). The Company has determined that it was not in compliance with the financial covenants in the Loan Agreement as of March 31, 2024.

Additionally, our management believes it is probable that the Company will not be in compliance with these financial covenants in future periods. Without a waiver, noncompliance with these financial and related covenants permits the lender to demand repayment in full of all outstanding amounts from the Company.

In addition, the lender retains the right to act on covenant violations that occur after the date of delivery of any waiver. If the lender were to demand repayment, the Company would not be able to pay the obligation because the Company does not have existing facilities or sufficient cash on hand to satisfy these obligations.

In order to satisfy the future financial covenants in the Loan Agreement, we must efficiently increase utilization of our manufacturing capacity at our Stadco subsidiary and improve the manufacturing process, such that our direct labor hours (inputs) allow us to recognize more revenue over time (outputs) and improve job performance.

We plan to closely monitor our expenses and, if required, will reduce operating costs and capital spending to enhance liquidity. There can be no assurance that we will be successful in these efforts.

If we are unable to achieve compliance in the future with the financial covenants in the Loan Agreement by making operational changes to our business, then we might alternatively seek additional waivers or forbearances from our lender prior to any covenant violation or raise additional funds in one or more equity financing transactions.

Any covenant waiver or forbearance may lead to increased costs, increased interest rates, additional restrictive covenants and the imposition of other lender protections that impact us negatively. There can be no assurance that we would be able to obtain waivers or forbearances in a timely manner, on acceptable terms, or at all.

Alternatively, the terms of any equity financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline.

The sale of additional shares of our common stock, or securities convertible into shares of our common stock, would also dilute all of our stockholders. There was $7.6 million outstanding under the Loan Agreement on March 31, 2024.

Berkshire Bank is the lender under the Loan Agreement and has agreed to extend the maturity date of the revolver loan to January 15, 2025. The original maturity date of the revolver loan under the loan agreement was December 20, 2023.

While the maturity date of the revolver loan has been extended, it is due within the next 12 months and, if we are not able to renew or further extend the maturity date of the revolver loan, we will need to raise additional funds in order meet our obligations with respect to the revolver loan and sustain our operations.

In addition to extending the maturity date of the revolver loan, the Company acknowledges that a certain event of default has occurred and is continuing under the Loan Agreement because of the Company’s failure to satisfy the Debt Service Coverage Ratio, or DSCR, for the twelve-month period ending March 31, 2024.

The lender reserves any and all rights and remedies available to it under the Loan Agreement, including, without limitation, its right to choose to accelerate and demand the outstanding indebtedness evidenced by the loan documents, and to seek immediate repayment in full.

In the event that the lender accelerates the repayment of this indebtedness as the result of one or more breaches of covenant or the maturity date of the revolver loan is not renewed or further extended, we do not expect to have funds available to repay these amounts in full unless we raise additional funds or find alternate financing, which, along with the uncertainty associated with the recurring operating losses at Stadco, raises substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements included in this Annual Report on Form 10-K are issued.

The consequences of any default, waiver or forbearance, or the securing of additional equity financing, could materially and adversely affect our business, financial condition, and results of operations. 8 Table of Contents We may pursue acquisitions and other strategic transactions and/or investments to compliment or expand our business that may not be successful.

From time to time, we may explore opportunities to purchase or invest in other businesses or assets that we believe will complement, enhance or expand our current business or that might otherwise offer us growth opportunities, including opportunities that may differ from the Company’s current business.

Any transactions that we are able to identify and complete may involve risks, including the commitment of significant capital, the incurrence of indebtedness, the payment of advances, the diversion of management’s attention and resources from our existing business to develop and integrate the acquired or combined business, the inability to successfully integrate such business or assets into our operations, litigation or other claims in connection with acquisitions or against companies we invest in or acquire, the risk of not achieving the intended results and the exposure to losses if the underlying transactions or ventures are not successful.

Whether or not completed, the announcement and pendency of the potential acquisitions could cause disruptions in our business; and current and prospective employees may experience uncertainty about their future roles, which might adversely affect the ability to retain key employees; and 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.

We face strong competition in our markets. We face competition from both domestic and foreign manufacturers in each of the markets we serve. No one company dominates the industry in which we operate.

Our competitors include international, national, and local manufacturers, some of whom may have greater financial, manufacturing, marketing, and technical resources than we do, or greater penetration in or familiarity with a particular geographic market than we have. Some competitors may be better known or have greater resources at their disposal, and some may have lower production costs.

For certain products, being a domestic manufacturer may play a role in determining whether we are awarded a certain contract. For other products, we may be competing against foreign manufacturers who have a lower cost of production.

If a contracting party has a relationship with a vendor and is required to place a contract for bids, the preferred vendor may provide or assist in the development of the specification for the product which may be tailored to that vendor’s products. In such event, we would be at a disadvantage in seeking to obtain that contract.

We believe that customers focus on such factors as quality of work, reputation of the vendor, perception of the vendor’s ability to meet the required schedule, and price in selecting a vendor for their products. Some of our customers have moved manufacturing operations or product sourcing overseas, which can negatively impact our sales.

To remain competitive, we will need to invest continuously in our manufacturing capabilities and customer service, and we may need to reduce our prices, particularly with respect to customers in industries that are experiencing downturns, which may adversely affect our results of operations.

We cannot provide assurance that we will be able to maintain our competitive position in each of the markets that we serve, and any failure by us to complete could have a material adverse effect on our business, financial condition and results of operations.

Because most of our contracts are individual purchase orders and not long-term agreements, there is no guarantee that we will be able to generate a similar amount of revenue in the future. We must bid or negotiate each of our contracts separately, and when we complete a contract, there is generally no continuing source of revenue under that contract.

As a result, we cannot assure you that we will have a continuing stream of revenue from any contract. Our failure to generate new business on an ongoing basis would materially impair our ability to operate profitably.

Additionally, our reliance on individual purchase orders has historically caused, and may in future periods cause, our results of operations and cash flows to vary considerably and unpredictably from period to period.

Because a significant portion of our revenue is derived from services rendered for the defense, aerospace, nuclear, large medical device and precision industrial markets, our operating results may suffer from conditions affecting these industries, including any budgeting, economic or other trends that have the effect of reducing the requirements for our services.

Lingering impacts from the COVID-19 pandemic, labor shortages and/or supply chain disruptions in the broader economy may also reduce demand for our products and services because of delays or disruptions in our customers’ ability to continue their own production, which could have a material adverse effect on our business, financial condition, or results of operation. 9 Table of Contents Our business may be impacted by external factors that we may not be able to control, including health emergencies like epidemics or pandemics, and the war between Russia and Ukraine.

War, civil conflict, terrorism, natural disasters, and public health issues including domestic or international pandemics, have caused and could cause damage or disruption to domestic or international commerce by creating economic or political uncertainties.

Additionally, volatility in the financial markets, instability in the banking sector and disruptions or downturns in other areas of the global or U.S. economies could negatively impact our business.

These events could result in a decrease in demand for our products, make it difficult or impossible to deliver orders to customers or receive materials from suppliers, affect the availability or pricing of energy sources or result in other severe consequences that may or may not be predictable.

As a result, our business, financial condition and results of operations could be materially adversely affected. We could also be negatively affected by health emergencies, including epidemics or pandemics.

The effects of any such health emergency and related governmental responses could include extended disruptions to supply chains and capital markets, reduced labor availability and productivity and a prolonged reduction in demand for our services and overall global economic activity.

This could result in the Company experiencing significant disruptions, which could have a material adverse effect on our results of operations, financial condition, and cash flows. To date, the company has not experienced any material effects from the war between Russia and Ukraine and sanctions placed on the Russian Federation and Belarus.

On October 30, 2023, the Company and one of its employees were named as defendants in an action alleging individual claims of discrimination and wage and hour violations, along with representative wage and hour claims brought pursuant to the California Private Attorneys General Act of 2004 (“PAGA”) [Cal. Lab.

Code, ss. 2698, et seq.] in California Superior Court for the County of Los Angeles. In the complaint, captioned Ibarra v.

Stadco (LASC Case No. 23STCV26591), a former employee of Stadco, sought to recover alleged damages (including backpay from his date of termination and emotional distress), unpaid underpaid wages, penalties, attorney’s fees and costs of suit on his own behalf based on allegations of age and disability discrimination and wage and hour violations.

The former employee’s individual claims would have been subject to private arbitration. In addition, the former employee seeks to recover civil penalties under PAGA on behalf of a group of similarly situated aggrieved employees based upon all paychecks issues since July 21, 2022, together with his attorney’s fees and costs of suit, for certain violations of the California Labor Code.

For purposes of this action, “aggrieved employees” means all non-exempt employees of Stadco in California since July 21, 2022. The PAGA claim may not be privately arbitrated and any settlement must be approved by the court. Stadco has retained outside legal counsel to defend this action.

The parties participated in a mediation on June 26, 2024, and were able to reach a resolution within the Company’s expectations. Final settlement payment on the individual claims was due and paid in August, 2024. No hearing date has been set for approval of the PAGA settlement, which has not been finalized in a long-form agreement at this time.

Item 4. Mine Safety Disclosures Not applicable to the registrant. 21 Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Statement Regarding Forward Looking Disclosure The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes, which appear elsewhere in this Annual Report on Form 10-K.

This Annual Report on Form 10-K, including this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may contain predictive or “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements other than statements of current or historical fact contained in this annual report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events, or conditions are forward-looking statements.

The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “should,” “would” and similar expressions, as they relate to us, are intended to identify forward-looking statements.

These forward-looking statements are based on current expectations, estimates and projections made by management about our business, our industry and other conditions affecting our financial condition, results of operations or business prospects. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.

Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, the forward-looking statements due to numerous risks and uncertainties.

As discussed below under “Liquidity and Capital Resources”, certain events and conditions, when examined in the aggregate, indicate substantial doubt about our ability to continue as a going concern for at least one year beyond the date of the financial statements.

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 that may be outside of our control, including health emergencies, like epidemics or pandemics, the conflicts in Eastern Europe and the Middle East, price inflation, increasing interest rates, and supply-chain inefficiencies; ● 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; 23 Table of Contents ● 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; ● restrictions on 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; ● our failure to maintain effective internal controls over financial reporting; ● general industry and market conditions and growth rates; ● unexpected costs, charges or expenses resulting from the recently terminated Stock Purchase Agreement; and ● those risks discussed in “ Item 1A.

Risk Factors ” and elsewhere in this Annual Report on Form 10-K, as well as those described in any other filings which we make with the SEC.

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

Investors should evaluate any statements made by us in light of these important factors.

Recent Developments Termination of Votaw Acquisition On November 22, 2023 we and the Seller, entered into the Purchase Agreement, pursuant to which, we would acquire all of the issued and outstanding common stock of Votaw, and after giving effect to such purchase, Votaw was to become our wholly owned subsidiary.

Due to a change in certain conditions and events, it became probable that on March 31, 2024, the Company would be unable to close on the acquisition. On April 2, 2024, the Seller delivered to the Company written notice of its election to terminate the Purchase Agreement under Section 7.01(f) effective immediately.

Pursuant to Section 7.01(f) of the Purchase Agreement, in the event that the Closing had not occurred by March 31, 2024, either we or the Seller had the right to terminate the Purchase Agreement, subject to the party terminating having complied with the other required closing conditions.

Since the Seller validly terminated the Purchase Agreement pursuant to Section 7.01(f), the Company was required to pay to the Seller the Stock Termination Fee.

Under the Purchase Agreement, the Stock Termination Fee can increase by 48,000 additional shares of the Company’s common stock under certain conditions, including if the Company fails use commercially reasonable efforts to cause a registration statement to effect the resale of the shares of common stock composing the Stock Termination Fee to be declared effective by the Securities and Exchange Commission as soon as practicable.

Such registration was filed with the Securities and Exchange Commission on May 2, 2024, but cannot be declared effective until we have filed all of the required financial statements with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024.

On April 29, 2024, we issued 320,000 shares of our common stock as the Stock Termination Fee. 24 Table of Contents Amendments to Amended and Restated Loan Agreement and Fourth Amendment to Second Amended and Restated Promissory Note On March 20, 2024, Ranor and certain affiliates of the Company entered into a Seventh Amendment to Amended and Restated Loan Agreement and Third Amendment to Second Amended and Restated Promissory Note, or the “Seventh Amendment”.

Effective March 20, 2024, the Seventh Amendment, among other things (i) extended the maturity date of the Revolver Loan from March 20, 2024 to May 20, 2024; (ii) limited the use of proceeds from the Revolver Loan by the Company or its affiliates to $2,000,000 in the aggregate for due diligence and related professional costs incurred on or prior to May 10, 2024 in connection with any acquisitions; and (iii) makes certain changes to the amount and methods of valuation of equipment securing repayment of the borrowed funds.

Through May 20, 2024, Ranor utilized a revolving line of credit with, following certain modifications, a maximum principal amount available of $5.0 million.

Advances under the Revolver Loan are subject to a borrowing base equal to the lesser of (a) $5.0 million or (b) the sum of (i) 80% of the net outstanding amount of Base Accounts, plus (ii) the lesser of (x) 25% of Eligible Raw Material Inventory, and (y) $250,000, plus (iii) 80% of the Appraised Value of the Eligible Equipment, as such terms are defined in the Loan Agreement.

On May 28, 2024, Ranor and the other Borrowers entered into an Eighth Amendment to Amended and Restated Loan Agreement and Fourth Amendment to Second Amended and Restated Promissory Note, or the “Eighth Amendment”, with Berkshire Bank.

Effective May 24, 2024, the Eighth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from May 24, 2024 to August 30, 2024; (ii) amends the maximum principal amount of the Revolver Loan from $5,000,000 to $4,500,000; and (iii) effective on June 1, 2024, increases the Term SOFR Margin (as defined in the Amendment) used to calculate the interest rate from 2.25% per annum to 2.50% per annum.

On September 4, 2024, Ranor and the other Borrowers entered into a Ninth Amendment to Amended and Restated Loan Agreement and Fifth Amendment to Second Amended and Restated Promissory Note, or the “Ninth Amendment”, with Berkshire Bank.

Effective August 30, 2024, the Ninth Amendment, among other things, (i) extends the maturity date of the Revolver Loan from August 30, 2024 to January 15, 2025. Read about the Berkshire Bank Loans under the “Liquidity and Capital Resources” section below, for a discussion of the amended debt agreement and its impact on the Company’s liquidity and on-going operations.

July Private Placement On July 3, 2024, the Company entered into a Securities Purchase Agreement (the “PIPE Agreement”), with certain accredited investors (the “PIPE Purchasers”) pursuant to which we agreed to sell in a private placement (the “July Private Placement”) at an aggregate purchase price of $2,298,045, (i) 666,100 shares of our common stock (the “PIPE Shares”), and (ii) common stock purchase warrants to purchase up to 666,100 shares of our common stock (the “PIPE Warrants”).

The combined purchase price for one PIPE Share and one PIPE Warrant was $3.45. The purpose of the July Private Placement was to raise working capital for use by the Company. The closing of the July Private Placement occurred on July 8, 2024 (the “PIPE Closing Date”). Placement agent fees totaled $126,014.

Pursuant to the PIPE Agreement, we have agreed to have a registration statement registering for resale the PIPE Shares and the shares underlying the PIPE Warrants declared effective with 60 days of the PIPE Closing Date.

If such registration statement is not declared effective in a timely manner, we will be subject to liquidated damages as described in the PIPE Agreement. Overview Through our two wholly-owned subsidiaries, Ranor and Stadco, each of which is a reportable segment, we offer a full range of services required to transform raw materials into precision finished products.

Our manufacturing capabilities include fabrication operations (cutting, press and roll forming, assembly, welding, heat treating, blasting, and painting) and machining operations including CNC (computer numerical controlled) horizontal and vertical milling centers.

We also provide support services to our manufacturing capabilities: manufacturing engineering (planning, fixture and tooling development, manufacturing), quality control (inspection and testing), materials procurement, production control (scheduling, project management and expediting) and final assembly. All manufacturing is done in accordance with our written quality assurance program, which meets specific national and international codes, standards, and specifications.

The standards used are specific to the customers’ needs, and our manufacturing operations are conducted in accordance with these standards. 25 Table of Contents Because our revenues are derived from the sale of goods manufactured pursuant to contracts, and we do not sell from inventory, it is necessary for us to constantly seek new contracts.

There may be a time lag between our completion of one contract and commencement of work on another contract. During such periods, we may continue to incur overhead expense but with lower revenue resulting in lower operating margins.

Furthermore, changes in either the scope of an existing contract or related delivery schedules may impact the revenue we receive under the contract and the allocation of manpower. Although we provide manufacturing services for large governmental programs, we usually do not work directly for the government or its agencies. Rather, we perform our services for large governmental contractors.

Our business is dependent in part on the continuation of governmental programs that require our services and products. Our contracts are generated both through negotiation with the customer and from bids made pursuant to a request for proposal.

Our ability to receive contract awards is dependent upon the contracting party’s perception of such factors as our ability to perform on time, our history of performance, including quality, our financial condition and our ability to price our services competitively.

Although some of our contracts contemplate the manufacture of one or a limited number of units, we continue to seek more long-term projects with predictable cost structures. All the Company’s operations, assets, and customers are located in the U.S.

Reverse Stock Split and Listing on the Nasdaq Capital Market All information regarding our equity securities has been adjusted on a retrospective basis, to reflect the reverse stock split effected on February 24, 2023, as if it had been effective from the beginning of the earliest period presented, unless otherwise stated.

Also, as previously disclosed, on May 5, 2023, the Company’s common stock began trading on the Nasdaq Capital Market under the trading symbol “TPCS”. Strategy We aim to establish our expertise in program and project management and develop and expand a repeatable customer business model in all of our markets.