Techprecision Corp (TPCS)

[Obi-Wan Kenobi]

TPCS Liquidity and Capital Resources
source: 10-Q on otcmarkets.com
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=9613450

At September 30, 2013, we were in default and continue to be in default with the Loan and Security Agreement between Ranor and Sovereign Bank, or the Bank, dated February 24, 2006, as amended, or the Loan Agreement. At March 31, 2013, we were not in compliance with the fixed charges and interest coverage financial covenants under the Loan Agreement, and the Bank did not agree to waive our non-compliance with the covenants. As a result, we were in default at March 31, 2013. In addition, the Bank did not renew the revolving credit facility which expired on July 31, 2013. The Bank has the right to accelerate payment of the debt in full upon 60 days written notice. As a consequence, all amounts under the Loan Agreement are classified as a current liability at September 30, 2013 ($5.4 million) and March 31, 2013 ($5.8 million). The Bank continues to evaluate its course of action and has not yet demanded repayment. We continue to make payments pursuant to the terms of the Loan Agreement. If the Bank were to make such a demand for 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. The covenants under the loan agreement are no longer being tested on a monthly, quarterly or annual basis.

We have incurred net losses of $2.2 million for the first six months of the year ending March 31, 2014, or fiscal 2014, and $2.4 million and $2.1 million for the annual periods ended March 31, 2013 and 2012, respectively. At September 30, 2013 we had cash and cash equivalents of $1.5 million of which $0.1 million 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. We borrowed $0.5 million under our revolving line of credit during the quarter ended March 31, 2013, and repaid this borrowing in full in July 2013. In addition, we have $0.9 million of restricted cash with the Bank (included in our other current assets) that could be used toward satisfying our obligation under the Loan Agreement.

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 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 we are successful in changing the composition of revenue and reducing costs, we expect that fiscal 2014 operating results will reflect positive operating cash flows. However, we plan to closely monitor our expenses and, if required, will further reduce operating costs and capital spending to enhance liquidity.

The condensed consolidated financial statements for the three and six months ended September 30, 2013 and the year ended March 31, 2013, or fiscal 2013, 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 $10.1 million at September 30, 2013 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 our operating plan. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.