TECHPRECISION CORP - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

For the transition period from             to           

 

Commission File Number 000-51378

 

TECHPRECISION CORPORATION

(Exact name of registrant as specified in its charter)

 

 

(978) 874-0591

(Registrant's telephone number, including area code)

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.    

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 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).  

The number of shares of the Registrant's common stock, par value $0.0001 per share, issued and outstanding at November 11, 2016 was 28,824,593.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

 

 

 

 

 

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

 

TECHPRECISION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)

 

 

SUPPLEMENTAL INFORMATION – NONCASH INVESTING AND FINANCING TRANSACTIONS:

Six Months Ended September 30, 2015

For the six months ended September 30, 2015, the Company issued 2,519,634 shares of common stock in connection with the conversion of 1,927,508 shares of Series A Convertible Preferred Stock. The stock conversions increased Common Stock and Additional Paid in Capital by $252 and $523,957, respectively.

See accompanying notes to the condensed consolidated financial statements.

 

 

 

 

 

 

 

TECHPRECISION CORPORATION

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 (WFOE). TechPrecision, Ranor and WCMC 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 industries including the defense, aerospace, nuclear, medical and precision industrial markets.

 

NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

 

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 sheet as of September 30, 2016, the condensed consolidated statements of operations and comprehensive income for the three and six month periods ended September 30, 2016 and 2015, and the condensed consolidated statements of cash flows for the six months ended September 30, 2016 and 2015 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.

 

The Notes to Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, for Quarterly Reports on Form 10-Q. Certain information and note 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 our consolidated financial statements included with our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, or the 2016 Form 10-K, filed with the SEC on June 28, 2016.

Significant Accounting Policies

Our significant accounting policies are set forth in detail in Note 2 to the 2016 Form 10-K.

 

NOTE 3 – RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS

 

New Accounting Standards Recently Adopted

In April 2015, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issue Costs, or ASU 2015-03. The new guidance requires entities to present debt issue costs in the balance sheet as a direct reduction to the related debt liability rather than as a deferred cost (i.e., an asset) as required by past guidance. The new guidance does not change the recognition or measurement of debt issuance costs. The guidance is effective for fiscal years beginning after December 15, 2015. The guidance is required to be applied retrospectively to all prior periods presented. The Company adopted the standard retrospectively in the first quarter of the fiscal year ended March 31, 2017, or fiscal 2017. The adoption of ASU 2015-03 did not have a significant impact on our Consolidated Balance Sheets, and no impact on our Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows. 

Issued Standards Not Yet Adopted

Other significant new standards not yet adopted are set forth in detail in Note 3 to the 2016 Form 10-K.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following as of: 

 

Depreciation expense for the three and six months ended September 30, 2016 and 2015 was $177,438 and $353,488, and $195,892 and $393,119, respectively.

 

NOTE 5 - COSTS INCURRED ON UNCOMPLETED CONTRACTS

 

The following table sets forth information as to costs incurred on uncompleted contracts as of:

 

 

Contract costs consist primarily of labor and materials and related overhead, to the extent that such costs are recoverable. Revenues associated with these contracts are recorded only when the amount of recovery can be estimated reliably and realization is probable. As of September 30, 2016 and March 31, 2016, we had billings on uncompleted contracts in excess of related costs of $683,660 and $1,629,018, respectively. Billings on uncompleted contracts represent customer prepayments on their contracts on which all revenue recognition criteria were not met. We also receive advance billings and deposits representing down payments for acquisition of materials and progress payments on contracts. The agreements with our customers allow us to offset the progress payments against the costs incurred. We record provisions for losses within cost of sales in our condensed consolidated statements of operations and comprehensive income.

NOTE 6 – OTHER CURRENT ASSETS

Other current assets included the following as of:

 

NOTE 7 – OTHER NONCURRENT ASSETS

Other noncurrent assets included the following as of:

 

On March 31, 2016, we classified certain machinery and equipment in the amount of $123,900 to fixed assets held for sale. This amount approximates fair value net of selling costs and we expect to sell these fixed assets before the end of fiscal 2017.

 

NOTE 8 - ACCRUED EXPENSES

Accrued expenses included the following as of:

 

 

Our contract loss provision at both September 30, 2016 and March 31, 2016 includes approximately $0.4 million for estimated contract losses in connection with a certain customer purchase agreement. We filed a demand for arbitration under the contract to recover damages, together with attorney's fees, interest and costs, subsequent to the customer's request to reduce the number of units ordered under the purchase agreement. As a result of the customer filing for bankruptcy protection, our demand became an unsecured creditor claim within the customer's overall bankruptcy proceedings. The customer has since emerged from bankruptcy protection, and it is more likely than not that we will not be able to recover the full amount of our claim. Accrued interest expense is for deferred interest costs in connection with our outstanding long-term debt.

NOTE 9 – DEBT 

 

 

People's Capital and Leasing Corp. Equipment Loan Facility

On April 26, 2016, TechPrecision, through Ranor, executed and closed a Master Loan and Security Agreement No. 4180, as supplemented with Schedule No. 001, or, together, the MLSA, with People's Capital and Leasing Corp, or People's.  The MLSA is dated and effective as of March 31, 2016.  Loan proceeds were disbursed to Ranor on April 26, 2016.  Pursuant to the MLSA, People's loaned $3,011,648 to Ranor, or the People's Loan. The People's Loan is secured by a first lien on certain machinery and equipment of Ranor, or the Equipment Collateral.  Payments on the People's Loan will be made in 60 monthly installments of $60,921 each, inclusive of interest at a fixed rate of 7.90% per annum.  The first monthly installment payment was paid on May 26, 2016.  A prepayment penalty will apply during the first four years of the loan term.  Ranor's obligations under the MLSA are guaranteed by TechPrecision.  The Company covenants to maintain a debt service coverage ratio, or DSCR, of at least 1.5 to 1.0 during the term of the People's Loan.  The DSCR will be measured at the end of each fiscal year of the Company. The People's Loan may be accelerated upon the occurrence of an "Event of Default" (as defined in the MLSA). Some of the Events of Default are subject to certain cure periods.

 

In connection with the MLSA, $2,653,353 of the proceeds from the People's Loan were disbursed to Utica Leaseco, LLC, or Utica, as payment in full for principal and interest under the existing Loan and Security Agreement, or LSA.  People's retained a holdback in the amount of $182,763.  The holdback was released to Ranor on July 6, 2016 after the Company reported a DSCR of 1.82 to 1.0 as of March 31, 2016.  Ranor retained $175,532 of the proceeds from the People's Loan for general corporate purposes.

Term Loan and Security Agreement

On December 22, 2014, TechPrecision, Ranor and Revere High Yield Fund, LP, or Revere, entered into the Term Loan and Security Agreement, or TLSA, pursuant to which Revere loaned an aggregate of $2.25 million to Ranor under two promissory notes that were secured by certain assets of Ranor. On January 22, 2016, TechPrecision and Ranor entered into the Note and Other Loan Documents Modification Agreement No. 2 with Revere, or the Second Modification Agreement, which made significant amendments to the terms of the TLSA, including extending the maturity date of the term loans made pursuant to the TLSA to January 22, 2018. In connection with the Second Modification Agreement, Ranor executed an Amended and Restated Term Loan Note in the aggregate principal amount of $1.5 million, or the Amended and Restated First Loan Note, and an Amended and Restated Term Loan Note in the aggregate principal amount of $750,000, or the Amended and Restated Second Loan Note, and together with the Amended and Restated First Loan Note, the Amended and Restated Notes, each in favor of Revere and each dated January 22, 2016.

On April 26, 2016, TechPrecision and Ranor executed and closed on a Loan Documents Modification Agreement No. 3, or the Third Modification Agreement, with Revere. The Third Modification Agreement, dated and effective as of March 31, 2016, further amended the TLSA. The Third Modification Agreement, among other things, (i) permitted Ranor to pay off in its entirety the indebtedness owed under the LSA with Utica with proceeds from the People's Loan, (ii) added the People's security interest as a "Permitted Lien" under the TLSA, (iii) deleted certain references to Utica, the LSA with Utica and loan documents related to the LSA with Utica and replaced those references with new definitions relating to the People's Loan, (iv) added the People's Loan and TechPrecision's guaranty of the People's Loan as "Existing Indebtedness" under the TLSA, (v) required Ranor, People's and Revere to enter into an Intercreditor and Subordination Agreement to, among other things, establish the relative priorities between Revere and People's with regard to certain assets of Ranor, (vi) required Ranor to cause People's and Revere to enter into a Mortgagee's Disclaimer and Consent to, among other things, require that Revere permit People's access to certain real property owned by Ranor and mortgaged to Revere as collateral for the TLSA in the event that Ranor defaults on the People's Loan and Revere has taken possession of the real property, and (vii) included a reaffirmation of TechPrecision's guarantee of Ranor's obligations under the TLSA.

Other than as so amended by the Note and Other Loan Documents Modification Agreement dated December 31, 2015, by and among TechPrecision, Ranor and Revere, or the First Modification Agreement, the Second Modification Agreement, and the Third Modification Agreement, the terms and conditions of the TLSA remain in full force and effect.

Loan and Security Agreement

On April 26, 2016, the obligations under the LSA were paid in full to Utica prior to the maturity date. As such, Ranor was required to pay Utica deferred interest in an amount of $249,000 as provided under the terms of the LSA. In connection with the MLSA, $2,653,353 of the proceeds from the People's Loan were disbursed to Utica, as payment in full for principal and interest under the LSA.

Capital Lease

We entered into a capital lease in April 2012 for certain office equipment. This lease was amended in fiscal 2014 when we purchased a replacement copier at Ranor. The lease, as amended, will expire in March 2018, bears interest at 6.0% per annum and requires monthly payments of principal and interest of $1,117. The amount of the lease recorded in property, plant and equipment, net as of September 30, 2016 and March 31, 2016 was $17,281 and $23,124, respectively.

 

NOTE 10 - INCOME TAXES

We account for income taxes under the provisions of FASB ASC 740, Income Taxes.  At the end of each interim period, we make an estimate of our annual expected effective tax rates in both the United States and China. For the three and six months ended September 30, 2016, we recorded tax expense of $11,505 and $20,958, respectively, in connection with an accrual for alternative minimum tax due on taxable income in excess of net operating losses.

We maintain a full valuation allowance on our net deferred tax assets. A valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized. The assessment was based on the weight of negative evidence at the balance sheet date, primarily our past operating losses, which cause uncertainty as to whether we will generate sufficient taxable income to utilize the deferred tax assets. We have determined that it is more likely than not that certain future tax benefits may not be realized.  A change in the estimates used to make this determination could require an increase in deferred tax assets if they become realizable.

We regularly assess the effects of various factors to determine the adequacy of our provision for income taxes. For example, our future effective tax rate would be affected if earnings were lower than anticipated in tax jurisdictions where we have lower statutory rates and higher than anticipated in tax jurisdictions where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles, or interpretations thereof.

NOTE 11 - PROFIT SHARING PLAN

 

Ranor has a 401(k) profit sharing plan that covers substantially all Ranor employees who have completed 90 days of service. Ranor retains the option to match employee contributions. Our contributions were $39,653 and $30,392 for the six months ended September 30, 2016 and 2015, respectively.

NOTE 12 - STOCK BASED COMPENSATION

 

In 2006, our board of directors adopted, and our stockholders approved, the 2006 long-term incentive plan, or the Plan, covering 1,000,000 shares of common stock. On August 5, 2010, the Plan was amended to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,000,000 shares. On September 15, 2011, the directors adopted and the stockholders approved an amendment to increase the maximum number of shares of common stock that may be issued to an aggregate of 3,300,000 shares. The Plan provided for the grant of incentive and non-qualified options, stock grants, stock appreciation rights and other equity-based incentives to employees, including officers, and consultants. The Plan was administered by a committee of not less than two directors, each of whom was to be an independent director. In the absence of a committee, the Plan was to be administered by our board of directors. Independent directors were not eligible for discretionary options under the Plan. The Plan expired under its own terms in February 2016. Shares granted under the Plan will remain outstanding until expiration or settlement.

The following table summarizes information about options for the periods presented below: 

 

At September 30, 2016, there was $51,084 of total unrecognized compensation cost related to stock options. These costs are expected to be recognized over the next eighteen months. The following table summarizes the activity of our stock options outstanding but not vested for the six months ended September 30, 2016:

Other information relating to stock options outstanding at September 30, 2016 is as follows:

 

NOTE 13 - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

 

We maintain bank account balances, which, at times, may exceed Federal Deposit Insurance Corporation 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, 2016, there were accounts receivable balances outstanding from six customers comprising approximately 97% of the total receivables balance. The following table sets forth information as to accounts receivable from customers who accounted for more than 10% of our accounts receivable balance as of: 

 *less than 10% of total

 

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

*less than 10% of total

NOTE 14 – COMMITMENTS

Leases

Expiration of a Lease

The Company leased approximately 1,100 square feet located at 992 Old Eagle School Road, Wayne, Pennsylvania, or the Wayne Property, pursuant to an office lease with GPX Wayne Office Properties, L.P., or GPX Wayne. On June 30, 2016, this office lease expired under its own terms. Other than as described above, there is no relationship between the Company and GPX Wayne.

Employment Agreements

We have employment agreements with each of our executive officers. Such agreements provide for minimum salary levels, adjusted annually, and incentive bonuses that are payable if specified company goals are attained. The aggregate commitment at September 30, 2016 for future executive salaries during the next 12 months, including fiscal 2017 bonuses, was approximately $1.3 million.

 

NOTE 15 - EARNINGS PER SHARE (EPS)

Basic EPS is computed by dividing reported earnings available to stockholders by the weighted average shares outstanding. Diluted EPS also includes the effect of all potential common share equivalents, which consists of stock options and convertible preferred stock 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.

 

All potential common share equivalents that have an anti-dilutive effect (i.e., those that increase income per share) are excluded from the calculation of diluted EPS. For each of the three and six months ended September 30, 2016, there were 428,500 of potential common share equivalents that were out-of-the-money and were not included in the EPS calculations above. For the three and six months ended September 30, 2015, there were, respectively, 2,630,837 and 3,407,066 of potential common share equivalents that were out-of-the-money and were not included in the EPS calculations above.   

NOTE 16 – SUBSEQUENT EVENTS

On October 4, 2016, TechPrecision and Ranor became committed to Schedule No. 002 to the MLSA, or Schedule 2. Pursuant to Schedule 2, People's made an additional loan in the amount of $365,852, or the Additional People's Loan, to Ranor upon the terms and conditions set forth in the MLSA and Schedule 2.

Ranor will repay the Additional People's Loan in monthly installments of principal and interest over 60 months.  The Additional People's Loan is guaranteed by TechPrecision pursuant to the original Corporate Guaranty from TechPrecision in favor of People's dated March 31, 2016.  The Additional People's Loan is secured by a security interest in certain machinery and equipment of Ranor as provided in Schedule 2.

On April 17, 2015, the Company, through Ranor, entered into an Assignment of Claim Agreement, or the Assignment Agreement, with Citigroup Financial Products Inc., or Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor sold, transferred, conveyed and assigned to Citigroup all of Ranor's right, title and interest in and to Ranor's $3,740,956 unsecured claim against GT Advanced Technologies, Inc., or GTAT, in connection with GTAT's bankruptcy. Pursuant to the Assignment Agreement, Citigroup paid to Ranor an initial amount equal to $507,835, which amount is classified as a current liability on our balance sheet. The Assignment Agreement provided for Citigroup to pay to Ranor up to an additional $614,452 upon receipt of written notice that Ranor's claim was fully and finally allowed against GTAT without objection.

On November 7, 2016, GTAT's legal counsel notified Citigroup that Ranor's unsecured claim in GTAT's bankruptcy was fully allowed without objection. In accordance with the terms of the Assignment Agreement, Citigroup paid Ranor an additional $614,452 on November 8, 2016. The resolution of this claim under the Assignment Agreement will be recognized as a gain in our fiscal third quarter ended December 31, 2016 of approximately $1.1 million.

In December 2014, each non-employee director waived any compensation owed to them for their service to the Company.   Accordingly, members of our board of directors have not received any compensation for their service on our board of directors since January 1, 2014.  On November 10, 2016, our board of directors determined that it would grant shares of common stock to each of our directors as compensation for their service to the Company during the period from January 1, 2014 to November 10, 2016.  Accordingly, our board of directors granted 600,000 shares of common stock to Mr. Anthony, 250,000 shares of common stock to each of Mr. Dur and Mr. Holly, and 200,000 shares of common stock to Mr. Isaman and Mr. Levy. The grant of shares of common stock to Mr. Anthony also recognizes his uncompensated service as Executive Chairman of the Company during the period from January 1, 2014 to November 17, 2014.

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 entitled "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.  Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions.  These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management.  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 the forward-looking statements due to numerous factors.  Those factors include those risks discussed in Part I Item 1A "Risk Factors" in the 2016 Form 10-K, as well as those described in any other filings which we make with the SEC.  In addition, such statements could be affected by risks and uncertainties related to the availability of appropriate financing facilities, 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, marketing and customer acceptance of our products, our reliance on a small number of customers for a significant percentage of our business, competition, government regulations and requirements, pricing and development difficulties, our ability to make acquisitions and successfully integrate those acquisitions with our business, general industry and market conditions and growth rates, and general economic conditions.  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

 

We offer a full range of services required to transform raw materials into precise 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 U.S. 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.

All of our sales recorded for the six months ended September 30, 2016 are from our U.S. segment. There were no sales generated from WCMC, our subsidiary in China, during the first six months of fiscal 2017. At September 30, 2016, we did not have any open customer orders for WCMC in our backlog. We are evaluating how we utilize the WCMC entity moving forward.

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 and large industrial companies. However, 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 also pursue more long-term projects with predictable cost structures.

We historically have experienced, and continue to experience, customer concentration. For the six months ended September 30, 2016 and 2015, our largest customer in each period accounted for approximately 40% and 21% of net sales, respectively, and our ten largest customers accounted for approximately 99% of our revenue for each six month period. Our sales order backlog at September 30, 2016 was approximately $17.9 million compared with a backlog of $19.8 million at March 31, 2016.

For the six months ended September 30, 2016, our net sales and net income were $8.3 million and $1.0 million, respectively, compared to net sales and net income of $8.5 million and $0.5 million, respectively, for the six months ended September 30, 2015.  Our gross margins for the six months ended September 30, 2016 were 36.2% compared with gross margins of 31.7% for the six months ended September 30, 2015.

On April 17, 2015, the Company, through Ranor, entered into the Assignment Agreement with Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor sold, transferred, conveyed and assigned to Citigroup all of Ranor's right, title and interest in and to Ranor's $3,740,956 unsecured claim against GTAT. Pursuant to the Assignment Agreement, Citigroup paid to Ranor an initial amount equal to $507,835, which amount is classified as a current liability on our balance sheet. The Assignment Agreement provided for Citigroup to pay to Ranor up to an additional $614,452 upon receipt of written notice that Ranor's claim has been fully and finally allowed against GTAT without objection.

On November 7, 2016, GTAT's legal counsel notified Citigroup that Ranor's unsecured claim was fully allowed without objection. In accordance with the terms of the Assignment Agreement, Citigroup paid Ranor an additional $614,452 on November 8, 2016. The resolution of this claim under the Assignment Agreement will be recognized as a gain in our fiscal third quarter ended December 31, 2016 of approximately $1.1 million.

On April 26, 2016 we entered into a new debt agreement, the MLSA, with a new lender, People's (see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources"). The proceeds from the MLSA (approximately $3.0 million in total) were used to pay off amounts outstanding under a prior LSA with Utica. We retained $0.2 million of proceeds from the MLSA for general corporate purposes.

At September 30, 2016, we had cash of $2.8 million, of which $1,206 is located in China and may not be able to be repatriated for use in the United States without undue cost or expense, if at all. We generated $1.4 million of cash from operating activities for the six months ended September 30, 2016.

Critical Accounting Policies and Estimates

The preparation of the unaudited 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 contract accounting, 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 2016 Form 10-K. There were no significant changes in the critical accounting policies during the six months ended September 30, 2016, nor did we make any changes to our accounting policies that would have changed these critical accounting policies.

New Accounting Pronouncements

 

See Note 3 – Recently Issued and Adopted Accounting Pronouncements to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently adopted accounting guidance and other new accounting guidance.

Results of Operations

Our results of operations are affected by a number of external factors including the availability of raw materials (particularly steel), commodity prices, 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 foreign markets. Our order and revenue stream is uneven and reflects an irregular pattern of orders we receive from our customers as they gauge their customers' demand for new and existing products. Our results of operations are affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of products, delays in deliveries of ordered products and our rate of progress fulfilling our obligations under our contracts. A delay in deliveries or cancellations of orders would cause us to have inventories in excess of our short-term needs, and may delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. We continue to execute the business plan we developed in fiscal 2015, which has the immediate goal of realigning and stabilizing our cost structure so we can return to and sustain profitability, even at current lower revenue levels. In connection with the execution of this business plan, we need to continue to replenish our backlog with orders from our key customers. 

Three Months Ended September 30, 2016 and 2015

The following table sets forth information from our statements of operations in dollars and as a percentage of revenue:  

 

(dollars in thousands)		Three Months Ended September 30, 2016								Three Months Ended September 30, 2015								Changes from 2016 to 2015
		Amount				Percent				Amount				Percent				Amount				Percent
Net sales		$	3,656				100	%		$	4,104				100	%		$	(448	)			(11	)%
Cost of sales			2,182				60	%			2,696				66	%			(514	)			(19	)%
Gross profit			1,474				40	%			1,408				34	%			66				5	%
Selling, general and administrative			740				20	%			910				22	%			(170	)			(19	)%
Income from operations			734				20	%			498				12	%			236				48	%
Other income			7				--	%			1				--	%			6				--	%
Interest expense			(183	)			(5	)%			(244	)			(6	)%			61				25	%
Total other expense, net			(176	)			(5	)%			(243	)			(6	)%			67				28	%
Income before income taxes			558				15	%			255				6	%			303				119	%
Income tax expense			12				--	%			--				--	%			12				nm	%
Net Income		$	546				15	%		$	255				6	%		$	291				114	%

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Net Sales

Our second quarter shipments reflect steady demand from our defense customers, albeit for different products and components than those shipped during the comparable period a year ago.  For the three months ended September 30, 2016, net sales decreased by approximately $0.4 million, or 11%, to $3.7 million. For the three months ended September 30, 2016, net sales in our defense markets increased by $0.5 million on higher shipments of components to our largest customer, and net sales in our precision industrial markets increased by $0.2 million primarily on higher shipments of components for medical systems. However, net sales in our energy markets decreased by $1.1 million for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, more than offsetting the above increases, as a result of lower volume shipped during the second quarter of fiscal 2017 as the Company worked to replenish backlog and start up new projects.

 

Cost of Sales and Gross Margin

Gross margin in any reporting period is impacted by the mix of products and services we provide on projects completed and in-process within that period. Our cost of sales for the three months ended September 30, 2016 decreased by 19% compared to the three months ended September 30, 2015 on lower dollar volume.  Gross margins during the three months ended September 30, 2016 were 40.3% compared with 34.3% for the three months ended September 30, 2015. Our product mix for the three months ended September 30, 2016 included orders of higher margin business from our customers compared to the three months ended September 30, 2015. Actual production levels were on par with previous quarters and resulted in normal overhead absorption for both reporting periods.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses, or SG&A, for the three months ended September 30, 2016 were 19% lower when compared to the three months ended September 30, 2015. SG&A expenses were lower because of lower headcount which lead to reduced compensation and office costs of $212,413 and $5,291, respectively, in the three months ended September 30, 2016, offset in part by an increase for outside advisory expenses of $47,252 in the three months ended September 30, 2016 compared to the three months ended September 30, 2015.

 

Interest Expense and Other Income

 

The following table reflects interest expense and other income for the three months ended:

 

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Interest expense for the three months ended September 30, 2016 was lower compared to the three months ended September 30, 2015 due to lower interest rates. Non-cash interest expense reflects the amortization of deferred loan costs and deferred interest costs in connection with our outstanding debt.

Income Taxes

For the three months ended September 30, 2016, we recorded income tax expense of $11,505 in connection with an accrual for alternative minimum tax due on taxable income in excess of net operating losses. For the three months ended September 30, 2015, we recorded zero income tax expense.  The zero income tax expense recorded for the three months ended September 30, 2015 was the result of maintaining a full valuation allowance on our net deferred tax assets.

A valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized. The assessment was based on the weight of negative evidence at the balance sheet date, primarily our past operating losses, which cause uncertainty as to whether we will generate sufficient taxable income to utilize the deferred tax assets. We have determined that it is more likely than not that certain future tax benefits may not be realized.  A change in the estimates used to make this determination could require an increase in deferred tax assets if they become realizable.

Net Income

 

As a result of the foregoing, we had net income of $546,082, or $0.02 per share basic and fully diluted, for the three months ended September 30, 2016, as compared to net income of $254,606, or $0.01 per share basic and fully diluted, for the three months ended September 30, 2015.

Six Months Ended September 30, 2016 and 2015

The following table sets forth information from our statements of operations for the six months ended September 30, 2016 and 2015, in dollars and as a percentage of revenue:   

 

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Net Sales

Our shipments for the first six months of fiscal 2017 reflect steady demand from our customers for our services, albeit for different products and components than those shipped during the comparable period a year ago. For the six months ended September 30, 2016, net sales decreased by $0.2 million, or 2%, to $8.3 million.  For the six months ended September 30, 2016, net sales to our defense customers, our largest market group, increased by $0.3 million compared to the six months ended September 30, 2015, primarily on higher shipments of components to defense contractors. Net sales in our precision industrial group increased by $1.1 million compared to the six months ended September 30, 2015, primarily on higher shipment volume for medical components, and net sales in our energy group decreased by $1.5 million compared to the six months ended September 30, 2015 as a result of lower demand as the Company works to replenish its energy backlog.

Cost of Sales and Gross Margin

Gross margin in any reporting period is impacted by the mix of services we provide on projects completed within that period. 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, 2016 decreased by $0.5 million compared to the six months ended September 30, 2015 to $5.3 million primarily on lower sales volume. Gross margins were 36.3% for the six months ended September 30, 2016 and 31.7% for the six months ended September 30, 2015. Gross profit was $3.0 million in the six months ended September 30, 2016, or $0.3 million higher compared with the six months ended September 30, 2015. 

Selling, General and Administrative Expenses

 

SG&A expenses for the six months ended September 30, 2016 were $1.6 million compared to $1.7 million for six months ended September 30, 2015, representing a decrease of $86,482, or 5%.  The primary drivers of this change in SG&A expenses were  decreased compensation and office costs of $235,866 and $18,648, respectively, in the six month period ended September 30, 2016, partially offset by an increase of $168,034 for outside advisory services in the six months ended September 30, 2016 compared with the six months ended September 30, 2015.

 

Interest Expense and Other Income

 

The following table reflects interest expense and other income for the six months ended:

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For the six months ended September 30, 2016, interest expense decreased by 26% due to lower interest rates when compared to the six months ended September 30, 2015. Non-cash interest expense for the six months ended September 30, 2016 reflects lower amounts of amortization for deferred loan costs in connection with our outstanding long-term debt.

Income Taxes

For the six months ended September 30, 2016, we recorded income tax expense of $20,958 in connection with an accrual for alternative minimum tax due on taxable income in excess of net operating losses. For the six months ended September 30, 2015, we recorded zero income tax expense.  The zero income tax expense recorded for the three months ended September 30, 2015 was the result of maintaining a full valuation allowance on our net deferred tax assets.

A valuation allowance must be established for deferred tax assets when it is more likely than not that they will not be realized. The assessment was based on the weight of negative evidence at the balance sheet date, primarily our past operating losses, which cause uncertainty as to whether we will generate sufficient taxable income to utilize the deferred tax assets. We have determined that it is more likely than not that certain future tax benefits may not be realized.  A change in the estimates used to make this determination could require an increase in deferred tax assets if they become realizable.

Net Income

 

As a result of the factors described above, our net income was $991,385 or $0.04 per share basic and fully diluted for the six months ended September 30, 2016. For the six months ended September 30, 2015, our net income was $460,957 or $0.02 per share basic and fully diluted.

Liquidity and Capital Resources

On April 17, 2015, the Company, through Ranor, entered into the Assignment Agreement with Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor sold, transferred, conveyed and assigned to Citigroup all of Ranor's right, title and interest in and to Ranor's $3,740,956 unsecured claim against GTAT. Pursuant to the Assignment Agreement, Citigroup paid to Ranor an initial amount equal to $507,835, which amount is classified as a current liability on our balance sheet. The Assignment Agreement provided for Citigroup to pay to Ranor up to an additional $614,452 upon receipt of written notice that Ranor's claim has been fully and finally allowed against GTAT without objection.

On November 7, 2016, GTAT's legal counsel notified Citigroup that Ranor's unsecured claim was fully allowed without objection. In accordance with the terms of the Assignment Agreement, Citigroup paid Ranor an additional $614,452 on November 8, 2016. The resolution of this claim under the Assignment Agreement will be recognized as a gain in our fiscal third quarter ended December 31, 2016 of approximately $1.1 million.

On April 26, 2016, TechPrecision through Ranor, executed and closed the MLSA with People's. Loan proceeds were disbursed to Ranor on April 26, 2016. Pursuant to the MLSA, People's loaned $3,011,648 to Ranor under the People's Loan. The People's Loan is secured by a first lien on the Equipment Collateral. Payments on the People's Loan will be made in 60 monthly installments of $60,921 each, inclusive of interest at a fixed rate of 7.90% per annum. The first monthly installment payment was paid on May 26, 2016. A prepayment penalty will apply during the first four years of the loan term. Ranor's obligations under the MLSA are guaranteed by TechPrecision. The Company covenants to maintain a DSCR of at least 1.5 to 1.0 during the term of the People's Loan. The DSCR will be measured at the end of each fiscal year of the Company. The People's Loan may be accelerated upon the occurrence of an "Event of Default" (as defined in the MLSA). Some of the Events of Default are subject to certain cure periods.

 

In connection with the MLSA, $2,653,353 of the proceeds from the People's Loan were disbursed to Utica, as payment in full for principal and interest under the LSA. People's retained a holdback in the amount of $182,763. The holdback was released to Ranor in July 2016 after the Company reported a DSCR of 1.82 to 1.0 as of March 31, 2016. Ranor retained $175,532 of the proceeds from the People's Loan for general corporate purposes.

On October 4, 2016, TechPrecision and Ranor became committed to Schedule 2 to the MLSA.  Pursuant to Schedule 2, People's made the Additional People's Loan in the amount of $365,852 to Ranor upon the terms and conditions set forth in the MLSA and Schedule 2. Ranor will repay the Additional People's Loan in monthly installments of principal and interest over 60 months. The Additional People's Loan is guaranteed by TechPrecision pursuant to the original Corporate Guaranty from TechPrecision in favor of People's dated March 31, 2016. The Additional People's Loan is secured by a security interest in certain machinery and equipment of Ranor as provided in Schedule 2.

TechPrecision, Ranor and Revere entered into the TLSA on December 22, 2014, pursuant to which Revere loaned an aggregate of $2.25 million to Ranor under two promissory notes that were secured by certain assets of Ranor. On January 22, 2016, TechPrecision and Ranor entered into the Second Modification Agreement. In connection with the Second Modification Agreement, Ranor executed the Amended and Restated Notes in favor of Revere.

The Second Modification Agreement (a) extended the maturity date of the term loans made pursuant to the TLSA to January 22, 2018, (b) amended the amortization schedule such that payments under the TLSA and Amended and Restated Notes are due as follows: (i) payments of interest only on advanced principal on a monthly basis on the first day of each month from March 1, 2016 until January 1, 2017 and (ii) payments of $9,375 in principal plus accrued interest on a monthly basis on the first day of each month from February 1, 2017 until January 22, 2018, (c) reduced the annual interest rate on the unpaid principal balance of the loans to 10% per annum, or the Interest Rate, from 12% per annum, (d) amended the definition of the Minimum Guaranteed Interest payable by Ranor to Revere on the earlier of prepayment in full of the loans or payment in full of the loans on the maturity date to the greater of (i) 12 months interest at the Interest Rate on the amount outstanding on the loans or (ii) interest due on any amount advanced under the TLSA at the Interest Rate, (e) added a restrictive covenant whereby Ranor must maintain monthly minimum cash balances, with failure to comply with such restrictive covenant an event of default pursuant to which Revere may accelerate the repayment of the loans, and (f) included a reaffirmation of TechPrecision's guarantee of Ranor's obligations under the TLSA and the Amended and Restated Notes pursuant to a Guaranty Agreement between TechPrecision and Revere.

On April 26, 2016, TechPrecision and Ranor executed and closed on the Third Modification Agreement with Revere. The Third Modification Agreement, dated and effective as of March 31, 2016, further amended the TLSA. The Third Modification Agreement, among other things, (i) permitted Ranor to pay off in its entirety the indebtedness owed under the LSA with Utica with proceeds from the People's Loan, (ii) added the People's security interest as a "Permitted Lien" under the TLSA, (iii) deleted certain references to Utica, the LSA with Utica and loan documents related to the LSA with Utica and replaced those references with new definitions relating to the People's Loan, (iv) added the People's Loan and TechPrecision's guaranty of the People's Loan as "Existing Indebtedness" under the TLSA, (v) required Ranor, People's and Revere to enter into an Intercreditor and Subordination Agreement to, among other things, establish the relative priorities between Revere and People's with regard to certain assets of Ranor, (vi) required Ranor to cause People's and Revere to enter into a Mortgagee's Disclaimer and Consent to, among other things, require that Revere permit People's access to certain real property owned by Ranor and mortgaged to Revere as collateral for the TLSA in the event that Ranor defaults on the People's Loan and Revere has taken possession of the real property, and (vii) included a reaffirmation of TechPrecision's guarantee of Ranor's obligations under the TLSA.

Other than as so amended by the First Modification Agreement, the Second Modification Agreement and the Third Modification Agreement, the terms and conditions of the TLSA remain in full force and effect.

Pursuant to the TLSA, as amended by the Second Modification Agreement and the Third Modification Agreement, Ranor is subject to certain affirmative and negative covenants, including a minimum cash balance covenant, which requires that we maintain minimum month end cash balances that range from $640,000 to $1,000,000. We were required to maintain a cash balance of $849,940 and $786,212 at September 30, 2016 and March 31, 2016, respectively. We were in compliance with all covenants under the TLSA at September 30, 2016 and March 31, 2016.

If we were to violate any of the covenants under the above debt agreements, the lenders could demand full repayment of the amounts we owe. As such, we would need to seek alternative financing to pay these obligation as we do not have existing facilities or sufficient cash on hand to satisfy these obligations, and there is no guarantee that we would be able to obtain such alternative financing.

 

At September 30, 2016, we had cash of $2.8 million, of which $1,206 is located in China and may not be able to be repatriated for use in the United States without undue cost or expense, if at all. Net cash provided by operating activities was $1.4 million for the six months ended September 30, 2016. Net cash provided by operating activities for the six months ended September 30, 2015 was $792,887, which included an advance payment of $507,835 received under the Assignment Agreement with Citigroup. Our profit margins continue to improve, as we have scaled our operating expenses with our recent revenue volume. As a result, we recorded net income of $1.0 million for the six months ended September 30, 2016 compared with a net income of $0.5 million for the six months ended September 30, 2015.

 

We may need to refinance or secure additional long-term financing on terms consistent with our business plans. In addition, we must replenish our backlog and balance our revenue mix to ensure recurring unit of delivery projects, rather than custom first article and prototyping projects which, in the past, did not efficiently utilize our manufacturing capacity. We must also maintain a level of operating expenses in line with current business conditions in order to increase profit margins and decrease the amount of cash used in operations. We plan to closely monitor our expenses and, if required, will further reduce operating costs and capital spending to enhance liquidity.  

If we are unable to raise funds through a credit facility, it may be necessary for us to conduct an offering of debt and/or equity securities on terms which may be disadvantageous to us or have a negative impact on our outstanding securities and the holders of such securities.  In the event of an equity offering, it may be necessary that we offer such securities at a price that is significantly below our current trading price, which may result in substantial dilution to our investors that do not participate in the offering, as well as a lower trading price for our common stock.

 

Our liquidity is highly dependent on the availability of financing facilities and our ability to improve our gross profit and operating income. If we successfully execute on our business plans, improve gross profit and operating income, and reduce our operating costs, then we believe our available cash 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.

At September 30, 2016 and March 31, 2016, we had working capital of $2.4 million and $0.5 million, respectively. The table below presents selected liquidity and capital measures as of: 

The following table summarizes our primary cash flows for the periods presented: 

Operating activities

Our primary sources of cash are from accounts receivable collections, customer advance payments, and project progress payments. Our ability to convert cash expended for materials, labor and overhead to finished goods ready for shipment and collecting the cash back from our trade receivables has improved significantly. Improved turnover rates helped us to generate higher amounts of cash in the six months ended September 30, 2016. Cash provided by operations for the six months ended September 30, 2016 was $1.4 million compared with cash provided by operations of $0.8 million for the six months ended September 30, 2015. For the six months ended September 30, 2016 we recorded net income of $1.0 million compared with a net income of $0.5 million for the six months ended September 30, 2015. Cash provided by operations for the six months ended September 30, 2015 was augmented by an advance payment of $507,835 received under the Assignment Agreement with Citigroup on April 17, 2015.

 

Investing activities

We expended $114,856 for fixed assets during the six months ended September 30, 2016. The six month period ended September 30, 2015 was marked by cash outflows for capital spending for new equipment of $17,600.

 

Financing activities

For the six months ended September 30, 2016 cash provided by financing activities was $192,221. During the six months ended September 30, 2016, we received proceeds of $3,011,648 from our MLSA with People's. In connection with the MLSA, $2,459,259 of the proceeds from the People's Loan were disbursed to Utica, as payment in full of the principal obligations under the LSA. We also paid $145,995 in loan closing costs and $214,173 for monthly principal payments on our outstanding debt during the six months ended September 30, 2016.

For the six months ended September 30, 2015, cash used in financing activities was $466,740, which was used to make principal payments on our outstanding debt.

All of the above activity resulted in a net increase in cash for the six months ended September 30, 2016 of $1.5 million, compared with a net increase in cash of $308,288 for the six months ended September 30, 2015. We have no off-balance sheet assets or liabilities.

A table summarizing the amounts and estimated timing of future cash payments from commitments and contractual obligations was provided in the 2016 Form 10-K. During the six months ended September 30, 2016 there were no material changes to our commitments and contractual obligations.

 

Item 4. Controls and Procedures

Disclosure controls are controls and procedures designed to reasonably ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, or the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Our disclosure controls include some, but not all, components of our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our CEO and CFO have concluded that, as of September 30, 2016, our disclosure controls and procedures are effective.

Changes in Internal Controls

There has been no change to our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

                           

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On April 17, 2015, the Company, through Ranor, entered into the Assignment Agreement with Citigroup. Pursuant to the terms of the Assignment Agreement, Ranor sold, transferred, conveyed and assigned to Citigroup all of Ranor's right, title and interest in and to Ranor's $3,740,956 unsecured claim against GTAT. Pursuant to the Assignment Agreement, Citigroup paid to Ranor an initial amount equal to $507,835, which amount is classified as a current liability on our balance sheet. The Assignment Agreement provided for Citigroup to pay to Ranor up to an additional $614,452 upon receipt of written notice that Ranor's claim has been fully and finally allowed against GTAT without objection.

On November 7, 2016, GTAT's legal counsel notified Citigroup that Ranor's unsecured claim was fully allowed without objection. In accordance with the terms of the Assignment Agreement, Citigroup paid Ranor an additional $614,452 on November 8, 2016.

There have been no material changes to the legal proceedings discussed in Item 3. "Legal Proceedings," in the 2016 Form 10-K. 

 

Item 6. Exhibits

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.

 

 

 

 

 

 

 

EXHIBIT INDEX