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 Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including this section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," may contain predictive or "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical fact contained in this quarterly report, including statements that express our intentions, plans, objectives, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events, or conditions are forward-looking statements. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "should," "would" and similar expressions, as they relate to us, are intended to identify forward-looking statements. These 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. Factors that could cause such outcomes and results to differ include, but are not limited to, risks and uncertainties arising from:
? our reliance on individual purchase orders, rather than long-term contracts, to
generate revenue;
? our ability to balance the composition of our revenues and effectively control
operating expenses;
external factors, including the COVID-19 pandemic, Russia's invasion of
? Ukraine, high inflation and increasing interest rates, that may be outside of
our control;
? the impacts of the COVID-19 pandemic and government-imposed lockdowns in
response thereto;
? the availability of appropriate financing facilities impacting our operations,
financial condition and/or liquidity;
? our ability to receive contract awards through competitive bidding processes;
? our ability to maintain standards to enable us to manufacture products to
exacting specifications;
? our ability to enter new markets for our services;
? our reliance on a small number of customers for a significant percentage of our
business;
? competitive pressures in the markets we serve;
? changes in the availability or cost of raw materials and energy for our
production facilities;
? restrictions in our ability to operate our business due to our outstanding
indebtedness;
? government regulations and requirements;
? pricing and business development difficulties;
? changes in government spending on national defense;
? our ability to make acquisitions and successfully integrate those acquisitions
with our business;
? 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 completed
acquisition of Stadco; and
those risks discussed in "Item 1A. Risk Factors" and elsewhere in our Annual
? Report on Form 10-K, as well as those described in any other filings which we
make with the SEC.
Any forward-looking statements speak only as of the date on which they are made,
and we undertake no obligation to publicly update or revise any forward-looking
statements to reflect events or circumstances that may arise after the date of
this Quarterly Report on Form 10-Q, except as required by applicable law.
Investors should evaluate any statements made by us in light of these important
factors.
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Overview
Contract Manufacturing
Through our two wholly-owned subsidiaries, Ranor and Stadco (acquired on August
25, 2021), 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.
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.Impact of COVID-19 Pandemic
At the beginning of calendar year 2020, the novel strain of coronavirus known as
COVID-19 spread worldwide, including to U.S jurisdictions where the Company does
business, and became a global pandemic. The United States Government declared a
national emergency and various state governments imposed "lockdown" and
"shelter-in-place" orders intended to reduce the spread of COVID-19 that have
severely restricted business, social activities and travel. The Governors of the
Commonwealth of Massachusetts and state of California, in which jurisdiction the
Company's manufacturing and executive offices are located, issued similar
emergency orders in March 2020. Although the emergency order for Massachusetts
has expired, the national emergency declaration was renewed on July 15, 2022 and
the California emergency order remains in effect. As a designated "COVID-19
Essential Service" we continued our operations throughout the pendency of the
orders.
Our production facilities continue to operate as they had prior to the outbreak
of the COVID-19 pandemic, other than the implementation of enhanced safety
measures intended to prevent the spread of the virus. The remote working
arrangements and travel restrictions imposed by applicable governmental
authorities have not impaired our ability to maintain operations. Our results of
operations and cash flows during the three months ended June 30, 2022, and 2021
were not materially affected by the COVID-19 pandemic.
However, given the speed and frequency of continuously evolving developments
with respect to this pandemic, the extent to which COVID-19 may adversely impact
our business depends on future developments, which are highly uncertain and
unpredictable, including new information concerning the severity of the outbreak
and the effectiveness of actions globally to contain or mitigate its effects, we
cannot reasonably estimate the magnitude of future impact on our financial
condition and results of operations.
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Critical Accounting Policies and Estimates
The preparation of the condensed consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We continually evaluate our estimates, including those related to revenue recognition and income taxes. These estimates and assumptions require management's most difficult, subjective or complex judgments. Actual results may vary under different assumptions or conditions. We consider the principles and estimates applied for revenue recognition to be one of the most critical accounting estimates that we make. Our revenue can fluctuate from quarter-to-quarter as we measure revenue recognition over the duration of a project, or at the end of the project. The Company records most of its revenue over time as it completes performance obligations or at a point-in-time, for example, at the delivery date, when control of the promised goods are transferred to the customer. Project volume for revenue recognized at a point-in-time is generally smaller, can fluctuate from period to period, and is difficult to forecast. We measure progress for performance obligations satisfied over time using input methods, for example, labor hours expended and time elapsed. As a result, assuming a steady flow of project volume and labor hours, we have the ability to deliver a fair and accurate flow of revenue over time. When project volume is higher or lower, we may report higher or lower amounts of revenue for those given quarterly periods. Our significant accounting policies are set forth in detail in Note 2 to the consolidated financial statements included in the 2022 Annual Report on Form 10-K. There were no significant changes to our critical accounting policies during the nine months ended June 30, 2022.
New Accounting Standards
See Note 17, Accounting Standards Update, in the Notes to the Unaudited Condensed Consolidated Financial Statements under "Item 1. Financial Statements", for a discussion of recently adopted new accounting guidance and new accounting guidance not yet adopted.
Results of Operations
Our results of operations are affected by a number of external factors including the availability of raw materials, commodity prices (particularly steel), macroeconomic factors, including the availability of capital that may be needed by our customers, and political, regulatory and legal conditions in the United States and in foreign markets. It generally takes approximately twelve months or less to complete our manufacturing projects. However, contracts for larger complex components can take up to thirty-six months to complete. Units manufactured under the majority of our customer contracts have historically been delivered on time and with a positive gross margin, with some exceptions. Our results of operations are also affected by our success in booking new contracts, the timing of revenue recognition, delays in customer acceptances of our products, delays in deliveries of ordered products and our rate of progress fulfilling obligations under our contracts. A delay in deliveries or cancellations of orders could have an unfavorable impact on liquidity, cause us to have inventories in excess of our short-term needs, and delay our ability to recognize, or prevent us from recognizing, revenue on contracts in our order backlog. We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that we consider not representative of ongoing operations, such as the unallocated PPP loan forgiveness.
Key Performance Indicators
While we prepare our financial statements in accordance with U.S. generally accepted accounting principles, or "U.S. GAAP", we also utilize and present certain financial measures that are not based on or included in U.S. GAAP. We refer to these as non-GAAP financial measures. Please see the section titled "EBITDA Non-GAAP financial measure" below for further discussion of these financial measures, including the reasons why we use such financial measures and reconciliations of such financial measures to the most directly comparable
U.S.
GAAP financial measures.
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Percentages in the following tables and throughout this "Results of Operations" section may reflect rounding adjustments.
Three Months Ended June 30, 2022 and 2021
The following table presents net sales, gross profit and gross margin, consolidated and by reportable segment:
June 30, 2022 June 30, 2021 Changes
Percent of Percent of Percent of
(dollars in thousands) Amount Net sales Amount Net sales Amount Net sales
Ranor $ 4,726 67 % $ 3,412 100 % $ 1,314 39 %
Stadco 2,350 33 % - - % 2,350 nm %
Net sales $ 7,076 100 % $ 3,412 100 % $ 3,664 107 %
Ranor $ 2,886 41 % $ 2,579 76 % $ 307 12 %
Stadco 3,373 48 % - - % 3,373 nm %
Cost of sales $ 6,259 89 % $ 2,579 76 % $ 3,680 143 %
Ranor $ 1,840 26 % $ 833 24 % $ 1,007 121 %
Stadco (1,023) (14) % - - % (1,023) nm %Gross profit $ 817 12 % $ 833 24 % $ (16) (2) % nm - not meaningful Net Sales Consolidated - Net sales were $7.1 million or $3.7 million higher when compared to consolidated net sales for the three months ended June 30, 2021. Net sales in defense markets increased by $3.7 million, due primarily to the new revenue from our Stadco segment, which made up $2.2 million of the increase. Net sales to precision industrial markets decreased by less than $0.1 million. Ranor - Net sales were $4.7 million for the three months ended June 30, 2022, or $1.3 million and 39% higher when compared to the same prior year period. Net sales increased year over year primarily on new orders of repeat components. Net sales to defense customers increased by $1.5 million. The defense backlog for Ranor remains strong as new orders for components related to a variety of programs continue to flow down from our existing customer base of prime defense contractors. Net sales to precision industrial markets decreased by $0.2 million due to lower project activity. We have repeat business in this sector, but the order flow can be uneven and difficult to forecast. Stadco - Net sales were $2.4 million for the three months ended June 30, 2022, with $2.2 million and $0.2 million completed for customers in the defense and precision industrial markets, respectively. Our defense backlog for Stadco is strong as new orders for components related to a variety of programs, including components for heavy lift helicopters.
Gross Profit and Gross Margin
Consolidated - Cost of sales consists primarily of raw materials, parts, labor,
overhead and subcontracting costs. Our cost of sales for the three months ended
June 30, 2022 was $3.7 million higher when compared to the three months ended
June 30, 2021. The increase in cost of sales and lower gross margin was
primarily the result of an unfavorable production mix and under-absorbed factory
overhead at our Stadco segment. As a result, gross profit was $0.8 million, or
2% lower when compared to the three months ended June 30, 2021. Gross margin was
11.6% for the three months ended June 30, 2022 compared to 24.4% for the three
months ended June 30, 2021.
Ranor - The gross profit and gross margin significantly increased year over year
with improved throughput on new orders of repeat components. This set of
favorable conditions, accelerating project progress and better overhead
absorption rates on higher revenue recognized over-time, began to take hold in
the fourth quarter of fiscal 2022. We expect this trend to continue in fiscal
2023.
Stadco - The gross margin turned negative at the end of fiscal year 2022 and
continued through the first quarter of fiscal 2023. New project startups and
associated production activities resulted in unfavorable throughput and an
increase in under-absorbed overhead. We expect gradual improvements in gross
margin for the remainder of fiscal 2023 as the new projects make progress to
completion.
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Selling, General and Administrative (SG&A) Expenses
June 30, 2022 June 30, 2021 Changes
Percent of Percent of
(dollars in thousands) Amount Net Sales Amount Net Sales Amount Percent
Ranor $ 487 7 % $ 405 12 % $ 82 20 %
Stadco 436 6 % - - % 436 nm %
Corporate and unallocated 452 7 % 327 10 % 125 38 %
Consolidated SG&A $ 1,375 20 % $ 732 22 % $ 643 88 %
nm - not meaningful
Consolidated - Total selling, general and administrative expenses for the three
months ended June 30, 2022, increased by $0.6 million, or 88%, as the Company
completed its acquisition of Stadco and spending on outside advisory services
and business travel returned to pre-pandemic levels.
Ranor - Advisory fees, travel expenses and other office costs increased by approximately $0.1 million due to a return to pre-pandemic travel and business activity.
Stadco - The increase was due to the inclusion of Stadco operations which were
not part of the Company in the comparable prior year period. Expenses incurred
during the period were slightly below monthly averages.
Corporate and unallocated - Advisory fees, travel expenses and other office
costs increased by approximately $0.1 million due to a return to pre-pandemic
travel and business activity.
Operating (loss) income
June 30, 2022 June 30, 2021 Changes
Percent of Percent of
(dollars in thousands) Amount net sales Amount net sales Amount Percent
Ranor $ 1,353 19 % $ 427 13 % $ 926 217 %
Stadco (1,459) (21) % - - % (1,459) nm %Corporate and unallocated (452) (6) % (327)
(10) % (125) (38) % Operating (loss) income $ (558) (8) % $ 100 3 % $ (658) (658) % nm - not meaningful
Consolidated - As a result of the foregoing, including the integration and reduced profitability at Stadco, we reported an operating loss of $0.6 million compared to operating income of $0.1 million for the three months ended June 30, 2021.
Ranor - Operating income was $0.9 million higher compared to same period prior year, due primarily to significantly improved operating throughput.
Stadco - New project startups and related production activities resulted in unfavorable throughput, and higher unabsorbed overhead that resulted in an operating loss of $1.5 million.
Corporate and unallocated - Corporate expenses were higher for the three months ended June 30, 2022, primarily due to a return to pre-pandemic travel and business activity.
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Other (Expense) Income, net
The following table presents other (expense) income for the three months ended
June 30:
2022 2021 $ Change % Change
Other (expense) income, net $ (33,225) $ 10,390 $ (43,615) nm
Interest expense $ (70,246) $ (21,054) $ (49,192) (234) %Amortization of debt issue costs $ (13,399) $ (8,824) $ (4,575)
(52) % nm - not meaningful Interest expense was higher for the three months ended June 30, 2022. The increase in interest expense was due primarily to borrowings under the new Stadco Term Loan and higher amounts borrowed under the revolver loan. We expect to see higher interest expense in fiscal 2023 due to the higher levels of debt incurred since the Stadco acquisition. Amortization of debt issue costs were higher when compared to the three months ended June 30, 2021. New amortization periods commenced in fiscal 2022 for costs incurred for the Ranor loan extension, and for the new Stadco loan. As a result, we expect to see higher amortization expense in fiscal 2023.
Other expense, net, in the table above, includes an expense accrual for contingent consideration of $33,474 in connection with the Stadco acquisition. Other income for the three months ended June 30, 2021, includes a return of $10,000 for a retainer fee previously paid for outside advisory fees in connection with a class action settlement in March 2021.
Paycheck Protection Program (PPP) Loan Forgiveness
For the three months ended June 30, 2021, as authorized by Section 1106 of the CARES Act, the Small Business Administration remitted to Berkshire Bank, the lender of record, a payment of principal in the amount of $1,317,100, for forgiveness of the Company's PPP loan. The funds credited to the PPP loan paid this loan off in full. Income Taxes For fiscal year 2022 the Company recorded a tax benefit of $173,714, the result of lower taxable income. In fiscal 2021, the Company recorded tax expense of $26,580. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The valuation allowance on deferred tax assets at June 30, 2022 and March 31, 2022 was approximately $2.0 million. We believe that it is more likely than not that the benefit from certain state NOL carryforwards and other deferred tax assets will not be realized. In recognition of this risk, we continue to provide a valuation allowance on these items. In the event future taxable income is below management's estimates or is generated in tax jurisdictions different than projected, the Company could be required to increase the valuation allowance for deferred tax assets. This would result in an increase in the Company's effective tax rate. Net (Loss) Income
As a result of the foregoing, for the three months ended June 30, 2022, we recorded net loss of $0.5 million, or $0.01 per share basic and fully diluted, compared with net income of $1.4 million, or $0.05 per share basic and $0.04 per share fully diluted in fiscal 2021.
Liquidity and Capital Resources
We reported a net loss of $0.5 million for the three months ended June 30, 2022.
We reported net a net loss of $0.3 million for the fiscal year ended March 31,
2022. Our liquidity is highly dependent on the availability of financing
facilities and our ability to maintain our gross profit and operating income.
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As of June 30, 2022, we had $4.5 million in total available liquidity,
consisting of $0.6 million in cash and cash equivalents, and $3.9 million in
undrawn capacity under our revolver loan. As of March 31, 2022, we had $3.9
million in total available liquidity, consisting of $1.1 million in cash and
cash equivalents, and $2.8 million in undrawn capacity under our revolver loan.
On June 16, 2022, Ranor entered into a Third Amendment to Amended and Restated
Loan Agreement and Third Amendment to Promissory Note to further extend the
maturity date of the Ranor Term Loan to September 16, 2022. The Company has
commenced negotiations of a further amended and restated loan agreement with
Berkshire Bank, including a potential modification of the loan covenants. We
intend to refinance the original term loan made by Berkshire Bank to Ranor in
the principal amount of $2.85 million (the "Ranor Term Loan") by borrowing on
terms similar to the current loan and using the proceeds to pay down certain
existing debt obligations and lowering our debt levels and debt service
requirements. However, there can be no assurance that we will be successful in
negotiating for these terms with Berkshire Bank or any other lender.
Our debt financing agreements limit our capital expenditures to $1.5 million
annually and contain loan to value, balance sheet leverage, and debt service
coverage ratio covenants. At June 30, 2022, the Company was not in compliance
with all of these financial covenants.
Berkshire Bank waived the Company's noncompliance with certain of the financial
and related covenants at June 30, 2022. The bank retains the right to act on
covenant violations that occur after the date of delivery of the waiver. If the
lender had demanded repayment and caused the debt to be considered a short-term
obligation, the Company would have been unable to pay the obligation because the
Company does not have existing facilities or sufficient cash on hand to satisfy
these obligations.
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 new long-term financing on terms consistent with our near-term
business plans.
We had cash and cash equivalents of $0.6 million and working capital of $2.6
million, a decrease of $0.2 million when compared to March 31, 2022. We believe
our available cash, plus cash expected to be provided by operations, Employee
Retention Credit cash refunds of approximately $0.9 million, and borrowing
capacity available under the revolver loan (until the expiration date of
December 20, 2022), will be sufficient to fund our operations, expected capital
expenditures, and principal and interest payments under our lease and debt
obligations through the next 12 months from the issuance date of our financial
statements. Our revolver loan matures in December 2022 and will not be available
to provide liquidity unless it is renewed. The Company intends to renew the
revolver loan with Berkshire Bank. There was $0.3 million outstanding under the
revolver loan at June 30, 2022, and $3.9 million of available liquidity.
The uncertainty associated with the refinancing of the Ranor Term Loan which is
due on September 16, 2022, and the Revolver Loan which is due on December 20,
2022, raises substantial doubt about our ability to continue as a going concern.
The condensed consolidated financial statements for the three months ended June
30, 2022, and the consolidated financial statements for the year ended March 31,
2022 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
current liabilities and to continue as a going concern is dependent upon the
timely availability of long-term financing and successful execution of our
operating plan. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
The table below presents selected liquidity and capital measures at the period
ended:
June 30, March 31, Change
(dollars in thousands) 2022 2022 Amount
Cash and cash equivalents $ 574 $ 1,052 $ (478)
Working capital $ 2,646 $ 2,753 $ (107)
Total debt $ 6,215 $ 7,356 $ (1,141)
Total stockholders' equity $ 14,815 $ 15,264 $ (449)
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The next table summarizes changes in cash by primary component in the cash flows statements for the three months ended:
June 30, June 30, Change
(dollars in thousands) 2022 2021 Amount
Operating activities $ 1,448 $ 137 $ 1,311
Investing activities (763) (4) (759)
Financing activities (1,164) (27) (1,137)Net (decrease) increase in cash $ (479) $ 106 $ (585)
Operating activities
Apart from our loan facilities, our primary sources of cash are from accounts receivable collections. Our customers make advance payments and progress payments under the terms of each manufacturing contract. Our cash flows can fluctuate significantly from period to period as we mark progress with customer projects and the composition of our receivables collections mix changes between advance payments and customer payments made after shipment of finished goods. Cash provided by operating activities for the three months ended June 30, 2022 was approximately $1.4 million, as operating cash inflows exceeded outflows as work on new projects commenced and customer cash advances and collections increased. Our fiscal 2023 first quarter was marked by favorable project performance progress and delivery schedules that led to timely customer payments. Cash provided by operations for the three months ended June 30, 2021 was $0.1 million. Investing activities We invested approximately $0.8 million in new factory machinery and equipment for the first three months of fiscal 2023. We are limited by our financial debt covenants and may not spend more than $1.5 million for new machinery and equipment in the fiscal year. Purchases of new equipment for the three months ended June 30, 2021 totaled $4,198.
Financing activities
We drew down $1.8 million of proceeds under our revolver loan during the three months ended June 30, 2022 and repaid $2.8 million during the same period. We also used $0.2 million of cash to make periodic lease payments and pay off certain lease and debt obligations. For the three months ended June 30, 2021 we paid down principal of $27,166 on our term debt and finance lease obligations. All of the above activity resulted in a net decrease in cash of $0.5 million for the three months ended June 30, 2022, compared with a net increase in cash of $0.1 million for the three months ended June 30, 2021.
Berkshire Bank Loans
On August 25, 2021, the Company entered into an amended and restated loan
agreement with Berkshire Bank, or the "Loan Agreement". Under the Loan
Agreement, Berkshire Bank continues as lender of the "Ranor Term Loan", and the
revolving line of credit, or the "Revolver Loan". In addition, Berkshire Bank
provided to Stadco a term loan in the original amount of $4.0 million, or the
"Stadco Term Loan". The proceeds of the original Ranor Term Loan of $2.85
million were previously used to refinance existing mortgage debt of Ranor. The
proceeds of the Revolver Loan are used for working capital and general corporate
purposes of the Company. The proceeds of the Stadco Term Loan were to be used to
support the acquisition of Stadco and refinance existing indebtedness of Stadco.
Payments for the original Ranor Term Loan began on January 20, 2017 and are made
in 60 monthly installments of $19,260 each, inclusive of interest at a fixed
rate of 5.21% per annum, with all outstanding principal and accrued interest due
and payable on the maturity date. As amended, the Ranor Term Loan was to mature
on June 16, 2022, with a balloon payment of approximately $2.3 million due under
the terms of the Loan Agreement with Berkshire Bank. However, on June 16, 2022,
Ranor and certain affiliates of the Company entered into a Third Amendment to
Amended and Restated Loan Agreement and Third Amendment to Promissory Note to
further extend the maturity date of the Ranor Term Loan to September 16, 2022.
We expect to commence negotiations of a further amended and restated loan
agreement to refinance that debt with Berkshire Bank prior to the new maturity
date.
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Under the Loan Agreement, Berkshire Bank also makes available to Ranor a
revolving line of credit with, following certain modifications, a maximum
principal amount available of $5.0 million. The Company drew down $1.8 million
under the revolver loan, and repaid $2.8 million of principal during the three
months ended June 30. 2022. There was $0.3 million outstanding under the
revolver loan at June 30, 2022. Interest-only payments on advances made under
the revolver loan during the three months ended June 30, 2022 totaled $1,961 at
a weighted average interest rate of 2.75%. Unused borrowing capacity at June 30,
2022 was approximately $3.9 million.
On August 25, 2021, Stadco borrowed $4,000,000 from Berkshire Bank under the
Stadco Term Loan. Interest on the Stadco Term Loan is due on unpaid balances
beginning on August 25, 2021 at a fixed rate per annum equal to the 7 year
Federal Home Loan Bank of Boston Classic Advance Rate plus 2.25%. Since
September 25, 2021, and on the 25th day of each month thereafter, Stadco has
made and will make monthly payments of principal and interest in the amount of
$54,390 each, with all outstanding principal and accrued interest due and
payable on August 25, 2028.
Commitments and Contractual Obligations
The following contractual obligations associated with our normal business activities are expected to result in cash payments in future periods, and include the following material items at June 30, 2022:
We enter into various commitments with suppliers for the purchase of raw
materials and work supplies. In accordance with U.S. GAAP, these purchase
obligations are not reflected in the accompanying consolidated balance sheets.
? Our outstanding unconditional contractual commitments, including for the
purchase of raw materials and supplies goods, totaled $6.2 million, all of it
due to be paid in fiscal 2023. These purchase commitments are in the normal
course of business.
Our long-term debt obligations, including fixed and variable-rate debt, totaled
? $6.2 million, with $3.2 million due over the next twelve months, and
approximately $0.6 million due annually for each of the next five years.
Our lease obligations, including imputed interest, totaled $7.4 million for
? buildings and equipment through 2030, with approximately $0.9 million due
annually for each of the next eight years.
We believe our available cash, plus cash expected to be provided by operations and borrowing capacity available under the revolver loan (until December 2022 when the Company expects to refinance) and Employee Retention Credit cash refunds will be sufficient to fund our operations, expected capital expenditures, and principal and interest payments under our lease and debt obligations through the next 12 months from the issuance date of the financial statements included in this report.
There are no off-balance sheet arrangements as of June 30, 2022.
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EBITDA Non-GAAP Financial Measure
To complement our condensed consolidated statements of operations and
comprehensive (loss) income and condensed consolidated statements of cash flows,
we use EBITDA, a non-GAAP financial measure. Net (loss) income is the financial
measure calculated and presented in accordance with U.S. GAAP that is most
directly comparable to EBITDA. We believe EBITDA provides our board of
directors, management and investors with a helpful measure for comparing our
operating performance with the performance of other companies that have
different financing and capital structures or tax rates. We also believe that
EBITDA is a measure frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in our industry, and is a
measure contained in our debt covenants. However, while we consider EBITDA to be
an important measure of operating performance, EBITDA and other non-GAAP
financial measures have limitations, and investors should not consider them in
isolation or as a substitute for analysis of our results as reported under U.S.
GAAP.
We define EBITDA as net income plus interest, income taxes, depreciation, and
amortization. Net loss was $0.5 million for the three months ended June 30,
2022, as compared to net income of $1.4 million for the three months ended June
30, 2021. The following table provides a reconciliation of EBITDA to net income,
the most directly comparable U.S. GAAP measure reported in our condensed
consolidated financial statements for the three months ended:
June 30, June 30, Change
(dollars in thousands) 2022 2021 Amount
Net (loss) income $ (501) $ 1,371 $ (1,872)
Income tax (benefit) provision (174) 27 (201)
Interest expense (1) 84 30 54
Depreciation and amortization 585 183 402
EBITDA $ (6) $ 1,611 $ (1,617)(1) Includes amortization of debt issue costs.
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