TechPrecision .(TPCS) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the unaudited financial statements and management's analysis of the company's performance and financial condition ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents unaudited financial statements and notes, highlighting a significant going concern issue due to debt covenant violations Condensed Consolidated Balance Sheets The balance sheet shows a slight decrease in total assets and liabilities, with a notable decline in cash and cash equivalents Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | March 31, 2025 | Change | % Change | | :-------------------------------- | :------------ | :------------- | :----- | :------- | | Cash and cash equivalents | $143 | $195 | $(52) | -26.7% | | Accounts receivable, net | $2,794 | $2,192 | $602 | 27.5% | | Contract assets | $9,077 | $9,587 | $(510) | -5.3% | | Total current assets | $15,638 | $15,346 | $292 | 1.9% | | Property, plant and equipment, net | $12,296 | $13,791 | $(1,495) | -10.8% | | Total assets | $32,142 | $33,527 | $(1,385) | -4.1% | | Accounts payable | $2,615 | $2,437 | $178 | 7.3% | | Contract liabilities | $1,962 | $1,040 | $922 | 88.7% | | Current portion of long-term debt, net | $5,714 | $7,353 | $(1,639) | -22.3% | | Total current liabilities | $16,386 | $16,916 | $(530) | -3.1% | | Total liabilities | $23,930 | $24,787 | $(857) | -3.5% | | Total stockholders' equity | $8,212 | $8,740 | $(528) | -6.0% | | Total liabilities and stockholders' equity | $32,142 | $33,527 | $(1,385) | -4.1% | Condensed Consolidated Statements of Operations The company's revenue declined, but gross profit surged and net loss narrowed significantly compared to the prior year Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | :------- | | Revenue | $7,379 | $7,986 | $(607) | -7.6% | | Cost of revenue | $6,349 | $7,747 | $(1,398) | -18.0% | | Gross profit | $1,030 | $239 | $791 | 330.9% | | Selling, general and administrative | $1,493 | $1,580 | $(87) | -5.5% | | Loss from operations | $(463) | $(1,341) | $878 | 65.5% | | Net loss | $(597) | $(1,460) | $863 | 59.1% | | Net loss per share – basic and diluted | $(0.06) | $(0.16) | $0.10 | 62.5% | | Weighted average shares outstanding | 9,757,846 | 8,983,970 | 773,876 | 8.6% | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased due to a net loss that was partially offset by stock-based compensation expenses Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Balance March 31, 2025 | Stock issued for exercised options | Stock-based compensation | Net loss | Balance June 30, 2025 | | :----------------------- | :--------------------- | :------------------------------- | :----------------------- | :------- | :-------------------- | | Common Stock | $1 | $0 | $0 | $0 | $1 | | Additional Paid in Capital | $18,885 | $0 | $69 | $0 | $18,954 | | Accumulated Deficit | $(10,146) | $0 | $0 | $(597) | $(10,743) | | Total Stockholders' Equity | $8,740 | $0 | $69 | $(597) | $8,212 | - Total stockholders' equity decreased by $528 thousand from March 31, 2025, to June 30, 2025, primarily due to a net loss of $597 thousand, partially offset by $69 thousand in stock-based compensation[11] Condensed Consolidated Statements of Cash Flows Cash flow from operations and investing activities improved, but financing activities led to a net decrease in cash Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | | Net cash provided by operating activities | $646 | $107 | $539 | | Net cash provided by (used in) investing activities | $976 | $(31) | $1,007 | | Net cash used in financing activities | $(1,674) | $(170) | $(1,504) | | Net decrease in cash and cash equivalents | $(52) | $(94) | $42 | | Cash and cash equivalents, end of period | $143 | $44 | $99 | - Noncash transactions for the three months ended June 30, 2024, included the extinguishment of a $1.1 million liability by issuing 320,000 shares of common stock for a breakup fee related to the Votaw Precision Technologies, Inc acquisition termination[14][15] Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, revenue, debt, and segment information, emphasizing liquidity and going concern issues Note 1 - Description of Business The company is a custom manufacturer of large-scale precision components for the defense and industrial markets - TechPrecision Corporation is a custom manufacturer of precision, large-scale fabrication components and machined metal structural components[18] - The Company primarily serves customers in the defense and precision industrial markets[18] - Key subsidiaries include Ranor, Westminster Credit Holdings, LLC (WCH), Stadco New Acquisition, LLC (Acquisition Sub), and Stadco[17] Note 2 - Basis of Presentation and Significant Accounting Policies This note outlines accounting policies and highlights substantial doubt about the company's ability to continue as a going concern - The Company reported a net loss of $597 thousand for the three months ended June 30, 2025[22] - As of June 30, 2025, total available liquidity was $1,856 thousand, consisting of $1,949 thousand undrawn capacity under the revolver loan, $143 thousand in cash, and $236 thousand of book overdrafts[23] - The Company acknowledges a continuing event of default under the Loan Agreement due to failure to satisfy certain debt covenants as of June 30, 2025, and March 31, 2025, leading to the reclassification of all long-term debt as current[24][26] - Substantial doubt exists about the Company's ability to continue as a going concern for at least one year due to recurring operating losses at Stadco, the need for revolver loan renewal or alternative financing by August 29, 2025, and ongoing debt covenant non-compliance[29][30] - The Company adopted ASU 2023-09 (Income Taxes) on April 1, 2025, impacting income tax disclosures[31] - New accounting standards not yet adopted include ASU 2024-03 (Expense Disaggregation) effective after December 15, 2026, and ASU 2025-05 (Credit Losses) effective after December 15, 2025[32][33][34] Note 3 - Revenue Revenue is primarily generated from the defense market and recognized over time, with a significant backlog of performance obligations Revenue Disaggregation by Market (in thousands) | Market | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :------- | :------------------------------- | :------------------------------- | | Defense | $7,379 | $7,800 | | Industrial | $0 | $186 | | Totals | $7,379 | $7,986 | Revenue Disaggregation by Contract Type (in thousands) | Contract Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | | Over-time | $6,685 | $7,492 | | Point-in-time | $694 | $494 | | Totals | $7,379 | $7,986 | - As of June 30, 2025, the Company had $50,114 thousand of remaining performance obligations, with $44,051 thousand less than 50% complete, expected to be recognized within the next thirty-six months[37] Revenue from Key Customers (over 10% of total revenue, in thousands) | Customer | June 30, 2025 Amount | June 30, 2025 Percent | June 30, 2024 Amount | June 30, 2024 Percent | | :--------- | :------------------- | :-------------------- | :------------------- | :-------------------- | | Customer A | $1,126 | 15% | $1,762 | 22% | | Customer C | $1,845 | 25% | $1,075 | 14% | | Customer E | $1,590 | 21% | $1,844 | 23% | | Customer F | $711 | 10% | $879 | 11% | Segment Revenue (in thousands) | Segment | June 30, 2025 Amount | June 30, 2025 Percent | June 30, 2024 Amount | June 30, 2024 Percent | | :-------- | :------------------- | :-------------------- | :------------------- | :-------------------- | | Ranor | $3,202 | 43% | $3,888 | 45% | | Stadco | $2,070 | 28% | $2,664 | 26% | Contract Assets and Liabilities (in thousands) | Metric | June 30, 2025 | March 31, 2025 | | :----------------- | :------------ | :------------- | | Contract assets | $9,077 | $9,587 | | Contract liabilities | $1,962 | $1,040 | Note 4 - Income Taxes No income tax expense was recorded due to a full valuation allowance against deferred tax assets from operating losses - No income tax expense or benefit was provided for the three months ended June 30, 2025, and 2024, due to a valuation allowance against deferred tax assets[41] - The valuation allowance on deferred tax assets was approximately $5,700 thousand at June 30, 2025, and $5,722 thousand at March 31, 2025, reflecting management's belief that certain future tax benefits are unlikely to be realized due to recent operating losses and unsettled circumstances[42] - The 'One Big Beautiful Bill Act,' enacted July 4, 2025, will be applicable in fiscal 2026, allowing accelerated tax deductions for qualified property, plant, and equipment expenditures[43] Note 5 - Earnings Per Share (EPS) Net loss per share improved year-over-year, with certain stock options, warrants, and restricted stock excluded as anti-dilutive Basic and Diluted EPS (in thousands, except per share data) | Metric | Three Months ended June 30, 2025 | Three Months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(597) | $(1,460) | | Weighted average shares – basic and diluted | 9,757,846 | 8,983,970 | | Net loss per share | $(0.06) | $(0.16) | Anti-Dilutive Common Stock Equivalents Excluded from Diluted EPS | Type | June 30, 2025 | June 30, 2024 | | :------------- | :------------ | :------------ | | Stock options | 542,500 | 542,500 | | Warrants | 711,083 | 25,000 | | Restricted stock | 10,000 | 15,000 | Note 6 - Stock-Based Compensation The company issues equity awards under its 2016 incentive plan, with compensation costs recognized for various grants - The 2016 TechPrecision Equity Incentive Plan authorizes awards of various equity instruments to employees, directors, and consultants, with a maximum of 1,250,000 shares of common stock available for issuance[47] - As of June 30, 2025, there were 204,327 shares available for grant under the 2016 Plan[48] Stock Option Activity (Number of Options) | Metric | March 31, 2025 | Exercised | June 30, 2025 | | :-------------------------- | :------------- | :-------- | :------------ | | Outstanding | 542,500 | (50,000) | 492,500 | | Weighted Average Exercise Price | $1.53 | $0.67 | $1.41 | | Aggregate Intrinsic Value | $456,150 | $337,500 | $1,146,350 | - Total recognized compensation cost related to restricted stock awards for the three months ended June 30, 2025, was $9 thousand for the former CFO's award, $45 thousand for non-employee directors' awards, and $15 thousand for the new CFO's award[51][52][53] - Remaining unrecognized compensation cost for restricted stock awards totals $37 thousand (former CFO), $90 thousand (non-employee directors), and $165 thousand (new CFO), expected to be recognized over 12, 6, and 33 months, respectively[51][52][53] Note 7 - Concentration of Credit Risk A significant portion of the company's accounts receivable is concentrated with two major customers - As of June 30, 2025, two customers accounted for 67% of the total trade accounts receivable balance[56] Accounts Receivable Concentration (over 10% of total, in thousands) | Customer | June 30, 2025 Amount | June 30, 2025 Percent | March 31, 2025 Amount | March 31, 2025 Percent | | :--------- | :------------------- | :-------------------- | :-------------------- | :--------------------- | | Customer A | $557 | 20% | $239 | 11% | | Customer E | $1,302 | 47% | $1,024 | 47% | Note 8 - Other Current Assets Other current assets primarily consist of prepaid insurance and subscriptions Other Current Assets (in thousands) | Item | June 30, 2025 | March 31, 2025 | | :------------------ | :------------ | :------------- | | Prepaid insurance | $210 | $236 | | Prepaid subscriptions | $125 | $169 | | Prepaid taxes | $4 | $25 | | Supplier advances | $29 | $0 | | Deposits | $20 | $30 | | Other | $17 | $30 | | Total | $405 | $490 | Note 9 - Property, Plant and Equipment, Net The net value of property, plant, and equipment decreased due to depreciation Property, Plant and Equipment, Net (in thousands) | Item | June 30, 2025 | March 31, 2025 | | :------------------------------------ | :------------ | :------------- | | Total property, plant, and equipment | $29,175 | $30,156 | | Less: accumulated depreciation | $(16,879) | $(16,365) | | Total property, plant and equipment, net | $12,296 | $13,791 | - Depreciation expense was $519 thousand for the three months ended June 30, 2025, compared to $520 thousand for the same period in 2024[58] - The Company recognizes new equipment purchases as fixed assets and customer reimbursements as a contra-asset, with future depreciation offset by amortization of the contra-asset[59] Note 10 - Accrued Expenses Accrued expenses remained stable, with primary components being compensation and project costs Accrued Expenses (in thousands) | Item | June 30, 2025 | March 31, 2025 | | :------------------------ | :------------ | :------------- | | Accrued compensation | $1,442 | $1,346 | | Accrued project costs | $1,077 | $1,009 | | Accrued professional fees | $406 | $521 | | Provision for claims | $236 | $236 | | Provision for contract losses | $213 | $463 | | Book overdrafts | $236 | $0 | | Other | $78 | $110 | | Total | $3,688 | $3,685 | - Accrued compensation includes executive bonuses, payroll, and vacation/holiday pay. Provisions for estimated losses on uncompleted contracts are recorded in cost of revenue[60] Note 11 - Debt Due to non-compliance with debt covenants, all long-term debt has been reclassified as current Long-Term Debt (in thousands) | Loan Type | June 30, 2025 | March 31, 2025 | | :------------------------------------ | :------------ | :------------- | | Stadco Term Loan (3.79%, due Aug 2028) | $1,943 | $2,086 | | Ranor Term Loan (6.05%, due Dec 2027) | $2,134 | $2,151 | | Ranor Revolver Loan (due Aug 2025) | $1,664 | $3,150 | | Stadco equipment financing (13.38%, due Apr 2026) | $29 | $37 | | Total debt | $5,770 | $7,424 | | Less: debt issue costs unamortized | $(56) | $(68) | | Total debt, net | $5,714 | $7,356 | | Less: Current portion of long-term debt | $(5,714) | $(7,353) | | Total long-term debt, net | $0 | $3 | - All long-term debt has been classified as current in the consolidated balance sheet due to the Company's non-compliance with certain debt covenants as of June 30, 2025, and March 31, 2025[61][73] - The Ranor Revolver Loan has an unused borrowing capacity of $1,949 thousand as of June 30, 2025, and is due August 29, 2025[68][143] - The Company was not in compliance with debt covenants related to Cash Flow to Total Debt Service (not less than 1.20 to 1.00) and Balance Sheet Leverage (less than or equal to 2.50 to 1.00)[70][71][73] Note 12 - Other Noncurrent Liabilities Noncurrent liabilities primarily consist of customer reimbursements for equipment and a settlement agreement - Other noncurrent liabilities include $3,161 thousand as of June 30, 2025, related to customer reimbursements for equipment costs, which may be clawed back in case of contract breach[76][77][78] - Stadco has a settlement agreement with LADWP for $1,800 thousand, with monthly installment payments until November 15, 2030. The liability was $221 thousand (current) and $940 thousand (noncurrent) as of June 30, 2025[79] Note 13 - Leases The company holds right-of-use assets and corresponding lease liabilities for its facilities and equipment Right-of-Use Assets and Lease Liabilities (in thousands) | Item | June 30, 2025 | March 31, 2025 | | :-------------------------- | :------------ | :------------- | | Right of use assets net | $4,086 | $4,268 | | Total lease liability | $4,219 | $4,408 | Components of Lease Expense (in thousands) | Item | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Operating lease amortization | $180 | $172 | | Finance lease amortization | $2 | $2 | | Finance lease interest | $0 | $0 | Maturities of Lease Liabilities (as of June 30, 2025, in thousands) | Period | Amount | | :-------------------------- | :----- | | July 1, 2025 – June 30, 2026 | $946 | | July 1, 2026 – June 30, 2027 | $939 | | July 1, 2027 – June 30, 2028 | $939 | | July 1, 2028 – June 30, 2029 | $939 | | July 1, 2029 – June 30, 2030 | $860 | | Total lease payments | $4,623 | | Less: imputed interest | $(404) | | Total | $4,219 | Note 14 - Commitments and Contingent Liabilities The company has commitments for executive salaries, purchase obligations for materials, and customer-reimbursed equipment - The aggregate commitment for future executive salaries was $615 thousand as of June 30, 2025[83] - Purchase obligations outstanding totaled $9,296 thousand for materials and supplies (expected within 12 months) and $7,483 thousand for machinery and equipment (fully reimbursed by a customer)[84] - Company contributions to the defined contribution and savings plan were $17 thousand for the three months ended June 30, 2025, compared to $21 thousand for the same period in 2024[85] Note 15 - Segment Information The company operates through two segments, Ranor and Stadco, with Ranor profitable and Stadco incurring operating losses - The Company operates two reportable segments: Ranor and Stadco, both focused on manufacturing and assembly of components primarily for defense, aerospace, and other precision industrial customers in the U.S[86] Segment Financial Information (in thousands) | Metric | Ranor (Q2 2025) | Stadco (Q2 2025) | Total (Q2 2025) | Ranor (Q2 2024) | Stadco (Q2 2024) | Total (Q2 2024) | | :-------------------------------- | :-------------- | :--------------- | :-------------- | :-------------- | :--------------- | :-------------- | | Revenue, net | $4,242 | $3,137 | $7,379 | $4,382 | $3,604 | $7,986 | | Cost of revenue | $2,749 | $3,600 | $6,349 | $3,145 | $4,602 | $7,747 | | Selling, general, and administrative | $652 | $735 | $1,387 | $453 | $671 | $1,124 | | Income (loss) from operations | $841 | $(1,198) | $(357) | $784 | $(1,669) | $(885) | | Depreciation and amortization | $259 | $442 | $701 | $261 | $433 | $694 | | Capital expenditures | $1,250 | $0 | $1,250 | $201 | $0 | $201 | - Consolidated operating loss improved from $(1,341) thousand in Q2 2024 to $(463) thousand in Q2 2025, with unallocated corporate general costs decreasing from $(37) thousand to $(106) thousand and no costs related to terminated acquisition in Q2 2025 (vs $(419) thousand in Q2 2024)[88] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, results by segment, liquidity, capital resources, and the significant going concern issue Statement Regarding Forward Looking Disclosure This report contains forward-looking statements that involve risks and uncertainties, including the company's going concern status - The report contains forward-looking statements based on current expectations, estimates, and projections, which involve risks, uncertainties, and assumptions that could cause actual results to differ materially[91][92] - Key risks include reliance on individual purchase orders, ability to control operating expenses, external factors (e.g., conflicts, inflation, interest rates), availability of financing, customer concentration, and the substantial doubt about the Company's ability to continue as a going concern[92] Overview The company operates through its Ranor and Stadco subsidiaries, providing custom manufacturing for the US defense sector - Ranor, located in North Central Massachusetts, provides custom solutions for precision finished welded and machined components up to 100 tons, primarily serving the US defense sector (over 95% of revenue) and is ISO 9001:2015 and ITAR compliant[93][94] - Stadco, located in Los Angeles, California, manufactures large mission-critical components for military aircraft, helicopters, and space programs, also serving the defense sector (over 95% of revenue) and holds AS 9100 D, ISO 9001:2015, and NADCAP NonDestructive Testing certifications[95][96][97] - The Company's custom manufacturing operations focus on repeating custom programs with mature designs for long-term solutions, manufacturing to customer 'build-to-print' requirements without owning intellectual property or marketing products[98][99] Critical Accounting Policies and Estimates Revenue recognition is a critical accounting estimate, with no significant policy changes in the recent quarter - Revenue recognition is considered one of the most critical accounting estimates, with revenue fluctuating based on project duration (over-time or point-in-time) and progress measured by input methods like labor hours[104][105] - No significant changes were made to critical accounting policies during the three months ended June 30, 2025[106] New Accounting Standards Information on new accounting standards is detailed in Note 2 of the financial statements - Refer to Note 2 for a discussion of recently adopted and not yet adopted new accounting guidance[107] Results of Operations Consolidated revenue decreased by 8%, but gross profit surged 331% and operating loss narrowed due to improved throughput and lower costs Revenue Consolidated revenue decreased due to declines in both the Ranor and Stadco segments, despite strong backlogs Consolidated and Segment Revenue (in thousands) | Segment | June 30, 2025 Amount | June 30, 2025 % of Revenue | June 30, 2024 Amount | June 30, 2024 % of Revenue | Change Amount | Change % | | :-------------------- | :------------------- | :------------------------- | :------------------- | :------------------------- | :------------ | :------- | | Ranor | $4,297 | 58% | $4,382 | 55% | $(85) | -2% | | Stadco | $3,332 | 45% | $3,604 | 45% | $(272) | -8% | | Intersegment elimination | $(250) | -3% | $0 | 0% | $(250) | nm % | | Consolidated Revenue | $7,379 | 100% | $7,986 | 100% | $(607) | -8% | - Consolidated revenue decreased by 8% year-over-year, with Ranor's revenue down 2% and Stadco's down 8%[114] - Ranor's backlog was $24,402 thousand and Stadco's backlog was $25,712 thousand as of June 30, 2025, indicating strong new orders[116][118] Gross Profit and Gross Margin Consolidated gross profit and margin increased significantly, driven by lower loss provisions at both segments Consolidated and Segment Gross Profit (in thousands) | Segment | June 30, 2025 Amount | June 30, 2025 % of Revenue | June 30, 2024 Amount | June 30, 2024 % of Revenue | Change Amount | Change % | | :-------------------- | :------------------- | :------------------------- | :------------------- | :------------------------- | :------------ | :------- | | Ranor | $1,493 | 35% | $1,237 | 28% | $256 | 21% | | Stadco | $(463) | -14% | $(998) | -28% | $535 | 54% | | Consolidated Gross profit | $1,030 | 14% | $239 | 3% | $791 | 331% | - Consolidated gross profit increased by 331% to $1,030 thousand, and gross margin expanded to 14.0% from 3.0% year-over-year, primarily due to lower loss provisions at both Ranor and Stadco[119] - Stadco's gross profit, while still negative, improved significantly from $(998) thousand to $(463) thousand, driven by lower loss provision and decreased repairs and maintenance[121] Selling, General and Administrative (SG&A) Expenses Consolidated SG&A expenses decreased due to the absence of prior-year acquisition-related costs Consolidated and Segment SG&A Expenses (in thousands) | Segment | June 30, 2025 Amount | June 30, 2025 % of Revenue | June 30, 2024 Amount | June 30, 2024 % of Revenue | Change Amount | Change % | | :-------------------- | :------------------- | :------------------------- | :------------------- | :------------------------- | :------------ | :------- | | Ranor | $652 | 9% | $453 | 6% | $199 | 44% | | Stadco | $735 | 10% | $671 | 8% | $64 | 9% | | Corporate and unallocated | $106 | 1% | $456 | 6% | $(350) | -77% | | Consolidated SG&A | $1,493 | 20% | $1,580 | 20% | $(87) | -6% | - Consolidated SG&A expenses decreased by 6% year-over-year, primarily due to lower corporate costs offsetting increased office costs at Ranor and Stadco[122] - Corporate and unallocated SG&A decreased by $350 thousand, mainly due to the absence of the change in fair value related to the breakup fee for the terminated Votaw Precision Technologies, Inc acquisition[124] Operating (loss) income The consolidated operating loss narrowed significantly due to improved performance at Stadco and lower corporate costs Consolidated and Segment Operating (Loss) Income (in thousands) | Segment | June 30, 2025 Amount | June 30, 2025 % of Revenue | June 30, 2024 Amount | June 30, 2024 % of Revenue | Change Amount | Change % | | :-------------------- | :------------------- | :------------------------- | :------------------- | :------------------------- | :------------ | :------- | | Ranor | $843 | 11% | $784 | 10% | $59 | 8% | | Stadco | $(1,200) | -16% | $(1,669) | -21% | $469 | 28% | | Corporate and unallocated | $(106) | -1% | $(456) | -6% | $350 | 77% | | Operating loss | $(463) | -6% | $(1,341) | -17% | $878 | 66% | - Consolidated operating loss improved by $878 thousand, narrowing to $(463) thousand, primarily due to lower operating losses at Stadco and the absence of acquisition costs at the corporate level[125] - Stadco's operating loss narrowed as manufacturing costs decreased and productivity improved[127] Other Income (Expense), net Total other expense increased slightly due to lower other income and higher amortization of debt issue costs Other Income (Expense), Net (in thousands) | Item | June 30, 2025 | June 30, 2024 | $ Change | % Change | | :-------------------------- | :------------ | :------------ | :------- | :------- | | Other income | $1 | $13 | $(12) | -92% | | Interest expense | $(112) | $(115) | $3 | 3% | | Amortization of debt issue costs | $(23) | $(17) | $(6) | -34% | | Total other expense | $(134) | $(119) | $(15) | -12.6% | - Interest expense decreased by $3 thousand due to lower Revolver Loan borrowings and reduced interest on term loans[128] - Other income in Q2 2024 included a vendor rebate of approximately $11 thousand, which was not present in Q2 2025[129] Income Tax Expense No income tax expense was recorded due to a full valuation allowance against deferred tax assets - No income tax expense or benefit was recorded for the three months ended June 30, 2025, due to a valuation allowance of approximately $5,700 thousand against deferred tax assets, reflecting the unlikelihood of realizing certain future tax benefits[130][131] Net Loss The company's net loss improved significantly compared to the prior-year period - The Company recorded a net loss of $597 thousand, or $0.06 per share, for the three months ended June 30, 2025, a significant improvement from a net loss of $1,460 thousand, or $0.16 per share, in the prior year period[132] Liquidity, Capital Resources and Going Concern The company faces substantial doubt about its going concern status due to operating losses, debt covenant non-compliance, and upcoming loan renewal Operating Activities Cash provided by operating activities increased year-over-year, driven by favorable changes in working capital - Cash provided by operating activities increased to $646 thousand for the three months ended June 30, 2025, from $107 thousand in the prior year, driven by working capital changes providing $694 thousand[137] - The primary sources of cash are customer revenue, contract advances, and accounts receivable collections, which can fluctuate with project milestones[136] Investing Activities Investing activities provided a significant amount of cash due to reimbursements for equipment purchases - Net cash provided by investing activities was $976 thousand for the three months ended June 30, 2025, a significant increase from $(31) thousand in the prior year, primarily due to $2,226 thousand in reimbursements for property, plant, and equipment purchases[135][138] - Purchases of new factory machinery and equipment totaled $1,250 thousand for the three months ended June 30, 2025[138] Financing Activities Financing activities used a significant amount of cash, primarily for net repayments on the Revolver Loan - Net cash used in financing activities increased to $1,674 thousand for the three months ended June 30, 2025, from $170 thousand in the prior year, primarily due to net repayments of the Revolver Loan ($2,755 thousand borrowings vs $4,241 thousand payments)[135][139] - The Company also used $188 thousand to pay down debt principal, periodic lease payments, and debt issue costs[139] Berkshire Bank Loans The company is in continuing default on its loan agreement, raising substantial doubt about its ability to continue as a going concern - The Company is in continuing default under the Loan Agreement with Berkshire Bank due to failure to satisfy certain debt covenants as of June 30, 2025, and March 31, 2025[144][145] - The lender has not granted a waiver and reserves the right to accelerate and demand immediate repayment of the outstanding indebtedness ($5,741 thousand as of June 30, 2025)[144][145] - Management is exploring options to strengthen liquidity, including making Stadco operations profitable, renewing the Revolver Loan (due August 29, 2025), or entering into alternative debt facilities[146][147] - The uncertainty surrounding Stadco's losses, Revolver Loan renewal, and debt covenant compliance raises substantial doubt about the Company's ability to continue as a going concern[148] Commitments and Contractual Obligations The company has significant commitments for debt, raw materials, equipment, and operating leases - Debt obligations totaled $5,770 thousand, all classified as current due to covenant violations[153] - Outstanding unconditional contractual commitments for raw materials and supplies totaled approximately $9,296 thousand, due within the next twelve months[153] - Purchase obligations for machinery and equipment amounted to $7,483 thousand, for which the Company is fully reimbursed by a customer[153] - Operating lease obligations, including imputed interest, totaled $4,212 thousand through 2030, with approximately $900 thousand due annually for each of the next five years[153] EBITDA Non-GAAP Financial Measure EBITDA, a non-GAAP measure, improved significantly from a loss to a positive figure year-over-year - EBITDA is presented as a non-GAAP financial measure to compare operating performance, especially given different financing and capital structures, and is used in debt covenants[151] EBITDA Reconciliation to Net Loss (in thousands) | Metric | June 30, 2025 | June 30, 2024 | Change Amount | | :-------------------------- | :------------ | :------------ | :------------ | | Net loss | $(597) | $(1,460) | $863 | | Income tax benefit | $0 | $0 | $0 | | Interest expense (1) | $135 | $132 | $3 | | Depreciation and amortization | $701 | $694 | $7 | | EBITDA | $239 | $(634) | $873 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As a smaller reporting company, the company has elected not to provide disclosure about market risk - The Company, as a smaller reporting company, has elected not to provide quantitative and qualitative disclosure about market risk[154] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls were ineffective as of June 30, 2025, due to five identified material weaknesses Evaluation of Disclosure Controls and Procedures The company's disclosure controls and procedures were deemed not effective due to material weaknesses in internal control - As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[156] Management's Responsibility for Internal Controls Management is responsible for establishing and maintaining adequate internal control over financial reporting - The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S GAAP[157] Inherent Limitations Over Internal Controls Internal controls provide reasonable, not absolute, assurance and are subject to inherent limitations - Management acknowledges that internal controls, no matter how well designed, can only provide reasonable, not absolute, assurance and may not prevent or detect all errors and fraud due to inherent limitations and resource constraints[158] Material Weaknesses Five material weaknesses were identified related to accounting for acquisitions, taxes, assets, and segregation of duties - Five material weaknesses were identified in internal control over financial reporting as of March 31, 2025, indicating a reasonable possibility of material misstatement not being prevented or detected timely[159] - The material weaknesses include inadequate controls over purchase accounting for the Stadco acquisition, insufficient tax accounting personnel leading to late adjustments for valuation allowance, and inadequate resources and expertise in Stadco accounting staff resulting in post-closing adjustments for POC revenue projects[161] - Additional weaknesses involve the inability to timely complete impairment tests for long-lived assets and a temporary lack of segregation of duties where an interim CFO/Controller assumed both reviewer and preparer roles[161] - Despite the material weaknesses, management believes the condensed consolidated financial statements fairly present the Company's financial condition, results of operations, and cash flows[160] Remediation of the Material Weaknesses The company is actively working to remediate the identified material weaknesses, but the process is not yet complete - Remediation efforts are ongoing, including enhancing the purchase accounting framework, engaging tax and impairment specialists, transitioning Stadco's accounting function to the CFO office in Massachusetts, and resolving segregation of duties with the hiring of a new CFO[163] - The material weaknesses will not be considered remediated until applicable controls operate for a sufficient period and management concludes, through testing, that they are operating effectively[164] Changes in Internal Control over Financial Reporting No material changes to internal controls occurred during the quarter, other than the ongoing remediation efforts - Except for the disclosed remediation plan, there have been no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial reporting[166] PART II. OTHER INFORMATION This part covers legal proceedings, other required disclosures, and a list of exhibits filed with the report ITEM 1. LEGAL PROCEEDINGS The company is not currently a party to any material legal proceedings - As of the report date, the Company is not a party to any material legal or administrative proceedings[168] - Any litigation or legal proceeding, regardless of outcome, is likely to result in substantial cost and diversion of management's resources[168] ITEM 5. OTHER INFORMATION No directors or officers reported adopting or terminating Rule 10b5-1 trading arrangements during the quarter - No directors or officers informed the Company of the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[169] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL data - The exhibit index includes the Certificate of Incorporation, Amended and Restated By-laws, Certificate of Designation for Series A Convertible Preferred Stock, Second Amendment to 2016 Equity Incentive Plan, and certifications by the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act)[170] - XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, and Cover Page Interactive Data File are also included[170][171] SIGNATURES The report is duly signed on behalf of TechPrecision Corporation by its Chief Financial Officer on August 21, 2025 - The report was signed by Phillip E. Podgorski, Chief Financial Officer of TechPrecision Corporation, on August 21, 2025[174]