Chicago Rivet & Machine Co: Form 10-K for the period ended Dec 31, 2024

Chicago Rivet & Machine Co. (the "Company") was incorporated under the laws of the State of Illinois in December 1927, as successor to the business of Chicago Rivet & Specialty Co. The Company operates in the United States in two segments as determined by its products. The fastener segment, which comprises the Company’s wholly-owned subsidiary, H&L Tool Company Inc., and the Company’s fastener operations, which consists of the manufacture and sale of rivets, cold-formed fasteners and parts, and screw machine products. The assembly equipment segment consists primarily of the manufacture of automatic rivet setting machines and parts and tools for such machines.

The principal market for the Company’s products is the North American automotive industry. Sales are solicited by employees and by independent sales representatives.

The segments in which the Company operates are characterized by active and substantial competition. No single company dominates the industry. The Company's competitors include both larger and smaller manufacturers, and segments or divisions of large, diversified companies with substantial financial resources. Principal competitive factors in the market for the Company's products are price, quality and service.

The Company serves a variety of customers. Revenues are primarily derived from sales to customers involved, directly or indirectly, in the manufacture of automobiles and automotive components. The level of business activity for the Company is closely related to the overall level of industrial activity in the United States. During 2024, sales to the top three customers were each at least 9% of the Company’s consolidated revenues.

Sales to TI Group Automotive Systems, LLC accounted for approximately 13% and 16% of the Company’s consolidated revenues in 2024 and 2023, respectively. Sales to Martinrea International Inc. accounted for approximately 13% and 11% of the Company’s consolidated revenues in 2024 and 2023, respectively. Sales to Cooper-Standard Holdings Inc. accounted for approximately 9% and 14% of the Company’s consolidated revenues in 2024 and 2023, respectively.

The Company's business has historically been stronger during the first half of the year due to the seasonality of automotive manufacturing.

The Company purchases raw materials from a number of sources, primarily within the United States. There are numerous sources of raw material, and the Company does not have to rely on a single source for any of its requirements.

Patents, trademarks, licenses, franchises and concessions are not of significant importance to the business of the Company.

The Company does not engage in significant research activities, but rather in ongoing product improvement and development. The amounts spent on product development activities in the last two years were not material.

At December 31, 2024, the Company employed 161 people. This figure includes a reduction of 19 full-time and part-time employees from the previously disclosed closure of the Albia, Iowa manufacturing facility in the third quarter of 2024. See Note 8. Exit and Disposal to the Consolidated Financial Statements, included herein.

The Company has no foreign operations. Sales to foreign customers accounted for approximately 19% and 18% of the Company's total sales in 2024 and 2023, respectively.

Our business is subject to a number of risks and uncertainties. If any of the events contemplated by the following risks actually occur, then our business, financial condition or results of operations could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition and results of operations.

Due to significant recurring operating losses primarily driven by recent yearly declines in revenue, recurring negative cash flows from operations, and continued reduction in liquidity, we have determined that there is substantial doubt about our ability to continue as a going concern.

As noted in the auditor's opinion on our audited financial statements and a related footnote to our audited financial statements, we have incurred significant recurring operating losses primarily driven by recent yearly declines in revenue, recurring negative cash flows from operations, and continued reduction in liquidity that have caused the Company to determine there is substantial doubt about our ability to continue as a going concern. In response to these challenges, the Company has developed and begun implementing a series of strategic actions aimed at improving liquidity, increasing operating efficiency and revenues, and ensuring business continuity. While we believe that we will be able to successfully execute on these strategic actions, there can be no assurances that we will be successful in these efforts. If we are unable to successfully execute on these strategies, our business, prospects, financial condition, and results of operations would be materially and adversely affected, and we may be unable to continue as a going concern. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Our business over the last few years has been significantly affected by domestic and global economic and market conditions, including rising costs, supply chain disruptions and labor pressures.

During 2023 and 2024 our business has experienced a period of significant material, labor and shipping price volatility (generally resulting from an increase in the price of commodities, energy costs, freight costs, labor costs and other input costs), in addition to an environment of elevated interest rates. While some of these input cost increases moderated in 2024, other exposures will likely continue in 2025 and perhaps further into the future. This environment of significant price volatility has resulted in, and may continue to result in, increased costs that may not be, or may only be partially, offset by increasing sales prices and expense reduction. During this same period, we also experienced constrained labor availability which has resulted in inflationary wage pressures, both internally and at key vendors. Although we have developed and implemented strategies to seek to mitigate the impact of supply chain disruptions along with the impact of higher input and other costs, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion (less than 100%) of the adverse impact. Additionally, our operating model typically requires long lead times between the design and development of products, the launch of production and the delivery of the final product. This lead time requires us to secure vendor supply well in advance to minimize launch and production inefficiencies. During such lead times, price commitments are subject to change and could lead to an inability to fully recover all such price changes.

Labor shortages could prevent us from meeting customer demand.

We and some of our third-party suppliers and service providers have experienced and may continue to experience a shortage of qualified labor at our and their facilities. A prolonged shortage of qualified labor could decrease our third-party vendors’ ability to meet our demands and efficiently operate their facilities. Prolonged labor shortage could also lead to decreased productivity and increased labor costs from higher overtime, the need to hire temporary help to meet demand and higher wages in order to attract and retain employees. Any of these developments could materially increase our operating costs and have a material adverse effect on our business, results of operations and financial condition.

We are dependent on the automotive industry.

Demand for our products is directly related to conditions in the global automotive industry, which is highly cyclical and is affected by a variety of factors, including regulatory requirements, international trade policies, including tariffs, and consumer spending and preferences. The automotive industry is characterized by fierce competition and has undergone major restructuring in recent years. The impact of evolving technological changes, including a growing emphasis on electric vehicles, as well as any decline in the automotive industry, domestic or foreign, could have a material adverse effect on our business, results of operations and financial condition.

We face intense competition.

We compete with a number of other manufacturers and distributors that produce and sell products similar to ours. Price, quality and service are the primary elements of competition. Our competitors include a large number of independent domestic and international suppliers. We are not as large as a number of these companies and do not have as many financial or other resources. Faced with intense domestic and international competition and pressure to reduce costs, many customers have expanded their sourcing of components worldwide. As a result, we have experienced competition from suppliers in other parts of the world that benefit from economic advantages, such as lower labor costs, lower health care costs and fewer regulatory burdens. There can be no assurance that we will be able to compete successfully with existing or new competitors. Increased competition could have a material adverse effect on our business, results of operations and financial condition.

We rely on sales to major customers.

Our sales to three customers constituted approximately 35% of our consolidated revenues in 2024. Sales to TI Group Automotive Systems, LLC, Martinrea International Inc. and Cooper-Standard Holdings Inc, accounted for approximately 13%, 13%, and 9% of the Company's consolidated revenues in 2024, respectively. The loss of any significant portion of our sales to these customers could have a material adverse effect on our business, results of operations and financial condition.

We are subject to risks related to export sales, including the imposition of tariffs.

Our export sales have increased in recent years, and we are working to continue to expand our business relationships with customers outside of the United States. Export sales are subject to various risks, including risks related to changes in local economic, social and political conditions (particularly in emerging markets), changes in tariffs and trade policies and foreign currency exchange rate fluctuations, which could have a material adverse effect on our business, results of operations and financial condition.

Increases in our raw material costs or difficulties with our suppliers could negatively affect us.

While we currently maintain alternative sources for raw materials, our business is subject to the risk of price fluctuations and periodic delays in the delivery of certain raw materials. At various times in recent years, we have been adversely impacted by increased costs for steel, our principal raw material, which we have been unable to wholly mitigate, as well as increases in other materials prices, including price increases due to inflation as well as tariffs. Any continued fluctuation in the price or availability of our raw materials could have a material adverse impact on our business, results of operations and financial condition.

We may be adversely affected by supply chain disruptions.

Many of our customers depend upon intricate just-in-time supply chain systems. A disruption in a supply chain caused by one or more suppliers, and/or an unrelated supplier, due to part shortages, work stoppages, labor shortages, economic hardships or bankruptcy, raw material shortages, transportation disruptions, natural disasters, health emergencies, tariffs, etc. could adversely impact our business, or our customers’ business, which could have a material adverse effect on our business, results of operations and financial condition.

We may be adversely affected by labor relations issues.

Although none of our employees are unionized, the domestic automakers and many of their suppliers, including many of our customers, have unionized work forces. Work stoppages or slow-downs experienced by automakers or their suppliers could result in slow-downs or closures of assembly plants where our products are included in assembled components. In the event that one or more of our customers or their customers experiences a material labor relations issue, our business, results of operations and financial condition could be materially adversely affected.

We may incur losses as a result of product liability, warranty or other claims that may be brought against us.

We face risk of exposure to warranty and product liability claims in the event that our products fail to perform as expected or result, or are alleged to have resulted, in bodily injury, property damage or other losses. In addition, if any of our products are or are alleged to be defective, then we may be required to participate in a product recall or provide reimbursement for damages or losses suffered as a result of such defects and/or recalls. We may also be involved from time to time in legal proceedings and commercial or contractual disputes. Any losses or other liabilities related to these exposures could have a material adverse effect on our business, results of operations and financial condition.

We could be adversely impacted by environmental laws and regulations.

Our operations are subject to environmental laws and regulations. Currently, environmental costs and liabilities with respect to our operations, and the cost of compliance with such laws and regulations, are not considered material to our business, but there can be no assurance that we will not be adversely impacted by these costs and liabilities in the future either under present laws and regulations or those that may be adopted or imposed in the future.

We could be adversely impacted by the loss of the services of key employees.

The successful operation of our business depends, in part, upon the efforts of our executive officers and other key employees. Our current success depends, and our future success will depend, in part, upon our ability to attract and retain qualified personnel. Loss of the services of any of our key employees, or the inability to attract or retain employees could have a material adverse effect upon our business, financial condition and results of operations.

Any significant disruption, interruption or failure of our information systems could disrupt the operation of our business, result in increased costs and decreased revenues and expose us to liability.

Cybersecurity threats are growing in number and sophistication and include, among others, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. In addition to security threats, we are also subject to other systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, natural disasters, power shortages, terrorist attacks or other events. The unavailability of our information systems, the failure of these systems to perform as anticipated or any significant breach of data security could cause loss of data, disrupt our operations, lead to financial losses from remedial actions, require significant management attention and resources, and negatively impact our reputation among our customers, which could have a negative impact on our business, results of operations and financial condition.

The price of our common stock is subject to volatility, and our stock is thinly-traded.

Various factors, such as general economic changes in the financial markets, announcements or significant developments with respect to the automotive industry, actual or anticipated variations in our or our competitors’ quarterly or annual financial results, the introduction of new products or technologies by us or our competitors, changes in other conditions or trends in our industry or in the markets of any of our significant customers, changes in governmental regulation, or changes in securities analysts’ estimates of our competitors or our industry, could cause the market price of our common stock to fluctuate substantially.

Our common stock is traded on NYSE American (not registered, trading privileges only). The average daily trading volume for our common stock during 2024 was less than 3,000 shares per day. As a result, shares of our common stock may be difficult to sell, and the price of our common stock may vary significantly based on trading volume.

Our indebtedness could adversely affect our financial flexibility, financial condition and our competitive position.

In 2025 we entered into a new credit agreement which contains restrictive covenants that limit or will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness. In addition, a default by us under the new credit agreement or an agreement governing any other future indebtedness may trigger cross-defaults under any other future agreements governing our indebtedness. Upon the occurrence of an event of default or cross-default under any of the present or future agreements governing our indebtedness, the lenders could elect to declare all amounts outstanding to be due and payable and exercise other remedies as set forth in the agreements. If any of our indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay this indebtedness in full, which could have a material adverse effect on our ability to continue to operate as a going concern.

We face risks in connection with our internal control over financial reporting, and material weaknesses were identified.

As disclosed in Item 9A. Controls and Procedures, a material weakness was identified that existed as of December 31, 2023 and 2024, regarding certain deficiencies in internal control over financial reporting related to the valuation of inventory.

We have established policies and processes for assessing, identifying, and managing material risk from cybersecurity threats, and have integrated these processes into our overall risk management systems and processes. We routinely assess material risks from cybersecurity threats, including any potential unauthorized occurrence on or conducted through our information systems that may result in adverse effects on the confidentiality, integrity, or availability of our information systems or any information residing therein.

We conduct periodic risk assessments to identify cybersecurity threats, as well as assessments in the event of a material change in our business practices that may affect information systems that are vulnerable to such cybersecurity threats. These risk assessments include identification of reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks.

Following these risk assessments, we re-design, implement, and maintain reasonable safeguards to minimize identified risks; reasonably address any identified gaps in existing safeguards; and regularly monitor the effectiveness of our safeguards. Responsibility for assessing, monitoring and managing our cybersecurity risks rests with third party expert consultants in conjunction with our IT Director, both reporting to our Chief Executive Officer, to manage the risk assessment and mitigation process.

As part of our overall risk management system, we monitor and test our safeguards and train our employees on these safeguards, in collaboration with our IT Director and management. Personnel at all levels and departments are made aware of our cybersecurity policies through trainings.

We engage consultants, or other third parties in connection with our risk assessment processes. These service providers assist us with designing and implementing our cybersecurity policies and procedures, as well as monitoring and testing our safeguards. We require each third-party service provider to certify that it has the ability to implement and maintain appropriate security measures, consistent with all applicable laws, to implement and maintain reasonable security measures in connection with their work with us, and to promptly report any suspected breach of its security measures that may affect our company.

We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing. For additional information regarding risks from cybersecurity threats, please refer to Item 1A, “Risk Factors,” in this Annual Report on Form 10-K.

The Company's headquarters is currently located in Naperville, Illinois. The Naperville property was sold during the third quarter of 2022, and was rented for the remainder of 2022 and the entirety of 2023 and 2024, as the Company continued to lease office space at the location. On November 30, 2024, the Company entered into a new sixty-six month lease agreement for approximately 7,300 square feet of furnished office space in Warrenville, Illinois. The lease commencement date was March 1, 2025, and the Company is in the process of relocating its headquarters to this new location.

During 2024, the Company conducted its manufacturing and warehousing operations at three facilities: Albia, Iowa, Madison Heights, Michigan, and Tyrone, Pennsylvania. The Albia manufacturing facility was closed in 2024 and the assets and real estate were sold on February 25, 2025. Each other facility continues to be owned by the Company and is considered suitable and adequate for its present use. The Madison Heights, Michigan facility is used entirely in the fastener segment. The Tyrone, Pennsylvania facility is utilized in both the fastener and assembly equipment operating segments. The Albia, Iowa facility was used exclusively in the assembly equipment segment.

The Company is, from time to time involved in litigation, including environmental claims, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company's business, financial position, liquidity, results of operations or cash flows.

Forward-Looking Statements

This discussion contains certain "forward-looking statements" which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include those disclosed above under “Risk Factors” and elsewhere in this Form 10-K. As stated elsewhere in this filing, such factors include, among other things: risk related to conditions in the domestic and international automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales with major customers, risks related to export sales, the price and availability of raw materials, supply chain disruptions, labor relations issues and rising costs, losses related to product liability, warranty and recall claims, costs relating to compliance with environmental laws and regulations, information systems disruptions and the threat of cyber-attacks, and the loss of the services of our key employees. Many of these factors are beyond our ability to control or predict. Readers are cautioned to not place undue reliance on these forward-looking statements. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events unless required under the federal securities laws.

RESULTS OF OPERATIONS

Operating results for 2024 were negatively impacted by our U.S. automotive fastener segment volumes due to OEM and customer inventory reduction actions which accelerated in the second half of 2024. U.S. demand for pickup trucks and large SUVs to which we provide content, softened in 2024 leading to elevated dealer-owned inventory levels and a subsequent reduction in production volumes while these inventory levels were reduced. As a fastener manufacturer we have significant fixed costs due to our investment in property, plant and equipment as well as a skilled labor force that cannot be scaled in proportion to short term volume fluctuations. As a result, steep declines in customer volumes have a disproportionately large effect on our profitability. Despite the full year 18% volume decline, the automotive fastener segment gross profit improved by $1,567,232. This improvement was due in large part to price increases and efficiency gains, including consolidation of the work done in the Albia, Iowa facility into the Tyrone, Pennsylvania facility. While these year over year volume declines were a tremendous headwind to profitability, we believe we have improved the framework from a pricing and efficiency standpoint to benefit at scale when volumes return to more historic levels. In addition, the accounting treatment for the payment of the aggregate amounts due under the previously disclosed agreement with one of our customers relating to certain warranty claims resulted in a reduction to 2024 revenue of $1.1 million.

Fourth quarter 2024 sales were $4,104,048 compared to $6,780,894 in the fourth quarter of 2023, a decline of $2,676,846, or 40%. Together with the decline in sales, our input costs remained elevated and contributed to reporting a net loss in the fourth quarter 2024 of $3,613,130, or $3.74 per share, compared to a net loss of $1,542,899, or $1.60 per share, in the fourth quarter of 2023. For the full year, net sales were $26,986,627 compared to $31,507,722 in 2023, a decline of $4,521,095, or 14%. Net loss for the full year was $5,615,614, or $5.81 per share, compared to net loss of $4,401,584 or $4.56 per share in 2023. Contributing to the full year 2024 net loss was the addition of a deferred tax valuation allowance of $1,640,978 that resulted in $572,226 in income tax expense on a pre-tax loss of $5,043,388.

2024 Compared to 2023

Fastener segment revenues were $3,603,518 in the fourth quarter of 2024 compared to $5,965,995 in the fourth quarter of 2023, a decline of $2,362,477, or 40%. During the quarter, sales to automotive customers decreased to $2,325,601 from $4,147,072 in the year ago quarter. A significant portion of the decline in automotive sales was a result of recording a charge of $1,100,000 in the fourth quarter of 2024 related to the previously disclosed agreement with a customer regarding certain warranty claims. See Note 9. Commitments and Contingencies to the Consolidated Financial Statements included herein. Non-automotive revenues also decreased to $1,277,917 from $1,818,923 in the year ago quarter, or 30%.

Fastener segment revenues for the full year 2024 were $23,164,238 compared to $28,161,362 in 2023, a decrease of $4,997,124, or 18%. For the full year 2024, sales to automotive customers were $15,375,697 compared to $19,297,188 in 2023, a decrease of $3,921,491, or 20%. Sales to non-automotive customers in 2024 were $7,788,541 compared to $8,864,174 in 2023, a decline of $1,075,633, or 12%. New pricing agreements put in place during the first half of the year were more than offset by lower volumes, and higher input costs continued to be a headwind during the entire year. Additionally, automotive sales were impacted by the agreement to pay an aggregate of $1,100,000 in 2024 to one of our customers with respect to certain warranty claims described above. The gross margin for the fastener segment was $299,740 in 2024 compared to ($1,267,492) in 2023, an increase of $1,567,232 year over year, primarily driven by operational efficiencies and improved pricing on lower year-over-year volumes.

Assembly equipment segment revenues were $500,530 in the fourth quarter of 2024, compared to $814,899 in the fourth quarter of 2023, a decrease of $314,369, or 39%. The decline was driven by lower volumes to non-automotive customers which decreased by $308,526.

For the full year 2024, assembly equipment segment revenues were $3,822,389, compared to $3,346,360 reported in 2023, an increase of $476,029, or 14%. Gross margin for the assembly equipment segment was $760,440 in 2024 compared to $667,902 in 2023, an increase of $92,538 or 14% year over year.

Selling and administrative expenses were $6,224,234 in 2024 compared to $5,237,656 in 2023, an increase of $986,578, or 19%. We incurred increases in outside consulting and accounting fees of $555,838, primarily related to hiring costs to fill certain positions, enhancing financial reporting, modernizing systems, automating processes and implementing enhanced cybersecurity defenses, an increase in employee compensation expense of $109,464 as these positions were filled, and an increase in repairs and maintenance of approximately $96,036. These, and other smaller expense increases, were offset by a reduction in sales commissions of $254,677. The remaining net change relates to various smaller items. As a percentage of net sales, selling and administrative expenses were 23.1% in 2024 compared to 16.6% in 2023.

Other income was $120,666 in 2024 compared to $108,234 in 2023. Other income is primarily comprised of interest income on our cash equivalents which increased modestly during the year due to higher interest rates.

The Company’s effective income tax rates were (11.4)% and 23.2% in 2024 and 2023, respectively. Fiscal 2024 resulted in $572,226 of tax expense on a pre-tax loss of $5,043,388. While the company is in a book and taxable loss, there is tax expense due to deferred tax liabilities that are recorded. Additionally, there was an increase in valuation allowance of $1,640,978 recorded on deferred tax assets booked in a prior year, which results in tax expense incurred in the current year.

DIVIDENDS

In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends in 2024 totaling $0.33 per share. On February 19, 2025, the Board of Directors declared a regular quarterly dividend of $0.03 per share, payable March 20, 2025 to shareholders of record on March 5, 2025. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 90 years.

PROPERTY, PLANT AND EQUIPMENT

Total capital expenditures in 2024 were $651,398. Of this total, $369,003 related to fastener segment activities, including $36,140 for cold heading and screw machine equipment, $327,063 for equipment to perform secondary operations and inspection of parts and $5,800 for general plant equipment. Assembly equipment segment additions in 2024 were $282,395 for general plant equipment. No additional investments were made in 2024 for facilities improvements or IT equipment.

Total capital expenditures in 2023 were $1,078,367. Of this total, $1,041,896 related to fastener segment activities, including $696,557 for cold heading and screw machine equipment, $299,502 for equipment to perform secondary operations and inspection of parts and $45,837 for general plant equipment. Assembly equipment segment additions in 2023 were $5,235 for general plant equipment. Additional investments of $31,236 were made in 2023 for facilities improvements and IT equipment that benefit both the assembly equipment segment and the fastener segment.

Depreciation expense was $1,173,476 in 2024 and $1,275,078 in 2023.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at December 31, 2024 was $10,371,215, a decrease of $3,605,649 from the beginning of the year. A decline in net accounts receivable during the year of $1,180,971 due to lower sales volumes and a decrease in inventory of $831,483 had a negative impact on working capital. The Company’s investing activities in 2024 included the proceeds from the sale of property and equipment of $135,430 and the net maturities from short-term investments of $1,523,846 less capital expenditures of $651,398. The only financing activity during 2024 was the payment of $318,823 in dividends on our common stock. These changes and other cash flow activity resulted in a balance of cash, cash equivalents and marketable securities of $1,922,679 at the end of 2024 compared to $1,387,075 as of the beginning of the year.

The Company incurred significant recurring operating losses primarily driven by a continuous decline in revenues, recurring negative cash flows from operations, and continued reduction in liquidity. The Company reported operating losses of $5,164,054 and $5,837,246 for the years ended December 31, 2024 and December 31, 2023, respectively. These events have raised substantial doubt about the Company's ability to continue as a going concern. The Company has taken various strategic actions in response to improve performance, including (i) investing resources in the Company’s sales efforts to increase revenue, (ii) reducing costs and improving operating efficiency, including by closing the Company’s Albia, Iowa plant, consolidating Albia’s operations with the Company’s Tyrone operations and selling the Albia facility for total net cash proceeds of approximately $678,000, and (iii) entering into a one-year, $3,000,000 operating credit agreement, renewable annually, and consisting of a (a) $2,500,000 revolving line of credit, and (b) $500,000 non-revolving line of credit, bearing interest at a fluctuating rate per annum equal to 1% plus the applicable prime rate, with a floor of 7% (the loan can be prepaid without penalty). The Company will continue to look to add to its sales efforts to further improve revenue, consider additional options to improve operating efficiency and enhance liquidity. The Company believes that if it successfully implements the foregoing strategic actions, it will mitigate the factors giving rise to substantial doubt, however, there is no guarantee that it will successfully implement these strategic actions. As a result, substantial doubt remains regarding the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern, and they do not include any adjustments that might result from the outcome of this uncertainty.

On November 30, 2024, the Company entered into a lease agreement with Juneau-Bell, LLC for new office space. The lease commencement date is March 1, 2025. A security deposit of $43,970 and the first month’s base rent of $8,365 were paid at signing. See Note 7. Leases to the Consolidated Financial Statements included herein for additional information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on historical experience, current trends and on various other assumptions that are believed to be reasonable under the circumstances. We evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions. A summary of significant accounting policies can be found in Note 1. Nature of Business and Significant Accounting Policies to the Consolidated Financial Statements included herein.

Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. Additionally, future facts and circumstances could change and impact our estimates and assumptions.

NEW ACCOUNTING STANDARDS

The Company’s financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed, accounting standards. A summary of recent accounting pronouncements can be found in Note 1. Nature of Business and Significant Accounting Policies to the Consolidated Financial Statements included herein.

OUTLOOK FOR 2025

With respect to the Outlook for 2025, the economic environment remains challenging. Our order volume is showing improvement in the first quarter of 2025 compared to the fourth quarter of 2024 but is not yet back to the levels we experienced in the first quarter of 2024. Significant uncertainty remains in the manufacturing sector as companies like ours continue to navigate the potential impacts of proposed tariffs and numerous market factors that may impact our business in the coming year. The Company believes all of the actions to reduce costs in 2024 have it better positioned to manage this uncertainty, and we will continue to push efficiency improvements in the operations as well as seek appropriate price adjustments from customers and aggressively pursue new sales opportunities to drive volume back to historic levels. In addition, we will actively monitor and analyze potential impacts from tariffs and other external factors so that we are positioned to take actions promptly and as necessary to address such potential impacts. Given our recent efficiency improvements and our focus on driving new sales, as well as our long term operating experience, quality products, and customer service in a very competitive global marketplace will provide the foundation for improved operating results in the future.

As a Smaller Reporting Company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations with respect to this Item and, therefore, are not required to provide the information requested by this Item 7A.

Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the "Exchange Act") as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures were not effective due to weaknesses in internal control over financial reporting as described below.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024, based on the 2013 criteria established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, the Company’s management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2024 as described below.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

As previously disclosed, a material weakness in internal control over financial reporting related to inventory valuation was identified in the Company’s internal control over financial reporting as of December 31, 2023 and 2024. Specifically, the Company did not design and maintain effective controls related to the review of the valuation of inventory.

Remediation Plans for the Material Weakness

The Company’s management, under the oversight of the Audit Committee, is in the process of designing and implementing changes in processes and controls to remediate the material weakness in internal control over financial reporting related to inventory valuation. Our enhanced design includes the timely review and update of new standards and subsequent review of variance accounts.

The material weakness will not be considered remediated until management completes its remediation plans and the enhanced controls operate for a sufficient period of time and management has concluded, through testing, that the related controls are effective. The Company will monitor the effectiveness of its remediation plans and will refine its remediation plans as appropriate.

Notwithstanding the material weakness noted above, the Company’s management, including the Company's Chief Executive Officer and Chief Financial Officer has concluded that our financial statements included in this Annual Report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America.

This Annual Report on form 10-K is not required to, and does not, include an attestation report of the Company’s registered public accounting firm on the Company’s internal control over financial reporting, because the Company is not an accelerated filer or a large accelerated filer as defined in Rule 12b-2 under the Exchange Act.

Changes in Internal Control Over Financial Reporting

Except as described above, there have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.