# Nortech Systems Inc: Form 10-Q for the period ended Jun 30, 2025

- Company: [Nortech Systems Inc](/companies/nsys.md) (CIK 722313)
- Form: 10-Q
- Filed: 2025-08-07
- Accepted by EDGAR: Aug 7, 2025, 07:31 ET
- Period: 2025-06-30
- Accession: 0001641172-25-022507
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/722313/000164117225022507/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/722313/000164117225022507/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2025-04-01 to 2025-06-30 | $30.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2025-01-01 to 2025-06-30 | $57.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2025-04-01 to 2025-06-30 | $25.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2025-01-01 to 2025-06-30 | $49.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2025-04-01 to 2025-06-30 | $4.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2025-01-01 to 2025-06-30 | $7.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2025-04-01 to 2025-06-30 | $302.0k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2025-01-01 to 2025-06-30 | $628.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2025-04-01 to 2025-06-30 | $742.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2025-01-01 to 2025-06-30 | −$871.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2025-04-01 to 2025-06-30 | $257.0k | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2025-01-01 to 2025-06-30 | $471.0k | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2025-04-01 to 2025-06-30 | $172.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2025-01-01 to 2025-06-30 | −$339.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-04-01 to 2025-06-30 | $313.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2025-01-01 to 2025-06-30 | −$1.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-04-01 to 2025-06-30 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2025-01-01 to 2025-06-30 | −$0.36 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-04-01 to 2025-06-30 | $0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2025-01-01 to 2025-06-30 | −$0.36 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-04-01 to 2025-06-30 | 2,954,765 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2025-01-01 to 2025-06-30 | 2,767,263 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2025-01-01 to 2025-06-30 | −$2.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2025-01-01 to 2025-06-30 | $367.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2025-06-30 | $652.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2025-06-30 | $58.3m | us-gaap:AssetsCurrent |
| Total assets | at 2025-06-30 | $74.8m | us-gaap:Assets |
| Current liabilities | at 2025-06-30 | $21.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2025-06-30 | $41.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2025-06-30 | $33.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 25,079 characters.

### Overview

We are a Minnesota, United States based full-service global EMS contract manufacturer in the Medical Device, Medical Imaging, Aerospace and Defense and Industrial markets offering a full range of value-added engineering, technical and manufacturing services and support including project management, design, testing, prototyping, manufacturing, supply chain management and post-market services. Our products are complex electromedical and electromechanical products including medical devices, wire and cable assemblies, printed circuit board assemblies, complex higher-level assemblies and other box builds for a wide range of industries. As of December 31, 2024, we have facilities in Minnesota: Bemidji, Mankato, Milaca and Maple Grove. We closed our facility in Blue Earth, Minnesota in December 2024 and sold this facility on July 24, 2025. We also have facilities in Monterrey, Mexico and Suzhou, China.

Our net sales are derived from complex designed products built to the customers’ specifications. The products we manufacture are engineered and designed products that require sophisticated manufacturing support. Quality, on-time delivery, and reliability are of utmost importance. Our goal is to expand and diversify our customer base by focusing on sales and marketing efforts that fit our value-added service, early engagement design, and development strategy. We continue to focus on lean manufacturing initiatives, quality and on-time delivery improvements to increase asset utilization, reduce lead times and provide competitive pricing.

Our strategic investments have positioned us to capitalize on growth opportunities in the medical markets and improve our competitiveness by expanding our global footprint. Our industrial and defense markets are focused on improving our asset utilization and profitability while transforming to a value added, solution-sell business model that supports early engagement, design for manufacturability and rapid prototyping.

All dollar amounts are stated in thousands of U.S. dollars.

### Restructuring Activities

In fiscal year 2024, the Company initiated a restructuring plan related to the closure of its Blue Earth, MN facility. During the three and six months ended June 30, 2025, the Company incurred restructuring charges related to staff reductions and activities related to the Blue Earth facility closure. The costs of these restructuring programs totaled $837, of which $266 was recorded in the six months ended June 30, 2025 and $571 was recorded in the prior fiscal year. We did not record any amounts related to restructuring in the three months ended June 30, 2025. These costs are included in restructuring charges on the condensed consolidated statements of operations. These charges relate to employee severance and facility closure costs. We do not expect significant additional expenses related to this plan.

### Results of Operations

*Net Sales.* Net sales for the three months ended June 30, 2025 and 2024 were $30,675 and $33,891, respectively, a comparative period decrease of $3,216 or 9.5%. Net sales for the six months ended June 30, 2025 and 2024 were $57,570 and $68,106, respectively, a comparative period decrease of $10,536 or 15.5%. Net sales in the three and six months ended June 30, 2025 were negatively impacted by delays in Aerospace and Defense customer approvals of products transferred from our Blue Earth facility to our Bemidji facility as well as manufacturing and plant utilization inefficiencies related to the movement of various production between plants. The following is a summary of net sales by our major industry markets:

|  | Three Months Ended June 30, 2025 | 2024 | Increase (Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Medical Device | $7,550 | $9,689 | $(2,139) | (22.1)% |
| Medical Imaging | 9,664 | 8,182 | 1,482 | 18.1% |
| Industrial | 8,516 | 9,385 | (869) | (9.3)% |
| Aerospace and Defense | 4,945 | 6,635 | (1,690) | (25.5)% |
| **Total net sales** | $30,675 | $33,891 | $(3,216) | (9.5)% |

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|  | Six Months Ended June 30, 2025 | 2024 | Increase (Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Medical Device | $15,620 | $19,893 | $(4,273) | (21.5)% |
| Medical Imaging | 18,252 | 17,083 | 1,169 | 6.8% |
| Industrial | 15,461 | 18,977 | (3,516) | (18.5)% |
| Aerospace and Defense | 8,237 | 12,153 | (3,916) | (32.2)% |
| **Total net sales** | $57,570 | $68,106 | $(10,536) | (15.5)% |

- Medical Device: Net sales to our medical customers decreased $2,139, or 22.1%, in the three months ended June 30, 2025 as compared with the same period in 2024 and $4,273, or 21.5%, in the six months ended June 30, 2025 as compared with the same period in 2024. The decrease was primarily due to inventory re-balancing with existing customers, timing of customer product launches and lower productivity as we managed our facility consolidation.
- Medical Imaging: Net sales to our Medical Imaging customers increased $1,482, or 18.1%, in the three months ended June 30, 2025 as compared with the same period in 2024 and $1,169, or 6.8%, in the six months ended June 30, 2025 as compared with the same period in 2024. The increase was primarily due to higher sales to existing customers.
- Industrial: Net sales to our industrial customers decreased $869, or 9.3%, in the three months ended June 30, 2025 as compared with the same period in 2024 and $3,516, or 18.5%, in the six months ended June 30, 2025 as compared with the same period in 2024. The decrease in net sales was primarily due to customer order delays and part shortages.
- Aerospace and Defense: Net sales to our aerospace and defense customers decreased $1,690, or 25.5%, in the three months ended June 30, 2025 as compared with the same period in 2024 and $3,916, or 32.2%, in the six months ended June 30, 2025 as compared with the same period in 2024. The decrease in net sales relates to delays in customer approvals as we have consolidated this business into our Bemidji facility.

*Backlog.* Our 90-day shipment backlog as of June 30, 2025 was $26,592, a decrease of 0.6% from $26,742 at the beginning of the quarter, and an 11.6% decrease from June 30, 2024. Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be shipped within 180 days.

Our total order backlog as of June 30, 2025, was $78,351, representing a 14.7% increase from $68,332 at the beginning of the quarter and a 6.9% increase compared to the same period in the prior year; this growth was primarily driven by large medical device orders.

90-day shipment and total backlog by our major industry markets are as follows:

|  | June 30, 2025 90 Day | Total | March 31, 2025 90 Day | Total | June 30, 2024 90 Day | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Medical Device | $7,897 | $32,222 | $5,735 | $19,925 | $8,130 | $23,497 |
| Medical Imaging | 5,101 | 7,584 | 7,526 | 10,020 | 7,776 | 10,953 |
| Industrial | 6,010 | 9,349 | 5,999 | 10,005 | 6,398 | 11,423 |
| Aerospace and Defense | 7,584 | 29,196 | 7,482 | 28,382 | 7,791 | 27,423 |
| **Total backlog** | $26,592 | $78,351 | $26,742 | $68,332 | $30,095 | $73,296 |

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The 90-day and total backlog as of June 30, 2025 includes orders already recognized in net sales and included in the contract asset value of $14,984.

#### Operating Costs and Expenses.

Net sales, cost of goods sold, gross profit, and operating costs were as follows:

|  | Three Months Ended June 30, 2025 | 2024 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $30,675 | $33,891 | $(3,216) | (9.5)% |
| Cost of goods sold (3) | 25,838 | 29,274 | (3,436) | (11.7)% |
| Gross profit | 4,837 | 4,617 | 220 | 4.8% |
| Gross margin percentage (1) | 15.8% | 13.6% | 220 bpc(2) |  |
| Selling (3) | 1,204 | 909 | 295 | 32.5% |
| % of Net sales | 3.9% | 2.7% |  |  |
| General and administrative | 2,589 | 2,982 | (393) | (13.2)% |
| % of Net sales | 8.4% | 8.8% |  |  |
| Research and development | 302 | 291 | 11 | 3.8% |
| % of Net sales | 1.0% | 0.9% |  |  |
| Restructuring charges | - | 91 | (91) | (100)% |
| % of Net sales | -% | 0.2% |  |  |
| Operating income | 742 | 344 | 398 | 115.7% |
| % of Net sales | 2.4% | 1.0% |  |  |

*(1)* Gross margin percentage is defined as gross profit as a percentage of net sales.

*(2)* Basis points change in gross margin percentage.

*(3)* During the first quarter of 2025, the Company modified the responsibilities and reporting relationships of certain customer-facing managers. As a result of these organizational changes, the related costs, which were previously classified as cost of sales, are now reported as selling expenses to better reflect the nature of the activities performed.

|  | Six Months Ended June 30, 2025 | 2024 | Increase/(Decrease) |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $57,570 | $68,106 | $(10,536) | (15.5)% |
| Cost of goods sold (3) | 49,655 | 58,041 | (8,386) | (14.4)% |
| Gross profit | 7,915 | 10,065 | (2,150) | (21.4)% |
| Gross margin percentage (1) | 13.7% | 14.8% | (110 )bpc(2) |  |
| Selling (3) | 2,388 | 1,714 | 674 | 39.3% |
| % of Net sales | 4.1% | 2.5% |  |  |
| General and administrative | 5,504 | 6,152 | (648) | (10.5)% |
| % of Net sales | 9.6% | 9.0% |  |  |
| Research and development | 628 | 609 | 19 | 3.1% |
| % of Net sales | 1.1% | 0.9% |  |  |
| Restructuring charges | 266 | 91 | 175 | 192.3% |
| % of Net sales | 0.5% | 0.2% |  |  |
| Operating (loss) income | (871) | 1,499 | (2,370) | (158.1)% |
| % of Net sales | (1.5)% | 2.3% |  |  |

*(1)* Gross margin percentage is defined as gross profit as a percentage of net sales.

*(2)* Basis points change in gross margin percentage.

*(3)* During the first quarter of 2025, the Company modified the responsibilities and reporting relationships of certain customer-facing managers. As a result of these organizational changes, the related costs, which were previously classified as cost of sales, are now reported as selling expenses to better reflect the nature of the activities performed.

*Gross profit and gross margins.* Gross profit as a percent of net sales was 15.8% and 13.6% for the three months ended June 30, 2025, and 2024, respectively. Gross profit as a percent of net sales was 13.7% and 14.8% for the six months ended June 30, 2025, and 2024, respectively. The increase in gross profit as a percentage of net sales in the quarterly comparison period was the result of improved plant utilization and favorable sales mix. The decrease in gross profit as a percentage of net sales in the year-to-date comparison period was the result of lower net sales and reduced facility utilization in the first three months of this year as well as reduced manufacturing efficiencies due to customer program movements between facilities.

*Selling expenses*. Selling expenses, as measured as a percent of net sales, was 3.9% and 2.7% for the three months ended June 30, 2025, and 2024, respectively. Selling expenses, as measured as a percent of net sales, was 4.1% and 2.5% for the six months ended June 30, 2025, and 2024, respectively. In 2025, we realigned the reporting structure of our customer facing managers from operations to business development. As a result, this increase is a result of the realignment as well as the impact of fixed costs on a lower revenue base.

*General and administrative expenses.* General and administrative expenses, as measured as a percent of net sales, was 8.4% and 8.8% for the three months ended June 30, 2025 and 2024, respectively, and 9.6% and 9.0% for the six months ended June 30, 2025 and 2024, respectively. General and administrative expenses decreased in the quarterly and year to date 2025 periods by $393 and $648, respectively, as compared with the 2024 periods primarily as the result of lower incentive compensation accruals in the current year.

*Restructuring charges*. Restructuring charges were $0 and $266 in the three and six months ended June 30, 2025, respectively. During the first quarter of 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted net sales and $31 of expenses related to our closed Blue Earth facility. Restructuring charges were $91 in the three and six months ended June 30, 2024 for accrued employee retention bonuses for our facility consolidation and closure of our Blue Earth facility.

*Operating (loss) income.* Operating income was $742 for the three months ended June 30, 2025 or 2.4% of net sales and was $344 or 1.0% of net sales for the three months ended June 30, 2024. This increase was driven by the improved gross margin and lower incentive compensation expense. Operating loss was ($871) or (1.5)% of net sales for the six months ended June 30, 2025 and operating income was $1,499 or 2.3% of net sales for the six months ended June 30, 2024. The decrease was driven by the decrease in net sales and resulting gross margin.

*Interest expense.* Interest expense was $257 and $165 for the three months ended June 30, 2025 and 2024, respectively. Interest expense was $471 and $332 for the six months ended June 30, 2025 and 2024, respectively. This increase was driven by higher borrowings under our line of credit arrangement. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.

*Income taxes.* Our effective tax rate for the three and six months ended June 30, 2025 was 35% and 25%. Our effective tax rate for the three and six months ended June 30, 2024 was 12% and 21%. The primary drivers of the increase in effective tax rate were changes in pretax (loss) income and taxes on foreign entities.

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act of 2017, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation, among other tax changes. The new legislation has multiple effective dates, with certain provisions effective in 2025 and others in the future. The Company is currently evaluating the provisions of the new law and the potential effects on the Company’s financial position, results of operations, and cash flows.

### Cash Flow Operating Results

The following is a summary of cash flow results:

| Cash provided by (used in): | Six Months Ended June 30, 2025 | 2024 |
| --- | ---: | ---: |
| Operating activities | $(2,773) | $(1,458) |
| Investing activities | (358) | (1,011) |
| Financing activities | 2,858 | 2,343 |
| Effect of exchange rates on changes in cash and cash equivalents | 9 | (7) |
| Net change in cash and cash equivalents | $(264) | $(133) |

*Operating Activities.* Cash used in operating activities was $2,773 in the first six months of 2025, compared with $1,458 in the same prior-year period. Significant changes in operating assets and liabilities affecting cash flows during these periods included:

- Cash used by accounts receivable and contract assets was $4,034 in the six months ended June 30, 2025 as compared with cash provided of $1,214 in the same prior-year period. The use of cash in the six months ended June 30, 2025 is largely due to timing of customer shipments and cash collections. The cash provided in the prior year was due an expected increase in cash collections due to higher sales and the timing of customer payments.
- Cash provided by inventory was $2,714 in the six months ended June 30, 2025 as compared with cash used of $1,288 in the prior-year period. The decrease in the current-year period cash usage was the result of normal timing variances of inventory purchases and timing of product shipments as well as the results of our plan to reduce inventory balances in 2025.

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*Investing Activities.* Cash used in investing activities was $358 in the first six months of 2025, compared with cash used of $1,011 in the same prior-year period, both primarily for capital expenditures.

*Financing Activities.* Cash provided by financing activities was $2,858 in the first six months of 2025 and $2,343 in the same prior-year period. The cash provided by financing activities in both periods resulted from the line of credit advances for working capital and operations.

### Liquidity and Capital Resources

We believe that our existing financing arrangements, anticipated cash flows from operations and cash on hand will be sufficient to satisfy our working capital needs, capital expenditures and debt repayments for the next twelve months.

On February 29, 2024, we entered into a $15,000 Senior Secured Revolving Line of Credit with Bank of America (the “Revolver”). The Revolver allows for borrowings at a defined base rate, or at the one, three or six month Secured Overnight Finance Rate, also known as “SOFR,” plus a defined margin. If the Company prepays SOFR borrowings before their contractual maturity, the Company has agreed to compensate the bank for lost margin, as defined in the Revolver agreement. The Company is required to quarterly pay a 20-basis point fee on the unused portion of the Revolver.

The Revolver requires the Company to maintain no more than 2.5 times leverage ratio and at least a 1.25 times minimum fixed charges coverage ratio, both of which are defined in the Revolver agreement. These ratios are calculated based on trailing twelve-month results. There are no subjective acceleration clauses under the Revolver that would accelerate the maturity of outstanding borrowings. The Revolver contains certain covenants which, among other things, require the Company to adhere to regular reporting requirements, abide by shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The Revolver is secured by substantially all the Company’s assets and expires on February 28, 2027. We were not in compliance with financial covenants related to the maximum operating expense contributions to our Mexican operations in the first and second quarters of 2024. We have received a waiver of this event of default from the bank. On March 27, 2025, we amended (the “First Amendment”) the Revolver to waive our non-compliance with the leverage ratio and minimum fixed charge ratio as of December 31, 2024, and March 31, 2025. Provisions of the First Amendment relating to the Company’s compliance with these ratios were replaced with provisions of the Second Amendment (described below). Provisions of the First Amendment relating to minimum EBITDA requirements of the Company were replaced with provisions of the Second Amendment (described below). Provisions of the First Amendment requiring the Company to maintain unrestricted cash and Revolver availability (collectively, “Liquidity”) at specified levels were replaced with provisions of the Second Amendment (described below). The First Amendment also requires the Company to provide incremental monthly reporting and increased the Company’s borrowing rate by one percent until the Company is in compliance with the original terms of the Revolver. The First Amendment increases the borrowing rate for revolving loans by 100 basis points.

On May 14, 2025, we further amended (the “Second Amendment”) the Revolver, which amended the First Amendment in part, to defer the Company’s compliance with the leverage ratio and minimum fixed charge ratio until the fourth quarter of 2025 at which time the Company must maintain (a) a leverage ratio of 2.5 times for the year ended December 31, 2025 and for each twelve-month quarterly reporting period thereafter; and (b) a minimum fixed charge coverage ratio to 1.25 times for the year ended December 31, 2025 and for each twelve-month quarterly reporting period thereafter. The Company must also maintain adjusted EBITDA (earnings before interest, taxes depreciation and amortization), as defined in the Revolver, as of the end of the second quarter of 2025 of at least $1,000, the third quarter of 2025 of at least $1,300 and the fourth quarter of 2025 and each quarter thereafter of at least $1,600. In addition, the Second Amendment requires the Company to always maintain Liquidity of at least $2,500. The Second Amendment shortened the duration of the Revolver to June 30, 2026 and increases the borrowing rate by 25 basis points.

On July 29, 2025, we amended the Revolver (the “Third Amendment”) to extend the expiration of the Revolver to August 31, 2026. We have recorded the outstanding Revolver amount of $11,615 as long term on the condensed consolidated balance sheets based on extension in the signed Third Amendment.

The Revolver, as amended, bears interest at a weighted-average interest rate of 7.8% and 7.7% as of June 30, 2025 and December 31, 2024, respectively. We had borrowings on our line of credit of $11,615 and $8,695 outstanding as of June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025, we had unused availability on the line of credit of $3,385, which is subject to a month end cap based on the previously noted minimum Liquidity.

The Company had an interim funding agreement with a bank related to deposits made on equipment purchases funded through a finance lease when the equipment was received and operational. The equipment was received and the lease agreements were finalized during the three months ended June 30, 2025. As of June 30, 2025, we have no amounts outstanding on the interim funding agreement for equipment.

Net sales in the first two quarters of 2025 and fourth quarter of 2024 were negatively impacted by delays in Aerospace and Defense customer approvals of products transferred from our Blue Earth facility to our Bemidji facility as well as manufacturing and plant utilization inefficiencies related to the movement of various production between plants. We expect these matters to be resolved over the next two quarters. The Company has implemented plant optimization activities and cost cutting initiatives in the first two quarters of 2025 to address losses. These actions plus continued efforts to improve manufacturing efficiencies in the remainder of 2025 and the planned reduction in inventory levels are intended to drive reduced borrowings during the remainder of 2025. The Company believes it has sufficient capital and liquidity to operate its business for at least twelve months from the filing of this Form 10-Q.

### Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

### Forward-Looking Statements

Those statements in the foregoing report that are not historical facts are forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.

|  |  |
| --- | --- |
| ♦ | Volatility in the marketplace which may affect market supply, demand of our products or currency exchange rates; |
| ♦ | Whether our existing financing arrangements, anticipated cash flows from operations and cash on hand will be sufficient to satisfy our working capital needs, capital expenditures and debt repayments for the next twelve months; |
| ♦ | Supply chain disruption and unreliability; |
| ♦ | Lack of supply of sufficient human resources to produce our products; |
| ♦ | Increased competition from within the EMS industry or the decision of OEMs to cease or limit outsourcing; |
| ♦ | Changes in the reliability and efficiency of our operating facilities or those of third parties; |
| ♦ | Increases in certain raw material costs such as copper and oil; |
| ♦ | Commodity and energy cost instability; |
| ♦ | Risks related to FDA noncompliance; |
| ♦ | The loss of a major customer; |
| ♦ | General economic, financial and business conditions that could affect our financial condition and results of operations; |
| ♦ | Increased or unanticipated costs related to compliance with securities and environmental regulation; |
| ♦ | Disruption of global or local information management systems due to natural disaster or cyber-security incident; and |

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♦ Outbreaks of epidemic, pandemic, or contagious diseases, such as the recent novel coronavirus that affect our operations, our customers’ operations or our suppliers’ operations.

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Unpredictable or unknown factors not discussed herein could also have material adverse effects on forward-looking statements. All forward-looking statements included in this Form 10-Q are expressly qualified in their entirety by the forgoing cautionary statements. We undertake no obligation to update publicly any forward-looking statement (or its associated cautionary language) whether as a result of new information or future events.

Please refer to forward-looking statements and risks as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

## Controls and procedures

As filed, 1,430 characters.

### Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). These controls and procedures are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation of these disclosure controls and procedures as of the date of the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective.

### Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,644 characters.

We are affected by the risks specific to us as well as factors that affect all businesses operating in a global market. The significant factors known to us that could materially adversely affect our business, financial condition or operating results or could cause our actual results to differ materially from our expectations are described in our annual report on Form 10-K for the fiscal year ended under the heading “Part I – Item 1A.Risk Factors.” There have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, except as set forth below.

***If we fail to comply with the covenants contained in our credit agreement, we may be unable to secure additional financing and repayment obligations on our outstanding indebtedness may be accelerated.***

Our credit agreement contains financial and operating covenants with which we must comply. Effective as of February 29, 2024, we entered into a new credit agreement with Bank of America (the “Revolver”.) Our Revolver contains financial and operating covenants with which we must comply. Our compliance with these covenants is dependent on our financial results, which are subject to fluctuation as described elsewhere in these risk factors. We were not in compliance with financial covenants related to the maximum operating expense contributions to our Mexican operations in the first and second quarters of 2024. We received a waiver of the Mexican operating expenses event of default from the bank in August 2024.

On March 27, 2025, we signed the First Amendment to the Revolver to waive the leverage ratio and minimum charge coverage ratio events of default as of December 31, 2024 and March 31, 2025 and to further defer the Company’s compliance with these ratios until the third quarter of 2025, and reset compliance thresholds for our covenant ratios for 2025. The First Amendment also set minimum EBITDA levels for the second, third and fourth quarters and increased the borrowing rate by 100 basis points. On May 14, 2025, we signed the Second Amendment to the Revolver to defer the Company’s compliance with the leverage ratio and minimum charge coverage ratio until the fourth quarter. The Second Amendment also modified downward the minimum EBITDA levels for the second, third and fourth quarters and shortened the duration of the Revolver to June 30, 2026 and further increased the borrowing rate by 25 basis points. On July 29, 2025, we signed the Third Amendment to the Revolver delaying expiration of the Revolver to August 31, 2026.

We have included the Amendment No. 1 to Credit Agreement, Waiver, and Consent, Amendment No. 2 to Credit Agreement and Amendment No. 3 to Credit Agreement as exhibits to this filing and any description of that document contained in this risk factor is only a summary and is qualified by its entirety by the filed documents. If we fail to comply with the covenants in the future or if our lender does not agree to waive any future non-compliance, we may be unable to borrow funds and any outstanding indebtedness could become immediately due and payable, which could materially harm our business.

***Impairment of Our Long-Lived Assets Could Adversely Affect Our Results of Operations and Financial Condition.***

We evaluate long-lived assets, primarily property and equipment, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value.

As of June 30, 2025, the Company’s common stock was trading at a value less than the Company’s net equity value. As such, the Company evaluated future undiscounted cash flows and determined that no long-lived asset impairment was required as of June 30, 2025. If the fair value of our other long-lived assets is less than their carrying value, we may be required to record a non-cash impairment charge, which could be material. Such charges could negatively impact our results of operations, potentially affect our compliance with debt covenants, and reduce the perceived value of our Company. There can be no assurance that future reviews of long-lived assets will not result in impairment charges, particularly in periods of market or economic volatility.

Filed Aug 7, 2025.
Source: SEC EDGAR, the filing index for accession 0001641172-25-022507. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.