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What changed in NORTECH SYSTEMS INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of NORTECH SYSTEMS INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+155 added−131 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-20)

Top changes in NORTECH SYSTEMS INC's 2024 10-K

155 paragraphs added · 131 removed · 106 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

23 edited+2 added−1 removed14 unchanged
Biggest changeBusiness Segment The Company operates in the Medical, Aerospace and Defense and Industrial markets with over 50% of its net sales coming from medical device and product manufacturing and related engineering services. All of our operations fall under the Contract Manufacturing segment within the Electronic Manufacturing Services (“EMS”) industry.
Biggest changeProcess validation is performed through the strict phases of installation qualification, operation qualification and performance qualification. Business Segment The Company operates in the Medical Device, Medical Imaging, Aerospace and Defense, and Industrial markets with over 50% of its net sales coming from the medical-related markets.
Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are available free of charge, as soon as reasonably practicable, after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission ("SEC").
Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are available free of charge, as soon as reasonably practicable, after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission (“SEC”).
Our customers are original equipment manufacturers (“OEMs”) in the Medical, Aerospace and Defense and Industrial markets. The diversity in the markets we serve is an advantage to mitigate the effects of fluctuations from the economy and competition.
Our customers are original equipment manufacturers (“OEMs”) in the Medical Device, Medical Imaging, Aerospace and Defense and Industrial markets. The diversity in the markets we serve is an advantage to mitigate the effects of fluctuations from the economy and competition.
We are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation (“QSR”) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures.
We are required to register with the FDA and are subject to periodic inspection by the FDA for compliance with the FDA’s Quality Management System Regulation (“QMSR”) requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures.
We market our services through a mix of traditional marketing outreach, a specialized business development team and independent manufacturers' representatives. For more information on our marketing and service offerings see our web site at www.nortechsys.com. The information on our Company’s website is not part of this filing.
We market our services through a mix of traditional marketing outreach, a specialized business development team and in limited circumstances, independent manufacturers’ representatives. For more information on our marketing and service offerings see our website at www.nortechsys.com. The information on our Company’s website is not part of this filing.
Manufacturing personnel, including direct, indirect support and sales functions, comprise 728 employees, while general administrative employees total 47. Foreign Operations and Export Sales from Our Domestic Operations We have leased manufacturing facilities in Monterrey, Mexico and Suzhou, China.
Manufacturing personnel, including direct, indirect support and sales functions, comprise 657 employees, while general administrative employees total 44. Foreign Operations and Export Sales from Our Domestic Operations We have leased manufacturing facilities in Monterrey, Mexico and Suzhou, China.
Research and Development We perform research and development for customers on an as requested, project and program basis for development of conceptual engineering and design activities as well as products moving into production. We spent approximately $1.2 million and $1.5 million on product research and development in the years ended December 31, 2023 and 2022, respectively.
Research and Development We perform research and development for customers on an as requested, project and program basis for development of conceptual engineering and design activities as well as products moving into production. We spent approximately $1.2 million on product research and development in each of the years ended December 31, 2024 and 2023.
Export sales from our U.S. domestic operations represented 4.1% and 4.0% of net sales for the years ended December 31, 2023 and 2022, respectively.
Export sales from our U.S. domestic operations represented 3.4% and 4.1% of net sales for the years ended December 31, 2024 and 2023, respectively.
We attempt to overcome these disruptions through advanced supply chain solutions we develop in partnership with our customers, a commitment to strong supplier partnerships and risk management tools. 6 Major Customers Two customers, individually, accounted for at 25.7% and 10.3%, respectively, of net sales for the year ended December 31, 2023, and one customer accounted for 26.9% of net sales for the year ended December 31, 2022.
We attempt to overcome these changes through advanced supply chain solutions we develop in partnership with our customers, a commitment to strong supplier partnerships and risk management tools. 4 Major Customers One customer individually, accounted for at 27.7% of net sales for the year ended December 31, 2024, and two customers, individually, accounted for 25.7% and 10.3%, respectively, of net sales for the year ended December 31, 2023.
To support the quality requirements of our Aerospace and Defense market customers, all our US locations are International Traffic in Arms Regulations (“ITAR”) compliant. 7 Human Capital Resources We have 733 full-time and 42 part-time/temporary employees as of December 31, 2023, none which is covered by union agreements.
To support the quality requirements of our Aerospace and Defense market customers, all our US locations are International Traffic in Arms Regulations (“ITAR”) compliant. 5 Human Capital Resources We have 701 full-time and 43 part-time/temporary employees as of December 31, 2024, none which are covered by union agreements.
Sources and Availability of Materials We currently purchase most of our electronic components globally and directly from electronic component manufacturers and large electronic distributors. In 2022 and into 2023, we, like many other companies in our industries, experienced significant supply chain and shipping disruptions.
Sources and Availability of Materials We currently purchase most of our electronic components globally and directly from electronic component manufacturers and large electronic distributors. During the COVID pandemic, we, like many other companies in our industries, experienced significant supply chain and shipping disruptions.
We continue to explore opportunities for developing proprietary manufacturing methods or products, particularly in complex wire and cable interconnect technologies. Environmental Law Compliance We believe that our manufacturing facilities are currently operating in compliance with local, state, and federal environmental laws. We plan to continue acquiring environmental-oriented equipment and incurring the expenditures we deem necessary for compliance with applicable laws.
We continue to explore opportunities for developing proprietary manufacturing methods or products, particularly in complex wire and cable interconnect technologies. Environmental Law Compliance We believe that our manufacturing facilities are currently operating in compliance with local, state, and federal environmental laws.
Our Milaca operation is a U.S. Food and Drug Administration (“FDA”) registered facility. In addition to industry standard certifications, we actively manage quality metrics throughout product life-cycle at all levels of the organization to provide real-time, pro-active support to our customers and their projects. Process validation is performed through the strict phases of installation qualification, operation qualification and performance qualification.
Our Milaca operation is a U.S. Food and Drug Administration (“FDA”) registered facility, and our Suzhou operation is a China National Medical Imaging Administration certified facility. In addition to industry standard certifications, we actively manage quality metrics throughout product life cycle at all levels of the organization to provide real-time, pro-active support to our customers and their projects.
Our customer emphasis continues to be on companies that require an electronic manufacturing partner with a high degree of manufacturing and quality sophistication, including statistical process control, statistical quality control, ISO standards, Military Specifications, AS9100 and FDA facility registration.
This requires us to have close customer relationships and operational flexibility to manage the variation of product demands. Our customer emphasis continues to be on companies that require an electronic manufacturing partner with a high degree of manufacturing and quality sophistication, including statistical process control, statistical quality control, ISO standards, military specifications, AS9100 and FDA facility registration.
Expenditures relating to compliance for operating facilities incurred in the past have not significantly affected our capital expenditures, earnings or competitive position. Government Regulation As a medical device manufacturer, we have additional compliance requirements.
We plan to continue acquiring environmentally efficient equipment and incurring the expenditures we deem necessary for compliance with applicable laws. Expenditures relating to compliance for operating facilities incurred in the past have not significantly affected our capital expenditures, earnings or competitive position. Government Regulation As a medical device manufacturer, we have additional compliance requirements.
Monterrey, Mexico has approximately $747,000 and $494,000 in long-term assets, and $2,123,000 and $2,469,000 of net operating lease assets as of December 31, 2023 and 2022, respectively. Suzhou, China has approximately $861,000 and $805,000 in long-term assets, and $278,000 and $384,000 of net operating lease assets as of December 31, 2023 and 2022, respectively.
Monterrey, Mexico has approximately $687,000 and $747,000 in long-term assets, and $1,758,000 and $2,123,000 of net operating lease assets as of December 31, 2024 and 2023, respectively. Suzhou, China has approximately $812,000 and $861,000 in long-term assets, and $685,000 and $278,000 of net operating lease assets as of December 31, 2024 and 2023, respectively.
We are committed to quality, cost effectiveness and responsiveness to customer requirements. To achieve these objectives, we have invested in Restriction of Hazardous Substances (lead free) processing, equipment, plant capacity studies, people, enterprise resource planning systems, lean manufacturing and supply chain management techniques at our facilities.
Our strategic objectives and our history have been based on both organic and acquired growth. We are committed to quality, cost effectiveness and responsiveness to customer requirements. To achieve these objectives, we have invested in equipment, plant capacity studies, people, enterprise resource planning systems, lean manufacturing and supply chain management techniques at our facilities.
Our marketing strategy emphasizes our breadth, expertise and experience in each of our markets. Our expertise helps our customers save time and money and also reduces their risks. The breadth of our manufacturing, supply chain, engineering services and complete turnkey solutions assist our customers in getting their products to market quickly while managing the total cost solution.
Our expertise helps our customers save time and money and also reduces their risks. The breadth of our manufacturing, supply chain, engineering services and complete turnkey solutions assist our customers in getting their products to market quickly while managing the total cost solution. Our strength is managing low to moderate volume components and assemblies with high mix customer demand.
Our financial information is evaluated regularly on a consolidated basis by the chief operating decision maker in assessing performance and allocating resources. 5 Business Strategy The EMS industry has evolved into a dynamic, high-tech, regulated global electronics contract services industry. We continue to expand our capabilities and footprint to better meet these changing market requirements.
We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll, and all corporate accounting functions. Our financial information is evaluated regularly on a consolidated basis by the chief operating decision maker in assessing performance and allocating resources. 3 Business Strategy The EMS industry has evolved into a dynamic, high-tech, regulated global electronics contract services industry.
We are committed to continuous improvement and have invested in training our people to identify and act on improvement opportunities. We maintain a diversified customer base and expand into other capabilities and services when there is a fit with our core competencies and strategic vision. Marketing We concentrate our marketing efforts in the Medical, Aerospace and Defense and Industrial markets.
We maintain a diversified customer base and expand into other capabilities and services when there is a fit with our core competencies and strategic vision. Marketing We concentrate our marketing efforts in the Medical Device, Medical Imaging, Aerospace and Defense, and Industrial markets. Our marketing strategy emphasizes our breadth, expertise and experience in each of our markets.
We continue to pursue strategic opportunities that may include acquisitions, mergers, and/or joint ventures with complementary companies to expand our service offering, advance our competitive edge, grow our customer base and increase net sales. Our strategic objectives and our history have been based on both organic and acquired growth.
Our model is focused on value-added customer and supplier-managed inventory solutions and the underlying cost drivers throughout the global supply chain. We continue to pursue strategic opportunities that may include acquisitions, mergers, and/or joint ventures with complementary companies to expand our service offering, advance our competitive edge, grow our customer base and increase net sales.
Along with offering technical expertise in our quality processes, engineering design applications and testing, we are also increasing our focus on supplier-managed inventory services and the cost drivers throughout the global supply chain. We continue to transform our business model from one that is less transactional, and price/commodity driven to a solution-based model focused on value added services.
We continue to expand our capabilities and footprint to better meet these changing market requirements. Along with offering technical expertise in our quality processes, engineering design applications and testing, we continue to transform our business model from one that is less transactional, and price/commodity driven to a solution-based model.
We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers’ needs. We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll, and all corporate accounting functions.
All of our operations fall under the Contract Manufacturing segment within the Electronic Manufacturing Services (“EMS”) industry. We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers’ needs. Our plants generate net sales over several of the markets the Company serves.
Removed
Our strength is managing low to moderate volume components and assemblies with high mix customer demand. This requires us to have close customer relationships and operational flexibility to manage the variation of product demands.
Added
We have also invested in fiber optic technologies to provide a lighter weight, data-driven and environmentally cleaner solution to our customers. We are committed to continuous improvement and have invested in training our people to identify and act on improvement opportunities.
Added
More recently, we are experiencing shifts in customer order patterns as they seek to reduce fulfillment times, which requires changes to our procurement strategies and inventory investments.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we are required to take additional restructuring charges in the future, our operating results, financial condition, and cash flows could be adversely impacted. Risks Related to our Assets We are dependent on our information technology systems for order, inventory and production management, financial reporting, communications and other functions.
Biggest changeWe may consolidate or divest certain manufacturing facilities or transfer certain of our operations to other geographies. If we are required to take additional restructuring charges in the future, our operating results, financial condition, and cash flows could be adversely impacted.
If a product liability claim results in our being liable, it could have a material adverse effect on our business and financial position. We have insurance coverage for products liability claims, but there can be no assurances that the amount of coverage will be adequate or that insurance proceeds will be available for a particular claim.
If a product liability claim results in our being liable, it could have a material adverse effect on our business and financial position. We have insurance coverage for product liability claims, but there can be no assurances that the amount of coverage will be adequate or that insurance proceeds will be available for a particular claim.
Although we believe that we currently can provide the value-added engineering services that is required by our customers, there is no certainty that we will develop the capabilities required by our customers in the future. The emergence of new technology, industry standards or customer requirements may render the engineering services we currently provide obsolete or uncompetitive.
Although we believe that we currently can provide the value-added engineering services that are required by our customers, there is no certainty that we will develop the capabilities required by our customers in the future. The emergence of new technology, industry standards or customer requirements may render the engineering services we currently provide obsolete or uncompetitive.
We are registered with the FDA and are subject to periodic inspection by the FDA for compliance with its Quality System Regulation/Medical Device Good Manufacturing Practices requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures.
We are registered with the FDA and are subject to periodic inspection by the FDA for compliance with its Quality Management System Regulation/Medical Device Good Manufacturing Practices requirements, which require manufacturers of medical devices to adhere to certain regulations, including testing, quality control and documentation procedures.
We have taken steps to protect and create redundancies for the equipment that facilitates the use of our management information systems, but these steps may not be adequate to ensure that our operations are not disrupted by events within and outside of our control. 11 Disruptions to our information systems, including security breaches, losses of data or outages, cyber attacks and other security issues, have and could in the future adversely affect our operations and/or financial results.
We have taken steps to protect and create redundancies for the equipment that facilitates the use of our management information systems, but these steps may not be adequate to ensure that our operations are not disrupted by events within and outside of our control. 9 Disruptions to our information systems, including security breaches, losses of data or outages, cyber attacks and other security issues, have and could in the future adversely affect our operations and/or financial results.
Failure of the Company or any of its customers operating in these markets to effectively respond to changes to applicable laws and regulations or comply with existing and future laws and regulations may have a negative effect on the Company’s business, financial condition, results of operations and cash flows. 16 Complying with securities laws, tax laws, accounting policies and regulations, and subsequent changes, may be costly for us and adversely affect our financial statements.
Failure of the Company or any of its customers operating in these markets to effectively respond to changes to applicable laws and regulations or comply with existing and future laws and regulations may have a negative effect on the Company’s business, financial condition, results of operations and cash flows. 14 Complying with securities laws, tax laws, accounting policies and regulations, and subsequent changes, may be costly for us and adversely affect our financial statements.
We may also be at a competitive disadvantage with respect to price when compared to manufacturers with excess capacity, lower cost structures and availability of lower cost labor. 9 Competitive factors in our targeted markets are believed to be product and service pricing, quality, the ability to meet delivery schedules, customer service, value-added engineering, technology solutions, geographic location and price.
We may also be at a competitive disadvantage with respect to price when compared to manufacturers with excess capacity, lower cost structures and availability of lower cost labor. 7 Competitive factors in our targeted markets are believed to be product and service pricing, quality, the ability to meet delivery schedules, customer service, value-added engineering, technology solutions and geographic location.
New or changing laws, regulations, policy and standards relating to corporate governance and public disclosure, including SEC and Nasdaq regulations, domestic or international tax legislation and the implementation of significant changes in the GAAP, present challenges due to complexities, assumptions and judgements required to implement.
New or changing laws, regulations, policy and standards relating to corporate governance and public disclosure, including SEC and Nasdaq regulations, domestic or international tax legislation and the implementation of significant changes in U.S. GAAP, present challenges due to complexities, assumptions and judgements required to implement.
Also, we are subject to the risk that our customers will have financial difficulties, which could harm their ability to satisfy their obligation to pay accounts receivable. Further, an economic downturn may affect our ability to satisfy the financial covenants in the terms of our financing arrangements.
Also, we are subject to the risk that our customers will have financial difficulties, which could harm their ability to satisfy their obligation to pay accounts receivable. Further, an economic downturn may affect our ability to satisfy the financial covenants in our financing arrangements.
Nevertheless, these systems are vulnerable to, and at times have suffered from, among other things, damage from power loss or natural disasters, computer system and network failures, loss of telecommunication services, physical and electronic loss of data, terrorist attacks, computer viruses, cyberattacks and security breaches, ranging from uncoordinated individual attempts to gain unauthorized access to our IT systems to sophisticated and targeted measures.
Nevertheless, these systems are vulnerable to, and at times have suffered from, among other things, damage from power loss or natural disasters, computer system and network failures, loss of telecommunication services, physical and electronic loss of data, terrorist attacks, computer viruses, cyberattacks and security breaches, ranging from uncoordinated individual attempts to gain unauthorized access to our information technology systems to sophisticated and targeted measures.
It is possible that environmental compliance costs and penalties from new or existing regulations may harm our business, financial condition, and results of operations. 17 Global climate change and related regulations could negatively affect the Company.
It is possible that environmental compliance costs and penalties from new or existing regulations may harm our business, financial condition, and results of operations. 15 Global climate change and related regulations could negatively affect the Company.
As we expand our business operations both within the United States and internationally, we will need to maintain effective internal controls over financial reporting and disclosure control and procedures. 14 Our services involve other inventory risk Our production services primarily provide that we purchase some, or all, of the required materials and components based on customer forecasts or orders.
As we expand our business operations both within the United States and internationally, we will need to maintain effective internal controls over financial reporting and disclosure controls and procedures. 12 Our services involve other inventory risk. Our production services primarily provide that we purchase some, or all, of the required materials and components based on customer forecasts or orders.
We also expect that our competitors will continue to improve the performance of their current products or services, to reduce their current products or service sales prices and improve services that maybe offered. Any of these could cause a decline in net sales, loss of market share, or lower profit margin.
We also expect that our competitors will continue to improve the performance of their current products or services, to reduce their current products or service sales prices and improve services that may be offered. Any of these could cause a decline in net sales, loss of market share, or lower profit margin.
The acquisition and implementation of new engineering knowledge, technical skills and related equipment may require significant expense that could adversely affect our operating results, as could our failure to anticipate and adapt to our customers’ changing technological requirements. We operate in highly competitive industries, and we depend on continuing outsourcing by OEMs.
The acquisition and implementation of new engineering knowledge, technical skills and related equipment may require significant expense that could adversely affect our operating results, as could our failure to anticipate and adapt to our customers’ changing technological requirements. We operate in highly competitive industries, and we depend on continuing outsourcing by Original Equipment Manufacturers (“OEM”).
We compete against many companies that engineer and manufacture complex electromedical and electromechanical products as well as medical, aerospace and defense, and industrial products. The larger global competitors have more resources and greater economies of scale and have more geographically diversified international operations.
We compete against many companies that engineer and manufacture complex electromedical and electromechanical medical device, medical imaging, aerospace and defense, and industrial products. The larger global competitors have more resources and greater economies of scale and have more geographically diversified international operations.
Such adverse effects could include one or more of the following: an increase in expenses for doubtful accounts receivable and inventory write-offs, a reduction in net sales, and an increase in our working capital requirements due to higher inventory levels and in days our accounts receivables are outstanding. 13 Changes in foreign currency translation rates could adversely impact our net sales and earnings.
Such adverse effects could include one or more of the following: an increase in expenses for expected accounts receivable credit losses and inventory write-offs, a reduction in net sales, and an increase in our working capital requirements due to higher inventory levels and in days our accounts receivables are outstanding. 11 Changes in foreign currency translation rates could adversely impact our net sales and earnings.
Two customers, individually, accounted for at 25.7% and 10.3%, respectively, of net sales for the year ended December 31, 2023, and one customer accounted for 26.9% of net sales for the year ended December 31, 2022. The loss of a substantial portion of net sales to our largest customers could have a material adverse effect on us.
One customer accounted for at 27.7% of net sales for the year ended December 31, 2024, and two customers, individually, accounted for 25.7% and 10.3%, respectively, of net sales for the year ended December 31, 2023. The loss of a substantial portion of net sales to our largest customers could have a material adverse effect on us.
The process of restructuring entails, among other activities, moving production between facilities, transferring programs from higher cost geographies to lower cost geographies, closing facilities, reducing the level of staff, realigning our business processes and reorganizing our management.
The process of restructuring entails, among other activities, moving production between facilities, transferring programs from higher cost geographies to lower cost geographies, closing facilities, reducing size of our workforce, realigning our business processes and reorganizing our management.
Demand for our products and services depends upon worldwide economic conditions, including but not limited to overall economic growth rates, construction, consumer spending, financing availability, employment rates, interest rates, inflation, consumer confidence, defense spending levels, and the profits, capital spending, and liquidity of industrial companies. 15 An economic downturn or financial market turmoil may depress demand for our products and/or services in all major geographies and markets.
Demand for our products and services depends upon worldwide economic conditions, including but not limited to overall economic growth rates, construction, tariffs, taxes, consumer spending and confidence, financing availability, employment rates, interest rates, inflation, defense spending levels, global politics and conflict, and the profits, capital spending, and liquidity of industrial companies. 13 An economic downturn or financial market turmoil may depress demand for our products and/or services in all major geographies and markets.
If we are unable to sell such inventory or sell such inventory within a reasonable timeframe, it may adversely affect our operations and financial results. 8 Our customers cancel orders, change order quantity, timing and specifications that if not managed would have an adverse effect on inventory carrying costs.
If we are unable to sell such inventory or sell such inventory within a reasonable timeframe, it may adversely affect our operations and financial results. 6 Our customers cancel orders, change order quantity, timing and specifications that if not managed would have an adverse effect on the timing of net sales and inventory carrying costs.
The manufacture and sale of products carries potential risk for product liability claims . We generally are required to represent and warrant to our customers that the goods and services we deliver are free from defects in material and workmanship generally for one year.
The manufacture and sale of products carries potential risk for product liability claims and warranty claims . We generally are required to represent and warrant to our customers that the goods and services we deliver are free from defects in material and workmanship generally for one year. Certain customers require longer warranty periods.
Our operations in those countries are subject to risks that could adversely impact our financial results, such as economic or political volatility, foreign legal and regulatory requirements, international trade factors (export controls, trade sanctions, duties, tariff barriers and other restrictions), protection of our and our customers’ intellectual property and proprietary technology in certain countries, potentially burdensome taxes, crime, employee turnover, staffing, managing personnel in diverse culture, labor instability, transportation delays, and foreign currency fluctuations. 10 We face risks arising from the restructuring of our operations .
Our operations in those countries are subject to risks that could adversely impact our financial results and costs, such as economic or political volatility, foreign legal and regulatory requirements, international trade relations factors (such as tariffs, trade sanctions, duties, export controls and other trade restrictions), protection of our and our customers’ intellectual property and proprietary technology in certain countries, potentially burdensome taxes, crime, employee turnover, staffing, managing personnel in diverse culture, labor instability, transportation delays, and foreign currency fluctuations.
Our R&D efforts are currently funded through investment of capital generated from operations, and we incurred R&D expenses of $1.2 million and $1.5 million in the years ended December 31, 2023 and 2022, respectively.
Our R&D efforts are currently funded through investment of capital generated from operations, and we incurred R&D expenses of approximately $1.2 million in each of the years ended December 31, 2024 and 2023.
Our computer systems, web sites, telecommunications, and data networks are vulnerable to damage or interruption from power loss, natural disasters and other sources of physical damage or disruption to the equipment which maintains, stores and hosts our information technology systems.
We rely on our information technology systems to effectively manage our operational and financial functions. Our computer systems, web sites, telecommunications, and data networks are vulnerable to damage or interruption from power loss, natural disasters and other sources of physical damage or disruption to the equipment which maintains, stores and hosts our information technology systems.
We have and may be required to take additional charges in the future to align our operations and cost structures with global economic conditions, market demands, cost competitiveness, and our geographic footprint as it relates to our customers' production requirements or following divestitures. We may consolidate or divest certain manufacturing facilities or transfer certain of our operations to other geographies.
We have and may be required to take additional restructuring charges in the future to align our operations and cost structures with global economic conditions, market demands, cost competitiveness, and our geographic footprint as it relates to our customers’ production requirements or following divestitures.
We have exposures to local currencies for certain net sales in China denominated in Chinese Yuan as well as certain costs incurred at our facilities in China and Mexican that are denominated in Chinese Yuan and the Mexican Peso, respectively.
We have exposures to local currencies for certain net sales in China denominated in Chinese Yuan, value added tax receivables denominated in the Mexican Peso, as well as certain costs incurred at our facilities in China and Mexico that are denominated in their respective local currencies.
In addition to the financial impact on operations from lost net sales and increased cost, there could potentially be harm to our customer relationships. To reduce the effects of supply chain disruption for our customers, we have increased inventory significantly, which has resulted in a reduction of cash available.
In addition to the financial impact on operations from lost net sales and increased cost, there could potentially be harm to our customer relationships. To reduce the effects of supply chain disruption for our customers, we purchase and hold raw material and finished goods inventory, which results in a reduction of cash available.
Outbreaks of epidemic, pandemic, or contagious diseases, such as, historically, the COVID-19 virus, Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, or the H1N1 virus, could cause a disruption to our business.
Pandemics or disease outbreaks could adversely affect our operations, supply chains, financial condition and results of operations. Outbreaks of epidemic, pandemic, or contagious diseases, such as, historically, the COVID-19 virus, Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, or the H1N1 virus, could cause a disruption to our business.
We recognize reserves in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for exposures related to the estimated impact from these possibilities. We depend heavily on our people and may from time to time have difficulty attracting and retaining skilled employees and the cost of labor may continue to increase.
GAAP”) for exposures related to the estimated impact from these possibilities. We depend heavily on our people and may from time to time have difficulty attracting and retaining skilled employees and the cost of labor may continue to increase.
Even though our customers generally have contractual obligations to purchase such inventories from us, we remain subject to customers’ credit risks as well as the risk of potential customer default and the need to enforce those obligations. Market Risks Pandemics or disease outbreaks could adversely affect our operations, supply chains, financial condition and results of operations.
Even though our customers generally have contractual obligations to purchase such inventories from us, we remain subject to customers’ credit risks as well as the risk of potential customer default and the need to enforce those obligations.
Our credit agreement contains financial and operating covenants with which we must comply. As of December 31, 2023, we were in compliance with these covenants. Effective as of February 29, 2024, we entered into a new credit agreement with Bank of America. Our new current credit agreement contains financial and operating covenants with which we must comply.
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 engineering net sales depend on our ability to deliver quality value-added engineering services required by our customers. The markets for our engineering services are characterized by rapidly changing technology and evolving process development. The continued success of our business will depend upon our ability to hire and retain qualified engineering personnel and maintain and enhance our technological leadership.
Our engineering net sales depend on our ability to deliver quality value-added engineering services required by our customers. The markets for our engineering services are characterized by rapidly changing technology and evolving process development.
Any of these events could negatively impact our net sales and have a material adverse effect on our business, financial condition, results of operations, or cash flows. The economic conditions around the world could adversely affect demand for our products and services and the financial health of our customers.
Any of these events could negatively impact our net sales and have a material adverse effect on our business, financial condition, results of operations, or cash flows.
We are focusing our R&D efforts across several key areas, including development of active optical cables and expanded beam connectors. 12 We do not expect all our R&D investments to be successful.
We are focusing our R&D efforts across several key areas, including development of fiber optic technologies for a wide range of applications like active optical cables, expanded beam technology and physical contact cables. 10 We do not expect all our R&D investments to be successful.
We do not expect to pay dividends for the foreseeable future, and we may never pay dividends; investors must rely on stock appreciation for any return on investment in our common stock. We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.
We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.
If our information systems fail or experience major interruptions due to physical damage or loss of power on our business and our financial results could be adversely affected. We rely on our information technology systems to effectively manage our operational and financial functions.
Risks Related to our Assets We are dependent on our information technology systems for order, inventory and production management, financial reporting, communications and other functions. If our information systems fail or experience major interruptions due to physical damage or loss of power on our business and our financial results could be adversely affected.
To compete more successfully, we believe it is advantageous to maintain an effective R&D program to develop new products and manufacturing processes that will benefit our customers.
To the extent that those investment efforts are unsuccessful, our competitive position may be harmed, and we may not realize a return on our investments. To compete more successfully, we believe it is advantageous to maintain an effective R&D program to develop new products and manufacturing processes that will benefit our customers.
Our compliance with these covenants is dependent on our financial results, which are subject to fluctuation as described elsewhere in these risk factors.
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.
In recent years, we have undertaken initiatives to restructure our business operations with the intention of improving utilization and realizing cost savings. These initiatives have included changing the number and location of our production facilities, largely to align our capacity and infrastructure with current and anticipated customer demand.
These initiatives have included reducing the size of our workforce, changing the number and location of our production facilities in an effort to align our capacity and infrastructure with current and anticipated customer demand.
The Company is majority owned by one group of shareholders, and those shareholders may be able to take actions that do not reflect the will or best interests of other shareholders. Curits Squire, Inc. and the Kunin family, collectively as a group, own a majority of our common stock.
Our insurance may not cover claims for non-conformance or defective products that are not product liability claims from customers. The Company is majority owned by one group of shareholders, and those shareholders may be able to take actions that do not reflect the will or best interests of other shareholders.
We face, through the normal course of business, customer cancellations and rescheduled orders and are not always successful in recovering the costs of such cancellations or rescheduling. In addition, excess and obsolete inventory losses as a result of customer order changes, cancellations, product changes and contract termination could have an adverse effect on our operations.
We face, through the normal course of business, customer cancellations and rescheduled orders and are not always successful in recovering the costs of such cancellations or rescheduling. With every new product or substantial redesign of a product, we utilize our new product introduction process.
We have made investments in research and development (“R&D”) of new technologies that we believe will strengthen our relationships with customers if successful. To the extent that those investment efforts are unsuccessful, our competitive position may be harmed, and we may not realize a return on our investments.
We have made investments in research and development (“R&D”) of new technologies that we believe if successful will strengthen our relationships with customers. Our intent is that the Company own intellectual property arising from R&D activities.
Removed
The decreased value of local currency may adversely affect demand for our products and may adversely affect the profitability of our products in U.S. dollars in foreign markets where payments are made in the local currency.
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Such process is intended to improve the manufacturability, compliance with customer specifications and quality standards relating to the product but may result in delays in commencement of production impacting the timing of net sales.
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In addition, excess and obsolete inventory losses as a result of customer order changes, cancellations, product changes and contract termination could have an adverse effect on our operations. We record inventory at the lower of cost or net realizable value in accordance with generally accepted accounting principles in the United States of America (“U.S.
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The continued success of our business to generate engineering net sales will depend upon our ability to hire and retain qualified engineering personnel and maintain and enhance our technological leadership.
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Curtis Squire, Inc. and the Kunin family, collectively as a group, own a majority of our common stock.
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Legal and regulatory requirements in Mexico and China are continually changing which may and has affected our ability to predict timing and/or whether we will receive applicable tax refunds such as VAT tax refunds.
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The changing regulatory environment may impact negatively the timing and recognition of such net sales and/or whether we ultimately collect cash from these net sales. 8 We face risks arising from the restructuring of our operations . In recent years, we have undertaken initiatives to restructure our business operations with the intention of improving utilization and realizing cost savings.
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We received a waiver of the Mexican operating expenses event of default from the bank in August 2024.
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On March 27 , 2025, we amended the Revolver agreement 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.
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We have included the Amendment No. 1 to Credit Agreement, Waiver, and Consent as an exhibit 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 Amendment No. 1 to Credit Agreement, Waiver, and Consent.
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Significant fluctuations in foreign exchange rates between the U.S. dollar and foreign currencies may adversely affect our results of operations. Our Mexico facility operates as a maquiladora, and its financial records are kept in Mexican Pesos. As the function currency of the maquiladora is the U. S. Dollar, we translate the Mexican Pesos financial records into U. S.
Added
Dollars and record a currency translation gain or loss in the statement of operations. These translation gains or losses may be material to the financial results of the Company. For the years ended December 31, 2024 and 2023, we recorded translation losses of $137 thousand and $54 thousand, respectively.
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The majority of these losses were related to the translation of value added tax receivables denominated in Mexican Pesos. We do not expect to pay dividends for the foreseeable future, and we may never pay dividends; investors must rely on stock appreciation for any return on investment in our common stock.
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Market Risks The economic conditions around the world could adversely affect demand for our products and services and the financial health of our customers.
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If we are not able to comply with Department of Defense cybersecurity requirements, our net sales from defense contractors could be reduced. In 2019, the U.S.
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Department of Defense announced the development of Cybersecurity Maturity Model Certification (“CMMC”) as a framework to assess and enhance the cybersecurity posture of the Defense Industrial Base (“DIB”), particularly as it relates to controlled unclassified information within the supply chain. CMMC is designed to ensure that contractors providing services to the U.S.
Added
Department of Defense have implemented cybersecurity controls and processes to adequately protect information that resides on DIB systems and networks. We are working to comply with CMMC requirements with the intention of seeking CMMC level 2 compliance in 2025.
Added
If we are unsuccessful in our efforts to timely comply with CMMC requirements, our ability to maintain contracts with customers that are defense contractors and resulting net sales may be impacted negatively.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe current chair of our Science and Technology Committee is a NACD certified cybersecurity expert. Our Board of Directors is responsible for overseeing our enterprise risk management activities in general, and each of our Board committees assists the Board in the role of risk oversight.
Biggest changeThe current chair of our Science and Technology Committee is a National Association of Corporate Directors (“NACD”) certified cybersecurity expert. Our Board of Directors is responsible for overseeing our enterprise risk management activities in general, and each of our Board committees assists the Board in the role of risk oversight .
To help ensure effective oversight, the Science and Technology Committee receives reports on information security and cybersecurity from the Company’s information technology managers at least four times a year. 18 Our approach to cybersecurity risk management includes the following key elements: ● Multi-Layered Defense and Continuous Monitoring – We work to protect our computing environments and products from cybersecurity threats through multi-layered defenses and apply lessons learned from our defense and monitoring efforts to help prevent future attacks.
To help ensure effective oversight, the Science and Technology Committee receives reports on information security and cybersecurity from the Company’s information technology managers at least four times a year . 16 Our approach to cybersecurity risk management includes the following key elements: ● Multi-Layered Defense and Continuous Monitoring – We work to protect our computing environments and products from cybersecurity threats through multi-layered defenses and apply lessons learned from our defense and monitoring efforts to help prevent future attacks.
While we have experienced cybersecurity incidents in the past, to date none have materially affected the Company or our consolidated financial position, results of operations and/or cash flows.
While we have experienced cybersecurity incidents in the past, to date none have materially affected the Company or our financial position, results of operations and/or cash flows.
We continue to invest in the cybersecurity and resiliency of our networks and to enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and the information they contain. For more information regarding the risks we face from cybersecurity threats, please see “Risk Factors.”
We continue to invest in the cybersecurity and resiliency of our networks and to enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and the information they contain. For more information regarding the risks we face from cybersecurity threats, please see Item 1A. “Risk Factors. ”

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following are our manufacturing facilities as of December 31, 2023: Manufacturing Space Office Space Total Location Own/Lease Lease End Date Square Feet Square Feet Square Feet Bemidji, MN Lease August 31, 2035 56,000 13,000 69,000 Blue Earth, MN Own 92,000 48,000 140,000 Milaca, MN Lease June 30, 2025 15,000 5,000 20,000 Mankato, MN Lease August 31, 2035 43,000 15,000 58,000 Monterrey, Mexico Lease January 24, 2029 76,000 1,000 77,000 Suzhou, China Lease February 28, 2024 27,000 3,000 30,000 Suzhou, China Lease January 14, 2024 (1) 15,000 - 15,000 Suzhou, China Lease October 17, 2026 15,000 - 15,000 (1) In January 2024, we extended the Suzhou lease which now expires on January 20, 2027. 19
Biggest changeThe following are our manufacturing facilities as of December 31, 2024: Manufacturing Space Office Space Total Location Own/Lease Lease End Date Square Feet Square Feet Square Feet Bemidji, MN Lease August 31, 2035 56,000 13,000 69,000 Blue Earth, MN (1) Own 92,000 48,000 140,000 Milaca, MN Lease June 30, 2030 15,000 5,000 20,000 Mankato, MN Lease August 31, 2035 43,000 15,000 58,000 Monterrey, Mexico Lease January 24, 2029 67,000 10,000 77,000 Suzhou, China Lease February 28, 2024 27,000 3,000 30,000 Suzhou, China Lease January 20, 2027 15,000 - 15,000 Suzhou, China Lease October 17, 2026 15,000 - 15,000 Suzhou, China Lease November 22, 2028 2,000 - 2,000 (1) In December 2024 we ceased manufacturing at our Blue Earth, MN facility and are currently seeking to sell this facility and underlying land.
Item 2. Properties Administration Our corporate headquarters consists of an approximately 19,000 square feet building located in Maple Grove, Minnesota, a northwestern suburb of Minneapolis, Minnesota, and its lease expires January 2025. Manufacturing facilities Our manufacturing facilities are in good operating condition, and we believe our overall production capacity is sufficient to handle our foreseeable manufacturing needs and customer requirements.
Item 2. Properties Administration Our corporate headquarters consists of an approximately 14,000 square feet building located in Maple Grove, Minnesota, a northwestern suburb of Minneapolis, Minnesota, and its lease expires August 2033. Manufacturing facilities Our manufacturing facilities are in good operating condition, and we believe our overall production capacity is sufficient to handle our foreseeable manufacturing needs and customer requirements.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings From time to time, we are involved in ordinary, routine or regulatory legal proceedings incidental to the business. When a loss is deemed probable and reasonably estimable an amount is recorded in our consolidated financial statements. Item 4. Mine Safety Disclosures Not applicable. 20 PART II
Biggest changeItem 3. Legal Proceedings From time to time, we are involved in ordinary, routine or regulatory legal proceedings incidental to the business. When a loss is deemed probable and reasonably estimable an amount is recorded in our consolidated financial statements. Item 4. Mine Safety Disclosures Not applicable. 17 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 20 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 6. Selected Financial Data 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22-32 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 17 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18 Item 6. Selected Financial Data 18 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19-26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 26 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStock price comparisons (NASDAQ): During the Three Months Ended Low High March 31, 2023 $ 10.37 $ 16.52 June 30, 2023 $ 9.00 $ 11.26 September 30, 2023 $ 8.76 $ 10.89 December 31, 2023 $ 7.45 $ 10.27 March 31, 2022 $ 9.50 $ 12.38 June 30, 2022 $ 9.94 $ 20.37 September 30, 2022 $ 10.07 $ 19.56 December 31, 2022 $ 9.31 $ 16.01 Equity Compensation Plan Information Certain information with respect to our equity compensation plans are contained in Part III, Item 12 of this Annual Report on Form 10-K.
Biggest changeStock price comparisons (NASDAQ): During the Three Months Ended Low High March 31, 2024 $ 9.13 $ 14.35 June 30, 2024 $ 10.19 $ 19.15 September 30, 2024 $ 11.00 $ 15.55 December 31, 2024 $ 9.53 $ 13.90 March 31, 2023 $ 10.37 $ 16.52 June 30, 2023 $ 9.00 $ 11.26 September 30, 2023 $ 8.76 $ 10.89 December 31, 2023 $ 7.45 $ 10.27 Purchases of Equity Securities by the Issuer and Affiliated Purchasers In May 2024, our Board of Directors approved a share repurchase program authorizing up to $100,000 in share repurchases.
Future dividend policy and payments, if any, will depend upon earnings and our financial condition, our need for funds, limitations on payments of dividends present in our current or future debt agreements, and other factors.
Future dividend policy and payments, if any, will depend upon earnings, our financial condition, our need for funds, limitations on payments of dividends present in our current or future debt agreements and other factors.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities As of March 12, 2024, there were 590 shareholders of record. Our stock is listed on the NASDAQ Capital Market under the symbol “NSYS”.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities As of March 12, 2025, there were 590 shareholders of record. Our stock is listed on the NASDAQ Capital Market under the symbol “NSYS”.
We intend to invest our profits into the growth of our operations and, therefore, do not plan to pay out dividends to shareholders in the foreseeable future. We did not declare or pay a cash dividend in 2023 or 2022.
We intend to invest our profits into the growth of our operations and, therefore, do not plan to pay out dividends to shareholders in the foreseeable future. We did not declare or pay a cash dividend in 2024 or 2023.
Added
This share repurchase program commenced in August 2024 and expired in October 2024 upon completion of the program. We purchased 8,185 shares of the Company’s common stock at an average price of $12.09 per share.
Added
Equity Compensation Plan Information Certain information with respect to our equity compensation plans are contained in Part III, Item 12 of this Annual Report on Form 10-K.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

29 edited+28 added−23 removed27 unchanged
Biggest changeThe 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 we prepay SOFR borrowings before their contractual maturity, we have agreed to compensate the bank for lost margin, as defined in the Revolver agreement.
Biggest changeCredit Facilities On February 29, 2024, we replaced the asset backed line of credit agreement with 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.
Management ’ s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a Minnesota, United States based full-service global EMS contract manufacturer in the Medical, Aerospace & 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.
Management ’ s Discussion and Analysis of Financial Condition and Results of Operations 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.
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 December 31, 2023, the Company’s common stock was trading at a value less than the Company’s net equity value.
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 December 31, 2024, the Company’s common stock was trading at a value less than the Company’s net equity value.
If, for any reason, those estimates, and assumptions vary substantially it would also impact our financial results. 29 Our accounting policies are described in “Note 1 – Summary of Significant Accounting Policies,” in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
If, for any reason, those estimates, and assumptions vary substantially it would also impact our financial results. 23 Our accounting policies are described in “Note 1 – Summary of Significant Accounting Policies,” in Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
Our net sales for services were less than 10% of our total sales for all periods presented, and accordingly, are included in net sales in the Condensed Consolidated Statements of Income and Comprehensive Income. Sales, value added, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from net sales) basis.
Our net sales for services were less than 10% of our total sales for all periods presented, and accordingly, are included in net sales in the consolidated statements of operations and comprehensive (loss) income. Sales, value added, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from net sales) basis.
On an on-going basis, we evaluate our estimates and assumptions, including, but not limited to, valuation allowance for inventories, allowance for doubtful accounts, realizability of deferred tax assets and long-lived asset impairment testing.
On an on-going basis, we evaluate our estimates and assumptions, including, but not limited to, valuation allowance for inventories, allowance for credit losses, realizability of deferred tax assets and long-lived asset impairment testing.
Our reserve for uncertain tax positions aggregated $131 thousand as of December 31, 2023. 31 New Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to the consolidated financial statements in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report on Form 10-K.
Our reserve for uncertain tax positions aggregated $97 as of December 31, 2024. 25 New Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 1 to the consolidated financial statements in “Financial Statements and Supplementary Data” in Part II, Item 8 of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
This process includes an evaluation of our inventory based on current usage and the latest forecasts of product demand and production requirements from our customers. On at least an annual basis we review the underlying inventory reserve assumptions based on recent trends. As of December 31, 2023, we had an inventory reserve of $1.2 million.
This process includes an evaluation of our inventory based on current usage and the latest forecasts of product demand and production requirements from our customers. We periodically review the underlying inventory reserve assumptions based on recent trends. As of December 31, 2024, we had an inventory reserve of $1,446.
As of December 31, 2023, the Company has recorded a contract asset of $14.5 million for unbilled customer net sales included in net sales. Net sales are recorded net of returns, allowances and customer discounts.
As of December 31, 2024, the Company has recorded a contract asset of $13,792 for unbilled customer net sales included in net sales. Net sales are recorded net of returns, allowances and customer discounts.
We seek to require our customers to prepay for end of life or certain inventory in excess of current customer order quantities. We have an evaluation process to assess the value of the inventory that is slow moving, excess or obsolete on a quarterly basis.
Certain raw material inventories are purchased solely to meet a customer’s unique manufacturing requirements. We seek to require our customers to prepay for end of life or certain inventory in excess of current customer order quantities. We have an evaluation process to assess the value of the inventory that is slow moving, excess or obsolete on a quarterly basis.
As of December 31, 2023, we have facilities in Minnesota: Bemidji, Blue Earth, Mankato, Milaca and Maple Grove. 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.
We closed our facility in Blue Earth, Minnesota in December 2024 and are currently seeking to sell this facility. 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.
The interest rate as of December 31, 2023 was approximately 4%. 28 Cash flows for the years ended December 31, 2023 and 2022 are summarized as follows: (in millions) 2023 2022 Cash Flows Provided By (Used In): Operating Activities $ 1.8 $ 5.4 Investing Activities (1.3 ) (2.4 ) Financing Activities (1.3 ) (2.7 ) Effect of Exchange Rate Changes on Cash 0.0 0.0 Net Change in Cash $ 0.8 $ 0.3 Cash provided by operating activities for the year ended December 31, 2023 was $1.8 million compared with cash provided by operations of $5.4 million for the year ended December 31, 2022.
The interest rate as of December 31, 2024 was approximately 4%. 22 Cash flows for the years ended December 31, 2024 and 2023 are summarized as follows: 2024 2023 Cash flows provided by (used in): Operating activities $ (2,250 ) $ 1,769 Investing activities (1,263 ) (1,284 ) Financing activities 2,765 (1,281 ) Effect of exchange rate changes on cash (11 ) (10 ) Net change in cash and cash equivalents $ (759 ) $ (806 ) Cash used in operating activities for the year ended December 31, 2024 was $2,250 compared with cash provided by operations of $1,769 for the year ended December 31, 2023.
Under this credit agreement, line of credit borrowing availability was restricted by a defined asset borrowing base, and interest was based on variations in the Bloomberg Short-Term Bank Yield (BSBY) index rate. This line of credit weighted-average interest rate was 8.3% and 5.2% as of December 31, 2023 and 2022, respectively.
Under the prior credit agreement with Bank of America, the line of credit borrowing availability was restricted by a defined asset borrowing base, and interest was based on variations in the Bloomberg Short-Term Bank Yield (BSBY) index rate.
Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be transferred within 180 days. Our total order backlog as of December 31, 2023 was $91.7 million, a 11.9% decrease from $104.1 million as of December 31, 2022.
Our 90-day shipment backlog as of December 31, 2024 was $26,451, down 24.8% from December 31, 2023. 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 net income in 2022 was $2.0 million or $0.70 per diluted and $0.75 per basic common share.
Net (Loss) Income. Our net loss in 2024 was $1,295 or $0.47 per diluted and basic common share.
Gross Profit Our gross profit was $23.1 million and $20.5 million, and as a percentage of net sales 16.6% and 15.3%, for the years ended December 31, 2023 and 2022, respectively.
(2) Basis points change in gross margin percentage. Gross profit and gross margins. Gross profit as a percent of net sales was 13.1% and 16.6% for the years ended December 31, 2024 and 2023, respectively.
There are no subjective acceleration clauses under the Revolver that would accelerate the maturity of our outstanding borrowings. The Revolver contains certain covenants which, among other things, require us 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 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.
The cash used by financing activities in 2022 of $2.7 million consisted primarily of net payments on the line of credit of $2.1 million and capital lease payments of $0.6 million.
Net cash provided by financing activities in 2024 of $2,765 consisted primarily of net proceeds from the line of credit of $2,849 and proceeds from notes payable of $345. The cash used by financing activities in 2023 of $1,281 consisted primarily of net payments on the line of credit of $1,050 and capital lease payments of $390.
The Revolver is secured by substantially all the Company’s assets and expires on February 28, 2027. Our China operation has a financing agreement with China Construction Bank which provides for a line of credit arrangement of 10,000,000 Renminbi (RMB) (approximately 1.4 million USD) that expires on August 18, 2024.
Our China operation has a financing agreement with China Construction Bank which provides for a line of credit arrangement of 10,000,000 Renminbi (RMB) (approximately 1.4 million USD) that expires on September 9, 2025. No amounts were outstanding under this financing arrangement as of December 31, 2024 or 2023.
We are required to quarterly pay a 20-basis point fee on the unused portion of the Revolver. The Revolver requires us 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.
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.
As such, the Company evaluated future undiscounted cash flows and determined that no long-lived asset impairment was required as of December 31, 2023.
As such, the Company evaluated future undiscounted cash flows and determined that no long-lived asset impairment was required as of December 31, 2024. 24 Inventory Valuation Inventory are recorded at the lower of cost or net realizable value for inventory that may have a lower net realizable value than cost or quantities in excess of future production needs.
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. We serve three major markets within the EMS industry: Medical, Aerospace and Defense, and the Industrial market which includes industrial capital equipment, transportation, vision, agriculture, oil and gas.
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 had borrowings on our line of credit of $5.8 million and $6.9 million as of December 31, 2023 and December 31, 2022, respectively. As of December 31, 2023 and 2022, we had unused availability under our line of credit of $9.4 million and $8.4 million, respectively, supported by our borrowing base.
Our line of credit bears interest at a weighted-average interest rate of 7.7% and 8.3% as of December 31, 2024 and 2023, respectively. We had borrowings on our line of credit of $8,695 and $5,846 outstanding as of December 31, 2024 and 2023, respectively. As of December 31, 2024 we had unused availability on the line of credit of $6,305.
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. 27 Credit Facilities We had a $16 million asset backed line of credit agreement with Bank of America which, as amended, was to expire on June 15, 2026.
Our net income in 2023 was $6,874 or $2.38 per diluted and $2.53 per basic common share. 21 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 year from the date of this filing with the Securities and Exchange Commission.
As of December 31, 2022, we had recorded a valuation allowance of $2.6 million that resulted from the establishment of a full valuation allowance against U.S. net deferred tax assets as of that date. In 2023, we recorded a $2.6 million tax benefit as we reversed our valuation allowance against our net U.S. deferred tax assets.
In 2023, we recorded a $2,600 tax benefit as we reversed a previously established valuation allowance against our net U.S. deferred tax assets. During 2024, we concluded that it was more likely than not we would realize our recorded net deferred tax assets.
General and Administrative General and administrative expenses were $12.3 million, or 8.9% of net sales, for the year ended December 31, 2023 and $11.4 million, or 8.5% of net sales, for the year ended 2022.
Net sales for the year ended December 31, 2024 and 2023 were $128,133 and $139,332, respectively, a year over year decrease of $11,199 or 8.0%.
Research and Development Expense Research and development expenses were $1.2 million or 0.9% of net sales for the year ended December 31, 2023 and $1.5 million or 1.1% of net sales for the year ended 2022.
Operating (loss) income for the years ended December 31, 2024 and 2023 were $(195), or (0.2)% of net sales, and as compared with $5,953, or 4.3% of net sales, respectively.
In 2022, the cash provided by operating activities was driven by results from operations. Net cash used in investing activities was $1.3 million for the year ended December 31, 2023 and net cash used in investing activities was $2.4 million for the year ended December 31, 2022.
Net cash used in investing activities was $1,263 for the year ended December 31, 2024 and net cash used in investing activities was $1,284 for the year ended December 31, 2023. Cash used in investing activities in both years primarily relates to the purchase of property and equipment.
Removed
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. 22 Operating Results The following table presents our statements of income data in dollars and as a percentage of total net sales for the years indicated (dollars in millions): 2023 2022 $ % $ % Net Sales 139.3 100.0 134.1 100.0 Cost of Goods Sold 116.2 83.4 113.6 84.7 Gross Profit 23.1 16.6 20.5 15.3 Selling Expenses 3.6 2.6 3.7 2.8 General and Administrative Expenses 12.3 8.9 11.4 8.5 Research and Development Expenses 1.2 0.9 1.5 1.1 Income from Operations 6.0 4.2 3.9 2.9 Interest Expense (0.5 ) (0.3 ) (0.4 ) (0.3 ) Income Before Income Taxes 5.5 3.9 3.5 2.6 Income Tax (Benefit) Expense (1.4 ) (1.0 ) 1.5 1.1 Net Income 6.9 4.9 2.0 1.5 Net Sales Our net sales in 2023 were $139.3 million, compared with $134.1 million in 2022, an increase of $5.2 million or 3.9%, that was driven by increases in all of our markets.
Added
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. 19 Operating Results Net Sales.
Removed
The industrial market increased by $1.4 million or 3.6% in 2023 as compared with 2022. The medical market increased year-over-year by $2.8 million or 3.7% with medical devices accounting for the increase. Net sales from the aerospace and defense markets increased by $1.0 million or 5.1% in 2023 as compared with 2022.
Added
The following is a summary of net sales by our major industry markets: Year Ended December 31, 2024 2023 Increase (Decrease) Medical Device $ 34,636 $ 38,758 $ (4,122 ) (10.6 )% Medical Imaging 37,492 39,908 (2,416 ) (6.1 )% Industrial 35,517 40,113 (4,596 ) (11.5 )% Aerospace and Defense 20,488 20,553 (65 ) (0.3 )% Total net sales $ 128,133 $ 139,332 $ (11,199 ) (8.0 )% ● Medical Device: Net sales to our Medical Device customers decreased $4,122, or 10.6%, in the year ended December 31, 2024 as compared with the same period in 2023.
Removed
The increase in net sales is due to continued strong demand across our medical, industrial and defense markets, and the impact of pricing actions taken in the second half of 2022 to address increased manufacturing costs. 23 Net sales by our major EMS industry markets for the years ended December 31, 2023 and 2022 were as follows (in millions): % 2023 2022 Change Medical $ 78.7 $ 75.9 3.7 Aerospace and Defense 20.5 19.5 5.1 Industrial 40.1 38.7 3.6 Total Net Sales $ 139.3 $ 134.1 3.9 Net sales by timing of transfer of goods and services are as follows (in millions): Year Ended December 31, 2023 Product/ Service Transferred Over Time Product Transferred at Point in Time Noncash Consideration 1 Total Net Sales by Market Medical $ 60.5 $ 15.8 $ 2.4 $ 78.7 Aerospace and Defense 18.3 1.8 0.4 20.5 Industrial 31.4 7.4 1.3 40.1 Total net sales $ 110.2 $ 25.0 $ 4.1 $ 139.3 Year Ended December 31, 2022 Product/ Service Transferred Over Time Product Transferred at Point in Time Noncash Consideration 1 Total Net Sales by Market Medical $ 51.5 $ 22.3 $ 2.1 $ 75.9 Aerospace and Defense 16.7 1.9 0.9 19.5 Industrial 28.7 8.5 1.5 38.7 Total Net Sales $ 96.9 $ 32.7 $ 4.5 $ 134.1 1 Noncash consideration represents material provided by the customer used in the build of the product. 24 Backlog Our 90-day order backlog as of December 31, 2023 was $35.1 million as compared with $35.9 million at the end of 2022.
Added
The decrease was primarily due to inventory re-balancing with existing customers and timing of customer product launches. ● Medical Imaging: Net sales to our Medical Imaging customers decreased $2,416, or 6.1%, in the year ended December 31, 2024 as compared with the same period in 2023.
Removed
Our total and 90-day order backlog by market has decreased when compared with the prior year. As the supply chain continues to normalize, customer order lead times are reducing and are starting to return to their pre-pandemic ordering practices.
Added
The decrease was primarily due to inventory re-balancing with existing customers, timing of customer product launches and lower average sales prices as we moved several programs to our Monterrey, Mexico facility. ● Industrial: Net sales to our Industrial customers decreased $4,596, or 11.5%, in the year ended December 31, 2024 as compared with the same period in 2023.
Removed
Our 90-day backlog varies each reporting period end due to order size, manufacturing delays, contract terms and conditions and timing from customer delivery schedules and releases. 90-day shipment backlog by our major industry markets are as follows (in millions): 90 Day Backlog as of December 31, % 2023 2022 Change Medical $ 18.1 $ 21.7 (16.6 ) Aerospace and Defense 8.4 5.1 64.7 Industrial 8.6 9.1 (5.5 ) Total Backlog $ 35.1 $ 35.9 (2.2 ) Total order backlog by our major industry markets are as follows (in millions): Total Backlog as of December 31, % 2023 2022 Change Medical $ 47.6 $ 57.1 (16.6 ) Aerospace and Defense 30.2 24.5 23.3 Industrial 13.9 22.5 (38.2 ) Total Backlog $ 91.7 $ 104.1 (11.9 ) The 90-day and total backlog as of December 31, 2023 contain the contract asset value of $14.5 million, which has been recognized as net sales.
Added
The decrease in net sales was primarily due to Industrial customers’ efforts to reduce their inventory investments, delayed program launches with several customers as well as sales headwinds in several markets for which we provide products for these customers. ● Aerospace and Defense: Net sales to our Aerospace and Defense customers decreased $65, or 0.3%, in the year ended December 31, 2024, as compared with the same period in 2023.
Removed
The gross profit improvement relates primarily to price increases in response to material and labor cost inflation. 25 Selling Selling expenses were marginally lower at $3.6 million, or 2.6% of net sales, for the year ended December 31, 2023 compared with $3.7 million, or 2.8% of net sales, for the year ended December 31, 2022.
Added
Growth in this market was negatively impacted by the closure of Blue Earth facility in December 2024 and the movement of these customers programs to our Bemidji facility as well as the timing of customer approvals to approve this move. As a result, fourth quarter net sales in this market decreased from $6,055 in 2023 to $2,609 in 2024. Backlog.
Removed
General and administrative expenses for the year ended December 31, 2023 were up $0.9 million mainly due to higher wages of $0.7 due to merit increases and one-time higher professional fees related to a system implementation of $0.2 million.
Added
Our total order backlog as of December 31, 2024 was $65,852, a 28.2% decrease from December 31, 2023. As the supply chain lead times have normalized, customers are returning to their pre-pandemic ordering practices, which has resulted in a decrease in our backlog.
Removed
Income from Operations Our income from operations for 2023 was $6.0 million, an increase of $2.1 million from the income of $3.9 million in 2022. The increase in income from operations was driven by the increase in gross profit.
Added
We continue to experience reduced visibility to net sales in the next several quarters as customers are rebalancing their inventories and, therefore, deferring the placement of some orders, as well as shortening their order to fulfilment lead teams. 90-day and total shipment backlog by our major industry markets are as follows: December 31, 2024 December 31, 2023 % Change 90 Day Total 90 Day Total 90 Day Total Medical Device $ 6,953 $ 21,706 $ 10,350 $ 34,471 (32.8 )% (37.0 )% Medical Imaging 7,168 10,353 7,757 13,122 (7.6 )% (21.1 )% Industrial 5,173 7,306 8,644 13,857 (40.2 )% (47.3 )% Aerospace and Defense 7,157 26,487 8,416 30,234 (15.0 )% (12.4 )% Total backlog $ 26,451 $ 65,852 $ 35,167 $ 91,684 (24.8 )% (28.2 )% The 90-day and total backlog as of December 31, 2024 includes orders already recognized in net sales and included in the contract asset value of $13,792. 20 Operating Costs and Expenses.
Removed
Interest Expense Interest expense for the year ended December 31, 2023 and December 31, 2022 was $0.5 and $0.4 million, respectively. 26 Income Taxes We realized an income tax benefit of $1.4 million resulting in an effective tax rate of 26% for the year ended December 31, 2023.
Added
Net sales, cost of goods sold, gross profit, and operating costs were as follows: Year Ended December 31, 2024 2023 Increase/(Decrease) Net sales $ 128,133 $ 139,332 $ (11,199 ) (8.0 )% Cost of goods sold 111,411 116,228 (4,817 ) (4.1 )% Gross profit 16,722 23,104 (6,382 ) (27.6 )% Gross margin percentage (1) 13.1 % 16.6 % (353 ) bpc (2) Selling 3,446 3,598 (152 ) (4.2 )% % of Net sales 2.7 % 2.6 % General and administrative 11,709 12,354 (645 ) (5.2 )% % of Net sales 9.1 % 8.9 % Research and development 1,191 1,199 (8 ) (0.7 )% % of Net sales 0.9 % 0.9 % Restructuring charges 571 - 571 - % % of Net sales 0.4 % - % Operating (loss) income (195 ) 5,953 (6,148 ) (103.3 )% % of Net sales (0.2 )% 4.3 % (1) Gross margin percentage is defined as gross profit as a percentage of net sales.
Removed
This benefit was largely driven by the $2.6 million valuation allowance reversal as we concluded it was more likely than not that we will realize our net deferred tax assets. Income tax expense was $1.5 million for the year ended December 31, 2022 with an effective tax rate of 42%.
Added
The decrease in gross profit as a percentage of net sales in 2024 as compared with the same prior-year periods was the result of lower net sales, as discussed above, and corresponding lower operating leverage from reduced production at a number of our manufacturing facilities, as well as incremental costs associated included in costs of goods sold related to the closure of our Blue Earth facility and moving production to our Bemidji facility.
Removed
Our 2022 tax rate was driven by the increase in deferred tax assets and corresponding valuation allowance from research and development expenses which were no longer tax deductible pursuant to the Tax Cuts and Jobs Act which requires the Company to capitalize and amortize research and experimental expenditures for tax return purposes starting in 2022.
Added
Selling expenses. Selling expenses decreased slightly in the year ended December 31, 2024 as compared with 2023 as the result of lower incentive compensation expense in 2024. General and administrative expenses.
Removed
The statutory rate reconciliation for the years ended December 31, 2023 and 2022 is as follows, (in thousands): 2023 2022 Statutory Rate $ 1,148 $ 572 State Income Tax 79 41 Effect of Foreign Operations (124 ) (82 ) Research and Development (316 ) - Change in State Deferred Rate - 29 Valuation Allowance (2,563 ) 587 Maquiladora Tax 158 153 US Permanent Differences (44 ) (28 ) Federal Tax Credits - (272 ) Global Intangible Low-Taxed Income Effect 7 301 Return to Provision - Credits, Perm Diffs (189 ) 9 Withholding Tax 318 122 IRS Payable - 17 Other 118 18 $ (1,408 ) $ 1,467 Net Income Our net income in 2023 was $6.9 million or $2.38 per diluted common share and $2.53 per basic common share.
Added
General and administrative expenses decreased $645, or 5.2% in the year ended December 31, 2024 as compared with the 2023 as the result of lower incentive compensation expense in 2024. Restructuring charges .
Removed
We were in compliance with all the financial covenants related to this agreement as of and for the year ended December 31, 2023. On February 29, 2024, we replaced our asset back line of credit agreement with $15 million Senior Secured Revolving Line of Credit with Bank of America (the “Revolver”).
Added
Restructuring charges were $571 in the year ended December 31, 2024 for employee retention bonuses, disposal and moving costs associated with the closure of our Blue Earth facility. Operating (loss) income.
Removed
No amounts were outstanding under this financing arrangement as of December 31, 2023 or 2022.
Added
The decreases were driven by lower in net sales and resulting gross margin, incremental costs associated with the closure of the Blue Earth facility included in costs of sales as well as restructuring expense, offset by lower incentive compensation of $1,643 in 2024 as we did not meet our bonus objectives. Other expense Interest expense.
Removed
In 2023, the cash provided by operating activities was driven by $6.9 million in net income offset by a $2.2 million non-cash tax benefit from the reduction in our valuation allowance, and increased uses of working capital largely from accounts receivable and contract assets due to the increase in net sales and longer payment terms with several customers.
Added
Interest expense was $744 and $487 for the years ended December 31, 2024 and 2023, 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.
Removed
Cash used in investing activities in both years primarily relates to the purchase of property and equipment. Net cash used in financing activities in 2023 of $1.3 million consisted primarily of net payments on the line of credit of $1.0 million and capital lease payments of $0.4 million, partially offset by cash receipts of $0.1 million from stock option exercises.
Added
Our effective tax rates for the years ended December 31, 2024 and 2023 were (37.9)% and 25.8%, respectively. The primary drivers of the change in the effective tax rates relate to changes in pretax book income between the years and the 2023 recording of a $2.6 million tax benefit from the reduction of our valuation allowance for deferred tax assets.
Removed
Allowance for Credit Losses When we record customer receivables and contract assets arising from net sales transactions, we record an allowance for credit losses for the current expected credit losses (“CECL”) inherent in the asset over its expected life.
Added
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.
Removed
The allowance for credit losses is a valuation account deducted from the cost basis of the assets to present their net carrying value at the amount expected to be collected. Each period, the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets.
Added
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.
Removed
We adopted CECL as of January 1, 2023 with a $30 thousand adjustment to retained earnings. As of December 31, 2023, we held an allowance for credit losses of $0.4 million.
Added
On March 27, 2025, we amended (the “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.
Removed
We estimate expected credit losses based on relevant information about past events, including historical write-offs of bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment terms that affect the collectability of the reported amount. When measuring expected credit losses, we pool assets with similar country risk and credit risk characteristics.
Added
Further, the Amendment defers the Company’s compliance with these ratios until the third quarter of 2025 at which time the Company must maintain (a) a leverage ratio of 3.5 times or less in the third quarter of 2025, and 2.5 times or less for each subsequent quarter; and (b) a minimum fixed charge coverage ratio to 1.25 times for the third quarter of 2025 and each quarter thereafter.
Removed
Changes in the relevant information may significantly affect the estimates of expected credit losses. Assets are written off when we determine them to be uncollectible.
Added
The Company must also maintain EBITDA (earnings before interest, taxes depreciation and amortization) as of the end of the second quarter and third quarter of at least $1,600.
Removed
Write-offs are recognized as a deduction from the allowance for credit losses. 30 Inventory Reserves Inventory reserves are maintained for the estimated value of the inventory that may have a lower value than stated or quantities in excess of future production needs. Certain raw material inventories are purchased solely to meet a customer’s unique manufacturing requirements.
Added
In addition, the Amendment requires the Company to maintain unrestricted cash and Revolver availability of at least $2.5 million at each month end in the second quarter of 2025, $2.75 million at month end July 2025 and $3.0 million at the end of August and September 2025.
Removed
During the fourth quarter of 2023 concluded that it was more likely than not it would realize it net deferred tax assets given its recent three-year cumulative losses were insignificant as well as the Company’s forecasted pre-tax income in 2024 and beyond.
Added
The 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.
Added
We have included the Amendment No. 1 to Credit Agreement, Waiver, and Consent as an exhibit 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 Amendment No. 1 to Credit Agreement, Waiver, and Consent.
Added
Under the amended Bank of America credit agreement signed February 29, 2024, the line of credit is subject to variations in the SOFR index rate.
Added
The Company has an interim funding agreement as of December 31, 2024 with a bank related to $345 of deposits made on equipment purchases that will be funded through a finance lease when the equipment is received and operational. As of December 31, we have $345 outstanding on the interim funding agreement for equipment.
Added
The line of credit is shown net of debt issuance costs of $61 and $31 on the consolidated balance sheets as of December 31, 2024 and December 31, 2023, respectively.
Added
In 2024, the cash used in operating activities was driven by the timing of accounts payable payments and the payment of accrued bonus expenses. In 2023, the cash provided by operating activities was driven by net income.

Other NSYS 10-K year-over-year comparisons