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What changed in NORTECH SYSTEMS INC's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of NORTECH SYSTEMS INC's 2024 and 2025 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 2025 report.

+174 added−143 removedSource: 10-K (2026-03-26) vs 10-K (2025-03-31)

Top changes in NORTECH SYSTEMS INC's 2025 10-K

174 paragraphs added · 143 removed · 103 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur 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.
Biggest changeIn 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.
Item 1. Business General Nortech Systems Incorporated, (“the Company”, “we”, “our”) organized in December 1990, is a provider of engineering design and manufacturing solutions for complex electromedical devices, electromechanical systems, assemblies and components headquartered in Maple Grove, Minnesota, a suburb of Minneapolis, Minnesota. We maintain facilities and operations in Minnesota in the United States; Monterrey, Mexico; and Suzhou, China.
Item 1. Business General Nortech Systems Incorporated, (“the Company”, “we”, “our”) organized in 1990, is a provider of engineering design and manufacturing solutions for complex electromedical devices, electromechanical systems, assemblies and components headquartered in Maple Grove, Minnesota, a suburb of Minneapolis, Minnesota. We maintain facilities and operations in Minnesota in the United States; Monterrey, Mexico; and Suzhou, China.
Patents and Licenses Our success depends on our technical expertise, trade secrets, supply chain and manufacturing skills. During the normal course of business, we obtain or develop proprietary product requiring licensing, patent, copyright or trademark protection.
Patents and Licenses Our success depends on our technical expertise, trade secrets, supply chain and manufacturing skills. During the normal course of business, we obtain or develop proprietary products requiring licensing, patent, copyright or trademark protection.
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.
Export sales from our U.S. domestic operations represented 3.3% and 3.4% of net sales for the years ended December 31, 2025 and 2024, respectively.
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.
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 685 full-time and 28 part-time/temporary employees as of December 31, 2025, none which are covered by union agreements.
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.
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.
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.
Of full-time employees, manufacturing personnel, including direct, indirect support and sales functions, comprise 642 employees, while general administrative employees total 43. 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 on product research and development in each of the years ended December 31, 2024 and 2023.
Research and Development We perform research and development (“R&D”) 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 $1,172 and $1,191 on product research and development in the years ended December 31, 2025 and 2024, respectively.
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.
We seek to develop, in partnership with our customers, a commitment to strong supplier partnerships and risk management tools through advanced supply chain solutions. 4 Major Customers One customer individually accounted for 32.2% of net sales for the year ended December 31, 2025 and 27.7% of net sales for the year ended December 31, 2024.
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.
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.
Most of our net sales are derived from products built to the customer’s unique design specifications. Our quality systems and processes are based on ISO standards with all facilities certified to at least one of the following: ISO 9001, ISO 13485 or AS9100. These certifications and registrations provide our customers assurance of our capabilities and proven processes.
Most of our net sales are derived from products built to the customer’s unique design specifications. Our quality systems and processes are based on ISO standards with all facilities certified to at least one of the following: ISO 9001, ISO 13485 or AS9100. Additionally, our facility in Monterrey, Mexico is now certified in AS9100:D.
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.
Monterrey, Mexico has approximately $607 and $687 in long-term assets, and $1,408 and $1,758 of net operating lease assets as of December 31, 2025 and 2024, respectively. Suzhou, China has approximately $953 and $812 in long-term assets, and $375 and $685 of net operating lease assets as of December 31, 2025 and 2024, respectively.
We offer a full range of value-added engineering, technical and manufacturing services and support including project management, designing, testing, prototyping, manufacturing, supply chain management and post-market services.
All dollar amounts herein, excluding incorporated by reference documents, are in thousands of US Dollars. We offer a full range of value-added engineering, technical and manufacturing services and support including project management, designing, testing, prototyping, manufacturing, supply chain management and post-market services.
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.
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 continue to expand our capabilities and footprint to better meet these changing market requirements.
Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections and product field monitoring by the FDA.
Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections and product field monitoring by the FDA. In January 2024, the FDA finalized its transition to the new QMSR, which became effective February 2, 2026.
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.
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. We have also invested in fiber optic technologies to provide a lighter weight, data-driven and environmentally cleaner solution to our customers.
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.
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. We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll, and all corporate finance functions.
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.
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. Our model is focused on value-added customer and supplier-managed inventory solutions and the underlying cost drivers throughout the global supply chain.
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.
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.
Process 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.
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. Substantially all of our operations fall under the Contract Manufacturing segment within the Electronic Manufacturing Services (“EMS”) industry.
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.
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 environmentally efficient equipment and incurring the expenditures we deem necessary for compliance with applicable laws.
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.
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. Our expertise helps our customers save time and money and reduces their risks.
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.
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.
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These certifications and registrations provide our customers assurance of our capabilities and proven processes. Our Milaca operation is a U.S. Food and Drug Administration (“FDA”) registered facility, and our Suzhou operation is National Medical Products Administration certified for class II medical devices.
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We continue to explore opportunities for developing proprietary manufacturing methods or products, particularly in complex wire and cable interconnect technologies. In addition to customer directed R&D, we invest in strategic initiatives to expand our technical capabilities and support long-term growth.
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Our efforts include advancing fiber-optic interconnect technologies, which are becoming increasingly important in the EMS market as customers require higher-speed data transmission, improved signal integrity, and greater bandwidth. These initiatives are designed to strengthen our position in markets rapidly adopting optical solutions, including industrial automation, medical devices, defense communication platforms, and other high reliability connectivity applications.
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The new QMSR incorporates ISO 13485:2016 by reference and replaces most prior Quality System Regulation (“QSR”) requirements, retaining only select U.S.-specific expectations such as labeling and complaint handling.
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As part of this shift, the FDA adopts the ISO defined Medical Device File structure in place of traditional QSR documentation while emphasizing a risk-based approach consistent with ISO 13485 and ISO 14971 principles. We believe our ISO certified facilities position us well for this transition, and we continue to review and enhance our systems to ensure full compliance.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

39 edited+33 added−7 removed97 unchanged
Biggest changeTo 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.
Biggest changeTo 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 R&D efforts are currently funded through investment of cash flow generated from operations, and we incurred R&D expenses of 1,172 and $1,191 in the years ended December 31, 2025 and 2024, respectively.
Although, in general, our contracts with our customers obligate our customers to ultimately purchase inventory ordered to support their forecasts or orders, we generally finance these purchases initially. In addition, suppliers may require us to purchase materials and components in minimum order quantities that may exceed customer requirements.
Although, in general, our contracts with our customers obligate our customers to ultimately purchase inventory ordered to support their forecasts or orders, we generally initially finance these purchases. In addition, suppliers may require us to purchase materials and components in minimum order quantities that may exceed customer requirements.
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.
If a product liability claim results in our being liable, it could have a material adverse effect on our business, financial position and liquidity. 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.
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.
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. 14 An economic downturn or financial market turmoil may depress demand for our products and/or services in all major geographies and markets.
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.
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. 15 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. 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.
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 manufacturing capabilities, product and service pricing, quality, the ability to meet delivery schedules, customer service, value-added engineering, technology solutions and geographic location.
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.
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. 12 Changes in foreign currency translation rates could adversely impact our net sales and earnings.
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.
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. 13 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.
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.
If we are unable to sell such inventory or sell such inventory within a reasonable timeframe, it may adversely affect our operations, financial results and liquidity. 6 Our customers cancel orders, change order quantity, timing and product specifications that if not managed would have an adverse effect on the timing of net sales and inventory carrying costs.
Increased costs of these materials could have an adverse effect on our production costs if we are unable to pass along price increases or reduce the other cost of goods produced through cost improvement initiatives. Fuel and energy cost increases could also adversely affect our freight and operating costs.
Increased costs of these materials, including tariffs, could have an adverse effect on our production costs if we are unable to pass along price increases or reduce the other cost of goods produced through cost improvement initiatives. Fuel and energy cost increases could also adversely affect our freight and operating costs.
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.
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 functional currency of the maquiladora is the U.S. Dollar, we translate the Mexican Pesos financial records into U.S.
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.
It is possible that environmental compliance costs and penalties from new or existing regulations may harm our business, financial condition, and results of operations. 16 Global climate change and related regulations could negatively affect the Company.
We monitor and mitigate our exposure to cybersecurity issues and modify our systems when warranted and we have implemented certain business continuity items, including leveraging our multiple sites for redundancies, as well as backup and restore methods inclusive of off-site, secure hosted and cloud based third-party providers.
We monitor and mitigate our exposure to cybersecurity issues and modify our systems when warranted and we have implemented certain business continuity items, including, to the extent feasible, leveraging our multiple sites for redundancies, as well as backup and restore methods inclusive of off-site, secure hosted and cloud based third-party providers.
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 rely on our information technology systems to effectively manage our operations, administration 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.
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.
New or changing laws, regulations, governmental orders or mandates, 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.
In such situations, we may procure components earlier, which leads to an increase in inventory in the short term and may lead to increased excess or obsolete inventory in the future.
In such situations, we may procure components earlier, which leads to a short-term increase in inventory and may lead to increased excess or obsolete inventory in the future.
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.
The majority of these gains and losses were related to the translation of value added tax receivables denominated in Mexican Pesos into US dollars. 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.
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.
These initiatives have included reducing the size of our workforce, reducing the number of facilities, and changing the location of certain customer part production to different facilities in an effort to align our capacity and infrastructure with current and anticipated customer demand.
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.
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 value-added tax (“VAT”) tax refunds.
In addition, our inventory may be held at a customer’s facility or warehouse, or elsewhere in a location outside of our control, which may increase the risk of loss.
In addition, our inventory is infrequently held at a customer’s facility or warehouse, or elsewhere outside of our control, which may increase the risk of loss.
Developing Company owned technology and products is different than our historical manufacturing business. While we believe that this is an important step to further cultivate relationships with customers and partners, the Company has not historically developed its own technologies or products; rather, it has historically developed and manufactured products designed by our customers.
While we believe that this is an important step to further cultivate relationships with customers and partners, the Company has not historically developed its own technologies or products; rather, it has historically developed and manufactured products designed by our customers.
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.
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, 2025 and 2024, we recorded translation gain of $120 and a translation loss of $137, respectively, in our consolidated statements of operations.
Restructurings could adversely affect us, including a decrease in employee morale, delays encountered in finalizing the scope of, and implementing, the restructurings, failure to achieve targeted cost savings, and failure to meet operational targets and customer requirements due to the restructuring process.
Restructurings could adversely affect us, including a slower than expected more costly transition of customers between facilities, a decrease in employee morale, delays encountered in finalizing the scope of, and implementing, the restructurings, failure to achieve targeted cost savings, and failure to meet operational targets and customer requirements due to the restructuring process.
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.
One customer accounted for at 32.2% of net sales for the year ended December 31, 2025, and 27.7% of net sales for the year ended December 31, 2024. The loss of a substantial portion of net sales to our largest customers could have a material adverse effect on us.
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.
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. Impairment of Our Long-Lived Assets Could Adversely Affect Our Results of Operations and Financial Condition.
Our exposure to financially troubled customers, start-up businesses or suppliers may adversely affect our financial results. We provide manufacturing services to companies and industries that have in the past, and may in the future, experience financial difficulty. Also, we provide services and products to new and high growth companies.
Any such circumstances could materially adversely affect our financial condition, liquidity and results of operations. Our exposure to financially troubled customers, start-up businesses or suppliers may adversely affect our financial results. We provide manufacturing services to companies and industries that have in the past, and may in the future, experience financial difficulty.
Some of our efforts to develop and market new products and technologies fail or fall short of our expectations, or will not be well-received by customers, who may adopt competing technologies. Our investments in new products and technologies are inherently risky and are a departure from historical business operations .
We do not expect all our R&D investments to be successful. Some of our efforts to develop and market new products and technologies fail or fall short of our expectations, or will not be well-received by customers, who may adopt competing technologies.
If our customers experience financial difficulty or lack of funding for operations, we could have difficulty recovering amounts owed to us from these customers, or demand for our services or products from these customers could decline. Additionally, if our suppliers experience financial difficulty, we could have difficulty sourcing supply necessary to fulfill production requirements and meet scheduled shipments.
Also, we provide services and products to new and high growth companies. If our customers experience financial difficulty or lack of funding for operations, we could have difficulty recovering amounts owed to us from these customers, or demand for our services or products from these customers could decline.
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 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 Our growth strategy in general requires capital to support R&D, working capital, capital expenditures, new program launches and other strategic initiatives.
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.
We have made investments in 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. 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.
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 leadership transition that is not effectively managed could adversely affect our business, financial condition, results of operations and cash flows. 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.
We rely on information systems, some of which are managed by third parties, to store, process and transmit confidential information, including financial reporting, inventory management, procurement, invoicing and electronic communications, belonging to our customers, our suppliers, our employees and/or us.
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 We also rely on information systems, some of which are managed by third parties, to store, process and transmit confidential information, including financial reporting, inventory management, procurement, invoicing and electronic communications, belonging to our customers, our suppliers, our employees and/or us.
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.
Department of Defense have implemented cybersecurity controls and processes to adequately protect information that resides on DIB systems and networks. While we achieved CMMC level 2 certification in 2025, if we cannot maintain compliance with these regulations, our agreements with defense contractors and the resulting net sales may be impacted negatively.
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.
Risks Related to our Assets We are dependent on our information technology systems for order, inventory procurement and management, production management, treasury, financial reporting, communications and other functions.
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.
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. The loss of key management or an ineffective transition of leadership could adversely affect our operations and strategic direction.
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.
In recent years, we have undertaken initiatives to restructure our business operations with the intention of improving utilization and realizing cost savings.
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.
In addition, excess and obsolete inventory losses as a result of customer order changes, cancellations, changes to the components required to produce products, and contract termination could have an adverse effect on our operations, financial results and liquidity.
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 credit agreement contains financial and operating covenants with which we must comply.
If we fail to comply with the covenants in the future or if our lender does not agree to waive any future non-compliance, we may be unable to borrow funds and any outstanding indebtedness could become immediately due and payable, which could materially harm our business.
If we fail to comply with the covenants in the future and our lender does not agree to waive or amend such noncompliance, an event of default could occur.
Removed
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.
Added
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. GAAP”) for exposures related to the estimated impact from these possibilities. To reduce the impact of canceled or charged orders, our terms and conditions require customers to purchase excess inventory.
Removed
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.
Added
Our senior leadership team possess significant industry knowledge, operational expertise, strategic vision and relationships with customers, lenders, suppliers and other stakeholders that are important to the operation and growth of our business.
Removed
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.
Added
Although our Board of Directors, the Nominating and Corporate Governance Committee and the Compensation and Talent Committee periodically evaluate succession planning for senior management positions, there can be no assurance that we will be able to effectively manage the transition of responsibilities if one or more of these executives were to depart, retire, become unable to serve, or otherwise be replaced.
Removed
We received a waiver of the Mexican operating expenses event of default from the bank in August 2024.
Added
The loss of any member of senior management could result in disruption to our operations, delays in executing our strategic plans, loss of institutional knowledge, and uncertainty among employees, customers, suppliers or investors.
Removed
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.
Added
In addition, the process of identifying, recruiting, hiring and integrating qualified executive leadership may be time-consuming and costly, and we may not be able to attract and retain suitable candidates with the necessary experience and industry expertise on acceptable terms or within an acceptable timeframe.
Removed
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
Our customers may also change their geographic manufacturing preferences based on factors such as tariffs, supply chain resiliency initiatives, geopolitical developments, regulatory requirements, or proximity to end markets.
Removed
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.
Added
If our manufacturing capabilities do not align with these evolving preferences, we may lose existing programs, be unable to secure new business, or incur costs associated with transferring production between facilities, which could adversely affect our net sales, operating results and cash flows.
Added
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. In particular, our Mexico operations involve significant VAT refund receivables generated from purchasing activities.
Added
The Mexican government has periodically delayed VAT refund processing, and regulatory changes have made the timing and collectability of such refunds increasingly difficult to predict.
Added
We currently have exposure related to past due VAT receivables that remain outstanding beyond statutory processing periods, and future delays or non-collection of these amounts could adversely affect our liquidity, working capital, and operating results. 8 We face risks arising from the restructuring of our operations .
Added
If our information systems fail or experience major interruptions due to physical damage or loss of power or incur disruptions to our information systems, including security breaches, losses of data or outages, cyberattacks and other security issues, it could adversely affect our operations and/or financial results.
Added
If internally generated cash flow and available borrowings are not sufficient, and we are unable to obtain additional financing on acceptable terms or at all, we may be required to delay, scale back or abandon R&D growth initiatives, which could adversely affect our competitiveness, results of operations and long-term prospects.
Added
Our investments in new products and technologies are inherently risky and are a departure from historical business operations . Developing Company owned technology and products is different than our historical manufacturing business.
Added
On March 20, 2026, we entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a revolving credit facility of up to $15,000, subject to a borrowing base based on eligible accounts receivable and inventory, and a $2,200 term loan (the “Associated Facility”).
Added
The Associated Facility includes a sublimit of $1,500 for letters of credit and is secured by substantially all of our assets in the United States of America, and the facility and term loan each mature in March 2029.
Added
Borrowings under the Associated Facility bear interest, at our option, at a defined base rate, or at one-month or three-month Term Secured Overnight Financing Rate (“Term SOFR”), plus 2.00% in the case of revolving credit borrowings and plus 2.25% in the case of the term loan.
Added
The Associated Facility contains customary affirmative and negative covenants that restrict or limit our ability to incur additional indebtedness, create liens, make investments, sell assets, pay dividends or engage in certain transactions without lender consent.
Added
This agreement also requires us to comply with financial covenants, including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the ratio of earnings before interest, tax, depreciation and amortization (“EBITDA”), as defined to exclude certain other non-cash items, and less unfunded capital expenditures, to fixed charges such as interest as well as debt and capital lease principal payments.
Added
Our ability to comply with these covenants depends in part on our ability to generate sufficient EBITDA and operating cash flow. If our EBITDA or cash flows declines due to any factor including as described in these risk factors, we may not remain in compliance with our financial covenants under the Associated Facility.
Added
Upon an event of default, the lender could terminate its commitments to lend, accelerate repayment of outstanding indebtedness, require us to cash collateralize outstanding letters of credit, or exercise remedies against the collateral securing the facility.
Added
Any of these actions could materially and adversely affect our liquidity, financial condition and ability to operate our business. 11 Our future growth depends on our ability to generate and sustain customer bookings. Our future sales growth depends in significant part on our ability to secure customer bookings and program awards from existing and new customers.
Added
Bookings may fluctuate significantly from period to period due to factors such as customer demand, product life cycles, changes in outsourcing strategies by OEMs, competitive pricing pressures, economic conditions, program timing, and customer capital spending decisions.
Added
A significant portion of our bookings may relate to new programs that require engineering support, qualification processes, tooling, or production ramp-up periods before generating meaningful sales. As a result, bookings may not convert into sales within expected timeframes, or at all, and delays in customer program launches or production schedules could adversely affect the timing of sales and operating results.
Added
In addition, our ability to sustain bookings growth depends on our ability to maintain strong customer relationships, demonstrate manufacturing and engineering capabilities, remain price competitive, and successfully bid for new business opportunities.
Added
If we fail to secure sufficient new bookings or if customers delay, cancel, or reduce awarded programs, our future net sales, operating results, EBITDA and cash flows could be adversely affected. Our ability to generate positive EBITDA and operating cash flow may fluctuate and may be insufficient to support our operations, service our debt obligations or satisfy financial covenant requirements.
Added
Our ability to generate EBITDA and operating cash flow depends on numerous factors, many of which are outside of our control, including demand from our customers, pricing pressures, supply chain disruptions, cost inflation, labor availability, and the timing of customer orders and payments.
Added
Our operations also require significant working capital investments, including purchases of raw materials and components, managed inventory programs for customers, and extended inventory holdings to mitigate supply chain disruptions. Additionally, we may experience delays in collecting receivables, including value added tax refunds in Mexico, and may be required to fund inventory purchases in advance of customer demand.
Added
These factors may reduce operating cash flow and limit our ability to convert earnings into operating cash flow. If we are unable to generate sufficient EBITDA or free cash flow, we may face challenges meeting our operating needs, funding capital expenditures, investing in research and development, servicing our indebtedness or complying with the financial covenants in our credit facilities.
Added
Additionally, if our suppliers experience financial difficulty, we could have difficulty sourcing supply necessary to fulfill production requirements and meet scheduled shipments.
Added
We evaluate long-lived assets, primarily property and equipment, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets.
Added
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, 2025, the Company’s common stock was trading at a value less than the Company’s net equity value.
Added
As such, the Company evaluated future undiscounted cash flows and determined that no long-lived asset impairment was required as of December 31, 2025. If the fair value of our other long-lived assets is less than their carrying value, we may be required to record a non-cash impairment charge, which could be material.
Added
Such charges could negatively impact our results of operations, potentially affect our compliance with debt covenants, and reduce the perceived value of our Company. There can be no assurance that future reviews of long-lived assets will not result in impairment charges, particularly in periods of market or economic volatility.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe full Board receives an update on the Company’s risk management process and the risk trends related to cybersecurity at least annually . Our Science and Technology Committee specifically assists the Board in its oversight of risks related to cybersecurity.
Biggest changeThe Audit Committee assists the Board in its oversight of cybersecurity matters and receives cybersecurity updates from management at least quarterly, including updates on the Company’s cybersecurity risk posture, program initiatives, and significant cybersecurity incidents, if any. The full Board receives periodic briefings on cybersecurity risk management.
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. ”
Our cybersecurity controls, including access control, network segmentation, encryption, and data-loss prevention, among others, support our ITAR compliance program and align with our quality systems for regulated manufacturing. For more information regarding the risks we face from cybersecurity threats, please see Item 1A. “Risk Factors.”
Removed
Item 1C. Cybersecurity We recognize the critical importance of maintaining the safety and security of our systems and data and have a process for overseeing and managing cybersecurity and related risks. This process is supported by both management, as well as our Board of Directors and our Science and Technology Committee.
Added
Item 1C. Cybersecurity We recognize the critical importance of maintaining the confidentiality, integrity, and availability of our systems, products, and data. Our cybersecurity risk management program is designed to identify, assess, and manage material risks arising from cybersecurity threats across our U.S. and international operations, including third-party service providers and suppliers.
Removed
The 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 .
Added
The program integrates governance, technical and administrative controls, incident response, training and awareness, and continuous improvement practices that are tailored to our risk profile as a medical device, aerospace & defense, and industrial EMS provider. 17 Risk Identification and Assessment.
Removed
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.
Added
We employ a risk-based approach to identify and assess cybersecurity threats, including threat-intelligence monitoring, vulnerability management, security logging and analytics, and periodic security testing (e.g., penetration tests and tabletop exercises). Cybersecurity risks are recorded in our enterprise risk register with likelihood and impact scoring and are prioritized for remediation based on potential operational, financial, regulatory, and reputational effects.
Removed
We utilize data analytics to detect anomalies and search for cyber threats.
Added
We maintain an incident response plan that defines triage, escalation, containment, recovery, and post-incident review activities.
Removed
We engage third-party consultants or other advisors to assist in assessing, identifying and/or managing cybersecurity threats. ● Third-Party Risk Assessments – We conduct information security assessments before sharing or allowing the hosting of sensitive data in computing environments managed by third parties. ● Training and Awareness – We provide awareness training to our employees to help identify, avoid and mitigate cybersecurity threats.
Added
During incident response, management, including representatives from information technology, legal, and executive leadership, evaluates cybersecurity incidents to determine whether an event is reasonably likely to have a material impact on our business, strategy, financial condition, or results of operations, which informs disclosure decisions under applicable SEC requirements. Integration with Strategy, Operations, and Capital Allocation.
Removed
Our employees with network access participate periodically in required training, including phishing, spear phishing and other security and awareness training. ● Supplier Engagement – We review critical third-party systems at least annually, including the various System and Organizational Controls (“SOC”) reports or perform risk assessments.
Added
Cybersecurity risk considerations are incorporated into strategic planning, new program launches, capital allocation, and supplier selection. We evaluate cybersecurity controls in connection with our quality systems and regulatory commitments (including FDA QMSR/ISO 13485 and AS9100), our participation in defense supply chains, and customer expectations for secure manufacturing and data handling.
Removed
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.
Added
We maintain cybersecurity insurance coverage and periodically reassess limits and retentions in light of market conditions and our evolving risk posture. Third-Party and Supplier Risk Management. We assess cybersecurity risks associated with third-party service providers and critical suppliers through security questionnaires, contractual requirements, and reviews of independent assurance reports (e.g., SOC reports) where available.
Added
Data sharing with vendors and cloud platforms is limited to business need, and we require appropriate controls, including access restrictions, encryption, and incident notification obligations. We periodically reassess third-party risks and adjust controls as necessary . Training and Awareness. Employees with network access participate in periodic training and simulated phishing exercises.
Added
Role-based training is provided to personnel with elevated privileges or access to sensitive data. Awareness materials are refreshed to reflect current threat trends. Governance and Oversight. The Board of Directors oversees enterprise risk management, including cybersecurity risk.
Added
Management’s cybersecurity program is led by the Vice President of Information Technology, who is responsible for day-to-day cybersecurity risk management activities, including policy governance, control implementation, security monitoring, incident response, and vendor risk management, and reports to Chief Executive Officer.
Added
The individual responsible for leading the cybersecurity program has over 10 years of experience in information technology, cybersecurity, and risk management, including experience in regulated manufacturing and defense supply chains, and holds relevant professional certifications. Cross-functional leaders from Operations, Quality/Regulatory, Supply Chain, and Legal participate in cybersecurity governance and incident response activities. Prior Incidents and Program Improvements.
Added
Like many companies, we have experienced cybersecurity incidents in the past. To date, none have had a material impact on our business, financial condition, or results of operations. Lessons learned from past events have informed enhancements to controls, user awareness, logging and monitoring, and incident response processes. 18 Defense Supply Chain and CMMC Compliance. We participate in the U.S.
Added
Department of Defense (“DoD”) supply chain, including handling Federal Contract Information and, for certain programs, Controlled Unclassified Information (CUI). On October 23, 2025, we obtained a Cybersecurity Maturity Model Certification (“CMMC”) Level 2 certification via an authorized C3PAO, applicable to the systems within our assessed boundary that process CUI.
Added
Beginning November 10, 2025, DoD CMMC rule phases in requirements for Level 1 or Level 2 compliance in solicitations, with increasing reliance on third-party assessments over a staged rollout. We maintain the technical and procedural controls necessary for Level 2 and manage ongoing compliance through evidence maintenance, annual affirmations, and timely updates to the Supplier Performance Risk System, as applicable.
Added
Non-compliance could limit our eligibility for certain defense contracts; therefore, we monitor and remediate any issues promptly, including through Plans of Action and Milestones where permitted. ITAR and Other Regulatory Linkages. All U.S. locations supporting defense customers operate in an ITAR-compliant manner.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeThe following are our manufacturing facilities as of December 31, 2025: 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 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, 2027 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

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. 17 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. 19 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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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.
Biggest changeItem 4. Mine Safety Disclosures 19 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 20 Item 6. Selected Financial Data 20 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21-27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed3 unchanged
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.
Biggest changeStock price comparisons (NASDAQ): During the Three Months Ended Low High March 31, 2025 $ 8.50 $ 11.97 June 30, 2025 $ 7.25 $ 12.40 September 30, 2025 $ 7.66 $ 9.97 December 31, 2025 $ 6.50 $ 10.04 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 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 in share repurchases.
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.
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 2025 or 2024.
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”.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities As of March 12, 2026, there were 563 shareholders of record. Our stock is listed on the NASDAQ Capital Market under the symbol “NSYS”.

Item 7. Management's Discussion & Analysis

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

33 edited+18 added−26 removed25 unchanged
Biggest changeWe 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.
Biggest changeThis was driven by increases in customer demand as well as customer shipment timing. 90-day and total shipment backlog by our major industry markets are as follows: December 31, 2025 December 31, 2024 % Change 90 Day Total 90 Day Total 90 Day Total Medical Device $ 8,733 $ 27,094 $ 6,953 $ 21,706 25.6 % 24.8 % Medical Imaging 5,725 9,032 7,168 10,353 (20.1 )% (12.8 )% Industrial 4,697 11,404 5,173 7,306 (9.2 )% 56.1 % Aerospace and Defense 8,133 29,813 7,157 26,487 13.6 % 12.6 % Total backlog $ 27,288 $ 77,343 $ 26,451 $ 65,852 3.2 % 17.4 % The 90-day and total backlog as of December 31, 2025 includes orders already recognized in net sales and included in the contract asset value of $15,184. 22 Operating Costs and Expenses.
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.
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. 21 Operating Results Net Sales.
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.
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, 2025, the Company’s common stock was trading at a value less than the Company’s net equity value.
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.
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, 2025, we have facilities in Minnesota: Bemidji, Mankato, Milaca and Maple Grove.
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.
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, 2025, we had an inventory reserve of $1,853.
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.
As such, the Company evaluated future undiscounted cash flows and determined that no long-lived asset impairment was required as of December 31, 2025. 25 Inventory Valuation Inventory is 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 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.
Our reserve for uncertain tax positions aggregated $110 as of December 31, 2025. 26 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.
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.
We closed our facility in Blue Earth, Minnesota in December 2024 and sold this facility in July 2025. We also have facilities in Monterrey, Mexico and Suzhou, China. Our net sales are derived from complex designed products built to the customers’ specifications. The products we manufacture are engineered and designed products that require sophisticated manufacturing support.
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.
Interest expense was $964 and $744 for the years ended December 31, 2025 and 2024, respectively. This increase was driven by higher borrowings under our line of credit arrangement and an increased interest rate. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements. Income taxes.
All net sales are recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our net sales being recognized over time including goods produced under contract manufacturing agreements and services net sales.
All net sales are recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our net sales being recognized over time including goods produced under contract manufacturing agreements and services net sales, when we have an enforceable right to payment for performance completed to date..
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.
As of December 31, 2025, the Company has recorded a contract asset of $15,184 for unbilled customer net sales included in net sales. Net sales are recorded net of returns, allowances and customer discounts.
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.
Our net loss in 2024 was $1,295 or $0.47 per diluted and basic common share. 23 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.
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 90-day shipment backlog as of December 31, 2025 was $27,288, up 3.2% from December 31, 2024. Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be shipped within 180 days.
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 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 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.
Cash flows for the years ended December 31, 2025 and 2024 are summarized as follows: 2025 2024 Cash flows provided by (used in): Operating activities $ 2,743 $ (2,250 ) Investing activities (157 ) (1,263 ) Financing activities (1,867 ) 2,765 Effect of exchange rate changes on cash 20 (11 ) Net change in cash $ 739 $ (759 ) Cash provided by operating activities for the year ended December 31, 2025 was $2,743, compared with cash used in operating activities of $2,250 for the year ended December 31, 2024.
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.
The decrease was primarily due to inventory re-balancing with existing customers and timing of customer product launches as well as lower productivity as we managed our facility consolidation primarily in the first quarter of 2025. ● Medical Imaging: Net sales to our Medical Imaging customers increased $2,507, or 6.7%, in the year ended December 31, 2025 as compared with the same period in 2024.
(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.
(2) Basis points change in gross margin percentage. Gross profit and gross margins. Gross profit as a percentage of net sales was 15.2% and 13.1% for the years ended December 31, 2025, and 2024, respectively. During the first quarter of 2025, the Company modified the responsibilities and reporting relationships of certain customer-facing managers.
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 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.
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 .
General and administrative expenses decreased $919 or 7.8% in the year ended December 31, 2025 as compared with 2024 as the result of lower incentive compensation accruals in the current year. Restructuring charges. Restructuring charges were $266 and $571 in the years ended December 31, 2025 and 2024, respectively.
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.
The following is a summary of net sales by our major industry markets: Year Ended December 31, 2025 2024 Increase (Decrease) Medical Device $ 31,930 $ 34,636 $ (2,706 ) (7.8 )% Medical Imaging 39,999 37,492 2,507 6.7 % Industrial 30,940 35,517 (4,577 ) (12.9 )% Aerospace and Defense 15,496 20,488 (4,992 ) (24.4 )% Total net sales $ 118,365 $ 128,133 $ (9,768 ) (7.6 )% ● Medical Device: Net sales to our Medical Device customers decreased $2,706, or 7.8%, in the year ended December 31, 2025 as compared with the same period in 2024.
We utilize a pipeline generated by our sales team and speak directly with all departments regarding estimates and assumptions.
We utilize a pipeline generated by our sales team and speak directly with all departments regarding estimates and assumptions. If, for any reason, those estimates, and assumptions vary substantially it would also impact our financial results.
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%.
Net sales for the year ended December 31, 2025 and 2024 were $118,365 and $128,133, respectively, a year over year decrease of $9,768 or 7.6%.
The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income or tax liability in either the carryback or carry-forward periods under the tax law.
During 2025 and 2024, we concluded that it was more likely than not we would realize our recorded net deferred tax assets. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income or tax liability in either the carryback or carry-forward periods under the tax law.
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.
Net sales, cost of goods sold, gross profit, and operating costs were as follows: Year Ended December 31, 2025 2024 Increase/(Decrease) Net sales $ 118,365 $ 128,133 $ (9,768 ) (7.6 )% Cost of goods sold 100,359 111,411 (11,052 ) (9.9 )% Gross profit 18,006 16,722 1,284 7.7 % Gross margin percentage (1) 15.2 % 13.1 % 210 bpc (2) Selling 4,803 3,446 1,357 39.4 % % of Net sales 4.1 % 2.7 % General and administrative 10,790 11,709 (919 ) (7.8 )% % of Net sales 9.1 % 9.1 % Research and development 1,172 1,191 (19 ) (1.6 )% % of Net sales 1.0 % 0.9 % Restructuring charges 266 571 (305 ) (53.4 )% % of Net sales 0.2 % 0.4 % Operating income (loss) 975 (195 ) 1,170 (600 )% % of Net sales 0.8 % (0.2 )% (1) Gross margin percentage is defined as gross profit as a percentage of net sales.
Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold. Long-Lived Assets Impairment We evaluate long-lived assets, primarily property and equipment, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.
Long-Lived Assets Impairment We evaluate long-lived assets, primarily property and equipment, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets.
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.
In 2024, cash used in operating activities reflected the timing of accounts payable payments and the payment of accrued bonus expenses. 24 Net cash used in investing activities was $157 and $1,263 for the years ended December 31, 2025 and 2024, respectively.
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.
Cash used in investing activities in both years primarily relates to the purchase of property and equipment, partially offset in the year ended December 31, 2025 by proceeds from the sale of the Blue Earth property and equipment. Net cash used in financing activities in 2025 of $1,867 consisted primarily of net payments on the line of credit.
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.
The decrease in net sales was primarily due to customer order delays and part shortages. ● Aerospace and Defense: Net sales to our Aerospace and Defense customers decreased $4,992, or 24.4%, in the year ended December 31, 2025, as compared with the same period in 2024.
Net (Loss) Income. Our net loss in 2024 was $1,295 or $0.47 per diluted and basic common share.
The primary drivers of the change in the effective tax rates relate to changes in pretax book income between the years. Net Loss. Our net loss in 2025 was $252 or $0.09 per diluted and basic common share.
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.
The increase was primarily due to higher sales volume to existing customers driven by new program awards. ● Industrial: Net sales to our Industrial customers decreased $4,577, or 12.9%, in the year ended December 31, 2025 as compared with the same period in 2024.
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.
Operating income was $975 for the year ended December 31, 2025, or 0.8% of net sales, and operating loss was $195, or 0.2% of net sales, for the year ended December 31, 2024. This increase was driven by the improved gross margin and lower incentive compensation expense. Interest expense.
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.
Our effective tax rates for the years ended December 31, 2025 and 2024 were (2,391)% and (37.9)%, respectively.
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.
During 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted net sales and $31 of expenses related to our closed Blue Earth facility. During 2024, we incurred employee retention bonuses for our facility consolidation and closure of our Blue Earth facility. Operating income (loss).
Removed
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.
Added
The decrease in net sales relates to delays in customer approvals as we have consolidated this business into our Bemidji facility and higher pre shipment over time revenue in 2024 due from increased production in anticipation of the closure of the Blue Earth facility. Backlog.
Removed
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.
Added
Our total order backlog as of December 31, 2025 was $77,343, a 17.4% increase from December 31, 2024.
Removed
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.
Added
As a result of these organizational changes, which were previously classified as cost of sales totaling $1,170 in 2024, are now reported as selling expenses to better reflect the nature of the activities performed.
Removed
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.
Added
In addition, gross profit increased as a percentage of net sales in the comparison period as a result of improved plant utilization primarily from our restructuring activities and favorable sales mix. Selling expenses. Selling expenses, as measured as a percentage of net sales, were 4.1% and 2.7% for the year ended December 31, 2025 and 2024, respectively.
Removed
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.
Added
In 2025, we realigned the reporting structure of our customer facing managers from plant operations to business development. As a result, the year-over-year percentage increase is a result of this realignment from cost of sales as well as the impact of fixed costs on a lower revenue base. General and administrative expenses.
Removed
Credit 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.
Added
The unusually large negative rate in 2025 is primarily driven by the very small amount of pretax book income for the year, which causes normal permanent differences and valuation allowance adjustments to produce a disproportionately large impact on the calculated effective tax rate.
Removed
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.
Added
Effective as of February 29, 2024, we entered into a credit agreement with Bank of America (the “BOA Revolver”.) This BOA Revolver contained financial and operating covenants based on our earnings and related cash flows.
Removed
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.
Added
Compliance with these covenants was dependent on our financial results, which are subject to fluctuation as described in the Risk Factors section of this annual report on Form 10-K.
Removed
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.
Added
As of a result of our restructuring activities in 2024 and early 2025, including the costs incurred to move hundreds of customer production parts between plants, as well as addressing post covid customer pricing headwinds, and reductions in our customer orders, we did not generate sufficient earnings and cash flows to meet certain financial covenants and required multiple amendments and default waivers under the BOA Revolver.
Removed
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.
Added
On March 20, 2026, we entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a revolving credit facility of up to $15.0 million, subject to a borrowing base based on eligible accounts receivable and inventory, and a $2.2 million term loan (the “Associated Facility”).
Removed
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.
Added
The Associated Facility includes a sublimit of $1.5 million for letters of credit and is secured by substantially all of our assets in the United States of America, and the Associated Facility matures in March 2029.
Removed
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.
Added
The Associated Facility contains customary affirmative and negative covenants that restrict or limit our ability to incur additional indebtedness, create liens, make investments, sell assets, pay dividends or engage in certain transactions without lender consent.
Removed
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.
Added
This agreement also requires us to comply with financial covenants, including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the ratio of earnings before interest, tax, depreciation and amortization (“EBITDA”), as defined to exclude certain other non-cash items, and less unfunded capital expenditures, to fixed charges such as interest as well as debt and capital lease principal payments.
Removed
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.
Added
The Associated Facility agreement includes broad and customary events of default such as non-payment of obligations, breaches of representations or covenants, unauthorized liens, insolvency events, material adverse changes, cross-defaults to other significant indebtedness, and change-of-control triggers.
Removed
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
Additional events include unsatisfied judgments, loss of lender lien priority, defaults under material business agreements, impairment of key intellectual property, destruction of collateral, and certain ERISA, hedging, or legal compliance violations.
Removed
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
Upon an event of default, including the lender’s determination that a material adverse event has occurred, as defined by the agreement, the lender may accelerate all obligations, terminate the commitments, and exercise its full rights and remedies against the collateral.
Removed
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
Our ability to comply with these covenants depends in part on our ability to generate sufficient EBITDA and operating cash flow. If our EBITDA or cash flows declines due to any factor including as described in these risk factors, we may not remain in compliance with our financial covenants under the Associated Facility.
Removed
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.
Added
In 2025, operating cash flow was driven by significant non-cash add-backs as well as favorable working-capital movements, as increases in accounts receivable and contract assets were more than offset by a decrease in prepaid expenses and an increase in accounts payable due to timing of payments.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets.
Removed
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.
Removed
Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record additional adjustments to the valuation allowance in future reporting periods that could have a material effect on our results of operations.

Other NSYS 10-K year-over-year comparisons