What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-07 compared with 2024-11-12 · 137 added, 95 removed, 381 unchanged (38% of the section changed)

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Executive Summary

During the first quarter of fiscal year 2025, we won new programs involving manufacturing production equipment, vehicle lighting, and commercial pest control.

During the second quarter of fiscal year 2025, we won new programs involving aerospace systems and energy resilience technology products.

We also completed the financing of our asset-based revolving credit facility that was set to mature on December 3, 2025 with a new asset-based revolving credit facility and term loan facility that extends the maturity of our long-term debt to December 3, 2029 and expect it to lower our cash interest expense throughout the term of the agreements.

We reported net sales of $113.9 million, down 23.0 percent from $147.8 million in the same period of fiscal year 2024 .

Net sales in the first quarter was adversely impacted by design and qualification delays of three programs at our U.S.

production sites, of which two of these have subsequently been resolved and shipments have resumed in the second quarter.

However, production revenue increased in the first quarter sequentially in our Mexico facility.

Gross margin improved to 10.1 percent in the first quarter of fiscal year 2025, compared to 7.2 percent in the same period of the prior fiscal year.

The increase in gross margin is primarily due to benefits from recent restructuring and a weakening of the Mexican Peso.

The concentration of our top three customers’ net sales increased to 37.5 percent of total sales in the first quarter of fiscal year 2025 from 29.9 percent in the same period of the prior fiscal year.

Net sales in the second quarter were adversely impacted by unexpected component shortages, lower-than-expected production during the holiday season, and reduced demand from certain customers which together lowered revenue by approximately $15 million for the quarter.

Gross margin decreased to 6.8 percent in the second quarter of fiscal year 2025, compared to 8.0 percent in the same period of the prior fiscal year.

The decrease in gross margin is primarily due to decreases in net sales as discussed above without corresponding decreases in fixed manufacturing costs incurred in our operations.

The concentration of our top three customers’ net sales increased to 41.8 percent of total sales in the second quarter of fiscal year 2025 from 31.1 percent in the same period of the prior fiscal year.

As new customer programs ramp, we expect that concentration to our top three customers will decrease.

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In addition, our capacity and core competencies for printed circuit board assemblies, precision molding, sheet metal fabrication, tool making, assembly, and engineering can be applied to a wide variety of products.

Gross profit as a percent of net sales was 10.1 percent for the first quarter of fiscal year 2025 as compared to 7.2 percent for the same quarter of the prior fiscal year.

Operating income (loss) as a percentage of net sales similarly increased over the same period from 2.2 percent to 3.4 percent in the first quarter of fiscal year 2025.

Net income for the first quarter of fiscal year 2025 was $1.1 million or $0.10 per diluted share, as compared to net income of $0.3 million or $0.03 per diluted share for the first quarter of fiscal year 2024.

The year-over-year increase in earnings was a result of the factors discussed above, primarily operating efficiencies realized along with the weakening of the Mexican Peso.

Moving into the second quarter of fiscal year 2025, while we continue to see a favorable trend of contract manufacturing returning to North America, and continued increases in Mexican wages, particularly along the US-Mexico border, have reduced the competitive advantage of Mexico-based manufacturing compared to U.S.-based manufacturing.

In response to this sustained trend, the Company is restructuring its Juarez facility to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our other sites.

The Company has begun, and will continue to realize payroll expense reductions as a result of the severance charges connected to this restructuring.

Additionally, global logistics problems, the wars in Europe, and China-U.S.

geopolitical tensions may continue to drive OEMs to examine their traditional outsourcing strategies.

Gross profit as a percent of net sales was 6.8 percent for the second quarter of fiscal year 2025 as compared to 8.0 percent for the same quarter of the prior fiscal year.

Operating income (loss) as a percentage of net sales similarly decreased over the same period from 2.7 percent to (1.0) percent in the second quarter of fiscal year 2025.

Net loss for the second quarter of fiscal year 2025 was $4.9 million or $0.46 per diluted share, as compared to net income of $1.1 million or $0.10 per diluted share for the second quarter of fiscal year 2024.

The year-over-year decrease in earnings was a result of the factors discussed above, primarily softening demand combined with the write-off of unamortized deferred loan fees in connection with refinancing debt with a new lender.

Moving into the third quarter of fiscal year 2025, while we continue to see a favorable trend of contract manufacturing returning to North America, continued increases in Mexican wages, particularly along the US-Mexico border, and potential tariffs, have reduced the competitive advantage of Mexico-based manufacturing compared to U.S.-based manufacturing.

In response to this sustained and ongoing trend, the Company is restructuring its Juarez facility to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our other sites.

This restructuring resulted in a significant headcount reduction starting in the third quarter of fiscal year 2024, and will continue with further headcount reductions in the third quarter of fiscal year 2025.

Additionally, global logistics problems, the wars in Europe, China-U.S.

geopolitical tensions and related tariff increases may continue to drive OEMs to examine their traditional outsourcing strategies.

We believe these customers increasingly realize they have become overly dependent on their China-based contract manufacturers not only for products, but also for design and logistics services.

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As a result, we see opportunities for continued growth.

In addition, the headwinds from the global supply chain continue to present uncertainty and multiple business challenges but do show some signs of gradually abating, particularly with respect to the recent price stabilization for some commodity components.

At the same time, these price reductions are offset by increasing wages at our North American facilities.

In the second quarter of fiscal year 2025, the Company sees a continuing of the Mexico Peso weakening relative to the U.S.

In the third quarter of fiscal year 2025, the Company expects a continued weakening of the Mexican Peso relative to the U.S.

dollar, which may translate into improving conditions moving forward.

We maintain a strong balance sheet with a current ratio of 2.6 and a debt-to-equity ratio of 0.9 as of September 28, 2024.

Total cash provided by operating activities as defined on our cash flow statement was $9.9 million for the three months ended September 28, 2024.

We believe we maintain sufficient liquidity for our expected future operations and had $101.5 million in borrowings under our asset-based revolving credit facility with $18.5 million remaining available.

We maintain a strong balance sheet with a current ratio of 2.8 and a debt-to-equity ratio of 0.9 as of December 28, 2024.

Total cash provided by operating activities as defined on our cash flow statement was $11.5 million for the six months ended December 28, 2024.

We believe we maintain sufficient liquidity for our expected future operations and had $75.6 million in borrowings under our asset-based revolving credit facility with $18.1 million remaining available and $4.2 million of cash on hand.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 28, 2024 with the Three Months Ended September 30, 2023

Comparison of the Three Months Ended December 28, 2024 with the Three Months Ended December 30, 2023

The financial information and discussion below should be read in conjunction with the Consolidated Financial Statements and Notes.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the three months ended December 28, 2024 as compared to the three months ended December 30, 2023.

It is provided to assist in assessing differences in our overall performance (in thousands):

Three Months Ended

September 28, 2024 % of

net sales September 30, 2023 % of

December 28, 2024 % of

net sales December 30, 2023 % of

net sales $ change % point

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Selling, general and administrative 6,507 5.7 % 6,057 4.1 % 450 1.6 %

Total operating expenses 8,827 7.7 % 7,815 5.3 % 1,012 2.4 %

Operating income (1,121) (1.0) % 3,948 2.7 % (5,069) (3.7) %

Interest expense, net 3,904 3.4 % 2,961 2.0 % 943 1.4 %

Income (loss) before income taxes (5,025) (4.4) % 987 0.7 % (6,012) (5.1) %

Income tax provision (benefit) (111) (0.1) % (97) (0.1) % (14) — %

Net (loss) income $ (4,914) (4.3) % $ 1,084 0.7 % $ (5,998) (5.0) %

Effective income tax rate 2.2 % (9.8) %

Net sales of $113.9 million for the second quarter of fiscal year 2025 decreased by 23.0 percent as compared to net sales of $147.8 million for the second quarter of fiscal year 2024.

The $34.0 million decrease was due to unexpected component shortages, lower-than-expected production during the holiday season, and reduced demand from certain customers which together lowered revenue by approximately $15 million for the quarter.

Additionally, the results are due to the softening of demand from certain long-standing programs, which has caused decreases in backlog throughout fiscal year 2024 and the early part of fiscal year 2025.

Gross profit as a percentage of net sales for the three months ended December 28, 2024 was 6.8 percent compared to 8.0 percent for the three months ended December 30, 2023.

The decrease in gross margin is primarily due to decreases in net sales as discussed above without corresponding decreases in the fixed charges incurred in our operations.

The level of gross margin is additionally impacted by facility utilization, product mix, timing, severity and steepness of new program ramps, pricing within the electronics industry and material costs, which can fluctuate significantly from quarter to quarter.

Included in gross profit are charges related to reductions in the carrying value of our inventory due to obsolescence.

We did not record any significant impairment for obsolete inventory during the three months ended December 28, 2024 or December 30, 2023.

We adjust the carrying value for estimated obsolescence as necessary in an amount equal to the difference between the cost of inventory and its net realizable value based on assumptions as to future demand and market conditions.

The provisions are established for inventory that we have determined customers are not contractually responsible for and also inventory that we believe customers will be unable to purchase.

Operating Expenses

There were no significant changes to operating expenses during the second quarter of fiscal year 2025.

Total research, development, and engineering (“RD&E”) expenses were $2.3 million during the three months ended December 28, 2024 and $1.8 million during the three months ended December 30, 2023, respectively.

Total RD&E expenses as a percent of net sales were 2.0 percent during the three months ended December 28, 2024 and 1.2 percent during the three months ended December 30, 2023.

The increase largely relates to reversals of accrued compensation balances in the prior period.

Total selling, general and administrative (“SG&A”) expenses were $6.5 million during the three months ended December 28, 2024 compared to $6.1 million for the three months ended December 30, 2023.

Total SG&A expenses as a percentage of net sales were 5.7 percent for the three months ended December 28, 2024 and 4.1 percent for the three months ended December 30, 2023.

These increases are attributable to increases in third party professional services, provision for credit losses, and indirect labor.

Interest expense was $3.9 million during the three months ended December 28, 2024 and $3.0 million during the three months ended December 30, 2023.

This increase is largely attributable to the write-off of approximately $1.0 million of unamortized loan fees related to refinancing our debt with a new lender, as described in Note 4 of the “Notes to Consolidated Financial Statements.” In connection with this refinancing, we expect our interest charges to decrease in future periods as a result of refinancing our line of credit with a new lender.

The effective tax rate for the three months ended December 28, 2024 was 2.2 percent compared to (9.8) percent for the three months ended December 30, 2023.

The increase was primarily due to federal research and development tax credits and permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period.

Our judgments regarding deferred tax assets and liabilities may change due to changes in market conditions, changes in estimates, changes in tax laws or other factors.

If assumptions and estimates change in the future, the deferred tax assets and liability will be adjusted accordingly and any increase or decrease will result in an additional deferred income tax expense or benefit in subsequent periods.

Comparison of the Six Months Ended December 28, 2024 with the Six Months Ended December 30, 2023

The financial information and discussion below should be read in conjunction with the Consolidated Financial Statements and Notes.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the six months ended December 28, 2024 as compared to the six months ended December 30, 2023.

It is provided to assist in assessing differences in our overall performance (in thousands):

Six Months Ended

December 28, 2024 % of

net sales December 30, 2023 % of

net sales $ change % point

Net sales $ 245,411 100.0 % $ 297,959 100.0 % $ (52,548) — %

Cost of sales 224,402 91.4 % 275,334 92.4 % (50,932) (1.0) %

Gross profit 21,009 8.6 % 22,625 7.6 % (1,616) 1.0 %

Research, development and engineering 4,609 1.9 % 3,999 1.3 % 610 0.6 %

Selling, general and administrative 13,077 5.3 % 11,841 4.0 % 1,236 1.3 %

Gain on insurance proceeds, net of losses — — % (431) — % 431 — %

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Interest expense, net 7,167 2.9 % 5,972 2.0 % 1,195 0.9 %

Income before income taxes 1,181 0.9 % 257 0.2 % 924 0.7 %

Income (loss) before income taxes (3,844) (1.6) % 1,244 0.4 % (5,088) (2.0) %

Income tax provision (benefit) (54) — % (175) (0.1) % 121 0.1 %

Net income $ 1,124 0.9 % $ 335 0.2 % $ 789 0.7 %

Net (loss) income $ (3,790) (1.5) % $ 1,419 0.5 % $ (5,209) (2.0) %

Effective income tax rate 1.4 % (14.1) %

Net sales of $131.6 million for the first quarter of fiscal year 2025 decreased by 12.4 percent as compared to net sales of $150.1 million for the first quarter of fiscal year 2024.

The $18.6 million decrease in net sales from the prior year period was partially due to design and qualification delays of three programs at our U.S.

production sites.

Two of these programs have subsequently been resolved and shipments have resumed in the second quarter.

We believe this impacted net sales by approximately $9 million.

Additionally, the results are due to the softening of demand from certain long-standing programs, which caused decreases in backlog throughout fiscal year 2024.

Gross profit as a percentage of net sales for the three months ended September 28, 2024 was 10.1 percent compared to 7.2 percent for the three months ended September 30, 2023.

These results were largely due to benefits from recent restructuring and a weakening of the Mexican Peso.

Net sales of $245.4 million for the six months ended December 28, 2024 decreased by 17.6 percent as compared to net sales of $298.0 million for the six months ended December 30, 2023.

The $52.5 million decrease is due to unexpected component shortages, lower-than-expected production during the holiday season, and reduced demand from certain customers which together lowered revenue by approximately $15 million for the second quarter.

Additionally, the results are due to the softening of demand from certain long-standing programs, which caused decreases in backlog throughout fiscal year 2024 and the early part of fiscal year 2025.

Additionally, excess inventory and scrap sales decreased significantly during the first two quarters of 2025 as certain large programs went end of life in 2024 and their final shipments of product, inventory, and any scrap were recorded at that time.

Gross profit as a percentage of net sales for the six months ended December 28, 2024 was 8.6 percent compared to 7.6 percent for the six months ended December 30, 2023.

These results were largely due to benefits realized from restructuring in the third quarter of fiscal year 2024 and a weakening of the Mexican Peso.

Included in gross profit are charges related to reductions in the carrying value of our inventory due to obsolescence.

We recorded an impairment of approximately $296,000 and $265,000 for obsolete inventory during the three months ended September 28, 2024 and September 30, 2023, respectively.

We did not record any significant impairment for obsolete inventory during the six months ended December 28, 2024 or December 30, 2023.

The provisions are established for inventory that we have determined customers are not contractually responsible for and for inventory that we believe customers will be unable to purchase.

The provisions are established for inventory that we have determined customers are not contractually responsible for and also inventory that we believe customers will be unable to purchase.

Operating Expenses

There were no significant changes to operating expenses during the first quarter of fiscal year 2025.

T otal research, development, and engineering (“RD&E”) expenses were $2.3 million during the three months ended September 28, 2024 and $2.2 million during the three months ended September 30, 2023, respectively.

Total RD&E expenses as a percent of net sales were 1.7 percent during the three months ended September 28, 2024 and 1.5 percent during the three months ended September 30, 2023.

Total selling, general and administrative (“SG&A”) expenses were $6.6 million during the three months ended September 28, 2024 compared to $5.8 million for the three months ended September 30, 2023.

Total SG&A expenses as a percentage of net sales were 5.0 percent for the three months ended September 28, 2024 and 3.9 percent for the three months ended September 30, 2023.

There were no significant changes to operating expenses during the first six months of fiscal year 2025 .

T otal research, development, and engineering (“RD&E”) expenses were $4.6 million during the six months ended December 28, 2024 and $4.0 million during the six months ended December 30, 2023, respectively.

Total RD&E expenses as a percent of net sales were 1.9 percent during the six months ended December 28, 2024 and 1.3 percent during the six months ended December 30, 2023.

The increase largely relates to reversals of accrued compensation balances in the prior period.

Total selling, general and administrative (“SG&A”) expenses were $13.1 million during the six months ended December 28, 2024 compared to $11.8 million for the six months ended December 30, 2023.

Total SG&A expenses as a percentage of net sales were 5.3 percent for the six months ended December 28, 2024 and 4.0 percent for the six months ended December 30, 2023.

These increases are attributable to increases in third party professional services, provision for credit losses, and indirect labor.

There were no significant changes to interest expenses in the first quarter of fiscal year 2025 as compared to the same period in fiscal year 2024.

Interest expense was $3.3 million during the three months ended September 28, 2024 and $3.0 million during the three months ended September 30, 2023.

The effective tax rate for the three months ended September 28, 2024 was 4.8 percent compared to (30.4) percent for the three months ended September 30, 2023.

Interest expense was $7.17 million during the six months ended December 28, 2024 and $5.97 million during the six months ended December 30, 2023.

This increase is largely attributable to the write-off of approximately $1.0 million of unamortized loan fees related to refinancing our debt with a new lender in the second quarter of fiscal year 2025.

In connection with this refinancing, we expect our interest charges to decrease in future periods.

The effective tax rate for the six months ended December 28, 2024 was 1.4 percent compared to (14.1) percent for the six months ended December 30, 2023 .

The increase was primarily due to federal research and development tax credits and permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period.

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See the table below for reconciliations of adjusted net income to the most directly comparable GAAP measure, which is GAAP net income, and the computation of adjusted net income per share, diluted.

Three Months Ended

(in thousands, except per share amounts) September 28, 2024 September 30, 2023

Three Months Ended Six Months Ended

(in thousands, except per share amounts) December 28, 2024 December 30, 2023 December 28, 2024 December 30, 2023

GAAP net income (loss) $ (4,914) $ 1,084 $ (3,790) $ 1,419

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Stock-based compensation expense 16 53 83 112

Write-off of unamortized loan fees 1,012 — 1,012 —

Income tax effect of non-GAAP adjustments (1) (206) (11) (219) 64

Adjusted net income (loss):

$ (4,092) $ 1,126 $ (2,914) $ 1,164

Adjusted net income (loss) per share — non-GAAP Diluted $ (0.38) $ 0.10 $ (0.27) $ 0.11

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(1) Income tax effects are calculated using an effective tax rate of 20%, which approximates the effective statutory tax rate for the presented periods.

On September 28, 2024, we had an order backlog of approximately $210.8 million.

This compares with a backlog of approximately $319.8 million on September 30, 2023.

The decrease in order backlog is related to some softening on demand for a number of our Mexico-based programs, partially offset by an increase in demand for our U.S.

On December 28, 2024, we had an order backlog of approximately $162.5 million.

This compares with a backlog of approximately $264.1 million on December 30, 2023.

The decrease in order backlog is related to softening of demand for a number of our Mexico-based programs, partially offset by an increase in demand for our U.S.

based facilities.

We expect backlog to increase in the coming periods due to recent sizeable program wins.

Order backlog consists of purchase orders received for products expected to be shipped within the next 12 months, although shipment dates are subject to change due to design modifications or changes in other customer requirements.

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Operating Cash Flow

Net cash provided by operating activities for the three months ended September 28, 2024 was $9.9 million.

Net cash provided by operating activities was $5.6 million for the three months ended September 30, 2023.

The $9.9 million of net cash provided by operating activities for the three months ended September 28, 2024 was primarily related to $1.1 million in net income for the period adjusted for $3.0 million of depreciation and amortization, a $9.0 million decrease in inventory, a $0.4 million increase in accrued compensation and vacation, a $4.4 million increase in accounts payable, and a $2.2 million increase in other liabilities partially offset by a $1.6 million increase in accounts receivable, a $2.4 million increase in contract assets, and a $6.7 million increase in other assets.

The $5.6 million of net cash provided by operating activities for the three months ended September 30, 2023 was primarily related to $0.3 million in net income for the period adjusted for $2.8 million of depreciation and amortization, a $10.9 million decrease in inventory, a $9.2 million decrease in accounts receivable, and a $1.4 million decrease in other assets, partially offset by a $14.3 million decrease in accounts payable, a 1.0 million decrease in other liabilities, a $1.5 million decrease in accrued compensation and vacation, and a $3.0 million increase in contract assets.

Net cash provided by operating activities for the six months ended December 28, 2024 was $11.5 million.

Net cash provided by operating activities was $9.1 million for the six months ended December 30, 2023.

The $11.5 million of net cash provided by operating activities for the six months ended December 28, 2024 was primarily related to $3.8 million in net loss for the period adjusted for $5.5 million of depreciation and amortization, a $4.4 million decrease in inventory, a $19.4 million decrease in accounts receivable, a $2.4 million decrease in contract assets and a $1.7 million increase in other liabilities partially offset by a $15.8 million decrease in accounts payable a $3.9 million increase in other assets, and a $0.3 million decrease in accrued compensation and vacation.

The $9.1 million of net cash provided by operating activities for the six months ended December 30, 2023 was primarily related to $1.4 million in net income for the period adjusted for $5.5 million of depreciation and amortization, a $13.8 million decrease in inventory, a $15.7 million decrease in accounts receivable, a $2.2 million decrease in contract assets, a $0.5 million increase in other liabilities, and a $0.4 million decrease in other assets, partially offset by a $24.5 million decrease in accounts payable, and a $3.8 million decrease in accrued compensation and vacation.

Accounts receivable fluctuates based on the timing of shipments, terms offered, and collections that occurred during the quarter.

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Investing Cash Flow

Cash used in investing activities was $0.4 million during the three months ended September 28, 2024 as compared to cash provided by investing activities of $1.7 million during the three months ended September 30, 2023.

Our primary investing activities during the three months ended September 28, 2024 and September 30, 2023, related to purchasing equipment to support increased production levels for new programs, and insurance proceeds related to losses incurred at our Arkansas facility, respectively.

Cash used in investing activities was $0.8 million during the six months ended December 28, 2024 as compared to cash used in investing activities of $0.4 million during the six months ended December 30, 2023.

Our primary investing activities during the six months ended December 28, 2024 and December 30, 2023, related to purchasing equipment to support increased production levels for new programs.

Leases are often utilized when potential technical obsolescence and funding requirement advantages outweigh the benefits of equipment ownership.

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Financing Cash Flow

Cash used in financing activities was $7.8 million during the three months ended September 28, 2024 as compared to $7.4 million provided by financing activities in the same period of the previous fiscal year.

Our primary financing activities during the three months ended September 28, 2024 and three months ended September 30, 2023, were borrowings and repayments under our asset-based revolving line of credit facility with Bank of America (the “Loan Agreement”) and term loans.

Cash used in financing activities was $11.2 million during the six months ended December 28, 2024 as compared to $9.4 million used in financing activities in the same period of the previous fiscal year.

Our primary financing activities during the six months ended December 28, 2024, and December 30, 2023, were borrowings and repayments under our asset-based revolving line of credit facility with Bank of Montreal, our Prior Credit Facility with Bank of America, and term loans.

Our cash requirements are affected by the level of current operations and new programs.

As discussed below, we are in discussions with multiple financial institutions to either extend the borrowing capacity or maturity date on our Loan Agreement or to refinance the Loan Agreement in whole.

If we are unable to meet projected operating results or restructure or refinance our Loan Agreement, we may need to delay the purchase of raw materials or require our customers to fund inventory raw material costs ahead of production.

If we are unable to meet projected operating results, we may need to delay the purchase of raw materials or require our customers to fund inventory raw material costs ahead of production.

The Company further notes projected cash from operations from increased demand from certain customers will be partially offset by an anticipated slowdown in collections from other customers and increasing inventory levels in efforts to mitigate supply chain constraint risks.

Other options to increase our liquidity include factoring receivables or leveraging foreign owned assets for additional borrowing capacity.

We believe that projected cash from operations, funds available under the Loan Agreement and Banorte line of credit, and leasing capabilities will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

As of September 28, 2024, approximately $18.5 million was available under the Loan Agreement.

Due to the upcoming maturity of the Loan Agreement on December 3, 2025, we are in discussions with financial institutions to refinance our revolving line of credit.

The terms available to us may be less favorable than the terms of our existing Loan Agreement.

For additional information, see Note 4 - “Long Term Debt” of the Notes to Consolidated Financial Statements to this Quarterly Report on Form 10-Q, and Part II, Item 1A.

Risk Factors “Risks Related to Capital and Financing “⸻Our failure to comply with the covenants in our credit arrangements could materially and adversely affect our financial condition” and “⸻Our ability to secure and maintain sufficient credit arrangements is key to our continued operations .”

As of September 28, 2024, we had approximately $6.6 million of cash held by foreign subsidiaries.

As discussed in Note 4 – “Long Term Debt” of the Notes to the Consolidated Financial Statements, on December 3, 2024, we entered into an asset-based credit agreement with BMO Bank, N.A that provides for an asset-based senior secured revolving credit facility (the "Credit Facility") of up to $115 million, maturing on December 3, 2029.

We also entered into a $28 million term loan (the "Term Loan") credit agreement with Callodine Commercial Finance, LLC.

We believe that projected cash from operations, funds available under the Credit Facility, Term Loan, Banorte line of credit, and leasing capabilities will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

As of December 28, 2024, we had approximately $3.4 million of cash held by foreign subsidiaries.

If cash is to be repatriated in the future from these foreign subsidiaries, the Company would be subject to certain withholding taxes in the foreign jurisdictions.

The total amount of tax payments required for the amount of foreign subsidiary cash on hand as of September 28, 2024 would approximate $9,000.

The total amount of tax payments required for the amount of foreign subsidiary cash on hand as of December 28, 2024 would approximate $26,000.

We have accrued withholding taxes for expected future repatriation of foreign earnings as discussed in Note 5 of the “Notes to Consolidated Financial Statements.”

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We have included a summary of our Contractual Obligations in our annual report on Form 10-K for the fiscal year ended June 29, 2024.

There have been no material changes in contractual obligations outside the ordinary course of business since June 29, 2024 except that the maturity date of the outstanding balance of the asset-based credit facility, which was $ 101.5 million as of September 28, 2024, has moved from fiscal year 2027 to fiscal year 2026.

There have been no material changes in contractual obligations outside the ordinary course of business since June 29, 2024 except as it relates to the refinancing of our line of credit with a new lender, which now matures on December 3, 2029.

See Note 4 - “Long-Term Debt” of the Notes to Consolidated Financial Statements for additional information.

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• our locations may be impacted by future temporary closure related to cyberattacks.

• impact of potential tariffs assessed on countries in which we may manufacture product or from which we may buy components

Our operations in certain foreign locations receive favorable income tax treatment in the form of tax credits or other incentives.

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In addition, any increase in our product prices may reduce our future customer orders and profitability.

Current and future U.S.

trade policy could increase the cost of manufacturing services for our customers, leading them to reduce their orders to us.

Although we maintain significant manufacturing capacity in the U.S., the majority of our manufacturing operations are located outside the U.S (in countries such as China and Mexico).

In the past, the U.S.

has imposed tariffs impacting certain components and products imported from these countries by us into the U.S.

These tariffs apply to both components imported into the U.S.

from these countries for use in the manufacture of products at our U.S.

plants and to certain of our customers’ products that we manufacture for them in these countries and that are then imported into the U.S.

The current U.S.

presidential administration has indicated that a broad increase in tariffs on imported components is possible, and in some cases has been put into effect, which could drive up our prices to customers.

Any decision by a large number of our customers to cease using our manufacturing services due to the application of tariffs could materially reduce our revenue and net income.

TECHNOLOGY RISKS

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We are increasingly dependent on digital technologies and services to conduct our operations.

We use these technologies for internal purposes, including data storage, processing and transmissions, as well as in our interactions with vendors and

We use these technologies for internal purposes, including data storage, processing and transmissions, as well as in our interactions with vendors and customers.

Digital technologies and services are subject to the risk of cybersecurity incidents and some incidents can remain undetected for a period of time.

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We have restrictive covenants with our financial institutions that impact how we manage our business.

We have not always met these covenants in the past and have had to obtain waivers and amend our Loan Agreement, including for events of default related to breaches of the fixed charge coverage ratio for fiscal quarter ended March 30, 2024 and the periods ended June 29, 2024 and July 27, 2024.

The amendment waiving the event of default for fiscal quarter ended March 30, 2024 resulted in an increase in interest rates and shortened the maturity date to September 3, 2025.

In addition, this amendment reduced the minimum requirement for the fixed charge coverage ratio from 1.25:1.00 to 1.00:1.00 as of March 30, 2024, with the minimum requirement to increase as follows:

1.05:1.00 on July 27, 2024, 1.15:1.00 on October 26, 2024, 1.20:1.00 on January 25, 2025 and 1.25:1.00 on and after March 29, 2025.

As noted above, we were unable to meet this ratio for the periods ended June 29, 2024 and July 27, 2024, and we also breached a covenant requiring us to deliver audited financial statements to the lender within 90 days of the Company’s fiscal year-end.

As a result, we had to further amend our Loan Agreement on October 9, 2024.

The amendment waiving these events of default resulted in an increase in interest rates and increased the availability block, which reduces the calculated borrowing base under the Loan Agreement, from $8 million to $10 million, with further increases to $11 million and $12 million to be effective on December 31, 2024 and March 31, 2025, respectively.

We may not meet the minimum fixed charge coverage ratio or comply with other covenants in the future and may not be able to obtain waivers or amendments from the relevant lenders on terms acceptable to us, or at all.

In the event we breach any covenant that results in an event of default, our lenders could choose to accelerate payment of the amounts owed by the Company.

We have not always met these covenants in the past and have had to obtain waivers and amend the Loan Agreement under our Prior Credit Facility, including for events of default related to breaches of the fixed charge coverage ratio for fiscal quarter ended March 30, 2024 and the periods ended June 29, 2024 and July 27, 2024.

We also breached a covenant in the Loan Agreement under our Prior Credit Facility requiring us to deliver audited financial statements to the lender within 90 days of the Company’s fiscal year-end, which required us to further amend the Loan Agreement on October 9, 2024.

Our new asset-based senior secured revolving credit facility (the “Credit Facility”), which replaced the Prior Credit Facility also includes minimum earnings before interest, taxes, depreciation, amortization and other adjustments, minimum availability and, if triggered, a minimum fixed charge coverage ratio, and other covenants.

We may not meet such covenants in the future and may not be able to obtain waivers or amendments from the relevant lenders on terms acceptable to us, or at all.

In the event we breach any covenant that results in an event of default, we may be required to amend the credit facility on terms that would be less favorable to us, such as an increase in the interest rate.

Similarly, our lenders could choose to accelerate payment of the amounts owed by the Company.

Under those circumstances our borrowings could become immediately payable.

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Our ability to secure and maintain sufficient credit arrangements is key to our continued operations.

There is no assurance that we will be able to retain, renew, or refinance our credit arrangements on terms acceptable to us, or at all.

As noted in the prior risk factor, a recent amendment to our Loan Agreement shortened the maturity date to September 3, 2025.

On September 27, 2024, in connection with the preparation of our Annual Report on Form 10-K for fiscal year 2024, we entered into an additional amendment to the Loan Agreement to extend the maturity date by three months to December 3, 2025.

Because our Loan Agreement terminates on December 3, 2025, we need to extend, renew or refinance this agreement in the coming months.

The terms available to us may be less favorable than the terms of our existing Loan Agreement.

Our inability to extend, renew, or refinance our indebtedness on a timely basis could also result in unfavorable accounting treatment.

This could include management and our independent auditors concluding on risks over the Company's ability to continue as a going concern.

Our inability to extend, renew or refinance our credit arrangements could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Additionally, in the event that our business grows rapidly or there is uncertainty in the macroeconomic climate, additional financing resources could be necessary in the current or future fiscal years.

There is no assurance that we will be able to retain, renew, or refinance our credit arrangements in the future.

In the event that our business grows rapidly or there is uncertainty in the macroeconomic climate, additional financing resources could be necessary in the current or future fiscal years.

There is no assurance that we will be able to obtain equity or debt financing at acceptable terms, or at all, in the future.

For a summary of our debt obligations, see Note 4 - “Long-Term Debt” of the Notes to Consolidated Financial Statements.

Adverse changes in the interest rates of our borrowings could adversely affect our financial condition.

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As a result of these material weaknesses, our management concluded that our internal control over financial reporting and disclosure controls and procedures were not effective as of June 29, 2024.

We are engaged in developing and implementing a remediation plan, as described in Item 9A.

We are implementing the remediation plan, as described in Item 9A.

Controls and Procedures of our Annual Report on Form 10-K, designed to address the material weaknesses, but our remediation efforts are not complete and are ongoing.

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The Sarbanes-Oxley and Dodd-Frank Acts required or will require changes in some of our corporate governance, securities disclosure and compliance practices.

The SEC and NASDAQ Global Market have promulgated new rules and additional rulemaking is expected in the future.

Compliance with these new rules and future rules has increased and may increase further our legal, financial and accounting costs as well as a potential risk of noncompliance.

The SEC and NASDAQ Global Market have promulgated new rules over time, resulting in increased legal, financial and accounting costs as well as a potential risk of noncompliance.

Absent significant changes in related rules, which we cannot assure, we anticipate some level of increased costs related to these new regulations to continue indefinitely.

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Our consolidated financial statements are prepared in conformity with accounting standards generally accepted in the United States, or U.S.

These principles are subject to amendments made primarily by the Financial Accounting Standards

Board (FASB) and the SEC.

A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions which are completed before a change is announced.

These principles are subject to amendments made primarily by the Financial Accounting Standards Board (FASB) and the SEC.

A change in those policies can have a significant effect on our reported results and may affect our

reporting of transactions which are completed before a change is announced.

Changes to accounting rules or challenges to our interpretation or application of the rules by regulators may have a material adverse effect on our reported financial results or on the way we conduct business.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis