What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-13 compared with 2025-02-07 · 116 added, 100 removed, 418 unchanged (34% of the section changed)

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Executive Summary

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.

During the third quarter of fiscal year 2025, we won new programs involving telecommunications, pest control, energy storage, medical technology, and temperature controlled shipping solutions.

We reported net sales of $112.0 million, down 21.4 percent from $142.4 million in the same period of fiscal year 2024 .

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.

Net sales in the third quarter of fiscal year 2025 were adversely impacted by the worldwide economic disruptions and uncertainty caused by the recent escalation and fluctuations in global tariffs.

This resulted in delays, increased costs, and reduced demand from many customers.

Gross margin increased to 7.7 percent in the third quarter of fiscal year 2025, compared to 5.7 percent in the same period of the prior fiscal year.

The increase in gross margin is primarily attributed to benefits realized from reducing costs and strategic reductions in headcount over the past three quarters partially offset by increases as a result of the global tariff escalation and fluctuations.

Operating income (loss) as a percentage of net sales remained flat at (0.4) percent in the third quarter of fiscal year 2025 and (0.4) percent in the third quarter of fiscal year 2024.

The concentration of our top three customers’ net sales increased to 33.5 percent of total sales in the third quarter of fiscal year 2025 from 25.4 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 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.

Net loss for the third quarter of fiscal year 2025 was $0.6 million or $0.06 per diluted share, as compared to net loss of $2.2 million or $0.21 per diluted share for the third quarter of fiscal year 2024.

The year-over-year increase in earnings was a result of the factors discussed above, primarily increases in margins attributed to benefits realized from reducing costs and strategic reductions in headcount over the past three quarters.

Moving into the fourth 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.

This restructuring resulted in a significant headcount reduction starting in the third quarter of fiscal year 2024 with a follow on reduction in the third quarter of fiscal year 2025, and further reductions expected through the first quarter of fiscal year 2026.

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.

geopolitical tensions and related tariff increases may continue to drive Original Equipment Manufacturers (“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.

The decision to onshore or near shore production appears to be becoming more widely accepted as a smart long-term strategy.

As a result, we see opportunities for continued growth.

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 2.8 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.

The Company's international and domestic manufacturing footprint provides flexibility to respond to market conditions.

This is expected to help mitigate tariff implications and optimize pricing for customers.

As previously announced, the Company is also planning to significantly increase its production capacity in its Arkansas and Vietnam facilities in order to continue to benefit from the growing customer demand for rebalancing their contract manufacturing.

This expansion is also expected to help mitigate the adverse impact and uncertainties surrounding any current and potential tariffs on goods manufactured in China and Mexico.

As a result, we see opportunities for growth moving forward.

We maintain a strong balance sheet with a current ratio of 2.7 and a debt-to-equity ratio of 0.9 as of March 29, 2025.

Total cash provided by operating activities as defined on our cash flow statement was $10.1 million for the nine months ended March 29, 2025.

We believe we maintain sufficient liquidity for our expected future operations and as of March 29, 2025, had $79.5 million in borrowings under our asset-based revolving credit facility with $20.4 million remaining available and $2.5 million of cash on hand.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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RESULTS OF OPERATIONS

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

Comparison of the Three Months Ended March 29, 2025 with the Three Months Ended March 30, 2024

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 December 28, 2024 as compared to the three months ended December 30, 2023.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024.

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

Three Months Ended

December 28, 2024 % of

net sales December 30, 2023 % of

March 29, 2025 % of

net sales March 30, 2024 % of

net sales $ change % point

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Income tax provision (benefit) (2,436) (2.2) % (1,154) (0.8) % (1,282) (1.4) %

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

Net (loss) $ (604) (0.5) % $ (2,221) (1.6) % $ 1,617 1.1 %

Effective income tax rate 80.1 % 34.2 %

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.

Net sales of $112.0 million for the third quarter of fiscal year 2025 decreased by 21.4 percent as compared to net sales of $142.4 million for the third quarter of fiscal year 2024.

The $30.5 million decrease was primarily due to adverse impacts caused by the worldwide economic disruptions and uncertainty related to the recent escalation and fluctuations in global tariffs.

This resulted in delays, increased costs, and reduced demand from many customers.

Further contributing to this reduction is lowered demand from certain long-standing programs or sun-setting programs causing decreases in backlog throughout fiscal year 2025, which are not yet being offset by recent program wins that are either in the early stages or not fully ramped.

Gross profit as a percentage of net sales for the three months ended March 29, 2025 was 7.7 percent compared to 5.7 percent for the three months ended March 30, 2024.

The increase in gross margin is primarily attributed to benefits realized from reducing costs and strategic reductions in headcount that have occurred over the past three quarters.

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 did not record any significant impairment for obsolete inventory during the three months ended March 29, 2025 or March 30, 2024.

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.

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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.

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

Total research, development, and engineering (“RD&E”) expenses were $2.3 million during the three months ended March 29, 2025 and $2.2 million during the three months ended March 30, 2024, respectively.

Total RD&E expenses as a percent of net sales were 2.1 percent during the three months ended March 29, 2025 and 1.6 percent during the three months ended March 30, 2024.

Total selling, general and administrative (“SG&A”) expenses were $6.8 million during the three months ended March 29, 2025 compared to $6.4 million for the three months ended March 30, 2024.

Total SG&A expenses as a percentage of net sales were 6.0 percent for the three months ended March 29, 2025 and 4.5 percent for the three months ended March 30, 2024.

These increases are attributable to increases in the estimated provision for credit losses.

Interest expense was $2.6 million during the three months ended March 29, 2025 and $2.8 million during the three months ended March 30, 2024.

This decrease is largely attributable to lower interest costs as a result of refinancing our debt with a new lender, as described in Note 4 of the “Notes to Consolidated Financial Statements.”

The effective tax rate for the three months ended March 29, 2025 was 80.1 percent compared to 34.2 percent for the three months ended March 30, 2024.

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.

For the three months ended March 30, 2024, the company departed from the annual effective tax rate method for determining interim income tax expense.

The existence of significant permanent book-to-tax differences in several jurisdictions, the impact of the tax holiday in Vietnam, and significant tax benefits related to federal research and development tax credits resulted in an inability to reliably estimate the annual effective tax rate applicable to projected full-year worldwide consolidated pre-tax income.

Accordingly, the company determined income tax expense for the quarter ended March 30, 2024, and the nine months ended March 30, 2024, based on actual year-to-date results.

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

For further information on taxes see Note 5 - “Income Taxes” of the Notes to Consolidated Financial Statements.

Comparison of the Nine Months Ended March 29, 2025 with the Nine Months Ended March 30, 2024

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.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the nine months ended March 29, 2025 as compared to the nine months ended March 30, 2024.

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

Nine Months Ended

March 29, 2025 % of

net sales March 30, 2024 % of

net sales $ change % point

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Income tax provision (benefit) (2,490) (0.7) % (1,329) (0.3) % (1,161) (0.4) %

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

Net (loss) $ (4,394) (1.2) % $ (802) (0.2) % $ (3,592) (1.0) %

Effective income tax rate 36.2 % 62.4 %

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.

Net sales of $357.4 million for the nine months ended March 29, 2025 decreased by 18.8 percent as compared to net sales of $440.4 million for the nine months ended March 30, 2024.

The $83.0 million decrease is due to a number of factors including adverse impacts from the worldwide economic disruptions and uncertainty caused by the recent escalation and fluctuations in global tariffs.

This resulted in delays, increased costs, and reduced demand from many customers.

In addition there have been other unexpected component shortages along with softening of demand from certain long-standing programs experienced throughout fiscal year 2025.

Finally, excess inventory and scrap sales decreased by approximately $44 million during the first three 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 nine months ended March 29, 2025 was 8.3 percent compared to 7.0 percent for the nine months ended March 30, 2024.

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.

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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 six months ended December 28, 2024 or December 30, 2023.

We did not record any significant impairment for obsolete inventory during the nine months ended March 29, 2025 or March 30, 2024.

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Operating Expenses

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.

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.

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

T otal research, development, and engineering (“RD&E”) expenses were $6.9 million during the nine months ended March 29, 2025 and $6.2 million during the nine months ended March 30, 2024, respectively.

Total RD&E expenses as a percent of net sales were 1.9 percent during the nine months ended March 29, 2025 and 1.4 percent during the nine months ended March 30, 2024.

Total selling, general and administrative (“SG&A”) expenses were $19.8 million during the nine months ended March 29, 2025 compared to $18.3 million for the nine months ended March 30, 2024.

Total SG&A expenses as a percentage of net sales were 5.6 percent for the nine months ended March 29, 2025 and 4.1 percent for the nine months ended March 30, 2024.

These increases are attributable to estimated provisions for credit losses, and indirect labor.

Interest expense was $9.75 million during the nine months ended March 29, 2025 and $8.8 million during the nine months ended March 30, 2024.

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.

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.

The effective tax rate for the nine months ended March 29, 2025 was 36.2 percent compared to 62.4 percent for the nine months ended March 30, 2024.

The decrease 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.

For the nine months ended March 30, 2024, the company departed from the annual effective tax rate method for determining interim income tax expense.

Accordingly, the company determined income tax expense for the quarter ended March 30, 2024, and the nine months ended March 30, 2024, based on actual year-to-date results.

For further information on taxes see Note 5 - “Income Taxes” of the Notes to Consolidated Financial Statements.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP financial measures, adjusted net income and adjusted net income per share, diluted.

We provide these non-GAAP financial measures because we believe they provide greater transparency related to our core operations and represent supplemental information used by management in its financial and operational decision making.

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Our non-GAAP financial measures may be different from those reported by other companies.

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 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

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

Three Months Ended Nine Months Ended

(in thousands, except per share amounts) March 29, 2025 March 30, 2024 March 29, 2025 March 30, 2024

GAAP net loss $ (604) $ (2,221) $ (4,394) $ (802)

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

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Income tax effect of non-GAAP adjustments (1) (5) (10) (224) 54

Adjusted net income (loss):

Adjusted net loss:

$ (583) $ (2,179) $ (3,497) $ (1,016)

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

Adjusted net loss per share — non-GAAP Diluted $ (0.05) $ (0.20) $ (0.32) $ (0.09)

Weighted average shares outstanding — Diluted 10,762 10,762 10,762 10,762

(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 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.

On March 29, 2025, we had an order backlog of approximately $138.1 million.

This compares with a backlog of approximately $275.8 million on March 30, 2024.

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.

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Operating Cash Flow

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.

Net cash provided by operating activities for the nine months ended March 29, 2025 was $10.1 million.

Net cash provided by operating activities was $6.1 million for the nine months ended March 30, 2024.

The $10.1 million of net cash provided by operating activities for the nine months ended March 29, 2025 was primarily related to $4.4 million in net loss for the period adjusted for $7.9 million of depreciation and amortization, a $5.8 million decrease in inventory, a $19.6 million decrease in accounts receivable, a $2.2 million decrease in contract assets partially offset by a $14.1 million decrease in accounts payable, a $7.3 million increase in other assets, a $0.4 million decrease in other liabilities, and a $0.7 million decrease in accrued compensation and vacation.

The $6.1 million of net cash provided by operating activities for the nine months ended March 30, 2024 was primarily related to $0.8 million in net loss for the period adjusted for $8.2 million of depreciation and amortization, a $22.8 million decrease in inventory, a $1.3 million decrease in contract assets, a $14.9 million decrease in accounts receivable partially offset by a $0.8 million decrease in other liabilities, a $1.5 million increase in other assets, a $33.7 million decrease in accounts payable, and a $2.4 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 $0.8 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.

Cash used in investing activities was $3.0 million during the nine months ended March 29, 2025 as compared to cash used in investing activities of $1.0 million during the nine months ended March 30, 2024.

Our primary investing activities during the nine months ended March 29, 2025 and March 30, 2024, 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 $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.

Cash used in financing activities was $9.4 million during the nine months ended March 29, 2025 as compared to $3.4 million used in financing activities in the same period of the previous fiscal year.

Our primary financing activities during the nine months ended March 29, 2025, and March 30, 2024, 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.

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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.

As of March 29, 2025, we had approximately $2.8 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 December 28, 2024 would approximate $26,000.

The total amount of tax payments required for the amount of foreign subsidiary cash on hand as of March 29, 2025 would approximate $29,000.

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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• political and economic instability (including acts of terrorism, pandemics, civil unrest, forms of violence and outbreaks of war), which could impact our ability to ship, manufacture, and/or receive product;

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

• unexpected changes in regulatory requirements and laws, including those related to climate change;

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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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During the COVID-19 pandemic, we saw extreme shifts in demand from our customer base.

The possibility of future temporary closures and labor constraints, as well as the inability to predict customer demand, costs, and future supply chain disruptions during pandemics can materially impact operating results.

We are exposed to general economic conditions, which could have a material adverse impact on our business, operating results and financial condition.

Adverse economic conditions and uncertainty in the global economy such as unstable global financial and credit markets, inflation, and recession can negatively impact our business.

Adverse economic conditions and uncertainty in the global economy such as unstable global financial and credit markets, changing trade policies, inflation, and recession can negatively impact our business.

Unfavorable economic conditions could affect the demand for our customers’ products by triggering a reduction in orders as well as a decline in forecasts which could adversely affect our sales in future periods.

Additionally, the financial strength of our customers and suppliers and their ability to obtain and rely on credit financing may affect their ability to fulfill their obligations to us and have an adverse effect on our financial results.

Adverse macroeconomic conditions, such as those that were a result of COVID-19, have and may continue to affect our business.

Adverse macroeconomic conditions have and may continue to affect our business.

The conditions affect the Company’s ability to predict and plan for future supply chain disruptions, fluctuations in customer demand and costs, and the ability to operate as there is uncertainty over future temporary closures.

Inflation has also risen globally to historically high levels.

As the inflation rate continues to increase, the costs of labor and other expenses have and may continue to increase.

If inflation rate continues to increase, the costs of labor and other expenses may continue to increase.

We may not be able to increase our product prices enough to offset these increased costs.

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We have seen supply shortages in certain electronic components.

In addition, our suppliers' facilities may also experience closures or limited production due to natural disasters or other reasons, which may cause a shortage of components.

In addition, our suppliers' facilities may also experience closures or limited production due to macroeconomic conditions, natural disasters or other reasons, which may cause a shortage of components.

This can result in longer lead times and the inability to meet our customers' requests for flexible production and extended shipment dates.

If demand for components outpaces supply, capacity delays could affect future operations.

Delays in deliveries from suppliers or the inability to obtain sufficient quantities of components and raw materials

have and may continue to cause delays or reductions in shipment of products to our customers which could adversely affect our operating results and damage customer relationships.

If demand for components outpaces supply, capacity

delays could affect future operations.

Delays in deliveries from suppliers or the inability to obtain sufficient quantities of components and raw materials have and may continue to cause delays or reductions in shipment of products to our customers which could adversely affect our operating results and damage customer relationships.

We operate in a highly competitive industry;

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In addition, we must successfully manage transition issues that may result from the departure or retirement of members of our leadership team.

For example, our Chief Executive Officer retired at the end of fiscal year 2024 and is succeeded by our former Chief Financial Officer.

For example, our former Chief Executive Officer retired at the end of fiscal year 2024 and was succeeded by our former Chief Financial Officer.

Any significant leadership change or senior management transition involves inherent risks and failure to ensure a smooth transition could hinder our strategic planning, business execution, and future performance.

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This makes it difficult to schedule production and maximize utilization of our manufacturing capacity.

We must determine the levels of business that we will seek and accept from customers, set production schedules, commit to procuring inventory, and allocate personnel and resources, based on our estimates of our customers' requirements.

Customers can require sudden

increases and decreases in production which can put added stress on resources and reduce margins.

We must determine the levels of business that we will seek and accept from customers, set production schedules, commit to procuring inventory, and

allocate personnel and resources, based on our estimates of our customers' requirements.

Customers can require sudden increases and decreases in production which can put added stress on resources and reduce margins.

Sudden decreases in production can lead to excess inventory on hand which may or may not be reimbursed by our customers even when under contract.

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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).

trade policy could adversely affect our business and results of operations.

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

We also source certain components and materials for our products from various countries.

In the past, the U.S.

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

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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.

Changes in tariffs and other trade policies can be announced with little or no advance notice.

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.

presidential administration recently announced a broad increase in tariffs on imported products and components from certain countries, including higher tariff levels on those imported from China and Mexico.

These actions have resulted, and are expected to further result, in retaliatory measures on U.S.

goods by those countries and others.

If maintained, these recently announced tariffs, and the potential escalation of trade disputes could pose a risk to our business that could affect our revenue and cost of sourcing materials.

Actions we take to adapt to new tariffs or trade restrictions may increase our costs or may cause us to modify our operations, and 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.

In addition, tariffs or other trade restrictions have caused, and may continue to cause, adverse changes and uncertainty in U.S.

and global financial and economic conditions, which adversely impacts the demand for our products.

TECHNOLOGY RISKS

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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