What changed in this filing

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Item 1A. Risk Factors

2025-09-17 compared with 2024-10-15 · 70 added, 63 removed, 241 unchanged (36% of the section changed)

11 unchanged sentences

• 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 tariffs assessed or threatened 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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and global macroeconomic environment, volatility in overall demand for our customers’ products, success of customers’ programs, timing of new programs, new product introductions or technological advances by us, our customers and our competitors, and changes in pricing policies by us, our customers, our suppliers, and our competitors.

Our customer base is diverse in the markets they serve, however, decreases in demand, particularly from customers in certain industries could affect future quarterly results.

Our customer base is diverse in the markets they serve, however, decreases in demand, particularly from customers in certain industries, have affected our results and could affect future quarterly results.

Additionally, our customers could be adversely impacted by illiquidity in the credit markets which could directly impact our operating results.

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Occasionally, our customers may request accelerated production that can stress resources and reduce operating margins.

Conversely, our customers may abruptly lower or cancel production which may lead to a sudden, unexpected increase in inventory or accounts receivable for which we may not be reimbursed even when under contract with customers.

Conversely, our customers may abruptly lower, cancel, or delay production or new production launch which may lead to a sudden, unexpected increase in inventory or accounts receivable for which we may not be reimbursed even when under contract with customers.

In addition, because many of our operating expenses are relatively fixed, a reduction in customer demand can harm our gross profit and operating results.

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Significant estimates and assumptions include the allowance for credit losses, provision for inactive, obsolete, and surplus inventory, stock-based compensation, the valuation allowance on deferred tax assets, impairment of long-lived assets, long-term incentive compensation accrual, the provision for warranty costs, and the impact of hedging activities.

Due to the COVID-19 pandemic, we have seen 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.

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

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.

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.

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 or delaying 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.

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.

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 and fluctuations in customer demand and costs.

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.

Continuing high levels of inflation have increased the costs of labor and other expenses, and may continue to increase.

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

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Inflation may further exacerbate other risk factors discussed in this Annual Report on Form 10-K, including disruptions to international operations.

Current and future U.S.

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 Vietnam, China, and Mexico).

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

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.

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

The recent broad increase in tariffs on imported products and components from certain countries, including higher tariff levels on those imported from China and Mexico have resulted, and are expected to further result, in retaliatory measures on U.S.

goods by those countries and others.

If maintained, these 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.

We are currently shielded from Mexico related tariffs under the United States-Mexico-Canada Agreement, but there is no assurance that this agreement will not be amended or cancelled in the future.

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.

The majority of our sales come from a small number of customers, and a decline in sales to any of these customers could adversely affect our business.

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We rely on timely and regular payments from our customers, and the inability or failure of our principal customers to meet their obligations to us or their bankruptcy, insolvency or liquidation may adversely affect our business, financial condition and results of operations.

Financial difficulties experienced by one or more of our customers could negatively affect our business by

decreasing demand from such customers and through the potential inability of these companies to make full payment on amounts owed to us.

Financial difficulties experienced by one or more of our customers could negatively affect our business by decreasing demand from such customers and through the potential inability of these companies to make full payment on amounts owed to us.

Customer bankruptcies also entail the risk of potential recovery by the bankruptcy estate of amounts previously paid to us that are deemed a preference under bankruptcy laws.

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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.

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Fluctuations in foreign currency exchange rates have increased and could continue to increase our operating costs.

We have manufacturing operations located in Mexico and China.

A significant portion of our operations are denominated in the Mexican Peso and the Chinese currency, the renminbi ("RMB").

We have manufacturing operations located in Mexico, China, and Vietnam.

A significant portion of our operations are denominated in the Mexican Peso, the Chinese currency, the renminbi ("RMB"), and the Vietnamese dong.

Currency exchange rates fluctuate daily as a result of a number of factors, including changes in a country's political and economic policies.

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Global economic and political events or significant currency exchange fluctuations, can occur, and cause further unexpected losses.

Future temporary closures of production facilities in Mexico could also cause significant changes in our ability to qualify for hedge accounting treatment of our forward contracts to hedge foreign currency fluctuations.

Future headcount reductions or decrease in manufacturing capacity in Mexico could also cause significant changes in our ability to qualify for hedge accounting treatment of our forward contracts to hedge foreign currency fluctuations.

Our success will continue to depend to a significant extent on our key personnel and our ability to execute our management succession plans.

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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.

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

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.

We cannot provide assurances that any changes of management personnel will not cause disruption to operations or customer relationships or a decline in our operating results.

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Our customers are required to indemnify us against liability associated with designing products to meet their specifications.

However, if our customers are responsible for the defects, they may not, or may not have resources to, assume responsibility for any costs or liabilities arising from these defects, which could expose us to additional liability claims.

However, if our

customers are responsible for the defects, they may not, or may not have resources to, assume responsibility for any costs or liabilities arising from these defects, which could expose us to additional liability claims.

If we do not manage our growth effectively, our profitability could decline.

When our business is experiencing growth, such growth can place considerable additional demands upon our management team and our operational, financial and management information systems.

When our business or manufacturing capacity is experiencing growth, such as the expansion currently occurring in our Arkansas and Vietnam facilities, such growth can place considerable additional demands upon our management team and our operational, financial and management information systems.

Our ability to manage growth effectively requires us to continue to implement and improve these systems;

avoid cost overruns;

maintain customer, supplier and other favorable

business relationships during possible transition periods;

maintain customer, supplier and other favorable business relationships during possible transition periods;

continue to develop the management skills of our managers and supervisors;

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Nevertheless, we have experienced attempted security breaches, such as phishing emails and other targeted attacks.

For example, as previously disclosed in our Form 8-K filed with the SEC on May 10, 2024, as amended, we became aware of unauthorized access to our IT systems that resulted in a material impact on our financial condition and results of operations during the fourth quarter ending June 29, 2024 (the "Previously Disclosed Cyber Incident").

For example, as previously disclosed in our Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on May 10, 2024, as amended, we became aware of unauthorized access to our IT systems that resulted in a material impact on our financial condition and results of operations during the fourth quarter of fiscal year 2024 ending on June 29, 2024 (the "Previously Disclosed Cyber Incident").

We expect that our operations will continue to be subject to cyber threats, and any future cybersecurity incident could significantly disrupt our operations.

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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 Term Loan, including for an event of default related to a breach of non-compliance with minimum required earnings before interest, depreciation, amortization, and other adjustments for the period ending March 29, 2025.

The amendment permanently adds an additional reporting requirement, and requires minimum earnings before interest, taxes, depreciation, amortization, and other adjustments only if average daily availability for the applicable fiscal quarter is less than 12.5% of the combined borrowing base.

Our new asset-based senior secured revolving credit facility (the “Credit Facility”), also includes certain financial covenants, including average and daily availability and, if triggered, earnings before interest, taxes, depreciation, amortization and other adjustments and a fixed charge coverage ratio covenant will apply.

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 this Annual Report on Form 10-K, 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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RISKS RELATED TO OUR CONTROLS AND PROCEDURES AND THE INTERNAL INVESTIGATION

We have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of June 29, 2024 due to material weaknesses, which has adversely affected our ability to report our financial results in a timely and accurate manner and could have a material adverse impact our business and financial condition.

We are required to evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on a periodic basis and publicly disclose the results of these evaluations and related matters in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

In the past, we have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective due to the existence of material weaknesses, which has adversely affected our ability to report our financial results in a timely and accurate manner and similar recurrences could have a material adverse impact our business and financial condition.

As described in Item 9A.

Controls and Procedures of this Annual Report on Form 10-K, we have identified a material weakness in the design and implementation of effective controls over the accounting for revenue recognition relating to cost recovery of material price variances.

We have also identified a material weakness in the design and implementation of effective controls over the adoption of new accounting standards.

Controls and Procedures of our Annual Report on Form 10-K, in the previous fiscal year we identified a material weakness in the design and implementation of effective controls over the accounting for revenue recognition relating to cost recovery of material price variances.

We also identified a material weakness in the design and implementation of effective controls over the adoption of new accounting standards.

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.

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

Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully developed, when it will be fully implemented or the aggregate cost of implementation.

Until our remediation plan is fully implemented, our management will continue to devote time and attention to these efforts.

If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future consolidated financial statements could contain errors that will be undetected.

If we are unable to report our results in a timely and accurate manner, our stock may be delisted from the NASDAQ Global Market and we will not be able to comply with the applicable covenants in our financing arrangements, including our Loan Agreement, as described in —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.” In addition, we could be subject to regulatory investigations and penalties or stockholder litigation.

We completed a remediation plan, as described in Item 9A.

Controls and Procedures of our Annual Report on Form 10-K, designed to address the material weaknesses.

Although these material weaknesses are considered remediated and internal control over financial reporting and control disclosures and procedures were effective as of June 28, 2025, there is no assurance that similar material weaknesses could arise from future changes in systems, personnel, or processes.

Any of these risks could have a material adverse impact on our business and financial condition.

If we fail to maintain proper and effective internal controls, our business and financial condition could be materially adversely impacted.

We cannot assure you that we will not discover additional deficiencies in our internal control over financial reporting.

We cannot assure you that we will not discover deficiencies in our internal control over financial reporting.

Moreover, as discussed in the following risk factor, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all.

As of June 29, 2024, we are a non-accelerated filer under the Exchange Act and are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act).

As of June 29, 2025, we are a non-accelerated filer under the Exchange Act and are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements.

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Matters relating to or arising from the subject of the Audit Committee’s internal investigation, including expenses and diversion of personnel and resources, regulatory investigations, and proceedings and litigation matters, could have an adverse effect on our business, results of operations and financial condition.

We have incurred, and may continue to incur, significant expenses related to legal, accounting and other professional services in connection with matters relating to or arising from the subject of the Audit Committee’s internal investigation in fiscal year 2022.

To the extent these steps taken to remediate identified deficiencies in our internal controls over financial reporting were not successful, we may incur significant additional time and expense.

In addition, we continue to cooperate with the Securities and Exchange Commission (the “SEC”) regarding matters related to the internal investigation.

The completion of the internal investigation in fiscal year 2022 did not automatically resolve the SEC’s inquiries.

During fiscal year 2021, the Company’s Audit Committee completed an internal investigation arising from a notification from an employee regarding certain alleged accounting irregularities.

In January 2021, the Company determined that improper accounting resulted in an understatement of cost of goods sold and an overstatement of inventories.

Subsequent to the matter identified in January 2021, additional inventory accounting errors unrelated to the investigation were also identified by management.

To the extent the steps taken to remediate identified deficiencies in our internal controls over financial reporting were not successful, we may incur significant additional time and expense.

In addition, we continue to cooperate with the SEC in its inquiries related to the internal investigation.

If the SEC or any other regulator were to commence legal action against us, we could be required to pay significant penalties and become subject to injunctions, cease and desist orders or the SEC could impose other sanctions against us or against our officers and members of our Board of Directors.

We can provide no assurances as to the outcome of any governmental inquiry or investigation.

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All of these expenses, and the diversion of the attention of management and other personnel that has occurred and is expected to continue, could adversely affect our business, financial condition, results of operations and cash flows.

In addition, publicity surrounding the foregoing, or any SEC enforcement action or settlement, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition and results of operations.

LEGAL AND ACCOUNTING RISKS

We have restated certain of our prior consolidated financial statements, which has resulted in unanticipated costs and may lead to additional risks and uncertainties, including loss of investor confidence, regulatory action or litigation.

In this Annual Report on Form 10-K, we have restated or revised certain of our previously issued financial statements.

This process has been time-consuming and expensive, including unanticipated costs for accounting and legal fees.

We restated certain of our prior consolidated financial statements in our 2024 Annual Report on Form 10-K, which resulted in unanticipated costs and may lead to additional risks and uncertainties, including loss of investor confidence, regulatory action or litigation.

As previously disclosed, in our 2024 Annual Report on Form 10-K, we restated or revised certain of our previously issued financial statements.

This process was time-consuming and expensive, including unanticipated costs for accounting and legal fees.

The restatement and revisions also expose us to additional risks that could adversely affect our business and financial condition, such as litigation, regulatory action or loss of investor confidence.

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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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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.

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-K

Item 1A. Risk Factors