What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-05-08 compared with 2026-02-09 · 126 added, 117 removed, 439 unchanged (36% of the section changed)

5 unchanged sentences

Forward-looking statements also include other passages that are relevant to expected future events, performances, and actions or that can only be fully evaluated by events that will occur in the future.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected

in the forward-looking statements.

Forward-looking statements in this Quarterly Report include, without limitation, the Company’s statements regarding its expectations with

respect to financial conditions and results, including revenue, earnings, and margins, the Company’s ability to shift its focus in China and build out production capacity in the US and Vietnam and the timing of completion of those facilities, cost savings from headcount reduction and the wind-down of manufacturing operations in China, demand for certain products and the effectiveness of some of its programs, business from customers and programs, new program launches, impacts from operational streamlining and efficiencies, including reductions in inventories, and impacts of repairs to its facilities from winter storm damage.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Risks and uncertainties that might cause such differences include, but are not limited to those outlined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risks and Uncertainties that May Affect Future Results.” Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s opinions only as of the date hereof.

10 unchanged sentences

Executive Summary

During the second quarter of fiscal 2026, we won new programs in automotive technology, pest control, and industrial equipment.

We reported net sales of $96.3 million the second quarter of fiscal year 2026, down 15.4 percent from $113.9 million in the same period of fiscal year 2025 .

Net sales in the second quarter of fiscal year 2026 were adversely impacted by reductions in demand from longstanding customers and continued delays to some new program launches as we believe customers continue to face uncertainties in the global economy and also due to product design modifications to certain new customers.

In addition, the Company continued to ramp its large consigned materials program that was previously announced.

As this program ramps, the Company anticipates less overall revenue when compared to traditional turnkey programs, but an increase in its gross margins.

Additionally during the quarter, Key Tronic initiated a wind-down of its manufacturing operations at its China based facility and instead intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations.

During the third quarter of fiscal 2026, we won new programs in automotive technology, industrial tooling, pest control and industrial power management.

We reported net sales of $89.6 million the third quarter of fiscal year 2026, down 20.0 percent from $112.0 million in the same period of fiscal year 2025 .

Decreases in revenue were largely attributable to decreased demand from a legacy customer and an end-of-life program transition.

The reported revenue for the third quarter of fiscal year 2026 was also adversely impacted by Winter Storm Fern in the South which caused temporary site closures due to facility damage that the Company expects will be largely covered by insurance.

Finally, Key Tronic faced challenges during the quarter related to customer design delays on a new program with a legacy customer, as well as delays in receiving allocated components on a separate program.

The Company is expecting revenue growth on increased demand from legacy customers and new program launches in its fourth quarter of 2026.

This includes the ongoing ramp of a new manufacturing services contract with a large data processing OEM that consigns its material and components for new production in our Corinth, Mississippi manufacturing facility and is estimated to grow over time.

The Company reported margin improvements in the third quarter of fiscal year 2026, despite lower revenue levels compared to prior periods.This demonstrates the operating efficiencies gained from our cost-cutting initiatives during the past two years.

Gross margin and operating margins were 8.0 percent and (0.3) percent, respectively, in the third quarter of fiscal year 2026 compared to 7.7 percent and (0.4) percent, respectively, for the same period of fiscal year 2025.

Adjusted gross margin was 8.5% for the third quarter of fiscal year 2026 up from 8.4% in the same period of fiscal year 2025.

See “Non-GAAP Financial Measures,” below for additional information about adjusted gross margin.

As revenue rebounds, Key Tronic expects continued margin increases in coming periods.

Gross margin and operating margin was 5.6 percent and (3.9) percent for the year-to-date period of fiscal year 2026 compared to 8.3 percent and 0.8 percent, respectively, for the same period of fiscal year 2025.

These decreases in gross and operating margins are primarily related to the significant one-time expenses related to the wind-down of China manufacturing operations and severance expenses incurred in Mexico as discussed above.

During the quarter, the Company continued to prepare for anticipated long-term growth by executing its near-shoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of its key locations and capabilities.

Key Tronic believes that these cost reductions have enabled the Company to become more competitive on recent quoting opportunities.

During the quarter, Key Tronic continued the wind-down of its manufacturing operations at its China based facility that began in its second quarter.

As previously reported, the Company instead intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations.

This initiative is expected to shift more production to the Company’s expanding facilities in the US and Vietnam.

The wind-down is expected to be completed by the end of the current fiscal year, and is anticipated to save approximately $1.2 million per quarter following completions.

During the second quarter of fiscal year 2026, the Company accrued approximately $1.1 million in severance-related expenses related to this wind-down and approximately $5.0 million in additional non-cash expenses related to the transfer, disposal, and write-off of certain existing inventory, fixed assets, deferred taxes, and other assets.

Furthermore, as previously disclosed, the Company has been restructuring its operations in Juarez, Mexico to focus on higher volume manufacturing.

In connection with this restructuring and related headcount reductions, the Company has incurred severance charges in prior periods and has incurred $3.3 million in charges related to severance during its second fiscal quarter related at its Mexico based facility.

The restructuring is expected to provide approximately $1.5 million in quarterly savings after the reductions are fully executed.

Gross margins were 0.6 percent in the second quarter and 4.5 percent for the year-to-date period of fiscal year 2026, compared to 6.8 percent in the second quarter and 8.6 percent for the year-to-date period in fiscal year 2025.

Operating margin was (10.7) percent in the second quarter and (5.6) percent for the six-month year to date period in fiscal year 2026, down from (1.0) percent and 1.4 percent for the same periods of fiscal year 2025.

The year-over-year decreases in gross and operating margins are primarily related to the significant one-time expenses related to the wind-down of China manufacturing operations and severance expenses incurred in Mexico as discussed above.

The concentration of our top three customers’ net sales decreased to 25.1 percent of total sales in the second quarter of fiscal year 2026 from 41.8 percent in the same period of the prior fiscal year.

The wind-down is expected to be completed by the end of the current fiscal year, and is anticipated to save approximately $1.2 million per quarter following completion.

During the third quarter of fiscal year 2026, there were no significant additional charges related to this wind-down.

The concentration of our top three customers’ net sales decreased to 21.6 percent of total sales in the third quarter of fiscal year 2026 from 33.5 percent in the same period of the prior fiscal year.

This decrease is related to a decrease in demand from a longstanding customer as well as the transition of an end of life program.

4 unchanged sentences

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.

Net loss for the second quarter of fiscal year 2026 was $(8.6) million or $(0.79) per diluted share, as compared to net loss of $(4.9) million or $(0.46) per diluted share for the second quarter of fiscal year 2025.

Year-to-date net loss for the first half of fiscal year 2026 was $(10.8) million or $(1.00) per diluted share, compared to $(3.8) million, or $(0.35) per diluted share for the same period of fiscal year 2025.

Net loss for the third quarter of fiscal year 2026 was $(2.6) million or $(0.24) per diluted share, as compared to net loss of $(0.6) million or $(0.06) per diluted share for the third quarter of fiscal year 2025.

Year-to-date net loss for the first nine months of fiscal year 2026 was $(13.5) million or $(1.24) per diluted share, compared to $(4.4) million, or $(0.41) per diluted share for the same period of fiscal year 2025.

The year-over-year decreases in earnings are a result of the wind-down of manufacturing operations in China, additional headcount reductions in Mexico, and continued reduced demand from longstanding customers.

The adjusted net income was $0.0 million or $0.00 per share for the second quarter of fiscal year 2026, compared to adjusted net loss of $(4.1) million or $(0.38) per share for the same period of fiscal year 2025.

For the first six months of fiscal year 2026, the adjusted net loss was $(1.1) million or $(0.10) per share, compared to adjusted net loss of $(1.3) million or $(0.12) per share for the same period of fiscal year 2025.

The adjusted net income was $(2.8) million or $(0.26) per share for the third quarter of fiscal year 2026, compared to adjusted net income of $0.1 million or $0.01 per share for the same period of fiscal year 2025.

For the first nine months of fiscal year 2026, the adjusted net loss was $(3.9) million or $(0.36) per share, compared to adjusted net loss of $(1.2) million or $(0.11) per share for the same period of fiscal year 2025.

See “Non-GAAP Financial Measures,” below for additional information about adjusted net income (loss) and adjusted net income (loss) per share.

Moving into the third quarter of fiscal year 2026, we continue to see a favorable trend of contract manufacturing returning to North America, as well as continued increases in Mexican wages, and continued market uncertainty related to current and future potential tariffs.

Moving into the fourth quarter of fiscal year 2026, we continue to see a favorable trend of contract manufacturing returning to North America, and continued market uncertainty related to current and future potential tariffs.

In response to these sustained and ongoing trends, the Company continues to restructure its Juarez operations to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to our other sites.

These restructuring efforts resulted in a significant headcount reduction which started in the third quarter of fiscal year 2024 and will continue into the third quarter of fiscal year 2026 and potentially smaller further reductions throughout the remainder of fiscal year 2026.

These restructuring efforts resulted in a significant headcount reduction which started in the third quarter of fiscal year 2024, continued into the third quarter of fiscal year 2026 and may include smaller further reductions throughout the remainder of fiscal year 2026.

Key Tronic believes that these cost reductions have enabled the Company to become more competitive on recent quoting opportunities, and is expecting both revenue and margin growth as a result.

Additionally, global logistics problems, China-U.S.

5 unchanged sentences

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

We maintain a strong balance sheet with a current ratio of 2.0 and a debt-to-equity ratio of 0.9 as of December 27, 2025.

Total cash provided by operating activities as defined on our cash flow statement was $14.0 million for the six months ended December 27, 2025.

We believe we maintain sufficient liquidity for our expected future operations and as of December 27, 2025, had $63.0 million in borrowings under our asset-based revolving credit facility with $20.9 million remaining available and $0.8 million of cash on hand.

We maintain a strong balance sheet with a current ratio of 2.1 and a debt-to-equity ratio of 1.0 as of March 28, 2026.

Total cash provided by operating activities as defined on our cash flow statement was $10.0 million for the nine months ended March 28, 2026.

We believe we maintain sufficient liquidity for our expected future operations and as of March 28, 2026, had $66.3 million in borrowings under our asset-based revolving credit facility with $20.2 million remaining available and $0.4 million of cash on hand.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

10 unchanged sentences

RESULTS OF OPERATIONS

Comparison of the Three Months Ended December 27, 2025 with the Three Months Ended December 28, 2024

Comparison of the Three Months Ended March 28, 2026 with the Three Months Ended March 29, 2025

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 27, 2025 as compared to the three months ended December 28, 2024.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the three months ended March 28, 2026 as compared to the three months ended March 29, 2025.

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

Three Months Ended

December 27, 2025 % of

net sales December 28, 2024 % of

March 28, 2026 % of

net sales March 29, 2025 % of

net sales $ change % point

4 unchanged sentences

Selling, general and administrative 6,233 7.0 % 6,758 6.0 % (525) 1.0 %

Gain on insurance proceeds, net of losses (637) (0.7) % — — % (637) (0.7) %

Total operating expenses 7,421 8.3 % 9,066 8.1 % (1,645) 0.2 %

5 unchanged sentences

Effective income tax rate 0.3 % 80.1 %

Net sales of $96.3 million for the second quarter of fiscal year 2026 decreased by 15.4 percent as compared to net sales of $113.9 million for the second quarter of fiscal year 2025.

The $17.5 million decrease was primarily due to reductions in demand of approximately $28 million from a longstanding customer and transition of an end-of-life program offset by approximately $11 million in additional revenue from currently ramping programs and increased demand from other longstanding customers.

This program has the potential to ramp significantly during fiscal year 2026 and is estimated to grow over time to potentially exceed $20 million in annual revenue.

Gross profit as a percentage of net sales for the three months ended December 27, 2025 was 0.6 percent compared to 6.8 percent for the three months ended December 28, 2024.

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.

Net sales of $89.6 million for the third quarter of fiscal year 2026 decreased by 20.0 percent as compared to net sales of $112.0 million for the third quarter of fiscal year 2025.

As noted above, the $22.4 million decrease was primarily due to reductions in demand of approximately $16.1 million from a longstanding custom er and $7.2 million on the transition of an end-of-life program.

Net sales for the third quarter of fiscal year 2026 was also adversely impacted by Winter Storm Fern in the southern United States, which caused temporary site closures due to facility damage, as well as certain customer design delays on a new program with a legacy customer and delays in receiving allocated components on a separate program.

Gross profit as a percentage of net sales for the three months ended March 28, 2026 was 8.0 percent compared to 7.7 percent for the three months ended March 29, 2025.

The quarter-over-quarter increases in gross margins is primarily related to the efficiency gains from the company’s cost reduction initiati ves over the past two years.

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, all of 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 recorded an impairment of approximately $1.3 million and $0.1 million for obsolete inventory during the three months ended December 27, 2025 and December 28, 2024, respectively.

We recorded an impairment of approximately $0.3 million and $0.0 million for obsolete inventory during the three months ended March 28, 2026 and March 29, 2025, respectively.

We adjust the carrying value for estimated obsolesc ence 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.

1 unchanged sentence

Operating Expenses

There were no significant changes to operating expenses during the second quarter of fiscal year 2026.

Total research, development, and engineering (“RD&E”) expenses were $1.8 million during the three months ended December 27, 2025 and $2.3 million during the three months ended December 28, 2024, respectively.

Total RD&E expenses as a percent of net sales were 1.9 percent during the three months ended December 27, 2025 and 2.0 percent during the three months ended December 28, 2024.

Total selling, general and administrative (“SG&A”) expenses were $9.0 million during the three months ended December 27, 2025 compared to $6.5 million for the three months ended December 28, 2024.

Total SG&A expenses as a percentage of net sales were 9.3 percent for the three months ended December 27, 2025 and 5.7 percent for the three months ended December 28, 2024.

These increases are attributable to approximately $3.4 million in estimated reserves associated with the decision to wind-down manufacturing in China partially offset by less variable spend due to the decrease in revenues.

Interest expense was $2.4 million during the three months ended December 27, 2025 and $3.9 million during the three months ended December 28, 2024.

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

The effective tax rate for the three months ended December 27, 2025 was 32.1 percent compared to 2.2 percent for the three months ended December 28, 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, and the recognition of a full valuation allowance against net deferred tax assets in China.

There were no significant changes to operating expenses during the third quarter of fiscal year 2026.

Total research, development, and engineering (“RD&E”) expenses were $1.8 million during the three months ended March 28, 2026 and $2.3 million during the three months ended March 29, 2025, respectively.

Total RD&E expenses as a percent of net sales were 2.0 percent during the three months ended March 28, 2026 and 2.1 percent during the three months ended March 29, 2025.

Total selling, general and administrative (“SG&A”) expenses were $6.2 million during the three months ended March 28, 2026 compared to $6.8 million for the three months ended March 29, 2025.

Total SG&A expenses as a percentage of net sales were 7.0 percent for the three months ended March 28, 2026 and 6.0 percent for the three months ended March 29, 2025.

The decrease is attributable to less reserve charges for customer receivables.

Interest expense was $2.4 million during the three months ended March 28, 2026 and $2.6 million during the three months ended March 29, 2025.

This decrease is largely attributable to less overall debt outstanding.

The effective tax rate for t he three months ended March 28, 2026 was 0.3 percent compared to 80.1 percent for the three months ended March 29, 2025.

The decrease was primarily due to permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period, no tax benefit for losses incurred in China, and federal research and development tax credits .

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 27, 2025 with the Six Months Ended December 28, 2024

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

Comparison of the Nine Months Ended March 28, 2026 with the Nine Months Ended March 29, 2025

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 27, 2025 as compared to the six months ended December 28, 2024.

The following table sets forth certain information regarding the components of our condensed consolidated statements of operations for the nine months ended March 28, 2026 as compared to the nine months ended March 29, 2025.

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

Six Months Ended

December 27, 2025 % of

net sales December 28, 2024 % of

Nine Months Ended

March 28, 2026 % of

net sales March 29, 2025 % of

net sales $ change % point

4 unchanged sentences

Selling, general and administrative 21,966 7.7 % 19,835 5.6 % 2,131 2.1 %

Gain on insurance proceeds, net of losses (637) (0.7) % — — % (637) (0.7) %

Total operating expenses 27,077 9.0 % 26,752 7.5 % 325 1.5 %

5 unchanged sentences

Effective income tax rate 27.8 % 36.2 %

Net sales of $195.1 million for the six months ended December 27, 2025 decreased by 20.5 percent as compared to net sales of $245.4 million for the six months ended December 28, 2024.

Net sales of $284.6 million for the nine months ended March 28, 2026 decreased by 20.4 percent as compared to net sales of $357.4 million for the nine months ended March 29, 2025.

The $72.7 million decrease was primarily due to reductions in demand of approximately $97 million from longstanding or end-of-life customers, offset by approximately $25 million in additional revenue from currently ramping programs or increases in demand from other longstanding customers.

This program has the potential to ramp significantly during fiscal year 2026 and is estimated to grow over time to potentially exceed $20 million in annual revenue.

Gross profit as a percentage of net sales for the six months ended December 27, 2025 was 4.5 percent compared to 8.6 percent for the six months ended December 28, 2024.

The year-to-date, year-over-year decreases in gross and operating margins are primarily related to the significant one-time expenses related to the wind-down of China manufacturing operations and severance expenses incurred in Mexico as discussed above.

Gross profit as a percentage of net sales for the nine months ended March 28, 2026 was 5.6 percent compared to 8.3 percent for the nine months ended March 29, 2025.

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, all of 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 recorded an impairment of approximately $2.6 million and $0.0 million for obsolete inventory during the six months ended December 27, 2025 and December 28, 2024, respectively.

We recorded an impairment of approximately $2.9 million and $0.0 million for obsolete inventory during the nine months ended March 28, 2026 and March 29, 2025, respectively.

Approximately $1.0 million of this amount is related to the wind-down of our manufacturing operations in China.

2 unchanged sentences

Operating Expenses

There were no significant changes to operating expenses during the six months ended December 27, 2025.

Total research, development, and engineering (“RD&E”) expenses were $3.9 million during the six months ended December 27, 2025 and $4.6 million during the six months ended December 28, 2024, respectively.

Total RD&E expenses as a percent of net sales were 2.0 percent during the six months ended December 27, 2025 and 1.9 percent during the six months ended December 28, 2024.

Total selling, general and administrative (“SG&A”) expenses were $15.7 million during the six months ended December 27, 2025 compared to $13.1 million for the six months ended December 28, 2024.

Total SG&A expenses as a percentage of net sales were 8.1 percent for the six months ended December 27, 2025 and 5.3 percent for the six months ended December 28, 2024.

There were no significant changes to operating expenses during the nine months ended March 28, 2026.

Total research, development, and engineering (“RD&E”) expenses were $5.7 million during the nine months ended March 28, 2026 and $6.9 million during the nine months ended March 29, 2025, respectively.

Total RD&E expenses as a percent of net sales were 2.0 percent during the nine months ended March 28, 2026 and 1.9 percent during the nine months ended March 29, 2025.

Total selling, general and administrative (“SG&A”) expenses were $22.0 million during the nine months ended March 28, 2026 compared to $19.8 million for the nine months ended March 29, 2025.

Total SG&A expenses as a percentage of net sales were 7.7 percent for the nine months ended March 28, 2026 and 5.6 percent for the nine months ended March 29, 2025.

Interest expense was $5.1 million during the six months ended December 27, 2025 and $7.2 million during the six months ended December 28, 2024.

Interest expense was $7.5 million during the nine months ended March 28, 2026 and $9.7 million during the nine months ended March 29, 2025.

This decrease is largely attributable to lower interest costs as a result of refinancing our debt with a new lender in December 2024, which resulted in a $1.0 million write-off of unamortized loan fees in December of 2024, and a reduction in amounts borrowed, as described in Note 4 of the “Notes to Consolidated Financial Statements.”

The effective tax rate for the six months ended December 27, 2025 was 32.3 percent compared to 1.4 percent for the six months ended December 28, 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 and the recognition of a full valuation allowance against net deferred tax assets in China.

The effective tax rate for the nine months ended March 28, 2026 was 27.8 percent compared to 36.2 percent for the nine months ended March 29, 2025.

The decrease was primarily w as primarily due to federal research and development tax credits, permanent book-to-tax differences relative to the respective pretax income (or loss) amounts of each period, no tax benefit for losses incurred in China, and the impairment of deferred tax assets in China.

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.

4 unchanged sentences

We exclude (or include) certain items in our non-GAAP financial measures as we believe the net result is a measure of our core business.

We believe this facilitates operating performance comparisons from period to period by

eliminating potential differences caused by the existence and timing of certain income and expense items that would not otherwise be apparent on a GAAP basis.

We believe this facilitates operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain income and expense items that would not otherwise be apparent on a GAAP basis.

In addition, during this period, we have provided adjusted cost of sales, adjusted gross profit, and adjusted gross margin.

5 unchanged sentences

See the table below entitled “Reconciliation of GAAP to non-GAAP measures” for reconciliations of adjusted net income (loss) and adjusted cost of sales to the most directly comparable GAAP measure, which is GAAP net income (loss), and GAAP cost of sales, respectively, as well as the computation of adjusted gross profit, adjusted gross margin, and adjusted net income (loss) per share, diluted.

Three Months Ended Six Months Ended

(in thousands, except per share amounts) December 27, 2025 December 28, 2024 December 27, 2025 December 28, 2024

Three Months Ended Nine Months Ended

(in thousands, except per share amounts) March 28, 2026 March 29, 2025 March 28, 2026 March 29, 2025

GAAP net loss $ (2,625) $ (604) $ (13,450) $ (4,394)

2 unchanged sentences

Stock-based compensation expense (31) 26 468 109

Gain on insurance proceeds, net of losses (637) (637)

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

15 unchanged sentences

(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 27, 2025, we had an order backlog of approximately $139.1 million.

This compares with a backlog of approximately $162.5 million on December 28, 2024.

The decrease in order backlog is primarily related to softening of demand for a number of existing programs.

On March 28, 2026, we had an order backlog of approximately $159.5 million.

This compares with a backlog of approximately $138.1 million on March 29, 2025.

The increase in order backlog is primarily related to strengthening of demand for a number of existing programs.

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

3 unchanged sentences

Operating Cash Flow

Net cash provided by operating activities for the six months ended December 27, 2025 was $14.0 million.

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

The $14.0 million of net cash provided by operating activities for the six months ended December 27, 2025 was primarily related to $10.8 million in net loss for the period adjusted for $5.0 million of depreciation and amortization, an $11.0 million decrease in accounts receivable, a $6.3 million decrease in inventories, a $2.5 million decrease in contract assets, and a $2.0 million increase in accrued compensation and vacation partially offset by a $1.3 million decrease in accounts payable, a $1.4 million decrease in other liabilities, and a $1.8 million increase in other assets.

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.

Net cash provided by operating activities for the nine months ended March 28, 2026 was $10.0 million.

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

The $10.0 million of net cash provided by operating activities for the nine months ended March 28, 2026 was primarily related to $13.5 million in net loss for the period adjusted for $7.1 million of depreciation and amortization, an $9.6 million decrease in accounts receivable, a $8.6 million decrease in inventories, a $0.1 million decrease in contract assets, a $2.1 million increase in accounts payable partially offset by a $2.2 million decrease in accrued compensation and vacation, a $4.0 million decrease in other liabilities, and a $2.1 million increase in other assets.

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, and 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.

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

3 unchanged sentences

Investing Cash Flow

Cash used in investing activities was $6.5 million during the six months ended December 27, 2025 as compared to cash used in investing activities of $0.8 million during the six months ended December 28, 2024.

Our primary investing activities during the six months ended December 27, 2025 and December 28, 2024, related to purchasing equipment to support increased production levels for new programs.

Cash used in investing activities was $3.7 million during the nine months ended March 28, 2026 as compared to cash used in investing activities of $3.0 million during the nine months ended March 29, 2025.

Our primary investing activities during the nine months ended March 28, 2026 and March 29, 2025, 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.

2 unchanged sentences

Financing Cash Flow

Cash used in financing activities was $8.1 million during the six months ended December 27, 2025 as compared to $11.2 million used in financing activities in the same period of the previous fiscal year.

Our primary financing activities during the six months ended December 27, 2025, and December 28, 2024, were borrowings and repayments under our asset-based credit agreement with BMO Bank, N.A.

Cash used in financing activities was $7.2 million during the nine months ended March 28, 2026 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 nine months ended March 28, 2026, and March 29, 2025, were borrowings and repayments under our 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, our prior loan and security agreement, as amended, with Bank of America, N.A.

1 unchanged sentence

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

As discussed in Note 4 – “Long Term Debt” of the Notes to the Consolidated Financial Statements, we entered the Credit Facility, and also entered into a $28 million term loan (the "Term Loan") credit agreement with Callodine Commercial Finance, LLC.

As discussed in Note 4 – “Long Term Debt” of the Notes to the Consolidated Financial Statements, we entered into the Credit Facility, and 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 and leasing capabilities will be sufficient to meet our working and fixed capital requirements for at least the next 12 months.

As of December 27, 2025, we had approximately $0.8 million of cash held by foreign subsidiaries.

As of March 28, 2026, we had approximately $0.4 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 December 27, 2025 would approximate $16,000.

The total amount of tax payments required for the amount of foreign subsidiary cash on hand as of March 28, 2026 would approximate $11,000.

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

58 unchanged sentences

Instead, the Company intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations.

The wind down activities remain ongoing and are expected to be substantially completed by the end of the Company’s fiscal year 2026, after which there will still be ongoing sourcing and procurement activities intended to support its remaining global locations.

The wind down activities remain ongoing and are expected to be substantially completed by the end of the Company’s fiscal year 2026.

As wind down activities progress, we may discover other facts necessitating additional expenses or charges that may differ from our initial expectations.

6 unchanged sentences

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

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

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.

from these countries for use in the manufacture of products

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.

5 unchanged sentences

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.

For example, we have incurred significant one-time expenses in the second quarter of 2026 related to the wind-down of our China manufacturing operations.

For example, we incurred significant one-time expenses in the second quarter of 2026 related to the wind-down of our China manufacturing operations.

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.

1 unchanged sentence

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

In February 2026, the U.S.

Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") were unauthorized.

In March 2026, the U.S.

Court of International Trade ordered U.S.

Customs and Border Protection to refund IEEPA tariffs collected;

however, the refund process and timing remain uncertain, and the order may be subject to further government action or challenge.

Accordingly, as of March 28, 2026, we have not recorded any benefit related to potential refunds of IEEPA tariffs paid.

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.

21 unchanged sentences

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.

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;

11 unchanged sentences

As part of our hedging strategy, we currently use Mexican Peso forward contracts to hedge future foreign currency fluctuations for a portion of our Mexican Peso denominated expenses.

We currently do not hedge expenses denominated in RMB and have occasionally also been unable to hedge expenses denominated in Mexican Peso.

We currently do not hedge expenses denominated in RMB or the Vietnamese dong, and have occasionally also been unable to hedge expenses denominated in Mexican Peso.

Losses have occurred from increases in the value of these currencies relative to the United States dollar and further losses could occur, which could be material to our business, financial results or operations.

9 unchanged sentences

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.

Start-up costs and inefficiencies related to new or transferred programs can adversely affect our operating results and such costs may not be recoverable if such new programs or transferred programs are canceled or don’t meet expected sales volumes.

Start-up costs, the management of labor and equipment resources in connection with the establishment of new programs and new customer relationships, and the need to obtain required resources in advance can adversely affect our gross margins and operating results.

operating results.

These factors are particularly evident in the ramping stages of new programs.

30 unchanged sentences

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

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.

operational, financial and management information systems.

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

34 unchanged sentences

The markets for our customers’ products are characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and short product life cycles.

The introduction of products embodying new technologies or the emergence of new industry standards can render existing products obsolete or unmarketable.

The introduction of products embodying new technologies or

the emergence of new industry standards can render existing products obsolete or unmarketable.

Our success will depend upon our customers’ ability to enhance existing products and to develop and introduce, on a timely and cost-effective basis, new products that keep pace with technological developments and emerging industry standards and address evolving and increasingly sophisticated customer requirements.

Failure of our customers to do so could substantially harm our customers’

competitive positions.

Failure of our customers to do so could substantially harm our customers’ competitive positions.

There can be no assurance that our customers will be successful in identifying, developing and marketing products that respond to technological change, emerging industry standards or evolving customer requirements.

27 unchanged sentences

Our stock price has and may continue to be subject to wide fluctuations and possible rapid increases or declines over a short time period.

These fluctuations may be due to factors specific to us such as our stock's thinly traded nature, variations in quarterly operating results, changes in earnings estimates, matters arising from the subject matter of the Audit Committee's internal investigation, or to factors relating to the contract manufacturing industry or to the securities markets in general, which, in recent years, have experienced significant price fluctuations.

These fluctuations often have been unrelated to the operating

performance of the specific companies whose stocks are traded.

These fluctuations may be due to factors specific to us such as our stock's thinly traded nature, variations in

quarterly operating results, changes in earnings estimates, matters arising from the subject matter of the Audit Committee's internal investigation, or to factors relating to the contract manufacturing industry or to the securities markets in general, which, in recent years, have experienced significant price fluctuations.

These fluctuations often have been unrelated to the operating performance of the specific companies whose stocks are traded.

In addition, holders of our common stock will suffer immediate dilution to the extent outstanding equity awards are exercised to purchase common stock.

RISKS RELATED TO OUR CONTROLS AND PROCEDURES AND THE INTERNAL INVESTIGATION

RISKS RELATED TO OUR CONTROLS AND PROCEDURES

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.

21 unchanged sentences

Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

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.

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.

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 such investigation.

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.

Further, we, our officers and members of our Board of Directors could be named as defendants in lawsuits asserting claims arising out of the subject matter of the Audit Committee’s internal investigation.

As a result of any legal proceedings and any related indemnification requirements to our officers and directors, we could be required to pay monetary damages that may be in excess of our insurance coverage or may have additional penalties or other remedies imposed against us or our officers and directors.

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

7 unchanged sentences

In addition, the restatement and revisions may lead to a loss of investor confidence and have negative impacts on the trading price of our common stock.

We are involved in various legal proceedings.

Legal proceedings and government investigations could affect our financial condition or results of operations.

In the past, we have been notified of claims relating to various matters including contractual matters, intellectual property rights or other issues arising in the ordinary course of business.

2 unchanged sentences

Accordingly, the resolution or adjudication of such disputes, even those encountered in the ordinary course of business, could have a material effect on our business, consolidated financial conditions and results of operations.

In addition, from time to time we, or our officers and members of our Board of Directors, may be involved in lawsuits and regulatory actions relating to our business and operations.

As discussed in more detail under “Legal Proceedings,” we reached a settlement with the SEC in April 2026 that fully resolved an inquiry by the SEC related to the subject matter of our 2021 internal investigation.

If we are subject in the future to lawsuits or regulatory action, we could be required to pay monetary damages that may be in excess of our insurance coverage or may have additional penalties or other remedies imposed against us or our officers and directors.

Any such expenses, the potential diversion of the attention of management and other personnel as a result of such legal proceedings, or negative publicity arising from any such matters could adversely affect our business, financial condition, results of operations and cash flows.

Changes in securities laws and regulations will increase our costs and risk of noncompliance.

12 unchanged sentences

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.

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.

GENERAL RISKS

17 unchanged sentences

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