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Item 1. Financial Statements

2024-11-07 compared with 2024-08-08 · 268 added, 242 removed, 256 unchanged (67% of the section changed)

1 unchanged sentence

SYSTEMS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

THOUSANDS, EXCEPT SHARE DATA)

THREE MONTHS ENDED

SIX MONTHS ENDED

Cost of goods sold

2 unchanged sentences

Research and development

Restructuring charges

Total operating expenses

Income from operations

Restructuring

operating expenses

(Loss) income from operations

Other expense:

Interest expense

Income before income taxes

Income tax expense

Net income per common share:

(Loss) income before income taxes

Income tax expense (benefit)

Net (loss) income

Net (loss) income per common share:

Basic (in dollars per share)

Weighted average number of common shares outstanding - basic (in shares)

Weighted average number of common shares

outstanding - basic (in shares)

Diluted (in dollars per share)

Weighted average number of common shares outstanding - diluted (in shares)

Other comprehensive income (loss)

Foreign currency translation

Comprehensive income (loss), net of tax

Weighted average number of common shares

outstanding - diluted (in shares)

Other comprehensive (loss) income

currency translation

Comprehensive (loss)

income, net of tax

Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

OF JUNE 30, 2024 AND DECMEBER 31, 2023

THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31, 2023 (1)

Current assets:

Restricted cash

Accounts receivable, less allowances of $ 270 and $ 358 , respectively

Accounts receivable, less

allowances of $ 286 and $ 358 , respectively

Inventories, net

Contract assets

Prepaid assets and other assets

Total current assets

assets and other assets

current assets

Property and equipment, net

1 unchanged sentence

Deferred tax assets

Other intangible assets, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

Other intangible assets,

LIABILITIES AND SHAREHOLDERS’

Current liabilities:

Current portion of finance lease obligations

Current portion of operating lease obligations

Current portion of finance

lease obligations

Current portion of operating

lease obligations

Accounts payable

1 unchanged sentence

Customer deposits

Other accrued liabilities

Total current liabilities

accrued liabilities

current liabilities

Long-term liabilities:

Long-term line of credit, net of issuance costs

Long-term finance lease obligations, net of current portion

Long-term operating lease obligations, net of current portion

Other long-term liabilities

Total long-term liabilities

Total liabilities

Long-term line of credit,

net of issuance costs

Long-term finance lease

obligations, net of current portion

Long-term operating lease

obligations, net of current portion

long-term liabilities

Shareholders’ equity:

Preferred stock, $ 1 par value;

Preferred stock, $ 1 par

1,000,000 shares authorized;

250,000 shares issued and outstanding

Common stock - $ 0.01 par value;

Common stock - $ 0.01 par

9,000,000 shares authorized;

1 unchanged sentence

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

Total shareholders’ equity

Total liabilities and shareholders’ equity

(1) The balance sheet

as of December 31, 2023 has been derived from the consolidated audited financial statements at that date.

Accumulated other comprehensive

shareholders’ equity

liabilities and shareholders’ equity

The balance sheet as of December 31, 2023 has been derived from the consolidated

audited financial statements at that date.

Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

CASH FLOWS FROM OPERATING

Adjustments to reconcile

net income to net cash (used in) provided by operating activities:

Depreciation and amortization

Compensation on stock-based awards

Compensation on stock-based

Change in inventory reserves

Change in accounts receivable allowances

Changes in current operating assets and liabilities:

Change in accounts receivable

Changes in current operating

assets and liabilities:

Accounts receivable

Employee Retention Credit Receivable

Employee Retention Credit

Contract assets

Prepaid expenses and other current assets

Prepaid expenses and other

current assets

Accounts payable

1 unchanged sentence

Customer deposits

Other accrued liabilities

Net cash (used in) provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of property and equipment

Purchases of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

accrued liabilities

cash (used in) provided by operating activities

CASH FLOWS FROM INVESTING

Proceeds from sale of property

and equipment

of property and equipment

cash used in investing activities

CASH FLOWS FROM FINANCING

Proceeds from line of credit

Payments to line of credit

Principal payments on financing leases

Proceeds from stock option exercises

Net cash provided by financing activities

Effect of exchange rate changes on cash

Proceeds from financing

Principal payments on financing

Share repurchases

from stock option exercises

cash provided by (used in) financing activities

Effect of exchange rate

changes on cash

Net change in cash and cash equivalents

Cash and cash equivalents - beginning of period

Cash and cash equivalents - end of period

Reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets:

Restricted cash

Total cash and restricted cash reported in the condensed consolidated statements of cash flows

Cash - beginning of period

Cash - end of period

Reconciliation of cash and restricted cash

reported within the condensed consolidated balance sheets:

Total cash and restricted

cash reported in the condensed consolidated statements of cash flows

SYSTEMS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED

Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for

Cash paid for income taxes

Supplemental noncash investing and financing activities:

Property and equipment purchases in accounts payable

Operating lease assets acquired under operating leases

Supplemental noncash investing and financing

Property and equipment

purchases in accounts payable

Operating lease assets

acquired under operating leases

Equipment acquired under

finance lease

Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Preferred Stock

Comprehensive

Shareholders’

Balance as of March 31, 2023

Balance as of June 30, 2023

Foreign currency translation adjustment

Stock option exercises

Compensation on stock-based awards

Compensation on stock-based

Balance as of September

Balance as of June 30, 2024

Balance as of March 31, 2024

Foreign currency translation adjustment

Issuance for stock-based awards

Compensation on stock-based awards

Balance as of June 30, 2024

Stock repurchases

Balance as of September

Balance as of December 31, 2022

1 unchanged sentence

Compensation on stock-based awards

Issuance for stock-based awards

Cumulative adjustment related to adoption of ASC 326 (current expected credit loss)

Balance as of June 30, 2023

Stock option exercises

Cumulative adjustment

related to adoption of ASC 326 (current expected credit loss)

Balance as of September

Balance as of December 31, 2023

Net income (loss)

Foreign currency translation adjustment

Compensation on stock-based awards

Issuance for stock-based awards

Balance as of June 30, 2024

Stock option exercises

Stock repurchases

Balance as of September

Accompanying Condensed Notes to Condensed Consolidated Financial Statements.

41 unchanged sentences

Statements and related disclosures.

Out-of-Period

the first quarter of 2024, we identified an error that understated our accrued liabilities by approximately $ 178 as of December 31, 2023.

We corrected the error on a prospective basis during the first quarter of 2024 through an out of period adjustment lowering our net income

by $ 178 in both the three and six months ended June 30, 2024.

We assessed the materiality of the error and concluded that the error was

not material to the results of operations or financial condition or for the prior annual and interim periods, and the correction is not

expected to be material to the full year results for fiscal year 2024.

are as follows:

5 unchanged sentences

Intangible Assets

intangible assets as of June 30, 2024 and December 31, 2023 are as follows:

intangible assets as of September 30, 2024 and December 31, 2023 are as follows:

OF OTHER INTANGIBLE ASSETS

2 unchanged sentences

Balances as of December

Balances as of June 30, 2024

Balances as of September 30, 2024

assets are amortized on a straight-line basis over their estimated useful lives.

1 unchanged sentence

our intangible assets is 5.5 years.

Of the patents value as of June 30, 2024, $ 98 are being amortized and $ 85 are in process and a patent

has not yet been issued.

expense of finite life intangible assets for both the three months ended June 30, 2024 and 2023 was $ 40 .

Amortization expense of finite

life intangible assets for both the six months ended June 30, 2024 and 2023 was $ 80 .

of June 30, 2024, estimated future annual amortization expense (except projects in process) related to these assets is as follows:

Of the patents value as of September 30, 2024, $ 94 are being amortized and $ 85 are in process and

a patent has not yet been issued.

expense of finite life intangible assets for the three months ended September 30, 2024 and 2023 was $ 4 and $ 40 , respectively.

expense of finite life intangible assets for the nine months ended September 30, 2024 and 2023 was $ 84 and $ 120 , respectively.

of September 30, 2024, estimated future annual amortization expense (except projects in process) related to these assets is as follows:

OF ESTIMATED FUTURE ANNUAL AMORTIZATION EXPENSE

5 unchanged sentences

The Company’s

$ 1,542 cash balance as of June 30, 2024 included approximately $ 1,141 and $ 32 that was held at banks located in China and Mexico, respectively.

$ 1,239 cash balance as of September 30, 2024 included approximately $ 1,035 and $ 6 that was held at banks located in China and Mexico,

respectively.

We grant credit to customers in the normal course of business and generally do not require collateral on our accounts receivable.

1 unchanged sentence

represented 10% or more of gross accounts receivable.

One customer accounted for 26 % and 25 % of net sales for the three and six months

ended June 30, 2024, respectively.

Two customers accounted for 39 % of net sales for both the three and six months ended June 30, 2023.

of June 30, 2024, three customers represented approximately 39 % of our gross accounts receivable.

One customer accounted for 28 % and 26 % of net sales for the three and nine months

ended September 30, 2024, respectively.

Two customers accounted for 36 % and 38 % of net sales for both the three and nine months ended

September 30, 2023.

of September 30, 2024, one customer represented approximately 22 % of our gross accounts receivable.

As of December 31, 2023, two customers

represented approximately 35 % of our gross accounts receivable.

assets for three customers accounted for 43 % of gross contract assets as of June 30, 2024.

assets for three customers accounted for 44 % of gross contract assets as of September 30, 2024.

Contract assets for two customers accounted

1 unchanged sentence

sales from the U.S.

represented approximately 3 % and 2 % of net sales for the three and six months ended June 30, 2024, respectively.

Export sales represented approximately 3 % of net sales for both three and six month ended June 30, 2023.

under contract manufacturing agreements that was recognized over time accounted for approximately 74 % of net sales for both the three and six months ended June 30, 2024 and approximately 73 % and 74 % of net sales for the three and six months ended June 30,

represented approximately 2 %

of net sales for both the three and nine months ended September 30, 2024.

Export sales represented approximately 3 %

of net sales for both three and nine month ended September 30, 2023.

under contract manufacturing agreements that was recognized over time accounted for approximately 72 % and 73 % of net sales for the three

and nine months ended September 30, 2024, respectively and approximately 74 % of net sales for both the three and nine months ended September

30, 2023, respectively.

following tables summarize our net sales by market for the three months ended June 30, 2024 and 2023, respectively:

following tables summarize our net sales by market for the three months ended September 30, 2024 and 2023, respectively:

OF NET SALES BY MARKET

Three Months Ended June 30, 2024

Product/ Service Transferred

Product Transferred at Point in Time

Noncash Consideration 1

Total Net Sales by Market

Months Ended September 30, 2024

Service Transferred

Transferred at Point in Time

Consideration 1

Net Sales by Market

Aerospace and defense

Total net sales

Three Months Ended June 30, 2023

Product/ Service Transferred

Product Transferred at Point in Time

Noncash Consideration 1

Total Net Sales by Market

Months Ended September 30, 2023

Service Transferred

Transferred at Point in Time

Consideration 1

Net Sales by Market

Aerospace and defense

Total net sales

Noncash consideration

represents material provided by the customer used in the build of the product.

following tables summarize our net sales by market for the six months ended June 30, 2024 and 2023, respectively:

Six Months Ended June 30, 2024

Product/ Service Transferred

Product Transferred at Point in Time

Noncash Consideration 1

Total Net Sales by Market

Noncash consideration represents material provided by the customer

used in the build of the product.

following tables summarize our net sales by market for the nine months ended September 30, 2024 and 2023, respectively:

Months Ended September 30, 2024

Service Transferred

Transferred at Point in Time

Consideration 1

Net Sales by Market

Aerospace and defense

Total net sales

Six Months Ended June 30, 2023

Product/ Service Transferred

Product Transferred at Point in Time

Noncash Consideration 1

Total Net Sales by Market

Months Ended September 30, 2023

Service Transferred

Transferred at Point in Time

Consideration 1

Net Sales by Market

Aerospace and defense

Total net sales

consideration represents material provided by the customer used in the build of the product.

Noncash consideration represents material provided by the customer

used in the build of the product.

assets, recorded as such in the Condensed Consolidated Balance Sheet, consist of unbilled amounts related to revenue recognized over

Significant changes in the contract assets balance during the six months ended June 30, 2024 were as follows:

Significant changes in the contract assets balance during the nine months ended September 30, 2024 were as follows:

OF CONTRACT ASSETS

1 unchanged sentence

Increase (decrease) attributed to:

Amounts transferred over time to contract assets

Allowance for current expected credit losses

Amounts invoiced during the period

Balance outstanding as of June 30, 2024

expect substantially all of the remaining performance obligations for the contract assets recorded as of June 30, 2024 to be transferred

to receivables within 90 days, with any remaining amounts to be transferred within 180 days.

We bill our customers upon shipment with

payment terms of up to 120 days.

Amounts transferred over

time to contract assets

Allowance for current expected

credit losses

invoiced during the period

Balance outstanding as of September 30,

expect substantially all of the remaining performance obligations for the contract assets recorded as of September 30, 2024 to be transferred

to accounts receivable within 90 days, with any remaining amounts to be transferred within 180 days.

We bill our customers upon shipment

with payment terms of up to 120 days.

FINANCING ARRANGEMENTS

8 unchanged sentences

The Company is required to quarterly pay a 20-basis point fee on the unused portion of the Revolver.

Revolver requires the Company to maintain no more than 2.5 times leverage ratio and at least a 1.25 times minimum fixed charges

coverage ratio, both of which are defined in the Revolver agreement.

The Company met the covenants for the period ended June 30,

There are no subjective acceleration clauses under the Revolver that would accelerate the maturity of outstanding borrowings.

The Revolver contains certain covenants which, among other things, require the Company to adhere to regular reporting requirements,

abide by shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital

expenditures.

The Revolver is secured by substantially all the Company’s assets and expires on February 28, 2027.

compliance with all the financial covenants related to this agreement as of and for the period ended June 30, 2024, except for the covenant related to operating expense contributions to our Mexican operations in excess of the amounts allowed under the

We have received a waiver of this event of default from the bank.

Revolver requires the Company to maintain no more than 2.5 times leverage ratio and at least a 1.25 times minimum fixed charges coverage

ratio, both of which are defined in the Revolver agreement.

The Company met the covenants for the period ended September 30, 2024.

are no subjective acceleration clauses under the Revolver that would accelerate the maturity of outstanding borrowings.

contains certain covenants which, among other things, require the Company to adhere to regular reporting requirements, abide by shareholder

dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures.

The Revolver is secured

by substantially all the Company’s assets and expires on February 28, 2027.

We were in compliance with all the financial covenants

related to this agreement as of and for the period ended September 30, 2024, except for the covenant related to operating expense contributions

to our Mexican operations in the first and second quarters of 2024 in excess of the amounts allowed under the Revolver.

a waiver of this event of default from the bank in August 2024.

the amended Bank of America credit agreement signed February 29, 2024, the line of credit is subject to variations in the SOFR index

2 unchanged sentences

Our line of credit bears

interest at a weighted-average interest rate of 8.0 % and 8.3 % as of June 30, 2024 and December 31, 2023, respectively.

interest at a weighted-average interest rate of 7.9 % and 8.3 % as of September 30, 2024 and December 31, 2023, respectively.

We had borrowings

on our line of credit of $ 8,360 and $ 5,846 outstanding as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024 we

had unused availability on the line of credit of $ 6,440 .

line of credit is shown net of debt issuance costs of $ 46 and $ 31 on the condensed consolidated balance sheet as of June 30, 2024 and

December 31, 2023, respectively.

on our line of credit of $ 9,550 and $ 5,846 outstanding as of September 30, 2024 and December 31, 2023, respectively.

As of September

30, 2024 we had unused availability on the line of credit of $ 5,450 .

Company has an interim funding agreement as of September 30, 2024 with a bank related to $ 317

of deposits made on equipment purchases that

will be funded through a finance lease when the equipment is received and operational.

As of September 30, we have $ 317

outstanding on the interim funding agreement

for equipment we expect to receive in the fourth quarter of 2024.

line of credit is shown net of debt issuance costs of $ 42 and $ 31 on the condensed consolidated balance sheet as of September 30, 2024

and December 31, 2023, respectively.

have operating leases for certain manufacturing sites, office space, and equipment.

Most leases include the option to renew, with renewal

terms that can extend the lease term from one to five years or more.

Right-of-use lease assets and lease liabilities are recognized at

the commencement date based on the present value of the remaining lease payments over the lease term which includes renewal periods we

are reasonably certain to exercise.

Our leases do not contain any material residual value guarantees or material restrictive covenants.

As of June 30, 2024, we do not have material lease commitments that have not commenced.

We extended our operating leases for part of

our manufacturing facility in China and our corporate office in Maple Grove, MN during the first six months of 2024 which extended the

lease through August of 2033 with monthly lease payments of $ 14 to $ 18 .

Most leases include the option to renew, with

renewal terms that can extend the lease term from one

years or more.

Right-of-use lease assets and lease liabilities are recognized at the commencement date based on the present

value of the remaining lease payments over the lease term which includes renewal periods we are reasonably certain to exercise.

leases do not contain any material residual value guarantees or material restrictive covenants.

We amended our operating leases for

part of our manufacturing facility in China and our corporate office in Maple Grove, Minnesota during the first nine months of 2024

which extended the lease through August of 2033 with monthly lease payments of $ 14

As of September 30, 2024, we have a lease commitment of approximately $ 400 for a finance lease that will commence

in the fourth quarter of 2024.

components of lease expense were as follows:

SCHEDULE OF COMPONENTS OF LEASE EXPENSE

Three Months Ended June 30,

Months Ended September 30,

Operating lease cost

Finance lease interest cost

Finance lease amortization expense

Finance lease amortization

Total lease cost

Six Months Ended June 30,

Months Ended September 30,

Operating lease cost

Finance lease interest cost

Finance lease amortization expense

Finance lease amortization

Total lease cost

1 unchanged sentence

OF SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION RELATED TO LEASES

Balance Sheet Location

December 31, 2023

Sheet Location

Finance lease assets

1 unchanged sentence

Operating lease assets

Operating lease assets, net

Operating lease assets,

Total leased assets

4 unchanged sentences

Long-term finance lease liabilities

Long-term finance lease liabilities, net of current portion

Long-term operating lease liabilities

Long-term operating lease obligations, net of current portion

Long-term finance lease liabilities, net of

current portion

Long-term operating lease

obligations, net of current portion

Total lease liabilities

condensed consolidated statement of cash flows information for the six months ended June 30, 2024 related to leases was as follows:

condensed consolidated statement of cash flows information for the nine months ended September 30, 2024 related to leases was as follows:

OF SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS INFORMATION

Operating Leases

Cash paid for amounts included in the measurement of lease liabilities

Cash paid for amounts included

in the measurement of lease liabilities

Property acquired under operating lease

payments of lease liabilities as of June 30, 2024 were as follows:

payments of lease liabilities as of September 30, 2024 were as follows:

OF FUTURE PAYMENTS OF LEASE LIABILITIES

1 unchanged sentence

imputed interest

Present value of lease liabilities

lease term and discount rate as of June 30, 2024 were as follows:

Present value of

lease liabilities

lease term and discount rate as of September 30, 2024 were as follows:

OF LEASE TERM AND DISCOUNT RATE

6 unchanged sentences

STOCK BASED AWARDS

compensation expense was reported as follows in the condensed consolidated statements of income within general and administrative expenses

of $ 126 and $ 93 for the three months ended June 30, 2024 and 2023, respectively and $ 206 and $ 192 for the six months ended June 30, 2024

and 2023, respectively.

compensation expense was reported as follows in the condensed consolidated statements of operations within general and administrative

expenses of $ 127 and $ 80 for the three months ended September 30, 2024 and 2023, respectively, and $ 334 and $ 299 for the nine months ended

September 30, 2024 and 2023, respectively.

May 2017, the shareholders approved the 2017 Stock Incentive Plan which authorized the issuance of 350,000 shares.

1 unchanged sentence

175,000 , 100,000 and 100,000 shares were authorized in March 2020, May 2022, May 2023 and May 2024, respectively.

granted 22,000 service-based stock options during the three and six months ended June 30, 2024.

The weighted-average grant-date fair

value of options granted during the six months ended June 30, 2024 was $ 8.22 .

We granted 29,000 service-based stock options during the

three and six months ended June 30, 2023.

Weighted average stock option fair value assumptions and the weighted average grant date fair

value of stock options granted were as follows:

granted 1,000 and 23,000 , respectively, service-based stock options during the three and nine months ended September 30, 2024, respectively.

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2024 was $ 8.20 .

25,000 and 54,000 , respectively, service-based stock options during the three and nine months ended September 30, 2023.

Weighted average

stock option fair value assumptions and the weighted average grant date fair value of stock options granted were as follows:

OF WEIGHTED AVERAGE GRANT DATE FAIR VALUE OF STOCK OPTIONS GRANTED

Stock option fair value assumptions:

Risk-free interest rate

Risk-free interest

Expected life (years)

1 unchanged sentence

Expected volatility

Weighted average grant date fair value of stock options granted

compensation expense related to stock options was $ 65 and $ 121 for the three and six months ended June 30, 2024, respectively.

compensation expense related to stock options was $ 55 and $ 123 for the three and six months ended June 30, 2023, respectively.

June 30, 2024, there was $ 844 of unrecognized compensation related to stock options which will be recognized over a weighted average

period of 3.8 years.

is the status of option activity for the six months ended and as of June 30, 2024:

Weighted average grant date fair value of stock

options granted

compensation expense related to stock options was $ 61 and $ 184 for the three and nine months ended September 30, 2024, respectively.

Total compensation expense related to stock options was $ 42 and $ 184 for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024, there was $ 775 of unrecognized compensation related to stock options which will be recognized over a weighted

average period of 3.6 years.

is the status of option activity for the nine months ended and as of September 30, 2024:

OF OPTION ACTIVITY

Exercise Price

Intrinsic Value

Outstanding – December 31, 2023

Outstanding – June 30, 2024

Exercisable on June 30, 2024

the three and six month periods ended June 30, 2024 and 2023, we granted 15,141 and 18,000 restricted stock units (“RSUs”),

Outstanding – September 30, 2024

Exercisable on September 30, 2024

the three and nine months ended September 30, 2024 and 2023, we granted 15,141 and 18,000 restricted stock units (“RSUs”),

respectively, at an average grant price per share of $ 11.06 and $ 9.37 , respectively, under our 2017 Stock Incentive Plan to non-employee

directors which vest over two years .

Total compensation expense related to the RSUs was $ 61 and $ 85 for the three and six months ended

June 30, 2024 and 2023, respectively.

Total compensation expense related to the RSUs was $ 38 and $ 69 for the three and six months ended

June 30, 2023, respectively.

As of June 30, 2024, total unrecognized compensation expense related to the RSUs was $ 220 , which will vest

over a weighted average period of 0.9 years.

is the status of restricted stock activity for the six months ended and as of June 30, 2024:

Total compensation expense related to the RSUs was $ 66 and $ 150 for the three and nine months ended

September 30, 2024, respectively.

Total compensation expense related to the RSUs was $ 38 and $ 113 for the three and nine months ended

September 30, 2023, respectively.

As of September 30, 2024, total unrecognized compensation expense related to the RSUs was $ 153 , which

will vest over a weighted average period of 0.6 years.

is the status of restricted stock activity for the nine months ended and as of September 30, 2024:

OF RESTRICTED STOCK ACTIVITY

Intrinsic Value

Outstanding – December 31, 2023

Outstanding – June 30, 2024

NET INCOME PER SHARE DATA

net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the

Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding

using the treasury stock method during the period.

The Company’s potentially dilutive common shares are those that result from

dilutive common stock options and non-vested stock relating to restricted stock units.

calculation of diluted income per shared excluded 31,611 and 45,453 in weighted average shares for the three and six months ended June

30, 2024, respectively, and 60,728 and 47,182 in weighted average shares for the three and six months ended June 30, 2023, respectively,

as their effect was anti-dilutive.

Outstanding – September 30, 2024

NET (LOSS) INCOME PER SHARE DATA

net (loss) income per common share is calculated by dividing net (loss) income by the weighted average number of common shares outstanding

during the period.

Diluted net income per common share is computed by dividing net income by the weighted average number of common shares

outstanding using the treasury stock method during the period.

The Company’s potentially dilutive common shares are those that

result from dilutive common stock options and non-vested stock relating to restricted stock units.

In a period where the Company incurs

a net loss, the Company excludes dilutive securities, and the shares used for the basic and diluted loss per share are the same.

calculation of diluted (loss) income per shared excluded 189,265 and 93,391 in weighted average shares for the three and nine months ended

September 30, 2024, respectively, and 64,322 and 52,896 in weighted average shares for the three and nine months ended September 30,

2023, respectively, as their effect was anti-dilutive.

Basic and diluted weighted average shares outstanding were as follows:

1 unchanged sentence

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Basic weighted average shares outstanding

4 unchanged sentences

As the year progresses, we refine our estimate based on the facts and circumstances, including discrete

effective tax rate for the three and six months ended June 30, 2024 was 12 % and 21 %, respectively.

Our effective tax rate for the three

and six months ended June 30, 2023 was 35 % and 31 %.

The decrease in the effective tax rate is attributable to the application of a valuation

allowance during the three and six month periods ended June 30, 2023 and inclusion of estimated research and development tax credits

in the three and six months ended June 30, 2024, partially offset by increased taxes on foreign entities.

effective tax rate for the three and nine months ended September 30, 2024 was 8 % and 62 %, respectively.

Our effective tax rate for the

three and nine months ended September 30, 2023 was ( 21 %) and 13 %, respectively.

The primary drivers of the change in rate relate to changes

in pretax book income and the 2023 U.S.

federal provision to return adjustments recorded in the third quarter of 2024, partially offset

by realization of deferred tax assets in the 2024 periods as the Company removed its valuation allowance in the fourth quarter of 2023.

RESTRUCTURING CHARGES

the first six months of 2024, we accrued restructuring charges of $ 91 related to the closure and consolidation of our Blue Earth, Minnesota

the first nine months of 2024, we accrued restructuring charges of $ 267 related to the closure and consolidation of our Blue Earth, Minnesota

production facility, which is planned to be completed in the fourth quarter of 2024.

There were no restructuring charges or amounts accrued

in the six months ended June 30, 2023.

in the nine months ended September 30, 2023.

PAYROLL TAX DEFERRAL

9 unchanged sentences

We have accounts receivable related to Abilitech of $ 85 .

has ceased operations and therefore we do not believe that Abilitech will pay the Company for outstanding accounts receivable, and we

have recorded a full allowance against the gross amount.

The Company believes that transactions with Abilitech were on terms comparable

to those that the Company could reasonably expect in an arm’s length transaction with an unrelated third party.

of $ 28 were received during the three months ended March 31, 2024.

Abilitech has ceased operations and therefore we do not believe that

Abilitech will pay the Company for outstanding accounts receivable, and we have recorded a full allowance against the gross amount.

Company believes that transactions with Abilitech were on terms comparable to those that the Company could reasonably expect in an arm’s

length transaction with an unrelated third party.

Kunin, our Chairman, is a minority owner (less than 10 %) of Marpe Technologies, LTD an early-stage medical device company dedicated to

19 unchanged sentences

have been approved by the Audit Committee pursuant to the Company Related-Party Transactions Policy.

During the three and six months

ended June 30, 2024 and 2023, we recognized net sales to Marpe Technologies of $ 0 and $ 67 , respectively.

As of June 30, 2024 and December

31, 2023, we have recorded an unbilled receivable of $ 21 and $ 39 , respectively, related to expected reimbursement from the BIRD Foundation

and have outstanding accounts receivable of $ 0 and $ 20 , respectively.

The Company believes that transactions with Marpe are on terms

comparable to those that the Company could reasonably expect in an arm’s length transaction with an unrelated third party.

During the three months ended September 30, 2024 and 2023, we recognized net sales to Marpe Technologies of $ 8 and

$ 0 , respectively.

During the nine months ended September

30, 2024 and 2023, we recognized net sales to Marpe Technologies of $ 75 and $ 163 , respectively.

The Company believes that transactions

with Marpe are on terms comparable to those that the Company could reasonably expect in an arm’s length transaction with an unrelated

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 1. Financial Statements