What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-03-26 compared with 2025-03-31 · 430 added, 387 removed, 536 unchanged (60% of the section changed)

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Financial Statements:

Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2024 and 2023

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2025 and 2024

Consolidated Balance Sheets as of December 31, 2025 and 2024

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on the Financial Statements

have audited the accompanying consolidated balance sheets of Nortech Systems Incorporated and Subsidiaries (the

“Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive (loss)

income, shareholders’ equity, and cash flows, for the years then ended, and the related notes (collectively referred to as the

“consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all

material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its

cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of

have audited the accompanying consolidated balance sheets of Nortech Systems Incorporated and Subsidiaries (the “Company”)

as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive income (loss), shareholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial

statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated

financial position of the Company as of December 31, 2025 and 2024, and the consolidated results of its operations and its cash flows

for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

consolidated financial statements are the responsibility of the Company’s management.

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audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence

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We believe that our audits provide a reasonable basis for our opinion.

Audit Matters

audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be

communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and

(2) involved or are especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that

was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication

of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are

not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or

disclosures to which it relates.

of Impairment of Long-Lived Assets

Audit Matter Description

described in Note 1 to the consolidated financial statements, the Company reviews property, plant and equipment for impairment whenever

events or changes in circumstances indicate that the carrying value of an asset (asset group) may not be recoverable.

An impairment loss

is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the

asset and its eventual disposition.

The amount of the impairment loss recorded is calculated by the excess of the asset’s carrying

value over its fair value.

Management identified triggering events during the year ended December 31, 2025, that indicated that the property,

plant and equipment could be impaired and performed an impairment test.

the impairment test did not result in the recording of any impairment loss, the impairment test is complex and judgmental due to management’s

use of subjective assumptions when determining the asset groups to be evaluated for impairment, estimating expected future cash flows

to be provided by operating activities of the identified asset groups, and estimating fair values of the assets or asset groups when

We Addressed the Matter in Our Audit

the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated

financial statements.

Our audit procedures related to the assessment of impairment of long-lived assets included the following, among

the appropriateness of the asset groups used in performing management’s impairment analysis.

management’s assumptions used in estimating the cash flows expected to be provided by operating activities of the asset groups,

including the completeness and accuracy of the underlying data supporting the assumptions.

a sensitivity analysis over the growth rates, operating margin, and other assumptions used in management’s analysis compared

to historical performance.

previously forecasted financial information to historical results to assess the reasonableness of future forecasted financial information

used in the analysis.

audit evidence from events and transactions occurring after the measurement date.

Baker Tilly US, LLP

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SYSTEMS INCORPORATED AND SUBSIDIARIES

STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

THE YEARS ENDED DECEMBER 31, 2025 AND 2024

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Total operating expenses

(Loss) income from operations

Income (loss) from operations

Other expense

Interest expense

(Loss) income before income taxes

Income tax expense (benefit)

Net (loss) income

Net (loss) income per common share:

Income (loss) before income taxes

Income tax expense

Net loss per common share:

Basic (in dollars per share)

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

Other comprehensive (loss) income

Other comprehensive income (loss)

Foreign currency translation

Comprehensive (loss) income, net of tax

Comprehensive income (loss), net of tax

accompanying notes to consolidated financial statements.

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Current assets:

Restricted cash

Accounts receivable, less allowances of $ 196 and $ 358

Accounts receivable, less allowances of $ 161 and $ 196 , respectively

Inventories, net

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Current liabilities:

Line of credit

Accounts payable

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CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income

Adjustments to reconcile net (loss) income to net cash (used in) provided by

operating activities:

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

Compensation on stock-based awards

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Accounts receivable

Employee retention credit receivable

Contract assets

Prepaid expenses

Prepaid expenses and other assets

Accounts payable

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Other accrued liabilities

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

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Share repurchases

Stock option exercises

Net cash provided by (used in) financing activities

Stock award exercises

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash

Net change in cash and cash equivalents

Cash and cash equivalents - beginning of year

Cash and cash equivalents - end of year

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

Restricted cash

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

Net change in cash

Cash - beginning of year

Cash - end of year

Supplemental disclosure of cash flow information:

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Compensation on stock-based awards

Stock option exercises

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

Stock repurchases

Stock award exercises

Balance as of December 31, 2024

Net income (loss)

Foreign currency translation adjustment

Compensation on stock-based awards

Stock option exercises

Stock repurchases

Stock award exercises

Balance as of December 31, 2025

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of Presentation

accompanying consolidated financial statements of Nortech Systems Incorporated and Subsidiaries (“the Company”,

“we”, “our”) have been prepared in accordance with generally accepted accounting principles in the United

States of America (“U.S.

GAAP”) for financial information and pursuant to the rules and regulations of the Securities

and Exchange Commission (“SEC”).

accompanying consolidated financial statements of Nortech Systems Incorporated and Subsidiaries (“the Company”, “we”,

“our”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.

GAAP”) for financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Company, organized in December 1990, is a provider of engineering design and manufacturing solutions for complex electromedical devices,

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All significant intercompany accounts and transactions have been eliminated in consolidation.

preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires

us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of our consolidated financial statements.

Estimates also affect the reported amounts of net sales and expense

during the reporting period.

Significant items subject to estimates and assumptions include the valuation allowance for inventories,

allowance for doubtful accounts, realizability of deferred tax assets and long-lived asset recovery.

Actual results could differ from

those estimates.

and cash equivalents classified as restricted cash on our consolidated balance sheets are restricted as to withdrawal or use under the

terms of certain contractual agreements.

Restricted cash as of December 31, 2023 was $ 715 .

The December 31, 2023 restricted cash balance

included lockbox deposits that are temporarily restricted due to timing at the period end.

The lockbox deposits are applied against our

line of credit the next business day.

preparation of financial statements in conformity with accounting principles generally accepted in the United States of America

requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of

contingent assets and liabilities at the date of our consolidated financial statements.

Estimates also affect the reported amounts

of net sales and expense during the reporting period.

Significant items subject to estimates and assumptions include the valuation

allowance for inventories, the measurement of revenue recognized over time, realizability of deferred tax assets and long-lived

asset recovery.

Actual results could differ from those estimates.

Receivable and Allowance for Expected Losses

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Accounts receivable is unsecured and presented net of an allowance for doubtful

The allowance for expected losses was $ 196

as of December 31, 2024 and 2023, respectively.

The allowance for expected losses was $ 161 and $ 196 as of December 31, 2025 and 2024, respectively.

we record customer receivables and contract assets arising from net sales transactions, we record an allowance for credit losses for

the current expected credit losses (“CECL”) inherent in the asset over its expected life.

The allowance for credit losses

is a valuation account deducted from the cost basis of the assets to present their net carrying value at the amount expected to be collected.

Each period, the allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives

of the assets.

the current expected credit losses inherent in the asset over its expected life.

The allowance for credit losses is a valuation account

deducted from the cost basis of the assets to present their net carrying value at the amount expected to be collected.

Each period, the

allowance for credit losses is adjusted through earnings to reflect expected credit losses over the remaining lives of the assets.

estimate expected credit losses based on relevant information about past events, including historical write-offs of bad debts, customer

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are as follows as of December 31,

OF INVENTORIES

SCHEDULE OF INVENTORIES

Raw materials

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OF ESTIMATED USEFUL LIVES

Manufacturing

and other equipment

and equipment as of December 31, 2024 and 2023:

Leasehold improvements

Manufacturing equipment

Office and other equipment

and equipment are as follows as of December 31,

OF PROPERTY AND EQUIPMENT

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No impairment of long-lived assets was recorded during the years ended December 31, 2025 or 2024.

Held for Sale

classify long-lived assets as held-for-sale when the criteria for such classification are met.

These criteria include management’s commitment

to a plan to sell the asset, the asset being available for immediate sale in its present condition, an active program to locate a buyer,

the sale being probable and expected to be completed within one year, and the asset being actively marketed for sale at a price that

is reasonable in relation to its current fair value.

stock issued is non-cumulative and nonconvertible.

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sales are measured as the amount of consideration we expect to receive in exchange for transferring products or providing services.

such, net sales are recorded net of returns, allowances and customer discounts.

Sales, value add, and other taxes collected from customers

and remitted to governmental authorities are accounted for on a net (excluded from net sales) basis.

Shipping and handling costs are

included in cost of goods sold.

As such, net sales are recorded net of returns, allowances and customer discounts.

Sales, value add, and other taxes collected from

customers and remitted to governmental authorities are accounted for on a net (excluded from net sales) basis.

Shipping and handling

costs are included in cost of goods sold .

We pay sales commissions on new business generated.

Because the related

amortization period for these incremental contract acquisition costs is one year or less, the Company has elected the practical

expedient and therefore expenses these costs as incurred.

Additionally, the Company has elected the practical expedient related to

significant financing components and does not assess whether a contract includes a significant financing component when the period

between the transfer of the promised goods or services and customer payment is one year or less.

majority of our net sales are derived from the transfer of goods produced under contract manufacturing agreements which have no alternative

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Net sales under contract manufacturing agreements that was recognized over time accounted for approximately

76 % and 79 % of our net sales for the years ended December 31, 2024 and 2023, respectively.

Net sales under these agreements are generally

recognized over time using an input measure based upon the proportion of actual costs incurred.

76 % our net sales for both the years ended December 31, 2025 and 2024.

Net sales under these agreements are generally recognized over

time using an input measure based upon the proportion of actual costs incurred.

for contract manufacturing agreements involves the use of various techniques to estimate total net sales and costs.

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The inclusion of noncash consideration has no impact on overall profitability.

net sales for services were less than 10% of our total sales for all periods presented, and accordingly, are included in net sales in

the consolidated statements of operations and comprehensive income (loss).

assets, recorded as such in the consolidated balance sheets, consist of unbilled amounts related to net sales recognized over time.

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Amounts transferred over time to contract assets

Allowance for current expected credit losses

Reversal of allowance for current expected credit losses

Amounts invoiced during the period

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payment terms of up to 120 days.

receivables are presented separately on the consolidated balance sheets.

liabilities, recorded as customer deposits, were $ 4,068

at January 1, 2024 and $ 5,386

at December 31, 2025 and 2024, respectively.

Contract liabilities

primarily relate to customer prepayments, generally to purchase customer-specific inventory, and billings in advance of the Company satisfying

its performance obligations.

Revenue recognized during the year ended December 31, 2025 that was included in the contract liability balance

at the beginning of the period was $ 500 .

Changes between periods represent the timing of customer deposits and the satisfaction of performance

following tables summarize our net sales by market for the years ended December 31, 2025 and 2024:

OF NET SALES BY MARKET

Product/ Service Transferred

Product Transferred at Point in Time

Noncash Consideration

Total Net Sales by Market

Year Ended December 31, 2025

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Total net sales

Product/ Service Transferred

Product Transferred at Point in Time

Noncash Consideration

Total Net Sales by Market

Year Ended December 31, 2024

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the nature of our products and services.

costs are charged to operations as incurred and aggregated to $ 83

for the years ended December 31, 2024 and 2023,

respectively.

costs are charged to operations as incurred and aggregated to $ 114 and $ 83 for the years ended December 31, 2025 and 2024, respectively.

account for income taxes under the asset and liability method.

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These returns could be subject to material adjustments or differing interpretations of the tax laws.

use a Black-Scholes option-pricing model to determine the grant date fair value of our service-based incentive awards and recognize

the expense on a straight-line basis over the vesting period.

We determine the grant date fair value of our market-based incentive

awards using a lattice simulation model and recognize the expense on a straight-line basis over the vesting period.

The grant date

fair value of restricted stock units is determined based on the closing market price of the Company’s common stock on the date

of grant, with compensation expense recognized ratably over the applicable vesting period.

See Note 8 – “Incentive

Plans” for additional information.

(Loss) Income Per Common Share

Basic net (loss) income per common share

is computed by dividing net income (loss) by the weighted-average number of common shares outstanding.

Dilutive net (loss) income per

common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average number of

common shares outstanding using the treasury stock method, unless their effect is antidilutive.

For the years ended December 31,

2024 and 2023, there were restricted stock units and stock options totaling 477,541

and 81,445 , respectively, excluded from the computation of diluted weighted-average shares outstanding as their inclusion would be anti-dilutive.

For the year ended December 31, 2023, the dilutive effect of outstanding stock options and non-vested restricted stock units were 163,744

equivalent common shares and were included in the computation of diluted net income per common share.

use a Black-Scholes option-pricing model to determine the grant date fair value of our service-based incentive awards and recognize the

expense on a straight-line basis over the vesting period.

We determine the grant date fair value of our market-based incentive awards

using a lattice simulation model and recognize the expense on a straight-line basis over the vesting period.

The grant date fair value

of restricted stock units is determined based on the closing market price of the Company’s common stock on the date of grant, with

compensation expense recognized ratably over the applicable vesting period.

See Note 8 – “Incentive Plans” for additional

Loss Per Common Share

net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding.

income per common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average

number of common shares outstanding using the treasury stock method, unless their effect is anti-dilutive.

Basic and diluted weighted

average shares outstanding were as follows:

OF BASIC AND DILUTED WEIGHTED

AVERAGE SHARES OUTSTANDING

Basic weighted average shares outstanding

Dilutive effect of outstanding stock options and non-vested restricted stock units 1

Diluted weighted average shares outstanding

following items were excluded from the computation of diluted weighted-average shares outstanding as their inclusion would be anti-dilutive:

the year ended December 31, 2025, restricted stock units and stock options totaling 533,846 .

the year ended December 31, 2024, restricted stock units and stock options totaling 477,541 .

Value of Financial Instruments

carrying amounts of all financial instruments approximate their fair values.

The carrying amounts for cash, accounts receivable, ERC

receivable, accounts payable, and other assets and liabilities approximate fair value because of the short maturity of these instruments.

Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, the carrying value of

our long-term debt and line of credit approximates its fair value.

value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date.

Valuation techniques used to measure fair value maximize the use of observable inputs and

minimize the use of unobservable inputs.

fair value framework requires the categorization of assets and liabilities into one of three levels based on the assumptions (inputs)

used in valuing the asset or liability.

Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant

management judgment.

The three levels are defined as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that

market participants would use in pricing.

assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of

the assets and liabilities being measured and their placement within the fair value hierarchy.

We endeavor to use the best available

information in measuring fair value.

Assets and liabilities are classified in their entirety based on the lowest level of input that

is significant to the fair value measurement.

See Note 3 – “Other Intangible Assets”, for more detail.

The carrying amounts for cash, accounts receivable, accounts

payable, and other assets and liabilities approximate fair value because of the short maturity of these instruments.

Based on the borrowing

rates currently available to us for bank loans with similar terms and average maturities, the carrying value of our long-term debt and

line of credit approximates its fair value.

Currency Transactions

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Assets and liabilities of the China subsidiary are translated from RMB into U.S.

dollars at period-end rates,

while income and expense are translated at the weighted-average exchange rates for the period.

The related translation adjustments are

reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within shareholders’ equity.

currency translation losses decreased consolidated shareholders’ equity by $ 445 and $ 162 for the years ended December 31, 2024

and 2023, respectively.

gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional

currency are included in the consolidated statements of operations and comprehensive (loss) income.

Net foreign currency

transaction losses included in the determination of net (loss) income was $ 137

for the years ended December 31, 2024 and 2023, respectively.

dollars at period-end

rates, while income and expense are translated at the weighted-average exchange rates for the period.

The related translation adjustments

are reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within shareholders’ equity.

Foreign currency translation gains (losses) increased consolidated shareholders’ equity by $ 268 for the year ended December 31,

2025 and decreased shareholder’s equity by $ 445 for the year ended December 31, 2024.

gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency

are included in the consolidated statements of operations and comprehensive income (loss).

Net foreign currency transaction gains or

losses included in the determination of net loss was a gain of $ 120 and a loss of $ 137 for the years ended December 31, 2025 and 2024,

respectively.

of New Accounting Standards

June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)

2016-13, Financial Instruments – Credit Losses (Topic 326).

The ASU introduces a new credit loss methodology, Current Expected

Credit Losses (“CECL”), which requires earlier recognition of credit losses, while also providing additional

transparency about credit risk.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective

for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial assets

are originated or acquired.

The expected credit losses are adjusted each period for changes in expected lifetime credit losses.

methodology replaces the multiple existing impairment methods in current U.S.

GAAP, which generally require that a loss be incurred

before it is recognized.

On January 1, 2023, we adopted the guidance prospectively with a cumulative adjustment to retained earnings

and recognized an allowance for credit losses related to accounts receivable and contract assets of $ 30 ,

net of tax, and a decrease in retained earnings of $ 30 associated

with the increased estimated credit losses.

November 2023, the FASB issued ASU 2023-07, Segment Reporting Topic (280):

Improvements to Reportable Segment Disclosure .

ASU supplements reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment

expenses We adopted ASU 2023-07 during the year ended December 31, 2024.

See Note 9 – “Segment Information” in the

accompanying notes to these consolidated financial statements.

Issued New Accounting Standards

December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

The ASU enhances

the transparency and decision usefulness of income tax disclosures and is effective for annual periods beginning after December 15, 2024

on a prospective basis.

Early adoption is permitted.

The Company is currently evaluating the impact of this ASU on its consolidated financial

statements and related disclosures.

The ASU enhances the transparency and decision usefulness

of income tax disclosures and is effective for annual periods beginning after December 15, 2024 on a prospective basis.

Early adoption

is permitted.

The Company has adopted this ASU and the additional income tax disclosures are noted in Note 6, Income Taxes.

Issued New Accounting Standards

November 2024, the FASB issued ASU No.

2024-03 (Subtopic 220-40), Disaggregation of Income Statement Expenses.

The ASU requires public

entities to disaggregate, in a tabular presentation, certain income statement expenses into different categories, such as purchases of

inventory, employee compensation, depreciation, and intangible asset amortization.

The guidance is effective for fiscal years beginning

after December 15, 2026, with early adoption permitted, and may be applied retrospectively.

The Company is currently evaluating the impact

of adopting the new ASU on its consolidated financial statements and related disclosures.

2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation

Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“ASU No.

2024-03”), which requires disaggregated

expense information in the notes to the financial statements related to purchases of inventory, employee compensation, depreciation,

intangible asset amortization and selling expenses for each statement of earnings line item that contains those expenses.

is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods

beginning after December 15, 2027.

The guidance is to be applied on a prospective basis with the option to apply the standard retrospectively;

this ASU allows for early adoption.

The Company is currently evaluating the impact of this ASU on its consolidated financial statements

July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses for Accounts

Receivable and Contract Assets (“ASU No.

2025-05”), which reduces the complexity of applying credit losses to current accounts

receivable and current contract assets arising from transactions accounted for under Topic 606 (revenue from contracts with customers).

ASU 2025-05 is effective for annual and interim reporting periods beginning after December 15, 2025.

The Company is currently evaluating

the impact of this ASU on its consolidated financial statements disclosures.

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable.

our excess cash balances in checking accounts at two high-credit quality financial institutions.

These accounts may at times exceed federally

insured limits.

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

have certain customers whose net sales individually represented 10% or more of net sales, or whose accounts receivable balances individually

represented 10% or more of total accounts receivable.

One customer accounted for at 27.7 % of net sales for the year ended December 31,

2024, and two customers, individually, accounted for 25.7 % and 10.3 %, respectively, of net sales for the year ended December 31, 2023.

Two customers, individually, accounted 23.2 % and 12.5 %, respectively, of accounts receivable as of December 31, 2024 and 22.1 % and 12.7 %

of accounts receivable as of December 31, 2023.

instruments that potentially subject us to concentrations of credit risk consist principally of cash, accounts receivable, and contract

We maintain our excess cash balances in checking accounts primarily at two financial institutions, one in the United States and

one in China.

The account in the United States may at times exceed federally insured limits.

The Company’s $ 1,655 cash balance

as of December 31, 2025, included approximately $ 517 and $ 137 that was held at banks located in China and Mexico, respectively.

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

have certain customers whose revenue individually represented 10% or more of net sales, or whose accounts receivable balances or contract

asset balances individually represented 10% or more of gross accounts receivable.

who represent 10% or more of net sales for years ended December 31, 2025 and 2024 are as follows:

OF NET SALES CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

who represent 10% or more of accounts receivable and contract assets as of December 31, 2025 and 2024 are as follows:

OF ACCOUNTS RECEIVABLE CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Accounts Receivable as of December 31,

OF CONTRACT ASSETS CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Contract Assets as of

sales from the U.S.

represented approximately 3 % of net sales for both the years ended December 31, 2025 and 2024.

OTHER INTANGIBLE ASSETS

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our intangible assets is 4.1 years.

Of the patents value as of December 31, 2024, $ 89 are being amortized and $ 85 are in process as

patents have not yet been issued.

Of the patents value as of December 31, 2025, $ 71 are being amortized and $ 85 are in process as patents

have not yet been issued.

expense of finite life intangible assets was $ 18 and $ 89 for the years ended December 31, 2025 and 2024, respectively.

future annual amortization expense (except projects in process) related to these assets is approximately as follows:

OF ESTIMATED FUTURE ANNUAL AMORTIZATION EXPENSE

SCHEDULE OF ESTIMATED FUTURE ANNUAL AMORTIZATION EXPENSE

FINANCING ARRANGEMENTS

had a $ 16,000 asset backed line of credit agreement with Bank of America which, as amended, was to expire on June 15, 2026 .

credit agreement, line of credit borrowing availability was restricted by a defined asset borrowing base, and interest was based on variations

in the Bloomberg Short-Term Bank Yield (BSBY) index rate.

This line of credit weighted-average interest rate was 8.3 % as of December

We had borrowings on our line of credit of $ 5,815 as of December 31, 2023 and we had unused availability under our line of

credit of $ 9,400 supported by our borrowing base.

The line of credit is shown net of debt issuance costs of $ 31 on the consolidated balance

sheets for the year ended December 31, 2023.

February 29, 2024, we replaced the asset backed line of credit agreement with a $ 15,000 Senior Secured Revolving Line of Credit with

Bank of America (the “Revolver”).

The Revolver allows for borrowings at a defined base rate, or at the one, three or six

month Secured Overnight Finance Rate, also known as “SOFR,” plus a defined margin.

If the Company prepays SOFR borrowings

before their contractual maturity, the Company has agreed to compensate the bank for lost margin, as defined in the Revolver agreement.

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.

These ratios are calculated based on trailing twelve-month

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

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.

were not in compliance with financial covenants related to the maximum operating expense contributions to our Mexican operations in

the first and second quarters of 2024.

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

On March 27, 2025, we

amended (the “Amendment”) the Revolver to waive our non-compliance with the leverage ratio and minimum fixed charge

ratio as of December 31, 2024, and March 31, 2025.

Further, the Amendment defers the Company’s compliance with these ratios

until the third quarter of 2025 at which time the Company must maintain (a)

a leverage ratio of 3.5 times or less in the third quarter of 2025, and 2.5 times or less for each subsequent quarter;

a minimum fixed charge coverage ratio to 1.25 times for the third quarter of 2025 and each quarter thereafter.

The Company must also maintain EBITDA (earnings before interest, taxes

depreciation and amortization) as of the end of the second quarter and third quarter of at least $1,600.

addition, the Amendment requires the Company to maintain unrestricted cash and Revolver availability of at least $2.5 million at

each month end in the second quarter of 2025, $2.75 million at month end July 2025 and $3.0 million at the end of August and

September 2025.

The Amendment also requires the Company to provide incremental monthly reporting and increased the

Company’s borrowing rate by one percent until the Company is in compliance with the original terms of the

We have included the Amendment No.

1 to Credit Agreement, Waiver, and Consent

as an exhibit to this filing and any description of that document contained herein is only a summary and is qualified by its entirety

by the Amendment No.

1 to Credit Agreement, Waiver, and Consent.

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

Under the prior asset backed line of credit agreement with Bank of America, the line of credit borrowing availability was

restricted by a defined asset borrowing base, and interest was based on variations in the Bloomberg Short-Term Bank Yield (BSBY)

Our line of credit bears interest at a weighted-average interest rate of 7.7 %

as of December 31, 2024 and 2023, respectively.

We had borrowings on our line of credit of $ 8,695 and

$ 5,846 outstanding

as of December 31, 2024 and 2023, respectively.

As of December 31, 2024, we had unused availability on the line of credit of $ 6,305 .

The line of credit is shown net of debt issuance costs of $ 61 and

the consolidated balance sheets as of December 31, 2024 and December 31, 2023, respectively.

Company has an interim funding agreement as of December 31, 2024 with a bank related to $ 345 of deposits made on equipment purchases

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

As of December 31, we have $ 345 outstanding

on the interim funding agreement for equipment.

China operation has a financing agreement with China Construction Bank which provides for a line of credit arrangement of 10,000,000

Renminbi (RMB) (approximately 1.4 million USD) that expires on September 9, 2025.

No amounts were outstanding under this financing arrangement

as of December 31, 2024 or 2023.

The interest rate as of December 31, 2024 was approximately 4 %.

February 29, 2024, we closed on a $ 15,000 Senior Secured Revolving Line of Credit with Bank of America (the “BOA Revolver”).

The BOA Revolver allows for borrowings at a defined base rate, or at the one, three or six month Secured Overnight Finance Rate, also

known as “SOFR,” plus a defined margin.

If the Company prepays SOFR borrowings before their contractual maturity, the Company

has agreed to compensate the bank for lost margin, as defined in the BOA Revolver agreement.

The Company is required to quarterly pay

a 20-basis point fee on the unused portion of the BOA Revolver.

BOA 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 BOA Revolver agreement.

These ratios are calculated based on trailing twelve-month results.

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

The BOA 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 BOA Revolver is

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

We were not in compliance with financial covenants

related to the maximum operating expense contributions to our Mexican operations in the first and second quarters of 2024.

We have received

a waiver of this event of default from the bank.

to the BOA Revolver

March 27, 2025, we amended (the “First Amendment”) the BOA Revolver to waive our non-compliance with the leverage ratio and

minimum fixed charge ratio as of December 31, 2024, and March 31, 2025.

Provisions of the First Amendment relating to the Company’s

compliance with these ratios were replaced with provisions of the Second Amendment (described below).

Provisions of the First Amendment

relating to minimum EBITDA requirements of the Company were replaced with provisions of the Second Amendment (described below).

of the First Amendment requiring the Company to maintain unrestricted cash and BOA Revolver availability (collectively, “Liquidity”)

at specified levels were replaced with provisions of the Second Amendment (described below).

The First Amendment requires the Company

to provide incremental monthly reporting and increases the Company’s borrowing rate by one percent until the Company is in compliance

with the original terms of the BOA Revolver.

The First Amendment increases the borrowing rate for revolving loans by 100 basis points.

May 14, 2025, we further amended (the “Second Amendment”) the BOA Revolver, which amended the First Amendment in part, to

defer the Company’s compliance with the leverage ratio and minimum fixed charge ratio until the fourth quarter of 2025 at which

time the Company must maintain (a) a leverage ratio of 2.5 times for the year ended December 31, 2025 and for each twelve-month quarterly

reporting period thereafter;

and (b) a minimum fixed charge coverage ratio to 1.25 times for the year ended December 31, 2025 and for

each twelve-month quarterly reporting period thereafter.

The Company must also maintain adjusted EBITDA (earnings before interest, taxes

depreciation and amortization), as defined in the BOA Revolver, as of the end of the second quarter of 2025 of at least $1,000, the third

quarter of 2025 of at least $1,300 and the fourth quarter of 2025 and each quarter thereafter of at least $1,600.

In addition, the Second

Amendment requires the Company to always maintain Liquidity of at least $2,500.

The Second Amendment shortened the duration of the BOA

Revolver to June 30, 2026 and increases the borrowing rate by 25 basis points.

July 29, 2025, we amended the BOA Revolver (the “Third Amendment”) to extend the expiration of the BOA Revolver to August

February 27, 2026, we entered into a Waiver and Amendment No.

4 to its Credit Agreement with Bank of America, N.A.

See footnote 13, Subsequent Events.

BOA Revolver, as amended, bears interest at a weighted-average interest rate of 7.8 % and 7.7 % as of December 31, 2025 and December 31,

2024, respectively.

We had borrowings on our line of credit of $ 7,000 and $ 8,695 outstanding as of December 31, 2025 and 2024, respectively.

As of December 31, 2025, we had unused availability on the line of credit of $ 8,000 , which is subject to a month end cap based on the

previously noted minimum Liquidity.

The decrease in the line of credit balance between the years is the result of timing of accounts

payable payments.

We have recorded the outstanding BOA Revolver amount of $ 7,000 at December 31, 2025 as a current liability on the condensed

consolidated balance sheets.

Company had an interim funding agreement with a bank related to deposits made on equipment purchases funded through a finance lease when

the equipment was received and operational.

The equipment was received, and the lease agreements were finalized during the second quarter

As of December 31, 2025, we have no amounts outstanding on the interim funding agreement for equipment.

March 20, 2026, the Company repaid the BOA Revolver and entered into a new asset-backed line of credit.

See footnote 13, Subsequent Events.

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.

terms that can extend the lease term from one 1

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

As of December 31, 2025, we do not have material lease commitments that have not commenced.

We have financing leases for certain property

and equipment used in the normal course of business.

The components of lease expense were as follows for the years ended December 31:

We have financing leases for certain

property and equipment used in the normal course of business.

components of lease expense were as follows for the years ended December 31:

SCHEDULE OF COMPONENTS OF LEASE EXPENSE

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Total lease cost

Supplemental balance sheets information related to leases was as follows as of December 31:

OF SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION RELATED TO LEASES

balance sheets information related to leases was as follows as of December 31:

SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION RELATED TO LEASES

Balance Sheets Location

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cash flow information related to leases was as follows for the years ended December 31:

OF SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS INFORMATION

SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION

Operating Leases

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maturities of lease liabilities were as follows:

OF FUTURE PAYMENTS OF LEASE LIABILITIES

SCHEDULE OF FUTURE PAYMENTS OF LEASE LIABILITIES

Operating Leases

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lease term and discount rate as of December 31, 2025 were as follows:

OF LEASE TERM AND DISCOUNT RATE

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Weighted-average remaining lease term (years)

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SCHEDULE OF INCOME TAX EXPENSE

Income tax expense (benefit)

Income tax expense

statutory rate reconciliation is as follows for the years ended December 31:

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Effect of foreign operations

Research and development

Valuation allowance

Maquiladora tax

Cross-border tax laws

Research and development

Nontaxble and nondeductable items

US permanent differences

Global intangible low-taxed income effect

Withholding tax

Income tax expense (benefit)

July 4, 2025, H.R.

1, the One Big Beautiful Bill Act (the “OBBB Act”), was enacted in the United States.

The OBBB Act introduced

several tax law changes relevant to the manufacturing industry.

Key provisions include the restoration of 100% bonus depreciation for

qualified property, expanded interest deductibility under Internal Revenue Code Section 163(j) and other international tax reforms affecting

global supply chains and cross-border operations.

The OBBB Act also reinstates immediate expensing for domestic research and development

expenditures for tax years beginning after December 31, 2024, reversing prior rules that required capitalization and amortization of

Due to the impact on GILTI provisions, the Company does not intend to take 100% bonus depreciation.

It also does not intend

to immediately expense R&D expenditures for 2025 or accelerate the deduction of previously capitalized R&D expenditures.

and loss from operations before income taxes was derived from the following jurisdictions for the years ended December 31:

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United States

tax assets (liabilities) consist of the following for the years ended December 31:

tax assets (liabilities) consist of the following as of December 31:

OF DEFERRED TAX ASSETS (LIABILITIES)

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Net operating losses

Accrued bonus

Stock-based compensation

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Net deferred tax assets

We regularly assess the need for a valuation allowance related to our deferred

income tax assets to determine, based on the weight of the available positive and negative evidence, whether it is more likely than not

that some or all of such deferred assets will not be realized.

In our assessments, the Company considers recent financial operating results,

potential sources of taxable income, the reversal of existing taxable differences, taxable income in prior carryback years, if permitted

under tax law, and tax planning strategies.

Based on our most recent assessment, for the year ended December 31, 2024, we

have concluded that our deferred income tax assets are more likely than not to be realized.

Our consolidated balance sheets as of December 31, 2024 have a deferred tax asset of $ 2,575 related to our US taxable operations

and a $ 219 deferred tax liability included other long-term liabilities related to our Chinese taxes, for a net deferred tax asset of

of December 31, 2024, for U.S.

state purposes, we have a Minnesota research and development credit carry forward of $ 123 , which will begin to expire in

Tax Cuts and Jobs Act (“TCJA”) was enacted on December 22, 2017 and includes the requirement to capitalize and amortize

over years research and experimental expenditures beginning in 2022.

As of December 31, 2024 and 2023 the deferred tax asset

associated with capitalized research and experimental expenditures was $ 928 and $ 1,007 , respectively .

Company regularly assesses the need for a valuation allowance related to our deferred income tax assets to determine, based on the weight

of the available positive and negative evidence, whether it is more likely than not that some or all of such deferred assets will not

In our assessments, the Company considers recent financial operating results, potential sources of taxable income, the reversal

of existing taxable differences, taxable income in prior carryback years, if permitted under tax law, and tax planning strategies.

on our most recent assessment, for the year ended December 31, 2025, we have concluded that our deferred income tax assets are more likely

than not to be realized.

Our consolidated balance sheets as of December 31, 2025 and 2024 have a deferred tax asset of $ 3,394 and $ 2,575 ,

respectively, related to our US taxable operations and a $ 360 and $ 219 , respectively, deferred tax liability included other long-term

liabilities related to our Chinese taxes, for a net deferred tax asset of $ 3,034 and $ 2,356 , respectively.

of December 31, 2025, we have no US Federal net operating loss carryforward and a Minnesota net operating loss carryforward (pre-tax,

post-apportionment) of approximately $ 2,100 .

of December 31, 2025, the Company has US Federal and Minnesota R&D tax credits of approximately $ 100 and $ 100 , respectively.

balances are recorded net of any uncertain tax position.

The R&D credits have a 20-year carryforward for Federal purposes (begin

to expire in 2044) and 15-year carryforward for Minnesota purposes (begin to expire in 2029) .

tax effects from uncertain tax positions can be recognized in our consolidated financial statements, only if the position is more likely

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policy is to accrue interest related to potential underpayment of income taxes with a corresponding increase in income tax expense.

The liability for

accrued interest as of December 31, 2024 and 2023 was not significant.

Interest is computed on the difference between our uncertain tax

benefit positions and the amount deducted or expected to be deducted in our filed tax returns.

liability for accrued interest as of December 31, 2025 and 2024 was not significant.

Interest is computed on the difference between our

uncertain tax benefit positions and the amount deducted or expected to be deducted in our filed tax returns.

are subject to income taxes in the U.S.

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Employees are eligible to participate in the Plan after completing three months of service and attaining the age of 18 .

Employees are allowed to contribute up to 60 %

of their wages to the 401(k) Plan.

We match 50 %

of the employees’ contributions up to 6 %

of covered compensation.

We made contributions, net of forfeitures, of approximately $ 725

during the years ended December 31, 2024 and

2023, respectively.

are allowed to contribute up to 60 % of their wages to the 401(k) Plan.

We match 50 % of the employees’ contributions up to 6 % of

covered compensation.

We made contributions, net of forfeitures, of approximately $ 640 and $ 725 during the years ended December 31, 2025

and 2024, respectively.

INCENTIVE PLANS

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

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

An additional 50,000 ,

shares were authorized by the shareholders in

March 2020, May 2022, May 2023 and May 2024, respectively.

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

estimate the fair value of share-based awards on the date of grant using an option-pricing model.

The value of the portion of the

award that is ultimately expected to vest is recognized as expense in the consolidated statements of operations and comprehensive

(loss) income over the requisite service periods.

Because share-based compensation expense is based on awards that are ultimately

expected to vest, share-based compensation expense will be reduced to account for estimated forfeitures.

We estimate forfeitures at

the time of grant and revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those

The value of the portion of the award

that is ultimately expected to vest is recognized as expense in the consolidated statements of operations and comprehensive (loss) income

over the requisite service periods.

Because share-based compensation expense is based on awards that are ultimately expected to vest,

share-based compensation expense will be reduced to account for estimated forfeitures.

We estimate forfeitures at the time of grant and

revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

used the Black-Scholes option-pricing model to calculate the fair value of option-based awards.

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is the status of restricted stock activity as of and for the years ended December 31, 2025 and 2024 as follows:

OF RESTRICTED STOCK ACTIVITY

SCHEDULE OF RESTRICTED STOCK ACTIVITY

Intrinsic Value

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SEGMENT INFORMATION

Our results of operations for the years ended December 31, 2024 and 2023 represent a single operating and reporting

segment referred to as Contract Manufacturing within the EMS industry.

The Company operates in the Medical Device, Medical Imaging, Aerospace

and Defense, and Industrial markets with over 50% of its net sales coming from the medical-related markets.

We strategically direct production

between our various manufacturing facilities based on a number of considerations to best meet our customers’ needs.

results of operations for the years ended December 31, 2025 and 2024 represent a single operating and reporting segment referred to as

Contract Manufacturing within the EMS industry.

The Company operates in the Medical Device, Medical Imaging, Aerospace and Defense, and

Industrial markets with over 50% of its net sales coming from the medical-related markets.

We strategically direct production between

our various manufacturing facilities based on a number of considerations to best meet our customers’ needs.

Our plants generate

net sales over several of the markets the Company servers.

net sales over several of the markets the Company serves.

We share resources for sales, marketing, engineering, supply chain, information

services, human resources, payroll, and all corporate accounting functions.

Our chief operating decision maker (the “CODM”) is the Company’s

President and Chief Executive Officer.

The CODM regularly evaluates financial information on a consolidated basis to assess performance and allocate resources.

Our chief operating decision maker (the “CODM”)

is the Company’s President and Chief Executive Officer.

The CODM regularly evaluates financial information on a consolidated basis

to assess performance and allocate resources.

following table presents selected financial information with respect to the Company’s single operating segment for the years ended

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Total operating expenses

(Loss) income from operations

Income (loss) from operations

Other expense:

Interest expense

(Loss) income before income taxes

Income tax expense (benefit)

Net (loss) income

Income (loss) before income taxes

Income tax expense

Company’s long-lived tangible assets, including the Company’s operating lease assets recognized on the consolidated balance

sheets were located as follows:

sheets were geographically located as follows as of December 31:

OF LONG LIVED TANGIBLE ASSETS

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Total long-lived tangible assets

Export net from our U.S.

domestic operations

represent approximately 3.4 % and 4.1 % of consolidated net sales for the years ended December 31, 2024 and 2023, respectively.

by our major EMS industry markets for the years ended December 31, 2024 and 2023 are as follows:

net from our U.S.

domestic operations represent approximately 3.3 % and 3.4 % of consolidated net sales for the years ended December 31,

2025 and 2024, respectively.

Net sales by our major EMS industry markets are as follows for the years ended December 31:

SCHEDULE OF NET SALES BY EMS INDUSTRY MARKETS

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RESTUCTURING CHARGES

the year ended December 31, 2024, we incurred restructuring charges of $ 571

related to the closure and consolidation of our Blue Earth, Minnesota production facility, which was substantially completed in the

fourth quarter of 2024.

There were no restructuring charges or amounts accrued or incurred in the year ended December 31,

EMPLOYEE RETENTION CREDIT AND PAYROLL TAX DEFERRAL

March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law which allowed for

the deferral of the employer portion of social security taxes incurred through the end of calendar 2020.

the year ended December 31, 2024, we incurred restructuring charges of $ 571 related to the closure and consolidation of our Blue Earth,

Minnesota production facility, which was substantially completed in the fourth quarter of 2024.

During the year ended December 31, 2025,

31, 2023, the Company remitted $ 1,158 to the Internal Revenue Service (“IRS”) related to the deferral of payroll taxes, of

which $ 785 was recorded as a refund receivable as of December 31, 2023, with a corresponding liability due.

These amounts were settled

during the first quarter of 2024.

the Company incurred $ 266 of restructuring charges, in connection with activities related to the Blue Earth facility and additional staff

reductions in the first quarter of 2025.

following table summarizes the related activity for the twelve months ended December 31, 2025 and 2024:

SCHEDULE OF RESTRUCTURING CHARGES

Facility Consolidation

Workforce Reductions

January 1, 2024

Cash payments

December 31, 2024

Cash payments

December 31, 2025

RELATED PARTY TRANSACTIONS

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We had accounts receivable related to Abilitech of $ 226 as of December

Payments of $ 33 were received

during the twelve months ended December 31, 2024 and we wrote off the remaining receivables during 2024.

Abilitech has ceased operations and

therefore we do not believe that Abilitech will pay the Company for outstanding accounts receivable.

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.

Payments of $ 33 were received during the year ended December 31, 2024 and we wrote off the remaining receivables during 2024.

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

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.

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

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to contribute $ 500 to match grant funds from the BIRD Foundation.

The Company met its obligation by providing certain services

at cost or with respect to administrative services at no cost to Marpe Technologies.

The total value of the Company’s contribution

will not exceed $ 500 .

Marpe is engaged in raising funds for its operations, which funds are necessary to pay for the Company’s

services beyond its contribution.

The Company met its obligation by providing certain services at cost

or with respect to administrative services at no cost to Marpe Technologies.

The total value of the Company’s contribution will

not exceed $ 500 .

Marpe is engaged in raising funds for its operations, which funds are necessary to pay for the Company’s services

beyond its contribution.

The Company will receive a 10 -year exclusive right to manufacture the products of Marpe Technologies.

There can be no assurances that Marpe Technologies’ medical device operations will be commercially successful, that Marpe Technologies

can be no assurances that Marpe Technologies’ medical device operations will be commercially successful, that Marpe Technologies

will be successful in raising additional funds to finance its operations or, if commercially successful, the Company will recover the

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

During the years ended December

31, 2024 and 2023, we recognized net sales to Marpe Technologies of $ 8 and $ 163 , respectively.

As of December 31, 2024, we have outstanding

accounts receivable of $ 20 .

In January 2025, we received a payment of $ 20 from the BIRD Foundation.

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

During the twelve months ended December

31, 2025, we recognized no net sales to Marpe Technologies.

During the twelve ended December 31, 2024, we recognized net sales to Marpe

Technologies of $ 8 .

As of December 31, 2025, we have no outstanding accounts receivable.

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

SUBSEQUENT EVENTS

March 27, 2025, the Company amended its Revolver line of credit agreement as discussed in Note 4 – “Financing Arrangements.”

During February 2025, the Company determined its intent to sell the Blue Earth, Minnesota facility and classified the net book value of

the property as held for sale.

We are currently seeking to sell this facility in 2025.

Arrangement Waiver and Amendment

February 27, 2026, the Company entered into a Waiver and Amendment.

Under the Waiver and Amendment, Bank of America waived certain financial

covenant defaults related to the Company’s Consolidated Leverage Ratio, Fixed Charge Coverage Ratio, and Consolidated EBITDA for

the quarter ended December 31, 2025.

The Waiver and Amendment also modified multiple provisions of the Credit Agreement, including revised

definitions, updated borrowing base mechanics, revised financial covenants (including new EBITDA thresholds), adjustments to the revolving

commitment levels, an increase in applicable borrowing rate, and updates limitations on foreign subsidiary investments and transfers.

Financing Arrangement

March 20, 2026, we entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a

revolving credit facility of up to $ 15,000 ,

subject to a borrowing base based on eligible accounts receivable and inventory, and a $ 2,200

term loan (the “Associated Facility”).

The Associated Facility includes a sublimit of $ 1,500

for letters of credit and is secured by substantially all of our assets in the United States of America, and the facility and term

loan each mature in March

under the Associated Facility bear interest, at our option, at a defined base rate, or at one-month or three-month Term Secured

Overnight Financing Rate, plus 2.00% in the case of revolving credit borrowings and plus 2.25% in the case of the term

Associated Facility contains customary affirmative and negative covenants that restrict or limit our ability to incur additional indebtedness,

create liens, make investments, sell assets, pay dividends or engage in certain transactions without lender consent.

This agreement also

requires us to comply with financial covenants, including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the

ratio of EBITDA, as defined to exclude certain other non-cash items, and less unfunded capital expenditures, to fixed charges such as

interest as well as debt and capital lease principal payments.

The Associated Facility agreement

includes broad and customary events of default such as non-payment of obligations, breaches of representations or covenants, unauthorized

liens, insolvency events, material adverse changes, cross-defaults to other significant indebtedness, and change-of-control triggers.

Additional events include unsatisfied judgments, loss of lender lien priority, defaults under material business agreements, impairment

of key intellectual property, destruction of collateral, and certain ERISA, hedging, or legal compliance violations.

Upon an event of

default, including the lender’s determination that a material adverse event has occurred, as defined by the agreement, the lender

may accelerate all obligations, terminate the commitments, and exercise its full rights and remedies against the collateral.

Incentive Plan

In March 2026, the Company’s Board

of Directors approved the 2026 Equity Incentive Plan (the “2026 Plan”), subject to shareholder approval at the upcoming annual

meeting in May 2026.

The 2026 Plan would succeed the Company’s 2017 Stock Incentive Plan and authorize 250,000 shares for

various equity- and cash-based awards.

No awards have been granted under the Plan, and shareholder approval is pending.

February 2026, the U.S.

Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”) does not authorize

the President to impose tariffs, resulting in the termination of all IEEPA-based tariffs effective February 24, 2026.

Following this

ruling, the Administration imposed a temporary 10% global tariff on most imported products under Section 122 of the Trade Expansion Act

of 1962, effective February 24, 2026, for a 150-day period.

new tariffs apply broadly to manufactured goods and component parts.

Because the legislation was enacted after December 31, 2025, its

effects are not reflected in our consolidated financial statements.

The Company is evaluating the potential impact of these tariff actions

on future material costs and sourcing decisions.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data