What changed in this filing

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Item 1. Financial Statements

2026-05-13 compared with 2025-11-13 · 249 added, 395 removed, 259 unchanged (71% of the section changed)

2 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

COMPREHENSIVE (LOSS) INCOME

COMPREHENSIVE INCOME (LOSS)

THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

THREE MONTHS ENDED

NINE MONTHS ENDED

SEPTEMBER 30,

Cost of goods sold

6 unchanged sentences

Other expense:

Interest expense

Income (loss) before income taxes

Income tax expense

Net (loss) income

Net (loss) income per common share:

Interest expense, net

Loss before income taxes

Income tax benefit

Net loss per common share:

Basic (in dollars per share)

2 unchanged sentences

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 Condensed Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

OF SEPTEMBER 30, 2025 AND DECEMBER 31, 2024

OF MARCH 31, 2026 AND DECEMBER 31, 2025

THOUSANDS, EXCEPT SHARE DATA)

Current assets:

Accounts receivable, less allowances of $ 186 and $ 196 , respectively

Restricted cash

Accounts receivable, less allowance for credit losses of $ 205 and $ 161 , respectively

Inventories, net

6 unchanged sentences

Other intangible assets, net

Deferred line of credit issuance costs

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Line of credit

Lines of credit

Current portion of term loan

Accounts payable

1 unchanged sentence

Customer deposits

Current portion of operating lease obligations

Current portion of operating leases

Current portion of finance lease obligations

Notes payable

Other accrued liabilities

1 unchanged sentence

Long-term liabilities:

Long-term line of credit

Long-term operating lease obligations, net of current portion

Long-term finance lease obligations, net of current portion

Long-term operating lease obligations

Long-term finance lease obligations

Other long-term liabilities

4 unchanged sentences

1,000,000 shares authorized;

250,000 shares issued

and outstanding

250,000 shares issued and outstanding

Common stock - $ 0.01 par value;

9,000,000 shares authorized;

2,786,134 and 2,760,793

shares issued and outstanding, respectively

2,786,134 and 2,786,134 shares issued and outstanding, respectively

Additional paid-in capital

6 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED

SEPTEMBER 30,

THREE MONTHS ENDED

CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income

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

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Compensation on stock-based awards

Deferred income taxes

Change in accounts receivable allowance

Change in allowance for credit losses

Change in inventory reserves

Changes in current operating assets and liabilities:

Deferred taxes

Changes in current operating items:

Accounts receivable

7 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of property and equipment

Purchases of equipment

Purchases of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from line of credit

Proceeds from lines of credit

Payments to line of credit

Proceeds from financing leases

Proceeds from term loan

Payments of debt issuance costs

Proceeds from notes payable

Principal payments on financing leases

Share repurchases

Stock option exercises

Stock award exercises

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net change in cash

Cash - beginning of period

Cash - end of period

Effect of exchange rate changes on cash and restricted cash

Net change in cash and restricted cash

Cash and restricted cash - beginning of period

Cash and restricted cash - 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

SYSTEMS INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED

SEPTEMBER 30,

THREE MONTHS ENDED

Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for income taxes

Cash (received) paid for income taxes

Supplemental noncash investing and financing activities:

Property and equipment purchases in accounts payable

Conversion of notes payable to finance leases

Operating lease assets acquired under operating leases

Equipment acquired under finance leases

Accompanying Notes to Condensed Consolidated Financial Statements.

SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Preferred Stock

1 unchanged sentence

Shareholders’

Balance as of June 30, 2024

Foreign currency translation adjustment

Compensation on stock-based awards

Stock repurchases

Balance as of September 30, 2024

Balance as of June 30, 2025

Foreign currency translation adjustment

Stock option exercises

Compensation on stock-based awards

Balance as of September 30, 2025

Balance as of December 31, 2024

Foreign currency translation adjustment

Compensation on stock-based awards

Stock option exercises

Stock repurchases

Balance as of September 30, 2024

Compensation on stock-based awards

Balance as of March 31, 2025

Balance as of December 31, 2025

Net income (loss)

Foreign currency translation adjustment

Stock option exercises

Compensation on stock-based awards

Balance as of September 30, 2025

Balance as of March 31, 2026

Accompanying Notes to Condensed Consolidated Financial Statements.

19 unchanged sentences

Significant items subject

to estimates and assumptions include the net realizable value reserves for inventories, accounts receivable allowances, realizability

of deferred tax assets and long-lived asset recovery.

to estimates and assumptions include the lower of cost or net realizable value reserves for inventories, allowance for credit losses,

realizability of deferred tax assets and long-lived asset recovery.

Actual results could differ from those estimates.

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.

The Company is evaluating the potential impact of these tariff actions

on future material costs and sourcing decisions.

The Company is actively seeking reimbursement of IEEPA tariffs from the federal government and the Company’s

Issued New Accounting Standards

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 disclosures.

November 2024, the FASB issued ASU No.

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

Disaggregation Disclosures (Subtopic 220-40):

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

Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“ASU No.

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.

2024-03 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;

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 disclosures.

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

of New Accounting Standard

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

5 unchanged sentences

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.

The Company has

adopted this ASU and it did not have a material impact on the consolidated financial statements.

Cash classified as restricted cash on our consolidated

balance sheets relates to contractual cash dominion provisions under the Company’s financing arrangements, which at March 31, 2026

were governed by the new Associated Bank facility.

As of March 31, 2026 and December 31, 2025, we had restricted cash of $244 and $0,

respectively.

The restricted cash balance at March 31, 2026 primarily

represents customer deposits that are temporarily restricted due to timing at period end and are subject to the cash dominion provisions

of the financing arrangement.

These customer deposits are applied against the Company’s line of credit on the next business day.

are as follows:

SCHEDULE OF INVENTORIES

September 30,

Raw materials

3 unchanged sentences

Intangible Assets

intangible assets as of September 30, 2025 and December 31, 2024 are as follows:

intangible assets as of March 31, 2026 and December 31, 2025 are as follows:

SCHEDULE OF OTHER INTANGIBLE ASSETS

Balances as of December 31, 2025

Balances as of September 30, 2025

Balances as of March 31, 2026

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

1 unchanged sentence

our intangible assets is 3.8 years.

Of the patents value as of September 30, 2025, $ 76 are being amortized and $ 84 are in process and

a patent has not yet been issued.

expense of finite life intangible assets for the three months ended September 30, 2025 and 2024 was $ 5 and $ 4 , respectively.

expense of finite life intangible assets for the nine months ended September 30, 2025 and 2024 was $ 14 and $ 84 , respectively.

of September 30, 2025, estimated future annual amortization expense (except projects in process) related to these assets is as follows:

Of the patents’ value as of March 31, 2026, $ 67 are being amortized and $ 84 are in process

and a patent has not yet been issued.

expense of finite life intangible assets for the three months ended March 31, 2026 and 2025 was $ 5 and $ 5 , respectively.

of March 31, 2026, estimated future annual amortization expense related to these assets is as follows:

SCHEDULE OF ESTIMATED FUTURE ANNUAL AMORTIZATION EXPENSE

Remainder of 2026

and Equipment

sale of the Blue Earth manufacturing facility and related land was completed in the three months ended September 30, 2025, for $ 500 , which approximated book value and

therefore, no gain or loss was recorded on the sale.

the third quarter of 2025, in light of our sustained low stock price, we performed a Step 1 recoverability test in accordance with U.S.

GAAP for our long-lived assets.

Based on our assessment of undiscounted future cash flows, we concluded that the carrying amounts of

our asset group are recoverable, and therefore, no impairment was recognized at this stage.

However, as a result of the sale of our Blue

Earth facility in July 2025, we are now closer to meeting the criteria for a Step 2 impairment analysis, which involves estimating

the fair value of the asset group.

If future developments, including changes in market conditions or operational forecasts, result in

a decline in fair value below carrying amounts, this may lead to the recognition of an impairment loss in subsequent periods.

Property and Equipment

The Company reviews long-lived assets for

impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.

At March 31, 2026, the Company determined that no triggering events existed that would require an impairment assessment.

CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

4 unchanged sentences

The Company’s $ 1,964 cash balance

as of September 30, 2025, included approximately $ 1,042 and $ 120 that was held at banks located in China and Mexico, respectively.

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

as of March 31, 2026, included approximately $ 612 and $ 78 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 the three and nine months ended September 30, 2025 and 2024 are as follows:

who represent 10% or more of net sales for the three months ended March 31, 2026 and 2025 are as follows:

OF NET SALES CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Three Months Ended

September 30,

Nine Months Ended

September 30,

who represent 10% or more of accounts receivable and contract assets for the period ended September 30, 2025 and December 31, 2024 are

who represent 10% or more of accounts receivable and contract assets for the periods ended March 31, 2026 and December 31, 2025 are as

OF ACCOUNTS RECEIVABLE CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Accounts Receivable

September 30,

OF CONTRACT ASSETS CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Contract Assets

September 30,

sales from the U.S.

represented approximately 2 % of net sales for both the three and nine months ended September 30, 2025.

from the U.S.

represented approximately 2 % of net sales for both the three and nine months ended September 30, 2024.

under contract manufacturing agreements that was recognized over time, excluding noncash consideration, accounted for 75 % of net sales

for both the three and nine months ended September 30, 2025 and 72 % and 73 % of net sales for the three and nine months ended September

30, 2024, respectively.

following tables summarize our net sales by market for the three and nine months ended September 30, 2025 and 2024, respectively:

represented approximately 3 % and 2 % of net sales for the three months ended March 31, 2026 and 2025, respectively.

under contract manufacturing agreements that was recognized over time, excluding noncash consideration, accounted for 75 %

of net sales for the three months ended March 31, 2026 and 2025, respectively.

The following tables summarize our net sales by

market for the three months ended March 31, 2026 and 2025, respectively:

SCHEDULE OF NET SALES BY MARKET

Service Transferred

Transferred at Point

Consideration 1

Net Sales by Market

Months Ended September 30, 2025

Service Transferred

Transferred at Point

Consideration 1

Net Sales by Market

Service Transferred

Transferred at Point

Three Months Ended March 31, 2026

Product/ Service Transferred

Product Transferred at Point

Noncash Consideration 1

Net Sales by Market

Three Months Ended September 30, 2024

Service Transferred

Transferred at Point

Consideration 1

Net Sales by Market

Total Net Sales by Market

Medical Device

2 unchanged sentences

Total net sales

Service Transferred

Transferred at Point

Noncash Consideration 1

Net Sales by Market

Nine Months Ended September 30, 2025

Product/ Service Transferred

Transferred at Point

Consideration 1

Net Sales by Market

Medical Device

Medical Imaging

Aerospace and Defense

Total net sales

Service Transferred

Transferred at Point

Product Transferred at Point

Consideration 1

Net Sales by Market

Nine Months Ended September 30, 2024

Total Net Sales by Market

Three Months Ended March 31, 2025

Product/ Service Transferred

Transferred at Point

Product Transferred at Point

Consideration 1

Net Sales by Market

Total Net Sales by Market

Medical Device

3 unchanged sentences

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

as reported in the prior-year period filing, has been split between Medical Device and Medical Imaging to conform with the current-year

presentation.

assets, recorded in the condensed consolidated balance sheets, consist of unbilled amounts related to revenue recognized over time.

changes in the contract assets balance during the nine months ended September 30, 2025 were as follows:

changes in the contract assets balance during the three months ended March 31, 2026 were as follows:

SCHEDULE OF CONTRACT ASSETS

4 unchanged sentences

Amounts invoiced during the period

Balance outstanding as of September 30, 2025

expect substantially all the remaining performance obligations for the contract assets recorded as of September 30, 2025 to be transferred

Balance outstanding as of March 31, 2026

expect substantially all the remaining performance obligations for the contract assets recorded as of March 31, 2026 to be transferred

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

1 unchanged sentence

payment terms of up to 120 days.

liabilities, recorded as customer deposits, were $ 4,672

at March 31, 2026 and December 31, 2025, 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.

recognized during the three months ended March 31, 2026 that was included in the contract liability balance at January 1, 2026 was

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

FINANCING ARRANGEMENTS

February 29, 2024, we entered into 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 results.

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 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 “First 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.

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).

Provisions of the First Amendment requiring the Company to maintain unrestricted cash and

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 increased the Company’s

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

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

We were in compliance with financial covenants related to adjusted EBITDA

for the third quarter of 2025.

July 29, 2025, we amended the Revolver (the “Third Amendment”) to extend the expiration of the Revolver to August 31, 2026.

We have recorded the outstanding Revolver amount of $ 12,030 as a current liability on the condensed consolidated balance sheets.

Revolver, as amended, bears interest at a weighted-average interest rate of 8.0 % and 7.7 % as of September 30, 2025 and December 31, 2024,

respectively.

We had borrowings on our line of credit of $ 12,030 and $ 8,695 outstanding as of September 30, 2025 and December 31, 2024,

respectively.

As of September 30, 2025, we had unused availability on the line of credit of $ 2,970 , which is subject to a month end cap

based on the previously noted minimum Liquidity.

The 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 of 2025.

As of September 30, 2025, we have no amounts outstanding on the interim funding agreement for equipment.

In the preparation of the Company's financial statements, U.S.

GAAP requires

the Company to assess its ability to continue as a going concern.

This analysis includes a number of factors including

the Company's ability to repay debt which matures within one year of the issuance date of the Company's financial statements, as well

as management's plan to mitigate any such considerations.

The Company's Revolver, which has $ 12,030 outstanding as of September 30, 2025,

matures on August 31, 2026 , and the Company has not completed its plan to refinance this debt as of the issuance date of these financial

Pursuant to U.S.

GAAP, this raises substantial doubt about the Company’s ability to continue as a going concern.

Company is executing a plan to refinance the maturing cash-flow-based Revolver to an asset-backed line of credit.

As of the date of issuance

of these financial statements, the Company has received non-binding asset-backed financing term sheets from multiple lenders and engaged

a financial advisor to assist in the refinancing process.

Based on these proposals and the Company’s available assets, management

believes it is probable that the refinancing will be effectively implemented before the maturity of the Revolver and will mitigate the

conditions that raise substantial doubt.

Accordingly, the Company has concluded that substantial doubt is alleviated.

Bank Financing Arrangement

March 20, 2026, the Company 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.

The Associated Facility matures in March

The Company is required to pay a 25-basis point fee per annum, paid monthly, on the unused portion of the revolving credit

The term loan requires monthly principal payments of $ 37

plus interest.

under the Associated Facility bear interest, at the Company’s option, at a defined base rate derived from the Bank’s

prime rate, or at one-month or three-month Term Secured Overnight Financing Rate, referred to as SOFR, plus 2.00% in the case of

revolving credit borrowings, and plus 2.25% in the case of the term loan.

At March 31, 2026, the revolving credit facility and term

loan accrued interest at 8.52% and 8.00%, respectively.

At March 31, 2026, there was $ 7,196

outstanding under the revolving credit facility and $ 3,500

of unused availability.

Borrowings under the Associated Facility may be prepaid at any time without penalty.

The Associated Facility

does not contain prepayment premiums, make-whole provisions, or other features that would require separate accounting as embedded

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 Company was in compliance with all covenants under the Associated

Facility as of March 31, 2026.

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 Associated

Facility agreement, the lender may accelerate all obligations, terminate the commitments, and exercise its full rights and remedies against

the collateral.

The Company incurred $ 290 of debt issuance costs related to the Associated Facility, of which $ 266 was classified

as a long-term asset as of March 31, 2026 as it is related to the revolving facility.

table below reflects scheduled principal repayments of the term loan.

Amounts outstanding under the revolving credit facility, if any,

are due at maturity in March 2029.

OF PRINCIPAL REPAYMENTS OF THE TERM LOAN

Remainder of 2026

Of America Revolver

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

On 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 BOA Revolver was fully repaid and terminated on March 20, 2026.

Funding Agreement

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 March 31, 2026, we have no amounts outstanding on the interim funding agreement for equipment.

Financing Agreement

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

million Renminbi (RMB) (approximately $ 1,400

) that expires in August 2026.

The Company had $ 289

outstanding as of March 31, 2026 that is classified as current debt.

No amounts were outstanding under this financing arrangement as

of December 31, 2025.

The agreement does not include material cross-default provisions with the Associated Facility.

interest rate as of March 31, 2026 was approximately 4 %.

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 1

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.

financing leases for certain property and equipment used in the normal course of business.

terms that can extend the lease term from one 1 to five 5 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.

We have financing leases for certain property and equipment used in the normal course of business.

components of lease expense were as follows:

SCHEDULE OF COMPONENTS OF LEASE EXPENSE

Three Months Ended September 30,

Operating lease cost

Finance lease interest cost

Finance lease amortization expense

Total lease cost

Nine Months Ended September 30,

Three Months Ended March 31,

Operating lease cost

5 unchanged sentences

Balance Sheet Location

September 30,

Finance lease assets

12 unchanged sentences

Total lease liabilities

condensed consolidated statements of cash flows information for the nine months ended September 30, 2025 and 2024 related to leases was

condensed consolidated statements of cash flows information for the three months ended March 31, 2026 and 2025 related to leases was

SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION

September 30,

Operating Leases

Cash paid for amounts included in the measurement of lease liabilities

Conversion of notes payable to finance leases

Property acquired under operating lease

annual payments of lease liabilities as of September 30, 2025 were as follows:

annual payments of lease liabilities as of March 31, 2026 were as follows:

SCHEDULE OF FUTURE PAYMENTS OF LEASE LIABILITIES

3 unchanged sentences

Present value of lease liabilities

lease term and discount rate as of September 30, 2025 and 2024 were as follows:

lease term and discount rate as of March 31, 2026 and 2025 were as follows:

SCHEDULE OF LEASE TERM AND DISCOUNT RATE

Weighted-average

remaining lease term (years)

Weighted-average

discount rate

Weighted-average remaining lease term (years)

Operating leases

Finance leases

Weighted-average discount rate

Operating leases

Finance leases

STOCK BASED AWARDS

compensation expense of $ 134 and $ 127 for the three months ended September 30, 2025 and 2024, respectively, and $ 369 and $ 334 for the

nine months ended September 30, 2025 and 2024, respectively, was reported in the condensed consolidated statements of operations within

general and administrative expenses.

the 2017 Stock Incentive Plan (“2017 Plan”), as amended, there are an aggregate of 775,000 shares authorized for issuance.

granted no and 43,382 service-based stock options during the three and nine months ended September 30, 2025.

We granted 1,000 and 23,000

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

Weighted average stock option fair

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

compensation expense of $ 126 and $ 118 for the three months ended March 31, 2026 and 2025, respectively, was reported in the condensed

consolidated statements of operations within general and administrative expenses.

the 2017 Stock Incentive Plan (“2017 Plan”), as amended, there are an aggregate of 775,000

shares authorized for issuance.

As of March 31, 2026, there

remaining authorized shares available for grant.

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

shares for various equity- and cash-based awards.

The Company granted 30,000 stock options

under the 2017 Plan which vest over 5 years.

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

fair value of stock options granted were as follows:

SCHEDULE OF WEIGHTED AVERAGE GRANT DATE FAIR VALUE OF STOCK OPTIONS GRANTED

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Weighted average grant date fair value of stock options granted

compensation expense related to stock options was $ 84 and $ 206 for the three and nine months ended September 30, 2025, respectively.

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

As of September 30, 2025, there was $ 680 of unrecognized compensation related to stock options which will be recognized over a weighted

average period of 2.4 years.

is a summary of stock option activity as of and for the nine months ended September 30, 2025 and 2024:

compensation expense related to stock options was $ 77 and $ 54 for the three months ended March 31, 2026, and 2025 respectively.

March 31, 2026, there was $ 1,035 of unrecognized compensation related to stock options which will be recognized over a weighted average

period of 2.4 years.

is a summary of stock option activity as of and for the three months ended March 31, 2026 and 2025:

SCHEDULE OF OPTION ACTIVITY

Exercise Price

Outstanding – December 31, 2024

Outstanding – September 30, 2024

Outstanding – December 31, 2024

Outstanding – September 30, 2025

Exercisable on September 30, 2025

compensation expense related to restricted stock units (“RSUs”) was $ 50

for the three and nine months ended September 30, 2025, respectively.

Total compensation expense related to RSUs was $ 66

for the three and nine months ended September 30, 2024, respectively.

During the nine-month periods ended September 30, 2025 and 2024, we granted 43,664

RSUs, respectively, at an average grant price per share of

and $ 11.06 ,

respectively, under our 2017 Stock Incentive Plan to non-employee directors which vest over two years.

As of September 30, 2025, total

unrecognized compensation expense related to the RSUs was $ 306 ,

which will vest over a weighted average period of 1.6

is a summary of RSU activity as of and for the nine months ended September 30, 2025 and 2024:

SCHEDULE OF RESTRICTED STOCK ACTIVITY

Intrinsic Value

Outstanding – December 31, 2023

Outstanding – September 30, 2024

Outstanding – March 31, 2025

Outstanding – December 31, 2025

Outstanding – September 30, 2025

NET (LOSS) INCOME PER SHARE DATA

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

Dilutive net 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:

Outstanding – March 31, 2026

Exercisable on March 31, 2026

compensation expense related to restricted stock units (“RSUs”) was $ 49 and $ 64 for the three months ended March 31, 2026

and 2025, respectively.

No RSUs were granted during the three-month periods ended March 31, 2026 and 2025.

As of March 31, 2026, total

unrecognized compensation expense related to the 43,664 outstanding RSUs was $ 207 , which will vest over a weighted average period of

On March 18, 2026 these RSU’s were modified to allow full vesting upon a change of control, as defined in the amendment.

Management concluded that no incremental compensation cost was required, as the added change-in-control provision did not impact the

fair value of the awards at the modification date.

NET INCOME (LOSS) PER SHARE DATA

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

Dilutive net income (loss) 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.

and diluted weighted average shares outstanding were as follows:

SCHEDULE OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING

Three Months Ended

September 30,

Nine Months Ended

September 30,

Basic weighted average shares outstanding

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

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 three and nine months ended September 30, 2025, restricted stock units and stock options totaling 528,846 and 512,411 , respectively.

the three and nine months ended September 30, 2024, restricted stock units and stock options totaling 189,265 and 93,391 , respectively.

the three months ended March 31, 2026, restricted stock units and stock options totaling 602,446 .

the three months ended March 31, 2025, restricted stock units and stock options totaling 472,941 .

a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision

1 unchanged sentence

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

effective tax rate for the three and nine months ended September 30, 2025 was 122 %

respectively, compared to 8 % and 62 % for the same periods in 2024.

The primary drivers of the change in effective tax rate were

fluctuations in pretax income (loss), taxes on foreign entities and impact of the U.S.

book loss on the Global Intangible Low-Taxed

Income (“GILTI”).

the third quarter of 2025, the One Big Beautiful Bill Act (“OBBBA”) restored the Company’s ability to immediately deduct domestic

research and development expenses.

The Company has prepared its tax provision for three and nine-months ending September 30, 2025 assuming

it will take advantage of this provision of the OBBBA.

As a result, the Company currently estimates that it will incur a U.S.

for the Company in 2025, which will temporarily limit the Company’s ability to deduct interest expense and would impact the ability

to claim foreign tax deductions and credits under the GILTI provisions of the US tax code.

The impact to the GILTI results

in a permanent unfavorable impact to the overall tax rate for the quarter and year-to-date periods in 2025.

The Company plans to

continue to review the impact of the OBBBA, and the various elections, including the Company’s deduction of research and development

expense, to optimize tax cash payments, along with overall tax expense.

effective tax rate for the three months ended March 31, 2026 was 84 %, compared to 28 % for the three months ended March 31, 2025.

primary drivers of the change in the effective tax rate are the differences in pretax book income (loss) by jurisdiction and taxes on

foreign entities.

SEGMENT INFORMATION

results of operations for the nine months ended September 30, 2025 and 2024 represent a single operating and reporting segment referred

results of operations for the three months ended March 31, 2026 and 2025 represent a single operating and reporting segment referred

to as Contract Manufacturing within the EMS industry.

3 unchanged sentences

our various manufacturing facilities based on several considerations to best meet our customers’ needs.

Our plants generate

net sales over several of the markets the Company serves.

Our plants generate net

sales over several of the markets the Company serves.

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

5 unchanged sentences

Company’s net sales were located as follows:

SCHEDULE OF NET SALES

Three Months Ended

September 30,

Nine Months Ended

September 30,

OF NET SALES WERE LOCATED

United States

3 unchanged sentences

SCHEDULE OF LONG-LIVED TANGIBLE ASSETS

September 30,

United States

1 unchanged sentence

RESTRUCTURING CHARGES

2024, we recorded restructuring charges of $ 571

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

During the nine months ended September 30, 2025, the Company incurred $ 266

2024, we recorded restructuring charges of $ 571 related to the closure and consolidation of our Blue Earth, Minnesota production facility,

which was completed in the fourth quarter of 2024.

As of December 31, 2024, $ 154 of facility consolidation expenses related to the Blue

Earth closure were accrued and paid in the first quarter of 2025.

During the three months ended March 31, 2025, 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.

We have not recorded any restructuring charges or restructuring charge activity in the three months ended

September 30, 2025.

following table summarizes the related activity for the nine months ended September 30, 2025:

following table summarizes the related activity for the three months ended March 31, 2025:

SCHEDULE OF RESTRUCTURING CHARGES

3 unchanged sentences

Cash payments

September 30, 2025

following table summarizes the related activity for the nine months ended September 30, 2024:

Facility Consolidation

December 31, 2023

Cash payments

September 30, 2024

RELATED PARTY TRANSACTIONS

Kunin, our Chairman, is a minority owner of Abilitech Medical, Inc.

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

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 the early detection of skin cancer through full body

Kunin is also a member of the Board of Directors of Marpe Technologies.

The Company worked with Marpe Technologies to

apply for a grant from the Israel-United States Binational Industrial Research and Development Foundation, a legal entity created by

Agreement between the Government of the State of Israel and the Government of the United States of America (“BIRD

Foundation”).

The parties were successful in receiving approval for a $ 1,000

conditional grant.

The Company and Marpe Technologies will each receive $ 500

from the BIRD Foundation and, among other obligations under the grant, each is required 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

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 will be successful in raising additional funds to finance

its operations or, if commercially successful, the Company will recover the value of services provided to Marpe if not paid when the

services are provided.

The transactions between the Company and Marpe Technologies have been approved by the Audit Committee

pursuant to the Company Related-Party Transactions Policy.

During the three and nine months ended September 30, 2025, we recognized no

net sales to Marpe Technologies.

During the three and nine months ended September 30, 2024, we recognized net sales to Marpe

Technologies of $ 8 and $ 75 , respectively.

As of September 30, 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 third party.

March 31, 2025

did not record any restructuring charges or restructuring charge activity in the three months ended March 31, 2026.

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