What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2025-11-13 · 139 added, 263 removed, 79 unchanged (84% of the section changed)

1 unchanged sentence

are a Minnesota, United States based full-service global EMS contract manufacturer in the Medical Device, Medical Imaging, Aerospace

and Defense and Industrial markets offering a full range of value-added engineering, technical and manufacturing services and

support including project management, design, testing, prototyping, manufacturing, supply chain management and post-market services.

Our products are complex electromedical and electromechanical products including medical devices, wire and cable assemblies, printed

circuit board assemblies, complex higher-level assemblies and other box builds for a wide range of industries.

As of December 31,

2024, we have facilities in Minnesota:

Bemidji, Mankato, Milaca and Maple Grove as well as facilities in Monterrey, Mexico and

Suzhou, China.

We closed our facility in Blue Earth, Minnesota in December 2024 and sold this facility on July 24, 2025.

and Defense and Industrial markets offering a full range of value-added engineering, technical and manufacturing services and support

including project management, design, testing, prototyping, manufacturing, supply chain management and post-market services.

are complex electromedical and electromechanical products including medical devices, wire and cable assemblies, printed circuit board

assemblies, complex higher-level assemblies and other box builds for a wide range of industries.

As of December 31, 2025, we have facilities

in Minnesota:

Bemidji, Mankato, Milaca and Maple Grove.

We closed our facility in Blue Earth, Minnesota in December 2024 and sold this

facility in July 2025.

We also have facilities in Monterrey, Mexico and Suzhou, China.

net sales are derived from complex designed products built to the customers’ specifications.

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and designed products that require sophisticated manufacturing support.

Quality, on-time delivery, and reliability are of utmost importance.

Quality, on-time delivery, and reliability are of upmost importance.

Our goal is to expand and diversify our customer base by focusing on sales and marketing efforts that fit our value-added service, early

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to increase asset utilization, reduce lead times and provide competitive pricing.

strategic investments have positioned us to capitalize on growth opportunities in the medical and defense markets and improve our

competitiveness by expanding our global footprint.

Our industrial and defense markets are focused on improving our asset utilization

and profitability while transforming to a value-added, solution-sell business model that supports early engagement, design for

manufacturability and rapid prototyping.

strategic investments have positioned us to capitalize on growth opportunities in the medical markets and improve our competitiveness

by expanding our global footprint.

Our industrial and defense markets are focused on improving our asset utilization and profitability

while transforming to a value added, solution-sell business model that supports early engagement, design for manufacturability and rapid

dollar amounts are stated in thousands of U.S.

Restructuring

fiscal year 2024, the Company initiated a restructuring plan related to the closure of its Blue Earth, MN facility.

During the three

and nine months ended September 30, 2025, the Company incurred restructuring charges related to staff reductions and activities related

to the Blue Earth facility closure.

The costs of these restructuring programs totaled $837, of which $266 was recorded in the nine months

ended September 30, 2025 and $571 was recorded in the prior fiscal year.

We did not record any amounts related to restructuring in the

three months ended September 30, 2025.

These costs are included in restructuring charges on the condensed consolidated statements of

These charges relate to employee severance and facility closure costs.

We do not expect significant additional expenses related

to this plan.

of Operations

Net sales for the three months ended September 30, 2025 and 2024 were $30,482 and $31,407, respectively, a comparative period

decrease of $925 or 2.9%.

Net sales for the nine months ended September 30, 2025 and 2024 were $88,052 and $99,513, respectively, a comparative

period decrease of $11,461 or 11.5%.

Net sales in the three and nine months ended September 30, 2025 were negatively impacted by delays

in Aerospace and Defense customer approvals of products transferred from our Blue Earth facility to our Bemidji facility as well as manufacturing

and plant utilization inefficiencies related to the movement of various production between plants.

Over the past two quarters, we have improved our manufacturing efficiencies as we complete product transfers between

plants and realize improved manufacturing yields and productivity.

The following is a summary of net

sales by our major industry markets:

Months Ended September 30,

Net sales to our medical customers decreased $139, or 1.6%, in the three months ended September 30, 2025 as compared with

the same period in 2024 and $2,522, or 9.5%, in the nine months ended September 30, 2025 as compared with the same period in 2024.

The decrease was primarily due to inventory re-balancing with existing customers and timing of customer product launches as well as lower

productivity as we managed our facility consolidation primarily in the first quarter of 2025.

Net sales to our Medical Imaging customers increased $832, or 8.7%, in the three months ended September 30, 2025 as compared

with the same period in 2024 and $1,143, or 4.2%, in the nine months ended September 30, 2025 as compared with the same period in

The increase was primarily due to higher sales volume to existing customers as well as new program awards.

Net sales to our industrial customers decreased $222, or 2.6%,

in the three months ended September 30, 2025 as compared with the same period in 2024 and $3,970, or 14.4%, in the nine months ended September

30, 2025 as compared with the same period in 2024.

The decrease in net sales was primarily due to customer order delays and part shortages.

Net sales for the three months ended March 31, 2026 and 2025 were $30,316 and $26,895, respectively, a comparative period

increase of $3,421 or 12.7%.

Net sales in the three months ended March 31, 2026 were positively impacted in Aerospace and Defense

from the receipt of customer approvals for products transferred from our Blue Earth facility to our Bemidji facility during 2025 as

well as manufacturing and plant utilization efficiencies gained related to our 2025 facility optimization.

The following is a

summary of net sales by our major industry markets:

Three Months Ended March 31,

Increase (Decrease)

Medical Device

Medical Imaging

Aerospace and Defense

Net sales to our aerospace and defense customers

decreased $1,396, or 28.3%, in the three months ended September 30, 2025 as compared with the same period in 2024 and $6,112, or 34.2%,

in the nine months ended September 30, 2025 as compared with the same period in 2024.

The decrease in net sales in the quarterly comparison

primarily relates to higher over time revenue in the third quarter of 2024 due from increased production in anticipation of the closure

of the Blue Earth facility.

The decrease in net sales in the year-to-date comparison relates to delays in customer approvals as we have

consolidated this business into our Bemidji facility and higher over time revenue in the third quarter of 2024 due from increased production

in anticipation of the closure of the Blue Earth facility.

90-day shipment backlog as of September 30, 2025 was $31,322, an in crease

of 17.8% from $26,592 at the beginning of the quarter, and a 5.7% increase from September 30, 2024.

Our 90-day backlog consists of

firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be shipped within 180 days.

total order backlog as of September 30, 2025, was $77,292, representing a 1.4% decrease from $78,351 at the beginning of the quarter

and a 10.8% increase compared to the same period in the prior year;

this year over year growth was primarily driven by an increase in Aerospace and Defense orders.

Total net sales

Net sales to our medical customers increased $841, or 10.4%, in the three months ended March 31, 2026 as compared with the

same period in 2025.

The increase was primarily due to the ramp up of production post our 2025 facility optimization.

Net sales to our Medical Imaging customers increased $1,288, or 15.0%, in the three months ended March 31, 2026 as compared

with the same period in 2025.

The increase was primarily due to higher sales volume to existing customers.

Net sales to our industrial customers remained relatively flat with a decrease of $63, or 0.9%, in the three months ended March 31,

2026 as compared with the same period in 2025.

Net sales to our aerospace and defense customers increased $1,355, or 41.2%, in the three months ended March 31, 2026

as compared with the same period in 2025.

The increase primarily relates to the positive impact from receipt of customer approvals

for products transferred from our Blue Earth facility to our Bemidji facility.

Our 90-day shipment backlog as of March 31, 2026 was $31,475, an increase of 15.3% from $27,288 at the beginning of the quarter,

and a 17.7% increase from March 31, 2025.

Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days,

with any remaining amounts to be shipped within 180 days.

total order backlog as of March 31, 2026, was $90,802, representing a 17.4% increase from $77,343 at the beginning of the quarter and

a 32.9% increase compared to the same period in the prior year;

this year over year growth was primarily driven by an increase in Aerospace

and Defense orders.

shipment and total backlog by our major industry markets are as follows:

September 30, 2025

June 30, 2025

September 30, 2024

March 31, 2026

December 31, 2025

March 31, 2025

Medical Device

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Total backlog

90-day and total backlog as of September 30, 2025 includes orders already recognized in net sales and included in the contract asset

value of $15,328.

90-day and total backlog as of March 31, 2026 includes orders already recognized in net sales and included in the contract asset value

Costs and Expenses.

sales, cost of goods sold, gross profit, and operating costs were as follows:

Three Months Ended September 30,

Three Months Ended March 31,

Increase/(Decrease)

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points change in gross margin percentage.

the first quarter of 2025, the Company modified the responsibilities and reporting relationships of certain customer-facing managers.

As a result of these organizational changes, the related costs, which were previously classified as cost of sales, are now reported

as selling expenses to better reflect the nature of the activities performed.

Nine Months Ended September 30,

Increase/(Decrease)

Cost of goods sold (3)

Gross margin percentage (1)

% of Net sales

General and administrative

% of Net sales

Research and development

% of Net sales

Restructuring charges

% of Net sales

Operating income

% of Net sales

margin percentage is defined as gross profit as a percentage of net sales.

points change in gross margin percentage.

the first quarter of 2025, the Company modified the responsibilities and reporting relationships of certain customer-facing managers.

As a result of these organizational changes, the related costs, which were previously classified as cost of sales, are now reported

as selling expenses to better reflect the nature of the activities performed.

profit and gross margins.

Gross profit as a percentage of net sales was 16.5% and 12.2% for the three months ended September 30, 2025,

and 2024, respectively.

Gross profit as a percentage of net sales was 14.7% and 14.0% for the nine months ended September 30, 2025, and

profit and gross margin percentage.

Gross margin percentage was 15.5% and 11.4% for the three months ended March 31, 2026, and 2025,

respectively.

The increase in gross profit as a percentage of net sales in the quarterly and year to date comparison periods was

the result of improved plant utilization primarily from our restructuring activities and favorable sales mix.

Selling expenses, as measured as a percentage of net sales , were 4.0% and 2.7% for the three months ended September

30, 2025, and 2024, respectively.

Selling expenses, as measured as a percentage of net sales , were 4.1% and 2.6% for the nine

months ended September 30, 2025, and 2024, respectively.

In 2025, we realigned the reporting structure of our customer facing

managers from plant operations to business development.

As a result, this increase is a result of this realignment from cost of

sales as well as the impact of fixed costs on a lower revenue base.

The increase in gross margin percentage was the result of improved plant utilization primarily from our restructuring activities

and higher sales on a fixed cost base.

Selling expenses, as measured as a percentage of net sales , were 4.4% for both the three months ended March 31,

2026, and 2025.

and administrative expenses.

General and administrative expenses, as measured as a percentage of net sales, were 8.5% and 9.4% for the

three months ended September 30, 2025 and 2024, respectively, and 9.2% and 9.1% for the nine months ended September 30, 2025 and 2024,

respectively.

General and administrative expenses decreased in the quarterly and year to date 2025 periods by $358 and $1,006, respectively,

as compared with the 2024 periods primarily as the result of lower incentive compensation accruals in the current year.

General and administrative expenses, as measured as a percentage of net sales, were 9.9% and 10.8% for

the three months ended March 31, 2026 and 2025, respectively.

This decrease as a percentage of net sales was primarily the result of

higher sales on a fixed cost base.

Restructuring

Restructuring charges were $0 and $266 in the three and nine months ended September 30, 2025, respectively.

Restructuring charges were $0 and $266 in the three months ended March 31, 2026 and 2025, respectively.

During the first

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sales and $31 of expenses related to our closed Blue Earth facility.

Restructuring charges were $176 and $267 in the three and nine months

ended September 30, 2024, respectively, for accrued employee retention bonuses for our facility consolidation and closure of our Blue

Earth facility.

(loss) income.

Operating income was $945 for the three months ended September 30, 2025 or 3.1% of net sales and operating loss was

$(467) or (1.5)% of net sales for the three months ended September 30, 2024.

This increase was driven by the improved gross margin and

lower incentive compensation expense.

Operating income was $74 or 0.1% of net sales for the nine months ended September 30, 2025 and

was $1,032 or 1.0% of net sales for the nine months ended September 30, 2024.

The decrease was driven by the decrease in net sales and

resulting gross margin.

Interest expense was $273 and $216 for the three months ended September 30, 2025 and 2024, respectively.

Interest expense

was $744 and $548 for the nine months ended September 30, 2025 and 2024, respectively.

This increase was driven by higher borrowings

under our line of credit arrangement.

Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.

Our effective tax rate for the three and nine months ended September 30, 2025 was 122% and (71)%, respectively.

Our effective

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

The primary drivers of the change in

effective tax rate were changes in pretax income (loss) and taxes on foreign entities.

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.

tax loss 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

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.

income (loss).

Operating income was $47 for the three months ended March 31, 2026 or 0.2% of net sales and operating loss was $(1,613)

or (6.0)% of net sales for the three months ended March 31, 2025.

The improvement was primarily driven by higher gross margin percentage,

which increased operating income by $1,234, and higher net sales, which contributed an additional $390.

expense, net.

Interest expense, net was $256 and $214 for the three months ended March 31, 2026 and 2025, respectively.

increase was driven by the write-off of unamortized debt issuance costs of $88 associated with our prior financing arrangement that

was refinanced in the period.

Refer to “Liquidity and Capital Resources” for further discussion of financing

arrangements.

Our effective tax rate for the three months ended March 31, 2026 and 2025 was 84% and 28%, respectively.

The primary drivers

of the change in the effective tax rate were differences in pretax book income (loss) by jurisdiction and taxes on foreign entities.

Flow Operating Results

following is a summary of cash flow results:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash provided by (used in):

2 unchanged sentences

Financing activities

Effect of exchange rates on changes in cash and cash equivalents

Net change in cash and cash equivalents

Cash used in operating activities was $2,865 in the first nine months of 2025, compared with $3,043 in the same prior-year

Effect of exchange rates on changes in cash and restricted cash

Net change in cash and restricted cash

Cash used in operating activities was $1,561 in the first three months of 2026, compared with $2,930 in the same prior-year

Significant changes in operating assets and liabilities affecting cash flows during these periods included:

used by accounts receivable and contract assets was $5,411 in the nine months ended September 30, 2025 as compared with cash provided

of $2,150 in the same prior-year period.

The use of cash in the nine months ended September 30, 2025 is largely due to timing of

customer shipments and cash collections.

The cash provided in the prior year was due to an expected increase in cash collections

due to higher sales and the timing of customer payments, partially offset by an increase in contract assets to support future customer shipments.

provided by inventory was $2,823 in the nine months ended September 30, 2025 as compared with cash used of $922 in the prior-year

The decrease in the current-year period cash usage was the result of normal timing variances of inventory purchases and timing

of product shipments as well as the results of our plan to reduce inventory balances in 2025.

Cash used in investing activities was $13 in the first nine months of 2025, compared with $971 in the

same prior-year period.

The increase in proceeds from sale of property and equipment of $504 in the nine months ended September 30, 2025

compared with $9 in the same prior-year period was primarily due to the sale of the Blue Earth property and equipment.

Cash provided by financing activities was $3,218 in the first nine months of 2025 and $3,561 in the same prior-year period.

used by accounts receivable and contract assets was $1,648 in the three months ended March 31, 2026 as compared with cash used of

$426 in the same prior-year period.

This use of cash is largely due to timing of customer shipments and cash collections in both

periods and by an increase in contract assets in the current year period to support future customer shipments.

used by inventory was $2,610 in the three months ended March 31, 2026 as compared with cash provided of $487 in the prior-year period.

The increase in the current-year period cash usage was the result of normal timing variances of inventory purchases and timing of

product shipments.

provided by changes in accounts payable was $1,917 in the current-year period as compared with cash used of $1,441 in the same prior-year

period, primarily related to the timing of cash payments.

Cash used in investing activities was $228 in the first three months of 2026, compared with $268 in the same prior-year

period, both due from the purchases of property and equipment.

Cash provided by financing activities was $2,336 in the first three months of 2026 and $3,446 in the same prior-year

The cash provided by financing activities in both periods resulted from the line of credit advances for working capital and operations

as well as the term loan borrowing in the first three months of 2026.

and Capital Resources

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 statements.

Pursuant to U.S.

GAAP, this raises substantial doubt about the

Company’s ability to continue as a going concern.

The 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.

Based on the planned

refinancing arrangement, anticipated operating cash flows, and cash on hand, we believe we will have sufficient liquidity to satisfy

our working capital needs, capital expenditures and debt repayments for the next twelve months.

We were in compliance with financial

covenants related to adjusted EBITDA for the third quarter of 2025.

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.

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.

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.

sales in the first two quarters of 2025 and fourth quarter of 2024 were negatively impacted by delays in Aerospace and Defense customer

approvals of products transferred from our Blue Earth facility to our Bemidji facility as well as manufacturing and plant utilization

inefficiencies related to the movement of various production between plants.

Over the past two quarters, we have improved our manufacturing

efficiencies as we complete product transfers between plants and realize improved manufacturing yields and productivity.

implemented plant optimization activities and cost-cutting initiatives in the first two quarters of 2025 to address losses.

of these activities, we have realized combined income from operations of $1,687 over the past two quarters.

These actions plus continued

efforts to improve manufacturing efficiencies and the planned reduction in inventory levels are intended to drive reduced borrowings

during the fourth quarter of 2025.

believe that our existing financing arrangements, anticipated cash flows from operations, and cash on hand will be sufficient to satisfy

our working capital needs, capital expenditures and debt repayments for the next year from the date of this filing with the Securities

and Exchange Commission.

On 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 in the United States of

America (“U.S.”), 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 U.S.

The Associated Facility

matures in March 2029.

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

revolving credit facility.

The term loan requires monthly principal payments of $37 plus interest.

Borrowings 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 derivatives.

The 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

The Company was in compliance with all covenants under the Associated Facility as of March 31, 2026.

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 Associated Facility agreement, the lender may accelerate all obligations,

terminate the commitments, and exercise its full rights and remedies against the collateral.

ability to comply with these covenants depends in part on our ability to generate sufficient EBITDA and operating cash flow.

If our EBITDA

or cash flows declines due to any factor, we may not remain in compliance with our financial covenants under the Associated Facility.

Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis