NORTECH SYSTEMS INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) 2025 2024 THREE MONTHS ENDED MARCH 31, 2025 2024 Net sales $ 26,895 $ 34,215 Cost of goods sold 23,817 28,767 Gross profit 3,078 5,448 Operating expenses: Selling 1,184 805 General and administrative 2,915 3,170 Research and development 326 318 Restructuring charges 266 - Total operating expenses 4,691 4,293 (Loss) income from operations ( 1,613 ) 1,155 Other expense: Interest expense ( 214 ) ( 167 ) (Loss) income before income taxes ( 1,827 ) 988 Income tax (benefit) expense ( 511 ) 223 Net (loss) income $ ( 1,316 ) $ 765 Net (loss) income per common share: Basic (in dollars per share) $ ( 0.48 ) $ 0.28 Weighted average number of common shares outstanding - basic (in shares) 2,760,929 2,742,511 Diluted (in dollars per share) $ ( 0.48 ) $ 0.26 Weighted average number of common shares outstanding - diluted (in shares) 2,760,929 2,908,457 Other comprehensive (loss) income Foreign currency translation 6 ( 183 ) Comprehensive (loss) income, net of tax $ ( 1,310 ) $ 582 See Accompanying Notes to Condensed Consolidated Financial Statements. 3 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2025 AND DECEMBER 31, 2024 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31, 2025 DECEMBER 31, 2024 ASSETS Current assets: Cash $ 1,162 $ 916 Accounts receivable, less allowances of $ 231 and $ 196 , respectively 15,668 14,875 Inventories, net 20,910 21,638 Contract assets 13,404 13,792 Assets held for sale 507 - Prepaid assets and other assets 5,673 4,094 Total current assets 57,324 55,315 Property and equipment, net 5,575 6,232 Operating lease assets, net 7,831 8,139 Deferred tax assets 2,575 2,575 Other intangible assets, net 169 174 Other assets 59 - Total assets $ 73,533 $ 72,435 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,062 $ 11,582 Accrued payroll and commissions 2,515 1,841 Customer deposits 5,028 5,140 Current portion of operating leases 1,187 1,175 Current portion of finance lease obligations 121 143 Notes payable 563 344 Other accrued liabilities 1,240 1,203 Total current liabilities 20,716 21,428 Long-term liabilities: Long-term line of credit 11,955 8,634 Long-term operating lease obligations, net of current portion 7,462 7,773 Long-term finance lease obligations, net of current portion 281 311 Other long-term liabilities 287 284 Total long-term liabilities 19,985 17,002 Total liabilities 40,701 38,430 Shareholders’ equity: Preferred stock, $ 1 par value; 1,000,000 shares authorized; 250,000 shares issued and outstanding 250 250 Common stock - $ 0.01 par value; 9,000,000 shares authorized; 2,760,993 and 2,760,793 shares issued and outstanding, respectively 28 28 Additional paid-in capital 17,466 17,329 Accumulated other comprehensive loss ( 971 ) ( 977 ) Retained earnings 16,059 17,375 Total shareholders’ equity 32,832 34,005 Total liabilities and shareholders’ equity $ 73,533 $ 72,435 See Accompanying Notes to Condensed Consolidated Financial Statement . 4 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) 2025 2024 THREE MONTHS ENDED MARCH 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ ( 1,316 ) $ 765 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation 342 442 Amortization 5 40 Compensation on stock-based awards 118 80 Change in accounts receivable allowance 35 ( 66 ) Change in inventory reserves 231 76 Other, net - ( 4 ) Changes in current operating assets and liabilities: Accounts receivable ( 814 ) 3,215 Inventories 487 ( 1,400 ) Contract assets 388 287 Prepaid expenses and other assets ( 1,588 ) ( 328 ) Accounts payable ( 1,441 ) ( 8 ) Accrued payroll and commissions 674 640 Customer deposits ( 112 ) ( 926 ) Other accrued liabilities 61 15 Net cash (used in) provided by operating activities ( 2,930 ) 2,828 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment - 9 Purchases of property and equipment ( 268 ) ( 744 ) Net cash used in investing activities ( 268 ) ( 735 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line of credit 25,970 32,768 Payments to line of credit ( 22,710 ) ( 32,394 ) Proceeds from notes payable 219 - Principal payments on financing leases ( 52 ) ( 100 ) Stock option exercises 19 - Net cash provided by financing activities 3,446 274 Effect of exchange rate changes on cash ( 2 ) ( 14 ) Net change in cash 246 2,353 Cash - beginning of period 916 1,675 Cash - end of period $ 1,162 $ 4,028 5 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) THREE MONTHS ENDED MARCH 31, 2025 2024 Supplemental disclosure of cash flow information: Cash paid for interest $ 203 $ 134 Cash paid for income taxes $ 179 $ 141 Supplemental noncash investing and financing activities: Property and equipment purchases in accounts payable $ 42 $ 16 Operating lease assets acquired under operating leases $ - $ 719 See Accompanying Notes to Condensed Consolidated Financial Statements. 6 NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) (IN THOUSANDS) Shares Amount Shares Amount Capital Loss Earnings Equity Accumulated Additional Other Total Preferred Stock Common Stock Paid-In Comprehensive Retained Shareholders’ Shares Amount Shares Amount Capital Loss Earnings Equity Balance as of December 31, 2023 250 $ 250 2,740 $ 27 $ 16,929 $ ( 532 ) $ 18,670 $ 35,344 Net income - - - - - - 765 765 Foreign currency translation adjustment - - - - - ( 183 ) - ( 183 ) Restricted Stock Unit Vesting - - 15 - - - - - Compensation on stock-based awards - - - - 80 - - 80 Balance as of March 31, 2024 250 $ 250 2,755 $ 27 $ 17,009 $ ( 715 ) $ 19,435 $ 36,006 Balance as of December 31, 2024 250 $ 250 2,761 $ 28 $ 17,329 $ ( 977 ) $ 17,375 $ 34,005 Balance 250 $ 250 2,761 $ 28 $ 17,329 $ ( 977 ) $ 17,375 $ 34,005 Net loss - - - - - - ( 1,316 ) ( 1,316 ) Net income (loss) - - - - - - ( 1,316 ) ( 1,316 ) Foreign currency translation adjustment - - - - - 6 - 6 Stock option exercises - - - - 19 - - 19 Compensation on stock-based awards - - - - 118 - - 118 Balance as of March 31, 2025 250 $ 250 2,761 $ 28 $ 17,466 $ ( 971 ) $ 16,059 $ 32,832 Balance 250 $ 250 2,761 $ 28 $ 17,466 $ ( 971 ) $ 16,059 $ 32,832 See Accompanying Notes to Condensed Consolidated Financial Statements. 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements for the interim periods have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the Company’s audited consolidated financial statements. These unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements for the year ended December 31, 2024, and notes thereto included in our Annual Report on Form 10-K as filed with the SEC. The condensed consolidated financial statements include the accounts of Nortech Systems Incorporated and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. All dollar amounts are stated in thousands of U.S. dollars. Use of Estimates The 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 expenses during each reporting period. 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. Actual results could differ from those estimates. Recently Issued New Accounting Standards In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting Topic (280): Improvements to Reportable Segment Disclosure . The ASU supplements reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company adopted this ASU in the fourth quarter of 2024 and have included related interim reporting disclosures in Note 9 – Segment Information, to these condensed consolidated financial statements. In December 2023, the Financial Accounting Standards Board (“FASB”) issued 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. In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, 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. ASU No. 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; this ASU allows for early adoption. The Company is currently evaluating the impact of this ASU on its consolidated financial statements disclosures. 8 Inventories Inventories are as follows: SCHEDULE OF INVENTORIES March 31, December 31, 2025 2024 Raw materials $ 20,799 $ 21,122 Work in process 744 892 Finished goods 1,044 1,070 Reserves ( 1,677 ) ( 1,446 ) Inventories, net $ 20,910 $ 21,638 Other Intangible Assets Other intangible assets as of March 31, 2025 and December 31, 2024 are as follows: SCHEDULE OF OTHER INTANGIBLE ASSETS Patents Balances as of December 31, 2024 $ 174 Amortization ( 5 ) Balances as of March 31, 2025 $ 169 Intangible assets are amortized on a straight-line basis over their estimated useful lives. The weighted average remaining amortization period of our intangible assets is 4.8 years. Of the patents value as of March 31, 2025, $ 85 are being amortized and $ 84 are in process and a patent has not yet been issued. Amortization expense of finite life intangible assets for the three months ended March 31, 2025 and 2024 was $ 5 and $ 40 , respectively. As of March 31, 2025, estimated future annual amortization expense (except projects in process) related to these assets is as follows: SCHEDULE OF ESTIMATED FUTURE ANNUAL AMORTIZATION EXPENSE Year Amount Remainder of 2025 $ 14 2026 18 2027 18 2028 18 2029 12 Thereafter 5 Total $ 85 Property and Equipment As of March 31, 2025, the Company classified its Blue Earth manufacturing facility and related land as held for sale as the criteria for classification as held for sale were met and the sale is expected to be completed in the next twelve months. The carrying value of these assets held for sale was $ 507 as of March 31, 2025, which approximates its fair value, and is classified as a current asset in our condensed consolidated balance sheets. NOTE 2. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, accounts receivable, and contract assets. With regard to cash, we maintain our excess cash balances in checking accounts at primarily 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 $ 1,162 cash balance as of March 31, 2025, included approximately $ 887 and $ 8 that was held at banks located in China and Mexico, respectively. We grant credit to customers in the normal course of business and generally do not require collateral on our accounts receivable. We 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. Customers who represent 10% or more of net sales for the three months ended March 31, 2025 and 2024 are as follows: SCHEDULE OF NET SALES CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS March 31, 2025 March 31, 2024 Net Sales March 31, 2025 March 31, 2024 Customer A 31 % 25 % Customer B 11 % 10 % Total 42 % 35 % Customers who represent 10% or more of accounts receivable and contract assets for the period ended March 31, 2025 and December 31, 2024 are as follows: SCHEDULE OF ACCOUNTS RECEIVABLE CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS March 31, 2025 December 31, 2024 Accounts Receivable March 31, 2025 December 31, 2024 Customer A 22 % 23 % Customer C 11 % 13 % Total 33 % 36 % SCHEDULE OF CONTRACT ASSETS CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS March 31, 2025 December 31, 2024 Contract Asset March 31, 2025 December 31, 2024 Customer A 33 % 33 % Customer D 18 % 12 % Total 51 % 45 % 9 Export sales from the U.S. represented approximately 2 % and 3 % of net sales for the three months ended March 31, 2025 and 2024, respectively. NOTE 3. NET SALES Revenue Recognition Revenue under contract manufacturing agreements that was recognized over time excluding noncash consideration accounted for 74 % of net sales for the three months ended March 31, 2025 and 2024. The following tables summarize our net sales by market for the three months ended March 31, 2025 and 2024, respectively: SCHEDULE OF NET SALES BY MARKET Product/ Service Transferred Over Time Product Transferred at Point in Time Noncash Consideration 1 Total Net Sales by Market Three Months Ended March 31, 2025 Product/ Service Transferred Over Time Product Transferred at Point in Time Noncash Consideration 1 Total Net Sales by Market Medical Device $ 5,772 $ 1,730 $ 568 $ 8,070 Medical Imaging 6,708 1,873 7 8,588 Industrial 4,706 2,132 107 6,945 Aerospace and Defense 2,782 478 32 3,292 Total net sales $ 19,968 $ 6,213 $ 714 $ 26,895 Product/ Service Transferred Over Time Product Transferred at Point in Time Noncash Consideration 1 Total Net Sales by Market Three Months Ended March 31, 2024 Product/ Service Transferred Over Time Product Transferred at Point in Time Noncash Consideration 1 Total Net Sales by Market Medical Device (2) $ 7,167 $ 2,777 $ 794 $ 10,738 Medical Imaging (2) 7,073 2,468 3 9,544 Industrial 5,429 2,347 297 8,073 Aerospace and Defense 5,545 242 73 5,860 Total net sales $ 25,214 $ 7,834 $ 1,167 $ 34,215 1 Noncash consideration represents material provided by the customer used in the build of the product. 2 Medical, as reported in the prior year period filing, has been split between Medical Device and Medical Imaging to conform with the current year presentation. 10 Contract Assets Contract assets, recorded as such in the condensed consolidated balance sheet, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the three months ended March 31, 2025 were as follows: SCHEDULE OF CONTRACT ASSETS Balances as of January 1, 2025 $ 13,792 Increase (decrease) attributed to: Amounts transferred over time to contract assets 19,968 Allowance for current expected credit losses - Amounts invoiced during the period ( 20,356 ) Balance outstanding as of March 31, 2025 $ 13,404 We expect substantially all of the remaining performance obligations for the contract assets recorded as of March 31, 2025 to be transferred to receivables within 90 days, with any remaining amounts to be transferred within 180 days. We bill our customers upon shipment with payment terms of up to 120 days. NOTE 4. FINANCING ARRANGEMENTS On 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. The 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. There are no subjective acceleration clauses under the Revolver that would accelerate the maturity of outstanding borrowings. The Revolver contains certain covenants which, among other things, require the Company to adhere to regular reporting requirements, abide by shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. The Revolver is secured by substantially all the Company’s assets and expires on February 28, 2027. 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 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 Revolver. On 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 accelerated the expiration of the Revolver to June 30, 2026 and increases the borrowing rate by 25 basis points. The Revolver, as amended, bears interest at a weighted-average interest rate of 7.2 % and 7.7 % as of March 31, 2025 and December 31, 2024, respectively. We had borrowings on our line of credit of $ 11,955 and $ 8,695 outstanding as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, we had unused availability on the line of credit of $ 3,045 , which is subject to a month end cap based on the previously noted minimum Liquidity. The Company has an interim funding agreement as of March 31, 2025 with a bank related to deposits made on equipment purchases that will be funded through a finance lease when the equipment is received and operational. As of March 31, 2025 we have $ 563 outstanding on the interim funding agreement for equipment. 11 NOTE 5. LEASES We 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. As of March 31, 2025, we have $ 563 of future lease commitments under the above noted interim funding agreement which will be converted into finance leases when all of the underlying equipment is received and operational in 2025. We have financing leases for certain property and equipment used in the normal course of business. The components of lease expense were as follows: SCHEDULE OF COMPONENTS OF LEASE EXPENSE Lease Cost 2025 2024 Three Months Ended March 31, Lease Cost 2025 2024 Operating lease cost $ 565 $ 596 Finance lease interest cost 6 7 Finance lease amortization expense 42 131 Total lease cost $ 613 $ 734 Supplemental condensed consolidated balance sheet information related to leases was as follows: SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION RELATED TO LEASES Balance Sheet Location March 31, 2025 December 31, 2024 Assets Finance lease assets Property, plant and equipment $ 369 $ 411 Operating lease assets Operating lease assets 7,831 8,139 Total leased assets $ 8,200 $ 8,550 Liabilities Current Current operating lease liabilities Current portion of operating lease obligations $ 1,187 $ 1,175 Current finance lease liabilities Current portion of finance lease obligations 121 143 Noncurrent Long-term operating lease liabilities Long term operating lease liabilities, net 7,462 7,773 Long term finance lease liabilities Long term finance lease obligations, net 281 311 Total lease liabilities $ 9,051 $ 9,402 12 Supplemental condensed consolidated statements of cash flows information for the three months ended March 31, 2025 and 2024 related to leases was as follows: SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION March 31, March 31, 2025 2024 Operating Leases Cash paid for amounts included in the measurement of lease liabilities $ 433 $ 459 Property acquired under operating lease $ - $ 719 Future annual payments of lease liabilities as of March 31, 2025 were as follows: SCHEDULE OF FUTURE PAYMENTS OF LEASE LIABILITIES Operating Leases Finance Leases Total Remainder of 2025 $ 1,368 $ 141 $ 1,509 2026 1,859 149 2,008 2027 1,570 60 1,630 2028 1,569 60 1,629 2029 986 44 1,030 Thereafter 4,670 - 4,670 Total lease payments $ 12,022 $ 454 $ 12,476 Less: imputed interest ( 3,373 ) ( 52 ) ( 3,425 ) Present value of lease liabilities $ 8,649 $ 402 $ 9,051 The lease term and discount rate as of March 31, 2025 and 2024 were as follows: SCHEDULE OF LEASE TERM AND DISCOUNT RATE Weighted-average remaining lease term (years) March 31, 2025 March 31, 2024 Operating leases 7.6 7.9 Finance leases 3.3 1.7 Weighted-average discount rate Operating leases 7.8 % 8.1 % Finance leases 5.7 % 5.3 % 13 NOTE 6. STOCK BASED AWARDS Stock-based compensation expense was reported as follows in the condensed consolidated statements of operations within general and administrative expenses of $ 118 and $ 80 for the three months ended March 31, 2025 and 2024, respectively. Stock Options Under the 2017 Stock Incentive Plan (“2017 Plan”), as amended, there are an aggregate of 775,000 shares authorized for issuance. We did not grant service-based stock options during the three months ended March 31, 2025. Weighted average stock option fair value assumptions and the weighted average grant date fair value of stock options granted during the three months ended March 31, 2024 were as follows: SCHEDULE OF WEIGHTED AVERAGE GRANT DATE FAIR VALUE OF STOCK OPTIONS GRANTED 2024 Stock option fair value assumptions: Risk-free interest rate 3.45 - 4.34 % Expected life (years) 6.5 Dividend yield - % Expected volatility 60 % Weighted average grant date fair value of stock options granted $ 5.73 14 Total compensation expense related to stock options was $ 54 and $ 56 for the three months March 31, 2025 and 2024, respectively. As of March 31, 2025, there was $ 621 of unrecognized compensation related to stock options which will be recognized over a weighted average period of 2.25 years. Following is a summary of stock option activity as of and for the three months ended March 31, 2025 and 2024: SCHEDULE OF OPTION ACTIVITY Shares Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding – December 31, 2023 458,700 $ 6.63 6.53 $ 1,432 Granted - - Exercised - - Forfeited ( 6,200 ) 11.10 Outstanding – March 31, 2024 452,500 $ 6.57 6.57 $ 3,066 Outstanding – December 31, 2024 453,400 $ 6.79 5.70 $ 1,654 Granted - - Exercised ( 200 ) 9.37 Forfeited ( 4,400 ) 8.98 Outstanding – March 31, 2025 448,800 $ 6.77 5.45 $ 1,508 Exercisable on March 31, 2025 298,200 $ 5.13 4.20 $ 1,458 Restricted Stock Units During the periods ended March 31, 2025 and 2024, we did not grant restricted stock units (“RSUs”). Total compensation expense related to the RSUs was $ 64 and $ 24 for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025, total unrecognized compensation expense related to the RSUs was $ 23 , which will vest over a weighted average period of 0.25 years. Following is a summary of RSU activity as of and for the three months ended March 31, 2025 and 2024: SCHEDULE OF RESTRICTED STOCK ACTIVITY Shares Weighted- Average Remaining Vesting Term (in years) Aggregate Intrinsic Value Outstanding – December 31, 2023 27,000 1.0 $ 254 Granted - Vested ( 15,000 ) Forfeited - Outstanding – March 31, 2024 12,000 1.0 $ 160 Outstanding – December 31, 2024 24,141 0.3 $ 248 Granted - Vested - Forfeited - Outstanding – March 31, 2025 24,141 0.1 $ 239 15 NOTE 7. NET (LOSS) INCOME PER SHARE DATA Basic net (loss) income per common share is computed by dividing net (loss) income 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 three months ended March 31, 2025 and 2024, there were restricted stock units and stock options totalling 472,941 and 38,405 , respectively, excluded from the computation of diluted weighted-average shares outstanding as their inclusion would be anti-dilutive. Basic and diluted weighted average shares outstanding were as follows: SCHEDULE OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 2025 2024 Three Months Ended March 31, 2025 2024 Basic weighted average shares outstanding 2,760,929 2,742,511 Dilutive effect of outstanding stock options and non-vested restricted stock units - 165,946 Diluted weighted average shares outstanding 2,760,929 2,908,457 NOTE 8. INCOME TAXES On a quarterly basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision based on the anticipated rate. As the year progresses, we refine our estimate based on the facts and circumstances, including discrete events. Our effective tax rate for the three months ended March 31, 2025 was 28.0 %. Our effective tax rate for the three months ended March 31, 2024 was 22.6 %. The primary drivers of the increase in effective tax rate were changes in pretax (loss) income and an increase in the GILTI inclusion. NOTE 9. SEGMENT INFORMATION Our results of operations for the three months ended March 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 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 prepared in accordance with U.S. GAAP on a consolidated basis to assess performance and allocate resources. The Company’s net sales were located as follows: SCHEDULE OF NET SALES March 31, 2025 March 31, 2024 United States $ 16,310 $ 23,529 Mexico 6,580 6,786 China 4,005 3,900 Total net sales $ 26,895 $ 34,215 The Company’s long-lived tangible assets, including the Company’s operating lease assets recognized on the consolidated balance sheets were located as follows: SCHEDULE OF LONG LIVED TANGIBLE ASSETS March 31, 2025 December 31, 2024 United States $ 9,697 $ 10,429 Mexico 2,310 2,445 China 1,399 1,497 Total long-lived tangible assets $ 13,406 $ 14,371 NOTE 10. RESTRUCTURING CHARGES During 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. During the quarter ended March 31, 2025, the Company incurred $ 266 of restructuring charges related to staff reductions and activities related to the Blue Earth facility. The following table summarizes the related activity for the quarter ended March 31, 2025: SCHEDULE OF RESTRUCTURING CHARGES Facility Consolidation Workforce Reductions Total December 31, 2024 $ 154 $ - $ 154 Charges 31 235 266 Cash payments ( 185 ) ( 235 ) ( 420 ) March 31, 2025 $ - $ - $ - NOTE 11. RELATED PARTY TRANSACTIONS David Kunin, our Chairman, is a minority owner of Abilitech Medical, Inc. We had accounts receivable related to Abilitech of $ 226 as of December 31, 2023. 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. David 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 scanners. Mr. 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 $ 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 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 months ended March 31, 2025 and 2024, we recognized no net sales to Marpe Technologies. As of March 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 third party. NOTE 12. SUBSEQUENT EVENT On May 14, 2025, the Company amended its Revolver line of credit agreement as discussed in Note 4 – “Financing Arrangements.” 16