What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-14 · 194 added, 146 removed, 115 unchanged (75% of the section changed)

8 unchanged sentences

Bemidji, Mankato, Milaca and Maple Grove.

We closed our facility in Blue Earth, Minnesota in December 2024 and are currently

seeking to sell this facility.

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

facility on July 24, 2025.

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

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and designed products that require sophisticated manufacturing support.

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

Quality, on-time delivery, and reliability are of utmost 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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dollar amounts are stated in thousands of U.S.

Restructuring Activities

In fiscal year 2024, the Company

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

During the quarter ended March 31, 2025, the

Company had restructuring charges related to staff reductions and activities related to the Blue Earth facility closure.

estimated cost of these restructuring programs is approximately $850, of which $571 was recorded in the prior fiscal year.

charges relate to employee severance and facility closure costs.

We do not expect significant additional expenses related

to this plan.

Restructuring

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

During the three

and six months ended June 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 six months

ended June 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 June 30, 2025.

These costs are included in restructuring charges on the condensed

consolidated statements of operations.

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 March 31, 2025 and 2024 were $26,895 and $34,215, respectively, a decrease of $7,320

Net sales in the first quarter of 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.

We expect these matters to be positively resolved over the next two quarters.

following is a summary of net sales by our major industry markets:

Three Months Ended March 31,

Net sales for the three months ended June 30, 2025 and 2024 were $30,675 and $33,891, respectively, a comparative period decrease

of $3,216 or 9.5%.

Net sales for the six months ended June 30, 2025 and 2024 were $57,570 and $68,106, respectively, a comparative period

decrease of $10,536 or 15.5%.

Net sales in the three and six months ended June 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.

The following is a summary of net sales by our major industry markets:

Three Months Ended June 30,

Increase (Decrease)

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Total net sales

Net sales to our medical customers decreased $2,668, or 24.8%, in the three months ended March 31, 2025 as compared with

the same period in 2024.

The decrease was primarily due to inventory re-balancing with existing customers, timing of customer product

launches and lower productivity as we managed our facility consolidation.

Net sales to our Medical Imaging customers decreased $956, or 10.0%, in the three months ended March 31, 2025 as compared with

the same period in 2024.

The decrease was primarily due to inventory re-balancing with existing customers, timing of customer product

launches and lower manufacturing productivity arising from the transfer of production between facilities.

Net sales to our industrial customers decreased $1,128, or 14.0%, in the three months ended March 31, 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 to our aerospace and defense customers were down $2,568, or 43.8%, in the three months ended March 31, 2025, as compared

with the same period in 2024.

The decrease in net sales relates to delays in customer approvals as we have consolidated this business

into our Bemidji facility.

Our 90-day shipment backlog as of March 31, 2025 was $26,742, an increase of 1.1% from $26,451 at the beginning of the quarter, and

a 24.1% decrease from March 31, 2024.

Six Months Ended June 30,

Increase (Decrease)

Medical Device

Medical Imaging

Aerospace and Defense

Total net sales

Net sales to our medical customers decreased $2,139, or 22.1%, in the three months ended June 30, 2025 as compared with the

same period in 2024 and $4,273, or 21.5%, in the six months ended June 30, 2025 as compared with the same period in 2024.

was primarily due to inventory re-balancing with existing customers, timing of customer product launches and lower productivity as

we managed our facility consolidation.

Net sales to our Medical Imaging customers increased $1,482, or 18.1%, in the three months ended June 30, 2025 as compared

with the same period in 2024 and $1,169, or 6.8%, in the six months ended June 30, 2025 as compared with the same period in 2024.

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

Net sales to our industrial customers decreased $869, or 9.3%, in the three months ended June 30, 2025 as compared with the same

period in 2024 and $3,516, or 18.5%, in the six months ended June 30, 2025 as compared with the same period in 2024.

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

Net sales to our aerospace and defense customers decreased $1,690, or 25.5%, in the three months ended June 30, 2025

as compared with the same period in 2024 and $3,916, or 32.2%, in the six months ended June 30, 2025 as compared with the same period

The decrease in net sales relates to delays in customer approvals as we have consolidated this business into our Bemidji

Our 90-day shipment backlog as of June 30, 2025 was $26,592, a decrease of 0.6% from $26,742 at the beginning of the quarter, and

an 11.6% decrease from June 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 March 31, 2025, was $68,332, a 3.8% increase from $65,852 at the beginning of the quarter and a 20.5% decrease

from the prior-year comparable quarter end as some customers are requesting much shorter order lead times, which has resulted in a decrease in our backlog.

As we develop deep strategic partnerships with these customers, we have agreed to these shorter lead times.

More recently we are also noting reduced visibility to revenues

in the next several quarters as customers are rebalancing their inventories and, therefore, deferring the placement of some orders.

addition, several of our Aerospace and Defense customers are delaying orders until they approve the move of production at our Bemidji

We expect the majority of those approvals to be completed by the end of the second quarter of 2025.

total order backlog as of June 30, 2025, was $78,351, representing a 14.7% increase from $68,332 at the beginning of the quarter and

a 6.9% increase compared to the same period in the prior year;

this growth was primarily driven by large medical device orders.

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

March 31, 2025

December 31, 2024

June 30, 2025

March 31, 2025

June 30, 2024

Medical Device

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Total backlog

90-day and total backlog as of March 31, 2025 includes orders already recognized in net sales and included in the contract asset value

90-day and total backlog as of June 30, 2025 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 March 31,

Three Months Ended June 30,

Increase/(Decrease)

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Gross margin percentage (1)

(450) bpc (2)

% of Net sales

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% of Net sales

Operating (loss) income

Operating income

% of Net sales

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points change in gross margin percentage.

During the three months ended March 31, 2025, the Company modified the responsibilities and reporting relationships of certain customer-facing

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 percent of net sales was 11.4% and 15.9% for the three months ended March 31, 2025, and

2024, respectively.

The decrease in gross profit as a percentage of net sales in the 2025 period as compared with the same prior-year

period was the result of lower net sales, as discussed above, reduced facility utilization and decreased manufacturing productivity.

Selling expenses .

Selling expenses,

as measured as a percent of net sales , was 4.4% and 2.3% for the three months ended March 31, 2025, and 2024, respectively.

increase is a result of realignment of our customer facing managers that were previously included in cost of sales to selling expense

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

and administrative expenses.

General and administrative expenses decreased in the 2025 period as compared with the 2024 period as

the result of lower incentive compensation accruals in the current year.

Months Ended June 30,

Increase/(Decrease)

of goods sold (3)

margin percentage (1)

and administrative

and development

Restructuring

Restructuring charges were $266 in the three months ended March 31, 2025 for severance charges for a February 2025

reduction in force to align staffing to our forecasted net sales of $235 and expenses related to our closed Blue Earth

facility of $31.

(loss) income

Operating loss for the three months ended March 31, 2025 was ($1,613) or (6.0)% 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 percent of net sales was 15.8% and 13.6% for the three months ended June 30, 2025,

and 2024, respectively.

Gross profit as a percent of net sales was 13.7% and 14.8% for the six months ended June 30, 2025, and 2024,

respectively.

The increase in gross profit as a percentage of net sales in the quarterly comparison period was the result of

improved plant utilization and favorable sales mix.

The decrease in gross profit as a percentage of net sales in the year-to-date

comparison period was the result of lower net sales and reduced facility utilization in the first three months of this year as well

as reduced manufacturing efficiencies due to customer program movements between facilities.

Selling expenses, as measured as a percent of net sales , was 3.9% and 2.7% for the three months ended June 30, 2025,

and 2024, respectively.

Selling expenses, as measured as a percent of net sales , was 4.1% and 2.5% for the six months ended June

30, 2025, and 2024, respectively.

In 2025, we realigned the reporting structure of our customer facing managers from operations to business

As a result, this increase is a result of the realignment as well as the impact of fixed costs on a lower revenue base.

General and administrative expenses.

General and administrative expenses, as measured as a percent of net sales, was 8.4% and 8.8% for the three months ended June 30,

2025 and 2024, respectively, and 9.6% and 9.0% for the six months ended June 30, 2025 and 2024, respectively.

administrative expenses decreased in the quarterly and year to date 2025 periods by $393 and $648, respectively, as compared with

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

Restructuring charges .

Restructuring charges

were $0 and $266 in the three and six months ended June 30, 2025, respectively.

During the first quarter of 2025, we incurred $235 of severance charges for a February 2025 reduction

in force to align staffing to our forecasted net sales and $31 of expenses related to our closed Blue Earth facility.

Restructuring charges

were $91 in the three and six months ended June 30, 2024 for accrued employee retention bonuses for our facility consolidation and closure

of our Blue Earth facility.

Operating (loss) income.

Operating income

for the three months ended March 31, 2024 was $1,155 or 3.4% of net sales.

Decrease in the period was driven by the decrease in net

sales and resulting gross margin.

Interest expense was $214 and $167 for the three months ended March 31, 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 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.

was $742 for the three months ended June 30, 2025 or 2.4% of net sales and was $344 or 1.0% of net sales for the three months ended

June 30, 2024.

This increase was driven by the improved gross margin and lower incentive compensation expense.

Operating loss was ($871) or (1.5)% of net sales for the six

months ended June 30, 2025 and operating income was $1,499 or 2.3% of net sales for the six months ended June 30, 2024.

was driven by the decrease in net sales and resulting gross margin.

Interest expense was $257 and $165 for the three months ended June 30, 2025 and 2024, respectively.

Interest expense was

$471 and $332 for the six months ended June 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.

Income taxes.

Our effective tax rate for the

three and six months ended June 30, 2025 was 35% and 25%.

Our effective tax rate for the three and six months ended June 30, 2024 was

The primary drivers of the increase in effective tax rate were changes in pretax (loss) income and taxes on foreign entities.

In July 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted.

The OBBBA makes permanent key elements

of the Tax Cuts and Jobs Act of 2017, including 100% bonus depreciation, domestic research cost expensing and the business interest expense

limitation, among other tax changes.

The new legislation has multiple effective dates, with certain provisions effective in 2025 and others

in the future.

The Company is currently evaluating the provisions of the new law and the potential effects on the Company’s financial

position, results of operations, and cash flows.

Flow Operating Results

following is a summary of cash flow results:

Three Months Ended March 31,

Six Months Ended June 30,

Cash provided by (used in):

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Net change in cash and cash equivalents

Cash used in operating activities was $2,930 in the first three months of 2025, compared with cash provided of $2,828

Operating Activities.

Cash used in operating

activities was $2,773 in the first six months of 2025, compared with $1,458 in the same prior-year period.

Significant changes in operating

assets and liabilities affecting cash flows during these periods included:

used by accounts receivable and contract assets was $4,034 in the six months ended June 30, 2025 as compared with cash provided of

$1,214 in the same prior-year period.

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

used by accounts receivable was $814 in the three months ended March 31, 2025 as compared with cash provided of $3,215 in the same

prior-year period.

The use of cash in the three months ended March 31, 2025 is largely due to timing of customer shipments and cash

The cash provided in the prior year was due an expected increase in cash collections due to higher sales and the timing

of customer payments.

Cash provided by inventory was $487 in the three months ended March

31, 2025 as compared with cash used of $1,400 in the prior-year period.

The decrease in the current-year period cash usage was the

result of normal timing variances of inventory purchases and timing of product shipments.

We plan to actively reduce inventory

balances over the next several quarters.

used by changes in accounts payable was $1,441 in the current-year period as compared with cash used of $8 in the same prior-year

period, primarily related to the timing of cash payments.

Cash used in investing activities was $268 in the first three months of 2025, compared with cash used of $735 in the

The use of cash in the six months ended June 30, 2025 is largely due to timing of customer

shipments and cash collections.

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

sales and the timing of customer payments.

provided by inventory was $2,714 in the six months ended June 30, 2025 as compared with cash used of $1,288 in the prior-year period.

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 $358 in the first six months of 2025, compared with cash used of $1,011 in the

same prior-year period, both primarily for capital expenditures.

Cash provided by financing activities was $3,446 in the first three months of 2025, compared with cash provided of $274

in the same prior-year period.

The increase in cash provided by financing activities resulted from the line of credit advances for working

capital and operations in the three months ended March 31, 2025.

Cash provided by financing activities was $2,858 in the first six months of 2025 and $2,343 in the same prior-year period.

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

and Capital Resources

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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.

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.

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.

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.

Net sales in the first quarter 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.

We expect these matters to be resolved over the next two quarters.

The Company has implemented plant optimization activities and our cost

cutting initiatives in the first quarter of 2025 to address losses.

These actions plus the planned reduction in inventory levels are intended

to drive reduced borrowings during the remainder of 2025.

The Company believes it has sufficient capital and liquidity to operate its

business for at least twelve months from the filing of this Form 10-Q.

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.

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.

On 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 $11,615 as long term on the condensed consolidated balance sheets based on extension in the signed Third Amendment.

The Revolver, as amended, bears interest at a weighted-average interest

rate of 7.8% and 7.7% as of June 30, 2025 and December 31, 2024, respectively.

We had borrowings on our line of credit of $11,615 and

$8,695 outstanding as of June 30, 2025 and December 31, 2024, respectively.

As of June 30, 2025, we had unused availability on the line

of credit of $3,385, 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 three months

ended June 30, 2025.

As of June 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.

We expect these matters to be resolved over the next two

The Company has implemented plant optimization activities and cost cutting initiatives in the first two quarters of 2025 to

address losses.

These actions plus continued efforts to improve manufacturing efficiencies in the remainder of 2025 and the planned reduction

in inventory levels are intended to drive reduced borrowings during the remainder of 2025.

The Company believes it has sufficient capital

and liquidity to operate its business for at least twelve months from the filing of this Form 10-Q.

Sheet Arrangements

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in the marketplace which may affect market supply, demand of our products or currency exchange rates;

Whether 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 twelve months;

chain disruption and unreliability;

13 unchanged sentences

results to differ materially from those expressed in any forward-looking statement made by us.

Discussion of these factors is also incorporated

in Part I, Item 1A, “Risk Factors,” and should be considered an integral part of Part II, Item 7, “Management’s

Discussion and Analysis of Financial Condition and Results of Operations.” Unpredictable or unknown factors not discussed herein

could also have material adverse effects on forward-looking statements.

All forward-looking statements included in this Form 10-K are

expressly qualified in their entirety by the forgoing cautionary statements.

Unpredictable or unknown factors not discussed

herein could also have material adverse effects on forward-looking statements.

All forward-looking statements included in this Form 10-Q

are expressly qualified in their entirety by the forgoing cautionary statements.

We undertake no obligation to update publicly any forward-looking

3 unchanged sentences

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