UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2025

OR

For the transition period from to

NORTECH SYSTEMS INCORPORATED

Commission file number 0-13257

State of Incorporation: Minnesota

IRS Employer Identification No. 41-1681094

Executive Offices: 7550 Meridian Circle N., Suite # 150, Maple Grove, MN 55369

Telephone number: (952) 345-2244

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of $0.01 par value common stock outstanding as of November 6, 2025 was 2,786,134.

TABLE OF CONTENTS

PART I

ITEM 1. FINANCIAL STATEMENTS

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2025 AND DECEMBER 31, 2024

(UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE DATA)

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(IN THOUSANDS)

See Accompanying Notes to Condensed Consolidated Financial Statements.

NORTECH SYSTEMS INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(IN THOUSANDS)

See Accompanying Notes to Condensed Consolidated Financial Statements.

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 (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 U.S. GAAP 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 condensed 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 December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU enhances the transparency and decision usefulness of income tax disclosures and is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements disclosures.

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 (“ASU No. 2024-03”), which requires disaggregated expense information in the notes to the financial statements related to purchases of inventory, employee compensation, depreciation, intangible asset amortization and selling expenses for each statement of earnings line item that contains those expenses. 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.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU No. 2025-05”), which reduces the complexity of applying credit losses to current accounts receivable and current contract assets arising from transactions accounted for under Topic 606 (revenue from contracts with customers). ASU 2025-05 is effective for annual and interim reporting periods beginning after December 15, 2025. The Company is currently evaluating the impact of this ASU on its consolidated financial statements disclosures.

Inventories

Inventories are as follows:

SCHEDULE OF INVENTORIES 

Other Intangible Assets

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

SCHEDULE OF OTHER INTANGIBLE ASSETS 

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 4.3 years. Of the patents value as of September 30, 2025, $76 are being amortized and $84 are in process and a patent has not yet been issued.

Amortization expense of finite life intangible assets for the three months ended September 30, 2025 and 2024 was $5 and $4, respectively. Amortization expense of finite life intangible assets for the nine months ended September 30, 2025 and 2024 was $14 and $84, respectively.

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

SCHEDULE OF ESTIMATED FUTURE ANNUAL AMORTIZATION EXPENSE 

Property and Equipment

The sale of the Blue Earth manufacturing facility and related land was completed in the three months ended September 30, 2025, for $500, which approximated book value and therefore, no gain or loss was recorded on the sale.

During the third quarter of 2025, in light of our sustained low stock price, we performed a Step 1 recoverability test in accordance with U.S. GAAP for our long-lived assets. Based on our assessment of undiscounted future cash flows, we concluded that the carrying amounts of our asset group are recoverable, and therefore, no impairment was recognized at this stage. However, as a result of the sale of our Blue Earth facility in July 2025, we are now closer to meeting the criteria for a Step 2 impairment analysis, which involves estimating the fair value of the asset group. If future developments, including changes in market conditions or operational forecasts, result in a decline in fair value below carrying amounts, this may lead to the recognition of an impairment loss in subsequent periods.

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. We maintain our excess cash balances in checking accounts primarily at two financial institutions, one in the United States and one in China. The account in the United States may at times exceed federally insured limits. The Company’s $1,271 cash balance as of September 30, 2025, included approximately $1,042 and $120 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 and nine months ended September 30, 2025 and 2024 are as follows:

 SCHEDULE OF NET SALES CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS 

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

SCHEDULE OF ACCOUNTS RECEIVABLE CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS 

SCHEDULE OF CONTRACT ASSETS CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

Export sales from the U.S. represented approximately 2% of net sales for both the three and nine months ended September 30, 2025. Export sales from the U.S. represented approximately 2% of net sales for both the three and nine months ended September 30, 2024.

NOTE 3. NET SALES

Revenue Recognition

Revenue under contract manufacturing agreements that was recognized over time, excluding noncash consideration, accounted for 75% of net sales for both the three and nine months ended September 30, 2025 and 72% and 73% of net sales for the three and nine months ended September 30, 2024, respectively.

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

 SCHEDULE OF NET SALES BY MARKET 

Contract Assets

Contract assets, recorded in the condensed consolidated balance sheets, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the nine months ended September 30, 2025 were as follows:

 SCHEDULE OF CONTRACT ASSETS 

We expect substantially all the remaining performance obligations for the contract assets recorded as of September 30, 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 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.

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 shortened the duration of the Revolver to June 30, 2026 and increases the borrowing rate by 25 basis points. We were in compliance with financial covenants related to adjusted EBITDA for the third quarter of 2025.

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 $12,030 as a current liability on the condensed consolidated balance sheets.

The Revolver, as amended, bears interest at a weighted-average interest rate of 8.0% and 7.7% as of September 30, 2025 and December 31, 2024, respectively. We had borrowings on our line of credit of $12,030 and $8,695 outstanding as of September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025, we had unused availability on the line of credit of $2,970, which is subject to a month end cap based on the previously noted minimum Liquidity.

The Company had an interim funding agreement with a bank related to deposits made on equipment purchases funded through a finance lease when the equipment was received and operational. The equipment was received, and the lease agreements were finalized during the second quarter of 2025. As of September 30, 2025, we have no amounts outstanding on the interim funding agreement for equipment.

In the preparation of the Company's financial statements, U.S. GAAP requires the Company to assess its ability to continue as a going concern. This analysis includes a number of factors including the Company's ability to repay debt which matures within one year of the issuance date of the Company's financial statements, as well as management's plan to mitigate any such considerations. The Company's Revolver, which has $12,030 outstanding as of September 30, 2025, matures on August 31, 2026, and the Company has not completed its plan to refinance this debt as of the issuance date of these financial 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.

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 one1 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. 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 

Supplemental condensed consolidated balance sheet information related to leases was as follows:

SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS INFORMATION RELATED TO LEASES 

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

 SCHEDULE OF SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION 

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

 SCHEDULE OF FUTURE PAYMENTS OF LEASE LIABILITIES 

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

 SCHEDULE OF LEASE TERM AND DISCOUNT RATE 

NOTE 6. STOCK BASED AWARDS

Stock-based compensation expense of $134 and $127 for the three months ended September 30, 2025 and 2024, respectively, and $369 and $334 for the nine months ended September 30, 2025 and 2024, respectively, was reported in the condensed consolidated statements of operations within general and administrative expenses.

Stock Options

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

We granted no and 43,382 service-based stock options during the three and nine months ended September 30, 2025. We granted 1,000 and 23,000 service-based stock options during the three and nine months ended September 30, 2024, respectively. Weighted average stock option fair value assumptions and the weighted average grant date fair value of stock options granted were as follows:

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

Total compensation expense related to stock options was $84 and $206 for the three and nine months ended September 30, 2025, respectively. Total compensation expense related to stock options was $61 and $184 for the three and nine months ended September 30, 2024, respectively. As of September 30, 2025, there was $680 of unrecognized compensation related to stock options which will be recognized over a weighted average period of 2.4 years.

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

 SCHEDULE OF OPTION ACTIVITY 

Restricted Stock Units

Total compensation expense related to restricted stock units (“RSUs”) was $50 and $163 for the three and nine months ended September 30, 2025, respectively. Total compensation expense related to RSUs was $66 and $150 for the three and nine months ended September 30, 2024, respectively. During the nine-month periods ended September 30, 2025 and 2024, we granted 43,664 and 15,141 RSUs, respectively, at an average grant price per share of $8.73 and $11.06, respectively, under our 2017 Stock Incentive Plan to non-employee directors which vest over two years. As of September 30, 2025, total unrecognized compensation expense related to the RSUs was $306, which will vest over a weighted average period of 1.6 years.

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

 SCHEDULE OF RESTRICTED STOCK ACTIVITY 

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 income per common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average number of common shares outstanding using the treasury stock method, unless their effect is anti-dilutive. Basic and diluted weighted average shares outstanding were as follows:

 SCHEDULE OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 

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 and nine months ended September 30, 2025 was 122% and (71)%, respectively, compared to 8% and 62% for the same periods in 2024. The primary drivers of the change in effective tax rate were fluctuations in pretax income (loss), taxes on foreign entities and impact of the U.S. book loss on the Global Intangible Low-Taxed Income (“GILTI”).

In 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 tax code. The impact to the GILTI results in a permanent unfavorable impact to the overall tax rate for the quarter and year-to-date periods in 2025. The Company plans to continue to review the impact of the OBBBA, and the various elections, including the Company’s deduction of research and development expense, to optimize tax cash payments, along with overall tax expense.

NOTE 9. SEGMENT INFORMATION

Our results of operations for the nine months ended September 30, 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 several 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 

The Company’s long-lived tangible assets, including the Company’s operating lease assets recognized on the condensed consolidated balance sheets were located as follows:

 SCHEDULE OF LONG-LIVED TANGIBLE ASSETS 

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 nine months ended September 30, 2025, the Company incurred $266 of restructuring charges, in connection with activities related to the Blue Earth facility and additional staff reductions in the first quarter of 2025. We have not recorded any restructuring charges or restructuring charge activity in the three months ended September 30, 2025.

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

SCHEDULE OF RESTRUCTURING CHARGES 

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

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 and nine months ended September 30, 2025, we recognized no net sales to Marpe Technologies. During the three and nine months ended September 30, 2024, we recognized net sales to Marpe Technologies of $8 and $75, respectively. As of September 30, 2025, we have no outstanding accounts receivable. The Company believes that transactions with Marpe are on terms comparable to those that the Company could reasonably expect in an arm’s length transaction with an unrelated third party.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We 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.

Our net sales are derived from complex designed products built to the customers’ specifications. The products we manufacture are engineered and designed products that require sophisticated manufacturing support. 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 engagement design, and development strategy. We continue to focus on lean manufacturing initiatives, quality and on-time delivery improvements to increase asset utilization, reduce lead times and provide competitive pricing.

Our 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.

All dollar amounts are stated in thousands of U.S. dollars.

Restructuring Activities

In 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 operations. These charges relate to employee severance and facility closure costs. We do not expect significant additional expenses related to this plan.

Results of Operations

Net Sales. 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: