CVR 10-K & 10-Q changes, risk factors and insider trading

As noted in the auditor's opinion on our audited financial statements and a related footnote to our audited financial statements, we have incurred significant recurring operating losses primarily driven by recent yearly declines in revenue, recurring negative cash flows from operations, and continued reduction in liquidity that have caused the Company to determine there is substantial doubt about our ability to continue as a going concern. In response to these challenges, the Company has developed and begun implementing a series of strategic actions aimed at improving liquidity, increasing operating efficiency and revenues, and ensuring business continuity. While we believe that we will be able to successfully execute on these strategic actions, there can be no assurances that we will be successful in these efforts. If we are unable to successfully execute on these strategies, our business, prospects, financial condition, and results of operations would be materially and adversely affected, and we may be unable to continue as a going concern. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of AmericaU.S. on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Our export sales have increased in recent years, and we are working to continue to expand our business relationships with customers outside of the United States.U.S. Export sales are subject to various risks, including risks related to changes in local economic, social and political conditions (particularly in emerging markets), changes in tariffs and trade policies and foreign currency exchange rate fluctuations, which could have a material adverse effect on our business, results of operations and financial condition.

Many of our customers depend upon intricate just-in-time supply chain systems. A disruption in a supply chain caused by one or more suppliers, and/or an unrelated supplier, due to part shortages, work stoppages, labor shortages, economic hardships or bankruptcy, raw material shortages, transportation disruptions, geo-political conflicts, natural disasters, health emergencies, tariffs, etc. could adversely impact our business, or our customers’ business, which could have a material adverse effect on our business, results of operations and financial condition.

As disclosed in Item 9A. Controls and Procedures, a material weakness was identified that existed as of December 31, 20232024 and 2024,2025, regarding certain deficiencies in internal control over financial reporting related to the valuation of inventory.

This discussion contains certain "forward-looking statements" which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include those disclosed above under “Risk Factors” and elsewhere in this Form 10-K. As stated elsewhere in this filing, such factors include, among other things: risk related to conditions in the domestic and international automotive industry,industry upon which we rely for sales revenue,revenue; the intense competition in our markets,markets; the concentration of our sales with major customers,customers; risks related to export sales, including the imposition of tariffs; the price and availability of raw materials,materials; supply chain disruptions,disruptions; labor relations issues and rising costs,costs; losses related to product liability, warranty and recall claims,claims; costs relating to compliance with environmental laws and regulations,regulations; information systems disruptions and the threat of cyber-attacks,cyber-attacks; geo-political events and disruptions, including the engagement of the U.S. in hostilities abroad and the resulting effect on supply chains, cost of raw materials and export sales; and the loss of the services of our key employees. Many of these factors are beyond our ability to control or predict. Readers are cautioned to not place undue reliance on these forward-looking statements. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events unless required under the federal securities laws.

Operating results for 20242025 were negatively impacted by our U.S. automotiveAutomotive fastenerFastener segment volumes due to OEM and customer inventory reduction actionsreductions which accelerated in the second half of 2024.2025. U.S. demand for pickup trucks and large SUVs to which we provide content,products, softened in 20242025 leading to elevated dealer-owned inventory levels and a subsequent reduction in production volumes while these inventory levels were reduced. As a fastener manufacturer we have significant fixed costs due to our investment in property, plant and equipment as well as a skilled labor force that cannot be scaled in proportion to short term volume fluctuations. As a result, steep declines in customer volumes have a disproportionately large effect on our profitability. DespiteThis thedecline full year 18%in volume decline, the automotive fastener segment gross profit improved by $1,567,232. This improvement was dueoffset in large part toby price increases and efficiency gains, including consolidation of the work done in the Albia, Iowa facility into the Tyrone, Pennsylvania facility. While thesethe year over year volume declines were a tremendous headwind to profitability, we believe we have improvedmade themeaningful frameworkimprovements fromwith arespect to our pricing and operating efficiency standpointthat towill benefitprovide additional benefits at scale when volumes return to more historic levels. In addition, the accounting treatment for the payment of the aggregate amounts due under the previously disclosed agreement with one of our customers relating to certain warranty claims resulted in a reduction to 2024 revenue of $1.1 million.

Fourth quarter 20242025 sales were $4,104,048$5,986,263 compared to $6,780,894$4,104,048 in the fourth quarter of 2023,2024, aan declineincrease of $2,676,846,$1,882,215, or 40%.46%. TogetherAlthough withsales theincreased declineyear inover sales,year, our input costs remained elevated and contributed to reporting a net loss in the fourth quarter 20242025 of $3,613,130,$1,156,829, or $3.74($1.20) per share, compared to a net loss of $1,542,899,$3,613,130, or $1.60($3.74) per share, in the fourth quarter of 2023.2024. For the full year, net sales were $26,986,627$27,890,260 compared to $31,507,722$26,986,627 in 2023,2024, an increase of $903,633, or 3%. Despite a declinemodest ofimprovement $4,521,095,in ornet 14%.sales Netfor 2025, the net loss for the full year was $5,615,614,significantly less than the prior year, as the net loss for 2025 was $1,083,214, or $5.81($1.12) per share, compared to net loss of $4,401,584$5,615,614 or $4.56($5.81) per share in 2023.2024. ContributingIn addition, during 2025, our gross margin improved by $3,065,703, our cost of goods sold was reduced by $2,162,070 and our administrative expenses decreased by $562,114. As discussed below, the Company intends to thecontinue fullto yearfocus 2024on netimproving losspricing wasand theefficiency, additionand ofdriving aincreased deferred tax valuation allowance of $1,640,978 that resultedsales in $572,226our Fastener and Assembly Equipment segments in income tax expense on a pre-tax loss of $5,043,388.2026.

Fastener segment revenues were $5,095,563 in the fourth quarter of 2025 compared to $3,603,518 in the fourth quarter of 20242024, comparedan to $5,965,995 in the fourth quarterincrease of 2023, a decline of $2,362,477,$1,492,045, or 40%.41%. During the quarter, sales to automotive customers decreasedincreased to $2,325,601$3,264,290 from $4,147,072$2,325,601 in the year ago quarter.quarter, an increase of $938,689, or 40%. A significant portion of the declineincrease in automotive sales was a result of recording aan incremental charge of $1,100,000$857,000 in the fourth quarter of 2024 related to the previously disclosed agreementsettlement with a customer regarding certain warranty claims. See Note 9. Commitments and Contingencies to the Consolidated Financial Statements included herein. Non-automotive revenues also decreasedincreased to $1,277,917$1,831,273 from $1,818,923$1,277,917 in the year ago quarter, an increase of $553,356, or 30%.43%.

Assembly equipmentEquipment segment revenues were $890,700 in the fourth quarter of 2025, compared to $500,530 in the fourth quarter of 2024, comparedan increase of $390,170, or 78% driven primarily by higher volumes from non-automotive customers. This increase reflects the sales team’s strategic focus on expanding assembly equipment sales due to $814,899 in the fourthsegment’s quarterhigher ofgross 2023, a decrease of $314,369, or 39%. The decline was driven by lower volumes to non-automotive customers which decreased by $308,526.margins.

Selling and administrative expenses were $6,224,234$5,662,120 in 20242025 compared to $5,237,6566,224,234 in 2023,2024, ana increasedecrease of $986,578,$562,114, or 19%.9%. We incurred increasesdecreases in warranty claims of $308,945 and outside consulting and accounting fees of $555,838,$242,361, primarilyas the previous year's initiatives related to hiring costs to fill certain positions, enhancing financial reporting, modernizing systems, automating processes and implementing enhanced cybersecurity defenses,defenses anhave increasebeen insuccessfully employee compensation expense of $109,464 as these positions were filled, and an increase in repairs and maintenance of approximately $96,036. These, and other smaller expense increases, were offset by a reduction in sales commissions of $254,677.implemented. The remaining net change relates to various smaller items. As a percentage of net sales, selling and administrative expenses were 23.1%20% in 20242025 compared to 16.6%23% in 2023.2024.

Other income was $120,666$18,407 in 20242025 compared to $108,234$120,666 in 2023.2024. Other income is primarily comprised of interest income on our cash equivalents whichand increasedshort-term modestly during the year due to higher interest rates.investments.

In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends in 20242025 totaling $0.33$0.12 per share. On February 19,23, 2025,2026, the Board of Directors declared a regular quarterly dividend of $0.03 per share, or $28,984, payable March 20, 20252026 to shareholders of record on March 5, 2025.2026. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 90 years.

Total capital expenditures in 20242025 of $331,669 were $651,398. Of this total, $369,003entirely related to fastenerFastener segment activities, including $36,140 for cold heading and screw machine equipment, $327,063$285,537 for equipment to perform secondary operations and inspection of partsparts, and $5,800$32,371 for general plant equipment.equipment, Assemblyand equipment segment additions in 2024 were $282,395 for general plant equipment. No additional investments were made in 2024$13,761 for facilities improvementsimprovement orincluding IT equipment.

Total capital expenditures in 20232024 were $1,078,367.$651,398. Of this total, $1,041,896$369,003 related to fastenerFastener segment activities, including $696,557$36,140 for cold heading and screw machine equipment, $299,502$327,063 for equipment to perform secondary operations and inspection of parts and $45,837$5,800 for general plant equipment. Assembly equipmentEquipment segment additions in 20232025 were $5,235$282,395 for general plant equipment. AdditionalNo additional investments of $31,236 were made in 20232025 for facilities improvements andor IT equipment that benefit both the assembly equipment segment and the fastener segment.equipment.

Working capital at December 31, 20242025 was $10,371,215,$9,894,317, a decrease of $3,605,649$476,898 from the beginning of the year. AAn declineincrease in net accounts receivable and other current assets during the year of $1,180,971$482,055 and $109,571, respectively, due to lowerhigher sales volumes andhad a positive impact on working capital, offset by a decrease in inventory of $831,483$325,190 hadand aan negativeincrease impactin onborrowings workingof capital.$500,000 under the revolving line of credit classified as Current Liabilities in the Consolidated Balance Sheets. The Company’s investing activities in 20242025 included the proceeds from the sale of property and equipment of $135,430$723,905 and the net maturities from short-term investments of $1,523,846$247,276 less capital expenditures of $651,398.$331,669. The onlyCompany's financing activityactivities during 20242025 waswere the $500,000 draw down on the line of credit and the payment of $318,823$115,936 in dividends on our common stock. These changes and other cash flow activity resulted in a balance of cash, cash equivalents and marketable securities of $1,922,679$1,718,237 at the end of 20242025 compared to $1,387,075$1,922,679 as of the beginning of the year.

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of AmericaU.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on historical experience, current trends and on various other assumptions that are believed to be reasonable under the circumstances. We evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions. A summary of significant accounting policies can be found in Note 1. Nature of Business and Significant Accounting Policies to the Consolidated Financial Statements included herein.

Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. We have reviewed our accounting estimates, and nonedetermined werethat deemedthe toestimated bevaluation consideredof our inventory is a critical accounting estimate for the accounting periodsperiod presented.presented as it involved a significant, subjective judgment in developing estimates for determining potential inventory write-downs for lower of cost or net realizable value of such inventory. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. Additionally, future facts and circumstances could change and impact our estimates and assumptions.

With respect to the Outlook for 2025,2026, the economic environment remains challenging. Our order volume is showing improvement in the first quarter of 20252026 compared to the fourth quarter of 20242025 but is not yet back to the levels we experienced in the first quarter of 2024.past. Significant uncertainty remains in the manufacturing sector as companies like ours continue to navigate the potential impacts of proposed tariffs and numerous market factors and geo-political events that may impact our business in the coming year. The Company believes all of the actions to reduce costs in 20242025 havecontinue itto better positionedposition us to manage this uncertainty, and we will continue to push efficiency improvements in the operations as well as seek appropriate price adjustments from customers and aggressively pursue new sales opportunities to drive volume back to historic levels. In addition, we will actively monitor and analyze potential impacts from tariffs and other external factorsfactors, including both challenges and opportunities resulting from tariffs and external factors, so that we are positioned to take actions promptly and as necessary to address such potential impacts. GivenWe believe our recentcontinued focus on efficiency improvements and our focus on driving new sales, as well as our long term operating experience, quality products, and customer service in a very competitive global marketplace will provide the foundation for improved operating results in the future.

Sales for the three months ended MarchJune 31,30, 2026 were $6,851,517$7,236,625 compared to $7,245,635$7,298,077 for the three months ended MarchJune 31,30, 2025, a decrease of $394,118,$61,452, or 5.4%.0.8%. Sales for the six months ended June 30, 2026 were $14,088,141 compared to $14,543,712 for the six months ended June 30, 2025, a decrease of $455,571, or 3.1%. The quarter-over-quarteryear-over-year decrease in sales was primarily driven by lower order volumes from our fastener customers, reflecting softer demand across key end markets and broader macroeconomic conditions. Customers exhibited more cautious purchasing behavior during the period amid elevated interest rates, inflationary pressures, a renewed shortage in semiconductor supply, and ongoing economic uncertainty.uncertainty resulting, in part, from geopolitical events.

Gross margins for the three months ended MarchJune 31,30, 2026 were $958,459$563,312 compared to $1,657,741$975,062 for the three months ended MarchJune 31,30, 2025, a decrease of $699,282,$411,750, or 42.2%. Gross margins for the six months ended June 30, 2026 were 1,521,770 compared to 2,632,803 for the six months ended June 30, 2025, a decrease of $1,111,033, or 42.2%. The decrease in gross margin was primarily driven by lower sales volumes, which reduced the absorption of fixed manufacturing costs, as well as an unfavorable sales mix. Gross margins were further impacted by increases in raw material and labor costs, together with ongoing inflationary pressures across manufacturing operations, which were not fully offset through pricing actions or operational efficiencies.

Net loss for the three months ended MarchJune 31,30, 2026 was $362,015,$989,528, or $0.37$1.02 per share, compared to net loss of $394,980, or $0.41 per share for the three months ended June 30, 2025, an increase of $594,548, or 150.5%. Net loss for the six months ended June 30, 2026 was $1,351,543, or $1.40 per share, compared to net income of $401,022,$6,042, or $0.42$0.01 per share for the threesix months ended MarchJune 31,30, 2025, a decrease of $763,037, or 190.3%.2025. The decreaseincrease in net loss was primarily driven by lower sales volumes, reduced absorption of fixed manufacturing costs, and an unfavorable product mix partially offset by slight reductions in sales and administrative expenses. Operating results were impacted by weakened demand across automotive and general industrial markets, coupled with a more cautious customer ordering environment. Higher borrowing costs, persistent inflation, and general economic and geopolitical uncertainty contributed to delayed purchasing decisions and lower overall activity levels. Results for the currentyear-to-date quarterperiod were further affected by the absence of a $339,520 gain on the sale of the Albia facility recognized in the prior-year period.

Assembly equipment segment sales were $1,052,899$987,561 for the three months ended MarchJune 31,30, 2026 compared to $1,086,664$900,862 for the three months ended MarchJune 31,30, 2025, aan decreaseincrease of $33,765,$86,699, or 3.1%.9.6%. Assembly equipment segment sales were $2,040,460 for the six months ended June 30, 2026 compared to $1,987,526 for the six months ended June 30, 2025, an increase of $52,934, or 2.7%.

Selling and administrative expenses were $1,340,050$1,597,023 for the three months ended MarchJune 31,30, 2026 compared to $1,587,567$1,392,493 for the three months ended MarchJune 31,30, 2025, aan decreaseincrease of $247,517,$204,530, or 15.6%, primarily due to reduced salaries, and reduced outside consulting and accounting fees.14.7%. Selling and administrative expenses were 19.6%$2,937,073 for the six months ended June 30, 2026 compared to $2,980,060 for the six months ended June 30, 2025, a slight decrease of $42,987 or 1.4%. Selling and 21.9%administrative expenses were 22.1% and 19.1% of sales in the three months ended MarchJune 31,30, 2026 and 2025, respectively. The Company believes that it has made substantial progress in continuing to implement its plans to reduce costs and improve efficiency and will continue to do so for the remainder of the year.

Other income for the three months ended MarchJune 31,30, 2026 was $1,933$62,387 compared to $11,687$2,383 for the three months ended MarchJune 31,30, 2025, aan decreaseincrease of $9,754,$60,004. orOther 83.5%.income Thefor decreasethe six months ended June 30, 2026 was $64,321 compared to $14,070 for the six months ended June 30, 2025, an increase of $50,251 primarily attributable to lowerthe interest income earnedgain on short-term investments, which declined due to a reduction in the average balancesale of suchcertain investmentsH&L during the current period.assets.

The Company’s effective tax rates were 4.6%zero and 4.9%4.6% for the threesix months ended MarchJune 31,30, 2026 and 2025, respectively. See Note 5. Income taxes to the Condensed Consolidated Financial Statements included herein for additional information.

Working capital was $9,480,063$8,695,836 as of MarchJune 31,30, 2026, compared to $9,894,317 at the beginning of the year, a decrease of $414,254,$1,198,481, or 4.2%.12.1%.

On March 6, 2025, the Company entered into a one-year $3,000,000 operating credit agreement (the “March 2025 Credit Agreement”), renewable annually, and consisting of a: (a) $2,500,000 revolving line of credit, and (b) $500,000 non-revolving line of credit. The non-revolving line of credit expired on December 31, 2025 and was not renewed. Borrowings under the March 2025 Credit Agreement bear interest at a fluctuating rate per annum equal to 1% plus the applicable prime rate subject to a 7% floor. The agreement can be early terminated and amounts due repaid, at the Company's discretion, without prepayment penalties. As of MarchJune 31,30, 2026, there was $1,000,000$1,500,000 in borrowings outstanding under the revolving line of credit and no borrowings under the non-revolving line of credit. On July 31, 2026, the Company paid off the amounts outstanding under the March 2025 Credit Agreement and terminated this agreement.

The March 2025 Credit Agreement includesincluded certain financial covenants such as minimum profitability for the twelve months ended December 31, 2025, and minimum tangible net worth. As of December 31, 2025 and2025, March 31, 2026, and June 30, 2026, the Company was not in compliance with all such financial covenants. Specifically, the Company was not in compliance with the minimum annual profitability covenant, however, the Company was in compliance with the other financial covenants contained in the credit agreement. On February 27, 2026, the lender waived thisthe covenant violation, and no new covenants were added to the credit agreement. As of March 31, 2026, the Company was not in compliance with the minimum net worth covenant, and the lender waived this covenant violation on May 6, 2026. As of MarchJune 31,30, 2026, the Company has made all required principal and interest payments under the March 2025 Credit Agreement.

The Company also had outstanding total operating lease obligations of $404,395$386,858 of which $104,333$105,246 were classified as current within Other current liabilities in the Condensed Consolidated Balance Sheets at MarchJune 31,30, 2026.

The Company has incurred significant recurring operating losses over the last two years, primarily driven by a continuous decline in revenues, recurring negative cash flows from operations and continued reduction in liquidity. The Company reported operating losslosses of $381,591$1,033,711 and operating income of $409,694$417,431 for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The Company reported operating losses of $1,415,303 and $7,737 for the six months ended June 30, 2026 and 2025, respectively. The Company’s liquid assets at MarchJune 31,30, 2026 consisted of cash and cash equivalents totaling $1,446,794.$770,752. The Company’s declining revenues, recurring operating losses and negative cash flows, and continued reduction in liquidity, raise substantial doubt about the Company's ability to continue as a going concern within one year after the issuance date of these financial statements. In response, the Company has taken various strategic actions including (a) taking action to sell in the first half of 2026 certain H&L assets in 2026 and in connection with such anticipated sale, the Company classified these assets in the amount of $179,254 as Assets held for sale in the Consolidated Balance Sheets at December 31, 2025,2025 and June 30, 2026, (b) renewalpaying ofoff the amounts outstanding under the March 2025 Credit Agreement revolving line of credit and entering into a term loan with a borrowingrelated capacity of $2,500,000party to continue tofinancing financeoperations operations,under more favorable terms, (c) leveraging the Company’s sales team to identify and execute on new sales opportunities and increase revenue; and (d) evaluation ofevaluating other financing sources in addition to the March 2025 Credit Agreement, including exploring the potential for a real estate sale leaseback or similar transaction, or seeking to potentially raise additional capital.

Fiscal 2026 guidance remains subject to ongoing macroeconomic uncertainty. We expect production volumes in the segments we serve to increase slightly with the added benefit of new customer awards ramping up in the second half of 2026. OurOverall, orderresults volumeremain isconsistent showingwith our 2026 outlook, supported by modest improvement in theautomotive firstdemand, quarterwhile ofnon-automotive 2026markets comparedcontinue to thelag fourth quarter of 2025 but is not yet back to the levels we experienced in the past.expectations. Significant uncertainty remains in the manufacturing sector as companies like ours continue to navigate the potential impacts of tariffs and numerous market factors and geopolitical events that may impact our business in the coming year. The Company believes all of the actions to reduce costs in 2025 continue to better position us to manage this uncertainty, and we will continue to push efficiency improvements in theoperations operationsand seek to reduce operating expenses, as well as seek appropriate price adjustments from customers and aggressively pursue new sales opportunities to drive volume back to historic levels. While sales in the fastener segments remain lower than anticipated, the company's sales team's focus over the last year on new business with existing customers, new customers and new products is progressing and the company expects these efforts to begin showing meaningful progress in the fourth quarter and full year 2027 based on discussions and negotiations that are in progress. We will also seek to achieve a more favorable sales mix, and aggressively manage our cost of goods sold, to improve our operating margin. In addition, we will actively monitor and analyze potential impacts from tariffs and other external factors, including both challenges and opportunities resulting from tariffs and external factors, so that we are positioned to take actions promptly and as necessary to address such potential impacts. We believe our continued focus on efficiency improvements and driving new sales, as well as our long term operating experience, quality products, and customer service in a very competitive global marketplace will provide the foundation for improved operating results in the future.