DXYN 10-K & 10-Q changes, risk factors and insider trading
Dixie Group Inc. · OTC · Carpets & Rugs · CIK 29332 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Additional tariffs on product imported to the U.S., retaliatory trade actions taken by other countries and resulting trade wars may have a material adverse impact on our business.”
Largest changes
Global and/or local pandemics, such as COVID-19,see in full comparisonhavecould negatively impacted areas where we operate and sell our products and services. The COVID-19 outbreak in thesecond quarter of2020 had a material adverse effect on our ability to operate and our results of operations as public health organizations recommended, and many governments implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Although the accessibility of vaccines and other preventive measures have lessened the impact, new variants or other pandemics may necessitate a return of such restrictive, preventive measures which may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, disruptions to the businesses of our selling channel partners, and others. Our suppliers and customers may also face these and other challenges, which could lead to aTable of Contents 10disruption in our supply chain as well as decreased construction and renovation spending and consumer demand for our products and services.These issues may also materially affect our current and future access to sources of liquidity, particularly our cash flows from operations, and access to financing. The long-term economic impact and near-term financial impacts of the COVID-19 pandemic or other pandemics, including but not limited to, potential near term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.
“Additional tariffs on product imported to the U.S., retaliatory trade actions taken by other countries and resulting trade wars may have a material adverse impact on our business.”see in full comparison
“To date, the Company has managed the defense and settlement of lawsuits related to the alleged past use of PFOA, PFOS and related chemicals by expenditure of amounts deemed not to be material. Nevertheless, the future costs of such litigation are unpredictable. The management time spent on such matters and the distraction caused by such litigation has been and is likely to be significant. Accordingly, there can be no assurance that costs related to defending such lawsuits will not be material in the future and will not have a material adverse impact upon the Company.”see in full comparison
“Since 2016, the Company has been named as a defendant in multiple lawsuits filed by various individual plaintiffs against chemical manufacturers, distributors, and several other carpet manufacturers and finishers in connection with the past use of surfactants containing or alleged to contain chemicals associated with PFAS and PFOS. Additionally, and as noted above, there Table of Contents 10 is an increased regulatory focus on the use and past use of such chemicals. Such regulatory focus may result in governmental litigation related to use of such chemicals.”see in full comparison
“Our business is subject to risks related to tariffs and other trade policies put in place by the U.S. or other countries. The recent enactment of tariffs by the U.S. government, along with the unpredictability of such rates, pose a significant risk to our business operations and may materially increase our costs and reduce our margins. The tariffs may also lead to higher pricing for our products, potentially reducing consumer demand and impacting our sales volume. …”see in full comparison
“Given the uncertainty regarding scope and duration of the current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the specific impact to our business, results of operations, cash flows and financial condition is uncertain but could be material.”see in full comparison
Full comparison: every changed paragraph (15)
We have a significant amount of indebtedness relative to our equity. Insufficient cash flow, profitability, or the value of our assets securing our loans could have a material adverse effect on our ability to generate sufficient funds to satisfy the terms of our senior loan agreementsagreement and other debt obligations. Our senior loan agreement and term loans include certain compliance, affirmative, and financial covenants. The impact of continued operating losses on our liquidity position could affect our ability to comply with these covenants by our primary lenders and could cause us to be unable to continue to operate as a going concern. Additionally, the inability to access debt or equity markets at competitive rates in sufficient amounts to satisfy our obligations could adversely impact our business. Significant increases in interest rates tied to our floating rate debt could have a material adverse effect on Table of Contents 6 adverse effect on our financial results. Further, our trade relations depend on our economic viability and insufficient capital could harm our ability to attract and retain customers and or supplier relationships.
Additional tariffs on product imported to the U.S., retaliatory trade actions taken by other countries and resulting trade wars may have a material adverse impact on our business.
Our business is subject to risks related to tariffs and other trade policies put in place by the U.S. or other countries. The recent enactment of tariffs by the U.S. government, along with the unpredictability of such rates, pose a significant risk to our business operations and may materially increase our costs and reduce our margins. The tariffs may also lead to higher pricing for our products, potentially reducing consumer demand and impacting our sales volume. We are actively monitoring the impact of any tariffs that become effective, as well as potential retaliatory tariffs imposed by other countries. We are currently analyzing strategies that can be taken to moderate or minimize the effects of these trade actions, including evaluating the country of origin for sourcing product into the U.S., negotiating with suppliers and raising prices. However, there can be no assurance that these measures will be successful, or that they will offset the negative impact of the tariffs on our business.
Given the uncertainty regarding scope and duration of the current and potential tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the specific impact to our business, results of operations, cash flows and financial condition is uncertain but could be material.
The floorcovering industry is sensitive to changes in general economic conditions and a further decline in residential activity or home remodeling and refurbishment could have a material adverse effect on our business.
Nasdaq Marketplace Rule 5550(a)(2) requiresrequired that, for continued listing on the exchange, we musthad to maintain a minimum bid price of $1 per share. We received notice from Nasdaq on September 27, 2023 that our closing bid price was below $1 per share for 30 consecutive business days. We requested, and were granted, an additional 180 calendar days from March 25, 2024 to September 24, 2024 to meet the applicable minimum bid price requirement. On September 24, 2024, the Company received a letter from Nasdaq notifying the Company that it had not regained compliance with the bid price requirement by the required compliance date and, as a result, the Company's Common Stock was subject to delisting. Effective at the opening of business on October 3, 2024, our Common Stock was suspended and delisted from Nasdaq and began trading on the Over-the-Counter Market pink sheets under the stock symbol DXYN. Effective October 4, 2024, we were upgraded to the Over-the-Counter OTCQB Market ("the OTCQB") trading under the same symbol DXYN. On February 12, 2025, Nasdaq filed a Form 25 with the SEC notifying the SEC of Nasdaq's determination to remove our securities from listing on Nasdaq. The delisting was effective February 21, 2025.
Economic factors, including an economic recession, could have a material adverse effect on demand for our products and on our financial condition and operating results. Uncertainty in the credit markets could affect the availability and cost of credit. If banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash and cash equivalents to the extent those funds are not Table of Contents 7 insured or otherwise protected by the FDIC. Market conditions could impact our ability to obtain financing in the future, including any financing necessary to refinance existing indebtedness. The cost and terms of such financing is uncertain. Continued operating losses could affect our ability to continue to access the credit markets under our current terms and conditions.
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Nylon yarn is the principal raw material used in our floorcovering products. The supply of all nylon yarn and yarn systems has been negatively impacted by a variety of overall market factors. The cost of nylon yarns has risen significantly and availability of nylon yarns has been restricted. An interruption in the supply of these or other raw materials or sourced products used in our business or in the supply of suitable substitute materials or products would disrupt our operations, which could have a material Table of Contents 8 adverse effect on our business. Supply constraints may impact our ability to successfully develop products and effectively service our customers. We have developed and are developing products and product offerings using fiber systems from multiple external fiber suppliers as well as from vertically integrated production of our yarn supply through dedicated internal extrusion operations. There can be no certainty as to the success of our efforts to develop and market such products. We continually evaluate our sources of yarn and other raw materials for competitive costs, performance characteristics, brand value, and diversity of supply.
Our businesses rely on sophisticated systems to obtain, rapidly process, analyze and manage data. We rely on these systems to, among other things, facilitate the purchase, manufacture and distribution of our products; receive, process and ship orders on a timely basis; and to maintain accurate and up-to-date operating and financial data for the compilation of management information. We rely on our computer hardware, software and network for the storage, delivery and transmission of data to our sales and distribution systems, and certain of our production processes are managed and conducted by computer. Any damage by unforeseen events or system failure which causes interruptions to the input, retrieval and transmission of data or increase in the service time, whether caused by human error, natural disasters, power loss, computer viruses, intentional acts of vandalism, Table of Contents 8 various forms of cyber crimes including and not limited to hacking, ransomware, intrusions and malware or otherwise, could disrupt our normal operations. Depending upon the severity of the incident, there can be no assurance that we can effectively carry out our disaster recovery plan to handle a failure of our information systems, or that we will be able to restore our operational capacity within sufficient time to avoid material disruption to our business. The occurrence of any of these events could cause unanticipated disruptions in service, decreased customer service and customer satisfaction and harm to our reputation, which could result in loss of customers, increased operating expenses and financial losses. Any such events could in turn have a material adverse effect on our business, financial condition, results of operations, and prospects.
The diversion of management attention and any difficulties encountered in the transition and integration process could have a material adverse effect on our revenues, level of expenses and operating results. Failure to successfully manage and integrate an acquisition with our existing operations or expansion of our existing operations could lead to the potential loss of customers of Table of Contents 9 the acquired or existing business, the potential loss of employees who may be vital to the new or existing operations, the potential loss of business opportunities or other adverse consequences that could have a material adverse effect on our business, financial condition and results of operations. Even if integration occurs successfully, failure of the expansion or acquisition to achieve levels of anticipated sales growth, profitability or productivity, or otherwise perform as expected, may have a material adverse effect on our business, financial condition and results of operations.
We are subject to various environmental, safety and health and other regulations that may subject us to costs, liabilities and other obligations which could have a material adverse effect on our business. The applicable requirements under these laws are subject to amendment, to the imposition of new or additional requirements and to changing interpretations of agencies or courts. We could incur material expenditures to comply with new or existing regulations, including fines and penalties and increased costs of our operations. Additionally, future laws, ordinances, regulations or regulatory guidelines could give rise to additional compliance or remediation costs that could have a material adverse effect on our business, results of operations and financial Table of Contents 9 condition. For example, producer responsibility regulations regarding end-of-life disposal could impose additional cost and complexity to our business.
Since 2016, the Company has been named as a defendant in multiple lawsuits filed by various individual plaintiffs against chemical manufacturers, distributors, and several other carpet manufacturers and finishers in connection with the past use of surfactants containing or alleged to contain chemicals associated with PFAS and PFOS. Additionally, and as noted above, there Table of Contents 10 is an increased regulatory focus on the use and past use of such chemicals. Such regulatory focus may result in governmental litigation related to use of such chemicals.
To date, the Company has managed the defense and settlement of lawsuits related to the alleged past use of PFOA, PFOS and related chemicals by expenditure of amounts deemed not to be material. Nevertheless, the future costs of such litigation are unpredictable. The management time spent on such matters and the distraction caused by such litigation has been and is likely to be significant. Accordingly, there can be no assurance that costs related to defending such lawsuits will not be material in the future and will not have a material adverse impact upon the Company.
Global and/or local pandemics, such as COVID-19, havecould negatively impacted areas where we operate and sell our products and services. The COVID-19 outbreak in the second quarter of 2020 had a material adverse effect on our ability to operate and our results of operations as public health organizations recommended, and many governments implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Although the accessibility of vaccines and other preventive measures have lessened the impact, new variants or other pandemics may necessitate a return of such restrictive, preventive measures which may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, disruptions to the businesses of our selling channel partners, and others. Our suppliers and customers may also face these and other challenges, which could lead to a Table of Contents 10 disruption in our supply chain as well as decreased construction and renovation spending and consumer demand for our products and services. These issues may also materially affect our current and future access to sources of liquidity, particularly our cash flows from operations, and access to financing. The long-term economic impact and near-term financial impacts of the COVID-19 pandemic or other pandemics, including but not limited to, potential near term or long-term risk of asset impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.
Management's Discussion & Analysis (MD&A)
Largest changes
“As of December 27, 2025, we had $52.7 million of outstanding indebtedness under our senior credit facility that is classified as a current liability, unrestricted cash and cash equivalents of $3.2 million and unused availability under our senior credit facility of $8.2 million, subject to a $6.0 million minimum excess availability requirement and continued compliance with applicable financial covenants. We are required to maintain certain financial ratios and other covenants, which, if not met, could result in an event of default and an acceleration of our outstanding indebtedness. …”see in full comparison
“The revolving credit facility requires a lockbox arrangement, which provides for all cash receipts to be swept daily to reduce the balance outstanding. This arrangement, combined with the existence of a “subjective acceleration clause” (as defined by U.S. GAAP) in the revolving credit facility, requires the balance on the revolving credit facility to be classified as a current liability. The “subjective acceleration clause” allows the lender to declare an event of default if there is a material adverse change in the Company's business or financial condition. …”see in full comparison
“At the time of issuance of these financial statements, conditions and events, including recent operating losses, reduced availability under our credit facility, covenant violations and macroeconomic pressures, raised substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional debt financing. …”see in full comparison
“If our actual operating results, cash flows, or access to capital differ materially from our estimates, or if we are unable to execute our plans as currently contemplated, we may be unable to meet our obligations as they become due or maintain compliance with our debt covenants. In that event, we could be required to seek additional financing on less favorable terms, further reduce or delay capital expenditures and other spending, dispose of assets, or pursue other strategic alternatives. …”see in full comparison
“•Going concern and liquidity. Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. Under U.S. GAAP, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. …”see in full comparison
“Advances under the revolving credit facility bear interest at annual rates equal to SOFR (plus a 0.11448% SOFR adjustment) for a 1 month period, as defined with a floor of 1.00% or published SOFR, plus an applicable margin ranging between 3.75% and 4.25%. The applicable margin is determined based on the revolving loan availability percentage under the revolving credit facility with margins increasing as availability decreases. We are subject to a minimum excess availability covenant that is based upon a fixed charge coverage ratio which must be above a 1.10 to 1.00 ratio. …”see in full comparison
Full comparison: every changed paragraph (37)
Our businesssales isvolumes sensitivecontinue to macroeconomicbe eventsimpacted by softness in theU.S. Unitedhousing States.turnover Highand interestsluggish rates,new delayedhome construction. Weak consumer confidence continues to hinder consumer discretionary spendingspending, duewhich has caused consumers to inflationarypostpone pressures,large andpurchases otherof macroeconomicdurable goods such as flooring. Macroeconomic factors continue to impact new home construction and residential renovation and remodeling activity. Residential remodeling is a primary sales driver of flooring products, and most flooring is replaced before a home is listed for sale or just after a home purchase is completed. The current housing market conditions have suppressed remodeling activity as home sales remain soft. Housing turnover rates remain suppressednear duehistorically tolow highlevels, homedriven mortgageby ratesaffordability challenges and consumersbroader continueeconomic to face a higher cost of living and delay discretionary spending on large durable goods purchases such as flooring.uncertainty. We have, to some extent, offset the impact of a soft housing market and decreased renovation activity through cost containment, price increases, improved productivity and lower input costs. Due to low housing availability, aging stock and greater household formation, we believe demand in our markets will accelerate when consumer confidence improves and home mortgage interest rates decline. We believe that a number of circumstances may continue to influence trends in 2025, includingHowever, the ongoing impact of inflationsoft consumer demand, inflationary pressures and high interest rates,rates butto theour extentbusiness, financial condition, and durationresults of such impactoperations cannot be predicted.determined at this time.
We continue to actively monitor trade policy and tariff announcements, including various executive orders issued by the current U.S. presidential administration. We have taken steps to mitigate the implemented tariffs through managing inventory of sourced products and adjusting prices as the tariff trade policy evolves. We continue to monitor changing tariff levels and adjust its strategies to mitigate their impact as trade policy evolves. These tariff actions, retaliatory measures, or other trade restrictions could materially and adversely impact our business, financial condition and results of operations.
Net Sales. Net sales for the year ended December 28,27, 20242025 were $265.0$257.4 million compared with $276.3$265.0 in the prior period, a decrease of 4.1%2.9% for the year-over-year comparison. The lower net sales were attributed to continued lower demand within the floorcovering industry and related markets driven by continued high interest rates and inflation.
Gross Profit. Gross profit, as a percentage of net sales, decreasedincreased 2.02.3 percentage points in 20242025 compared with 2023.2024. The decreaseincrease in gross profit percentage in 20242025 was primarily driven by lower salesraw volume, higher healthcare and utilitymaterial costs and additionalcost lease expense due to the sale and leaseback of the Adairsville distribution centerreductions in Decemberour 2023.operations.
Selling and Administrative Expenses. Selling and administrative expenses were $67.7 million in 2025 compared with $69.9 million in 2024 compared with $74.1 million in 2023.2024. Selling and administrative expenses as a percent of the net sales for 20242025 and 20232024 were 26.4%26.3% and 26.8%26.4% respectively. The decrease in selling and administrative expenses was primarily due to lowera samplesreduction in sample and marketing costsexpenses offset by an increase in 2024legal compared to 2023 and lower administrative compensation expenses in 2024 compared to 2023.expenses.
Other Operating Expense, Net. Net other operating expense was an expense of $1.2 million in 2025 compared with an expense of $200 thousand in 2024. Other operating expense, net includes estimated losses related to certain pending litigation.
Other Operating (Income) Expense, Net. Net other operating (income) expense was an expense of $200 thousand in 2024 compared with income of $9.2 million in 2023. In 2023, we completed a sale and leaseback of our Adairsville, Georgia distribution center resulting in a gain of $8.2 million. In addition, we leased out excess space in our Saraland, Alabama facility and our Atmore, Alabama facility resulting in a net lease expense of $113 thousand in 2024 compared with lease income of $705 thousand in 2023. In 2024, we allocated expenses associated with the leases to other operating expense which was netted with the lease income.
Facility Consolidation and Severance Expenses, Net. Facility consolidation expenses were $549 thousand in 2025 compared with $1.3 million in 2024 compared with $3.9 million in 2023.2024. The facility consolidation expenses incurred during 20242025 and 20232024 were primarily related to our plan for the consolidation of our east coast manufacturing to better align our production capacity with our sales volume and concentrate production into our lower cost facility.
Operating Income (Loss). The operating lossincome in 20242025 was $5.9$118 millionthousand compared to an operating incomeloss of $5.0$5.9 million in 2023. In 2024, we had higher healthcare, utility and rent costs which were offset by lower selling and administrative expenses.2024. The increase in operating income in(loss) 2023was includedprimarily athe gainresult of $8.2cost millionreductions from the sale and leaseback ofin our Adairsville, Georgia distribution center.operations.
Interest Expense. Interest expense was $7.3 million in 2025 compared with $6.4 million in 2024 compared with $7.2 million in 2023.2024. The decreaseincrease is thea result of lowerhigher levelsinterest of debtrates through out 20242025 compared to 2023 due to the sale of the Adairsville, Georgia distribution center in December 2023.2024.
Other Income,(Income) Expense, Net. Net other (income) expense was an expense of $11 thousand in 2025 compared with income of $7 thousand in 2024 compared with income of $431 thousand in 2023.2024. The 20232025 incomeexpense included a gainloss of $625$66 thousand related to an extinguishment of a debt arrangement offset by an expense of $206 thousand related to the write-off of previously deferred financing costs related to our Adairsville, Georgia note payable.arrangement.
Income Tax Provision (Benefit). Our effective income tax rate was a benefitprovision of 0.2%1.01% in 2024.2025. The provision relates to federal and state cash taxes paid offset by certain federal and state credits. In 2024,2025, we increased our valuation allowance by $3.8$2.1 million related to our net deferred tax asset and specific federal and state net operating losses and federal and state tax credit carryforwards.
Our effective income tax rate was a provision of 12.3% in 2023. The provision relates to federal and state cash taxes paid offset by certain federal and state credits. In 2023, we decreased our valuation allowance by $384 thousand related to our net deferred tax asset and specific federal and state net operating losses and federal and state tax credit carryforwards.
Net Loss. Continuing operations reflected a loss of $12.2 million, or $0.83 per diluted share in 2024, compared with a loss from continuing operations of $2.0 million, or $0.13 per diluted share in 2023. Our discontinued operations reflected a loss of $790 thousand, or $0.05 per diluted share in 2024 compared with a loss of $766 thousand, or $0.05 per diluted share in 2023. Including discontinued operations, we had a net loss of $13.0 million, or $0.88 per diluted share, in 2024 compared with net loss of $2.7 million, or $0.18 per diluted share, in 2023.
Our effective income tax rate was a benefit of 0.24% in 2024. The provision relates to federal and state cash taxes paid offset by certain federal and state credits. In 2024, we decreased our valuation allowance by $3.8 million related to our net deferred tax asset and specific federal and state net operating losses and federal and state tax credit carryforwards.
Net Loss. Continuing operations reflected a loss of $7.3 million, or $0.50 per diluted share in 2025, compared with a loss from continuing operations of $12.2 million, or $0.83 per diluted share in 2024. Our discontinued operations reflected a loss of $340 thousand, or $0.02 per diluted share in 2025 compared with a loss of $790 thousand, or $0.05 per diluted share in 2024. Including discontinued operations, we had a net loss of $7.6 million, or $0.52 per diluted share, in 2025 compared with net loss of $13.0 million, or $0.88 per diluted share, in 2024.
During the year ended December 28,27, 2024,2025, cash provided by continuing operations was $3.6$9.6 million. A reduction in inventories generated $9.4 million offset by a $618$482 thousand decreaseand an increase in accounts payable and accrued expenses.expenses generated $9.3 million.
Net cash used in investing activities was $2.0$473 millionthousand during the year ended December 28,27, 2024.2025. This amount was primarily the result of purchases of property, plant and equipment of $2.1$598 million.thousand.
During the year ended December 28,27, 2024,2025, cash used in financing activities was $1.3$1.6 million. We had net borrowings of $2.4$2.7 million on theour revolving credit facility.facilities. We had payments of $1.9$2.1 million on building and other term loans and payments on notes payable, net of borrowings was $1.1$280 millionthousand and payments on finance leases of $70$152 thousand. We had repurchases of our Common Stock that resulted in cash used of $585 thousand.
As described in Note 91 to the consolidated financial statements, we had $50.0$52.7 million of outstanding indebtedness under our senior credit facility that is classified as current as of December 28, 2024 which matures on October 30,27, 2025. As of the date of ourthese financial statements, ourthe Company’s existing cash and cash equivalents werewould not be sufficient to satisfy this debt in whole and meet ourthe Company’s operating needs for at least one year after the issuance of these financial statements. Subsequent to the reporting date, we refinanced our senior credit facility. On February 25, 2025, we entered into a new three-year $75.0 million senior secured credit facility with MidCap Financial IV Trust. Our new facility requires compliance with financial covenants on a monthly basis - See Note 22 to the consolidated financial statements for additional information regarding our debt refinancing.
We have evaluated our liquidity position over the next twelve months. In our evaluation we considered the impact of pastrecent operating losseslosses, onreduced our liquidity position, the continuing impact of cost reductions implementedavailability under our Eastcredit Coastfacility, Consolidationcovenant Plan,violations lowerand plannedmacroeconomic samplepressures. investments,Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional costdebt savingsfinancing. expectedOur evaluation of these plans, and our assumptions regarding their execution and timing, requires significant judgment and is subject to beinherent generated from the operations of our extrusion equipment and other cost reductions.uncertainty. We believe, after having reviewed various financial scenarios, our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions. However, our current forecast projects we may not be able to maintain compliance with certain of our financial covenants under our loan agreements. We have been able to obtain waivers in the past for such violations but it cannot be assured that such waivers will be obtained in the future. Refer to Note 1 in our consolidated financial statements for detail regarding our assessment as a going concern.
Availability under our MidCap Financial Senior Secured Revolving Credit Facility on FebruaryDecember 25,27, 2025 was $8.1$8.2 million which is subject to a $6.0 million minimum excess availability requirement. Significant additional cash expenditures above our normal liquidity requirements, significant deterioration in economic conditions or continued operating losses could affect our business and require supplemental financing or other funding sources.
Revolving Credit Facility - MidCap Financial IV Trust. On February 25, 2025, we entered into a new $75.0 million revolving credit agreement with MidCap Financial IV Trust, as agent, and lenders from time-to-time party thereto (collectively, "MidCap"). The credit agreement is secured by a security interest on all accounts receivable, inventory, and other assets other than certain excluded assets, including a deed to secure debt lien on our Calhoun and Chatsworth, Georgia facilities. Our borrowing capacity is based on certain percentages of values/sub-limits of the accounts receivable, inventory, and other assets (including the real properties serving as collateral for the loan). The agreement matures on February 25, 2028.
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Advances under the revolving credit facility bear interest at annual rates equal to SOFR (plus a 0.11448% SOFR adjustment) for a 1 month period, as defined with a floor of 1.00% or published SOFR, plus an applicable margin ranging between 3.75% and 4.25%. The applicable margin is determined based on the revolving loan availability percentage under the revolving credit facility with margins increasing as availability decreases. We are subject to a minimum excess availability covenant that is based upon a fixed charge coverage ratio which must be above a 1.10 to 1.00 ratio. We are subject to a monthly rolling minimum EBITDA requirement if availability is under 20% of the principal amount of the loan. The credit agreement is subject to customary terms and conditions and annual administrative and unused line fees with pricing varying based on excess availability. As of December 27, 2025, the unused borrowing availability under the MidCap revolving credit agreement was $8.2 million which is subject to a $6.0 million minimum excess availability requirement. (See Note 22 Subsequent Events for information on our amended revolving credit agreement with MidCap Financial IV Trust.)
The revolving credit facility requires a lockbox arrangement, which provides for all cash receipts to be swept daily to reduce the balance outstanding. This arrangement, combined with the existence of a “subjective acceleration clause” (as defined by U.S. GAAP) in the revolving credit facility, requires the balance on the revolving credit facility to be classified as a current liability. The “subjective acceleration clause” allows the lender to declare an event of default if there is a material adverse change in the Company's business or financial condition. Upon the occurrence of an event of default, the lender may, among other things, declare all obligations payable in full. The loan requires certain compliance, affirmative, and financial covenants and, as of the reporting date, we are in compliance with or have received waivers or amendments for all such financial covenants.
Fifth Third Bank Revolving Credit Facility. On October 30, 2020, we entered into a $75.0 million Senior Secured Revolving Credit Facility with Fifth Third Bank National Association as lender. The loan is secured by a first priority security interest on all accounts receivable, cash, and inventory, and provides for borrowing limited by certain percentages of values of the accounts receivable and inventory. The revolving credit facility matures on October 30, 2025. On February 25, 2025, we entered into a new three-year $75,000 senior secured credit facility with MidCap Financial IV Trust. See Note 22 for more information regarding the debt refinancing.
At our election, advances of the existing revolving credit facility bear interest at annual rates equal to either (a) SOFR (plus a 0.10% SOFR adjustment) for 1 or 3 month periods, as defined with a floor of 0.75% or published SOFR and previously LIBOR, plus an applicable margin ranging between 1.50% and 2.00%, or (b) the higher of the prime rate plus an applicable margin ranging between 0.50% and 1.00%. The applicable margin is determined based on availability under the revolving credit facility with margins increasing as availability decreases. The applicable margin can be increased by 0.50% if the fixed charge coverage ratio is below a 1.10 to 1.00 ratio. As of December 28, 2024, the applicable margin on our revolving credit facility was 2.50% for SOFR and 1.50% for Prime due to the fixed charge coverage ratio being below 1.10 to 1.00. We pay an unused line fee on the average amount by which the aggregate commitments exceed utilization of the revolving credit facility equal to 0.25% per Table of Contents 18 annum. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was 7.18% at December 28, 2024 and 8.15% for December 30, 2023.
The agreement is subject to customary terms and conditions and annual administrative fees with pricing varying on excess availability and a fixed charge coverage ratio. The agreement is also subject to certain compliance, affirmative, and financial covenants. We are only subject to the financial covenants if borrowing availability is less than $8.0 million, which is equal to 12.5% of the lesser of the total loan availability of $75.0 million or total collateral available, and remains until the availability is greater than 12.5% for thirty consecutive days. As of December 28, 2024, the unused borrowing availability under the revolving credit facility was $9.9 million.
Term Loans. Effective October 28, 2020, we entered into a $10.0 million principal amount USDA Guaranteed term loan with AmeriState Bank as lender. The term of the loan is 25 years and bears interest at a minimum 5.00% rate or 4.00% above 5-year treasury, to be reset every 5 years at 3.5% above 5-year treasury. The interest rate reset at 7.11% on October 26, 2025 and will reset every 5 years thereafter. The loan is secured by a first mortgage on our Atmore, Alabama and Roanoke, Alabama facilities. The loan requires certain compliance, affirmative, and financial covenants and, as of the reporting date, we are in compliance with or have received waivers for all such financial covenants.
Effective October 29, 2020, we entered into a $15.0 million principal amount USDA Guaranteed term loan with the Greater Nevada Credit Union as lender. The term of the loan is 10 years and bears interest at a minimum 5.00% rate or 4.00% above 5-year treasury, to be reset after 5 years at 3.5% above 5-year treasury. The interest rate reset at 7.11% on October 29, 2025. Payments on the loan are interest only over the first three years and principal and interest over the remaining seven years. The loan is secured by a first lien on a substantial portion of our machinery and equipment, a certificate of deposit and a second lien on our Atmore and Roanoke facilities. The loan requires certain compliance, affirmative, and financial covenants and, as of the reporting date, we are in compliance with or have received waivers for all such financial covenants.
•Going concern and liquidity. Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the ordinary course of business. Under U.S. GAAP, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. If substantial doubt is raised, management must also assess whether its plans to mitigate those conditions or events will alleviate that substantial doubt.
In performing this assessment, we make significant judgments about our expected liquidity, including projected cash flows from operations, capital expenditure requirements, availability and terms of external financing, compliance with financial covenants in our debt agreements, and other factors that could affect our ability to meet obligations as they become due. These estimates involve assumptions regarding, among other things, future sales volumes and pricing, gross margin performance, timing of collections from customers, payment terms with suppliers, cost‑reduction initiatives, and access to capital markets or other funding sources.
As of December 27, 2025, we had $52.7 million of outstanding indebtedness under our senior credit facility that is classified as a current liability, unrestricted cash and cash equivalents of $3.2 million and unused availability under our senior credit facility of $8.2 million, subject to a $6.0 million minimum excess availability requirement and continued compliance with applicable financial covenants. We are required to maintain certain financial ratios and other covenants, which, if not met, could result in an event of default and an acceleration of our outstanding indebtedness. Our going concern and liquidity assessment therefore requires significant judgment about our ability to meet these covenants over the next 12 months, including the effectiveness and timing of management’s plans.
At the time of issuance of these financial statements, conditions and events, including recent operating losses, reduced availability under our credit facility, covenant violations and macroeconomic pressures, raised substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional debt financing. Our evaluation of these plans, and our assumptions regarding their execution and timing, requires significant judgment and is subject to inherent uncertainty.
If our actual operating results, cash flows, or access to capital differ materially from our estimates, or if we are unable to execute our plans as currently contemplated, we may be unable to meet our obligations as they become due or maintain compliance with our debt covenants. In that event, we could be required to seek additional financing on less favorable terms, further reduce or delay capital expenditures and other spending, dispose of assets, or pursue other strategic alternatives. Changes in our judgments or assumptions regarding going concern and liquidity could have a material effect on our consolidated financial statements and related disclosures.
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What changed in the latest 10-Q
Risk Factors
Largest changes
“Notwithstanding our conclusion that recovery is probable, the timing and amount of cash receipt remain uncertain and depend on the completion of applicable CBP refund claim procedures, including validation and processing of claims, as well as any further legal, procedural or governmental developments. We will continue to monitor guidance issued by and actions taken by the CBP and CIT regarding the refund process. As a result, the recovery of IEEPA tariffs represents a known uncertainty that could materially affect our future results of operations and cash flows. …”see in full comparison
On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”), which the U.S. administration relied on to impose certain tariffs, does not authorize the administration to impose tariffs. On March 4, 2026, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection (“CBP”) agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. We were able to submit our IEEPA tariff refund request on April 20, 2026 through the portal. We have paid IEEPA tariffs to the U.S. government since the enactment on February 1, 2025, and accordingly we submitted our request for refund of $3.3 million related to IEEPA tariffs paid during the period from February 1, 2025 to February 20, 2026. Based on the U.S. Supreme Court's ruling, related CIT proceedings, and our submission of tariff refund requests and assessment of the recoverability of amounts paid, we have concluded as of March 28, 2026 that the recovery of previously incurred IEEPA tariffs is probable. Under a loss recovery accounting method, we recognized a receivable of $3.3 million for the IEEPA tariffs incurred in Receivables - tariff refund within the condensed consolidated balance sheet and a corresponding reversal of cost of sales for $3.3 million within the condensed consolidated statement of income for thesee in full comparisonthree-monthsix-month period endedMarchJune28,27, 2026. Prior to June 27, 2026, we Table of Contents 33 received partial payments of $261 thousand plus an immaterial amount of interest of previously paid tariffs. Subsequent to June 27, 2026, we received additional partial refunds totaling $3.0 million plus an immaterial amount of interest which leaves only $21 thousand remaining of the original receivable. We will continue to monitor regulatory guidance regarding the refund process.
Full comparison: every changed paragraph (12)
On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”), which the U.S. administration relied on to impose certain tariffs, does not authorize the administration to impose tariffs. On March 4, 2026, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection (“CBP”) agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. We were able to submit our IEEPA tariff refund request on April 20, 2026 through the portal. We have paid IEEPA tariffs to the U.S. government since the enactment on February 1, 2025, and accordingly we submitted our request for refund of $3.3 million related to IEEPA tariffs paid during the period from February 1, 2025 to February 20, 2026. Based on the U.S. Supreme Court's ruling, related CIT proceedings, and our submission of tariff refund requests and assessment of the recoverability of amounts paid, we have concluded as of March 28, 2026 that the recovery of previously incurred IEEPA tariffs is probable. Under a loss recovery accounting method, we recognized a receivable of $3.3 million for the IEEPA tariffs incurred in Receivables - tariff refund within the condensed consolidated balance sheet and a corresponding reversal of cost of sales for $3.3 million within the condensed consolidated statement of income for the three-monthsix-month period ended MarchJune 28,27, 2026. Prior to June 27, 2026, we Table of Contents 33 received partial payments of $261 thousand plus an immaterial amount of interest of previously paid tariffs. Subsequent to June 27, 2026, we received additional partial refunds totaling $3.0 million plus an immaterial amount of interest which leaves only $21 thousand remaining of the original receivable. We will continue to monitor regulatory guidance regarding the refund process.
Table of Contents 31
Notwithstanding our conclusion that recovery is probable, the timing and amount of cash receipt remain uncertain and depend on the completion of applicable CBP refund claim procedures, including validation and processing of claims, as well as any further legal, procedural or governmental developments. We will continue to monitor guidance issued by and actions taken by the CBP and CIT regarding the refund process. As a result, the recovery of IEEPA tariffs represents a known uncertainty that could materially affect our future results of operations and cash flows. If the amount ultimately recovered is less than the amount recorded, or if recovery is materially delayed, we may be required to record an unfavorable adjustment in a future period.
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The market price of our common stock has historically experienced and may continue to experience significant volatility. Our progress in restructuring our business, our quarterly operating results, our perceived prospects, lack of securities analysts’ Table of Contents 34 recommendations or earnings estimates, changes in general conditions in the economy or the financial markets, adverse events related to our strategic relationships, significant sales of our common stock by existing stockholders, and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our common stock. Such market price volatility could adversely affect our ability to raise additional capital.
Nylon yarn is the principal raw material used in our floorcovering products. The supply of all nylon yarn and yarn systems has been negatively impacted by a variety of overall market factors. The cost of nylon yarns has risen significantly and availability of nylon yarns has been restricted. An interruption in the supply of these or other raw materials or sourced products used in our business or in the supply of suitable substitute materials or products would disrupt our operations, which could have a material adverse effect on our business. Supply constraints may impact our ability to successfully develop products and effectively service Table of Contents 33 our customers. We have developed and are developing products and product offerings using fiber systems from multiple external fiber suppliers as well as from vertically integrated production of our yarn supply through dedicated internal extrusion operations. There can be no certainty as to the success of our efforts to develop and market such products. We continually evaluate our sources of yarn and other raw materials for competitive costs, performance characteristics, brand value, and diversity of supply.
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The diversion of management attention and any difficulties encountered in the transition and integration process could have a material adverse effect on our revenues, level of expenses and operating results. Failure to successfully manage and integrate an acquisition with our existing operations or expansion of our existing operations could lead to the potential loss of customers of the acquired or existing business, the potential loss of employees who may be vital to the new or existing operations, the potential loss of business opportunities or other adverse consequences that could have a material adverse effect on our business, financial condition and results of operations. Even if integration occurs successfully, failure of the expansion or Table of Contents 36 acquisition to achieve levels of anticipated sales growth, profitability or productivity, or otherwise perform as expected, may have a material adverse effect on our business, financial condition and results of operations.
In the ordinary course of business, we are subject to a variety of work-related and product-related claims, lawsuits and legal proceedings, including those relating to product liability, product warranty, product recall, personal injury, and other matters that are inherently subject to many uncertainties regarding the possibility of a loss to our business. Such matters could have a material adverse effect on our business, results of operations and financial condition if we are unable to successfully defend against or resolve these matters or if our insurance coverage is insufficient to satisfy any judgments against us or settlements relating to these matters. Although we have product liability insurance, the policies may not provide coverage for certain claims against us or may not be sufficient to cover all possible liabilities. Further, we may not be able to maintain insurance at Table of Contents 35 commercially acceptable premium levels. Additionally, adverse publicity arising from claims made against us, even if the claims are not successful, could adversely affect our reputation or the reputation and sales of our products.
Since 2016, the Company has been named as a defendant in multiple lawsuits filed by various individual plaintiffs against chemical manufacturers, distributors, and several other carpet manufacturers and finishers in connection with the past use of surfactants containing or alleged to contain chemicals associated with PFAS and PFOS. Additionally, and as noted above, there Table of Contents 37 is an increased regulatory focus on the use and past use of such chemicals. Such regulatory focus may result in governmental litigation related to use of such chemicals.
Global and/or local pandemics, such as COVID-19, could negatively impactedimpact areas where we operate and sell our products and services. The COVID-19 outbreak in the 2020 had a material adverse effect on our ability to operate and our results of operations as public health organizations recommended, and many governments implemented, measures to slow and limit the transmission of the virus, including shelter in place and social distancing ordinances. Although the accessibility of vaccines and other preventive measures have lessened the impact, new variants or other pandemics may necessitate a return of such restrictive, preventive measures which may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, disruptions to the businesses of our selling channel partners, and others. Our suppliers and customers may also face these and other challenges, which could lead to a disruption in our supply chain as well as decreased construction and renovation spending and consumer demand for our products and services.
Management's Discussion & Analysis (MD&A)
New heading “Six Months Ended June 27, 2026 Compared with the Six Months Ended June 28, 2025”
New heading “Selling and Administrative Expenses”
New heading “Other Operating income, Net”
New heading “Facility Consolidation and Severance Expenses, Net”
New heading “Operating Income”
New heading “Interest Expense”
New heading “Other (Income) Expense, Net”
New heading “Income Tax Provision”
New heading “Net Income (Loss)”
Largest changes
We have evaluated our liquidity position over the next twelve months. In our evaluation we considered recent operating losses, reduced availability under our credit facility, covenant violations and macroeconomic pressures. Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional debt financing. Our evaluation of these plans, and our assumptions regarding their execution and timing, requires Table of Contents 30 significant judgment and is subject to inherent uncertainty. We believe, after having reviewed various financial scenarios, our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions. Our evaluation of these plans, and its assumptions regarding their execution and timing, requires significant judgment and is subject to inherent uncertainty, therefore we have concluded that these plans do not alleviate the substantial doubt about our ability to continue as a going concern. Refer to Note 1 in our consolidated condensed financial statements for detail regarding our assessment as a going concern.see in full comparison
“Six Months Ended June 27, 2026 Compared with the Six Months Ended June 28, 2025”see in full comparison
“Notwithstanding our conclusion that recovery is probable, the timing and amount of cash receipt remain uncertain and depend on the completion of applicable CBP refund claim procedures, including validation and processing of claims, as well as any further legal, procedural or governmental developments. We will continue to monitor guidance issued by and actions taken by the CBP and CIT regarding the refund process. As a result, the recovery of IEEPA tariffs represents a known uncertainty that could materially affect our future results of operations and cash flows. …”see in full comparison
“For the first six months of 2026, our net sales from continuing operations decreased 2.7% compared with the first six months of 2025. The lower net sales were attributed to continued lower demand driven by continued high interest rates and inflation.”see in full comparison
Full comparison: every changed paragraph (48)
The Middle East conflict that began in late February 2026 materiallyhas contributed to increased U.S. interest rate volatility, primarily through its effect on energy markets. As oil prices rose sharply amid concerns about potential supply disruptions, particularly through the Strait of Hormuz, market participants reassessed the inflation outlook and the likely path of monetary policy. Expectations shifted toward a more prolonged “higher for longer” Federal Reserve stance, with the anticipated number of rate cuts for 2026 falling close to zero. Although the ceasefire announced on April 8, 2026 has partially reversed the most severe effects on interest rates, weWe expect volatility to remain elevated until the conflict is more definitively resolved. In addition, higher gasoline and diesel prices impact the cost of many of our products and contribute to a more cautious consumer outlook. Depending on the duration of the conflict, the economic impact will vary across our markets, with increased inflation reducing consumer sentiment and discretionary spending. We will continue monitoring the situation during this period of heightened uncertainty.
On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”), which the U.S. administration relied on to impose certain tariffs, does not authorize the administration to impose tariffs. On March 4, 2026, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection (“CBP”) agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. We were able to submit our IEEPA tariff refund request on April 20, 2026 through the portal. We have paid IEEPA tariffs to the U.S. government since the enactment on February 1, 2025, and accordingly we submitted our request for refund of $3.3 Table of Contents 25 million related to IEEPA tariffs paid during the period from February 1, 2025 to February 20, 2026. Based on the U.S. Supreme Court's ruling, related CIT proceedings, and our submission of tariff refund requests and assessment of the recoverability of Table of Contents 26 amounts paid, we have concluded as of March 28, 2026 that the recovery of previously incurred IEEPA tariffs is probable. Under a loss recovery accounting method, we recognized a receivable of $3.3 million for the IEEPA tariffs incurred in Receivables - tariff refund within the condensed consolidated balance sheet and a corresponding reversal of cost of sales for $3.3 million within the condensed consolidated statement of income for the three-monthsix-month period ended MarchJune 28,27, 2026. Prior to June 27, 2026, we received partial payments of $261 thousand plus an immaterial amount of interest of previously paid tariffs. Subsequent to June 27, 2026, we received additional partial refunds totaling $3.0 million plus an immaterial amount of interest which leaves only $21 thousand remaining of the original receivable. We will continue to monitor regulatory guidance regarding the refund process.
Notwithstanding our conclusion that recovery is probable, the timing and amount of cash receipt remain uncertain and depend on the completion of applicable CBP refund claim procedures, including validation and processing of claims, as well as any further legal, procedural or governmental developments. We will continue to monitor guidance issued by and actions taken by the CBP and CIT regarding the refund process. As a result, the recovery of IEEPA tariffs represents a known uncertainty that could materially affect our future results of operations and cash flows. If the amount ultimately recovered is less than the amount recorded, or if recovery is materially delayed, we may be required to record an unfavorable adjustment in a future period.
Three Months Ended MarchJune 28,27, 2026 Compared with the Three Months Ended MarchJune 29,28, 2025
For the firstsecond quarter of 2026, our net sales from continuing operations decreasedwere 5.7%slightly comparedabove withlevels of the firstsecond quarter of 2025. The lower net sales were attributed to continued lower demand driven by continued high interest rates and inflation.
Gross profit as a percentage of net sales was 32.5%29.5% in the firstsecond quarter of 2026 compared with 26.8%29.2% in the firstsecond quarter of 2025. The higher gross profit percentage in 2026 includesreflects theboth impactcost ofreductions $3.3and millionimproved operating efficiencies in IEEPAour tariff refunds recorded during the first quarter of 2026.operations.
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Selling and administrative expenses were $16.0$16.7 million, or 26.9%24.4% of net sales, in the firstsecond quarter of 2026 compared with $16.9$16.8 million, or 26.8%24.5% of net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales increaseddecreased in the firstsecond quarter of 2026 as compared to the firstsecond quarter of 2025 due to lower sales volumes offset by lower selling expenses.
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Net other operating income was $84$90 thousand in the firstsecond quarter of 2026 compared with income of $98$68 thousand in the firstsecond quarter of 2025.
Facility consolidation and severance expenses in the firstsecond quarter of 2026 were $112$500 thousand compared with $115$117 thousand in the firstsecond quarter of 2025. The expenses in 2026 andincluded 2025 werecosts related to our restructuring plan for the consolidation of a portion of our west coast yarn processing into our east coast manufacturing.yarn processing and costs related to our east coast consolidation plan.
We reported operating income of $3.3$3.1 million in the firstsecond quarter of 2026 compared with operating income of $11$3.2 thousandmillion in the firstsecond quarter of 2025. The increasedecrease in operating income was due to $3.3costs millionassociated inwith IEEPAthe tariffconsolidation refundsof recordedour yarn processing facilities during the firstsecond quarter of 2026. Costs associated with the consolidation of our yarn processing facilities during the second quarter of 2026 affected operating income in the second quarter.
Interest expense increased $412$94 thousand in the firstsecond quarter of 2026 compared with the firstsecond quarter of 2025. The increase is primarily the result of higher interest rates in 2026 on our higher levels of debt.
Net other (income) expense was income of $32$55 thousand in the firstsecond quarter of 2026 compared with an expenseincome of $88$4 thousand in the firstsecond quarter of 2025. Net other (income) expense includedincludes ainterest lossincome of $66$51 thousand related to an extinguishment of a debt arrangement in the firstsecond quarter of 2025.2026.
We recorded an income tax expense from continuing operations of $37$52 thousand in the firstsecond quarter of 2026 compared to an income tax expense of $12$67 thousand in the firstsecond quarter of 2025.
The effective tax rate for the three months ended MarchJune 28,27, 2026 was 2.66%4.40% compared with an effective tax rate of 0.76%5.07% for the three months ended MarchJune 29,28, 2025. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the firstsecond quarter of 2026 and 2025. We are in a net deferred tax liability position of $91 thousand at MarchJune 28,27, 2026 and December 27, 2025, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $589$583 thousand and $576 thousand at MarchJune 28,27, 2026 and December 27, 2025, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of MarchJune 28,27, 2026 and December 27, 2025.
Continuing operations reflected income of $1.4$1.1 million, or $0.09$0.07 per diluted share, in the firstsecond quarter of 2026 compared with a lossincome of $1.6$1.3 million, or $0.11$0.08 per diluted share, in the same period in 2025. The loss from discontinued operations was $203$42 thousand in the firstsecond quarter of 2026 compared to a loss of $115$94 thousand in the firstsecond quarter of 2025. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
Six Months Ended June 27, 2026 Compared with the Six Months Ended June 28, 2025
Net Sales
For the first six months of 2026, our net sales from continuing operations decreased 2.7% compared with the first six months of 2025. The lower net sales were attributed to continued lower demand driven by continued high interest rates and inflation.
Gross Profit
Gross profit as a percentage of net sales was 30.9% in the first six months of 2026 compared with 28.1% in the first six months of 2025. The higher gross profit percentage in 2026 is attributable to the $3.3 million in IEEPA tariff refunds recorded during the first six months of 2026 as well as careful management of costs and improved efficiencies.
Selling and Administrative Expenses
Selling and administrative expenses were $32.7 million, or 25.6% of net sales, in the first six months of 2026 compared with $33.7 million, or 25.6% of net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales remained relatively flat in the first six months of 2026 as compared to the first six months of 2025 due to lower sales volumes offset by lower selling expenses.
Other Operating income, Net
Net other operating income was $174 thousand in the first six months of 2026 compared with income of $166 thousand in the first six months of 2025.
Facility Consolidation and Severance Expenses, Net
Facility consolidation and severance expenses in the first six months of 2026 were $612 thousand compared with $232 thousand in the first six months of 2025. The expenses in 2026 included costs related to our restructuring plan for the consolidation of our yarn processing facilities and costs related to our east coast consolidation plan.
Operating Income
We reported operating income of $6.4 million in the first six months of 2026 compared with operating income of $3.2 million in the first six months of 2025. The increase in operating income was due to $3.3 million in IEEPA tariff refunds recorded during the first six months of 2026.
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Interest Expense
Interest expense increased $506 thousand in the first six months of 2026 compared with the first six months of 2025. The increase is primarily the result of higher interest rates in 2026 on our debt.
Other (Income) Expense, Net
Net other (income) expense was income of $87 thousand in the first six months of 2026 compared with expense of $84 thousand in the first six months of 2025. Net other (income) expense includes interest income of $85 thousand in the first six months of 2026. Net other (income) expense included a loss of $66 thousand related to an extinguishment of a debt arrangement in the first six months of 2025.
Income Tax Provision
We recorded an income tax expense from continuing operations of $90 thousand in the first six months of 2026 compared to an income tax expense of $79 thousand in the first six months of 2025.
The effective tax rate for the six months ended June 27, 2026 was 3.50% compared with an effective tax rate of 31.73% for the six months ended June 28, 2025. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the first six months of 2026 and 2025. We are in a net deferred tax liability position of $91 thousand at June 27, 2026 and December 27, 2025, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $583 thousand and $576 thousand at June 27, 2026 and December 27, 2025, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of June 27, 2026 and December 27, 2025.
Net Income (Loss)
Continuing operations reflected income of $2.5 million, or $0.16 per diluted share, in the first six months of 2026 compared with a loss of $328 thousand, or $0.02 per diluted share, in the same period in 2025. The loss from discontinued operations was $245 thousand in the first six months of 2026 compared to a loss of $209 thousand in the first six months of 2025. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
During the threesix months ended MarchJune 28,27, 2026, cash used in operating activities in continuing operations was $2.6$1.4 million. An increase in accounts receivable and receivables for tariffs used $7.0$8.1 million during the first threesix months of 2026. Prepaid and other current assets used $782$1.3 thousandmillion primarily as a result of prepaid sample and marketing expenses. An increase in inventory used $1.7$559 millionthousand and an increase in accounts payable and accrued expenses generated $4.3$3.4 million of cash during the first threesix months.
Purchases of capital assets for the threesix months ended MarchJune 28,27, 2026 resulted in a $59$175 thousand cash out flow to the business. Depreciation and amortization for the threesix months ended MarchJune 28,27, 20252026 were $1.4$2.6 million. We expect capital expenditures to be approximately $2.9$2.0 million in 2026 while depreciation and amortization is expected to be approximately $5.5 million.
During the threesix months ended MarchJune 28,27, 2026, cash provided by financing activities was $1.9$758 million.thousand. We had net borrowings on our current revolving credit facility of $3.0 million. We had net payments on notes payable and financing leases of $1.1$2.2 million.
As described in Note 9 to the consolidated condensed financial statements, as of June 27, 2026, we had $55.7 million of outstanding indebtedness under our senior credit facility thatclassified as current, due to a subjective acceleration clause in the related loan agreement. Although the debt is classified as current asfor offinancial Marchreporting 28,purposes, 2026.management Asdoes not currently expect repayment of the datefull ofoutstanding thesebalance financial statements,within the Company’snext twelve months absent an acceleration event. If such an event were to occur, our existing cash and cash equivalents would not be sufficient to satisfy thisthe debt in wholefull and meet the Company’sour operating needs for at least one year after the issuance of these financial statements.needs.
We have evaluated our liquidity position over the next twelve months. In our evaluation we considered recent operating losses, reduced availability under our credit facility, covenant violations and macroeconomic pressures. Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional debt financing. Our evaluation of these plans, and our assumptions regarding their execution and timing, requires Table of Contents 30 significant judgment and is subject to inherent uncertainty. We believe, after having reviewed various financial scenarios, our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions. Our evaluation of these plans, and its assumptions regarding their execution and timing, requires significant judgment and is subject to inherent uncertainty, therefore we have concluded that these plans do not alleviate the substantial doubt about our ability to continue as a going concern. Refer to Note 1 in our consolidated condensed financial statements for detail regarding our assessment as a going concern.
Availability under our MidCap Financial Senior Secured Revolving Credit Facility on MarchJune 28,27, 2026 was $10.3$11.4 million which is subject to a $6.0 million minimum excess availability requirement. Significant additional cash expenditures above our normal liquidity requirements, significant deterioration in economic conditions or continued operating losses could affect our business and require supplemental financing or other funding sources.
DXYN insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-05-06 | Owens Michael L. |
Grant/award | 8,000 | $0.36 | $2.9K |
| 2026-05-06 | Murray Hilda S |
Grant/award | 8,000 | $0.36 | $2.9K |
| 2026-05-06 | Brock Charles E |
Grant/award | 8,000 | $0.36 | $2.9K |
| 2026-05-06 | Blue William F Jr |
Grant/award | 8,000 | $0.36 | $2.9K |
Well-known investors holding DXYN (13F)
None of the 59 investors we track reported a position in their latest 13F.