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

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

We have derived, and expect to continue to derive, a significant amountshare of our revenue from a small number of customers.

Historically, we have earned, and believe that in the future we will continue to earn, a substantial portion of our revenue from a relatively small number of customers. In 2024,2025, our top threetwo customers accounted for 15%, 12%18% and 5%9% of our revenue, respectively. If we were to either lose one of our major customers or have a major customer significantly reduce its volume of business with us, our business, results of operations and financial condition would be harmed unless we were able to replace such demand with other orders promptly. We expect to continue to be dependent on our major customers, the number and identity of which may change from period to period. Because they generally do not provide us with firm, long-term volume purchase commitments, our customers, including our largest customers upon whom we are or may become dependent, can reduce or terminate altogether their business with us at any time, whether because they choose an alternate supplier, see reduced demand for their products, or otherwise.

Additionally, our sourcing operations may also be hurt by health concerns regarding the outbreak of viruses, widespread illness, infectious diseases, contagions and the occurrence of unforeseen epidemics (including thea outbreakrecurrence of the COVID-19 coronavirus and its potential impact on our financial results) in countries in which our products are manufactured. Moreover, negative press or reports about internationally manufactured products may sway public opinion, and thus customer confidence, away from our products. Furthermore, changes in U.S. trade policies, such as those being implemented by the newcurrent U.S. administration. including new restrictions, tariffs or other changes, especially as regards China, and reciprocal tariffs imposed by other countries, could lead to additional costs, delays in shipments, embargos and other uncertainties that could negatively impact our relationships with our international suppliers and materially adversely affect our business. Depending on the continued extent and duration of these constraints and disruptions, our supply chain, results of operations (including sales) or future business could be materially and adversely impacted. These and other issues affecting our international suppliers or internationally manufactured merchandise could have a material adverse effect on our business, results of operations and financial condition.

We manufacture our products in Shenzhen, China; Fremont, California; and Irvine, Scotland; and Barnsley, England.Scotland. These facilities are vulnerable to damage from earthquakes, floods, fires, power loss and similar events. They could also be subject to break-ins, sabotage and intentional acts of vandalism. Our insurance may not cover such events and, if the event is covered, our insurance may not be sufficient to compensate us in full for any losses that may occur. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problem at any of our manufacturing facilities could result in delayed shipment of products, missed delivery deadlines and harm to our reputation, which could cause our revenue and operating results to decline. Performance, reliability or quality problems with our products could cause our customers to reduce or cancel orders, which would harm our operating results.

We regularly introduce new products with new technologies or manufacturing processes. Our products have in the past contained, and may in the future contain, errors or defects that may be detected at any point in the life of the product. Detection of such errors could result in delays in sales during the period required to correct such errors.them.

Defects may also result in product returns, loss of sales and cancelled orders, delays in market acceptance, injury to our reputation, injury to customer relationships and increased warranty costs, which could have an adverse effect on our business, operating results and financial condition. Our insurance may not be sufficient to fully cover us against any liability arising out of such defects.

Our HMIproducts and gas-sensing solutions may not be successful in new markets. Various of our target markets for our products and solutions may develop more slowly than anticipated or participants in those markets could choose to utilize competing technologies. The markets for certain of our HMI products depend in part upon the continued development and deployment of wireless and other technologies, which may or may not address the needs of the users of these products. The markets for our gas and environmental sensors rely heavily on our customers’ investment in the required infrastructure for new devices or instruments and also on their competency and execution in development. The performance of any sensor depends on the quality of its implementation and may vary depending on design decisions, tradeoffs, or lack of experience. While we perform extensive engineering services for our customers and support them with reference materials and open-source designs, we cannot guarantee our customers’ success, and this remains a risk for our portfolio.

We generally do not sell products to end-users. Instead, we sell component products that our customers incorporate into their products, and we depend on our customers to successfully manufacture and distribute products incorporating our component products and to generate consumer demand through their marketing and promotional activities. We do not control or influence the manufacture, promotion, distribution, or pricing of the products that incorporate our solutions. As a result of this, our success depends almost entirely upon the widespread market acceptance of our customers’ products that incorporate our solutions. Even if our technologies successfully meet our customers’ price and performance goals, our sales would decline or fail to develop if our customers do not achieve commercial success in selling theirsuch products that incorporate our solutions.products.

We face risks associated with security breaches or cyber-attacks of our computer systems or those of our third-party representatives, vendors, and service providers. ArmedHeightened conflictsgeopolitical intensions, armed conflicts, and broader global uncertainties may increase the Middlelikelihood Eastof andcyber betweenthreats, Russia and Ukraine, and tensions with countries such as Iran and North Korea and resulting geopolitical uncertainties alsowhich could result in an increase in cyberattacks that could either directly or indirectly impactdisrupt our operations. Although we have implemented security procedures and controls to address these threats, such as firewalls, encryption, access controls, and employee training, cybersecurity threats are dynamic and evolving and our systems may still be vulnerable to theft, loss or misuse of data, including proprietary or confidential information, relating to our business, products, employees, suppliers and customers; disruption due to computer viruses and programming errors; attacks by third parties including destruction of data or demanding ransom to return control of our systems and services; or similar disruptive problems.

While our common stockstock, $0.001 par value per share (“Common Stock”), is quoted on The Nasdaq Capital Market, the daily trading volume is typically very low. This is due in part to the significant percentage (approximately 83%77% as of December 31, 20242025) of our shares that are held by officers and directors and their affiliates.affiliates, primarily Mr. Bronson.

We cannot predict the extent to which investor interest in our Company will lead to the development of an active trading market or how liquid that market might become. The lack of an active market may reduce the value of shares of our commonCommon stockStock and impair the ability of our stockholders to sell their shares at the time or price at which they wish to sell them. An inactive market may also impair our ability to raise capital by sellingissuing ourCommon common stockStock (or other securities convertible into ourCommon common stockStock) and may impair our ability to acquire or invest in other companies, products, or technologies by using our common stock as consideration.

Technology stocksstocks, including our Common Stock, have historically experienced high levels of volatility. The trading price of our common stockshares may continue to fluctuate substantially, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause investors to lose all or part of their investment in our common stock.investment. Factors that could cause fluctuations in the trading price of our common stockshares include, without limitation, the following:

In addition, if the market for technology stocksstocks, or the stock market,market in general, experiences a loss of investor confidence, the trading price of our common stockshares could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our commonCommon stockStock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation.litigation, Securities litigationwhich could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, results of operations and financial condition.

The liquidation preferenceissuance of shares of our Preferred Stock currently outstanding or issued in the future would reduce the amount available to our commonholders stockholdersof Common Stock in the event of our liquidation or winding up.up, utilize cash resources in the payment of dividends, and potentially limit our ability to obtain additional financing thereafter.

CertainThe provisionsterms inof our Series A Convertibleany Preferred Stock we may impactissue may restrict our ability to obtainraise additional financingcapital inon theacceptable future.terms, or at all.

Steven N. Bronson, our Chairman of the Board, President and Chief Executive Officer, beneficially owned approximately 83%77% of the outstanding shares of our commonCommon stockStock as of December 31, 2024.2025. As a result, Mr. Bronson has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, Mr. Bronson has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to control the election of our directors. As a board member and officer, Mr. Bronson owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, Mr. Bronson may have interests that differ from yours and he may vote in a manner that is adverse to your interests. This concentration of ownership may have the effect of deterring, delaying or preventing a change of control of our company, could deprive our other common stockholders of an opportunity to receive a premium for their common stockshares as part of a sale of our company and might ultimately affect the market price of our common stock.shares.

We do not intend to pay dividends on our commonCommon stockStock for the foreseeable future and, consequently, our common stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.shares.

We have never declared or paid cash dividends on our commonCommon stock,Stock, and we do not anticipate paying any such dividends in the foreseeable future. The declaration, amount and payment of any future dividends on shares of our common stock,shares, if any, ismay be subject to the designations, rights and preferences of the Series A Convertibleany Preferred Stock that we may issue in the future and will be at the sole discretion of our Board of Directors,Board, which may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and any other factors that ourthe Board of Directors may deem relevant. As a result, stockholders may only receive a return on their investment in our common stockshares if the market price of our common stock increases.

We also are subject to provisions of Nevada law found in Nevada Revised Statutes, Sections 78.411 to 78.444, inclusive, that prohibit us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns 10 percent (10%) or more of our stock,stock cannot acquire us for a period of time after the date this person became an interested stockholder, unless various conditions are met, such as approval of the transaction by ourthe Board of Directors and stockholders.

Our business, financial position, results of operations, and cash flows may be adversely affected by a resurgence of the global COVID-19 pandemic, in particular if there is a resurgence in infections,pandemic or any broad outbreak of an avian flu orany other epidemic in the human population.

The persistent challenges stemming from the COVID-19 pandemic and the possibility of a resurgence in infections or the outbreak of another global pandemic continue to pose significant risks to our business operations, financial performance, and outlook. While there have been advancements in managing the spread of the COVID-19 virus and increasing vaccination rates, uncertainties remain regarding its long-term effects and potential resurgence. The ongoingCOVID-19 pandemic hasdemonstrated the potential of a global health crisis to continue to disrupt global supply chains, affect consumer behavior, cause significant volatility and disruption of financial markets and prompt regulatory responses, any and all of which can adversely impact our operations and financial position.

Because the severity, magnitude and duration of thea pandemic such as COVID-19 and its economic consequences are uncertain, vary by region, and are rapidly changing and difficult to predict, its full impact on our operations and financial performance, as well as its impact on our near-term ability to successfully execute our strategic objectives, remains similarly uncertain and difficult to predict. As the situation evolves, we face the risk of additional disruptions due to new variants of the virus, changes in public health guidelines, or unforeseen events that could further exacerbate operational challenges. Moreover, economic recovery remains uneven across regions, which may continue to influence consumer spending patterns and market dynamics.

Further, the pandemic’s ultimate impact depends in part on many factors not within our control and which may vary by region (heightening the uncertainty as to the ultimate impact COVID-19 or a subsequent pandemic may have on our operations and financial performance), including, without limitation: restrictive governmental and business actions that have been and continue to be taken in response (including travel restrictions, work from home requirements, and other workforce limitations); economic stimulus, funding and relief programs and other governmental economic responses; the effectiveness of governmental actions; economic uncertainty in key global markets and financial market volatility; levels of economic contraction or growth; the impact of the pandemic on health and safety; the pace of recovery if and when the pandemic subsides; and how significantly the number of cases increases as economies begin to open and restrictive governmental and business actions are relaxed.

In addition, thea pandemic outbreak such as COVID-19 pandemic subjects our operations and financial performance to several risks, including the following:

The full extent of the effect of the COVID-19 pandemic and any future global pandemic on us, our customers, our supply chain and our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak or subsequent outbreaks. We may continue to experience the effects of thea pandemic even now thatafter its initial severity has waned, and our business, results of operations and financial condition could continue to be affected. In particular, if COVID-19 re-emerges or another virus emerges with serious and widespread impact on public health, particularly in the United States, China,or the United Kingdom where our operations are most concentrated, and results in a prolonged period of travel, commercial, social and other similar restrictions, we could experience, among other things:

The COVID-19 pandemic or another global pandemic may also affect our operations and financial results in a manner that is not presently known to us or that we currently do not expect to present significant risks to our operations or financial results. The degree to which COVID-19a pandemic impacts our results will depend on future developments, and there is no certainty that measures we have taken or will take will be sufficient to mitigate the risks posed by the virus. Additional impacts and risks may arise that we or our customers, suppliers, and other partners are not aware of or able to respond to effectively, and which may adversely affect us. The impact of COVID-19a pandemic can also exacerbate other risks discussed in this Risk Factors section and throughout this report.

The current U.S. political climate, marked by rapid policy changes and regulatory shifts under the Trump-Vancecurrent administration, presents significant uncertainties for our global operations. In particular, escalating geopolitical tensions involving key global markets could impact our supply chain stability and market access. These factors collectively may adversely affect our business operations, financial condition, and future prospects.

Within the last 18three months,years, we completed the acquisitions of SPEC, KWJ, Calman, and Conductive Transfers, and we expect to make further acquisitions in the future. Acquisitions involve numerous inherent challenges, such as properly evaluating acquisition opportunities, properly evaluating risks and other diligence matters, ensuring adequate capital availability and balancing other resource constraints. There are risks and uncertainties related to acquisitions, including: difficulties integrating acquired technology, operations, personnel and financial and other systems; unrealized sales expectations from the acquired business; unrealized synergies and cost savings; unknown or underestimated liabilities; diversion of management attention from running our existing businesses and potential loss of key management employees of the acquired business. In addition, internal controls over financial reporting of acquired companies may not comply with required standards. Our integration activities may place substantial demands on our management, operational resources and financial and internal control systems. Customer dissatisfaction or performance problems with an acquired business, technology, service or product could also have a material adverse effect on our reputation and business.

In addition, being a public company subject to these rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our Board of Directors,Board, particularly to serve on our audit committee and compensation committee.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to the consolidated financial statements included later in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Executive Overview

We sell our custom products into the medical, industrial, automotive and consumerother specialty markets. We sell our standard products to customers in many markets through various distribution networks. The ultimate customer for our standard products may come from different markets whichthat are often unknown to us at the time of sale. Each market has different product design cycles. Products with longer design cycles often have much longer product life cycles. Medical, industrial, and other specialty markets such as environmental monitoring products generally have longerlong design and life cycles than consumer products.cycles. We currently have products with life cycles that have exceeded 20 years and are ongoing.

Revenues were downup in 20242025 compared to 20232024 to customers in all of the customindustrial marketsand weautomotive sell to,markets, and were updown to customers in the medical market and to customers of our standard products. The increase in revenue from customers in the industrial market was due to increased shipments on higher customer demand due to increases in their production levels, while the increase in revenue from customers in the automotive market was due to new products and to programs intended to support innovation and automation in that market group. The decrease in revenue from customers in allthe custommedical marketsmarket was due to decreasedlower shipments of our traditional force-sensing and gas-sensing products andoffset solutionsin resultingpart fromby lowerhigher shipments of our Calman printed electronics, all of which is driven by customer demand in 2024 compared to 2023.demand. In all markets, the timing of orders from our customers is not always predictable and can bevary lesssignificantly infrom someperiod periodsto and higher in othersperiod depending on theircustomers’ projects and building plans.

Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, sales volume, and fluctuations in our cost of revenues, which are comprised of material costs, direct and indirect production labor costs, warehousing and logistics costs, facilities costs, and other costs related to production activities. Gross profit and gross margin percentage for 20242025 waswere down compared to 2023 due to lower revenue on lower customer demand, while gross margin percentage was down2024 due primarily to thechanges impactin the largelymix fixedof portionproducts sold, and also in part due to strengthened Chinese yuan relative to the U.S. dollar which increased the cost of our manufacturing-production and production-related cost of revenue has on our gross margin percentage,activities in addition to changes in product and customer mix.China.

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and product development activities,activities and the cost of those employees’ indirect supplies and allocation of facilities expenses. Our R&D team focuses both on internal design development of our force-sensing and gas-sensing technologies and other printed electronics solutions, as well as custom design development aimed at addressing our customers’ unique design challenges. Engineering and R&D costs for 20242025 were down compared to the prior year due primarily to decreasedlower engineering employee headcount,headcount and lower consultant and outside services costs, offset in part by increasedhigher costs on prototyping and product-development activities this year as compared to the prior year.activities.

Selling, general and administrative expenses consist primarily of compensation expenses, legal and other professional fees, facilities expenses and communication expenses. Selling, general and administrative expenses for the current year were up slightly compared to last year due primarily to the inclusion of CalmanConductive forTransfers thein full year of 20242025 (versuswhich onlywas theacquired March toin December period2024), ofoffset 2023).in part by lower sales and administrative compensation expense on lower headcount elsewhere.

Other income (expense), net consists of non-operating income and expenses, such as gains and losses on marketable securities, foreign currency transaction gains and losses, interest income and expense, and other non-operating income and expenses. Other income (expense), net for 2025 was comprised of $20,000 of interest income and $3,000 of foreign currency transaction gains, while other income (expense), net for 2024 was comprised of $54,000 of interest income and $39,000 of foreign currency transaction gains, while other income (expense), net for 2023 was comprised of $155,000 of interest income, $3,000 of foreign currency transaction gains, and $6,000 of other non-operating income.gains.

Income tax expense reflects statutory tax rates in the jurisdictions in which we operate on the taxable income (loss) we generate in each jurisdiction. For both 20242025 and 2023,2024, the Company’s income tax expense reflects tax expense (or benefit) on its foreign earnings (or losses) with no tax benefit on its domestic losses due to the valuation allowance recorded on domestic net operating losses and other deferred tax assets.

Our effective tax rate is directly affected by the relative proportions of our taxable income/loss in the jurisdictions in which we operate and the applicable tax rates in such jurisdictions. Based on the expected mix of domestic and foreign earnings, we anticipate our effective tax rate to remain higher than the U.S. statutory rate of 21% primarily due to a portion of our earnings originating in higher rate jurisdictions of China (25%) and the United Kingdom (25%), offset in part by earnings in the lower-rate jurisdictionsjurisdiction of Hong Kong (16.5%) and Singapore (17%), while our domestic losses are expected to provide no tax benefit due to the valuation allowance recorded on domestic net operating losses and other deferred tax assets. State income taxes also have an impact in the U.S.

Cash requirements for working capital, capital expenditures, and acquisition activities have historically been funded from our cash balances, cash generated from operations and sales of marketable securities,operations, and issuances of equity securities. As of December 31, 2024,2025, we had cash and cash equivalents of $3.0$2.7 million, working capital of $5.5$4.6 million and no indebtedness. Cash and cash equivalents consist of cash and money market funds. We did not have any short-term or long-term investments as of December 31, 2024.2025. Of our $3.0$2.7 million of cash, $1.8$2.1 million was held by foreign subsidiaries. If these funds are needed for U.S. operations or for acquisitions, we have several methods to repatriate the funds without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income. Other distributions may require us to incur U.S. or foreign taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate cash.

In October 2025, we converted our Series A Convertible Preferred Stock into Common Stock, which eliminated the 8.0% per annum cumulative cash dividend payable on the Preferred Stock, for a cash savings of $400,000 per year. We believe that our existing cash and cash equivalents balance will be sufficient to maintain our current operations considering our current financial condition, obligations, and other expected cash flows. If our circumstances change, however, we may require additional cash. If we require additional cash, we may attempt to raise additional capital through equity, equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we could be subject to fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to raise additional needed funds, we may also take measures to reduce expenses to offset any shortfall.

For the year ended December 31, 2025, the $112,000 in net cash used in operating activities was attributable to net loss of $1,615,000, adjusted for non-cash charges of $519,000 and cash provided by changes in operating assets and liabilities of $984,000. For the year ended December 31, 2024, the $367,000 in net cash used in operating activities was attributable to net loss of $1,984,000, adjusted for non-cash charges of $809,000 and cash provided by changes in operating assets and liabilities of $808,000. For the year ended December 31, 2023, the $116,000 in net cash used in operating activities was attributable to net loss of $383,000, adjusted for non-cash charges of $806,000 and cash used in changes in operating assets and liabilities of $539,000.

Accounts receivable decreased from $2,167,000 at December 31, 2023 to $1,612,000 at December 31, 2024 to $1,542,000 at December 31, 2025 due to the timing of shipments and cash collections during the fourth quarter of 20242025 compared to the fourth quarter of 2023.2024. Many of our customers pay promptly and accounts receivable is generally related to the most recent shipments. Inventories decreased from $2,476,000 at December 31, 2023 to $2,009,000 at December 31, 2024 to $1,801,000 at December 31, 2025 due primarily to variability in the timing of materials purchases and customer demand on product shipments. Prepaid expenses and other current assets decreased slightly from $381,000 at December 31, 2023 to $328,000 at December 31, 2024.2024 to $236,000 at December 31, 2025. The balance of these current assets fluctuates with the timing of payments of insurance premiums, advances, and estimated income taxes. Accounts payable, accrued liabilities, and accrued income taxes decreasedincreased from $1,249,000 at December 31, 2023 to $1,038,000 at December 31, 2024.2024 to $1,339,000 at December 31, 2025. The balance of these current liabilities fluctuates based on the timing of payment for purchases of materials, compensation accruals, outside services, and income taxes.

For a discussion of transactions with related parties, see Note 10, Related Party Transactions, of the notes to the consolidated financial statements, and Item 13, Certain Relationships and Related Transactions, and Director Independence, appearing elsewhere in this Annual Report on Form 10-K.

For a discussion of recently adopted accounting pronouncements, see Recently Issued Accounting Pronouncements in Note 1, The Company and its Significant Accounting Policies, of the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth in the risk factors relating to our business and common stock contained in Item 1A of our Annual Report on Form 10-K filed with the SEC on March 26, 2026. There have been no material changes to such risk factors during the three months ended MarchJune 31,30, 2026.

Comparison of Three Months Ended MarchJune 31,30, 2026 and 2025

Revenues were up in the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 for customers in the medical and automotive marketsmarket and for customers of our standard products,products and were down for customers in the industrial market.and automotive markets. The increase in revenue from customers in the medical market was due to increased shipments of our force-sensing products and of our Calman subsidiary’s printed electronics due to higher customer demand, while the increase in revenue from customers in the automotive market was due to new innovation and automation products for that market.demand. The decrease in revenue from customers in the industrial market was due to reduced shipments and lower demand for our gas-sensing products. In all markets, the timing of orders from our customers is not always predictable and can be less in some periods and higher in others depending on the level of their demand which is driven by their projects and operating plans.

Our gross profit and gross margin percentage are impacted by various factors including product mix, customer mix, sales volume, and fluctuations in our cost of revenues, which are comprised of material costs, direct and indirect production labor costs, warehousing and logistics costs, facilities costs, and other costs related to production activities. Gross profit and gross margin percentage werewas up during the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 due primarily to higher revenuesrevenues, andwhile favorablegross margin percentage was down slightly due to changes in our product and customer mix.

Engineering and R&D expenses consist primarily of compensation expenses for employees engaged in research, design and development activities, plus the cost of those employees’ indirect supplies and allocation of facilities expenses. Our R&D team focuses both on internal design development in order to develop our products and solutions, and on custom design development aimed at addressing our customers’ unique design challenges. Engineering and R&D costs for the three months ended MarchJune 31,30, 2026 were down compared to the three months ended MarchJune 31,30, 2025 due to lower engineering employee and consultant compensation costs.

Selling, general and administrative expenses consist primarily of compensation expenses for sales and administrative employees, legal and other professional fees, facilities expenses, communication expenses, and intangible asset amortization expense. Selling, general and administrative costs for the three months ended MarchJune 31,30, 2026 were up compared to the three months ended MarchJune 31,30, 2025 due to slightly higher costs for compensation, professional fees and consultants.

Other income (/expense) consists of non-operating income and expenses, such as gains and losses on marketable securities, foreign currency transaction gains and losses, interest income and expense, and other non-operating income and expenses. Other income (/expense) for the three months ended MarchJune 31,30, 2026 was comprised of $2,000$3,000 of interest income,income $52,000offset by $18,000 of foreign currency transaction gains, and $6,000 of other income,losses, while other income (/expense) for the three months ended MarchJune 31,30, 2025 was comprised of $6,000$7,000 of interest income offsetand by $(1,000)$18,000 of foreign currency transaction losses.gains.

Income taxes were 13.3%7.4% of pre-tax income/loss for the three months ended MarchJune 31,30, 2026, versus 4.6%9.9% of pre-tax income/loss for the three months ended MarchJune 31,30, 2025. Our income taxes are impacted by the mix of domestic and foreign pre-tax earnings and losses, permanent differences between book income/loss and taxable income/loss, and our ability to utilize net operating loss carryforwards (“NOLs”). Accordingly, our effective tax rate typically will vary from the U.S. statutory tax rate of 21% from quarter to quarter. The effective tax rates for the three-month periods ended MarchJune 31,30, 2026 and 2025 were impacted by the amount of our foreign pre-tax income/loss and the tax expense/benefit thereon while not realizing a benefit on our domestic pre-tax loss due to the valuation allowances thereon.

Cash requirements for working capital, capital expenditures, and acquisition activities have historically been funded from our cash balances, cash generated from operations, and issuances of equity securities. As of MarchJune 31,30, 2026, we had cash and cash equivalents of $2.1$1.8 million, working capital of $4.4$4.7 million and no indebtedness. Cash and cash equivalents consist of cash and money market funds. Of our $2.1$1.8 million of cash, $1.4$1.3 million was held by foreign subsidiaries. If these funds are needed for our operations in the U.S. or for acquisitions, we have several methods to repatriate without significant tax effects, including repayment of intercompany loans or distributions of previously taxed income. Certain methods of distribution may require us to incur U.S. or foreign taxes to repatriate these funds.

For the threesix months ended MarchJune 31,30, 2026, the $543,000$829,000 of cash used in operating activities was attributable to net loss of $338,000,$90,000, adjusted for non-cash charges of $145,000$320,000 and cash used in changes in operating assets and liabilities of $350,000.$1,059,000. For the threesix months ended MarchJune 31,30, 2025, the $271,000$409,000 of cash used in operating activities was attributable to net loss of $805,000,$705,000, adjusted for non-cash charges of $142,000$303,000 and cash providedused byin changes in operating assets and liabilities of $392,000.$7,000.

Accounts receivable increased from $1.5 million at December 31, 2025 to $1.7$2.1 million at MarchJune 31,30, 2026 due to higher sales in the three months ended MarchJune 31,30, 2026 compared to the three months ended December 31, 2025; days-sales outstanding at MarchJune 31,30, 2026 (4647) was unchanged from December 31, 2025 (4647). Many of our customers pay promptly and the accounts receivable balance is generally related to the most recent shipments. Inventories were upunchanged fromat $1.8 million at both December 31, 2025 toand $2.0June million at March 31,30, 2026; inventory balances fluctuate depending on the timing of materials purchases and product shipments. Prepaid expenses and other current assets were up slightly from $0.2 million at December 31, 2025 to $0.3 million at MarchJune 31,30, 2026; this balance fluctuates with the timing of making prepayments versus when the benefits of those prepayments are consumed. Accounts payable, accrued liabilities, and accrued income taxes increaseddecreased from $1.3 million at December 31, 2025 to $1.4$0.9 million at MarchJune 31,30, 2026; the balances of these working capital liabilities fluctuate due to the timing of purchases and payments on inventories and other accruals of employee compensation and outside services.

No cash was provided by or used in investing activities for the three months ended March 31, 2026. Net cash used in investing activities of $29,000$1,000 and $34,000 for the threesix months ended MarchJune 31,30, 20252026 and 2025, respectively, consisted of purchases of property, plant, and equipment.

No cash was provided by or used in financing activities for the threesix months ended MarchJune 31,30, 2026. Net cash used in financing activities of $103,000$200,000 for the threesix months ended MarchJune 31,30, 2025 consisted of payment of dividends on our preferred stock. In October 2025, we converted all of our Series A Convertible Preferred Stock into common stock, which eliminated the payment of $400,000 per annum in dividends previously payable to holders of our preferred stock.