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

One customer accounted for at 27.7%32.2% of net sales for the year ended December 31, 2024,2025, and two customers, individually, accounted for 25.7% and 10.3%, respectively,27.7% of net sales for the year ended December 31, 2023.2024. The loss of a substantial portion of net sales to our largest customers could have a material adverse effect on us.

We purchase raw materials, commodities and components for use in our production process. Increased costs of these materialsmaterials, including tariffs, could have an adverse effect on our production costs if we are unable to pass along price increases or reduce the other cost of goods produced produced through cost improvement initiatives. Fuel and energy cost increases could also adversely affect our freight and operating costs. Due to customer specifications and requirements, we are dependent on suppliers to provide critical electronic and other components and and materials for our operations that could result in shortages of some of the components needed for production. Component shortages may may result in an inability to deliver products on time or at all, expedited freight, overtime premiums and increased component costs. In addition to the financial impact on operations from lost net sales and increased cost, there could potentially be harm to our customer relationships. To reduce the effects of supply chain disruption for our customers, we purchase and hold raw material and finished goods inventory, which results in a reduction of cash available. If we are unable to sell such inventory or sell such inventory within a reasonable timeframe, it may adversely affect our operationsoperations, financial results and financial results.liquidity.

Our customers cancel orders, change order quantity, timing and product specifications that if not managed would have an adverse effect on the timing of net sales and inventory carrying costs.

We face, through the normal course of business, customer cancellations and rescheduled orders and are not always successful in recovering recovering the costs of such cancellations or rescheduling. With every new product or substantial redesign of a product, we utilize our new product introduction process. Such process is intended to improve the manufacturability, compliance with customer specifications and quality standards relating to the product but may result in delays in commencement of production impacting the timing of net sales. In addition, excess and obsolete inventory losses as a result of customer order changes, cancellations, productchanges to the components required to produce changesproducts, and contract termination could have an adverse effect on our operations.operations, financial results and liquidity. We record inventory at the lower of cost or net realizable value in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for exposures related to the estimated impact from these possibilities. To reduce the impact of canceled or charged orders, our terms and conditions require customers to purchase excess inventory.

We depend heavily on our people and may from time to time have difficulty attracting and retaining skilled employees and the cost of labor may continue to increase. The loss of key management or an ineffective transition of leadership could adversely affect our operations and strategic direction.

Competitive factors in our targeted markets are believed to be manufacturing capabilities, product and service pricing, quality, the ability to meet delivery schedules, customer service, value-added engineering, technology solutions and geographic location. We also expect that our competitors will continue to improve the performance of their current products or services, to reduce their current products or service sales prices and improve services that may be offered. Any of these could cause a decline in net sales, loss of market share, or lower profit margin.

We generally are required to represent and warrant to our customers that the goods and services we deliver are free from defects in material and workmanship generally for one year. Certain customers require longer warranty periods. If a product liability claim results in our being liable, it could have a material adverse effect on our businessbusiness, financial position and financial position.liquidity. We have insurance coverage for product liability claims, but there can be no assurances that the amount of coverage will be adequate or that insurance proceeds will be available for a particular claim. Our insurance may not cover claims for non-conformance or defective products that are not product liability claims from customers.

We operate manufacturing facilities in Mexico and China. Our operations in those countries are subject to risks that could adversely impact impact our financial results and costs, such as economic or political volatility, foreign legal and regulatory requirements, international trade trade relations factors (such as tariffs, trade sanctions, duties, export controls and other trade restrictions), protection of our and our customers’ intellectual property and proprietary technology in certain countries, potentially burdensome taxes, crime, employee employee turnover, staffing, managing personnel in diverse culture, labor instability, transportation delays, and foreign currency fluctuations. Legal and regulatory requirements in Mexico and China are continually changing which may and has affected our ability to predict timing and/or whether we will receive applicable tax refunds such as VAT tax refunds. The changing regulatory environment may impact negatively the timing and recognition of such net sales and/or whether we ultimately collect cash from these net sales.

In recent years, we have undertaken initiatives to restructure our business operations with the intention of improving utilization and realizing cost savings. These initiatives have included reducing the size of our workforce, changingreducing the number of facilities, and changing the location of ourcertain customer part production to different facilities in an effort to align our capacity and infrastructure with current and anticipated customer demand. The process of restructuring entails, among other activities, moving production between facilities, transferring programs from higher cost geographies to lower cost geographies, closing facilities, reducing size of our workforce, realigning our business processes and reorganizing our management.

Restructurings could adversely affect us, including a slower than expected more costly transition of customers between facilities, a decrease in employee morale, delays encountered in finalizing the scope of, and implementing, the restructurings, failure to achieve targeted cost savings, and failure to meet operational targets and customer requirements due to the restructuring process. These risks are further complicated by our extensive international operations, which subject us to different legal and regulatory requirements that govern the extent and speed of our ability to reduce our manufacturing capacity and workforce.

We are dependent on our information technology systems for order, inventory procurement and management, production management, treasury, financial reporting, communications and other functions. If our information systems fail or experience major interruptions due to physical damage or loss of power onor incur disruptions to our information systems, including security breaches, losses of data businessor outages, cyberattacks and ourother financialsecurity resultsissues, it could be adversely affected.affect our operations and/or financial results.

We rely on our information technology systems to effectively manage our operationaloperations, administration and financial functions. Our computer systems, web sites, telecommunications, and data networks are vulnerable to damage or interruption from power loss, natural disasters and other sources of physical damage or disruption to the equipment which maintains, stores and hosts our information technology systems. We have taken steps to protect and create redundancies for the equipment that facilitates the use of our management information systems, but these steps may not be adequate to ensure that our operations are not disrupted by events within and outside of our control.

We also rely on information systems, some of which are managed by third parties, to store, process and transmit confidential information, including including financial reporting, inventory management, procurement, invoicing and electronic communications, belonging to our customers, our suppliers, our employees and/or us. We monitor and mitigate our exposure to cybersecurity issues and modify our systems when warranted and we have implemented certain business continuity items, includingincluding, to the extent feasible, leveraging our multiple sites for redundancies, as well as backup and restore methods inclusive of off-site, secure hosted and cloud based third-party providers. Nevertheless, these systems are vulnerable to, and at times have suffered from, among other things, damage from power loss or natural disasters, computer system and network failures, loss of telecommunication services, physical and electronic loss of data, terrorist attacks, computer viruses, cyberattacks and security breaches, ranging from uncoordinated individual attempts to gain unauthorized access to our information technology systems to sophisticated and targeted measures. These include data theft, malware, phishing, ransomware attacks, or other cybersecurity threats or incidents. The increased use of mobile technologies and the internet of things can heighten these and other operational risks. If we, or the third parties who own and operate certain of our information systems, are unable to prevent such breaches, losses of data and outages, our operations could be disrupted. Also, the time and funds spent on monitoring and mitigating our exposure and responding to breaches, including the training of employees, the purchase of protective technologies and the hiring of additional employees and consultants to assist in these efforts could adversely affect our financial results. The increasing sophistication of cyberattacks requires us to continually evaluate the threat landscape and new technologies and processes intended to detect and prevent these attacks. There can be no assurance that the security measures and systems configurations we choose to implement will be sufficient to protect the data we manage. Any theft or misuse of information resulting from a security breach could result in, among other things, loss of significant and/or sensitive information, litigation by affected parties, financial obligations resulting from such theft or misuse, higher insurance premiums, governmental investigations, negative reactions from current and potential future customers (including potential negative financial ramifications under certain customer contract provisions) and negative publicity and any of these could adversely affect our financial results.

We have made investments in research and development (“R&D”) of new technologies that we believe if successful will strengthen our relationships with customers. Our intent is that the Company own intellectual property arising from R&D activities. To the extent that those investment efforts are unsuccessful, our competitive position may be harmed, and we may not realize a return on our investments.

To compete more successfully, we believe it is advantageous to maintain an effective R&D program to develop new products and manufacturing processes that will benefit our customers. Our R&D efforts are currently funded through investment of capital cash flow generated from operations, and we incurred R&D expenses of approximately1,172 $1.2and million$1,191 in each of the years ended December 31, 2024 2025 and 2023.2024, respectively. We are focusing our R&D efforts across several key areas, including development of fiber optic technologies for a wide range of applications like active optical cables, expanded beam technology and physical contact cables.

Changes in foreign currency exchange rates will impact our reported net sales and earnings. Substantially all our net sales are transacted in U. S.U.S. Dollars. A majority of our manufacturing and cost structure is based in the United States and transacted in U.S. Dollars. We have exposures to local currencies for certain net sales in China denominated in Chinese Yuan, value added tax receivables denominated in the Mexican Peso, as well as certain costs incurred at our facilities in China and Mexico that are denominated in their respective local currencies. Significant fluctuations in foreign exchange rates between the U.S. dollar and foreign currencies may adversely affect our results of operations.

Our Mexico facility operates as a maquiladora, and its financial records are kept in Mexican Pesos. As the functionfunctional currency of the maquiladora maquiladora is the U. S.U.S. Dollar, we translate the Mexican Pesos financial records into U. S.U.S. Dollars and record a currency translation gain or loss in the statement of operations. These translation gains or losses may be material to the financial results of the Company. For the years ended December 31, 20242025 and 2023,2024, we recorded translation lossesgain of $137 thousand$120 and $54a thousand,translation loss of $137, respectively, in our consolidated respectively.statements of operations. The majority of these gains and losses were related to the translation of value added tax receivables denominated in Mexican Pesos. Pesos into US dollars.

Our production services primarily provide that we purchase some, or all, of the required materials and components based on customer forecasts or orders. Although, in general, our contracts with our customers obligate our customers to ultimately purchase inventory ordered to support their forecasts or orders, we generally initially finance these purchases initially.purchases. In addition, suppliers may require us to purchase materials and components in minimum order quantities that may exceed customer requirements. A customer’s cancellation, delay or reduction of forecasts or orders can also result in excess inventory or additional expense to us. Engineering changes by a customer or a product’s end-of-life may result in obsolete materials or components. While we attempt to cancel, return or otherwise mitigate excess and obsolete inventory, as well as require customers to reimburse us for these items and/or price our services to address related risks, we may not actually be reimbursed timely or in full, be able to collect on these obligations or adequately reflect such risks in our pricing. In addition to increasing inventory in certain instances to support new program ramps, we may also increase inventory if we experience component shortages or longer lead-times for certain components in order to maintain a high level of customer service. In such situations, we may procure components earlier, which leads to ana short-term increase in inventory in the short term and may lead to increased excess excess or obsolete inventory in the future. Excess or obsolete inventory, the need to acquire increasing amounts of inventory due to shortages, shortages, customer demand or otherwise, or other failures to manage our working capital, could adversely affect our operating results, including including our return on invested capital.

In addition, we provide managed inventory programs for some of our customers under which we hold and manage finished goods or work-in-process inventories. These managed inventory programs may result in higher inventory levels, further reduce our inventory turns and increase our financial exposure with such customers. In addition, our inventory mayis beinfrequently held at a customer’s facility or warehouse, or elsewhere in a location outside of our control, which may increase the risk of loss. Even though our customers generally have contractual obligations obligations to purchase such inventories from us, we remain subject to customers’ credit risks as well as the risk of potential customer default and the need to enforce those obligations.

New or changing laws, regulations, governmental orders or mandates, policy and standards relating to corporate governance and public disclosure, including SEC and Nasdaq NASDAQ regulations, domestic or international tax legislation and the implementation of significant changes in U.S. GAAP, present challenges due to complexities, assumptions and judgements required to implement. We apply judgments based on our understanding, interpretation and analysis of the relevant facts, circumstances, historical experience and valuations, as appropriate. As a result, actual amounts could differ from those estimated at the time the financial statements are issued. In addition, implementation may change change the financial accounting or reporting standards that govern the preparation of our financial statements or authoritative entities could reverse their previous interpretations or positions on how various financial accounting or reporting standards should be applied. These changes may be difficult to predict and implement and could materially or otherwise impact how we prepare and report our estimates, uncertainties, financial statements, operating results and financial condition. Our efforts to comply with evolving laws, regulations, accounting policies and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and management time and attention from net sales-generating activities to compliance activities and may have an adverse effect on our financial statements, including cash flows.

In 2019, the U.S. Department of Defense announced the development of Cybersecurity Maturity Model Certification (“CMMC”) as a framework to assess and enhance the cybersecurity posture of the Defense Industrial Base (“DIB”), particularly as it relates to controlled unclassified information within the supply chain. CMMC is designed to ensure that contractors providing services to the U.S. Department of Defense have implemented cybersecurity controls and processes to adequately protect information that resides on DIB systems and networks. WeWhile arewe working to comply with CMMC requirements with the intention of seekingachieved CMMC level 2 compliancecertification in 2025. If2025, if we arecannot unsuccessfulmaintain in our efforts to timely complycompliance with CMMCthese requirements, regulations, our ability to maintain contractsagreements with customers that are defense contractors and the resulting net sales may be impacted negatively.

We are a Minnesota, United States based full-service global EMS contract manufacturer in the Medical Device, Medical Imaging, Aerospace and Defense and Industrial markets offering a full range of value-added engineering, technical and manufacturing services and support including project management, design, testing, prototyping, manufacturing, supply chain management and post-market services. Our products are complex electromedical and electromechanical products including medical devices, wire and cable assemblies, printed circuit board assemblies, complex higher-level assemblies and other box builds for a wide range of industries. As of December 31, 2024,2025, we have facilities in Minnesota: Bemidji, Mankato, Milaca and Maple Grove. We closed our facility in Blue Earth, Minnesota in December 2024 and are currently seeking to sellsold this facility facility.in July 2025. We also have facilities in Monterrey, Mexico and Suzhou, China.

Backlog. Our 90-day shipment backlog as of December 31, 20242025 was $26,451,$27,288, downup 24.8%3.2% from December 31, 2023.2024. Our 90-day backlog consists of firm firm purchase orders we expect to ship in the next 90 days, with any remaining amounts to be shipped within 180 days.

General and administrative expenses. General and administrative expenses decreased $645,$919 or 5.2%7.8% in the year ended December 31, 20242025 as compared with the 20232024 as the result of lower incentive compensation expenseaccruals in 2024.the current year.

Restructuring charges. Restructuring charges were $266 and $571 in the yearyears ended December 31, 20242025 and 2024, respectively. During 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted net sales and $31 of expenses related to our closed Blue Earth facility. During 2024, we incurred employee retention bonuses,bonuses disposalfor our facility consolidation and moving costs associated with the closure of our Blue Earth facility.

Interest expense. Interest expense was $744$964 and $487$744 for the years ended December 31, 20242025 and 2023,2024, respectively. This increase was driven by higher borrowings under our line of credit arrangement.arrangement and an increased interest rate. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.

Income taxes. Our effective tax rates for the years ended December 31, 20242025 and 20232024 were (37.92,391)% and 25.8%,(37.9)%, respectively. The unusually large negative rate in 2025 is primarily driven by the very small amount of pretax book income for the year, which causes normal permanent differences and valuation allowance adjustments to produce a disproportionately large impact on the calculated effective tax rate. The primary drivers of the change in the effective tax rates relate to changes in pretax book income between the years and the 2023 recording of a $2.6 million tax benefit from the reduction of our valuation allowance for deferred tax assets.years.

Net (Loss)Loss. Income.Our net loss in 2025 was $252 or $0.09 per diluted and basic common share. Our net loss in 2024 was $1,295 or $0.47 per diluted and basic common share. Our net income in 2023 was $6,874 or $2.38 per diluted and $2.53 per basic common share.

Cash usedprovided inby operating activities for the year ended December 31, 20242025 was $2,250$2,743, compared with cash provided by operations of $1,769 for the year ended December 31, 2023. In 2024, the cash used in operating activities of $2,250 for the year ended December 31, 2024. In 2025, operating cash flow was driven by significant non-cash add-backs as well as favorable working-capital movements, as increases in accounts receivable and contract assets were more than offset by a decrease in prepaid expenses and an increase in accounts payable due to timing of payments. In 2024, cash used in operating activities reflected the timing of accounts payable payments and the payment of accrued bonus expenses. In 2023, the cash provided by operating activities was driven by net income.

Net cash used in investing activities was $157 and $1,263 for the yearyears ended December 31, 20242025 and net2024, cash used in investing activities was $1,284 for the year ended December 31, 2023.respectively. Cash used in investing activities in both years primarily relates to the purchase of property and equipment, partially offset in the year ended December 31, 2025 by proceeds from the sale of the Blue Earth property and equipment.

Net cash used in financing activities in 2025 of $1,867 consisted primarily of net payments on the line of credit. The cash provided by financing activities in 2024 of $2,765 consisted primarily of net proceeds from the line of credit of $2,849 and proceeds from notes payable of $345. The cash used by financing activities in 2023 of $1,281 consisted primarily of net payments on the line of credit of $1,050 and capital lease payments of $390.

Our net sales are comprised of product, engineering services and repair services. All net sales are recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our net sales being recognized over time including goods produced under contract manufacturing agreements and services net sales.sales, when we have an enforceable right to payment for performance completed to date.. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. Most of our contracts have a single performance obligation and require that we provide services and products that are unique to each customer’s designed products and have no alternative usage. As of December 31, 2024,2025, the Company has recorded a contract asset of $13,792$15,184 for unbilled customer net sales included in net sales. Net sales are recorded net of returns, allowances and customer discounts. Our net sales for services were less than 10% of our total sales for all periods presented, and accordingly, are included in net sales in the consolidated statements of operations and comprehensive (loss) income. Sales, value added, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from net sales) basis. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold.

Inventory areis recorded at the lower of cost or net realizable value for inventory that may have a lower net realizable value than cost or quantities in excess of future production needs. Certain raw material inventories are purchased solely to meet a customer’s unique manufacturing requirements. We seek to require our customers to prepay for end of life or certain inventory in excess of current customer order quantities. We have an evaluation process to assess the value of the inventory that is slow moving, excess or obsolete on a quarterly basis. This process includes an evaluation of our inventory based on current usage and the latest forecasts of product demand and production requirements from our customers. We periodically review the underlying inventory reserve assumptions based on recent trends. As of December 31, 2024, 2025, we had an inventory reserve of $1,446.$1,853.

Significant judgment is required in evaluating our tax positions and in determining income tax expense, deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. We evaluate the recoverability of deferred tax assets based on available evidence. This process involves significant management judgment about assumptions that are subject to change from period to period based on changes in tax laws or variances between future projected operating performance and actual results. We establish a valuation allowance for deferred tax assets if we determine, based on available evidence at the time the determination is made, that it is more likely than not (defined as a likelihood of more than 50%) that all or a portion of the deferred tax assets will not be realized. In making this determination, we evaluate all positive and negative evidence as of the end of each reporting period. Future adjustments (either increases or decreases) to the deferred tax asset valuation allowance are determined based upon changes in the expected realization of the net deferred tax assets. InDuring 2023,2025 we recorded a $2,600 tax benefit as we reversed a previously established valuation allowance against our net U.S. deferred tax assets. Duringand 2024, we concluded that it was more likely than not we would realize our recorded net deferred tax assets. The realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income or tax liability in either the carryback or carry-forward periods under the tax law. Due to significant estimates used to establish the valuation allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record additional adjustments to the valuation allowance in future reporting periods that could have a material effect on our results of operations.

Our net sales are derived from complex designed products built to the customers’ specifications. The products we manufacture are engineered and designed products that require sophisticated manufacturing support. Quality, on-time delivery, and reliability are of upmostutmost importance. Our goal is to expand and diversify our customer base by focusing on sales and marketing efforts that fit our value-added service, early engagement design, and development strategy. We continue to focus on lean manufacturing initiatives, quality and on-time delivery improvements to increase asset utilization, reduce lead times and provide competitive pricing.

Net Sales. Net sales for the three months ended MarchJune 31,30, 2026 and 2025 were $30,316$33,540 and $26,895,$30,675, respectively, a comparative period increase of $2,865 or 9.3%. Net sales for the six months ended June 30, 2026 and 2025 were $63,856 and $57,570, respectively, a comparative period increase of $3,421$6,286 or 12.7%. Net sales in the three months ended March 31, 2026 were positively impacted in Aerospace and Defense from the receipt of customer approvals for products transferred from our Blue Earth facility to our Bemidji facility during 2025 as well as manufacturing and plant utilization efficiencies gained related to our 2025 facility optimization.10.9%. The following is a summary of net sales by our major industry markets:

Backlog. Our 90-day shipment backlog as of MarchJune 31,30, 2026 was $31,475,$33,445, an increase of 15.3%6.3% from $27,288$31,475 at the beginning of the quarter, and and a 17.7%25.8% increase from MarchJune 31,30, 2025. Our 90-day backlog consists of firm purchase orders we expect to ship in the next 90 days, with with any remaining amounts to be shipped within 180 days.

Our total order backlog as of MarchJune 31,30, 2026, was $90,802,$93,849, representing a 17.4%3.4% increase from $77,343$90,802 at the beginning of the quarter and a a 32.9%19.8% increase compared to the same period in the prior year; this year over year growth was primarily driven by an increase in Aerospace and Defense orders.

The 90-day and total backlog as of MarchJune 31,30, 2026 includes orders already recognized in net sales and included in the contract asset value of $16,010.$16,979.

Gross profit and gross margin percentage. Gross margin percentage was 15.5%17.0% and 11.4%15.8% for the three months ended MarchJune 31,30, 2026, and 2025, respectively. The increase in grossGross margin percentage was 16.3% and 13.7% for the resultsix months ended June 30, 2026, and 2025, respectively. The improvement was primarily attributable to higher revenue levels and improved manufacturing cost absorption resulting from increased production activity. The benefit of improvedhigher plantvolumes utilizationwas primarilypartially fromoffset ourby restructuring activities and higherunfavorable sales on a fixed cost base.mix.

GeneralSelling and administrative expenses. General and administrativeSelling expenses, as measured as a percentage of net sales, were 9.9%4.4% and 10.8%3.9% for the three months ended MarchJune 31, 202630, 2026, and 2025, respectively. ThisSelling decreaseexpenses, as measured as a percentage of net sales, were 4.4% and 4.1% for the six months ended June 30, 2026, and 2025, respectively. The increase as a percentage of sales was primarily theattributable resultto of higher salesincentive oncompensation aaccruals fixedin cost base.2026.

Restructuring charges. Restructuring charges were $0 and $266 in the three and six months ended MarchJune 31,30, 2026 and 2025, respectively. During the first first quarter of 2025, we incurred $235 of severance charges for a February 2025 reduction in force to align staffing to our forecasted net net sales and $31 of expenses related to our closed Blue Earth facility.

Operating income (loss). Operating income was $47$623 for the three months ended MarchJune 31,30, 2026 or 0.2%1.9% of net sales and operating lossincome was $(1,613)$742 or (6.0)%2.4% of net sales for the three months ended MarchJune 31,30, 2025. The improvementdecrease was primarily drivenattributable byto higher selling and general and administrative expenses, which more than offset the increase in gross profit resulting from higher sales volume. Operating income was $670 or 1.0% of net sales for the six months ended June 30, 2026 and operating loss was $(871) or (1.5)% of net sales for the six months ended June 30, 2025. The increase was primarily attributable to higher gross marginprofit percentage, whichassociated with increased operating income by $1,234,revenue and higherimproved operating netleverage, sales,together whichwith contributedthe anabsence additionalof $390.restructuring charges recorded in the first quarter of 2025.

Interest expense, net. Interest expense, net was $256$197 and $214$257 for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Interest expense, net was $453 and $471 for the six months ended June 30, 2026 and 2025, respectively. This increase was driven by the write-off of unamortized debt issuance costs of $88 associated with our prior financing arrangement that was refinanceddecrease in the period.quarterly comparison was driven by the lower average borrowings and reduced interest costs following the transition to the Company’s new financing arrangements. Refer to “Liquidity and Capital Resources” for further discussion of financing arrangements.

Income taxes. Our effective tax rate for the three and six months ended MarchJune 31,30, 2026 was 26% and (30)%, respectively. Our effective tax rate for the three and six months ended June 30, 2025 was 84%35% and 28%,25%, respectively. The primary drivers of the change in the effective tax rate were differences in pretax book income (loss) by jurisdiction and taxes on foreign entities.

Operating Activities. Cash used in operating activities was $1,561$2,449 in the first threesix months of 2026, compared with $2,930$2,773 in the same prior-year period. Significant changes in operating assets and liabilities affecting cash flows during these periods included:

Investing Activities. Cash used in investing activities was $228$323 in the first threesix months of 2026, compared with $268$358 in the same prior-year period, both due from the purchases of property and equipment.

Financing Activities. Cash provided by financing activities was $2,336$2,774 in the first threesix months of 2026 and $3,446$2,858 in the same prior-year period. The cash provided by financing activities in both periods resulted from the line of credit advances for working capital and operations as well as the term loan borrowing in the first threesix months of 2026.

On March 20, 2026, the Company entered into a new Credit and Security Agreement with Associated Bank, National Association, which provides for a revolving credit facility of up to $15,000, subject to a borrowing base based on eligible accounts receivable and inventory in the United States of America (“U.S.”), and a $2,200 term loan (the “Associated Facility”). The Associated Facility includes a sublimit of $1,500 for letters of credit and is secured by substantially all of our assets in the U.S. The Associated Facility matures in March 2029. The Company is required to pay a 25-basis point fee per annum, paid monthly, on the unused portion of the revolving revolving credit facility. The term loan requires monthly principal payments of $37 plus interest. Borrowings under the Associated Facility bear interest, at the Company’s option, at a defined base rate derived from the Bank’s prime rate, or at one-month or three-month Term Secured Overnight Financing Rate, referred to as SOFR, plus 2.00% in the case of revolving credit borrowings, and plus 2.25% in the case of the term loan. At March 31, 2026, theThe revolving credit facility and term loan accrued bear interest at 8.52%a weighted-average interest rate of 7.9% and 8.00%,7.7%, respectively.respectively, for the three months ended June 30, 2026. At MarchJune 31,30, 2026, there was $7,196$7,573 outstanding under the revolving credit facility and $3,500 $3,552 of unused availability. Borrowings under the Associated Facility may be prepaid at any time without penalty. The Associated Facility does not contain prepayment premiums, make-whole provisions, or other features that would require separate accounting as embedded derivatives.

The Associated Facility contains customary affirmative and negative covenants that restrict or limit our ability to incur additional indebtedness, create liens, make investments, sell assets, pay dividends or engage in certain transactions without lender consent. This agreement also requires us to comply with financial covenants, including maintaining a Fixed Charge Coverage Ratio of 1.10 to 1.00, which measures the ratio of EBITDA, as defined to exclude certain other non-cash items, and less unfunded capital expenditures, to fixed charges such as interest as well as debt and capitalfinance lease principal payments. The Company was in compliance with all covenants under the Associated Facility as of MarchJune 31,30, 2026.