Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

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

RESULTS OF OPERATIONS

Operating results for 2025 were negatively impacted by our U.S. Automotive Fastener segment volumes due to OEM and customer inventory reductions which accelerated in the second half of 2025. U.S. demand for pickup trucks and large SUVs to which we provide products, softened in 2025 leading to elevated dealer-owned inventory levels and a subsequent reduction in production volumes while these inventory levels were reduced. As a fastener manufacturer we have significant fixed costs due to our investment in property, plant and equipment as well as a skilled labor force that cannot be scaled in proportion to short term volume fluctuations. As a result, steep declines in customer volumes have a disproportionately large effect on our profitability. This decline in volume was offset in large part by price increases and efficiency gains, including consolidation of the work done in the Albia, Iowa facility into the Tyrone, Pennsylvania facility. While the year over year volume declines were a headwind to profitability, we believe we have made meaningful improvements with respect to our pricing and operating efficiency that will provide additional benefits at scale when volumes return to more historic levels.

Fourth quarter 2025 sales were $5,986,263 compared to $4,104,048 in the fourth quarter of 2024, an increase of $1,882,215, or 46%. Although sales increased year over year, our input costs remained elevated and contributed to reporting a net loss in the fourth quarter 2025 of $1,156,829, or ($1.20) per share, compared to a net loss of $3,613,130, or ($3.74) per share, in the fourth quarter of 2024. For the full year, net sales were $27,890,260 compared to $26,986,627 in 2024, an increase of $903,633, or 3%. Despite a modest improvement in net sales for 2025, the net loss for the full year was significantly less than the prior year, as the net loss for 2025 was $1,083,214, or ($1.12) per share, compared to net loss of $5,615,614 or ($5.81) per share in 2024. In addition, during 2025, our gross margin improved by $3,065,703, our cost of goods sold was reduced by $2,162,070 and our administrative expenses decreased by $562,114. As discussed below, the Company intends to continue to focus on improving pricing and efficiency, and driving increased sales in our Fastener and Assembly Equipment segments in 2026.

2025 Compared to 2024

Fastener segment revenues were $5,095,563 in the fourth quarter of 2025 compared to $3,603,518 in the fourth quarter of 2024, an increase of $1,492,045, or 41%. During the quarter, sales to automotive customers increased to $3,264,290 from $2,325,601 in the year ago quarter, an increase of $938,689, or 40%. A significant portion of the increase in automotive sales was a result of recording an incremental charge of $857,000 in the fourth quarter of 2024 related to the previously disclosed settlement with a customer regarding certain warranty claims. See Note 9. Commitments and Contingencies to the Consolidated Financial Statements included herein. Non-automotive revenues increased to $1,831,273 from $1,277,917 in the year ago quarter, an increase of $553,356, or 43%.

Fastener segment revenues for the full year 2025 were $24,085,699 compared to $23,164,238 in 2024, an increase of $921,461, or 4%. For the full year 2025, sales to automotive customers were $15,140,529 slightly decreased compared to $15,375,697 in 2024. Additionally, after adjusting the prior year amount for the $1,100,000 warranty charge recorded in 2024, the decrease in automotive sales is $1,335,168, or 9%. The decrease is due to a slowdown in North American vehicle production and continued volatility across the Midwest automotive manufacturing sector. Industry wide production fell sharply in January 2025, leading to reduced order volumes from key OEMs. In addition, elevated interest rates and ongoing economic uncertainty contributed to softer consumer demand, prompting inventory adjustments and cautious procurement behavior among our automotive customers. The decrease is also consistent with the Company's ongoing strategy to reduce its reliance on the automotive industry and diversify its customer base. This shift is also reflected by the Fastener segment sales to non-automotive customers, including those in the construction and electronics industries which were $8,945,170 in 2025 compared to $7,788,541 in 2024, an increase of $1,156,629, or 15%. In response to softening demand in the automotive sector, the sales team proactively expanded outreach to customers in industrial, construction, and consumer goods markets, which are segments that have historically demonstrated more stable demand profiles amid broader economic headwinds. The gross margin for the Fastener segment was $2,673,791 in 2025 compared to $299,740 in 2024, an increase of $2,374,051 year over year, primarily driven by operational efficiencies and improved pricing on lower year-over-year volumes and higher input costs.

Assembly Equipment segment revenues were $890,700 in the fourth quarter of 2025, compared to $500,530 in the fourth quarter of 2024, an increase of $390,170, or 78% driven primarily by higher volumes from non-automotive customers. This increase reflects the sales team's strategic focus on expanding assembly equipment sales due to the segment's higher gross margins.

For the full year 2025, Assembly Equipment segment revenues were $3,804,561, compared to $3,822,389 reported in 2024, a decrease of $17,828. These declines reflect timing related factors in customer purchasing cycles as well as project delays stemming from cautious capital investment trends across multiple industries. For the full year 2025, sales to automotive customers were $180,184 compared to $201,608 in 2024, a decrease of $21,424, or 11%. Sales to non-automotive customers in 2025 were $3,624,377 compared to $3,620,781 in 2024. Gross margin for the Assembly Equipment segment was $1,452,092 in 2025 compared to $760,440 in 2024, an increase of $691,652, or 91% year over year. This margin expansion reflects the Company's ongoing efforts to enhance operational efficiency and reduce its cost structure, with the consolidation of the Albia operations into the Tyrone manufacturing facility yielding meaningful cost savings through streamlined workflows, increased capacity utilization, and reduced overhead.

Selling and administrative expenses were $5,662,120 in 2025 compared to 6,224,234 in 2024, a decrease of $562,114, or 9%. We incurred decreases in warranty claims of $308,945 and outside consulting and accounting fees of $242,361, as the previous year's initiatives related to hiring costs to fill certain positions, enhancing financial reporting, modernizing systems, automating processes and implementing enhanced cybersecurity defenses have been successfully implemented. The remaining net change relates to various smaller items. As a percentage of net sales, selling and administrative expenses were 20% in 2025 compared to 23% in 2024.

Other income was $18,407 in 2025 compared to $120,666 in 2024. Other income is comprised of interest income on our cash equivalents and short-term investments.

The Company's effective income tax rates were 8.1% and (11.4)% in 2025 and 2024, respectively.

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

PROPERTY, PLANT AND EQUIPMENT

Total capital expenditures in 2025 of $331,669 were entirely related to Fastener segment activities, including $285,537 for equipment to perform secondary operations and inspection of parts, $32,371 for general plant equipment, and $13,761 for facilities improvement including IT equipment.

Total capital expenditures in 2024 were $651,398. Of this total, $369,003 related to Fastener segment activities, including $36,140 for cold heading and screw machine equipment, $327,063 for equipment to perform secondary operations and inspection of parts and $5,800 for general plant equipment. Assembly Equipment segment additions in 2025 were $282,395 for general plant equipment. No additional investments were made in 2025 for facilities improvements or IT equipment.

Depreciation expense was $1,217,647 in 2025 and $1,173,476 in 2024.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at December 31, 2025 was $9,894,317, a decrease of $476,898 from the beginning of the year. An increase in net accounts receivable and other current assets during the year of $482,055 and $109,571, respectively, due to higher sales volumes had a positive impact on working capital, offset by a decrease in inventory of $325,190 and an increase in borrowings of $500,000 under the revolving line of credit classified as Current Liabilities in the Consolidated Balance Sheets. The Company's investing activities in 2025 included the proceeds from the sale of property and equipment of $723,905 and the net maturities from short-term investments of $247,276 less capital expenditures of $331,669. The Company's financing activities during 2025 were the $500,000 draw down on the line of credit and the payment of $115,936 in dividends on our common stock. These changes and other cash flow activity resulted in a balance of cash, cash equivalents and marketable securities of $1,718,237 at the end of 2025 compared to $1,922,679 as of the beginning of the year.

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

The March 2025 Credit Agreement maturity date is August 31, 2026. The Company reclassified the entire outstanding balance of $500,000 under the revolving line of credit to Current Liabilities in the Consolidated Balance Sheets to reflect the maturity date.

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

See Note 10. Debt to the Consolidated Financial Statements included herein for additional information.

On November 30, 2024, the Company entered into a lease agreement with Juneau-Bell, LLC for new office space. The lease commencement date was March 1, 2025. A security deposit of $43,970 and the first month's base rent of $8,365 were paid at signing.

See Note 7. Leases to the Consolidated Financial Statements included herein for additional information.

The Company incurred significant recurring operating losses primarily driven by a continuous decline in revenues, recurring negative cash flows from operations, and continued reduction in liquidity. The Company reported operating losses of $1,196,717 and $5,164,054 for the years ended December 31, 2025 and December 31, 2024, respectively. These events have raised substantial doubt about the Company's ability to continue as a going concern. In response, the Company has taken various strategic actions to improve performance, including (a) taking action to sell in the first half of 2026 certain H&L assets and in connection with such anticipated sale, the Company classified these assets in the amount of $179,254 as Assets held for sale in the Consolidated Balance Sheets, (b) renewal of the March 2025 Credit Agreement revolving line of credit with a borrowing capacity of $2,500,000 to continue to finance operations, (c) evaluation of other financing sources in addition to the March 2025 Credit Agreement, including exploring the potential for a real estate sale leaseback or similar transaction, or seeking to potentially raise additional capital.

The Company will continue to look to add to its sales efforts to further improve revenue, consider additional options to improve operating efficiency and enhance liquidity. The Company believes that if it successfully implements the foregoing strategic actions, it will mitigate the factors giving rise to substantial doubt, however, there is no guarantee that it will successfully implement these strategic actions. As a result, substantial doubt remains regarding the Company's ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern, and they do not include any adjustments that might result from the outcome of this uncertainty.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

NEW ACCOUNTING STANDARDS

The Company's financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed, accounting standards. A summary of recent accounting pronouncements can be found in Note 1. Nature of Business and Significant Accounting Policies to the Consolidated Financial Statements included herein.

OUTLOOK FOR 2026

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