Nortech Systems (NSYS) risk factors, FY2025 10-K

Risks Related to our Business

1. 01A large percentage of our net sales have been made to a small number of customers, and the loss of a major customer, if not replaced, would adversely affect us61% rewritten
2. 02We are dependent on suppliers for components and raw materials and may experience shortages, extended lead times, cost premiums and shipment delays that would adversely affect our customers and us
3. 03Our 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 costs27% rewritten
4. 04We 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
5. 05Our senior leadership team possess significant industry knowledge, operational expertise, strategic vision and relationships with customers, lenders, suppliers and other stakeholders that are important to the operation and growth of our businessNew
6. 06Our engineering net sales depend on our ability to deliver quality value-added engineering services required by our customers
7. 07We operate in highly competitive industries, and we depend on continuing outsourcing by Original Equipment Manufacturers (“OEM”)29% rewritten
8. 08The manufacture and sale of products carries potential risk for product liability claims and warranty claims
9. 09The Company is majority owned by one group of shareholders, and those shareholders may be able to take actions that do not reflect the will or best interests of other shareholders
10. 10In addition, the majority shareholder group may have an interest in pursuing transactions that, in its judgment, could enhance its investment, even though such transactions might be inconsistent with your investment objectives
11. 11Operating in foreign countries exposes our operations to risks that could adversely affect our operating results38% rewritten
12. 12We face risks arising from the restructuring of our operations

Risks Related to our Assets

1. 13We are investing in new technologies which are inherently risky 46% rewritten
2. 14Our investments in new products and technologies are inherently risky and are a departure from historical business operations

Financial Risks

1. 15Our credit agreement contains financial and operating covenants with which we must complyNew
2. 16Our future growth depends on our ability to generate and sustain customer bookingsNew
3. 17Our ability to generate positive EBITDA and operating cash flow may fluctuate and may be insufficient to support our operations, service our debt obligations or satisfy financial covenant requirementsNew
4. 18Additionally, we may experience delays in collecting receivables, including value added tax refunds in Mexico, and may be required to fund inventory purchases in advance of customer demand. These factors may reduce operating cash flow and limit our ability to convert earnings into operating cash flowNew
5. 19Our exposure to financially troubled customers, start-up businesses or suppliers may adversely affect our financial results
6. 20Changes in foreign currency translation rates could adversely impact our net sales and earnings27% rewritten
7. 21We do not expect to pay dividends for the foreseeable future, and we may never pay dividends; investors must rely on stock appreciation for any return on investment in our common stock
8. 22We expect volatility in the price of our common stock, which may subject us to securities litigation
9. 23If we fail to maintain effective systems of internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results or prevent fraud
10. 24Our services involve other inventory risk
11. 25Impairment of Our Long-Lived Assets Could Adversely Affect Our Results of Operations and Financial ConditionNew

Market Risks

1. 26The economic conditions around the world could adversely affect demand for our products and services and the financial health of our customers
2. 27Pandemics or disease outbreaks could adversely affect our operations, supply chains, financial condition and results of operations

Legal and Regulatory Risks

1. 28We may not meet regulatory quality standards applicable to our manufacturing and quality processes which could have an adverse effect on our business
2. 29Our international operations are, and will continue to be, subject to risks relating to changes in foreign legal and regulatory requirements
3. 30Complying with securities laws, tax laws, accounting policies and regulations, and subsequent changes, may be costly for us and adversely affect our financial statements
4. 31Anti-Corruption and Trade Laws - We may incur costs and suffer damages if our employees, agents, or suppliers violate anti-bribery, anti-corruption or trade laws and regulations
5. 32Non-compliance with environmental laws may result in restrictions and could adversely affect operations
6. 33Global climate change and related regulations could negatively affect the Company
7. 34If we use hazardous materials in a manner that causes contamination or injury, we could be liable for resulting damages
8. 35If we are not able to comply with Department of Defense cybersecurity requirements, our net sales from defense contractors could be reduced50% rewritten