CHICAGO RIVET & MACHINE CO

Previous wording

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, 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, 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.

Current wording

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.

Previous wording

Operating results for 2024 were negatively impacted by our U.S. automotive fastener segment volumes due to OEM and customer inventory reduction actions which accelerated in the second half of 2024. U.S. demand for pickup trucks and large SUVs to which we provide content, softened in 2024 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. Despite the full year 18% volume decline, the automotive fastener segment gross profit improved by $1,567,232. This improvement was due in large part to price increases and efficiency gains, including consolidation of the work done in the Albia, Iowa facility into the Tyrone, Pennsylvania facility. While these year over year volume declines were a tremendous headwind to profitability, we believe we have improved the framework from a pricing and efficiency standpoint to benefit at scale when volumes return to more historic levels. In addition, the accounting treatment for the payment of the aggregate amounts due under the previously disclosed agreement with one of our customers relating to certain warranty claims resulted in a reduction to 2024 revenue of $1.1 million.

Current wording

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.

Previous wording

Fourth quarter 2024 sales were $4,104,048 compared to $6,780,894 in the fourth quarter of 2023, a decline of $2,676,846, or 40%. Together with the decline in sales, our input costs remained elevated and contributed to reporting a net loss in the fourth quarter 2024 of $3,613,130, or $3.74 per share, compared to a net loss of $1,542,899, or $1.60 per share, in the fourth quarter of 2023. For the full year, net sales were $26,986,627 compared to $31,507,722 in 2023, a decline of $4,521,095, or 14%. Net loss for the full year was $5,615,614, or $5.81 per share, compared to net loss of $4,401,584 or $4.56 per share in 2023. Contributing to the full year 2024 net loss was the addition of a deferred tax valuation allowance of $1,640,978 that resulted in $572,226 in income tax expense on a pre-tax loss of $5,043,388.

Current wording

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.

Previous wording

Fastener segment revenues were $3,603,518 in the fourth quarter of 2024 compared to $5,965,995 in the fourth quarter of 2023, a decline of $2,362,477, or 40%. During the quarter, sales to automotive customers decreased to $2,325,601 from $4,147,072 in the year ago quarter. A significant portion of the decline in automotive sales was a result of recording a charge of $1,100,000 in the fourth quarter of 2024 related to the previously disclosed agreement with a customer regarding certain warranty claims. See Note 9. Commitments and Contingencies to the Consolidated Financial Statements included herein. Non-automotive revenues also decreased to $1,277,917 from $1,818,923 in the year ago quarter, or 30%.

Current wording

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%.

Previous wording

Selling and administrative expenses were $6,224,234 in 2024 compared to $5,237,656 in 2023, an increase of $986,578, or 19%. We incurred increases in outside consulting and accounting fees of $555,838, primarily related to hiring costs to fill certain positions, enhancing financial reporting, modernizing systems, automating processes and implementing enhanced cybersecurity defenses, an increase in employee compensation expense of $109,464 as these positions were filled, and an increase in repairs and maintenance of approximately $96,036. These, and other smaller expense increases, were offset by a reduction in sales commissions of $254,677. The remaining net change relates to various smaller items. As a percentage of net sales, selling and administrative expenses were 23.1% in 2024 compared to 16.6% in 2023.

Current wording

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.

Previous wording

Other income was $120,666 in 2024 compared to $108,234 in 2023. Other income is primarily comprised of interest income on our cash equivalents which increased modestly during the year due to higher interest rates.

Current wording

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.

Previous wording

The Company’s effective income tax rates were (11.4)% and 23.2% in 2024 and 2023, respectively. Fiscal 2024 resulted in $572,226 of tax expense on a pre-tax loss of $5,043,388. While the company is in a book and taxable loss, there is tax expense due to deferred tax liabilities that are recorded. Additionally, there was an increase in valuation allowance of $1,640,978 recorded on deferred tax assets booked in a prior year, which results in tax expense incurred in the current year.

Current wording

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

Previous wording

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 2024 totaling $0.33 per share. On February 19, 2025, the Board of Directors declared a regular quarterly dividend of $0.03 per share, payable March 20, 2025 to shareholders of record on March 5, 2025. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 90 years.

Current wording

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.

Previous wording

Depreciation expense was $1,173,476 in 2024 and $1,275,078 in 2023.

Current wording

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

Previous wording

Working capital at December 31, 2024 was $10,371,215, a decrease of $3,605,649 from the beginning of the year. A decline in net accounts receivable during the year of $1,180,971 due to lower sales volumes and a decrease in inventory of $831,483 had a negative impact on working capital. The Company’s investing activities in 2024 included the proceeds from the sale of property and equipment of $135,430 and the net maturities from short-term investments of $1,523,846 less capital expenditures of $651,398. The only financing activity during 2024 was the payment of $318,823 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 $1,922,679 at the end of 2024 compared to $1,387,075 as of the beginning of the year.

Current wording

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.

Previous wording

On November 30, 2024, the Company entered into a lease agreement with Juneau-Bell, LLC for new office space. The lease commencement date is 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.

Current wording

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.

Previous wording

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 $5,164,054 and $5,837,246 for the years ended December 31, 2024 and December 31, 2023, respectively. These events have raised substantial doubt about the Company's ability to continue as a going concern. The Company has taken various strategic actions in response to improve performance, including (i) investing resources in the Company’s sales efforts to increase revenue, (ii) reducing costs and improving operating efficiency, including by closing the Company’s Albia, Iowa plant, consolidating Albia’s operations with the Company’s Tyrone operations and selling the Albia facility for total net cash proceeds of approximately $678,000, and (iii) entering into a one-year, $3,000,000 operating 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, bearing interest at a fluctuating rate per annum equal to 1% plus the applicable prime rate, with a floor of 7% (the loan can be prepaid without penalty). 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.

Current wording

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.

Previous wording

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America 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.

Current wording

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.

Previous wording

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 none were deemed to be considered critical for the accounting periods presented. 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.

Current wording

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.

Previous wording

With respect to the Outlook for 2025, the economic environment remains challenging. Our order volume is showing improvement in the first quarter of 2025 compared to the fourth quarter of 2024 but is not yet back to the levels we experienced in the first quarter of 2024. Significant uncertainty remains in the manufacturing sector as companies like ours continue to navigate the potential impacts of proposed tariffs and numerous market factors that may impact our business in the coming year. The Company believes all of the actions to reduce costs in 2024 have it better positioned 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 so that we are positioned to take actions promptly and as necessary to address such potential impacts. Given our recent efficiency improvements and our focus on 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.

Current wording

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.