# Sypris Solutions Inc: Form 10-Q for the period ended Apr 2, 2023

- Company: [Sypris Solutions Inc](/companies/sypr.md) (CIK 864240)
- Form: 10-Q
- Filed: 2023-05-16
- Accepted by EDGAR: May 16, 2023, 12:26 ET
- Period: 2023-04-02
- Accession: 0001437749-23-014743
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/864240/000143774923014743/sypr20230331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/864240/000143774923014743/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-04-02.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-04-02 | $32.3m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-01-01 to 2023-04-02 | $28.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-01-01 to 2023-04-02 | $4.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-04-02 | $3.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-04-02 | $416.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-04-02 | $226.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-04-02 | $294.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-04-02 | −$175.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-04-02 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-04-02 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-04-02 | 21,796,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-04-02 | −$1.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-04-02 | $708.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2023-04-02 | $91.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-04-02 | $116.4m | us-gaap:Assets |
| Current liabilities | at 2023-04-02 | $63.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-04-02 | $95.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-04-02 | $21.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,490 characters.

### Overview

We are a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. We offer a wide range of manufactured products, often under multi-year sole-source contracts.

We are organized into two business segments, Sypris Technologies and Sypris Electronics. Sypris Technologies, which is comprised of Sypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the sale of forged, machined, welded and heat-treated steel components primarily for the heavy commercial vehicle and high-pressure energy pipeline applications. Sypris Electronics, which is comprised of Sypris Electronics, LLC, generates revenue primarily through circuit card and full “box build” manufacturing, high reliability manufacturing, systems assembly and integration, design for manufacturability and design to specification work.

We focus on those markets where we believe we have the expertise, qualifications and leadership position to sustain a competitive advantage. We target our resources to support the needs of industry participants that embrace technological innovation and flexibility, coupled with multi-year contractual relationships, as a strategic component of their supply chain management. These contracts, many of which are sole-source by part number, have historically created opportunities to invest in leading-edge processes or technologies to help our customers remain competitive. The productivity and innovation that can result from such investments helps to differentiate us from our competition when it comes to cost, quality, reliability and customer service.

#### Impact of COVID-19 on Our Business

During 2022 and the first quarter of 2023, residual effects of the COVID pandemic continued to contribute to various degrees of supply chain challenges, including increased lead times for raw materials due to availability constraints and high demand. While we have elevated our engagement with our suppliers and used secondary suppliers and new methods of procurement where available to mitigate the supply chain pressures, we expect supply chain challenges to continue throughout 2023.

In connection with the supply chain challenges described above, we have experienced inflationary increases of certain raw materials, as well as logistics, transportation, utilities and labor costs. While we have taken pricing actions and we strive for productivity improvements that could help offset these inflationary cost increases, we expect inflationary cost increases to continue throughout 2023.

#### Sypris Technologies Outlook

Conditions have remained relatively stable for the North American Class 4-8 commercial vehicle market in addition to the automotive, sport utility vehicle and off-highway markets also served by Sypris Technologies. During the first quarter of 2023, production of Class 8 trucks in North America increased 17% over the first quarter of 2022. The outlook for 2023 is for continued strong demand for production during the first half of 2023 with levels decreasing during the second half as compared to 2022. While there is growing evidence of a slowing North American economy, we believe that the market diversification Sypris Technologies has accomplished over recent years by adding new programs in the automotive, sport-utility and off-highway markets has benefited and will continue to benefit the Company as the demand cycles for our products in these markets differs from than the Class 8 commercial vehicle market, thereby reducing volatility in our revenue profile.

Reduced travel, business closures, and other economic impacts related to the COVID-19 pandemic suppressed oil and natural gas demand, thereby adversely impacting the oil and gas markets served by our Tube Turns® brand of engineered products. This caused major pipeline developers to significantly scale back near-term capital investments in new pipeline infrastructure, which resulted in reduced demand for our products for the oil and gas markets during 2022. Sales in this market are dependent on, among other things, the level of worldwide oil and gas drilling, the price of crude oil and natural gas and capital spending by exploration and production companies and drilling contractors. The U.S. average land rig count continues to be below pre-pandemic levels but rose 8% in the first quarter of 2023 compared to the first quarter of 2022 and 74% compared to the first quarter of 2021. As commodity prices improve and activity increases, particularly in liquefied natural gas shipments to Europe, we currently expect customer demand in this market to increase in 2023 compared to 2022. However, the war between Russia and Ukraine has led to disruption, instability and volatility in global markets and industries that could negatively impact our operations.

We are pursuing new business in a wide variety of markets from light automotive to valves to new energy related product lines to achieve a more balanced portfolio across our customers, markets and products. We have recently announced new awards that will contribute to revenue growth for Sypris Technologies going forward.

#### Sypris Electronics Outlook

As noted above, the COVID-19 pandemic continued to contribute to business impacts in 2022 including supply chain challenges and delays. The majority of the government aerospace and defense programs that we support require specific components that are sole-sourced to specific suppliers; therefore, the resolution of supplier constraints requires coordination with our customers or the end-users of the products. We have partnered with our customers to qualify alternative components or suppliers and will continue to focus on our supply chain to attempt to mitigate the impact of supply component shortages on our business. Electronic component shortages may continue to be a challenge during 2023. We may not be successful in addressing these shortages and other supply chain issues.

During 2022 and the first quarter of 2023, we announced new program awards and releases for Sypris Electronics, with certain programs continuing into 2024. In addition to contract awards from Department of Defense (“DoD”) prime contractors related to weapons systems, electronic warfare and infrared countermeasures in our traditional aerospace and defense markets, we have also been awarded subcontracts related to the communication and navigation markets, which align with our advanced capabilities for delivering products for complex, high cost of failure platforms.

On March 28, 2022, President Biden's Administration submitted to Congress the President’s Fiscal Year (FY) 2023 budget request, which proposed $813.4 billion in total national defense spending, of which $773 billion was for the base budget of the DoD.

On December 29, 2022, the President signed the FY 2023 Omnibus Appropriations Act into law, which provides $858 billion in total national defense funding, of which $816.7 billion is for the DoD base budget. This reflects a $44.6 billion increase over the FY 2023 request for national defense spending, and a $43.7 billion increase for the DoD. The President’s Fiscal Year (FY) 2024 budget request was submitted to Congress on March 9, 2023 initiating the FY 2024 defense authorization and appropriations legislative process. The request includes $866 billion for national defense spending, of which $842 billion is for the DoD base budget.

In addition to the FY 2024 budget process, Congress will have to contend with the legal limit on U.S. debt, commonly known as the debt ceiling. The current statutory limit of $31.4 trillion was reached in January 2023, requiring the Treasury Department to take accounting measures to continue normally financing U.S. government obligations while avoiding exceeding the debt ceiling. It is expected, however, the U.S. government will exhaust these measures by June 2023. If the debt ceiling is not raised, the U.S. government may not be able to fulfill its funding obligations and there could be significant disruption to all discretionary programs and wider financial and economic repercussions. The federal budget and debt ceiling are expected to continue to be the subject of considerable congressional debate. Although we believe DoD, intelligence, and homeland security programs will continue to receive consensus support for increased funding and would likely receive priority if this scenario came to fruition, the effect on individual programs or our results cannot be predicted at this time.

We expect to compete for follow-on business opportunities as a subcontractor on future builds of several existing government programs. However, the federal budget and debt ceiling are expected to continue to be the subject of considerable uncertainty and the impact on demand for our products and services and our business are difficult to predict.

See also the discussion of Congressional budgetary constraints or reallocations risks within “Item 1A, Risk Factors” included in our 2022 Form 10-K.

### Results of Operations

The table below compares our segment and consolidated results for the first quarter of 2023 to the first quarter of 2022. It presents the results for each period, the change in those results from 2022 to 2023 in both dollars and as a percentage, as well as the results for each period as a percentage of net revenue.

- The first two columns in the table show the absolute results for each period presented.
- The columns entitled “Year Over Year Change” and “Year Over Year Percentage Change” show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when our net revenue increases from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative number in both columns.
- The last two columns in the table show the results for each period as a percentage of net revenue. In these two columns, the cost of sales and gross profit for each segment are given as a percentage of that segment’s net revenue. These amounts are shown in italics.

In addition, as used in the table, “NM” means “not meaningful.”

### Three Months Ended April 2, 2023 Compared to Three Months Ended April 3, 2022

*(in thousands, except percentage data)*

| Net revenue: | Three Months Ended, April 2, 2023 | April 3, 2022 | Year Over Year Change Favorable (Unfavorable) | Year Over Year Percentage Change Favorable (Unfavorable) | Results as Percentage of Net Revenue for the Three Months Ended April 2, 2023 | April 3, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sypris Technologies | $19,500 | $17,155 | $2,345 | 13.7% | 60.4% | 65.6% |
| Sypris Electronics | 12,792 | 9,011 | 3,781 | 42.0 | 39.6 | 34.4 |
| Total | 32,292 | 26,166 | 6,126 | 23.4 | 100.0 | 100.0 |
| Cost of sales: |  |  |  |  |  |  |
| Sypris Technologies | 16,861 | 14,023 | (2,838) | (20.2) | 86.5 | 81.7 |
| Sypris Electronics | 11,270 | 7,634 | (3,636) | (47.6) | 88.1 | 84.7 |
| Total | 28,131 | 21,657 | (6,474) | (29.9) | 87.1 | 82.8 |
| Gross profit: |  |  |  |  |  |  |
| Sypris Technologies | 2,639 | 3,132 | (493) | (15.7) | 13.5 | 18.3 |
| Sypris Electronics | 1,522 | 1,377 | 145 | 10.5 | 11.9 | 15.3 |
| Total | 4,161 | 4,509 | (348) | (7.7) | 12.9 | 17.2 |
| Selling, general and administrative | 3,745 | 3,389 | (356) | (10.5) | 11.6 | 13.0 |
| Operating income | 416 | 1,120 | (704) | (62.9) | 1.3 | 4.2 |
| Interest expense, net | 226 | 248 | 22 | 8.9 | 0.7 | 0.9 |
| Other expense, net | 71 | 169 | 98 | 58.0 | 0.2 | 0.6 |
| Income before taxes | 119 | 703 | (584) | (83.1) | 0.4 | 2.7 |
| Income tax expense, net | 294 | 466 | 172 | 36.9 | 0.9 | 1.8 |
| Net (loss) income | $(175) | $237 | $(412) | NM | (0.5)% | 0.9% |

20

*Net Revenue*. Sypris Technologies derives its revenue from the sale of forged and finished steel components and subassemblies and high-pressure closures and other fabricated products. Net revenue for Sypris Technologies increased 13.7%, or $2.3 million, for the first quarter of 2023 compared to the first quarter of 2022. The net revenue increase for the quarter was primarily attributable to increased sales volumes of $0.9 million attributable to the commercial vehicle market, $0.3 million from the automotive, sport utility vehicle and off-highway markets and $1.1 million in energy product sales.

Sypris Electronics derives its revenue primarily from circuit card and full “box build” manufacturing, high reliability manufacturing and systems assembly and integration. Net revenue for Sypris Electronics increased $3.8 million to $12.8 million in the first quarter of 2023 compared to $9.0 million in the first quarter of 2022. Sales to customers serving the communications market increased as compared to the first quarter of 2022. Additionally, material availability improved compared to the prior year period, which resulted in an increase in sales.

*Gross Profit.* Sypris Technologies’ gross profit decreased $0.5 million to $2.6 million in the first quarter of 2023 as compared to $3.1 million in the first quarter of 2022. The first quarter of 2023 was negatively impacted by foreign exchange rates for our Mexican subsidiary, resulting in a decrease in gross profit of $0.4 million. Additionally, gross profit was negatively impacted by an unfavorable mix for our energy product sales and higher material prices. Gross margin for the first quarter of 2023 was 13.5% as compared to 18.3% in the first quarter of 2022.

Sypris Electronics’ gross profit increased $0.1 million to $1.5 million in the first quarter of 2023 as compared to $1.4 million for the first quarter of 2022. The increase in gross profit was primarily a result of the increase in revenue which also had a positive impact on overhead absorption. This was partially offset by an unfavorable mix of programs during the quarter. The order backlog for Sypris Electronics is expected to support a stable revenue rate during the balance of 2023. Gross margin for the first quarter of 2023 was 11.9% as compared to 15.3% in the first quarter of 2022.

*Selling, General and Administrative.* Selling, general and administrative expense increased $0.4 million to $3.7 million in the first quarter of 2023 as compared to $3.4 million for the same period in 2022 primarily as a result of increase sales commissions on the increase in energy product sales and additional headcount. Selling, general and administrative expense decreased as a percentage of revenue to 11.6% for the first quarter of 2023 from 13.0% in the prior year comparable period.

*Income Taxes.* The Company’s income tax expense for the three months ended April 2, 2023 and April 3, 2022 consists primarily of currently payable state and local income taxes on domestic operations and foreign income taxes on one of its Mexican subsidiaries.

Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on its current forecast, the Company has established a valuation allowance against all U.S. deferred tax assets. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. tax benefits. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income in the period that such determination is made.

### Liquidity and Capital Resources

*Cash Balance.* As of April 2, 2023, we had approximately $19.5 million of cash and cash equivalents, of which $5.6 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes. We expect existing cash and cash flows from operations to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as capital expenditures, for at least the next 12 months and beyond. Significant changes from our current forecasts, including, but not limited to: (i) meaningful shortfalls in our projected revenues, (ii) unexpected costs or expenses, and/or (iii) operating difficulties which cause unexpected delays in scheduled shipments, could require us to seek additional funding or force us to make further reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects.

### Material Cash Requirements

*Gill Family Capital Management Note*. The Company has received the benefit of cash infusions from Gill Family Capital Management, Inc. (“GFCM”) in the form of secured promissory note obligations totaling $6.5 million in principal as of April 2, 2023 and December 31, 2022 (the “Note”). GFCM is an entity controlled by the Company’s Chairman, President and Chief Executive Officer, Jeffrey T. Gill and one of our directors, R. Scott Gill. GFCM, Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders of the Company. As of April 2, 2023, our principal commitment under the Note was $2.5 million due on April 1, 2023, $2.0 million on April 1, 2024 and the balance on April 1, 2026. Interest on the Note is reset on April 1 of each year, at the greater of 8.0% or 500 basis points above the five-year Treasury note average during the preceding 90-day period, in each case, payable quarterly. The Note allows for up to an 18-month deferral of payment for up to 60% of the interest due on the portion of the notes maturing in April of 2023 and 2024.

*Finance Lease Obligations.* As of April 2, 2023, the Company had $3.6 million outstanding under finance lease obligations for both property and machinery and equipment at its Sypris Technologies locations with maturities through 2026 and a weighted average interest rate of 8.6%.

#### Equipment Financing Obligations

As of April 2, 2023, the Company had $1.8 million outstanding under equipment financing facilities, with fixed interest rates ranging from 4.4% to 8.1% and payments due through 2028.

*Purchase Commitments.* We had purchase commitments totaling approximately $65.4 million at April 2, 2023, primarily for inventory and manufacturing equipment.

### Cash Flows

*Operating Activities.* Net cash used in operating activities was $1.2 million in the first quarter of 2023, as compared to $3.3 million in the same period of 2022. The aggregate increase in accounts receivable in 2023 resulted in a usage of cash of $2.7 million primarily as a result of an increase in revenue for Sypris Technologies and Sypris Electronics over the prior year comparable period, partially offset by an early payment from a Sypris Technologies customer. The increase in inventory in 2023 resulted in a use of cash of $9.9 million. The increase in inventory is primarily in support of new program revenue growth for Sypris Electronics. A significant portion of the inventory receipts were funded through prepayments from customers of Sypris Electronics in 2023, which are recorded as contract liabilities and are the primary component of the $7.3 million increase in accrued and other liabilities during 2023. Accounts payable also increased during 2023, primarily associated with the inventory additions, providing a source of cash of $3.1 million.

*Investing Activities.* Net cash used in investing activities was comprised of capital expenditures of $0.7 million for the first quarter of 2023 as compared to $0.9 million for the first quarter of 2022.

*Financing Activities.* Net cash used in financing activities was $0.2 million for the first quarter of 2023 and was comprised of capital lease and equipment financing obligation payments of $0.4 million offset by proceeds from an equipment financing obligation of $0.2 million. Net cash used in financing activities was $0.3 million for the first quarter of 2022 and was comprised of capital lease and equipment financing obligation payments of $0.3 million.

### Critical Accounting Policies

See the information concerning our critical accounting policies included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no significant changes in our critical accounting policies during the three months ended April 2, 2023.

### Forward-looking Statements

This Quarterly Report on Form 10-Q, and our other oral or written communications, may contain “forward-looking” statements. These statements may include our expectations or projections about the future of our business, industries, business strategies, prospects, potential acquisitions, liquidity, financial condition or financial results and our views about developments beyond our control, including domestic or global economic conditions, government spending, industry trends and market developments. These statements, including those outlined in management’s recovery plan, are based on management’s views and assumptions at the time originally made, and, except as required by law, we undertake no obligation to update these statements, even if, for example, they remain available on our website after those views and assumptions have changed. There can be no assurance that our expectations, projections or views will come to pass, and undue reliance should not be placed on these forward-looking statements.

A number of significant factors could materially affect our specific business operations and cause our performance to differ materially from any future results projected or implied by our prior statements. Many of these factors are identified in connection with the more specific descriptions contained throughout this report. Other factors which could also materially affect such future results currently include: our failure to achieve and maintain profitability on a timely basis by steadily increasing our revenues from profitable contracts with a diversified group of customers, which would cause us to continue to use existing cash resources or require us to sell assets to fund operating losses; cost, quality and availability or lead times of raw materials such as steel, component parts (especially electronic components), natural gas or utilities including increased cost relating to inflation; the cost, quality, timeliness, efficiency and yield of our operations and capital investments, including the impact of inflation, tariffs, product recalls or related liabilities, employee training, working capital, production schedules, cycle times, scrap rates, injuries, wages, overtime costs, freight or expediting costs; risks of foreign operations, including foreign currency exchange rate risk exposure, which could impact our operating results; dependence on, retention or recruitment of key employees and highly skilled personnel and distribution of our human capital; volatility of our customers’ forecasts and our contractual obligations to meet current scheduling demands and production levels, which may negatively impact our operational capacity and our effectiveness to integrate new customers or suppliers, and in turn cause increases in our inventory and working capital levels; our failure to successfully complete final contract negotiations with regard to our announced contract “orders”, “wins” or “awards”; significant delays or reductions due to a prolonged continuing resolution or U.S. government shut down reducing the spending on products and services that Sypris Electronics provides; adverse impacts of new technologies or other competitive pressures which increase our costs or erode our margins; breakdowns, relocations or major repairs of machinery and equipment, especially in our Toluca Plant; the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; the termination or non-renewal of existing contracts by customers; the costs and supply of insurance on acceptable terms and with adequate coverage; our reliance on revenues from customers in the oil and gas and automotive markets, with increasing consumer pressure for reductions in environmental impacts attributed to greenhouse gas emissions and increased vehicle fuel economy; the impact of COVID-19 and economic conditions on our future operations; possible public policy response to the pandemic, including U. S or foreign government legislation or restrictions that may impact our operations or supply chain; our failure to successfully win new business or develop new or improved products or new markets for our products; war, geopolitical conflict, terrorism, or political uncertainty, including disruptions resulting from the Russia-Ukraine war arising out of international sanctions, foreign currency fluctuations and other economic impacts; our reliance on a few key customers, third party vendors and sub-suppliers; inventory valuation risks including excessive or obsolescent valuations or price erosions of raw materials or component parts on hand or other potential impairments, non-recoverability or write-offs of assets or deferred costs; disputes or litigation involving governmental, supplier, customer, employee, creditor, stockholder, product liability, warranty or environmental claims; failure to adequately insure or to identify product liability, environmental or other insurable risks; unanticipated or uninsured product liability claims, disasters, public health crises, losses or business risks; the costs of compliance with our auditing, regulatory or contractual obligations; labor relations; strikes; union negotiations; costs associated with environmental claims relating to properties previously owned; pension valuation, health care or other benefit costs; our inability to patent or otherwise protect our inventions or other intellectual property rights from potential competitors or fully exploit such rights which could materially affect our ability to compete in our chosen markets; changes in licenses, security clearances, or other legal rights to operate, manage our work force or import and export as needed; cyber security threats and disruptions, including ransomware attacks on our systems and the systems of third-party vendors and other parties with which we conduct business, all of which may become more pronounced in the event of geopolitical conflicts and other uncertainties, such as the conflict in Ukraine; our ability to maintain compliance with the Nasdaq listing standards minimum closing bid price; risks related to owning our common stock, including increased volatility; or unknown risks and uncertainties and the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

## Market risk

As filed, 221 characters.

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not required to provide the quantitative and qualitative disclosures about market risk specified in Item 305 of Regulation S-K.

## Controls and procedures

As filed, 740 characters.

(a) *Evaluation of disclosure controls and procedures.* Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and our Principal Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

(b) *Changes in internal controls*. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,598 characters.

Information regarding risk factors appears in Part I — Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” in this Quarterly Report on Form 10-Q, and in Part I — Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no material changes during the fiscal quarter from the risk factors disclosed in our Annual Report on Form 10-K other than with respect to the risk factor discussed below.

**Fluctuations in foreign currency exchange rates have increased, and could continue to increase, our operating costs.**

We have manufacturing operations located in Mexico. Excluding the cost of steel used in production, a significant portion of our operating expenses are denominated in the Mexican Peso. Currency exchange rates fluctuate daily as a result of a number of factors, including changes in a country's political and economic policies. Volatility in the currencies of our entities and the United States dollar, as well as inflationary costs, could seriously harm our business, operating results and financial condition. The primary impact of currency exchange fluctuations is on the cash, payables and expenses of our Mexican operating entities. The Company does not currently hedge our Mexican Peso denominated expenses. Unexpected losses have occurred from increases in the value of the Mexican Peso relative to the United States dollar and further unexpected losses could occur, which could be material to our business, financial results, or operations.

Filed May 16, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-014743. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.