# Sypris Solutions Inc: Form 10-Q for the period ended Oct 1, 2023

- Company: [Sypris Solutions Inc](/companies/sypr.md) (CIK 864240)
- Form: 10-Q
- Filed: 2023-11-15
- Accepted by EDGAR: Nov 15, 2023, 15:49 ET
- Period: 2023-10-01
- Accession: 0001437749-23-032162
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/864240/000143774923032162/sypr20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/864240/000143774923032162/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-01.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-03 to 2023-10-01 | $33.6m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-10-01 | $101.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-03 to 2023-10-01 | $29.5m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-10-01 | $88.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-03 to 2023-10-01 | $4.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-10-01 | $12.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-03 to 2023-10-01 | $4.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-10-01 | $11.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-03 to 2023-10-01 | −$130.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-10-01 | $1.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-03 to 2023-10-01 | $127.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-10-01 | $531.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-03 to 2023-10-01 | $99.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-10-01 | $455.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-03 to 2023-10-01 | −$555.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-10-01 | −$517.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-03 to 2023-10-01 | −$0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-10-01 | −$0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-03 to 2023-10-01 | −$0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-10-01 | −$0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-03 to 2023-10-01 | 21,880,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-10-01 | 21,848,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-10-01 | −$8.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-10-01 | $1.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2023-10-01 | $105.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-01 | $129.9m | us-gaap:Assets |
| Current liabilities | at 2023-10-01 | $85.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-10-01 | $108.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-10-01 | $21.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,992 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.

#### Economic Conditions

Our operations are impacted by global economic conditions, including inflation, supply chain constraints and increased interest rates. While we have taken pricing actions and implemented transformation initiatives that we expect to improve productivity and offset these cost increases, we expect supply chain pressures and inflationary cost increases to continue for the remainder of 2023 and into 2024, which may continue thereafter and could negatively impact our results of operations.

#### 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 nine months of 2023, production of Class 8 trucks in North America increased 17% over the first nine months of 2022. The outlook for 2023 is for continued strong demand for production during the fourth quarter of 2023 and first quarter of 2024 with a significant decrease starting in the second quarter of 2024. 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 in early 2022. Sales in this market are dependent on, among other things, the level of worldwide oil and natural gas demand, the price of crude oil and natural gas and capital spending by exploration and production companies and drilling contractors. As production activity increased in the second half of 2022, particularly in liquefied natural gas shipments to Europe, customer demand in this market increased and remained at a higher level into 2023 compared to early 2022. However, the escalating conflict in the Middle East, the war between Russia and Ukraine and renewed recessionary fears has also led to disruption, instability and volatility in global markets and industries that could negatively impact our operations.

We will continue to pursue new business in a wide variety of markets from light automotive to new pressure vessel and pipeline applications to achieve a more balanced portfolio across our customers, markets and products.

#### Sypris Electronics Outlook

Supply chain challenges and delays continued to impact business in 2023. The majority of the government aerospace and defense programs that we support require certain 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 component supply shortages on our business. Electronic component shortages may continue to be a challenge during the remainder of 2023 and 2024. We may not be successful in addressing these shortages and other supply chain issues.

During 2022 and the first nine months of 2023, we announced new program awards and releases for Sypris Electronics, with certain programs continuing into 2025. 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 for manufacturing services to the communication and navigation markets, which require our advanced capabilities for delivering products for complex, high cost of failure platforms.

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 $886 billion for national defense spending, of which $842 billion is for the DoD base budget.

On June 3, 2023, the President signed H.R. 3746 The Fiscal Responsibility Act (“FRA”) into law. The legislation suspends the debt ceiling until January 1, 2025, and, among other provisions, caps national defense spending at $886 billion for FY 2024 (i.e. the President’s budget request level) and $895 billion for FY 2025. Supplemental funding legislation is not subject to the budget caps. Additionally, the FRA will result in a decrease in government spending for FY 2024 by one percent from FY 2023 enacted levels if Congress does not pass all twelve defense and non-defense discretionary appropriations bills by the end of 2023 and, as a result, a continuing resolution will be in effect on or after January 1, 2024.

On September 30, 2023, the President signed a continuing resolution to continue funding the U.S. government at FY 2023 levels through the earlier of November 17, 2023, or until FY 2024 appropriations bills are enacted. Under the continuing resolution, funding at amounts consistent with appropriated levels for FY 2023 are available, subject to certain restrictions, but new contract and program starts are not authorized. We expect our key programs will continue to be supported and funded under the continuing resolution. However, during periods covered by continuing resolutions, we may experience delays in new awards of our products and services, and those delays may adversely affect our results of operations.

Overall congressional sentiment remains strong for supporting the DOD’s National Defense Strategy and defense spending. However, we anticipate that the federal budget will continue to be subject to debate and compromise shaped by, among other things, heightened political tensions, the global security environment, inflationary pressures and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly, and 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 tables below compare our segment and consolidated results for the three and nine month periods of operations of 2023 to the three and nine month periods of operations of 2022. The tables present the results for each period, the change in those results from 2022 to 2023 in both dollars and percentage change and the results for each period as a percentage of net revenue.

- The first two columns in each 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 each 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 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 October 1, 2023 Compared to Three Months Ended October 2, 2022

*(in thousands, except percentage data)*

| Net revenue: | Three Months Ended, October 1, 2023 | October 2, 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 October 1, 2023 | October 2, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sypris Technologies | $19,337 | $16,990 | $2,347 | 13.80% | 57.6% | 67.4% |
| Sypris Electronics | 14,244 | 8,209 | 6,035 | 73.5 | 42.4 | 32.6 |
| Total | 33,581 | 25,199 | 8,382 | 33.3 | 100.0 | 100.0 |
| Cost of sales: |  |  |  |  |  |  |
| Sypris Technologies | 17,878 | 15,919 | (1,959) | (12.0) | 92.5 | 93.7 |
| Sypris Electronics | 11,663 | 7,309 | (4,354) | (59.6) | 81.9 | 89.0 |
| Total | 29,541 | 23,228 | (6,313) | (27.2) | 88.0 | 92.2 |
| Gross profit: |  |  |  |  |  |  |
| Sypris Technologies | 1,459 | 1,071 | 388 | 36.2 | 7.5 | 6.3 |
| Sypris Electronics | 2,581 | 900 | 1,681 | 186.8 | 18.1 | 11.0 |
| Total | 4,040 | 1,971 | 2,069 | 105.0 | 12.0 | 7.8 |
| Selling, general and administrative | 4,170 | 3,574 | (596) | (16.7) | 12.4 | 14.2 |
| Operating loss | (130) | (1,603) | 1,473 | 91.9 | (0.4) | (6.4) |
| Interest expense, net | 127 | 273 | 146 | 53.5 | 0.4 | 1.1 |
| Other expense, net | 199 | 382 | 183 | 47.9 | 0.6 | 1.5 |
| Loss before taxes | (456) | (2,258) | 1,802 | 79.8 | (1.4) | (9.0) |
| Income tax expense (benefit), net | 99 | (16) | (115) | NM | 0.3 | (0.1) |
| Net loss | $(555) | $(2,242) | $1,687 | 75.2 | (1.7) | (8.9)% |

20

### Nine Months Ended October 1, 2023 Compared to Nine Months Ended October 2, 2022.

*(in thousands, except percentage data)*

| Net revenue : | Nine Months Ended, October 1, 2023 | October 2, 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 October 1, 2023 | October 2, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sypris Technologies | $58,895 | $52,096 | $6,799 | 13.10% | 58.0.% | 64.8% |
| Sypris Electronics | 42,593 | 28,313 | 14,280 | 50.4 | 42.0 | 35.2 |
| Total | 101,488 | 80,409 | 21,079 | 26.2 | 100.0 | 100.0 |
| Cost of sales: |  |  |  |  |  |  |
| Sypris Technologies | 52,790 | 45,762 | (7,028) | (15.4) | 89.6 | 87.8 |
| Sypris Electronics | 35,827 | 24,387 | (11,440) | (46.9) | 84.1 | 86.1 |
| Total | 88,617 | 70,149 | (18468) | (26.3) | 87.3 | 87.2 |
| Gross profit: |  |  |  |  |  |  |
| Sypris Technologies | 6,105 | 6,334 | (229) | (3.6) | 10.4 | 12.2 |
| Sypris Electronics | 6,766 | 3,926 | 2,840 | 72.3 | 15.9 | 13.9 |
| Total | 12,871 | 10,260 | 2,611 | 25.4 | 12.7 | 12.8 |
| Selling, general and administrative | 11,619 | 10,700 | (919) | (8.6) | 11.4 | 13.3 |
| Operating income (loss) | 1,252 | (440) | 1,692 | NM | 1.2 | (0.5) |
| Interest expense, net | 531 | 784 | 253 | 32.3 | 0.5 | 1.0 |
| Other expense, net | 783 | 655 | (128) | (19.5) | 0.8 | 0.8 |
| Loss before taxes | (62) | (1,879) | 1,817 | 96.7 | (0.1) | (2.3) |
| Income tax expense, net | 455 | 755 | 300 | 39.7 | 0.4 | 0.9 |
| Net loss | $(517) | $(2,634) | $2,117 | 80.4 | (0.5)% | (3.3)% |

*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 for the three and nine-month periods ended October 1, 2023 increased $2.3 million and $6.8 million, respectively, from the prior year comparable periods. The net revenue increase for the quarter was primarily attributable to increased sales volumes of $0.7 million attributable to the commercial vehicle market, $0.5 million from the automotive, sport utility vehicle and off-highway markets and $1.1 million in energy product sales. The net revenue increase for the nine months ended October 1, 2023 was primarily attributable to increased sales volumes of $2.0 million attributable to the commercial vehicle market, $1.2 million from the automotive, sport utility vehicle and off-highway markets and $3.6 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 $6.0 million and $14.3 million, respectively, for the three and nine months ended October 1, 2023, from the prior year comparable periods. The increase in revenue for the three and nine months ended October 1, 2023 was primarily related to an increase in sales to customers serving the communications market and the ramping of production during the year for two follow-on programs. Additionally, material availability improved compared to the prior year periods, which resulted in an increase in sales.

*Gross Profit.* Sypris Technologies’ gross profit increased $0.4 million and decreased $0.2 million for the three and nine months ended October 1, 2023, respectively, from the prior year comparable periods. The three and nine months ended October 1, 2023 were negatively impacted by foreign exchange rates for our Mexican subsidiary, resulting in a decrease in gross profit of $0.8 million and $1.8 million, respectively.

Sypris Electronics’ gross profit increased $1.7 million and $2.8 million for the three and nine months ended October 1, 2023, respectively, from the prior year comparable periods. The increase in gross profit for the three and nine months ended October 1, 2023 was primarily a result of the increase in revenue which also had a positive impact on overhead absorption. Additionally, material costs on a high-volume program were lower during the current year as a result of improved purchasing efforts. The order backlog for Sypris Electronics is expected to support a stable revenue rate during the balance of 2023.

*Selling, General and Administrative.* Selling, general and administrative expense increased by $0.6 million and $0.9 million for the three and nine month periods ended October 1, 2023, respectively, as compared to the same periods in 2022, primarily as a result of an increase in headcount to support the increase in volumes for Sypris Electronics and increased insurance costs. Selling, general and administrative expense decreased as a percentage of revenue to 12.4% and 11.4% for the three and nine months ended October 1, 2023, respectively, from 14.2% and 13.3% for the three and nine months ended October 2, 2022, respectively.

*Income Taxes.* The Company’s income tax expense for the three and nine months ended October 1, 2023 and October 2, 2022 consists primarily of foreign income taxes on 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, Capital Resources

*Cash Balance.* As of October 1, 2023, we had approximately $8.4 million of cash and cash equivalents, of which $4.8 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes.

We have projected that our cash and cash equivalents will be sufficient to allow us to continue operations for the next 12 months. Significant changes from our current forecasts, including, but not limited to: (i) the impact of changes in worldwide and U.S. economic conditions (ii) meaningful shortfalls in projected revenue, (iii) unexpected costs or expenses, (iv) operating difficulties which cause unexpected delays in scheduled shipments, (v) an inability to balance material receipts with production requirements, (vi) changes in supplier terms and/or (vii) inflation, could require us to seek additional funding or force us to make 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 a secured promissory note (the “Note”), with obligations totaling $4.0 million and $6.5 million in principal as of October 1, 2023 and December 31, 2022, respectively. 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 October 1, 2023, our principal commitment under the Note was $2.0 million due 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 2024.

Subsequent to the third quarter ended October 1, 2023, the Company and GFCM amended the Note to, among other things: (i) increase the amount by $2.5 million to $6.5 million, (ii) extend the maturity dates for $2.0 million of the obligation to April 1, 2025, $2.0 million to April 1, 2026 and the balance to April 1, 2027 (iii) adjust the interest rate beginning on November 10, 2023 and on each April 1 thereafter, to reflect the greater of 8% or 500 basis points above the five-year Treasury note average during the previous 90-day period, and (iv) allow for the deferral of payment for up to 60% of the interest due on the Note to April 1, 2025 (see Note 16 “Subsequent Events” to the consolidated financial statements in this Form 10-Q).

*Working Capital Line of Credit.* During 2023, the Company established a $0.5 million unsecured line of credit with BBVA Mexico in support of working capital needs of our Mexican subsidiary. The term of the line extends through February 2024 and provides for interest at 8.75% per annum. As of October 1, 2023, the Company had $0.5 million outstanding on the line of credit.

*Finance Lease Obligations.* As of October 1, 2023, the Company had $3.0 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 October 1, 2023, the Company had $2.1 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 $41.8 million at October 1, 2023, primarily for inventory and manufacturing equipment, which are due through 2025.

### Cash Flows

*Operating Activities.* Net cash used in operating activities was $8.2 million in the first nine months of 2023 as compared to cash provided of $8.3 million in the same period of 2022. The aggregate increase in accounts receivable in 2023 resulted in a usage of cash of $2.8 million as a result of the increase in revenue for Sypris Technologies and Sypris Electronics over the prior year comparable period. The increase in inventory in 2023 resulted in a usage of cash of $34.1 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 2022 and 2023, which are recorded as contract liabilities and are the primary component of the $18.2 million the increase in accrued and other liabilities during the first nine months of 2023. Accounts payable also increased during the first nine months of 2023, primarily associated with the inventory additions, providing a source of cash of $7.8 million.

*Investing Activities.* Net cash used in investing activities was comprised of capital expenditures of $1.9 million for the first nine months of 2023 as compared to $2.8 million for the first nine months of 2022.

*Financing Activities.* Net cash used in financing activities was $3.1 million for the first nine months of 2023 as compared to $1.0 million for the first nine months of 2022. Net cash used in financing activities in the first nine months of 2023 included principal payments of $2.5 million on the Note, principal payments on finance leases and equipment financing obligation of $1.2 million and payments of $0.1 million for minimum statutory tax withholdings on stock based compensation. Net cash used in financing activities in the first nine months of 2022 included principal payments on finance leases and equipment financing obligations of $1.0 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 nine months ended October 1, 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, including inflation, supply chain conditions, government spending, industry trends and market developments. These statements 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: the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; 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; risks of foreign operations, including foreign currency exchange rate risk exposure, which could impact our operating results; 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; dependence on, retention or recruitment of key employees and highly skilled personnel and distribution of our human capital; the cost and availability of full-time accounting personnel with technical accounting knowledge to execute, review and approve all aspects of the financial statement close and reporting process; 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; 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 shutdown 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 termination or non-renewal of existing contracts by customers; the costs and supply of insurance on acceptable terms and with adequate coverage; the costs of compliance with our auditing, regulatory or contractual obligations; pension valuation, health care or other benefit costs; 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; 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, or disruptions resulting from the Russia-Ukraine war or the Israel and Gaza conflict, including 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; labor relations; strikes; union negotiations; costs associated with environmental claims relating to properties previously owned; 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; possible public policy response to a public health emergency, including U. S or foreign government legislation or restrictions that may impact our operations or supply chain; 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 Nov 15, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-032162. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.