What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2022-02-04 · 126 added, 57 removed, 132 unchanged (58% of the section changed)

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Such factors include the following:

(1) the impact on business conditions in general, and on the demand for product in the aerospace and energy (or "A&E") industries in particular, of the global economic outlook, including the continuation of military spending at or near current levels and the availability of capital and liquidity from banks, the financial markets and other providers of credit;

(1) the impact on business conditions in general, and on the demand for product in the aerospace and energy (or

"A&E") industries in particular, of the global economic outlook, including the continuation of military spending at or near current levels and the availability of capital and liquidity from banks, the financial markets and other providers of credit;

(2) the future business environment, including capital and consumer spending;

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and (iv) other commercial applications.

The novel coronavirus ("COVID-19") continues to impact the United States and other countries in which we operate, as well as the markets we service.

The effects continue to evolve, including scope, severity and duration, as well as the potential of new outbreaks of the virus, the impact of new variants, actions to contain the continued spread or treat its impact, the effectiveness of the vaccine and vaccine rates, and governmental, business and other actions taken in response to the pandemic.

The exact timing and pace of the recovery continues to be indeterminable as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, and, throughout the course of time, new variants of COVID-19 have been identified and spread significantly, resulting in additional restrictions put in place by certain governments around the world.

Capital markets and economies worldwide continue to be negatively impacted by COVID-19 and, given the fluidity of the situation, it is still unclear how lasting and deep the economic impacts will be, specifically in relation to the commercial aerospace industry and energy industries.

During the first quarter of fiscal 2022, COVID-19 continues to have an impact on the Company’s results of operations.

Impact of COVID-19 & Other

The impact and effects of the coronavirus ("COVID-19") pandemic continues to impact the markets we serve.

The effects of the pandemic, as well as the pandemic itself, continue to evolve, and the exact timing and pace of the recovery continues to be indeterminable;

however, there are indications that commercial air travel is steadily recovering in certain areas and for certain types of travel while continuing to lag in others.

While the long-term outlook remains positive given the nature of the industry, there continues to be uncertainty with the respect to when commercial air traffic will return to pre-COVID-19 levels.

Given the fluidity of the situation, it is still unclear how lasting and deep the ongoing economic impacts of COVID-19 will be, specifically in relation to the commercial aerospace industry and energy, where the production of the Company's products have lead times of varying lengths and recovery may lag behind other industries.

Additionally, other factors such as ongoing geopolitical tensions and further strains on the supply chain continue to put pressure on the Company’s results of operations.

During the second quarter of fiscal 2022, COVID-19 continued to have an impact on the Company’s results of operations.

The Company has been impacted by delays in receiving orders and delays in getting materials required to produce certain products.

Due to the uncertain environment created by COVID-19, the Company has taken measures to reduce costs from time to time since the commencement of the COVID-19 pandemic (including during the first quarter of fiscal 2022) by furloughing certain of its employees from one of its plant locations that continues to experience reduced sales of commercial aerospace products.

The employees furloughed in the first quarter of 2022 have since returned to work.

Due to the uncertain environment created by COVID-19, the Company has taken measures to reduce costs from time to time since the commencement of the COVID-19 pandemic by, from time to time, furloughing certain of its employees from one of its plant locations that continues to experience reduced sales of commercial aerospace products.

The employees furloughed have since returned to work.

Additionally, our operations are subject to global economic, political and geopolitical risks.

For example, while the Company does not have a presence in these regions, the ongoing conflict between Russia and Ukraine and

the related actions taken by those countries, sanctions and other measures imposed by the European Union, the U.S.

and other countries and organizations in response, along with continued increases in the cost of materials, and increased oil, natural gas and other commodity prices and further pressures on supply chains and transportation, have contributed to and may continue to cause disruption and instability in global markets, supply chains and industries that could negatively impact our businesses, financial condition and results of operations.

The Company continues to actively monitor and find ways to mitigate the impact on its operations.

Backlog of Orders

SIFCO’s total backlog at December 31, 2021 was $75.7 million, compared with $81.1 million as of December 31, 2020.

SIFCO’s total backlog at March 31, 2022 was $72.0 million, compared with $82.3 million as of March 31, 2021.

Orders may be subject to modification or cancellation by the customer with limited charges.

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Backlog information may not be indicative of future sales.

Net sales comparative information for the first three months of fiscal 2022 and 2021 is as follows:

(Dollars in millions) Three Months Ended

December 31, Increase/ (Decrease)

Six Months Ended March 31, 2022 compared with Six Months Ended March 31, 2021

Net sales comparative information for the first six months of fiscal 2022 and 2021 is as follows:

(Dollars in millions) Six Months Ended

March 31, Increase/ (Decrease)

Net Sales 2022 2021

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Total $ 43.8 $ 49.9 $ (6.1)

Net sales for the first three months of fiscal 2022 decreased $5.9 million to $19.2 million, compared with $25.1 million in the comparable period of fiscal 2021.

Net sales for the first six months of fiscal 2022 decreased $6.1 million to $43.8 million, compared with $49.9 million in the comparable period of fiscal 2021.

In general, the production of the Company's products have lead times of varying lengths.

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The energy components for power generation units decreased by $3.5 million due to variability in the steam turbine market that we serve.

Commercial products and other revenue increased $1.1 million in the first three months of fiscal 2022 compared to the same period in fiscal 2021, primarily due to the timing of orders.

Commercial net sales were 43.4% of total net sales and military net sales were 56.6% of total net sales in the first three months of fiscal 2022, compared with 42.9% and 57.1%, respectively, in the comparable period in fiscal 2021.

Military net sales decreased by $3.4 million to $10.9 million in the first three months of fiscal 2022, compared with $14.3 million in the comparable period of fiscal 2021, primarily due to delays in receiving customer orders and ability to timely get material to

produce parts.

Commercial net sales decreased $2.4 million to $8.3 million in the first three months of fiscal 2022, compared with $10.7 million in the comparable period of fiscal 2021 primarily due to a decrease in energy components sales for power generation due to decreased demand in the market.

Commercial products and other revenue increased $5.1 million in the first six months of fiscal 2022 compared to the same period in fiscal 2021, primarily due to the timing of orders related to a munitions program and increased sales related to the commercial space industry.

Commercial net sales were 40.8% of total net sales and military net sales were 59.2% of total net sales in the first six months of fiscal 2022, compared with 40.0% and 60.0%, respectively, in the comparable period in fiscal 2021.

Military net sales decreased by $4.0 million to $25.9 million in the first six months of fiscal 2022, compared with $29.9 million in the comparable period of fiscal 2021, primarily due to timing in order placement related to certain programs and the ability to timely get material to produce parts, partially offset by increased sales in a munitions program.

Commercial net sales decreased $2.1 million to $17.9 million in the first six months of fiscal 2022, compared with $20.0 million in the comparable period of fiscal 2021 primarily due to a decrease in energy components sales for power generation due to decreased demand in the market, partially offset by increase in commercial space product.

Cost of Goods Sold

Cost of goods sold decreased by $1.9 million, or 9.1%, to $19.2 million, or 99.9% of net sales, during the first three months of fiscal 2022, compared with $21.1 million or 84.4% of net sales, in the comparable period of fiscal 2021.

The decrease is primarily due to lower volume and lower labor costs, partially offset by $1.2 million of idle expense and $0.3 million in higher natural gas costs.

Prior year included approximately $0.5 million in insurance recoveries related to business interruption from the fire claim that occurred in December 2018 at the Orange, California ("Orange") location .

Gross profit decreased $3.9 million to a breakeven amount in the first three months of fiscal 2022, compared with $3.9 million of gross profit in the comparable period of fiscal 2021.

Gross margin percent of sales was nominal during the first three months of fiscal 2022, compared with 15.6% in the comparable period in fiscal 2021.

The decrease in gross profit was primarily due to decreased volume and higher costs as described above.

Cost of goods sold decreased by $0.9 million, or 2.2%, to $42.3 million, or 96.7% of net sales, during the first six months of fiscal 2022, compared with $43.3 million or 86.7% of net sales, in the comparable period of fiscal 2021.

The decrease is primarily due to lower volume and $0.9 million in lower payroll costs, partially offset by $1.7 million of idle expense and $0.6 million in higher natural gas costs.

The same period in the prior year included approximately $0.5 million in insurance recoveries related to business interruption from the fire claim that occurred in December 2018 at the Orange, California ("Orange") location.

Gross profit decreased $5.2 million to $1.5 million in the first six months of fiscal 2022, compared with $6.7 million of gross profit in the comparable period of fiscal 2021.

Gross margin percent of sales was 3.3% during the first six months of fiscal 2022, compared with 13.3% in the comparable period in fiscal 2021.

The decrease in gross profit was primarily due to decreased volume and higher idle and natural gas costs as described above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.5 million, or 18.4% of net sales during the first three months of fiscal 2022, compared with $3.8 million, or 15.3% of net sales in the comparable period of fiscal 2021.

The decrease in selling, general and administrative expenses is due to $0.2 million in lower commissions.

Selling, general and administrative expenses were $6.2 million, or 14.2% of net sales during the first six months of fiscal 2022, compared with $7.4 million, or 14.9% of net sales in the comparable period of fiscal 2021.

The decrease in selling, general and administrative expenses is primarily due lower depreciation expense of $0.4 million, a reduction in accrued incentive of $0.3 million, $0.2 million lower sales and use taxes, and $0.2 million in lower commissions.

Amortization of Intangibles

Amortization of intangibles was $0.1 million in the first three months of fiscal 2022, compared with $0.3 million in the comparable period of fiscal 2021.

Such decrease was primarily due to certain intangible assets which became fully amortized.

Amortization of intangibles was $0.2 million in the first six months of fiscal 2022, compared with $0.5 million in the comparable period of fiscal 2021.

The decrease was primarily due to certain intangible assets which had been fully amortized during the prior fiscal year.

Other/General

Prior year results included a $2.5 million gain in insurance recoveries related to the assets that were damaged in the fire at the Orange location that occurred in December 2018.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first three months of both fiscal 2022 and 2021:

In the first six months of fiscal 2022, the Company recognized a gain on extinguishment of debt related to the PPP loan that was forgiven by the SBA for $5.1 million.

See Note 5, Debt for further discussion.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first six months of both fiscal 2022 and 2021:

Weighted Average

Interest Rate

Three Months Ended

December 31, Weighted Average

Six Months Ended

March 31, Weighted Average

Outstanding Balance

Thee Months Ended

Six Months Ended

2022 2021 2022 2021

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Other debt 0.5 % 1.0 % $ 3.2 million $ 5.7 million

The Company’s effective tax rate through the first three months of fiscal 2022 was 1.3%, compared with (43)% for the same period of fiscal 2021.

The Company’s effective tax rate through the first six months of fiscal 2022 was 33%, compared with (97)% for the same period of fiscal 2021.

The increase in the effective rate was primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy recognized on a discrete basis in fiscal 2021, which were non-recurring in fiscal 2022.

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Net (Loss) Income

Net loss was $3.7 million during the first three months of fiscal 2022, compared with net income of $3.0 million in the comparable period of fiscal 2021.

The net loss is attributed to lower sales and decreased gross profit due to idle costs recorded.

Net loss was $0.1 million during the first six months of fiscal 2022, compared with net income of $1.5 million in the comparable period of fiscal 2021.

The net loss is attributed to lower sales and decreased gross profit due to idle costs recorded, partially offset by the gain on loan extinguishment related to the PPP loan.

Prior year results included $2.5 million in insurance recoveries and a favorable tax benefit.

Three Months Ended March 31, 2022 compared with Three Months Ended March 31, 2021

Net sales for the second quarter of fiscal 2022 decreased 1.2% to $24.6 million, compared with $24.9 million in the comparable period of fiscal 2021.

Net sales comparative information for the second quarter of fiscal 2022 and 2021 is as follows:

(Dollars in millions) Three Months Ended

March 31, Increase (Decrease)

Net Sales 2022 2021

Aerospace components for:

Fixed wing aircraft $ 10.1 $ 10.2 $ (0.1)

Rotorcraft 4.4 7.9 (3.5)

Energy components for power generation units 4.3 5.1 (0.8)

Commercial product and other revenue 5.8 1.7 4.1

Total $ 24.6 $ 24.9 $ (0.3)

The increase in commercial product and other revenues of $4.1 million was attributed to timing of orders for a munitions program and increase in sales related to the commercial space industry.

This was offset by a decrease of $3.5 million in rotorcraft sales driven by a combination of slower sales caused by COVID-19 (following a prior surge of purchases of military spares) along with continued procurement delays in obtaining raw materials and a decrease in build rates for certain programs.

Commercial net sales were 38.7% of total net sales and military net sales were 61.3% of total net sales in the second quarter of fiscal 2022, compared with 37.2% and 62.8%, respectively, in the comparable period of fiscal 2021.

Military net sales decreased by $0.6 million to $15.1 million in the second quarter of fiscal 2022, compared with $15.6 million in the comparable period of fiscal 2021, primarily due to the timing of orders for a munitions program, partially offset by a decrease in build rates in certain programs.

Commercial net sales increased $0.3 million to $9.5 million in the second quarter of fiscal 2022, compared with $9.2 million in the comparable period of fiscal 2021 primarily due to increase in sales related the commercial space industry partially offset by decreased build rates in certain commercial programs.

Cost of Goods Sold

Cost of goods sold was $23.1 million, or 94.1% of net sales, during the second quarter of fiscal 2022, compared with $22.1 million or 89.0% of net sales, in the comparable period of fiscal 2021, primarily due to higher material costs of $0.5 million, idle expense of $0.4 million, and increased energy costs of $0.3 million.

Gross profit decreased $1.2 million to $1.5 million during the second quarter of fiscal 2022, compared with $2.7 million in the comparable period of fiscal 2021.

Gross margin was 5.9% during the second quarter of fiscal 2022, compared with 11.0% in the comparable period in fiscal 2021.

The decrease in gross margin was primarily due to higher costs incurred as noted above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $2.7 million, or 10.9% of net sales, during the second quarter of fiscal 2022, compared with $3.6 million, or 14.5% of net sales, in the comparable period of fiscal 2021.

The decrease is primarily due to a reduction in accrued incentive costs of $0.3 million, $0.2 million lower depreciation, $0.2 million lower sales and use tax, along with lower commissions of $0.1 million and lower salary and benefits.

Amortization of Intangibles

Amortization of intangibles was $0.1 million in the second quarter of fiscal 2022 compared with $0.3 million in the second quarter of fiscal 2021.

The decrease was due to certain intangible assets that became fully amortized during the prior fiscal year.

Other/General

Included in other income (loss), net, in the second quarter of fiscal 2022 is the PPP loan for forgiveness of $5.1 million.

See Note 5, Debt for further discussion.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s Credit Agreement in the second quarter of both fiscal 2022 and 2021:

Weighted Average

Interest Rate

Three Months Ended

March 31, Weighted Average

Outstanding Balance

Three Months Ended

2022 2021 2022 2021

Revolving credit agreement 1.8 % 1.4 % $ 11.1 million $ 7.5 million

Foreign term debt 5.0 % 4.1 % $ 6.6 million $ 7.1 million

Other debt 1.8 % 1.0 % $ 0.8 million $ 5.7 million

The Company's effective tax rate in the second quarter of fiscal 2022 was 1%, compared with (12)% for the same period of fiscal 2021.

The increase in the effective rate was primarily attributable to changes in jurisdictional mix of income during the three months ended March 31, 2022 compared to the same period of fiscal 2021.

The effective tax rate differs from the U.S.

Federal statutory rate due primarily to the valuation allowance against the Company's U.S.

deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S.

statutory tax rate.

Net (Loss) Income

Net income was $3.6 million during the second quarter of fiscal 2022, compared with net loss of $1.5 million in the comparable period of fiscal 2021.

The net income is primarily attributed to the gain on loan extinguishment related to the PPP loan noted above, partially offset by the higher costs noted above.

Non-GAAP Financial Measures

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The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA:

Dollars in thousands Three Months Ended

Dollars in thousands Three Months Ended Six Months Ended

March 31, March 31,

2022 2021 2022 2021

Net (loss) income $ 3,639 $ (1,491) $ (52) $ 1,502

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Interest expense, net 193 169 307 335

Income tax benefit (49) (905)

Income tax expense (benefit) 23 165 (26) (740)

EBITDA 5,451 748 3,439 4,827

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Other loss (income), net (2) (36) 42 (68) 103

Gain on disposal of assets (3) (2) — (2) —

Gain on insurance recoveries (4) — — — (2,495)

Gain on extinguishment of debt (5) (5,106) — (5,106) —

Equity compensation (6) 145 150 306 293

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(2) Represents miscellaneous non-operating income or expense, such as pension costs or grant income.

(3) Represents the difference between the proceeds from the sale of operating equipment and the carrying value shown on the Company's books or asset impairment of long-lived assets.

(4) Represents the difference between the insurance proceeds received for the damaged property and the carrying values shown on the Company's books for the assets that were damaged in the fire at the Orange location that occurred in December 2018.

(5) Represents the gain on extinguishment of debt and interest for the amount forgiven by the SBA as it relates to the PPP loan.

(6) Represents the equity-based compensation expense recognized by the Company under the 2016 Plan due to granting of awards, awards not vesting and/or forfeitures.

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We anticipate that cash provided by the cash flows from operations and borrowing capacity under our Credit Agreement will be sufficient to meet our anticipated cash requirements for the next twelve months, which primarily include operating expenses, including salaries and working capital requirements.

The ongoing impact and magnitude of COVID-19 continues to remain uncertain (including the pandemic's continued effects on the global economy and potential for market disruptions) due to the continued interruptions to the business of our customers and suppliers, which in turn can impact our business operations and results as well as our liquidity and capital resources.

The ongoing impact and magnitude of the consequences and effects of COVID-19, along with the pandemic itself, continues to remain uncertain (including the pandemic's continued effects on the global economy and potential for market disruptions) due to the continued interruptions to the business of our customers and suppliers, which in turn can impact our business operations and results as well as our liquidity and capital resources.

The Company's liquidity could be negatively affected by customers extending payment terms to the Company and/or the decrease in demand for our products as a result of the impact of COVID-19 on the commercial airline industry.

As the impact of the COVID-19 pandemic on the economy and the Company's operations continues to evolve, the Company and management will continue to assess and actively manage liquidity needs.

As the impact of COVID-19 on the economy and the Company's operations continues to evolve, the Company and management will continue to assess and actively manage liquidity needs.

See "Results of Operation" for further discussion of the impact of COVID-19.

Cash and cash equivalents was $0.7 million at December 31, 2021 and $0.3 million at September 30, 2021.

At December 31 2021, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S.

Cash and cash equivalents was $0.1 million at March 31, 2022 and $0.3 million at September 30, 2021.

At March 31 2022, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S.

subsidiaries.

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Operating Activities

The Company’s operating activities provided $1.2 million of cash in the first three months of fiscal 2022, generated primarily by accounts receivable collections, an increase in accounts payable due to increased raw material purchases and other non-cash items, such as depreciation and amortization.

Cash generation activities were partially offset by the net loss of $3.7 million and a $2.7 million increase in inventory to support sales in fiscal 2022.

The Company’s operating activities provided $3.1 million of cash in the first three months of fiscal 2021.

The cash provided by operating activities in the first three months of fiscal 2021 was primarily due to net income of $3.0 million and $1.4 million decrease in net working capital, partially offset by $1.2 million in non-cash items, such as gain on insurance recovery, and deferred income taxes, depreciation and amortization, equity based compensation, and LIFO effect.

The Company’s operating activities used $3.2 million of cash in the first six months of fiscal 2022, primarily due to operating results, an increase in inventory of $2.6 million, and a reduction of accrued liabilities of $1.2 million, partially offset by accounts receivable collections and a slight increase in accounts payable.

The Company’s operating activities provided $5.8 million of cash in the first six months of fiscal 2021.

The cash provided by operating activities in the first six months of fiscal 2021 was primarily due to net income of $1.5 million and $3.2 million decrease in net working capital, partially offset by $1.1 million in non-cash items, such as gain on insurance recovery, and deferred income taxes, depreciation and amortization, equity based compensation, and LIFO effect.

The cash provided by working capital was primarily due to decrease in receivables due to customer collections and decreased accrued liabilities.

Investing Activities

Cash used for investing activities was $0.5 million in the first three months of fiscal 2022, compared with $0.3 million in the first three months of fiscal 2021, which includes $3.5 million of insurance recovery on the damaged property related to the fire at the Orange location.

Capital commitments as of December 31, 2021 were $1.0 million.

Cash used for investing activities was $1.5 million in the first six months of fiscal 2022, compared with $1.3 million in the first six months of fiscal 2021.

Prior year included $4.1 million of insurance recovery on the damaged property related to the fire at the Orange location.

Capital commitments as of March 31, 2022 were $1.2 million.

The Company anticipates that the remaining total fiscal 2022 capital expenditures will be within the range of $2.0 million to $3.0 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Financing Activities

Cash used for financing activities was $0.4 million in the first three months of fiscal 2022, compared with cash used for financing activities of $2.1 million in the first three months of fiscal 2021.

As discussed in Note 5, Debt, the Company's Maniago location obtained new borrowings from a lender during the first quarter of fiscal 2022 for approximately $1.1 million with a six year term.

Cash provided by financing activities was $4.5 million in the first six months of fiscal 2022, compared with cash used for financing activities of $4.6 million in the first six months of fiscal 2021.

As discussed in Note 5, Debt, the Company's Maniago location obtained new borrowings from a lender during the first six months of fiscal 2022 for approximately $1.1 million with a six year term.

The proceeds of this loan are to be used for working capital purposes.

Short-term debt repayments were $1.5 million in the first three months of fiscal 2022 compared with net short-term debt borrowings of $1.8 million in the first three months of fiscal 2021.

The Company had net borrowings to the revolver under the Credit Agreement of $0.3 million in the first three months of fiscal 2022 compared with net repayments of $3.7 million in the first three months of fiscal 2021.

Short-term debt repayments were $0.1 million in the first six months of fiscal 2022 compared with net short-term debt advances of $0.9 million in the first six months of fiscal 2021.

The Company had net borrowings to the revolver under the Credit Agreement of $3.9 million in the first six months of fiscal 2022 compared with net repayments of $5.1 million in the first six months of fiscal 2021.

Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 5, Debt.

The availability at December 31, 2021 was $12.2 million, which was greater than the 10.0% of the

Revolving Commitment as of December 31, 2021.

The availability at March 31, 2022 was $12.8 million, which was greater than the 10.0% of the Revolving Commitment as of March 31, 2022.

As such, no covenant calculation was required.

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In the event of a default, we may not be able to access our revolver, which could impact the ability to fund working capital needs, capital expenditures and invest in new business opportunities.

As noted in Note 10, Subsequent Events, the Company was notified that its application for forgiveness of the $5.0 million PPP Loan was approved by the SBA in January 2022.

As such, the loan amount and all related interest accrued is to be forgiven.

The Company will derecognize the liability in the second quarter of fiscal 2022 when the loan is forgiven and the Company is legally released from the loan.

As noted in Note 5, Debt, the Company entered its Sixth Amendment which amends the Credit Agreement to, among other things, (i) revise the fixed coverage ratio to exclude the first $1.5 million of unfunded capital expenditures through April 20, 2023, (ii) increase the letter of credit sub-limit from $2.0 million to $3.0 million, (iii) modify the reference rate from the London interbank offered rate ("LIBOR") to the secured overnight financing rate ("SOFR") under the Credit Agreement, and (iv) revise the property, plant and equipment component of the borrowing base under the Credit Agreement.

As part of the amendment, was the Second Amendment which amends the Export Agreement to replace the reference rate from LIBOR to SOFR under the Export Credit Agreement.

The Company received forgiveness of the $5.0 million PPP Loan, plus accrued interest, from the SBA in January 2022.

As such, the Company derecognized the liability in the second quarter of fiscal 2022 and has been legally released from the loan.

Future cash flows from the Company’s operations may be used to pay down amounts outstanding under the Credit Agreement and its foreign related debts.

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Additionally, the credit and capital markets have seen significant volatility during the course of the pandemic.

Tightening of the credit market and standards, as well as capital market volatility, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing Credit Agreement, in the event the Company seeks additional liquidity sources as a result of the continued impact of COVID-19.

Tightening of the credit market and standards, as well as capital market volatility caused by various factors, included the continued effects of COVID-19 and/or ongoing geopolitical tensions, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing Credit Agreement, in the event the Company seeks additional liquidity sources as a result of the

continued impact of COVID-19.

Capital market uncertainty and volatility, together with the Company’s market capitalization and status as a smaller reporting company could also negatively impact our ability to obtain equity financing.

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For recently adopted accounting standards refer to Note 1, Summary of Significant Accounting Policies - Recently Adopted Accounting Standards for further detail.

Additionally, the Company's significant accounting policies and procedures are explained in the Management's Discussion and Analysis section of the Company's Annual Report on Form 10-K for the year ended September 30, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis