What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-05 · 90 added, 94 removed, 164 unchanged (53% of the section changed)

5 unchanged sentences

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;

31 unchanged sentences

and (iv) other commercial applications.

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.

Impact of COVID-19 & Other Factors

The lingering impact and residual effects of the coronavirus ("COVID-19") pandemic, along with other factors, such as ongoing geopolitical tensions, have created strains on supply chains, and general economic conditions.

While the exact timing and pace of recovery in our markets continues to be indeterminable, there are indications that commercial air travel is steadily recovering in certain areas.

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 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.

Given the fluidity of the situation, it is still unclear how lasting and deep the ongoing economic impacts of COVID-19 will last.

During the third quarter of fiscal 2022, the effects of 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 obtaining materials required to produce certain products.

As sales volumes have fluctuated, the Company has taken measures to reduce costs by furloughing certain of its employees from time to time at one of its plant locations.

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

For example, while the Company does not have a presence in these regions, the ongoing conflict between Russia and Ukraine has impacted economic activity as well as the availability and price of raw materials and energy.

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

Backlog of Orders

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

SIFCO’s total backlog at June 30, 2022 was $69.4 million, compared with $78.1 million as of June 30, 2021.

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

1 unchanged sentence

Backlog information may not be indicative of future sales.

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)

Nine Months Ended June 30, 2022 compared with Nine Months Ended June 30, 2021

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

(Dollars in millions) Nine Months Ended

June 30, Increase/ (Decrease)

Net Sales 2022 2021

5 unchanged sentences

Total $ 65.3 $ 75.3 $ (10.0)

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.

Net sales for the first nine months of fiscal 2022 decreased $10.0 million to $65.3 million, compared with $75.3 million in the comparable period of fiscal 2021.

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

The varying lead times, coupled with constraints caused by pressures in timely obtaining raw materials, have contributed to the decline of sales year over year, along with the current state of the commercial aerospace market, in particular, the wide body market.

Rotorcraft sales decreased $7.7 million compared with the same period last year due to delays in receiving customer orders and a decrease in build rates.

The varying lead times, coupled with constraints caused by pressures in timely obtaining raw materials, have contributed to the decline of sales year over year, along with the continued state of the commercial aerospace market, in particular, the wide body market.

Rotorcraft sales decreased $9.7 million compared with the same period last year due to delays in receiving customer orders and program volume reductions.

The energy components for power generation units decreased by $1.9 million due to variability in the steam turbine market that we serve.

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.

Commercial products and other revenue increased $0.2 million in the first nine 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 45.5% of total net sales and military net sales were 54.5% of total net sales in the first nine months of fiscal 2022, compared with 35.1% and 64.9%, respectively, in the comparable period in fiscal 2021.

Military net sales decreased by $13.3 million to $35.5 million in the first nine months of fiscal 2022, compared with $48.8 million in the comparable period of fiscal 2021, primarily due to timing in order placement and volume reductions related to certain rotorcraft programs and the ability to timely get material to produce parts, partially offset by increased sales in a munitions program.

Co mmercial net sales increased $3.3 million to $29.7 million in the first nine months of fiscal 2022, compared with $26.4 million in the comparable period of fiscal 2021 primarily due to an increase in fixed wing components and commercial space product.

Cost of Goods Sold

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.

Cost of goods sold decreased by $1.9 million, or 2.9%, to $63.4 million, or 97.2% of net sales, during the first nine months of fiscal 2022, compared with $65.3 million or 86.8% of net sales, in the comparable period of fiscal 2021.

The decrease is primarily due to lower volume and $1.6 million in lower payroll costs, partially offset by higher material costs of $1.2 million $0.5 million of idle expense and $0.6 million in increased energy costs.

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

Gross profit decreased $8.2 million to $1.8 million in the first nine months of fiscal 2022, compared with $10.0 million of gross profit in the comparable period of fiscal 2021.

Gross margin percent of sales was 2.8% during the first nine months of fiscal 2022, compared with 13.2% in the comparable period in fiscal 2021.

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

Selling, General and Administrative Expenses

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.

Selling, general and administrative expenses were $9.0 million, or 13.8%, of net sales during the first nine months of fiscal 2022, compared with $10.3 million, or 13.7%, 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 $0.6 million, a reduction in accrued incentive of $0.4 million and $0.2 million in lower commissions.

Amortization of Intangibles

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.

Amortization of intangibles was $0.3 million in the first nine months of fiscal 2022, compared with $0.8 million in the comparable period of fiscal 2021.

The decrease was primarily due to certain intangible assets that became 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.

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.

In the first nine 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:

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

Weighted Average

Interest Rate

Six Months Ended

March 31, Weighted Average

Nine Months Ended

June 30, Weighted Average

Outstanding Balance

Six Months Ended

Nine Months Ended

2022 2021 2022 2021

2 unchanged sentences

Other debt 0.6 % 0.9 % $ 2.3 million $ 5.7 million

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 Company’s effective tax rate through the first nine months of fiscal 2022 was 1 %, compared with ( 79 )% 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.

4 unchanged sentences

Net (Loss) Income

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.

Net loss was $2.7 million during the first nine months of fiscal 2022, compared with net income of $1.8 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:

Three Months Ended June 30, 2022 compared with Three Months Ended June 30, 2021

Net sales for the third quarter of fiscal 2022 decreased 15.3% to $21.4 million, compared with $25.3 million in the comparable period of fiscal 2021.

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

(Dollars in millions) Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

Net Sales 2022 2021

5 unchanged sentences

Total $ 21.4 $ 25.3 $ (3.9)

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.

The decrease in commercial product and other revenues of $5.0 million was attributed to timing of orders for a munitions program, which was partially offset by the increase in sales related to the commercial space industry.

The decrease of $2.0 million in rotorcraft sales is primarily due to delays in receiving customer orders and program volume reductions.

There were increases of $1.7 million in energy components for power generation sales due to recovery in demand and $1.4 million in fixed wing aircraft primarily due to military programs.

Commercial net sales were 55.3% of total net sales and military net sales were 44.7% of total net sales in the third quarter of fiscal 2022, compared with 25.5% and 74.5%, respectively, in the comparable period of fiscal 2021.

Military net sales decreased by $9.3 million to $9.6 million in the third quarter of fiscal 2022, compared with $18.9 million in the comparable period of fiscal 202 1, primarily due to the timing of orders for a munitions program and lower build rates in certain programs.

Commercial net sales increased $5.4 million to $11.9 million in the third quarter of fiscal 2022, compared with $6.5 million in the comparable period of fiscal 2021 primarily due to increased sales related the commercial space industry and increased 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.

Cost of goods sold was $21.1 million, or 98.3% of net sales, during the third quarter of fiscal 2022, compared with $22.0 million or 87.0% of net sales, in the comparable period of fiscal 2021, primarily due to higher material costs of $0.4 million, idle expense of $0.2 million, and increased energy costs of $0.1 million.

Gross profit decreased $2.9 million to $0.4 million during the third quarter of fiscal 2022, compared with $3.3 million in the comparable period of fiscal 2021.

Gross margin was 1.7% during the third quarter of fiscal 2022, compared with 13.0% in the comparable period in fiscal 2021.

The decrease in gross margin was primarily due to lower sales volume and 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.

Selling, general and administrative expenses were $2.8 million, or 13.1% of net sales, during the third quarter of fiscal 2022, compared with $2.9 million, or 11.5%, of net sales, in the comparable period of fiscal 2021.

The decrease is primarily due to a reduction in accrued incentive costs of $0.1 million.

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.

Amortization of intangibles was $0.1 million in the third quarter of fiscal 2022 compared with $0.2 million in the third 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:

Prior year results included $0.3 million gain on debt extin guishment due to partial loan forgiveness at the Company's Maniago location.

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

Weighted Average

1 unchanged sentence

Three Months Ended

March 31, Weighted Average

June 30, Weighted Average

Outstanding Balance

4 unchanged sentences

Other debt 1.8 % 0.9 % $ 0.7 million $ 5.6 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 Company's effective tax rate in the third quarter of fiscal 2022 was 0.

1 %, compared with (16)% 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 June 30, 2022 compared to the same period of fiscal 2021.

The effective tax rate differs from the U.S.

3 unchanged sentences

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.

Net loss was $2.7 million during the third quarter of fiscal 2022, compared with net income of $0.3 million in the comparable period of fiscal 2021.

The net loss is primarily attributed to lower volume and higher costs noted above.

Non-GAAP Financial Measures

15 unchanged sentences

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

Dollars in thousands Three Months Ended Six Months Ended

March 31, March 31,

Dollars in thousands Three Months Ended Nine Months Ended

June 30, June 30,

2022 2021 2022 2021

2 unchanged sentences

Interest expense, net 146 143 453 478

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

Income tax benefit (3) (36) (29) (776)

EBITDA (935) 2,341 2,504 7,168

Foreign currency exchange loss, net (1) 3 14 9 21

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

Foreign currency exchange (gain) loss, net (1) (7) 1 2 22

Other (income) loss, net (2) (46) 55 (114) 158

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

2 unchanged sentences

Equity compensation (6) 4 85 309 378

Pension settlement expense (7) 69 — 69 —

LIFO impact (8) 202 248 586 582

6 unchanged sentences

(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.

(7) Represents expense incurred by its defined benefit pension plans related to settlement of pension obligations.

(8) Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.

1 unchanged sentence

The main sources of liquidity for the Company have been cash flows from operations and borrowings under our Credit Agreement.

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 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 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.

As the lingering 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 $0.1 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.

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

At June 30, 2022, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S.

subsidiaries.

2 unchanged sentences

Operating Activities

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.

The Company’s operating activities provided $0.7 million of cash in the first nine months of fiscal 2022, primarily due to operating results, a decrease in accounts receivable of $2.7 million, partially offset by increases in inventory $1.0 million.

The Company’s operating activities provided $3.5 million of cash in the first nine months of fiscal 2021.

The cash provided by operating activities in the first nine months of fiscal 2021 was primarily due to net income of $1.8 million and $1.4 million decrease in net working capital, and $3.1 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 a decrease in receivables due to customer collections and decreased sales.

Investing Activities

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.

Cash used for investing activities was $2.5 million in the first nine months of fiscal 2022, compared with $1.8 million in the first nine months of fiscal 2021.

The cash used for investing activities in the prior year included $4.1 million in proceeds recovered on the damaged property related to the fire at the Orange location.

Capital commitments as of June 30, 2022 were $1.9 m illion.

The Company anticipates that the remaining total fiscal 2022 capital expenditures will be within the range of $1.0 million to $1.5 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Financing Activities

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.

Cash provided by financing activities was $1.6 million in the first nine months of fiscal 2022, compared with cash used for financing activities of $1.9 million in the first nine months of fiscal 2021.

As discussed in Note 5, Debt, the Company's Maniago location obtained new borrowings from a lender during the first nine 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 $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.

Short-term debt repayments were $0.1 million in the first nine months of fiscal 2022 compared with net short-term debt advances of $1.6 million in the first nine months of fiscal 2021.

The Company had net borrowings to the revolver under the Credit Agreement of $1.2 million in the first nine months of fiscal 2022 compared with net repayments of $3.0 million in the first nine 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 March 31, 2022 was $12.8 million, which was greater than the 10.0% of the Revolving Commitment as of March 31, 2022.

The availability at June 30, 2022 was $14.1 million, which was greater than the 10.0% of the Revolving Commitment as of June 30, 2022.

As such, no covenant calculation was required.

2 unchanged sentences

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.

Additionally, the Export Credit Agreement was amended by the Second Amendment, which replaces the reference rate from LIBOR to SOFR in the Export Credit Agreement.

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

4 unchanged sentences

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 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.

3 unchanged sentences

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