SIFCO INDUSTRIES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company’s operations, future results and prospects. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. 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; (2) the future business environment, including capital and consumer spending; (3) competitive factors, including the ability to replace business that may be lost at comparable margins; (4) metals and commodities price increases and the Company’s ability to recover such price increases; (5) successful development and market introduction of new products and services; (6) continued reliance on consumer acceptance of regional and business aircraft powered by more fuel efficient turboprop engines; (7) continued reliance on military spending, in general, and/or several major customers, in particular, for revenues; (8) the impact on future contributions to the Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market value of plan assets; (9) stable governments, business conditions, laws, regulations and taxes in economies where business is conducted; (10) the ability to successfully integrate businesses that may be acquired into the Company’s operations; (11) cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners; (12) our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulations; (13) the ability to maintain a qualified workforce; (14) the adequacy and availability of our insurance coverage; (15) our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers; (16) our ability to realize amounts in our backlog; (17) investigations, claims, disputes, enforcement actions, litigation and/or other legal proceedings; (18) extraordinary or force majeure events affecting the business or operations of our business (19) the continued long term impact of the COVID-19 pandemic and related residual negative impact on the global economy, which may exacerbate the above factors and/or impact our results of operations and financial condition; and (20) in connection with its entry into the Seventh Amendment to its Credit Agreement and Third Amendment to its Export Credit Agreement, the Company is evaluating available financial alternatives, including obtaining acceptable alternative financing. The Company has obtained lender waiver 16 on Existing Defaults and concluded the forbearance period as described under the Forbearance Agreement dated April 28, 2023. If the Company is unable to find alternative financing as contemplated by the terms of the Seventh Amendment, the lender under the Credit Agreement may choose to accelerate repayment. The Company cannot provide assurances that it will be able to provide the remaining post closing deliverable as established under the Seventh Amendment of the Credit Agreement or be successful in restructuring of existing debt obligations, obtaining capital or entering into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the maturity date of its obligations under the Credit Agreements. The Company engages in the production of forgings and machined components primarily for the A&E and commercial space markets. The processes and services provided by the Company include forging, heat-treating, machining, subassembly, and test. The Company operates under one business segment. The Company endeavors to continue to plan and evaluate its business operations while taking into consideration certain factors including the following: (i) the projected build rate for commercial, business and military aircraft, as well as the engines that power such aircraft; (ii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft, as well as the engines that power such aircraft; (iii) the projected build rate and repair for industrial turbines; and (iv) commercial space. The Company operates within a cost structure that includes a significant fixed component. Therefore, higher net sales volumes are expected to result in greater operating income because such higher volumes allow the business operations to better leverage the fixed component of their respective cost structures. Conversely, the opposite effect is expected to occur at lower net sales and related production volumes. A. Results of Operations Overview The Company produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as military aircraft and other military applications; (ii) airframe applications for a variety of aircraft; (iii) industrial gas and steam turbine engines for power generation units; and (iv) commercial space, semiconductor and other commercial applications. In fiscal 2023, the Company continued to see an impact on its operations with respect to supply chain lead times and ongoing challenges in the labor market. The Company’s domestic operations during this period were also impacted by the Cyber Incident which resulted in production delays and delayed shipments due to information access limitations. The Company has since completed data recovery and restoration from the Cyber Incident. See Note 12, Commitments and Contingencies. In fiscal 2022, the residual impact of the COVID-19 pandemic (including a decrease in commercial air travel) and certain geopolitical factors impacting the availability of energy and raw materials continued to effect the Company’s results of operations. While commercial air travel and energy prices began to stabilize beginning in the second quarter of fiscal 2023, the Company continues to monitor these factors and seeks to find ways to mitigate any future impact on its operations. Backlog of Orders SIFCO’s total backlog at June 30, 2023 was $122.8 million, compared with $69.4 million as of June 30, 2022. Orders may be subject to modification or cancellation by the customer with limited charges. Recovery in the A&E markets has resulted in increased bookings. Backlog information may not be indicative of future sales. Nine Months Ended June 30, 2023 compared with Nine Months Ended June 30, 2022 Net Sales Net sales comparative information for the first nine months of fiscal 2023 and 2022 is as follows: 17 (Dollars in millions) Nine Months Ended June 30, Increase/ (Decrease) Net Sales 2023 2022 Aerospace components for: Fixed wing aircraft $ 28.3 $ 30.3 $ (2.0) Rotorcraft 12.0 12.0 — Energy components for power generation units 16.7 12.9 3.8 Commercial product and other revenue 5.4 10.1 (4.7) Total $ 62.4 $ 65.3 $ (2.9) Net sales for the first nine months of fiscal 2023 decreased $2.9 million to $62.4 million, compared with $65.3 million in the comparable period of fiscal 2022. In general, the production of the Company's products have lead times of varying lengths. The cybersecurity incident, due to information access limitations and system constraints, impacted domestic operations and the timing of shipments in the second quarter of fiscal 2023. Year over year, the Cyber Incident and extended raw material lead times have resulted in delayed shipments. The delayed shipments, coupled with demand shift between military and commercial revenue, largely drove the decrease in sales. The Company's foreign operations were not impacted by the Cyber Incident and is reflected in the sales to the power generation market that it primarily serves. Fixed wing sales decreased $2.0 million compared with the same period last year primarily due to F18 demand reduction and timing of orders on the 767 and other programs. Rotorcraft sales were flat compared with the same period last year. The energy components for power generation units increased by $3.8 million due to growth in the steam turbine markets. Commercial products and other revenue decreased $4.7 million in the first nine months of fiscal 2023 compared to the same period in fiscal 2022, primarily due to timing of orders related to a munitions program. Commercial net sales were 55.5% of total net sales and military net sales were 44.5% of total net sales in the first nine months of fiscal 2023, compared with 45.5% and 54.5%, respectively, in the comparable period in fiscal 2022. Military net sales decreased by $7.8 million to $27.8 million in the first nine months of fiscal 2023, compared with $35.5 million in the comparable period of fiscal 2022, primarily due to F18 demand reduction and timing of a munitions program. Co mmercial net sales increased $4.9 million to $34.6 million in the first nine months of fiscal 2023, compared with $29.7 million in the comparable period of fiscal 2022, primarily due to an increase in the power generation steam turbine market and commercial space. Cost of Goods Sold Cost of goods sold decreased by $7.5 million, or 11.8%, to $55.9 million, or 89.7% of net sales, during the first nine months of fiscal 2023, compared with $63.4 million or 97.2% of net sales, in the comparable period of fiscal 2022. The decrease is primarily due to lower volume, ERC benefit of $1.5 million, reduction of NRV reserve of $1.4 million primarily resulting from operational improvements and lower idle and labor expense of $0.7 million and $0.2 million, respectively partially offset by higher outside service costs of $0.3 million. Gross Profit Gross profit increased $4.6 million to $6.5 million in the first nine months of fiscal 2023, compared with $1.8 million gross profit in the comparable period of fiscal 2022. Gross profit percent of sales was 10.3% during the first nine months of fiscal 2023, compared with 2.8% in the comparable period in fiscal 2022. The increase in gross profit compared to prior fiscal year was primarily due to product mix, ERC benefit of $1.5 million, reduction of NRV reserve $1.4 million primarily resulting from operational improvements and lower idle and labor expense of $0.7 million and $0.2 million, respectively partially offset by higher outside service costs of $0.3 million. Selling, General and Administrative Expenses Selling, general and administrative expenses were $10.5 million, or 16.9%, of net sales during the first nine months of fiscal 2023, compared with $9.0 million, or 13.8%, of net sales in the comparable period of fiscal 2022. The increase in selling, general and administrative expenses is primarily due to incremental IT costs related to the cybersecurity incident of $1.2 million and professional fees primarily related to the ERC credit of $0.4 million partially offset by ERC benefit of $0.2 million. See Note 12, Commitments and Contingencies for further discussion. 18 Amortization of Intangibles Amortization of intangibles was $0.2 million in the first nine months of fiscal 2023, compared with $0.3 million in the comparable period of fiscal 2022. Other/General 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 and Subsequent Event 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 nine months of both fiscal 2023 and 2022: Weighted Average Interest Rate Nine Months Ended June 30, Weighted Average Outstanding Balance Nine Months Ended June 30, 2023 2022 2023 2022 Revolving credit agreement 6.6 % 2.0 % $ 12.6 million $ 10.4 million Foreign term debt 4.4 % 2.9 % $ 7.3 million $ 6.3 million Other debt 1.6 % 0.6 % $ 0.5 million $ 2.3 million Income Taxes The Company’s effective tax rate through the first nine months of fiscal 2023 was (2.3)%, compared with 1% for the same period of fiscal 2022. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period of fiscal 2022. 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 Net loss was $5.6 million during the first nine months of fiscal 2023, compared with net loss of $2.7 million in the comparable period of fiscal 2022. The decrease compared with prior year is primarily due to PPP forgiveness in fiscal 2022, lower volume and higher selling, general and administrative expenses partially offset by reduction of NRV reserve $1.4 million primarily resulting from operational improvements and net ERC benefit of $1.4 million. Three Months Ended June 30, 2023 compared with Three Months Ended June 30, 2022 Net Sales Net sales for the third quarter of fiscal 2023 increased 1.9% to $21.9 million, compared with $21.4 million in the comparable period of fiscal 2022. Net sales comparative information for the third quarter of fiscal 2023 and 2022 is as follows: (Dollars in millions) Three Months Ended June 30, Increase (Decrease) Net Sales 2023 2022 Aerospace components for: Fixed wing aircraft $ 8.7 $ 10.3 $ (1.6) Rotorcraft 4.1 4.1 — Energy components for power generation units 7.0 4.9 2.1 Commercial product and other revenue 2.1 2.1 — Total $ 21.9 $ 21.4 $ 0.5 Rotorcraft and commercial product and other revenues sales were flat compared with the same period last year. Fixed wing sales decreased $1.6 million compared with the same period last year primarily due to F18 demand reduction and timing of orders on 737 and 767 programs. This was offset by an increase of $2.1 million in power generation sales driven by growth in the steam turbine market. Commercial net sales were 59.9% of total net sales and military net sales were 40.1% of total net sales in the third quarter of fiscal 2023, compared with 55.3% and 44.7%, respectively, in the comparable period of fiscal 2022. Military net sales 19 decreased by $0.8 million to $8.8 million in the third quarter of fiscal 2023, compared with $9.6 million in the comparable period of fiscal 2022, primarily due to F18 demand reduction and timing of certain orders. Commercial net sales increased $1.2 million to $13.1 million in the third quarter of fiscal 2023, compared with $11.9 million in the comparable period of fiscal 2022 primarily due to increase in sales related power generation steam blades. Cost of Goods Sold Cost of goods sold was $18.4 million, or 84.1% of net sales, during the third quarter of fiscal 2023, compared with $21.1 million or 98.3% of net sales, in the comparable period of fiscal 2022, primarily due to ERC benefit of $1.5 million, reduction of idle expense $0.3 million and reduction of NRV reserve $0.2 million primarily resulting from operational improvements, partially offset by higher labor costs of $0.3 million. Gross Profit Gross profit increased $3.1 million to $3.5 million during the third quarter of fiscal 2023, compared with $0.4 million in the comparable period of fiscal 2022. Gross margin was 15.9% during the third quarter of fiscal 2023, compared with 1.7% in the comparable period in fiscal 2022. The increase in gross margin was primarily due to ERC benefit of $1.5 million and lower costs incurred as noted above. Selling, General and Administrative Expenses Selling, general and administrative expenses were $3.4 million, or 15.5% of net sales, during the third quarter of fiscal 2023, compared with $2.8 million, or 13.1% of net sales, in the comparable period of fiscal 2022. The increase is primarily due to IT incident costs of $0.2 million and professional fees primarily related to the ERC credit of $0.4 million partially offset by ERC benefit of $0.2 million. Amortization of Intangibles Amortization of intangibles was $0.1 million in the third quarter of fiscal 2023 compared with $0.1 million in the third quarter of fiscal 2022. Other/General Included in other expense, net, in the third quarter of fiscal 2023 is $0.2 million reclassification of utility rebates into cost of goods sold and $0.1 million of pension settlement expense. 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 2023 and 2022: Weighted Average Interest Rate Three Months Ended June 30, Weighted Average Outstanding Balance Three Months Ended June 30, 2023 2022 2023 2022 Revolving credit agreement 7.2 % 2.4 % $ 14.2 million $ 11.3 million Foreign term debt 4.8 % 2.3 % $ 7.5 million $ 6.2 million Other debt 1.6 % 1.8 % $ 0.4 million $ 0.7 million Income Taxes The Company's effective tax rate in the third quarter of fiscal 2023 was (5.8)%, compared with 0.1% for the same period of fiscal 2022. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income during the three months ended June 30, 2023 compared to the same period of fiscal 2022. 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 Net loss was $0.6 million during the third quarter of fiscal 2023, compared with $2.7 million in the comparable period of fiscal 2022. The lower net loss in fiscal 2023 is primarily attributed to the higher volume, net ERC benefit of $1.4 million and lower costs noted above. 20 Non-GAAP Financial Measures Presented below is certain financial information based on the Company's EBITDA and Adjusted EBITDA. References to “EBITDA” mean earnings (losses) from continuing operations before interest, taxes, depreciation and amortization, and references to “Adjusted EBITDA” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and Adjusted EBITDA. Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under generally accepted accounting principles in the United States of America (“GAAP”). The Company presents EBITDA and Adjusted EBITDA because management believes that they are useful indicators for evaluating operating performance and liquidity, including the Company’s ability to incur and service debt and it uses EBITDA to evaluate prospective acquisitions. Although the Company uses EBITDA and Adjusted EBITDA for the reasons noted above, the use of these non-GAAP financial measures as analytical tools has limitations. Therefore, reviewers of the Company’s financial information should not consider them in isolation, or as a substitute for analysis of the Company's results of operations as reported in accordance with GAAP. Some of these limitations include: • Neither EBITDA nor Adjusted EBITDA reflects the interest expense, or the cash requirements necessary to service interest payments on indebtedness; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor Adjusted EBITDA reflects any cash requirements for such replacements; • The omission of the amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA; and • Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to the Company to invest in the growth of its businesses. Management compensates for these limitations by not viewing EBITDA or Adjusted EBITDA in isolation and specifically by using other GAAP measures, such as net income (loss), net sales, and operating income (loss), to measure operating performance. Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net loss or cash flow from operations determined in accordance with GAAP. The Company’s calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies. The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA: Dollars in thousands Three Months Ended Nine Months Ended June 30, June 30, 2023 2022 2023 2022 Net loss $ (634) $ (2,668) $ (5,590) $ (2,720) Adjustments: Depreciation and amortization expense 1,623 1,590 4,820 4,800 Interest expense, net 305 146 919 453 Income tax expense (benefit) 35 (3) 128 (29) EBITDA 1,329 (935) 277 2,504 Adjustments: Foreign currency exchange loss (gain), net (1) 1 (7) 11 2 Other expense (income), net (2) 295 (46) 149 (114) Gain on disposal of assets (3) (3) — — (2) Gain on extinguishment of debt (4) — — — (5,106) Equity compensation (5) 85 4 292 309 Pension settlement expense (6) 78 69 78 69 LIFO impact (7) (73) 202 (272) 586 IT incident costs, net (8) 182 — 1,269 — Strategic alternative expense (9) 29 — 29 — Adjusted EBITDA $ 1,923 $ (713) $ 1,833 $ (1,752) 21 (1) Represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated. (2) Represents miscellaneous non-operating income or expense, such as pension costs and foreign energy tax credits. (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 gain on extinguishment of debt and interest for the amount forgiven by the SBA as it relates to the PPP loan. (5) 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. (6) Represents expense incurred by its defined benefit pension plans related to settlement of pension obligations. (7) Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method. (8) Represents incremental information technology costs as it relates to the cybersecurity incident and loss on insurance recovery. (9) Represents expense related to evaluation of strategic alternatives. B. Liquidity and Capital Resources The main sources of liquidity for the Company have been cash flows from operations and borrowings under our Credit Agreement. The Company's liquidity could be negatively affected if the Company is unable to find alternative financing prior to the expiration of the Credit Agreement, by customers extending payment terms to the Company and/or the decrease in demand for our products. The Company and management will continue to assess and actively manage liquidity needs. See "Results of Operation" for further discussion of the lingering impacts of COVID-19. See Note 7, Debt and Subsequent Event . Cash and cash equivalents was $0.6 million at June 30, 2023 and $1.2 million at September 30, 2022. At June 30, 2023, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S. subsidiaries. Distributions from the Company's non-U.S. subsidiaries to the Company may be subject to adverse tax consequences. Operating Activities The Company’s operating activities used $2.3 million of cash in the first nine months of fiscal 2023, primarily due to operating results and an increase in accounts receivable of $3.2 million partially offset by contract asset and inventory reductions of $1.2 million and $0.9 million, respectively. The increase in accounts receivable is primarily driven by timing of shipments and accrual of ERC refund of $0.5 million. The decrease in inventory is primarily driven by timing of raw material receipts. 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 $1.4 million. Investing Activities Cash used for investing activities was $1.9 million in the first nine months of fiscal 2023, compared with $2.5 million in the first nine months of fiscal 2022. Capital commitments as of June 30, 2023 were $1.1 million. The Company anticipates that the remaining total fiscal 2023 capital expenditures will be within the range of $0.5 million to $1.0 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 $3.5 million in the first nine months of fiscal 2023, compared with $1.6 million in the first nine months of fiscal 2022. As discussed in Note 7, Debt and Subsequent Event, the Company's Maniago location obtained 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 were to be used for working capital purposes. The Company had $0.5 million of net short-term debt borrowings in the first nine months of fiscal 2023 compared with net short-term debt borrowings of $0.1 million in the first nine months of fiscal 2022. The Company had net borrowings to the revolver under the Credit Agreement of $3.8 million in the first nine months of fiscal 2023 compared with net borrowings of $1.2 million in the first nine months of fiscal 2022. Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 7, Debt and Subsequent Event. The availability at June 30, 2023 was $2.6 million, which exceeds both the collateral and total commitment threshold as of June 30, 2023. 22 As noted in Note 7, Debt and Subsequent Event, on March 23, 2022, 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. 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. As noted in Note 7, Debt and Subsequent Event on February 6, 2023, the Company received a Notice from its Lender, with respect to (i) that certain Credit Agreement dated as of August 8, 2018; and (ii) that certain Export Credit Agreement dated as of December 17, 2018. The Notice indicated that the Loan Parties to the Credit Agreements have informed Lender of the occurrence of Events of Defaults under the Credit Agreements as a result of the failure to deliver the required Borrowing Base Certificates thereunder and other Events of Default. The Notice indicated further that Lender is in the process of evaluating the Existing Defaults and reserves all of its rights and remedies under the Credit Agreements and any other Loan Documents with respect thereto. The failure by the Company to provide timely borrowing base certificates and monthly financial reports for the periods of December 2022, January 2023 and February 2023 in accordance with the terms of the Credit Agreements were a result of information access limitations experienced due to the cybersecurity incident that occurred on December 30, 2022. As a secondary default, the Company failed to maintain a FCCR not less than 1.1 to 1.0 for the periods of December 2022, January 2023, February 2023 and March 2023. The secondary default voided the availability spring minimum threshold and triggered the FCCR covenant compliance. See Note 12, Commitments & Contingencies . As noted in Note 7, Debt and Subsequent Event on April 28, 2023, the Company and its subsidiary guarantors entered into a Forbearance Agreement with J.P. Morgan Chase Bank, N.A. in respect to the Event of Default under the Credit Agreement. Pursuant to the Forbearance Agreement, during the forbearance period defined therein: (i) the Reserves under the Borrowing Base in the ABL Credit Agreement are reduced to $2.0 million; (ii) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of $19.0 million and the Borrowing Base. As noted in Note 7, Debt and Subsequent Event, on August 9, 2023, the Company entered into the Seventh Amendment to the Credit Agreement and the Third Amendment to the Export Credit Agreement with its lender. The Seventh Amendment amends the Credit Agreement to, among other things, (i) reduce the Revolving Credit Agreement to $23.0 million, thereby reducing the total revolving commitment to $30.0 million; (ii) modifies the loan maturity date to December 31, 2023; (iii) provides waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023; (iv) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of Revolving Commitment, less the Availability Block, if applicable, the Borrowing Base, and in combination with the Export Revolving Loan under the Export Credit Agreement $19.0 million. The Second Amendment amends the Export Credit Agreement to (i) modify the loan maturity date to December 31, 2023 and (ii) provides waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023. As noted in Note 7, Debt and Subsequent Event, the Company provided to its lender one or more proposed term sheets which provide for the refinancing of all of the Obligations and a CIM on or before the requisite due dates as required under the terms of the Seventh Amendment. 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. The Company believes it has adequate cash/liquidity available to finance its operations from the combination of (i) the Company’s expected cash flows from operations and (ii) funds available under the Credit Agreement for its domestic locations. In fiscal year 2022, the Company was able to obtain new financing at its Maniago location to provide Maniago with sufficient liquidity. Additionally, the credit and capital markets saw 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, including the continued long term 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. 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. C. Recent Accounting Standards Not Yet Adopted For recent accounting standards not yet adopted refer to Note 1, Summary of Significant Accounting Policies - Recent Accounting Standards Not Yet Adopted for further detail. Additionally, the Company's significant accounting policies and 23 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, 2022.