What changed in this filing

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Item 1. Financial Statements

2024-02-14 compared with 2023-09-28 · 165 added, 183 removed, 353 unchanged (50% of the section changed)

5 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Net sales $ 21,052 $ 21,299

4 unchanged sentences

Gain on disposal of operating assets — ( 11 )

Operating income (loss) 30 ( 2,509 ) ( 4,245 ) ( 7,445 )

Operating loss ( 2,885 ) ( 2,069 )

Interest expense, net 430 275

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

Foreign currency exchange loss (gain), net 4 ( 3 )

Other expense (income), net 323 23 287 ( 45 )

Loss before income tax benefit ( 599 ) ( 2,671 ) ( 5,462 ) ( 2,749 )

Income tax expense (benefit) 35 ( 3 ) 128 ( 29 )

Other expense, net 53 182

Loss before income tax expense ( 3,372 ) ( 2,523 )

Income tax expense 50 66

Net loss $ ( 3,422 ) $ ( 2,589 )

10 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Net loss $ ( 3,422 ) $ ( 2,589 )

2 unchanged sentences

Retirement plan liability adjustment, net of tax 43 78

Other — — 1 —

Comprehensive loss $ ( 3,126 ) $ ( 2,168 )

23 unchanged sentences

Current maturities of long-term debt $ 4,085 $ 3,820

Promissory note - related party 3,150 —

Revolver 16,061 16,289

10 unchanged sentences

Serial preferred shares, no par value, authorized 1,000 shares;

0 shares issued and outstanding at December 31, 2023 and September 30, 2023

Common shares, par value $ 1 per share, authorized 10,000 shares;

issued and outstanding shares 6,107 at June 30, 2023 and 6,040 at September 30, 2022

issued and outstanding shares 6,160 at December 31, 2023 and 6,105 at September 30, 2023

Additional paid-in capital 11,609 11,626

8 unchanged sentences

(Unaudited, Amounts in thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

8 unchanged sentences

Inventory valuation accounts 392 ( 812 )

Gain on extinguishment of debt — ( 5,106 )

Other long-term liabilities 18 ( 96 )

19 unchanged sentences

Repayments of revolving credit agreement ( 23,641 ) ( 19,385 )

Payment of debt issuance costs ( 236 ) —

Proceeds from promissory note related party 3,000 —

Short-term debt borrowings 2,246 1,360

1 unchanged sentence

Net cash provided by financing activities 5,468 116

Decrease in cash and cash equivalents ( 691 ) ( 210 )

Increase (decrease) in cash and cash equivalents 2,835 ( 127 )

Cash and cash equivalents at the beginning of the period 368 1,174

3 unchanged sentences

Cash paid for interest $ ( 428 ) $ ( 259 )

Cash paid for income taxes, net $ ( 16 ) $ ( 23 )

Non-cash investing activities:

Additions to property, plant & equipment - incurred but not yet paid $ 541 $ 795

Non-cash financing activities:

Debt issuance cost due at maturity - related party $ 910 $ —

See notes to unaudited consolidated condensed financial statements.

3 unchanged sentences

(Unaudited, Amounts in thousands )

Nine Months Ended

June 30, 2023

Three Months Ended

December 31, 2023

Common Additional

8 unchanged sentences

Share transactions under equity-based plans 55 55 ( 104 ) — — ( 49 )

Balance - June 30, 2023 6,107 $ 6,107 $ 11,541 $ 26,366 $ ( 7,951 ) $ 36,063

Balance - December 31, 2023 6,160 $ 6,160 $ 11,609 $ 19,842 $ ( 6,364 ) $ 31,247

Three Months Ended

June 30, 2023

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance - March 31, 2023 6,108 $ 6,108 $ 11,455 $ 27,000 $ ( 8,124 ) $ 36,439

Comprehensive (loss) income — — — ( 634 ) 173 ( 461 )

Performance and restricted share expense — — 86 — — 86

Share transactions under equity-based plans ( 1 ) ( 1 ) — — — ( 1 )

Balance - June 30, 2023 6,107 $ 6,107 $ 11,541 $ 26,366 $ ( 7,951 ) $ 36,063

Nine Months Ended

June 30, 2022

December 31, 2022

Common Additional

5 unchanged sentences

Balance - September 30, 2022 6,040 $ 6,040 $ 11,387 $ 31,956 $ ( 8,693 ) $ 40,690

Comprehensive loss — — — ( 2,720 ) ( 137 ) ( 2,857 )

Comprehensive (loss) income — — — ( 2,589 ) 421 ( 2,168 )

Performance and restricted share expense — — 122 — — 122

Share transactions under equity-based plans 32 32 ( 103 ) — — ( 71 )

Balance - June 30, 2022 6,040 $ 6,040 $ 11,268 $ 38,876 $ ( 9,216 ) $ 46,968

Three Months Ended

June 30, 2022

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance - March 31, 2022 6,040 $ 6,040 $ 11,264 $ 41,544 $ ( 9,100 ) $ 49,748

Comprehensive loss — — — ( 2,668 ) ( 116 ) ( 2,784 )

Performance and restricted share expense — — 4 — — 4

Balance - June 30, 2022 6,040 $ 6,040 $ 11,268 $ 38,876 $ ( 9,216 ) $ 46,968

Balance - December 31, 2022 6,072 $ 6,072 $ 11,406 $ 29,367 $ ( 8,272 ) $ 38,573

See notes to unaudited consolidated condensed financial statements.

17 unchanged sentences

The year-end consolidated condensed balance sheet contained in these financial statements was derived from the audited financial statements and disclosures required by accounting principles generally accepted in the U.S.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) and disclosures considered necessary for a fair presentation have been included.

The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year.

7 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Net loss $ ( 3,422 ) $ ( 2,589 )

Weighted-average common shares outstanding (basic and diluted) 5,956 5,896

Effect of dilutive securities:

Restricted shares — — — —

Performance shares — — — —

Weighted-average common shares outstanding (diluted) 5,940 5,840 5,925 5,827

Net loss per share – basic:

$ ( 0.11 ) $ ( 0.46 ) $ ( 0.94 ) $ ( 0.47 )

Net loss per share – diluted:

$ ( 0.11 ) $ ( 0.46 ) $ ( 0.94 ) $ ( 0.47 )

Net loss per share – basic and diluted $ ( 0.57 ) $ ( 0.44 )

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 249 176

Going Concern

As required by Accounting Standard Codification ("ASC") ASC Topic 205-40, Presentation of Financial Statements - Going Concern, management assesses the Company's ability to continue as a going concern for one year from the financial statement issuance at each annual and interim reporting period.

The accompanying consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern.

The Company has debt maturing in December 2023 and an alternate financing arrangement has yet to be executed.

This condition raises substantial doubt about the Company’s ability to continue as a going concern.

The Company is evaluating available financial alternatives, including obtaining acceptable alternative financing.

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 discussed in Note 7, Debt and Subsequent Event 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 consolidated condensed financial statements do not include any adjustments to the carrying amount and classification of assets, liabilities, and reported expense that may be necessary if the Company was unable to continue as a going concern.

See Note 7, Debt and Subsequent Event and Note 13, Subsequent Events.

Recent Accounting Standards Not Yet Adopted

In accordance with ASU 2014-15, " Presentation of Financial Statements—Going Concern (Subtopic 205-40) ("ASC 205-40") ", the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued.

This evaluation requires management to perform two steps.

First, management must evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern.

Second, if management concludes that substantial doubt is raised, management is required to consider whether its plans that are not yet fully implemented are probable of both being implemented and effective in alleviating that doubt.

In the event substantial doubt is raised, disclosures in the notes to the consolidated condensed financial statements of management’s plans and management’s conclusion as to whether

the substantial doubt exists or has been alleviated are required.

The consolidated condensed financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

This step shall not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

The Company has debt maturing in October 2024.

As a result of this condition, there is substantial doubt about the Company’s ability to continue as a going concern.

The Company continues to evaluate available financial alternatives, including obtaining acceptable alternative financing.

The Company cannot provide assurances that it will be successful in restructuring the 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.

See Note 7 , Debt.

Recent Accounting Standards Adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326):

9 unchanged sentences

However, in November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which defers the effective date for public filers that qualify as a smaller reporting company ("SRC"), as defined by the Securities and Exchange Commission, to fiscal years after December 15, 2022, including interim periods within those fiscal years.

Because SIFCO is considered a SRC, the Company is not required to implement until October 1, 2023.

The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company's results within the consolidated statements of operations and financial condition.

Because SIFCO is considered a SRC, this ASU is effective for the Company beginning October 1, 2023.

The effect of adopting this ASU did not have an impact to the Company's results within the consolidated condensed statements of operations and financial condition.

Recent Accounting Standards Not Yet Adopted

In July 2023, the FASB issued ASU 2023-03, " Presentation of Financial Statement (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718)" , to amend various SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No.

120, among other things.

The ASU does not provide any new guidance so there is no transition or effective date associated with it.

The Company is currently assessing the impact of adopting ASU 2023-03 on the consolidated condensed financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, " Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures" , that would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280.

ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker ("CODM") uses to assess segment performance and to make decisions about resource allocations.

The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses.

Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments.

For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources.

ASC 280 also requires other specified segment items and amounts such as depreciation, amortization and depletion expense to be disclosed under certain circumstances.

The amendments in ASU 2023-07 do not change or remove those disclosure requirements.

The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the

financial statements.

The Company is currently assessing the impact of adopting ASU 2023-07 on the consolidated condensed financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" .

ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information.

Early adoption is permitted.

A public entity should apply the amendments in ASU 2023-09 prospectively to all annual periods beginning after December 15, 2024.

The Company is currently evaluating the impact of this standard on our consolidated condensed financial statements and related disclosures.

Employee Retention Credit

Under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Employee Retention Credit ("ERC") is a refundable payroll tax credit for businesses and tax-exempt organizations that were affected during the COVID-19 pandemic.

Eligible businesses, both for-profit and not-for-profit, that experienced a full or partial government-ordered suspension of operations or a "significant" decline in gross receipts in any quarter (more than 50% decrease in 2020 from 2019, and more than 20% in 2021) could receive a quarterly refundable payroll tax credit.

The Company, with reasonably assured qualification, submitted and received approval for refunds under the ERC program.

Under the Employee Retention Credit ("ERC") program, eligible businesses, both for-profit and not-for-profit, that experienced a full or partial government-ordered suspension of operations or a "significant" decline in gross receipts in any quarter (more than 50% decrease in 2020 from 2019, and more than 20% in 2021) could receive a quarterly refundable payroll tax credit.

The Company, with reasonably assured qualification, submitted for refunds under the ERC program.

As no authoritative guidance exists under U.S.

GAAP for reporting ERCs, the Company adopted International Accounting Standards ("IAS") 20 – Accounting for Government Grants and Disclosure of Government Assistance which permits the recording and presentation of either the gross amount as other income or netting the credit against related expense.

The Company recorded a gross benefit of $ 1,772 , which represented $ 1,688 claimed as refund and $ 84 in interest income.

The ERC was recognized as a reduction in other manufacturing and selling, general and administrative expenses and allocated to the financial statement categories from which the payroll taxes were originally incurred.

The Company recorded benefits to cost of goods sold of $ 1,452 , selling, general and administrative expense of $ 236 and interest income $ 84 , respectively and recorded selling, general and administrative expense of $ 354 for professional fees related to the tax credit in the consolidated condensed statements of operations during the three and nine months ended June 30, 2023.

The Company received $ 1,246 of refunds on May 9, 2023 and recorded $ 526 in accounts receivable on the consolidated condensed balance sheets as of June 30, 2023.

Reclassification

Certain amounts in prior years have been reclassified to conform to the fiscal 2023 consolidated condensed statement presentation.

In fiscal 2023, the Company revised its classification within the consolidated condensed statement of cash flows by moving a prior year amount of $ 332 of inventories from changes in operating assets and liabilities to inventory valuation accounts adjustment to reconcile net loss to net cash used for operating activities to conform to current period presentation.

For the three months ended December 31, 2023 and 2022, there was no income or expense recorded.

Inventories consist of:

5 unchanged sentences

For a portion of the Company's inventory, cost is determined using the last-in, first-out ("LIFO") method.

Approximately 19 % and 42 % of the Company’s inventories at June 30, 2023 and September 30, 2022, respectively, use the LIFO method.

Approximately 32 % and 19 % of the Company’s inventories at December 31, 2023 and September 30, 2023, respectively, use the LIFO method.

An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs existing at that time.

2 unchanged sentences

The first-in, first-out ("FIFO") method is used for the remainder of the inventories, which are stated at the lower of cost or net realizable value ("NRV").

If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $ 9,668 and $ 9,939 higher than reported at June 30, 2023 and September 30, 2022, respectively.

If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $ 9,927 and $ 9,634 higher than reported at December 31, 2023 and September 30, 2023, respectively.

Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation.

The Company estimates net realizable value, excess and obsolescence and shrink reserves for its inventory based upon historical experience, historical and projected sales trends and the age of inventory on hand.

As of June 30, 2023 and September 30, 2022, our inventory valuation allowances were $ 3,857 and $ 5,084 , respectively.

As of December 31, 2023 and September 30, 2023, our inventory valuation allowances were $ 3,534 and $ 4,049 , respectively.

Long-lived Assets

The Company reviews the carrying value of its long-lived assets ("asset groups"), including property, plant and equipment, when events and circumstances indicate a triggering event has occurred.

This review is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of the asset group.

As required by ASC 360 ("Topic 360"), should the carrying value of a asset group exceed the estimated undiscounted future cash flows, then the asset group is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the asset group exceeds its fair value.

The Company reviews the carrying value of its long-lived assets ("asset groups"), when events and circumstances indicate a triggering event has occurred.

A triggering event is a change in circumstances that indicates the carrying value of the asset group may not be recoverable.

This review is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of assets.

Under the Accounting Standard Codification ("ASC") 360 ("Topic 360"), if the carrying value of a long-lived asset is greater than the estimated undiscounted future cash flows, then the long-lived asset is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

The Company continuously monitors for indicators of impairment to determine if further testing is necessary.

In the third quarter, the Company evaluated potential triggering events and did not identify any indicators that the asset groups might be impaired.

In the first quarter of fiscal 2024, the Company evaluated potential triggering events and did not identify any indicators that the asset groups might be impaired.

The Company tests its goodwill for impairment in the fourth fiscal quarter, and in interim periods if certain events occur indicating that the carrying amount of goodwill may be impaired.

In the third quarter, the Company evaluated potential triggering events and determined interim testing was not required.

In the first quarter of fiscal 2024, the Company evaluated potential triggering events and determined interim testing was not required.

Accumulated Other Comprehensive Loss

7 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Finance lease expense:

5 unchanged sentences

The following table presents the impact of leasing on the consolidated condensed balance sheet.

Classification in the consolidated condensed balance sheets June 30,

Classification in the consolidated condensed balance sheets December 31,

2023 September 30,

10 unchanged sentences

Supplemental cash flow and other information related to leases were as follows:

2023 June 30,

2023 December 31,

Other Information

3 unchanged sentences

Financing cash flows from finance leases 16 12

Right-of-use assets obtained in exchange for new lease liabilities:

Operating leases 60 —

2023 September 30,

5 unchanged sentences

Operating leases 5.9 % 5.9 %

Future minimum lease payments under non-cancellable leases at June 30, 2023 were as follows:

Future minimum lease payments under non-cancellable leases at December 31, 2023 were as follows:

Finance Leases Operating Leases

Year ending September 30,

2023 (excluding the nine months ended June 30, 2023) $ 18 $ 417

2024 68 1,686

2024 (excluding the three months ended December 31, 2023) $ 51 $ 1,276

2025 38 1,698

5 unchanged sentences

Present value of lease liabilities $ 132 $ 14,683

Debt and Subsequent Event

Debt consists of:

1 unchanged sentence

Revolving credit agreement $ 16,061 $ 16,289

Foreign subsidiary borrowings 7,803 7,101

Foreign subsidiary borrowings, net of unamortized debt issuance cost 8,975 5,771

Promissory note - related party 3,150 —

Finance lease obligations 132 142

unamortized debt issuance cost - ($ 910 is related party)

Other, net of unamortized debt issuance costs $( 6 ) and $( 9 ), respectively

3 unchanged sentences

Credit Agreement and Security Agreement

On November 8, 2023, the Company entered into the Eighth Amendment to the Credit Agreement (the "Eighth Amendment") with its Lender.

The Eighth Amendment, among other things, reduced the Reserves under the Borrowing Base in the Credit Agreement to $ 1,500 , or such lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion.

The Company entered into the Ninth Amendment (the "Ninth Amendment") to the Credit Agreement and the Fourth Amendment (the "Fourth Amendment") to the Export Credit Agreement with its lender on December 21, 2023.

The Ninth Amendment amends the Credit Agreement to, among other things, to:

(i) reflect the incurrence by borrowers of the Subordinated Loan and the execution and delivery by borrowers, the Lender and Mark J.

Silk is a member of the Board of Directors of the Company and considered a related party) of the Subordinated Loan Documents, and the receipt by borrowers of $ 3,000 in immediately available funds on the Ninth Amendment Effective Date;

(ii) delay the maturity date from December 31, 2023 to October 4, 2024, or any earlier date on which the Revolving Commitment is reduced to zero or otherwise terminated pursuant to the terms of the Credit Agreement;

(iii) reduce the Revolving Commitment to $ 19,000 from $ 23,000 ;

(iv) modify the definition of Borrowing Base to mean, at any time, the sum of (a) 85 % of Eligible Accounts at such time, plus (b) the lesser of (1) 70 % of Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time and (2) the product of 85 % multiplied by the NOLV Percentage identified in the most recent inventory appraisal ordered by the Lender multiplied by Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time, minus (c) Reserves of $ 1,500 , increasing on the first day of each month by $ 250 , commencing on May 1, 2024 and continuing until (and including) August 1, 2024, or such lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion (which may be by email from the Lender), plus (d) the PP&E Component;

(v) modify the Applicable Margin schedule to reflect the following applicable rates:

2.75 % (CBFR REVSOFR30), 0.25 % (CBFR Spread (CB Floating Rate)), 2.75 % (SOFR Spread), and 0.50 % (Commitment Fee Rate);

and (vi) amend and restate subsection (l) of the Reporting Schedule to require, by the 17th day of every month, the delivery of a rolling 13 week cash flow forecast in form acceptable to Lender, which must include a projected to actual results comparison for the week then ended and on a cumulative basis from the beginning of the cash flow forecast.

The Fourth Amendment of the Export Credit Agreement, to, among other things, to:

(i) reflect the incurrence by borrowers of the Subordinated Loan and the execution and delivery by borrowers, the Lender and Silk of the Subordinated Loan Documents, and the receipt by borrowers of $ 3,000 in immediately available funds on the Ninth Amendment Effective Date;

and (ii) delay the maturity date to October 4, 2024, or any earlier date on which the Revolving Commitment is reduced to zero or otherwise terminated pursuant to the terms thereof.

The total collateral at December 31, 2023 and September 30, 2023 was $ 23,065 and $ 21,089 , respectively, and the revolving commitment was $ 26,000 and $ 30,000 , respectively.

Total availability at December 31, 2023 and September 30, 2023 was $ 5,034 and $ 2,830 , respectively, which exceeds both the collateral and total commitment threshold.

The Credit Agreement contains affirmative and negative covenants and events of default.

On March 23, 2022, the Company entered into the Sixth Amendment (the "Sixth Amendment") to the Credit Agreement and the Second Amendment (the "Second Amendment") to the Export Credit Agreement with its lender.

The total collateral at June 30, 2023 and September 30, 2022 was $ 19,567 and $ 22,711 , respectively, and the revolving commitment was $ 35,000 for both periods.

Total availability at June 30, 2023 and September 30, 2022 was $ 2,649 and $ 9,403 , respectively, which exceeds both the collateral and total commitment threshold.

Since the availability was greater than 10.0 % of the revolving commitment as of September 30, 2022, no covenant calculations were required.

As of June 30, 2023, the Company was not in compliance with covenant requirements as a result of the Event of Default described below.

The Company has a letter of credit balance of $ 1,970 as of June 30, 2023 and September 30, 2022, respectively.

The Credit Agreement under the Sixth Amendment had a maturity date of February 19, 2024.

The maturity is modified to December 31, 2023 under the Seventh Amendment (the "Seventh Amendment") to the Credit Agreement, which is discussed in additional detail below.

The Sixth Amendment amended the Credit Agreement to, among other things, (i) revise the fixed charge coverage ratio ("FCCR") to exclude the first $ 1,500 of unfunded capital expenditures through April 20, 2023, (ii) increase the letter of credit sub-limit from $ 2,000 to $ 3,000 , (iii) modify the reference rate from the London interbank offered rate ("LIBOR") to the secured overnight financing rate ("SOFR") and (iv) revise the property, plant and equipment component of the borrowing base under the Credit Agreement.

The Second Amendment amends the Export Credit Agreement to replace the reference rate from LIBOR to SOFR under the Export Credit Agreement.

The revolving credit agreement (or "revolver"), as amended, has a rate based on SOFR plus a 2.25 % spread, which was 7.5 % at June 30, 2023 and a rate based on LIBOR plus a 2.25 % spread, which was 4.9 % at September 30, 2022.

The Export Credit Agreement as amended has a rate based on SOFR plus a 1.75 % spread, which was 7.0 % at June 30, 2023 and a rate based on LIBOR plus a 1.75 % spread, which was 4.4 % at September 30, 2022.

Since the availability exceeded the $ 1,500 reserve minimum as of December 31, 2023 and September 30, 2023, no covenant calculations were required.

The Company has a letter of credit balance of $ 1,970 as of December 31, 2023 and September 30, 2023, respectively.

The Credit Agreement under the Ninth Amendment has a maturity date of October 4, 2024.

The revolving credit agreement (or "revolver"), as amended, has a rate based on SOFR plus a 2.75 % spread, which was 8.2 % at December 31, 2023 and a rate based on SOFR plus a 2.25 % spread, which was 7.7 % at September 30, 2023.

The Export Credit Agreement as amended has a rate based on SOFR plus a 2.25 % spread, which was 7.7 % at December 31, 2023 and a rate based on SOFR plus a 1.75 % spread, which was 7.2 % at September 30, 2023.

The Company also has a commitment fee of 0.50 % under the Credit Agreement as amended to be incurred on the unused balance of the revolver.

On February 6, 2023, the Company received a Notice of Event of Default and Reservation of Rights (the “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 .

On April 28, 2023, the Company and its subsidiary guarantors entered into a Forbearance Agreement (the "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, (i) the Reserves under the Borrowing Base in the ABL Credit Agreement are reduced to $ 2,000 ;

(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 $ 19,000 and the Borrowing Base.

On August 9, 2023, the Company entered into the Seventh Amendment to the Credit Agreement and the Third Amendment (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 $ 23,000 , thereby reducing the total revolving commitment to $ 30,000 ;

(ii) advances the loan maturity date to December 31, 2023;

(iii) provides a 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 to $ 18,000 through September 30, 2023 and $ 19,000 thereafter;

(v) the Reserves under the Borrowing Base in the ABL Credit Agreement are reduced to $ 1,500 through September 30, 2023 and $ 2,000 thereafter.

The Third 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.

Lender’s agreement is subject to satisfaction of certain post closing deliverables, including:

(i) one or more proposed term sheets which provide for the refinancing of all of the Obligations, in each case in an amount sufficient to repay the Obligations in full, by no later than September 19, 2023;

(ii) a Confidential Information Memorandum ("CIM"), by no later than September 20, 2023;

and (iii) a duly executed term sheet providing for the refinancing of all of the Obligations in an amount sufficient to repay the Obligations in full, by no later than October 8, 2023.

The Company has provided to its lender one or more proposed term sheets which provide for the refinancing of all of the Obligations and a CIM as required under the terms of the Seventh Amendment on or before the requisite due dates.

Debt issuance costs - revolver

The Company incurred new debt issuance costs of $ 117 in the first quarter of fiscal 2024 as it pertains to the new amendments entered into, which are included in the consolidated condensed balance sheet as a deferred charge in other current assets, net of amortization of $ 0 at December 31, 2023.

The Company previously had debt issuance costs of $ 86 , which were included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $ 86 and $ 78 at December 31, 2023 and September 30, 2023, respectively.

Subordinated Promissory Note and Guarantee

The Company, in connection with the Ninth Amendment and the Fourth Amendment, incurred a secured subordinated loan from Garnet Holdings, Inc., a California corporation owned and controlled by Mark J.

Silk ("GHI") (Mr.

Silk is a member of the Board of Directors of the Company and considered a related party), in the original principal amount of $ 3,000 (the "Subordinated Loan") on the terms and subject to the conditions of a Subordinated Secured Promissory Note (the "Subordinated Promissory Note").

The obligations of borrowers under the Subordinated Loan mature on October 4, 2024.

Interest accrues on

the then-outstanding principal amount at a rate of 14 % per annum and shall be paid in kind (and not in cash) by capitalization as additional principal ("PIK Interest") each six-month period after the date hereof in arrears.

The Company agreed to pay to Mr.

Silk a fully earned and non-refundable fee in an amount equal to $ 150 , which fee shall be due and payable in full on, and subject to the occurrence of the Maturity Date or such earlier date on which the Company’s obligations under the Subordinated Promissory Note are accelerated pursuant to the terms thereof.

Borrower’s obligations under the Subordinated Promissory Note are secured by a first priority lien, subject to any liens granted to Lender as described in the Subordination Agreement, on all of borrowers’ accounts, deposit accounts, contract rights, documents, equipment, general intangibles, instruments, inventory, investment property, commercial tort claims, all other goods and personal property whether tangible or intangible and wherever located, and all proceeds of the foregoing.

The Subordinated Promissory note carrying value was $ 3,150 and $ 0 at December 31, 2023 and September 30, 2023, respectively.

The Subordinated Promissory Note interest rate was 14 % and 0 % at December 31, 2023 and September 2023, respectively.

The Ninth Amendment, was also subject to including, but not limited to, the execution and delivery by Mark.

Silk, a member of the Board of Directors of the Company ("Silk"), of a Guaranty Agreement (the "Guaranty") in favor of Lender pursuant to which Silk guarantees the obligations of borrowers under the Credit Agreement and Export Credit Agreement.

The Fee Letter requires the borrowers to pay Silk a fee (the "Guaranty Fee") in consideration for his agreement to execute and deliver the Guaranty in an amount equal to $ 760 , which was included in the consolidated condensed balance sheets as a deferred charge in accrued liabilities.

The Guaranty Fee becomes due and payable on the maturity date.

Foreign subsidiary borrowings in USD

1 unchanged sentence

2023 September 30,

Term loan $ 3,616 $ 3,818

Term loan, net of unamortized debt issuance cost $( 89 ) and $ 0 , respectively

$ 5,329 $ 3,293

Short-term borrowings 2,215 1,862

5 unchanged sentences

Interest rates on foreign borrowings are based on Euribor rates, which range from 0.5 % to 8.0 %.

The Company's Maniago, Italy ("Maniago") location obtained borrowings from one lender in the first nine months of fiscal 2022.

The loan was for $ 1,141 with repayment terms of six years .

Under the terms of the borrowing, repayments are made quarterly in the amount of $ 56 , beginning on December 31, 2022.

The Company's Maniago, Italy ("Maniago") location obtained borrowings from two separate lending sources in the first quarter of fiscal 2024.

The first was a bond for $ 2,208 with repayment terms of seven years .

Under the terms of the borrowing, repayments are made semi-annually in the amount of $ 200 , beginning on June 29, 2024.

The proceeds from this loan are shown within cash and cash equivalents on the consolidated condensed balance sheets and will be used for capital investment.

A second loan with a with a term of 1 year, 6 months was obtained in the amount of $ 1,104 .

The proceeds from this loan will be for working capital purposes.

The Company factors receivables from one of its customers.

The Company accounts for the pledge of receivables under this agreement as short-term debt and continues to carry the receivables on its consolidated condensed balance sheets.

Debt issuance costs

The Company had debt issuance costs of $ 86 , which are included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $ 67 and $ 46 at June 30, 2023 and September 30, 2022, respectively.

On April 10, 2020, the Company entered into an unsecured promissory note under the Paycheck Protection Program (the “PPP Loan”).

The PPP Loan had an aggregate principal amount of $ 5,025 .

The loan proceeds were used for payroll payments and the SBA granted full forgiveness on January 25, 2022.

The Company elected to treat the PPP Loan as debt under FASB Topic 470.

As such, the Company derecognized the liability in the second quarter of fiscal 2022 when the loan was forgiven.

As of June 30, 2023 and September 30, 2022 the PPP loan balance was $ 0 .

For each interim reporting period, the Company makes an estimate of the effective tax rate it expects to be applicable for the full fiscal year for its operations.

This estimated effective rate is used in providing for income taxes on a year-to-date basis.

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 Company’s effective tax rate through the first three months of fiscal 2024 was ( 1.5 )%, compared with ( 2.6 )% for the same period of fiscal 2023.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2024 compared with the same period of fiscal 2023.

9 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Service cost $ 17 $ 6

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Amortization of net loss 43 78

Settlement cost 78 69 78 69

Net periodic pension cost (benefit) $ 69 $ 81

During the nine months ended June 30, 2023 and 2022, the Company made $ 13 and $ 12 in contributions, respectively, to its defined benefit pension plans.

During the three months ended December 31, 2023 and 2022, the Company made $ 9 and $ 8 in cash contributions, and $ 86 and $ 0 in non-cash contributions utilizing carryover balance, respectively, to its defined benefit pension plans.

The Company anticipates making $ 66 in cash contributions to fund its defined benefit pension plans for the balance of fiscal 2024, and will use carryover balances from previous periods that have been available for use as a credit to reduce the amount of cash contributions that the Company is required to make to certain defined benefit plans in fiscal 2024.

3 unchanged sentences

The Company has outstanding equity awards under the Company's 2007 Long-Term Incentive Plan (the "2007 Plan") and the Company's 2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (as further amended, the "2016 Plan"), and awards performance and restricted shares under the 2016 Plan.

In the first nine months of fiscal 2023, the Company granted 86 shares under the 2016 Plan to certain key employees.

The awards were split into two tranches, comprised of 27 performance-based shares and 59 time-based restricted shares, with a

grant date fair value of $ 2.84 per share.

In the first three months of fiscal 2024, the Company granted 120 shares under the 2016 Plan to certain key employees.

The awards were split into two tranches, comprised of 46 performance-based shares and 74 time-based restricted shares, with a grant date fair value of $ 3.60 per share.

The awards vest over three years .

There were 3 shares forfeited during the nine month period ended June 30, 2023.

In the first nine months of fiscal 2023, the Company granted its non-employee directors 38 restricted shares under the 2016 Plan, with a grant date fair value of $ 3.48 per share, which vest over one year .

One award for 42 restricted shares vested in January 2023.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 300 shares that remain available for award at June 30, 2023.

There were 8 shares forfeited during the three month period ended December 31, 2023.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 308 shares that remain available for award at December 31, 2023.

If any of the outstanding share awards are ultimately earned and vest at greater than the target number of shares, up to a maximum of 150 % of such target, then a fewer number of shares would be available for award.

Stock-based compensation under the 2016 Plan was $ 292 and $ 309 during the first nine months of fiscal 2023 and 2022, respectively.

As of June 30, 2023, there was $ 348 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan.

Stock-based compensation under the 2016 Plan was $ 86 and $ 122 during the first three months of fiscal 2024 and 2023, respectively.

As of December 31, 2023, there was $ 573 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan.

The Company expects to recognize this cost over the next 1.8 years.

8 unchanged sentences

government with no alternative use, include provisions within the contract that are subject to the Federal Acquisition Regulation ("FAR").

The FAR provision allows the customer to unilaterally terminate the contract for convenience and requires the customer to pay the Company for costs incurred plus reasonable profit margin and take control of any work in process.

The FAR provision allows the customer to unilaterally terminate the contract for convenience and requires

the customer to pay the Company for costs incurred plus reasonable profit margin and take control of any work in process.

• For certain commercial contracts involving customer-specific products with no alternative use, the contract may fall under the FAR clause provisions noted above for military contracts or may include certain provisions within their contract that the customer controls the work in process based on contractual termination clauses or restrictions of the Company's use of the product and the Company possesses a right to payment for work performed to date plus reasonable profit margin.

6 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Commercial revenue $ 13,240 $ 10,181

3 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

Net Sales 2023 2022

7 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

Net Sales 2023 2022

2 unchanged sentences

Total $ 21,052 $ 21,299

In addition to the disaggregated revenue information provided above, approximately 47 % and 58 % of total net sales for the nine months ended June 30, 2023 and 2022, respectively, was recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized at a point in time.

In addition to the disaggregated revenue information provided above, approximately 41 % and 54 % of total net sales for the three months ended December 31, 2023 and 2022, respectively, was recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized at a point in time.

Contract Balances

The following table contains a roll forward of contract assets and contract liabilities for the period ended June 30, 2023:

Contract assets - Beginning balance, October 1, 2022 $ 10,172

The following table contains a roll forward of contract assets and contract liabilities for the period ended December 31, 2023:

2023 December 31,

Contract assets - Beginning balance $ 10,091 $ 10,172

Additional revenue recognized over-time 9,184 12,042

Less amounts billed to the customers ( 8,326 ) ( 10,692 )

Contract assets - Ending balance, June 30, 2023 $ 9,019

Contract liabilities (included within Accrued liabilities) - Beginning balance, October 1, 2022 $ ( 807 )

Contract assets - Ending balance $ 10,949 $ 11,522

2023 December 31,

Contract liabilities (included within Accrued liabilities) - Beginning balance $ ( 1,150 ) $ ( 807 )

Payments received in advance of performance obligations ( 1,753 ) ( 1,401 )

Performance obligations satisfied 20 426

Contract liabilities (included within Accrued liabilities) - Ending balance, June 30, 2023 $ ( 903 )

There were no impairment losses recorded on contract assets as of June 30, 2023 and September 30, 2022.

Contract liabilities (included within Accrued liabilities) - Ending balance $ ( 2,883 ) $ ( 1,782 )

Accounts receivable were $ 16,515 and $ 15,308 at September 30, 2022 and December 31, 2022, respectively.

There were no impairment losses recorded on contract assets as of December 31, 2023 and September 30, 2023.

Remaining performance obligations

As of June 30, 2023, the Company has $ 122,826 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

As of December 31, 2023, the Company has $ 103,569 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months .

Commitments and Contingencies

3 unchanged sentences

With the assistance of outside cyber security experts, the Company located and closed the unauthorized access to our systems and identified compromised information, and notified those impacted in accordance with state and federal requirements.

Company undertook a number of other measures to demonstrate our continued support and commitment to data privacy and protection and coordinated with law enforcement.

The Company undertook a number of other measures to demonstrate our continued support and commitment to data privacy and protection and coordinated with law enforcement.

The Company maintains $ 3,000 of cybersecurity insurance coverage to limit our exposure to losses such as those related to the Cyber Incident.

The Company recorded costs in selling, general and administrative expense associated with the Cyber Incident of $ 232 and a benefit of $ 50 to other expense (income) due to reversal of insurance deductible accrual during the three months ended June 30, 2023.

The Company recorded costs of $ 60 to other expense (income), net of $ 3,000 insurance recovery and $ 1,209 to selling, general and administrative expense in the nine months ended June 30, 2023, resulting in net IT incident costs of $ 182 and $ 1,269 in the three and nine months ended June 30, 2023, respectively.

The Company received the $ 3,000 of insurance proceeds on February 20, 2023.

At June 30, 2023, the Company recorded $ 1,037 related to the Cyber Incident in accounts payable on the consolidated condensed balance sheets.

The Company recorded a benefit of $ 1 to selling, general, and administrative expenses in the three months ended December 31, 2023 and recorded costs of $ 110 to other expense (income), net related to loss on insurance recovery in the three months ended December 31, 2022.

At December 31, 2023 and September 30, 2023, the Company recorded $ 827 and $ 965 , respectively, related to the Cyber Incident in accounts payable on the consolidated condensed balance sheets.

The Company has incurred, and may continue to incur, certain expenses related to this attack, including expenses associated with additional remediation measures.

The Company will accrue these costs as incurred.

Subsequent Events

The Company has evaluated subsequent events through September 28, 2023, the date the financial statements were available to be issued, and has determined that the following subsequent events require disclosure in the financial statements.

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 which waived the Event of Default, ended the forbearance period, and provided for further changes to the agreements.

See Note 7, Debt and Subsequent Event for more information.

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 as required under the terms of the Seventh Amendment on or before the requisite due dates.

See Note 7, Debt and Subsequent Event for more information.

Related Party Transactions

On December 21, 2023, the Company entered into the Ninth Amendment and Fourth Amendment with its lender incurring a secured subordinated loan from GHI, in the original principal amount of $ 3,000 .

GHI is controlled by Mr.

Silk, a member of the Board of Directors of the Company and considered a related party.

Additionally, Mr.

Silk provided a Guaranty in favor of the Lender pursuant to which Mr.

Silk guarantees the obligations of borrowers under the Credit Agreement and Export Credit Agreement.

As part of the Guaranty and Promissory Note, the Company will pay GHI fees of $ 760 and $ 150 , respectively, and has paid $ 30 of legal costs.

The Company has accumulated a total of $ 940 deferred financing costs related to the Guaranty and Subordinated Promissory Note.

See Note 7, Debt for further information.

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 1. Financial Statements