What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-12 compared with 2024-05-09 · 104 added, 91 removed, 164 unchanged (54% of the section changed)

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Such factors include the following:

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

future business environment, including capital and consumer spending;

(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;

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(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;

(13) our 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;

(16) our ability to realize future sales from 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;

and (19) in connection with its entry into the Ninth Amendment (the "Ninth Amendment") to its Credit Agreement and Fourth Amendment (the "Fourth Amendment") to its Export Credit Agreement, and as a condition to the consummation by the Company’s senior lender of the transactions contemplated thereby:

(a) the Company 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 $3.0 million, which subordinated loan is subject to the terms and conditions of an Intercreditor and Subordination Agreement by and among the Company, GHI and the Company’s senior lender;

Silk executed and delivered a personal guaranty in favor of the Company’s senior lender of certain Company indebtedness under the Credit Agreement and the Export Credit Agreement.

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

If the Company is unable to restructure existing debt obligations, obtain capital or enter into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the maturity date stated in the Ninth Amendment, the lender under the Credit Agreement may choose to accelerate repayment.

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.

and (19) the Company's ability to restructure existing debt obligations prior to their stated maturity date through the execution of a strategic alternative transaction or obtaining acceptable alternative financing.

The Company engages in the production of forgings and machined components primarily for the A&E and commercial space markets.

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(iii) the projected build rate and repair for industrial turbines;

and (iv) commercial space.

and (iv) the market for commercial space.

The Company operates within a cost structure that includes a significant fixed component.

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Backlog of Orders

SIFCO’s total backlog at March 31, 2024 was $137.8 million, of which $105.3 million are anticipated to be complete within the next 12 months, compared with total backlog of $96.7 million as of March 31, 2023.

SIFCO’s total backlog at June 30, 2024 was $139.2 million, of which $108.1 million are anticipated to be complete within the next 12 months, compared with total backlog of $122.8 million as of June 30, 2023.

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

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Backlog information may not be indicative of future sales.

Six Months Ended March 31, 2024 compared with Six Months Ended March 31, 2023

Net sales comparative information for the first six months of fiscal 2024 and 2023 is as follows:

(Dollars in millions) Six Months Ended

March 31, Increase/ (Decrease)

Nine Months Ended June 30, 2024 compared with Nine Months Ended June 30, 2023

Net sales comparative information for the first nine months of fiscal 2024 and 2023 is as follows:

(Dollars in millions) Nine Months Ended

June 30, Increase/ (Decrease)

Net Sales 2024 2023

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Total $ 76.9 $ 62.4 $ 14.5

Net sales for the first six months of fiscal 2024 increased $7.1 million to $47.6 million, compared with $40.5 million in the comparable period of fiscal 2023.

Net sales for the first nine months of fiscal 2024 increased $14.5 million to $76.9 million, compared with $62.4 million in the comparable period of fiscal 2023.

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

Fixed wing sales were slightly higher compared with the same period last year.

Rotorcraft sales were slightly lower compared with the same period last year due to demand reduction for the V22 program.

The energy components for power generation units increased by $3.0 million due to growth in the steam turbine markets.

Commercial products and other revenue increased by $4.3 million due to commercial space and the 787 program.

Commercial net sales were 64.3% of total net sales and military net sales were 35.7% of total net sales in the first six months of fiscal 2024, compared with 53.1% and 46.9%, respectively, in the comparable period in fiscal 2023.

Military net sales decreased by $2.0 million to $17.0 million in the first six months of fiscal 2024, compared with $19.0 million in the comparable period of fiscal 2023, primarily due to F35 and V22 demand reduction.

Co mmercial net sales increased $9.1 million to $30.6 million in the first six months of fiscal 2024, compared with $21.5 million in the comparable period of fiscal 2023, primarily due to an increase in the power generation steam turbine market and commercial space.

Fixed wing sales increased $2.4 million due to 737, 787, F15 and F16 programs.

Rotorcraft sales increased $0.8 million due to H60 program partially offset by V22 demand reduction.

The energy components for power generation sales increased by $3.8 million due to growth in the steam turbine markets.

Commercial products and other revenue increased by $7.5 million due to commercial space and M1 tank program.

Commercial net sales were 64.7% of total net sales and military net sales were 35.3% of total net sales in the first nine months of fiscal 2024, compared with 55.5% and 44.5%, respectively, in the comparable period in fiscal 2023.

Military net sales decreased by $0.6 million to $27.1 million in the first nine months of fiscal 2024, compared with $27.8 million in the comparable period of fiscal 2023, primarily due to F35 program and V22 demand reduction.

Co mmercial net sales increased $15.1 million to $49.7 million in the first nine months of fiscal 2024, compared with $34.6 million in the comparable period of fiscal 2023, primarily due to an increase in the power generation steam turbine market, commercial space and 737 and 787 programs.

Cost of Goods Sold

Cost of goods sold increased by $6.6 million, or 17.5%, to $44.1 million, or 92.7% of net sales, during the first six months of fiscal 2024, compared with $37.6 million or 92.7% of net sales, in the comparable period of fiscal 2023.

The increase is primarily due to higher sales volume, higher labor costs of $1.4 million and $0.2 million of hiring costs as the Company increased production to meet customer demands, partially offset by lower idle expense of $0.7 million.

Gross profit increase $0.5 million to $3.5 million in the first six months of fiscal 2024, compared with $3.0 million gross profit in the comparable period of fiscal 2023.

Gross profit percent of sales was 7.3% during the first six months of fiscal 2024 and fiscal 2023.

The increase in gross profit compared to prior fiscal year was primarily due to higher volume and reduction of idle expense and outside services $0.2 million, partially offset by higher labor costs of $1.4 million and $0.2 million of hiring costs.

Cost of goods sold increased by $12.9 million, or 23.1%, to $68.8 million, or 89.6% of net sales, during the first nine months of fiscal 2024, compared with $55.9 million or 89.7% of net sales, in the comparable period of fiscal 2023.

The increase is primarily due to higher sales volume, higher labor costs of $1.7 million, higher utility cost of $0.4 million and $0.1 million of hiring costs as the Company increased production to meet customer demands, partially offset by lower idle expense of $1.0 million.

Prior year results included $1.5 million of ERC benefit and reduction of NRV reserve of $1.4 million.

Gross profit increased $1.5 million to $8.0 million in the first nine months of fiscal 2024, compared with $6.5 million gross profit in the comparable period of fiscal 2023.

Gross profit percent of sales was 10.4% during the first nine months of fiscal 2024 compared with 10.3% in fiscal 2023.

The increase in gross profit compared to prior fiscal year was primarily due to higher volume, lower idle expense and lower outside services of $0.3 million, partially offset by higher labor costs of $1.7 million, utility costs of $0.4 million and hiring costs.

Prior year results included $1.5 million of ERC benefit and reduction of NRV reserve of $1.4 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $6.8 million, or 14.3%, of net sales during the first six months of fiscal 2024, compared with $7.1 million, or 17.6%, of net sales in the comparable period of fiscal 2023.

The decrease in selling, general and administrative expenses is primarily due to prior year nonrecurring Cyber incident costs of $1.0 million, partially offset by higher wages, benefits and incentive costs of $0.3 million and higher expenses related to the evaluation of strategic alternatives of $0.3 million.

Selling, general and administrative expenses were $9.9 million, or 12.9%, of net sales during the first nine months of fiscal 2024, compared with $10.5 million, or 16.9%, of net sales in the comparable period of fiscal 2023.

The decrease in selling, general and administrative expenses is primarily due to benefit of $0.6 million for reversal of third party restoration fees related to the cybersecurity incident and lower commissions of $0.2 million, partially offset by higher wages, benefits and severance costs of $0.4 million and higher expenses related to the evaluation of strategic alternatives of $0.5 million.

Prior year results included $1.2 million of costs related the cybersecurity incident and ERC net expense of $0.2 million.

Amortization of Intangibles

Amortization of intangibles was $0.1 million in the first six months of fiscal 2024 and fiscal 2023.

Amortization of intangibles was $0.1 million in the first nine months of fiscal 2024 compared with $0.2 million in fiscal 2023.

Other/General

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 2024 and 2023:

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 2024 and 2023:

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

2024 2023 2024 2023

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Other debt 0.6 % 1.6 % $ 0.3 million $ 0.5 million

The Company’s effective tax rate through the first six months of fiscal 2024 was (2.0)%, compared with (1.9)% for the same period of fiscal 2023.

The Company’s effective tax rate through the first nine months of fiscal 2024 was (3.2)%, compared with (2.3)% 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.

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statutory tax rate.

Net loss was $5.0 million during the first six months of fiscal 2024 and fiscal 2023.

Net loss is due to higher sales volume and gross margin, offset by higher interest expense as the Company invests to meet increased demand.

Three Months Ended March 31, 2024 compared with Three Months Ended March 31, 2023

Net sales comparative information for the second quarter of fiscal 2024 and 2023 is as follows:

Net loss was $4.9 million during the first nine months of fiscal 2024 compared with net loss of $5.6 million in the comparable period of fiscal 2023.

The decrease in net loss is due to higher sales volume and gross margin, offset by higher labor and interest expense as the Company invests to meet increased demand.

Three Months Ended June 30, 2024 compared with Three Months Ended June 30, 2023

Net sales comparative information for the third quarter of fiscal 2024 and 2023 is as follows:

(Dollars in millions) Three Months Ended

March 31, Increase/ (Decrease)

June 30, Increase/ (Decrease)

Net Sales 2024 2023

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Total $ 29.3 $ 21.9 $ 7.4

Net sales for the second quarter of fiscal 2024 increased $7.4 million to $26.6 million, compared with $19.2 million in the comparable period of fiscal 2023.

Fixed wing sales increased $1.3 million compared with the same period last year primarily due to 787, 767 and other programs.

Net sales for the third quarter of fiscal 2024 increased $7.4 million to $29.3 million, compared with $21.9 million in the comparable period of fiscal 2023.

Fixed wing sales increased $2.0 million compared with the same period last year primarily due to 767, 787 A320, F15, F16, F18 and other programs.

Rotorcraft sales increased $1.4 million compared with the same period last year primarily due to the H60 program.

The energy components for power generation units increased by $1.4 million due to growth in the steam turbine markets.

Net sales of the energy components for power generation units increased by $0.8 million due to growth in the steam turbine markets.

Commercial products and other revenue increased $3.2 million compared with the same period last year primarily due to commercial space.

Commercial net sales were 65.5% of total net sales and military net sales were 34.5% of total net sales in the second quarter of fiscal 2024, compared with 59.0% and 41.0%, respectively, in the comparable period in fiscal 2023.

Military net sales increased by $1.3 million to $9.2 million in the second quarter of fiscal 2024, compared with $7.9 million in the comparable period of fiscal 2023, primarily due to the H60 program.

Co mmercial net sales increased $6.0 million to $17.4 million in the second quarter of fiscal 2024, compared with $11.4 million in the comparable period of fiscal 2023, primarily due to an increase in the power generation steam turbine market and commercial space.

Commercial net sales were 65.3% of total net sales and military net sales were 34.7% of total net sales in the third quarter of fiscal 2024, compared with 59.9% and 40.1%, respectively, in the comparable period in fiscal 2023.

Military net sales increased by $1.4 million to $10.1 million in the third quarter of fiscal 2024, compared with $8.8 million in the comparable period of fiscal 2023, primarily due to the H60, F15, F16 and F18 programs partially offset by V22 demand reduction.

Co mmercial net sales increased $6.0 million to $19.1 million in the third quarter of fiscal 2024, compared with $13.1 million in the comparable period of fiscal 2023, primarily due to an increase in the power generation steam turbine market, commercial space and 767, 787 and A320 programs.

Cost of Goods Sold

Cost of goods sold increased by $6.3 million, or 35.9%, to $23.8 million, or 89.7% of net sales, during the second quarter of fiscal 2024, compared with $17.5 million or 91.1% of net sales, in the comparable period of fiscal 2023.

The increase is primarily due to higher volume, higher labor costs of $0.5 million and outside services of $0.2 million as the Company increased production to meet customer demands.

Gross profit increased $1.0 million to $2.7 million in the second quarter of fiscal 2024, compared with $1.7 million gross profit in the comparable period of fiscal 2023.

Gross profit percent of sales was 10.3% during the second quarter of fiscal 2024, compared with 8.9% in the comparable period in fiscal 2023.

The increase in gross profit compared to prior fiscal year was primarily due to higher volume and reduction of idle expense $0.7 million.

Cost of goods sold increased by $6.4 million, or 34.6%, to $24.7 million, or 84.5% of net sales, during the third quarter of fiscal 2024, compared with $18.4 million or 84.1% of net sales, in the comparable period of fiscal 2023.

The increase is primarily due to higher volume, higher labor costs of $0.7 million and utility costs of $0.4 million as the Company increased production to meet customer demands partially offset by lower idle expense $0.4 million.

Prior year results included $1.5 million of ERC benefit.

Gross profit increased $1.0 million to $4.5 million in the third quarter of fiscal 2024, compared with $3.5 million gross profit in the comparable period of fiscal 2023.

Gross profit percent of sales was 15.5% during the third quarter of fiscal 2024, compared with 15.9% in the comparable period in fiscal 2023.

The increase in gross profit compared to the prior fiscal year was primarily due to higher volume and reduction of idle expense.

Prior year results included $1.5 million of ERC benefit.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.2 million, or 12.1%, of net sales during the second quarter of fiscal 2024, compared with $3.8 million, or 20.0%, of net sales in the comparable period of fiscal 2023.

The decrease in selling, general and administrative expenses is primarily due to prior year nonrecurring Cyber incident costs of $1.0 million, partially offset by legal expenses and costs related to the evaluation of strategic alternatives of $0.1 million.

Selling, general and administrative expenses were $3.2 million, or 10.8%, of net sales, during the third quarter of fiscal 2024, compared with $3.4 million, or 15.5%, of net sales, in the comparable period of fiscal 2023.

The decrease in selling, general and administrative expenses is primarily due to a credit due to last years cybersecurity incident of $0.6 million compared with expense of $0.2 million in 2023.

The benefit was partially offset by $0.4 million of severance charges and higher costs related to the evaluation of strategic alternatives of $0.1 million.

Amortization of Intangibles

Amortization of intangibles were negligible in the second quarter of fiscal 2024 and fiscal 2023.

Amortization of intangibles were negligible in the third quarter of fiscal 2024 and fiscal 2023.

Other/General

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the second quarter of both fiscal 2024 and 2023:

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the third quarter of both fiscal 2024 and 2023:

Weighted Average

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Three Months Ended

March 31, Weighted Average

June 30, Weighted Average

Outstanding Balance

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Other debt — % 1.6 % $ 0.3 million $ 0.4 million

The Company’s effective tax rate through the second quarter of fiscal 2024 was (3.0)%, compared with (1.2)% 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.

The Company’s effective tax rate through the third quarter of fiscal 2024 was 43.8%, compared with (5.8)% for the same period of fiscal 2023.

The increase 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.

The effective tax rate differs from the U.S.

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statutory tax rate.

Net loss was $1.6 million during the second quarter of fiscal 2024, compared with net loss of $2.4 million in the comparable period of fiscal 2023.

Reduction in net loss is primarily due to higher sales volume and gross margin, including reduction of Cyber incident costs and idle expense of $1.0 million and $0.7 million, respectively, partially offset by higher interest expense, labor costs and outside services as the Company increased production to meet customer demands.

Net Income (Loss)

Net income was $0.1 million during the third quarter of fiscal 2024, compared with net loss of $0.6 million in the comparable period of fiscal 2023.

Increase in net income is primarily due to higher sales volume and gross margin, including reduction of Cyber incident costs and idle expense of $0.8 million and $0.4 million, respectively, partially offset by higher severance, interest expense, and labor costs as the Company increased production to meet customer demands.

Non-GAAP Financial Measures

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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.

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:

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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.

Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net income (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 Six Months Ended

March 31, March 31,

Dollars in thousands Three Months Ended Nine Months Ended

June 30, June 30,

2024 2023 2024 2023

Net loss $ (1,590) $ (2,367) $ (5,013) $ (4,956)

Net income (loss) $ 72 $ (634) $ (4,940) $ (5,590)

Depreciation and amortization expense 1,499 1,623 4,567 4,820

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Other expense (income), net (2) 78 295 184 149

Loss on disposal of assets (3) 3 14 3 3

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

Equity compensation (4) 72 85 243 292

Pension settlement expense (5) 60 78 60 78

Severance expense (6) 435 — 435 —

LIFO impact (7) 475 (73) 826 (272)

IT incident costs, net (6) 24 1,086 23 1,087

IT incident (benefit) cost, net (8) (627) 182 (605) 1,269

Strategic alternative expense (9) 169 29 490 29

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(4) 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.

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

(6) Represents expense incurred for executive severance.

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

(6) Represents incremental information technology costs as it relates to the cybersecurity incident and loss on insurance recovery (prior year balance includes reclassed amount of $0.1 million from footnote two above).

(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.

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See Note 7 , Debt .

Cash and cash equivalents was $0.7 million at March 31, 2024 and $0.4 million at September 30, 2023.

Short-term investments was $1.7 million at March 31, 2024 and zero at September 30, 2023.

At March 31, 2024, the majority of the Company’s cash and cash equivalents and short-term investments were in the possession of its non-U.S.

Cash and cash equivalents was $1.7 million at June 30, 2024 and $0.4 million at September 30, 2023.

At June 30, 2024, the majority of the Company’s cash and cash equivalents were in possession of its domestic subsidiaries.

Short-term investments was $1.7 million at June 30, 2024 and zero at September 30, 2023.

At June 30, 2024, the Company’s short-term investments were in the possession of its non-U.S.

subsidiaries.

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Operating Activities

The Company’s operating activities used $5.3 million of cash in the first six months of fiscal 2024, primarily due to net operating loss of $5.0 million partially offset by non-cash adjustments for depreciation and amortization of $3.1 million and change in inventory valuation accounts of $0.7 million and LIFO effect of $0.4 million.

The uses of cash for working capital of $5.0 million was primarily due to increases in inventory of $5.9 million and accounts receivable of $2.8 million, partially offset by increase in accounts payable $4.0 million.

The Company’s operating activities used $5.0 million of cash in the first nine months of fiscal 2024, primarily due to net loss of $4.9 million partially offset by non-cash adjustments for depreciation and amortization of $4.6 million, amortization of debt issuance costs of $0.8 million and change in inventory valuation accounts of $0.5 million and LIFO effect of $0.8 million.

The uses of cash for working capital of $7.2 million was primarily due to increases in inventory of $5.6 million and accounts receivable of $6.6 million, partially offset by increases in contract liabilities of $2.7 million and accounts payable of $1.4 million.

The increase in inventory is primarily due to increase in raw material and work in process to meet heightened customer demand.

The increase in accounts receivable is due to increases in customer shipments.

The increase in contract liabilities is due to advance raw material payments from customers.

The increase in accounts payable is due to increases in raw material purchases and outside processing fees related to inventory build.

The Company’s operating activities for the first six months of fiscal 2023 used $0.4 million primarily due to operating results and an increase in accounts payable of $3.9 million.

The Company’s operating activities for the first nine months of fiscal 2023 used $2.3 million 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.

Investing Activities

Cash used for investing activities was $3.1 million in the first six months of fiscal 2024 primarily due to purchase of short-term investments of $1.7 million and capital expenditures of $1.3 million.

Cash used for investing activities was $1.4 million in the first six months of fiscal 2023 due to capital expenditures.

Capital commitments as of March 31, 2024 were $0.6 million.

Cash used for investing activities was $3.8 million in the first nine months of fiscal 2024 primarily due to purchase of short-term investments, net of maturities, of $1.7 million and capital expenditures of $2.0 million.

Cash used for investing activities was $1.9 million in the first nine months of fiscal 2023 due to capital expenditures.

Capital commitments as of June 30, 2024 were $0.4 million.

The Company anticipates that the remaining total fiscal 2024 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 $8.8 million in the first six months of fiscal 2024, compared with $0.8 million in the first six months of fiscal 2023.

As discussed in Note 7, Debt, the Company's Maniago location obtained borrowings from two separate lending sources during the first six months of fiscal 2024.

Cash provided by financing activities was $10.1 million in the first nine months of fiscal 2024, compared with $3.5 million in the first nine months of fiscal 2023.

As discussed in Note 7, Debt, the Company's Maniago location obtained borrowings from two separate lending sources and increased during the first nine months of fiscal 2024.

The first was a bond for approximately $2.2 million with a seven year term.

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

The proceeds from this loan are shown within cash and cash equivalents and short-term investments on the consolidated

condensed balance sheets and will be used for capital investment.

A second loan for approximately $1.1 million with a term of eighteen months, will be for working capital purposes.

The Company had $3.1 million of net short-term debt borrowings in the first six months of fiscal 2024 compared with $0.5 million of net short-term debt repayments in the first six months of fiscal 2023.

The Company had net borrowings from the revolver under the Credit Agreement of $1.2 million in the first six months of fiscal 2024 compared with net borrowings of $1.8 million in the first six months of fiscal 2023.

Additionally, the Company increased three of its credit and factoring lines with existing lenders to support working capital needs.

The Company had $2.6 million of net short-term debt borrowings in the first nine months of fiscal 2024 compared with $0.5 million in the first nine months of fiscal 2023.

The Company had net borrowings from the revolver under the Credit Agreement of $1.2 million in the first nine months of fiscal 2024 compared with net borrowings of $3.4 million in the first nine months of fiscal 2023.

Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability.

The availability at March 31, 2024 was $3.7 million, which exceeds reserve minimum threshold as of March 31, 2024, as such, no covenant calculations were required.

The availability at June 30, 2024 was $2.9 million, which exceeds reserve minimum threshold as of June 30, 2024, as such, no covenant calculations were required.

As noted in Note 7, Debt, on November 8, 2023, the Company entered into the Eighth Amendment to the Credit Agreement with its Lender.

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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.

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.

As noted in Note 7, Debt, on May 21, 2024, the Company entered into the Tenth Amendment to the Credit Agreement and the Fifth Amendment to the Export Credit Agreement with its lender.

The Tenth and Fifth Amendments amend the Credit Agreement and the Export Credit Agreement to, among other things, to:

(i) increase the Revolving Commitment, less the Availability Block, if applicable, to (y) the Borrowing Base, and (z) in combination with the Export Revolving Loans under the Export Credit Agreement, (i) $18.0 million through September 30, 2023, (ii) $19.0 million from and including October 1, 2023 through May 14, 2024, and (iii) $22.0 million thereafter until, and reducing to zero and terminating on, the Maturity Date;

(ii) modify the definition of Borrowing Base Reserves to $1.5 million or such other amount, if any, as may be determined in writing by the Lender in its Permitted Discretion (which may be by email from the Lender);

and (iii) the execution of the First Amendment of the Silk Guaranty.

Future cash flows from the Company’s operations may be used to pay down amounts outstanding under the Credit Agreement, the Export 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 2024, 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, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing Credit Agreement.

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.

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.

Recent Accounting Standards

2 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis