SIFCO INDUSTRIES INC 10-Q

Item 1. Financial Statements SIFCO Industries, Inc. and Subsidiaries Consolidated Condensed Statements of Operations (Unaudited) (Amounts in thousands, except per share data) Three Months Ended December 31, 2024 2023 Net sales $ 20,883 $ 15,474 Cost of goods sold 19,955 16,019 Gross profit (loss) 928 ( 545 ) Selling, general and administrative expenses 2,840 3,103 Operating loss ( 1,912 ) ( 3,648 ) Interest expense, net 469 342 Foreign currency exchange (gain) loss, net ( 2 ) 4 Other expense, net 38 69 Loss from continuing operations before income tax expense ( 2,417 ) ( 4,063 ) Income tax expense 5 6 Loss from continuing operations ( 2,422 ) ( 4,069 ) Income from discontinued operations, net of tax 106 647 Net loss $ ( 2,316 ) $ ( 3,422 ) Basic and diluted earnings (loss) per share: Basic and diluted loss per share from continuing operations $ ( 0.40 ) $ ( 0.67 ) Basic and diluted earnings per share from discontinued operations 0.02 0.10 Basic and diluted loss per share $ ( 0.38 ) $ ( 0.57 ) Weighted-average number of common shares (basic) 6,016 5,956 Weighted-average number of common shares (diluted) 6,016 5,956 See notes to unaudited consolidated condensed financial statements. 2 SIFCO Industries, Inc. and Subsidiaries Consolidated Condensed Statements of Comprehensive Income (Loss) (Unaudited) (Amounts in thousands) Three Months Ended December 31, 2024 2023 Net loss $ ( 2,316 ) $ ( 3,422 ) Other comprehensive income (loss): Foreign currency translation adjustment, net of tax 5,554 253 Retirement plan liability adjustment, net of tax 23 43 Other ( 2 ) — Comprehensive income (loss) $ 3,259 $ ( 3,126 ) See notes to unaudited consolidated condensed financial statements. 3 SIFCO Industries, Inc. and Subsidiaries Consolidated Condensed Balance Sheets (Amounts in thousands, except per share data) December 31, 2024 September 30, 2024 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 3,143 $ 1,714 Receivables, net of allowance for credit losses of $ 152 and $ 117 , respectively 16,848 17,272 Contract assets 10,119 10,745 Inventories, net 5,683 6,230 Refundable income taxes 13 13 Prepaid expenses and other current assets 3,129 2,382 Current assets of discontinued operations — 15,967 Total current assets 38,935 54,323 Property, plant and equipment, net 25,347 26,261 Operating lease right-of-use assets, net 13,132 13,326 Goodwill 3,493 3,493 Other assets 75 357 Noncurrent assets of discontinued operations — 6,864 Total assets $ 80,982 $ 104,624 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current maturities of long-term debt, net of unamortized debt issuance costs $ 3,227 $ 353 Promissory note — related party — 3,510 Revolver 12,633 20,142 Short-term operating lease liabilities 892 879 Accounts payable 8,820 11,574 Contract liabilities 2,384 2,879 Accrued liabilities (related party — nil and $ 880 , respectively) 3,058 4,615 Current liabilities of discontinued operations — 10,058 Total current liabilities 31,014 54,010 Long-term debt, net of current maturities 85 — Long-term operating lease liabilities, net of short-term 12,844 13,035 Deferred income taxes, net 219 154 Pension liability 2,398 2,465 Other long-term liabilities 746 645 Noncurrent liabilities of discontinued operations — 3,890 Shareholders’ equity: Serial preferred shares, no par value, authorized 1,000 shares; zero shares issued and outstanding at December 31, 2024 and September 30, 2024 — — Common shares, par value $ 1 per share, authorized 10,000 shares; issued and outstanding shares 6,147 at December 31, 2024 and 6,158 at September 30, 2024 6,147 6,158 Additional paid-in capital 11,778 11,775 Retained earnings 15,565 17,881 Accumulated other comprehensive income (loss) 186 ( 5,389 ) Total shareholders’ equity 33,676 30,425 Total liabilities and shareholders’ equity $ 80,982 $ 104,624 See notes to unaudited consolidated condensed financial statements. 4 SIFCO Industries, Inc. and Subsidiaries Consolidated Condensed Statements of Cash Flows (Unaudited, Amounts in thousands) Three Months Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 2,316 ) $ ( 3,422 ) Income from discontinued operations, net of tax 106 647 Loss from continuing operations ( 2,422 ) ( 4,069 ) Adjustments to reconcile net loss to net cash (used for) provided by operating activities: Depreciation and amortization 1,181 1,232 Amortization of debt issuance costs 37 11 LIFO effect 501 293 Share transactions under company stock plan, net ( 7 ) 38 Inventory valuation accounts 320 392 Other short-term liabilities 7 — Other long-term liabilities 56 42 Deferred income taxes 65 ( 24 ) Changes in operating assets and liabilities: Receivables 424 3,217 Contract assets 626 ( 859 ) Inventories ( 274 ) ( 3,146 ) Prepaid expenses and other current assets ( 543 ) ( 202 ) Other assets 265 ( 50 ) Accounts payable ( 2,772 ) 86 Accrued liabilities ( 778 ) ( 140 ) Contract liabilities ( 495 ) 1,675 Accrued income tax and other — 1 Net cash used for operating activities ( 3,809 ) ( 1,503 ) Cash flows from investing activities: Capital expenditures ( 109 ) ( 482 ) Net cash provided by (used for) investing activities ( 109 ) ( 482 ) Cash flows from financing activities: Payments on long-term debt — ( 55 ) Proceeds from term loan 3,000 — Payments on term loan ( 100 ) — Proceeds from revolving credit agreement 35,025 23,413 Repayments of revolving credit agreement ( 42,534 ) ( 23,641 ) Payment of debt issuance costs ( 203 ) ( 147 ) Principal payments on capital lease obligations ( 10 ) — Proceeds from promissory note — related party — 3,000 Repayments of promissory note and related fees — related party ( 4,417 ) — Net cash (used for) provided by financing activities ( 9,239 ) 2,570 Cash flows from discontinued operations: Net cash used for operating activities ( 57 ) ( 664 ) Net cash provided by (used for) investing activities 13,313 ( 14 ) Net cash provided by financing activities 356 2,898 Effects of exchange rate changes on cash and cash equivalents ( 35 ) 33 Net cash provided by discontinued operations 13,577 2,253 Increase in cash and cash equivalents 420 2,838 Cash and cash equivalents at the beginning of the period 2,723 368 Less: Cash and cash equivalents from discontinued operations at the end of the period — 2,599 Cash and cash equivalents from continuing operations at the end of the period $ 3,143 $ 607 See notes to unaudited consolidated condensed financial statements. 5 SIFCO Industries, Inc. and Subsidiaries Supplemental Disclosure of Cash Flow Information (Unaudited, Amounts in thousands) Three Months Ended December 31, 2024 2023 Cash paid during the year: Cash paid for interest $ ( 389 ) $ ( 326 ) Non-cash investing and financing activities: Additions to property, plant & equipment — incurred but not yet paid $ 19 $ 463 Debt issuance costs — incurred but not yet paid 115 — Accrued guaranty fees — related party — 760 Origination fees capitalized to promissory note principal — related party — 150 Interest added to promissory note — related party (paid-in-kind) 27 — See notes to unaudited consolidated condensed financial statements. 6 SIFCO Industries, Inc. and Subsidiaries Consolidated Condensed Statements of Shareholders’ Equity (Unaudited, Amounts in thousands ) Three Months Ended December 31, 2024 Common Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount Balance at September 30, 2024 6,158 $ 6,158 $ 11,775 $ 17,881 $ ( 5,389 ) $ 30,425 Comprehensive (loss) income — — — ( 2,316 ) 5,575 3,259 Performance and restricted share expense — — 20 — — 20 Share transactions under equity-based plans ( 11 ) ( 11 ) ( 17 ) — — ( 28 ) Balance at December 31, 2024 6,147 $ 6,147 $ 11,778 $ 15,565 $ 186 $ 33,676 Three Months Ended December 31, 2023 Common Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Balance at September 30, 2023 6,105 $ 6,105 $ 11,626 $ 23,264 $ ( 6,660 ) $ 34,335 Comprehensive (loss) income — — — ( 3,422 ) 296 ( 3,126 ) Performance and restricted share expense — — 87 — — 87 Share transactions under equity-based plans 55 55 ( 104 ) — — ( 49 ) Balance at December 31, 2023 6,160 $ 6,160 $ 11,609 $ 19,842 $ ( 6,364 ) $ 31,247 See notes to unaudited consolidated condensed financial statements. 7 SIFCO Industries, Inc. and Subsidiaries Notes to Unaudited Consolidated Condensed Financial Statements (Amounts in thousands, except per share data) 1. Summary of Significant Accounting Policies A. Principles of Consolidation The accompanying unaudited consolidated condensed financial statements include the accounts of SIFCO Industries, Inc. and its wholly-owned subsidiaries (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. In October 2024, the Company sold its European operations in order to streamline operational synergies and refocus on its core aerospace forging business. SIFCO Irish Holdings, Ltd., a wholly owned subsidiary of the Company, entered into a Share Purchase Agreement (the “SPA”) pursuant to which it sold 100 % of the share capital of C Blade S.p.A. Forging & Manufacturing, an Italian joint stock company and wholly-owned subsidiary of the Company (“CBlade”), for cash consideration. As a result of the sale transaction, the Company’s financial statements have been prepared with the net assets, results of operations, and cash flows of CBlade presented as discontinued operations. All historical statements, amounts and related disclosures have been retrospectively adjusted to conform to this presentation. Refer to Note 2 — Discontinued Operations . The U.S. dollar is the functional currency for all of the Company’s operations in the United States (“U.S.”) and its non-operating, non-U.S. subsidiaries. For these operations, all gains and losses from completed currency transactions are included in income (loss). Prior to the sale of CBlade, the functional currency for the Company’s other non-U.S. subsidiaries was the Euro; the Company no longer has active operations in Europe. Assets and liabilities are translated into U.S. dollars at the rates of exchange at the end of the period, and revenues and expenses are translated using average rates of exchange for the period which approximate the rates in effect at the date of the transaction. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the unaudited consolidated condensed financial statements. These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2024 (the “2024 Annual Report”). 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. B. Accounting Policies A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company’s 2024 Annual Report. C. Net Loss per Share The Company’s net loss per basic share has been computed based on the weighted-average number of common shares outstanding. During a period of net loss, zero restricted and performance shares are included in the calculation of diluted earnings per share because the effect would be anti-dilutive. In a period of net income, the net income per diluted share reflects the effect of the Company’s outstanding restricted shares and performance shares under the treasury stock method. The dilutive effect is as follows: 8 Three Months Ended December 31, 2024 2023 Loss from continuing operations $ ( 2,422 ) ( 4,069 ) Income from discontinued operations, net of tax 106 647 Net loss $ ( 2,316 ) $ ( 3,422 ) Weighted-average common shares outstanding (basic and diluted) 6,016 5,956 Net earnings (loss) per share – basic and diluted: Continuing operations $ ( 0.40 ) $ ( 0.67 ) Discontinued operations 0.02 0.10 Net loss per share $ ( 0.38 ) $ ( 0.57 ) Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 149 249 D. Recent Accounting Standards Adopted None applicable. E. Reclassifications Certain reclassifications have been made to prior-period amounts to conform to current-period reporting classifications. For the three months ended December 31, 2024, the Company revised its classification within the consolidated condensed statements of cash flows by moving the prior period amount for contract liabilities from accrued liabilities to contract liabilities to conform to current period presentation. 2. Discontinued Operations The Company committed to the plan to sell CBlade in August 2024 in order to streamline operational synergies and refocus on its core aerospace forging entities. On August 1, 2024, the Company’s Board of Directors approved and authorized the execution of a share purchase agreement (the “SPA”), under which SIFCO Irish Holdings, Ltd., a wholly owned subsidiary of the Company, entered into an agreement to sell 100 % of the share capital of CBlade to TB2 S.r.l. (the “Buyer”) at an enterprise value of € 20,000 , less debt, for cash consideration of € 13,800 in net equity value at closing, subject to adjustments for changes in working capital and certain other items (the “CBlade Sale”). The Company determined that CBlade met the criteria for classification as assets held for sale and discontinued operations upon the aforementioned events, and, based on the significance of the disposed operations (i.e., strategic shift), CBlade represented discontinued operations upon classification of the CBlade assets and liabilities as held for sale. In October 2024, upon regulatory approval, the Company completed the sale of CBlade and received cash consideration of approximately $ 14,586 , net of transaction costs of $ 352 . The Company does not expect to have any significant continuing involvement with CBlade after the sale. All operating activities prior to the disposal date were included in the Company's financial statements separately as discontinued operations, including income before income tax provision, gain from the sale CBlade (i.e., cash proceeds received less net assets transferred), and the release of accumulated other comprehensive income (loss) attributable to the Company's European operations. Due to the CBlade Sale, the Company ceased manufacturing operations within the European market, as CBlade represented the last remaining facility in this region. Prior to the transaction, CBlade was directly owned by SIFCO Irish Holdings Inc., a wholly-owned subsidiary of the Company incorporated in Ireland (“Irish Holdings”), which historically acted as the holding company for the Company's international operations. With the disposal of CBlade, the Company determined that its European operations represented a substantially complete liquidation. Therefore, $ 5,851 of cumulative translation adjustment loss attributable to these operations (related to Irish Holdings) was recognized in the statement of operations as a component of the gain on sale of discontinued operations upon the loss of a controlling financial interest in CBlade, which represented in excess of 90 % of the assets of the Company's European operations. 9 The principal components of the assets and liabilities related to discontinued operations classified as held for sale as of September 30, 2024 were as follows: September 30, 2024 ASSETS Current assets: Cash and cash equivalents $ 1,009 Short-term investments 1,114 Receivables, net 6,259 Inventories, net 6,185 Prepaid expenses and other current assets 1,400 Total current assets 15,967 Property, plant and equipment, net 6,625 Other long-term assets 239 Total assets of discontinued operations $ 22,831 LIABILITIES Current liabilities: Current maturities of long-term debt $ 3,843 Accounts payable 2,770 Accrued and other current liabilities 3,445 Total current liabilities 10,058 Long-term debt, net 3,536 Other long-term liabilities 354 Total liabilities of discontinued operations $ 13,948 A summary of the operating results for the discontinued operations is as follows: Three Months Ended December 31, 2024 2023 Net sales $ 622 $ 5,578 Cost of sales 348 4,297 Interest expense, net 15 88 Income from discontinued operations before income tax expense and gain on sale 214 691 Income tax expense from discontinued operations 166 44 Gain on sale of discontinued operations before income tax expense 58 — Income tax expense on gain from sale of discontinued operations — — Income from discontinued operations, net of tax $ 106 $ 647 3. Inventories Inventories consist of: December 31, 2024 September 30, 2024 Raw materials and supplies $ 1,494 $ 1,044 Work-in-process 1,649 3,419 Finished goods 2,540 1,767 Total inventories, net $ 5,683 $ 6,230 For a portion of the Company’s inventory, cost is determined using the last-in, first-out (“LIFO”) method. Approximately 37 % and 30 % of the Company’s inventories as of December 31, 2024 and September 30, 2024, 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. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because the actual results may vary from these estimates, the annual results may differ 10 from interim results as they are subject to adjustments based on the differences between the estimates and the actual results. 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 $ 10,997 and $ 10,496 higher than reported as of December 31, 2024 and September 30, 2024, 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 December 31, 2024 and September 30, 2024, our inventory valuation allowances were $ 3,054 and $ 2,733 , respectively. 4. Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive loss are as follows: December 31, 2024 September 30, 2024 Foreign currency translation adjustment $ — $ ( 5,554 ) Retirement plan liability adjustment, net of tax 186 163 Interest rate swap agreement, net of tax — 2 Total accumulated other comprehensive loss $ 186 $ ( 5,389 ) During the three months ended December 31, 2024, the Company reclassified $ 5,554 from foreign currency translation adjustment to income from discontinued operations in the consolidated condensed statements of operations concurrent with the disposition of the CBlade and the substantially complete liquidation of operations in Europe. 5. Leases The components of lease expense were as follows: Three Months Ended December 31, 2024 2023 Finance lease expense: Amortization of right-of use assets on finance leases $ 11 $ 2 Interest on lease liabilities 1 — Operating lease expense 415 409 Variable lease cost 15 20 Total lease expense $ 442 $ 431 The following table presents the impact of leasing on the consolidated condensed balance sheet. Classification in the consolidated condensed balance sheets December 31, 2024 September 30, 2024 Assets: Finance lease assets Property, plant and equipment, net $ 132 $ 4 Operating lease assets Operating lease right-of-use assets, net 13,132 13,326 Total lease assets $ 13,264 $ 13,330 Current liabilities: Finance lease liabilities Current maturities of long-term debt $ 45 $ — Operating lease liabilities Short-term operating lease liabilities 892 879 Non-current liabilities: Finance lease liabilities Long-term debt, net of current maturities 85 — Operating lease liabilities Long-term operating lease liabilities, net of short-term 12,844 13,035 Total lease liabilities $ 13,866 $ 13,914 11 Supplemental cash flow and other information related to leases were as follows: Three Months Ended December 31, 2024 2023 Other Information Cash paid for amounts included in measurement of liabilities: Operating cash flows from operating leases $ 415 $ 409 Operating cash flows from finance leases 1 — Financing cash flows from finance leases 10 — Right-of-use assets obtained in exchange for new lease liabilities: Finance leases 139 — Operating leases 81 — December 31, 2024 September 30, 2024 Weighted-average remaining lease term (years): Finance leases 2.8 0.0 Operating leases 11.5 12.4 Weighted-average discount rate: Finance leases 5.2 % — % Operating leases 5.9 % 5.9 % Future minimum lease payments under non-cancellable leases as of December 31, 2024 were as follows: Finance Leases Operating Leases Year ending September 30, Remainder of 2025 $ 37 $ 1,239 2026 50 1,662 2027 50 1,683 2028 2 1,564 2029 — 1,506 Thereafter — 11,251 Total lease payments $ 139 $ 18,905 Less: Imputed interest ( 9 ) ( 5,169 ) Present value of lease liabilities $ 130 $ 13,736 6. Debt Debt consists of: December 31, 2024 September 30, 2024 Revolving credit agreement $ 12,633 $ 20,142 Term loan, net of unamortized debt issuance costs of $ 83 and nil , respectively 2,822 — Promissory note — related party — 3,510 Finance lease obligations 130 — Other 360 353 Total debt 15,945 24,005 Less — current maturities ( 15,860 ) ( 24,005 ) Total long-term debt $ 85 $ — 12 Loan and Security Agreement On October 17, 2024, Company and Quality Aluminum Forge, LLC, a wholly-owned subsidiary of the Company (“QAF”, and together with the Company, the “Borrowers”), entered into a Loan and Security Agreement (the “Loan Agreement”) among the Company and QAF, as borrowers, Siena Lending Group LLC, as Lender (“Siena”), and each of the affiliates of the borrowers signatory to the Loan Agreement from time to time as guarantors. The Loan Agreement provided for a senior secured revolving credit facility with a term of three years in an aggregate principal amount not to exceed $ 20,000 (the “Revolver”) and a term loan in the original principal amount of $ 3,000 (the “Term Loan”). The Loan Agreement also provided for a $ 2,500 letter of credit sub-facility (the “Letter of Credit Sub-facility,” and collectively with the Revolver and the Term Loan, the “Credit Facility”). The Credit Facility matures on October 17, 2027. Proceeds of borrowings under the Credit Facility were used to repay amounts outstanding under the Company’s Credit Agreement, Security Agreement, and Export Credit Agreement dated August 8, 2018, as amended, and was also available for working capital, capital expenditures and other general corporate purposes. These amounts included accrued paid-in-kind interest of $ 387 and fees under the guaranty agreement and subordinated promissory note with 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) of $ 1,030 . Borrowings under the Revolver and the Letter of Credit Sub-facility will bear interest at an annual rate of 4.5 % plus the adjusted term SOFR (or, if the base rate is applicable, an annual rate of 3.5 % plus the base rate). Borrowings under the Term Loan will bear interest at an annual rate of 5.5 % plus the adjusted term SOFR (or, if the base rate is applicable, 4.5 % plus the base rate) and shall be repaid in equal consecutive monthly installments of $ 50 commencing November 1, 2024, with the entire unpaid balance due and payable on the maturity date. Letters of credit issued under the Letter of Credit Sub-facility will have a fee equal to 4.5 % plus adjusted term SOFR per annum of the face amount of such letter of credit. The Letter of Credit Sub-facility requires the Company to maintain compensating balances in a money market account in support of any issuances. The Company may withdraw funds from this account at its discretion; however, availability under the Letter of Credit Sub-facility will be dependent upon the maintenance of such compensating balances. As of December 31, 2024, the Company held $ 1,559 in compensating balances, which were included in cash and cash equivalents in the consolidated condensed balance sheets. In consideration of the execution and delivery by Siena of the Loan Agreement, the Company agreed pursuant to the fee letter to pay a closing fee in the amount of $ 230 (of which $ 115 was paid on the closing date and $ 115 is payable on the first anniversary of the closing date, with the remaining amount (if any) of the closing fee to be paid in full on the maturity date). The fee letter provides for a collateral monitoring fee in the amount of $ 126 , which fee shall be paid in installments as follows: (a) equal payments of approximately $ 4 shall be payable on the closing date and on the first day of each month thereafter and (b) the remaining amount of such fee (if any) shall be paid in full on the maturity date. In addition, an unused line fee accrues with respect to the unused amount of the Revolver at an annual rate of 0.5 %. All fees that are payable in future installments or in full at maturity were recognized within accrued liabilities in the consolidated condensed balance sheets as of December 31, 2024. Borrowings under the Credit Facility are secured by (a) a continuing first priority lien on and security interest in and to substantially all of the assets of the Company and other loan parties identified therein; and (b) a continuing first priority pledge of the pledged equity. The obligations of the Borrowers are guaranteed by each guarantor on the terms set forth in the Loan Agreement. The Loan Agreement provides that the Company must maintain compliance with a minimum fixed charge coverage ratio, determined in accordance with the Loan Agreement. The Loan Agreement also contains affirmative, negative and financial covenants customary for financings of this type, including, among other things, limitations on certain other indebtedness, loans and investment, liens, mergers, asset sales, and transactions with affiliates, as well as customary events of default for financings of this type. Additionally, the Loan Agreement contains provisions for a lockbox arrangement and a subjective acceleration clause related to the appraised value of collateralized property, plant, and equipment; hence, the Term Loan and the Revolver were each classified as current maturities of long-term debt in the consolidated condensed balance sheet as of December 31, 2024. As of December 31, 2024, the Company was in compliance with all covenants under the Loan Agreement. As of December 31, 2024, total availability under the Revolver was $ 3,859 , and no letters of credit were outstanding. As of December 31, 2024 and September 30, 2024, the Company had effective interest rates of 9.6 % and 8.1 %, respectively, under its revolving credit agreements. Debt issuance costs As of December 31, 2024 and September 30, 2024, the Company had debt issuance costs related to its outstanding revolving credit agreements of $ 556 and $ 461 , respectively, which are included in the consolidated condensed balance sheets as a 13 deferred charge in other current assets, net of amortization of $ 31 and nil , respectively. As of December 31, 2024, the Company had debt issuance costs related to the Term Loan of $ 83 , which are included net of debt in the consolidated condensed balance sheets, net of amortization of $ 6 . First Energy In April 2019, the Company entered into an economic development loan in the amount of $ 864 with FirstEnergy Corporation (“FirstEnergy”) through its Ohio Electric Security Plan (“ESP”) in effect at that time (the “ED Loan”). The ED Loan matures in five years and requires quarterly payments at an interest rate of zero percent per annum for the first twenty-four months and 2.0 % per annum for the remainder of the term. Any unpaid balance after the initial term will convert to the U.S. Prime Rate plus 1.0 %. As of December 31, 2024 and September 30, 2024, the Company had outstanding balances under the ED Loan of $ 140 and $ 133 , respectively. Beginning on October 1, 2019, FirstEnergy invoiced the Company on a quarterly basis and payments were made accordingly. However, in light of recent difficulties experienced by FirstEnergy, the Company has not received invoices (or other requests for payment) since its October 2023 payment, and all attempts at correspondence with FirstEnergy have gone unanswered. Due to the lack of communication with the lender, the Company has been unable to make the remaining three installment payments and consider the outstanding balance a potential contingent cash payment under the ED Loan until a formal letter of forgiveness or other determination is received. The Company will continue efforts to resolve this obligation in the near future. While we expect to meet the standards for full forgiveness of the ED Loan, there is no assurance that we will be granted such forgiveness. City of Cleveland In May 2019, the Company entered into a vacant property initiative loan agreement with the City of Cleveland in the amount of $ 180 at an annual interest rate of 3.6 % to construct a die storage building near our Cleveland, OH facility (the “VPI Loan”). The VPI Loan matures in five years with a final balloon payment of all outstanding principal and interest and is forgivable in full contingent upon the Company creating a minimum number of new jobs and maintaining minimum employment levels during the term of the loan. As of both December 31, 2024 and September 30, 2024, the Company had amounts outstanding under the VPI Loan of $ 220 . Due to the effects of the worldwide pandemic, the Company experienced declines in demand for its products and sales, which hindered the Company's ability to grow its workforce and maintain it at or above the required levels. The Company is currently in discussions with the City of Cleveland for forgiveness of the VPI Loan under extenuating circumstances beyond the Company's control. Until a final determination is made by the City of Cleveland, the Company has not made payments on the VPI Loan, which may become payable in full if forgiveness is not approved. The Company will continue efforts to resolve this obligation in the near future. While we expect to meet the standards for full forgiveness of the VPI Loan, there is no assurance that we will be granted such forgiveness. 7. Income Taxes 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 three months of fiscal 2025 was ( 0.21 )%, compared with ( 0.15 )% for the same period of fiscal 2024. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2025 compared with the same period of fiscal 2024. 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. The Company is subject to income taxes in the U.S. federal jurisdiction, Ireland, and various state and local jurisdictions. 14 8. Retirement Benefit Plans The Company and certain of its subsidiaries sponsor defined benefit pension plans covering some of its employees. The components of the net periodic benefit cost of the Company’s defined benefit plans are as follows: Three Months Ended December 31, 2024 2023 Service cost $ 43 $ 17 Interest cost 236 271 Expected return on plan assets ( 264 ) ( 262 ) Amortization of net loss 23 43 Net periodic pension cost $ 38 $ 69 During the three months ended December 31, 2024 and 2023, the Company made $ 42 and $ 9 in cash contributions, and zero and $ 86 in non-cash contributions utilizing carryover balance, respectively, to its defined benefit pension plans. The Company anticipates making $ 240 in cash contributions to fund its defined benefit pension plans for the balance of fiscal 2025, 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 2025. The Company’s ability to elect to use such carryover balance will be determined based on the actual funded status of each defined benefit pension plan relative to the plan’s minimum regulatory funding requirements. The Company does not anticipate making cash contributions above the minimum funding requirement to fund its defined benefit pension plans during the balance of fiscal 2025. 9. Stock-Based Compensation 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 three months of fiscal 2025, the Company granted 10 time-based restricted shares under the 2016 Plan to certain key employees with a grant date fair value of $ 4.14 per share. The awards vest over three years . There were 30 shares forfeited during the three months ended December 31, 2024. No performance-based shares were granted during the three months ended December 31, 2024 If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 405 shares that remain available for award as of December 31, 2024. 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 expense under the 2016 Plan was $ 21 and $ 86 during the first three months of fiscal 2025 and 2024, respectively, within selling, general and administrative expense on the consolidated condensed statements of operations. As of December 31, 2024, there was $ 172 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 1.2 years. 10. Revenue 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. Revenue is recognized when performance obligations under the terms of the contract with a customer of the Company are satisfied. A portion of the Company’s contracts are from purchase orders (“PO’s”), which continue to be recognized as of a point in time when products are shipped from the Company’s manufacturing facilities or at a later time when control of the products transfers to the customer. Under the revenue standard, the Company recognizes certain revenue over time as it satisfies the performance obligations because the conditions of transfer of control to the applicable customer are as follows: • Certain military contracts, which relate to the provisions of specialized or unique goods to the U.S. 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. 15 • 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. As a result of control transferring over time for these products, revenue is recognized based on progress toward completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided. The Company elected to use the cost to cost input method of progress based on costs incurred for these contracts because it best depicts the transfer of goods to the customer based on incurring costs on the contracts. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. The following table represents a breakout of total revenue by customer type: Three Months Ended December 31, 2024 2023 Commercial revenue $ 11,157 $ 7,662 Military revenue 9,726 7,812 Total $ 20,883 $ 15,474 The following table represents revenue by end market: Three Months Ended December 31, 2024 2023 Aerospace components for: Fixed wing aircraft $ 12,845 $ 9,939 Rotorcraft 3,394 3,150 Commercial space 2,448 1,333 Energy components for power generation units 1,028 613 Commercial product and other revenue 1,168 439 Total $ 20,883 $ 15,474 All revenue based on selling locations originated from the Company’s U.S. operations. In addition to the disaggregated revenue information provided above, approximately 53 % and 57 % of total net sales for the three months ended December 31, 2024 and 2023, 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 periods presented: December 31, 2024 December 31, 2023 Contract assets — beginning balance $ 10,745 $ 10,091 Additional revenue recognized over-time 10,713 9,184 Less amounts billed to the customers ( 11,339 ) ( 8,326 ) Contract assets — ending balance $ 10,119 $ 10,949 December 31, 2024 December 31, 2023 Contract liabilities — beginning balance $ 2,879 $ 731 Payments received in advance of performance obligations 440 1,675 Performance obligations satisfied ( 935 ) — Contract liabilities — ending balance $ 2,384 $ 2,406 Accounts receivable were $ 15,638 and $ 12,421 as of September 30, 2023 and December 31, 2023, respectively. There were no material impairment losses recorded on contract assets as of December 31, 2024 and September 30, 2024. 16 Remaining performance obligations As of December 31, 2024, the Company has $ 121,900 of remaining performance obligations (including contract assets), the majority of which are anticipated to be completed within the next twelve months . 11. Commitments and Contingencies In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters; however, it does not believe any such matters are material to its financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is possible that the Company’s future operating results could be affected by future costs of litigation. 12. Related Party Transactions In October 2024, the Company repaid all amounts outstanding under its 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 , as well as accrued paid-in-kind interest. As part of the guaranty and subordinated promissory note with GHI, the Company paid fees of $ 880 and $ 150 , respectively. See Note 6 — Debt for further information. 17