What changed in this filing

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Item 1. Financial Statements

2020-08-13 compared with 2020-05-20 · 152 added, 84 removed, 370 unchanged (39% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Cost of sales

1 unchanged sentence

Severance, relocation and other costs

Operating income (loss)

Operating (loss) income

Interest expense, net

Other expense, net

Loss before taxes

Income tax expense, net

Loss per share:

Other (income), net

(Loss) income before taxes

Income tax expense

Net (loss) income

(Loss) income per share:

Weighted average shares outstanding:

2 unchanged sentences

Sypris Solutions, Inc.

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Three Months Ended

Other comprehensive (loss) income:

Foreign currency translation adjustments, net of tax

Comprehensive loss

Six Months Ended

Net (loss) income

Other comprehensive income (loss)

Foreign currency translation adjustments

Comprehensive income (loss)

The accompanying notes are an integral part of the consolidated financial statements.

18 unchanged sentences

Note payable – related party, current portion

Note payable – PPP Loan, current portion

Total current liabilities

2 unchanged sentences

Note payable – related party

Note payable – PPP Loan

Other liabilities

19 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

11 unchanged sentences

Accrued and other liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities

Cash flows from investing activities:

Capital expenditures, net

Capital expenditures

Proceeds from sale of assets

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Principal payments on finance lease obligations

Proceeds from Paycheck Protection Program loan

Indirect repurchase of shares of minimum statutory tax withholdings

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash balances

2 unchanged sentences

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

Non-cash investing and financing activities:

Right-of-use assets obtained in exchange for finance lease obligations

The accompanying notes are an integral part of the consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended July 5, 2020

Comprehensive

January 1, 2019 balance

Adoption of new accounting standards

April 5, 2020 balance

Foreign currency translation adjustment

1 unchanged sentence

Retire treasury stock

July 5, 2020 balance

Three Months Ended June 30, 2019

Comprehensive

March 31, 2019 balance

Foreign currency translation adjustment

Noncash compensation

Retire treasury stock

June 30, 2019 balance

Six Months Ended July 5, 2020

Comprehensive

3 unchanged sentences

Noncash compensation

April 5, 2020 balance

Retire treasury stock

July 5, 2020 balance

Six Months Ended June 30, 2019

Comprehensive

January 1, 2019 balance

Adoption of new accounting standards

Foreign currency translation adjustment

Noncash compensation

Retire treasury stock

June 30, 2019 balance

The accompanying notes are an integral part of the consolidated financial statements.

Sypris Solutions, Inc.

Notes to Consolidated Financial Statements

Notes to Condensed Consolidated Financial Statements

Nature of Business

15 unchanged sentences

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.

Actual results for the three months ended April 5, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Actual results for the three and six months ended July 5, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, and notes thereto, for the year ended December 31, 2019 as presented in the Company’s Annual Report on Form 10-K.

2 unchanged sentences

In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency.

COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects are currently unknown.

While the Company expects the effects of the pandemic to negatively impact its results of operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time.

COVID-19 continues to spread throughout the United States and other countries across the world.

As of the date of this filing, significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic.

The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.

4 unchanged sentences

and pension plan assumptions.

Events and changes in circumstances arising after April 5, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Events and changes in circumstances arising after July 5, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

The Company has continued to operate at each location and sought to remain compliant with government regulations imposed due to the COVID-19 pandemic.

During periods of lower production, the Company is scheduling and performing certain preventative maintenance procedures on its equipment and is utilizing resources to continue making progress on certain of the strategic initiatives included in the Company’s 2020 annual operating plan.

The Company began to experience lower revenue late in the first quarter due to the COVID-19 pandemic, and a more significant impact in the second quarter, especially within the Sypris Technologies group.

While the Company expects the effects of the pandemic will negatively impact its results of operations, cash flows and financial position, management has implemented actions to mitigate the financial impact, to protect the health of its employees and to comply with government regulations at each location.

Factors deriving from the COVID-19 response that have or may negatively impact sales and gross margin in the future include, but are not limited to:

3 unchanged sentences

and limitations on the ability of our customers to pay us on a timely basis.

We are experiencing disruptions in our business as we implement modifications to preserve adequate liquidity and ensure that our business can continue to operate during this uncertain time.

With respect to liquidity, we are evaluating and taking actions to reduce costs and spending across our organization.

This includes reducing hiring activities, reducing compensation for our Chairman, President and CEO, certain other senior leadership and corporate personnel and our Board of Directors, and limiting discretionary spending.

In addition, under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), we have deferred certain payroll taxes and pension funding payments into future years.

We have also reduced anticipated spending on capital investment projects and are managing working capital to preserve liquidity during this crisis.

In addition to these activities, during the second quarter, the Company secured a $3.6 million term loan with BMO Harris Bank National Association (“BMO”), pursuant to the Paycheck Protection Program (the “PPP Loan”) under the CARES Act.

Proceeds from the PPP Loan have been used to retain workers and maintain payroll and make lease and utility payments.

While we are unable to determine or predict the nature, duration or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

Recent Accounting Pronouncements

18 unchanged sentences

The Company determines if an arrangement is a lease at its inception.

The Company has entered into operating leases for real estate and personal property, including manufacturing and information technology equipment.

These real estate leases have initial terms which range from 10 to 11 years, and often include one or more options to renew.

The Company has entered into operating leases for real estate.

These leases have initial terms which range from 10 years to 11 years, and often include one or more options to renew.

These renewal terms can extend the lease term by 5 years, and will be included in the lease term when it is reasonably certain that the Company will exercise the option.

10 unchanged sentences

Incremental payments due to changes in the index are treated as variable lease costs and expensed as incurred.

These operating leases are included in “Operating lease right-of-use assets” on the Company’s consolidated balance sheets, and represent the Company’s right to use the underlying asset for the lease term.

These operating leases are included in “Operating lease right-of-use assets” on the Company’s July 5, 2020 Consolidated Balance Sheet, and represent the Company’s right to use the underlying asset for the lease term.

The Company’s obligations to make lease payments are included in “Operating lease liabilities, current portion” and “Operating lease liabilities, net of current portion” on the Company’s consolidated balance sheets.

Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As of April 5, 2020, total right-of-use assets and operating lease liabilities were approximately $6,727,000 and $7,534,000, respectively.

As of July 5, 2020, total right-of-use assets and operating lease liabilities were approximately $6,523,000 and $7,352,000, respectively.

As of December 31, 2019, total right-of-use assets and operating lease liabilities were approximately $7,014,000 and $7,747,000, respectively.

4 unchanged sentences

Lease payments associated with short-term leases are expensed as incurred and are not recorded on the Company’s balance sheet.

The related lease expense for short-term leases was not material for the three months ended April 5, 2020 and March 31, 2019.

The following table presents information related to lease expense for the three months ended April 5, 2020 and March 31, 2019 (in thousands):

The related lease expense for short-term leases was not material for the three and six months ended July 5, 2020 and June 30, 2019.

The following table presents information related to lease expense for the three and six months ended July 5, 2020 and June 30, 2019 (in thousands):

Three Months Ended

Six Months Ended

Finance lease expense:

5 unchanged sentences

The following table presents supplemental cash flow information related to leases (in thousands):

Three Months Ended

Six Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Financing cash flows from finance leases

The annual future minimum lease payments as of April 5, 2020 are as follows (in thousands):

The annual future minimum lease payments as of July 5, 2020 are as follows (in thousands):

Next 12 months

5 unchanged sentences

Less imputed interest

The following table presents certain information related to lease terms and discount rates for leases as of April 5, 2020:

The following table presents certain information related to lease terms and discount rates for leases as of July 5, 2020:

Weighted-average remaining lease term (years)

21 unchanged sentences

The majority of Sypris Electronics’ contractual arrangements with customers are for one year or less.

For the remaining population of non-cancellable contracts greater than one year we had $19,068,000 of remaining performance obligations as of April 5, 2020, all of which were long-term Sypris Electronics’ contracts.

We expect to recognize approximately 63% of our remaining performance obligations as revenue in 2020, 36% in 2021 and the balance in 2022.

For the remaining population of non-cancellable contracts greater than one year we had $29,074,000 of remaining performance obligations as of July 5, 2020, all of which were long-term Sypris Electronics’ contracts.

We expect to recognize approximately 40% of our remaining performance obligations as revenue in 2020 and the balance in 2021.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers for the three months ended April 5, 2020 and March 31, 2019 (in thousands):

The following table summarizes revenue from contracts with customers for the three and six months ended July 5, 2020 and June 30, 2019:

Three Months Ended

Six Months Ended

Sypris Technologies – transferred point in time

5 unchanged sentences

Contract assets are generally classified as current assets in the consolidated balance sheet.

The balance of contract assets as of April 5, 2020 and December 31, 2019 were $936,000 and $906,000, respectively, and are included within other current assets in the accompanying consolidated balance sheets.

The balance of contract assets as of July 5, 2020 and December 31, 2019 were $1,389,000 and $906,000, respectively, and are included within other current assets in the accompanying consolidated balance sheets.

Contract liabilities – Some of the Company’s contracts within Sypris Electronics are billed as work progresses in accordance with the contract terms and conditions, either at periodic intervals or upon achievement of certain milestones.

2 unchanged sentences

These contract liabilities are classified as either current or long-term in the consolidated balance sheet based on the timing of when the Company expects to recognize revenue.

As of April 5, 2019, the contract liabilities balance was $7,176,000, of which $5,811,000 was included within accrued liabilities and $1,365,000 was included within other liabilities in the accompanying consolidated balance sheets.

As of July 5, 2019, the contract liabilities balance was $6,102,000, which was included within accrued liabilities in the accompanying consolidated balance sheets.

As of December 31, 2019, the contract liabilities balance was $7,504,000, of which $5,769,000 was included within accrued liabilities and $1,735,000 was included within other liabilities in the accompanying consolidated balance sheets.

Payments received from customers in advance of revenue recognition are not considered to be significant financing components because they are used to meet working capital demands that can be higher in the early stages of a contract.

The Company recognized revenue from contract liabilities of $2,312,000 and $1,344,000 during the three months ended April 5, 2020 and March 31, 2019, respectively.

The Company recognized revenue from contract liabilities of $2,929,000 and $4,645,000 during the three and six months ended July 5, 2020, respectively.

The Company recognized revenue from contract liabilities of $2,190,000 and $3,234,000 during the three and six months ended June 30, 2019, respectively.

Practical expedients and exemptions

6 unchanged sentences

The Company has relocated certain assets from the Broadway Plant to other manufacturing facilities, as needed, to serve its existing and target customer base and identified underutilized or non-core assets for disposal.

Management expects to apply the proceeds from the sale of any underutilized or non-core assets to help fund the costs to transfer any additional equipment from the Broadway Plant.

On April 13, 2020, the Company completed the sale of the Broadway Plant real estate for $1,700,000 and recognized a gain of $807,000.

Management is currently evaluating options for any remaining assets in the Broadway Plant.

As a result of these initiatives, the Company recorded charges of $91,000, or less than $0.01 per share, and $98,000, or less than $0.01 per share, during the first three months of 2020 and 2019, respectively, related to the transition of production from the Broadway Plant, which is included in severance, relocation and other costs in the consolidated statement of operations.

As a result of these initiatives, the Company recorded charges of $124,000, or less than $0.01 per share, and $201,000, or less than $0.01 per share, during the first six months of 2020 and 2019, respectively, related to the transition of production from the Broadway Plant, which is included in severance, relocation and other costs in the consolidated statement of operations.

All amounts incurred were recorded within Sypris Technologies.

The charges for the three months ended April 5, 2020 were primarily related to mothball costs associated with the closed facility.

A summary of the total pre-tax charges is as follows (in thousands):

The charges for the first six months of 2020 and 2019 were primarily related to mothball costs associated with the closed facility.

Costs Incurred

April 5, 2020

Severance and benefit related costs

1 unchanged sentence

Equipment relocation costs

The Company expects to incur additional pre-tax costs of approximately $52,000 within Sypris Technologies, the majority of which is expected to be cash expenditures.

As noted above, management expects to use proceeds from the sale of underutilized or non-core assets to fund costs incurred on the transfer of equipment from the Broadway Plant.

The following assets have been segregated and included in assets held for sale in the consolidated balance sheets (in thousands):

2 unchanged sentences

Property, plant and equipment, net

Loss Per Common Share

Other (Income), Net

The Company completed the sale of the Broadway Plant real estate for $1,700,000 and other idle assets for $268,000 and recognized net gains of $958,000 during the six months ended July 5, 2020, which is included in other income net on the Company’s consolidated income statements.

Additionally, the Company recognized pension expense of $402,000 and foreign currency related expense of $83,000.

During the three and six months ended June 30, 2019, the Company recognized a gain of $1,500,000 as a result of a settlement agreement with one of its customers to resolve various outstanding disputes between the two parties.

As a result of the agreement, the customer agreed to pay the Company $1,500,000 in compensation.

This amount was subsequently received in July 2019.

Additionally, the Company recognized a net gain of $477,000 for the six months ended June 30, 2019 related to the sale of idle assets, which was offset by pension expense of $495,000.

Stock-Based Compensation

During the three and six months ended July 5, 2020, the Company granted options to purchase 930,000 shares of our common stock under a long-term incentive program.

The options have a five-year term and cliff vest on the third anniversary of the grant date.

The grants did not have a significant impact on the Company’s consolidated financial statements during the three and six months ended July 5, 2020.

( Loss ) Earnings Per Common Share

The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities.

3 unchanged sentences

Diluted earnings per share excludes the impact of common shares related to our stock options in periods in which the option exercise price is greater than the average market price of our common stock for the period.

For the three months ended April 5, 2020 and March 31, 2019, diluted weighted average common shares do not include the impact of any outstanding stock options and unvested compensation-related shares because the effect of these items on diluted net loss would be anti-dilutive.

A reconciliation of the weighted average shares outstanding used in the calculation of basic and diluted loss per common share is as follows (in thousands):

There were 2,735,750 potential common shares excluded from diluted earnings per share for the three months ended June 30, 2019.

For the three and six months ended July 5, 2020 and the six months ended June 30, 2019, diluted weighted average common shares do not include the impact of any outstanding stock options and unvested compensation-related shares because the effect of these items on diluted net loss would be anti-dilutive.

A reconciliation of the weighted average shares outstanding used in the calculation of basic and diluted (loss) income per common share is as follows (in thousands):

Three Months Ended

Loss attributable to stockholders:

Net loss as reported

Less distributed and undistributed earnings allocable to restricted awarded holders

Less dividends declared attributed to restricted awarded holders

Net loss allocable to common stockholders

Loss per common share attributable to stockholders:

Six Months Ended

Loss (income) attributable to stockholders:

Net (loss) income as reported

Less distributed and undistributed earnings allocable to restricted award holders

Less dividends declared attributable to restricted award holders

Net (loss) income allocable to common stockholders

Loss (income) per common share attributable to stockholders:

Weighted average shares outstanding – basic

15 unchanged sentences

Finance lease obligation, current portion

PPP Loan, current portion

Note payable – related party, current portion

4 unchanged sentences

Long term debt net of unamortized debt costs

Pay check Protection Program

During the second quarter of 2020, the Company secured a $3,558,000 term loan with BMO.

Proceeds from the PPP Loan have been used to retain workers and maintain payroll and make lease and utility payments.

The PPP Loan is evidenced by a promissory note in favor of BMO, as lender, with a principal amount of $3,558,000 that bears interest at a fixed annual rate of 1.00%, with the first six months of principal and interest deferred and a maturity date of April 2022.

The PPP Loan may be accelerated upon the occurrence of an event of default.

The PPP Loan is unsecured and guaranteed by the U.S.

Small Business Administration (the “SBA”).

The Company may apply for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning upon receipt of funds from the PPP Loan, subject to limitations and calculated in accordance with the terms of the CARES Act.

Any forgiveness of the PPP Loan shall be subject to approval of the SBA and will require the Company and BMO to apply to the SBA for such treatment in the future.

We intend to comply with the necessary requirements to seek forgiveness of all or a portion of the PPP Loan, but no assurance can be provided that we will obtain forgiveness of the PPP Loan in whole or in part.

As a result, the Company is taking the approach that a portion of the PPP Loan is short-term and a portion is long-term, and has reflected such borrowing on the Company’s consolidated balance sheet, as appropriate.

The Company will record any amounts of the loan that are forgiven as a gain on extinguishment in the period in which legal release is received.

Note Payable – Related Party

The Company has received the benefit of cash infusions from Gill Family Capital Management, Inc.

(“GFCM”) in the form of secured promissory note obligations totaling $6,500,000 in principal as of July 5, 2020 and December 31, 2019.

GFCM is an entity controlled by the Company’s Chairman, President and Chief Executive Officer, Jeffrey T.

Gill, and one of our directors, R.

GFCM, Jeffrey T.

Scott Gill are significant beneficial stockholders of the Company.

The promissory note bears interest at a rate of 8.0% per year through March 31, 2019 and, thereafter is reset on April 1 st of each year, at the greater of 8.0% or 500 basis points above the five-year Treasury note average during the preceding 90-day period, in each case, payable quarterly.

The maturity dates for the obligation are as follows:

$2,500,000 of the obligation on April 1, 2021, $2,000,000 on April 1, 2023, and the balance on April 1, 2025.

The note allows for up to an 18-month deferral of payment for up to 60% of the interest due on the portion of the notes maturing in April of 2021 and 2023.

During the first quarter of 2020, the Company provided notice to GFCM of its intention to elect to defer the specified portion of the interest payments due beginning on April 6, 2020.

Obligations under the promissory note are guaranteed by all of the subsidiaries and are secured by a first priority lien on substantially all assets of the Company.

Finance Lease Obligations

On March 9, 2016, the Company completed the sale of its 24-acre Toluca property for 215,000,000 Mexican Pesos, or approximately $12,182,000 in U.S.

Simultaneously, the Company entered into a ten-year lease of the nine acres and buildings occupied by the Company and needed for its ongoing business in Toluca.

As a result of the Toluca sale-leaseback, the Company has a finance lease obligation of $2,296,000 for the property as of July 5, 2020.

In January 2018, the Company entered into a 36-month finance lease for $1,277,000 for new production equipment installed at its Sypris Electronics facility during 2017.

The balance of the finance lease obligation as of July 5, 2020 was $213,000.

In February 2019, the Company entered into a 60-month finance lease for $269,000 for new machinery at its Sypris Technologies facility in the U.S.

The balance of the finance lease obligation as of July 5, 2020 was $206,000.

The Company is organized into two business segments, Sypris Technologies and Sypris Electronics.

11 unchanged sentences

Three Months Ended

Six Months Ended

Net revenue from unaffiliated customers:

4 unchanged sentences

Sypris Electronics

Three Months Ended

Operating income (loss):

16 unchanged sentences

The provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience.

The Company’s warranty liability, which is included in accrued liabilities in the accompanying consolidated balance sheets as of April 5, 2020 and December 31, 2019 was $581,000 and $569,000, respectively.

The Company’s warranty expense for the three months ended April 5, 2020 and March 31, 2019 was not material.

The Company’s warranty liability, which is included in accrued liabilities in the accompanying condensed consolidated balance sheets as of July 5, 2020 and December 31, 2019 was $542,000 and $569,000, respectively.

The Company’s warranty expense for the three and six months ended July 5, 2020 and June 30, 2019 was not material.

The Company bears insurance risk as a member of a group captive insurance entity for certain general liability, automobile and workers’ compensation insurance programs, a self-insured worker’s compensation program and a self-insured employee health program.

12 unchanged sentences

The Company has received certain indemnifications from either companies previously owning these facilities or from purchasers of those facilities.

As of April 5, 2020 and December 31, 2019, no amounts were accrued for any environmental matters.

As of July 5, 2020 and December 31, 2019, no amounts were accrued for any environmental matters.

On December 27, 2017, the U.S.

10 unchanged sentences

The Company is continuing to vigorously defend the matter.

As of April 5, 2020, the Company had outstanding purchase commitments of approximately $7,977,000, primarily for the acquisition of inventory and manufacturing equipment.

As of July 5, 2020, the Company had outstanding purchase commitments of approximately $8,021,000, primarily for the acquisition of inventory.

The provision for income taxes includes federal, state, local and foreign taxes.

1 unchanged sentence

The Company provides for income taxes for its domestic operations at a statutory rate of 21% in 2020 and 2019 and for its foreign operations at a statutory rate of 30% in 2020 and 2019.

Reconciling items between the federal statutory rate and the effective tax rate also include the expected usage of federal net operating loss carryforwards, state income taxes, valuation allowances and certain other permanent differences.

Reconciling items between the federal statutory rate and the effective tax rate also include state income taxes, valuation allowances and certain other permanent differences.

The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements in accordance with ASC 740, Income Taxes (ASC 740).

10 unchanged sentences

Employee Benefit Plans

The following table details the components of pension (income) expense (in thousands):

Pension expense (benefit) consisted of the following (in thousands):

Three Months Ended

Six Months Ended

Interest cost on projected benefit obligation

Net amortizations of actuarial loss

Net amortizations, deferrals and other costs

Expected return on plan assets

Net periodic benefit cost

The net periodic benefit cost of the defined benefit pension plans incurred during the three-month periods ended April 5, 2020 and March 31, 2019 are reflected in the following captions in the accompanying consolidated statements of operations (in thousands):

The net periodic benefit cost of the defined benefit pension plans incurred during the three and six-month periods ended July 5, 2020 and June 30, 2019 are reflected in the following captions in the accompanying consolidated statements of operations (in thousands):

Three Months Ended

Six Months Ended

Service cost:

1 unchanged sentence

Other net periodic benefit costs:

Other expense (income), net

Other (income), net

Accumulated Other Comprehensive Loss

7 unchanged sentences

Cash, accounts receivable, accounts payable and accrued liabilities are reflected in the consolidated financial statements at their carrying amount which approximates fair value because of the short-term maturity of those instruments.

The carrying amount of debt outstanding at April 5, 2020 approximates fair value, and is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments (Level 2).

Subsequent Events

There are many uncertainties regarding the current COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of our business, including how it will impact our customers, employees, suppliers, vendors, business partners and distribution channels.

While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended April 5, 2020, we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to numerous uncertainties.

The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its responses accordingly.

Subsequent to April 5, 2020, the Company reduced production at our operations in response to COVID-19 related government mandates, reduced demand conditions and other operational drivers, primarily in our Sypris Technologies segment.

This resulted in temporarily suspending operations on certain production lines with corresponding reductions in headcount or work hours for our employees, primarily at our facility in Toluca, Mexico.

The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020 in the United States.

On April 27, 2020, the Company received approval from the U.S.

Small Business Administration (the “SBA”) to fund its request for a loan under the SBA’s Paycheck Protection Program created as part of the CARES Act.

In connection with the approval, on May 1, 2020, the Company entered into a promissory note in favor of BMO Harris Bank National Association (“BMO”), as lender, with a principal amount of $3,558,000 pursuant to the Paycheck Protection Program (the “PPP Note”).

The PPP Note bears interest at a fixed rate of 1.0% per annum, with the first six months of principal and interest deferred.

Beginning in October 2020, the Company expects to make 18 equal payments of principal and interest with the final payment due in April 2022.

The PPP Note may be accelerated upon the occurrence of an event of default.

The PPP Note is unsecured and guaranteed by the SBA.

The Company may apply for forgiveness of the PPP Note, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the eight-week period beginning upon receipt of PPP Note funds, subject to limitations and calculated in accordance with the terms of the CARES Act.

Any forgiveness of the PPP Note shall be subject to approval of the SBA and will require the Company and BMO to apply to the SBA for such treatment in the future.

We intend to comply with the necessary requirements to seek forgiveness of all or a portion of the PPP Note, but no assurance can be provided that we will obtain forgiveness of the PPP Note in whole or in part.

On April 13, 2020, the Company completed the sale of the Broadway Plant real estate for $1,700,000 and recognized a gain of $807,000.

The carrying amount of debt outstanding at July 5, 2020 approximates fair value, and is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments (Level 2).

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