What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-13 compared with 2020-05-20 · 116 added, 82 removed, 154 unchanged (56% of the section changed)

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Impact of COVID-19 on Our Business

The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely adversely affect our business.

The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely continue to adversely affect our business.

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

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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 is expected in the second quarter.

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.

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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.

Certain states and the Mexican government have issued executive orders requiring all workers to remain at home, unless their work is essential.

We believe that, based on the various standards published to date, the work our employees are performing for the aerospace and defense, energy and transportation markets is essential.

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, subsequent to quarter end, the Company secured a $3.6 million term loan with BMO Harris Bank National Association (“BMO”), pursuant to the Paycheck Protection Program (“PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

Proceeds from the PPP Loan are expected to be used to retain workers and maintain payroll, make lease payments and utility payments.

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.

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Sypris Technologies has experienced a significant reduction in demand from customers serving the automotive, commercial vehicle, sport utility vehicle and off-highway markets and the significant drop in oil prices has created uncertainty for many of the energy infrastructure projects utilizing the components we produce and sell.

Sypris Technologies’ revenue was negatively impacted at the end of the first quarter and a more significant impact is expected in the second quarter.

We further believe that revenue will continue to be negatively impacted in periods beyond the second quarter until the COVID-19 pandemic diminishes.

We believe that the market diversification Sypris Technologies has accomplished over recent years by adding new programs in the automotive, sport-utility and off-highway markets has benefited and will continue to benefit the Company as demand for our products in these markets did not decline as dramatically as demand declined in the overall commercial vehicle market.

In addition, we believe that demand may recover more quickly in the sport-utility and off-highway markers than the overall commercial vehicle market.

Sypris Technologies’ revenue was negatively impacted at the end of the first quarter and a more significant impact was experienced during the second quarter contributing to a 55.9% decline from the second quarter of 2019.

We further believe that revenue will likely continue to be negatively impacted in future periods until the COVID-19 pandemic diminishes.

In addition, we believe that demand may recover more quickly in the sport-utility and off-highway markets than the Class 8 commercial vehicle market.

Depressed oil and gas prices coupled with reduced travel, business closures, and other economic impacts related to the COVID-19 pandemic are suppressing near-term oil and natural gas demand, which has adversely impacted the oil and gas markets served by our Tube Turns® brand of engineered product lines.

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This had a negative impact on our production schedules and margin performance in 2019.

However, these negative impacts did not persist in the first quarter of 2020, as many of the component shortages and issues were resolved.

However, these negative impacts did not persist in the first half of 2020, as many of the component shortages and issues were resolved.

The majority of our aerospace and defense programs require specific components that are sole-sourced to specific suppliers;

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We have partnered with our customers to qualify alternative components or suppliers and will continue to exercise our supply chain to mitigate the impact on our business.

While the COVID-19 outbreak did not have a material impact on our supply chain in the first quarter of 2020, overall component shortages may become a challenge throughout 2020.

While the COVID-19 outbreak did not have a material impact on our supply chain in the first half of 2020, overall component shortages may become a challenge throughout the balance of 2020.

As a result, there can be no assurance that we will continue to be successful in addressing these shortages and issues.

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We expect to compete for follow-on business opportunities on future builds of several existing programs.

However, the long-term impacts of COVID-19 on government budgets and other funding priorities that impact demand for our products and services and our business are difficult to predict.

Results of Operations

The table below compares our segment and consolidated results for the first quarter of 2020 to the first quarter of 2019.

It presents the results for each period, the change in those results from 2019 to 2020 in both dollars and as a percentage, as well as the results for each period as a percentage of net revenue.

The first two columns in the table show the absolute results for each period presented.

The tables below compare our segment and consolidated results for the three and six month periods of operations of 2020 to the three and six month periods of operations of 2019.

The tables present the results for each period, the change in those results from 2019 to 2020 in both dollars and percentage change and the results for each period as a percentage of net revenue.

The first two columns in each table show the absolute results for each period presented.

The columns entitled “Year Over Year Change” and “Year Over Year Percentage Change” show the change in results, both in dollars and percentages.

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Conversely, when expenses increase from one period to the next, that change is shown as a negative number in both columns.

The last two columns in the table show the results for each period as a percentage of net revenue.

In these two columns, the cost of sales and gross profit for each segment are given as a percentage of that segment’s net revenue.

The last two columns in each table show the results for each period as a percentage of net revenue.

In these two columns, the cost of sales and gross profit for each are given as a percentage of that segment’s net revenue.

These amounts are shown in italics.

In addition, as used in the table, “NM” means “not meaningful.”

Three Months Ended April 5, 2020 Compared to Three Months Ended March 31, 2019

Three Months Ended July 5, 2020 Compared to Three Months Ended June 30, 2019

Results as Percentage of

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Sypris Electronics

Gross profit:

Sypris Technologies

Sypris Electronics

Selling, general and administrative

Severance, relocation and other costs

Operating (loss) income

Interest expense, net

Other (income), net

(Loss) income before taxes

Income tax expense, net

Net (loss) income

Six Months Ended July 5, 2020 Compared to Six Months Ended June 30, 2019.

Results as Percentage of

Net Revenue for the Six

Six Months Ended,

(Unfavorable)

(in thousands, except percentage data)

Sypris Technologies

Sypris Electronics

Cost of sales:

Sypris Technologies

Sypris Electronics

Gross profit (loss):

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Severance, relocation and other costs

Operating income (loss)

Operating loss

Interest expense, net

Other expense, net

Other (income), net

Loss before taxes

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Net Revenue .

Sypris Technologies primarily derives its revenue from the sale of forged and finished steel components and subassemblies and high-pressure closures and other fabricated products.

Net revenue for Sypris Technologies decreased 15.0%, or $2.4 million, for the first quarter of 2020 compared to the first quarter of 2019.

The net revenue decrease for the quarter was primarily attributable to decreased sales volume of $3.5 million with customers in the commercial vehicle market and a $0.9 million decline in energy related product sales partially offset by growth in the automotive, light truck and sport utility markets of $1.9 million.

Sypris Technologies derives its revenue from the sale of forged and finished steel components and subassemblies and high-pressure closures and other fabricated products.

Net revenue for Sypris Technologies for the three and six-month periods ended July 5, 2020 decreased $9.4 million and $11.9 million, respectively, from the prior year comparable periods as a result of the expected cyclical decline in the commercial vehicle market and the impact of the COVID-19 pandemic, as noted above.

The net revenue decrease for the comparable three-month period was attributable to decreased sales volumes of $7.8 million primarily with customers in the commercial vehicle market and decreased energy related product sales of $1.6 million.

The net revenue decrease for the comparable six-month period was attributable to decreased sales volumes of $11.4 million primarily with customers in the commercial vehicle market, decreased energy related product sales of $2.5 million, partially offset by growth in the automotive, light truck and sport utility markets of $2.0 million.

Sypris Electronics derives its revenue primarily from circuit card and full “box build” manufacturing, high reliability manufacturing and systems assembly and integration.

Net revenue for Sypris Electronics increased $5.3 million to $8.7 million in the first quarter of 2020 compared to $3.4 million in the first quarter of 2019.

In the prior year, revenue for the first quarter was negatively impacted by shortages of certain electronic components and extensive lead-time issues in the electronic manufacturing industry.

Additionally, the first quarter of 2019 was also impacted by shipments accelerated into the fourth quarter of 2018 as the Company planned for the implementation of a new ERP system effective in January 2019.

Many of challenges faced during the prior year with the electronic component shortages have been resolved and production rebounded to more normal run rates during the first quarter of 2020.

Net revenue for Sypris Electronics increased $2.1 million and $7.4 million, respectively, for the three and six months ended July 5, 2020, from the prior year comparable periods.

Revenue for the first six months of 2019 was partially affected by shortages of certain electronic components and extensive lead-time issues in the electronic manufacturing industry.

The first half of 2019 was also impacted by shipments accelerated into the fourth quarter of 2018 as the Company planned for the implementation of a new ERP system effective in January 2019.

Many of the challenges faced during the prior year with the electronic component shortages have been resolved and production rebounded to more normal run rates during the first half of 2020.

Gross Profit.

Sypris Technologies’ gross profit increased $0.2 million to $2.5 million in the first quarter of 2020 as compared to $2.3 million in the first quarter of 2019.

During 2019, the results for the period were negatively impacted by additional start-up costs on new programs including lower productivity, higher supply consumption and scrap and rework expense.

Additionally, utility costs were higher as more production occurred during peak electrical rate periods.

Labor productivity improved in the first quarter of 2020 driving lower variable employment costs and controls over supply spend, product quality and utility consumption contributed to increased profitability.

These improvements were partially offset by lower contribution margin from the net decrease in sales volume over the prior period.

Gross margin for the first quarter of 2020 reached 18.0% as compared to 14.3% in the prior year period.

Sypris Electronics’ gross profit increased $2.5 million to $1.1 million in the first quarter of 2020 as compared to a loss of $1.4 million for the first quarter of 2019.

The increase in gross profit was primarily as a result of the growth in revenue during the quarter.

Certain programs contributing to the improvement in revenue and gross margin for the comparable periods reached their expected quarterly run rates during the first quarter of 2020 and allowed management to more efficiently balance production and to improve overhead absorption.

The order backlog for Sypris Electronics is expected to support a stable revenue rate during the balance of 2020 and price increases on certain programs could contribute to margin expansion beginning in the second quarter.

Gross margin for the first quarter of 2020 was 12.6% as compared to a negative gross margin of 42.2% in the prior year.

Sypris Technologies’ gross profit decreased $2.7 million and $2.5 million for the three and six months ended July 5, 2020, respectively.

The net decrease in volumes contributed to a decrease in gross profit of $3.5 million and $4.3 million for the three and six months ended July 5, 2020, respectively.

Partially offsetting this decrease were improvements in productivity, utilities, scrap and rework expense.

During 2019, the results for the periods were negatively impacted by additional start-up costs on new programs including lower productivity, higher supply consumption and scrap and rework expense.

Additionally, utility costs were higher in 2019 as more production occurred during peak electrical rate periods.

Management implemented programs to control variable and fixed spend during the second quarter of 2020 in response to the sharp decline in revenue attributable to the COVID-19 pandemic.

In the operations most dramatically impacted by the reduction in demand, these programs included initiatives to retain the workforce necessary to support future demand in anticipation of reduced impacts of COVID-19.

Sypris Electronics’ gross profit increased $0.7 million and $3.3 million for the three and six months ended July 5, 2020, respectively.

The increase in gross profit was primarily as a result of the growth in revenue during the periods.

Certain programs contributing to the improvement in revenue and gross margin for the comparable periods reached their expected quarterly run rates during the first half of 2020 and allowed management to more efficiently balance production and to improve overhead absorption.

The order backlog for Sypris Electronics is expected to support a stable revenue rate during the second half of 2020 and price increases on certain programs could contribute to margin expansion in comparison with the previous year.

Selling, General and Administrative.

Selling, general and administrative expense decreased $0.2 million to $3.2 million in the first quarter of 2020 as compared to $3.5 million for the same period in 2019 primarily as a result of lower consultation costs associated with the Company’s new ERP implementation effective in January 2019 and a reduction in director fees, which were temporarily suspended effective as of the first quarter of 2020 amid the COVID-19 pandemic.

Salary reductions implemented in response to the COVID-19 pandemic were effective as of the beginning of the second quarter and will contribute to lower expense in future periods.

Selling, general and administrative expense decreased by $0.8 million and $1.0 million for the three and six month periods ended July 5, 2020, respectively, as compared to the same periods in 2019, primarily as a result of a reduction in spending across the Company.

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

We also had a reduction in consultation costs associated with the Company’s new ERP implementation effective in January 2019.

Other (Income ) , Net.

The Company recognized other income, net of $0.8 million and $0.5 million for the three and six months ended July 5, 2020, respectively.

During the three months ended July 5, 2020, the Company recognized net gains of $0.8 million related to the sale of idle assets and foreign exchange related gains of $0.1 million, partially offset by pension expense of $0.2 million.

For the six months ended July 5, 2020, the Company recognized net gains of $1.0 million related to the sale of idle assets, partially offset by foreign exchange related losses of $0.1 million and pension expense of $0.4 million.

The Company recognized other income, net of $1.5 million and $1.4 million for the three and six months ended June 30, 2019, respectively.

During the six months ended June 30, 2019, the Company recognized a gain in other income of $1.5 million related to a settlement agreement reached with one of its customers during the period (see Note 7 to the consolidated financial statements in this Form 10-Q).

Additionally, the Company recognized a net gain of $0.5 million related to the sale of idle assets, offset by pension expense of $0.5 million.

Income Taxes.

The Company’s income tax expense for the three months ended April 5, 2020 and March 31, 2019 consists primarily of currently payable state and local income taxes on domestic operations and foreign income taxes on one of its Mexican subsidiaries.

The Company currently maintains a valuation allowance against its domestic deferred tax assets and a material portion of its foreign deferred tax assets as of April 5, 2020.

The Company’s income tax expense for the three and six months ended July 5, 2020 and June 30, 2019 consists primarily of currently payable state and local income taxes on domestic operations and foreign income taxes on one of its Mexican subsidiaries.

The Company currently maintains a valuation allowance against its domestic deferred tax assets and a material portion of its foreign deferred tax assets as of July 5, 2020.

The Company intends to continue to maintain a valuation allowance on these deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

However, given the recent earnings and anticipated future earnings for its Mexican operation, we believe that there is a reasonable possibility that, within the next 12 months, sufficient positive evidence may become available to allow management to reach a conclusion that up to approximately $3.7 million of the valuation allowance against foreign deferred tax assets as of December 31, 2019 will no longer be needed.

However, given the recent cumulative earnings and anticipated future earnings for its Mexican operation, we believe that there is a reasonable possibility that, within the next 12 months, sufficient positive evidence may become available to allow management to reach a conclusion that up to approximately $3.7 million of the valuation allowance against foreign deferred tax assets as of December 31, 2019 will no longer be needed.

Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period the release is recorded.

However, the exact timing and amount of any valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to achieve.

Liquidity and Capital Resources

Liquidity, Capital Resources

Payroll Protection Program .

As described above, the Company secured a PPP Loan under the CARES Act after the end of the first quarter of 2020.

Proceeds from the PPP Loan are expected to be used to retain workers and maintain payroll, make lease payments and utility payments.

The PPP Loan is evidenced by a promissory note in favor of BMO, as lender, with a principal amount of $3.6 million (the “PPP Note”) that bears interest at a fixed annual rate of 1.00%, with the first six months of principal and interest deferred.

Beginning in October 2020, the Company expects to make 18 equal monthly 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 U.S.

Small Business Administration.

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 Term 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.

As described above, the Company secured the PPP Loan under the CARES Act during the second quarter of 2020.

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 $3.6 million that bears interest at a fixed annual rate of 1.00%, with the first six months of principal and interest deferred.

Under the terms of the PPP Loan, 18 equal monthly payments of principal and interest would begin in November 2020 with the final payment due in April 2022, however recent legislation under the Paycheck Protection Program Flexibility Act of 2020 provides for an extension of the maturity date up to five years and modifications to the debt amortization schedule if the Company and BMO reach an agreement on modified terms.

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 (“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.

Gill Family Capital Management Note .

The Company has received the benefit of cash infusions from GFCM in the form of secured promissory note obligations totaling $6.5 million in principal as of April 5, 2020 and December 31, 2019 (the “Note”).

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 $6.5 million in principal as of July 5, 2020 and December 31, 2019 (the “Note”).

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

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Scott Gill are significant beneficial stockholders of the Company.

As of April 5, 2020, our principal commitment under the Note was $2.5 million due on April 1, 2021, $2.0 million 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 notes maturing in April of 2021 and 2023, and provide for a first security interest in substantially all of the Company’s assets, including those in Mexico.

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 on April 6, 2020 and July 6, 2020.

As of July 5, 2020, our principal commitment under the Note was $2.5 million due on April 1, 2021, $2.0 million 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 notes maturing in April of 2021 and 2023, and provides for a first security interest in substantially all of the Company’s assets, including those in Mexico.

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.

Finance Lease Obligations.

On March 9, 2016, the Company completed the sale of its 24-acre Toluca property for 215 million Mexican Pesos, or approximately $12.2 million in U.S.

Simultaneously, the Company entered into a ten-year lease of the 9 acres and buildings currently occupied by the Company and needed for its ongoing business in Toluca.

As a result of the Toluca Sale-Leaseback, the Company has a capital lease obligation of $2.4 million for the building as of April 5, 2020.

In January 2018, the Company entered into a capital lease for $1.3 million for new production equipment installed at its Sypris Electronics facility during 2017.

The balance of the lease obligation as of April 5, 2020 was $0.3 million.

In February 2019, the Company entered into a capital lease for $0.3 million for new machinery at its Sypris Technologies facility in the U.S.

The balance of the lease obligation as of April 5, 2020 was $0.2 million.

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 $2.3 million for the building as of July 5, 2020.

In January 2018, the Company entered into a finance lease for $1.3 million for new production equipment installed at its Sypris Electronics facility during 2017.

The balance of the lease obligation as of July 5, 2020 was $0.2 million.

In February 2019, the Company entered into a finance lease for $0.3 million for new machinery at its Sypris Technologies facility in the U.S.

The balance of the lease obligation as of July 5, 2020 was $0.2 million.

Purchase Commitments.

We had purchase commitments totaling approximately $8.0 million at April 5, 2020, primarily for inventory and manufacturing equipment.

We had purchase commitments totaling approximately $8.0 million at July 5, 2020, primarily for inventory.

Cash Balance.

April 5, 2020, we had approximately $5.2 million of cash and cash equivalents, of which $1.9 million was held in jurisdictions outside of the U.S.

At July 5, 2020, we had approximately $7.8 million of cash and cash equivalents, of which $1.8 million was held in jurisdictions outside of the U.S.

that, if repatriated, could result in withholding taxes.

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Operating Activities.

Net cash provided by operating activities was $0.7 million in the first quarter of 2020, as compared to cash used of $4.5 million in the same period of 2019.

The aggregate increase in accounts receivable in 2020 resulted in a usage of cash of $1.5 million.

Net cash used by operating activities was $1.0 million in the first six months of 2020 as compared to $5.8 million in the same period of 2019.

The aggregate decrease in accounts receivable in 2020 resulted in a source of cash of $1.1 million as a result of the decrease in revenue.

The decrease in inventory in 2020 resulted in a source of cash of $1.8 million.

The decrease in inventory primarily relates to the expected decline in volumes within the commercial vehicle market in 2020.

Additionally, there was an increase in accounts payable during the quarter, providing a source of cash of $1.5 million.

Accrued and other liabilities decreased during the first quarter of 2020, resulting in a use of cash of $0.8 million, primarily as a result of a decrease in unearned revenue.

The decrease in inventory primarily relates to inventory within Sypris Electronics, as shipments on programs using inventory procured in prior periods have increased in 2020.

Additionally, there was a decrease in accounts payable during the first six months of 2020, which resulted in a usage of cash of $2.7 million.

Prepaid expenses and other assets increased during the first six months of 2020, resulting in a usage of cash of $0.5 million, primarily as a result of an increase in contract assets.

Accrued and other liabilities decreased during the first six months of 2020, resulting in a use of cash of $1.3 million, primarily as a result of a decrease in deferred revenue.

Investing Activities.

Net cash used in investing activities was $0.2 million for the first quarter of 2020 as compared to $0.3 million for the first quarter of 2019.

Net cash used in investing activities for the first quarter of 2020 included capital expenditures of $0.5 million partially offset by proceeds of $0.3 million from the sale of idle assets by Sypris Technologies during the period.

Net cash used in investing activities in the first quarter of 2019 included capital expenditures of $0.3 million.

On April 13, 2020, the Company completed the sale of the Broadway Plant real estate and received gross cash proceeds of $1.7 million and recognized a gain of $0.8 million.

Net cash provided by investing activities was $1.1 million for the first six months of 2020 as compared to cash neutral for the first six months of 2019.

Net cash provided by investing activities for the first six months of 2020 included proceeds of $2.0 million from the sale of idle assets by Sypris Technologies during the period, including the sale of the Broadway Plant, partially offset by capital expenditures of $0.8 million.

Net cash used in investing activities for the first six months of 2019 included capital expenditures of $0.7 million offset by proceeds of $0.6 million from the sale of idle asset by Sypris Technologies during the period.

Financing Activities.

Net cash used in financing activities was $0.2 million for the first quarter of 2020 and was primarily comprised of capital lease payments.

Net cash used in financing activities was $0.2 million for the first quarter of 2019 and was comprised of capital lease payments of $0.1 million and payments of $0.1 million for minimum statutory tax withholdings on stock-based compensation.

Net cash provided by financing activities was $3.2 million for the first six months of 2020 as compared to cash used of $0.4 million for the first six months of 2019.

Net cash provided by financing activities in the first six months of 2020 included proceeds of $3.6 million under the PPP Loan, as described above, partially offset by finance lease payments of $0.3 million.

Net cash used in financing activities in the first six months of 2019 included finance lease payments of $0.3 million and payments of $0.1 million for minimum statutory tax withholdings on stock-based compensation.

Critical Accounting Policies

See the information concerning our critical accounting policies included under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

There have been no significant changes in our critical accounting policies during the three months ended April 5, 2020.

There have been no significant changes in our critical accounting policies during the six months ended July 5, 2020.

Forward-looking Statements

This Quarterly Report on Form 10-Q, and our other oral or written communications, may contain “forward-looking” statements.

These statements may include our expectations or projections about the future of our business, industries, business strategies, prospects, potential acquisitions, liquidity, financial condition or financial results and our views about developments beyond our control, including domestic or global economic conditions, government spending, industry trends and market developments.

These statements, including those outlined in management’s recovery plan, are based on management’s views and assumptions at the time originally made, and, except as required by law, we undertake no obligation to update these statements, even if, for example, they remain available on our website after those views and assumptions have changed.

These statements are based on management’s views and assumptions at the time originally made, and, except as required by law, we undertake no obligation to update these statements, even if, for example, they remain available on our website after those views and assumptions have changed.

There can be no assurance that our expectations, projections or views will come to pass, and undue reliance should not be placed on these forward-looking statements.

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our ability to comply with the requirements of the SBA and seek forgiveness of all or a portion of the PPP Loan;

our failure to successfully complete final contract negotiations with regard to our announced contract “orders”, “wins” or “awards”;

our failure to achieve and maintain profitability on a timely basis by steadily increasing our revenues from profitable contracts with a diversified group of customers, which would cause us to continue to use existing cash resources or other assets to fund operating losses;

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unanticipated or uninsured disasters, public health crises, losses or business risks;

our failure to successfully complete final contract negotiations with regard to our announced contract “orders”, “wins” or “awards”;

volatility of our customers’ forecasts, scheduling demands and production levels which negatively impact our operational capacity and our effectiveness to integrate new customers or suppliers, and in turn cause increases in our inventory and working capital levels;

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inaccurate data about markets, customers or business conditions;

or unknown risks and uncertainties and the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

or unknown risks and uncertainties and the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended April 5, 2020 and this Quarterly Report on Form 10-Q.

Quantitative and Qualitative Disclosures about Market Risk

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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 2. Management’s Discussion and Analysis