Part I.

Financial Information

 

Item 1.

Financial Statements

 

Sypris Solutions, Inc.

Consolidated Statements of Operations

(in thousands, except for per share data)

(Unaudited)

 

 

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

 

 

Sypris Solutions, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

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

 

 

Sypris Solutions, Inc.

Consolidated Balance Sheets

(in thousands, except for share data)

 

 

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

 

 

Sypris Solutions, Inc.

Consolidated Cash Flow Statements

(in thousands)

(Unaudited)

 

 

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

 

 

Sypris Solutions, Inc.

Consolidated Statements of Stockholders’ equity

(in thousands)

 

 

 

 

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

 

 

Sypris Solutions, Inc.

 

Notes to Consolidated Financial Statements

 

 

 

 

 

 

 

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

We are a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. We offer a wide range of manufactured products, often under multi-year sole-source contracts.

 

We are organized into two business segments, Sypris Technologies and Sypris Electronics. Sypris Technologies, which is comprised of Sypris Technologies, Inc. and its subsidiaries, generates revenue primarily from the sale of forged, machined, welded and heat-treated steel components primarily for the heavy commercial vehicle and high-pressure energy pipeline applications. Sypris Electronics, which is comprised of Sypris Electronics, LLC, generates revenue primarily through circuit card and full “box build” manufacturing, high reliability manufacturing, systems assembly and integration, design for manufacturability and design to specification work.

 

We focus on those markets where we believe we have the expertise, qualifications and leadership position to sustain a competitive advantage. We target our resources to support the needs of industry participants that embrace technological innovation and flexibility, coupled with multi-year contractual relationships, as a strategic component of their supply chain management. These contracts, many of which are sole-source by part number, have historically created opportunities to invest in leading-edge processes or technologies to help our customers remain competitive. The productivity and innovation that can result from such investments helps to differentiate us from our competition when it comes to cost, quality, reliability and customer service.

 

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 continue to adversely affect our business. As of the date of this filing, significant uncertainty exists concerning the continued impact and duration of the COVID-19 pandemic. The Company has continued to operate at each location and sought to remain compliant with government regulations imposed due to the COVID-19 pandemic. The Company began to experience lower revenue late in the first quarter of 2020 due to the COVID-19 pandemic, followed by a more significant impact in the second quarter of 2020, especially within the Sypris Technologies group. Towards the end of the second quarter of 2020, some state and local jurisdictions started to lift mandatory stay-at-home or shelter-in-place orders and started gradually to ease restrictions. While the COVID-19 pandemic negatively impacted the Company’s results of operations, cash flows and financial position in 2020 and the first quarter of 2021, management implemented actions to mitigate the financial impact, to protect the health of its employees and to comply with government regulations at each of our locations. Factors deriving from the COVID-19 response that have and may continue to negatively impact sales and gross margin in the future include, but are not limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the material components we utilize in the manufacture of the products we sell, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the ability of our customers to conduct their business and purchase our products; and limitations on the ability of our customers to pay us on a timely basis.

 

We implemented modifications beginning in the second quarter of 2020 to preserve adequate liquidity and ensure that our business continued to operate during this uncertain time. With respect to liquidity, we evaluated and took actions to reduce costs and spending across our organization. This included reducing hiring activities, reducing compensation of our Chairman, President and CEO, certain other senior leadership and corporate personnel and our Board of Directors, and limiting discretionary spending. These reductions remained in effect during the first quarter of 2021.  In addition, under the CARES Act, we have deferred certain payroll taxes into future years.  We also reduced spending on capital investment projects in 2020 and managed working capital to preserve liquidity during this crisis. During periods of lower production in 2020, the Company reallocated available internal resources to perform certain preventative maintenance procedures on its equipment and to supplement its progress on certain strategic initiatives. In addition to these activities, during the second quarter of 2020, the Company secured a $3.6 million term loan with BMO, pursuant to the PPP 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.

 

 

Sypris Technologies Outlook

 

The anticipated cyclical decline in the commercial vehicle market, coupled with the impact of the COVID-19 pandemic, resulted in a significant decline in North American Class 4-8 shipments in 2020, with Class 8 production dropping nearly 31% from 2019.  In 2020, Sypris Technologies experienced a significant reduction in demand from customers serving the automotive, commercial vehicle, sport utility vehicle and off-highway markets. Sypris Technologies’ revenue was negatively impacted at the end of the first quarter of 2020 and was more significantly impacted during the second quarter of 2020 contributing to a 55.9% decline from the second quarter of 2019. However, demand improved during the second half of 2020. The outlook for 2021 for the commercial vehicle market indicates stronger demand with production expected to be up 35% over the prior year due to an anticipated improving economic outlook and cyclical growth.  Additionally, 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 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 suppressed 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. This is causing major pipeline developers to significantly scale back near-term capital investments in new pipeline infrastructure. This has resulted in reduced demand for our products for the oil and gas markets during the second half of 2020 and the first quarter of 2021. However, as commodity prices improve and activity increases, we expect oil and gas sector spending to increase in the second half of 2021 compared to 2020.

 

We will continue to pursue new business in a wide variety of markets from light automotive to new energy related product lines to achieve a more balanced portfolio across our customers, markets and products.

 

Sypris Electronics Outlook

 

In accordance with the U.S. Department of Defense (“DoD”) guidance issued in March 2020 designating the Defense Industrial Base as a critical infrastructure workforce, our Sypris Electronics production facility continued to operate in support of essential products and services required to meet national security commitments to the U.S. Government and the U.S. military.

 

The U.S. Government has taken actions in response to COVID-19 to increase progress payments in new and existing contracts and accelerate contract awards through increased use of Undefinitized Contracting Actions (UCAs) to provide cash flow and liquidity for companies in the Defense Industrial Base, including large prime contractors and smaller suppliers. Certain of the large prime contractors are implementing multiple actions to help support certain suppliers affected by COVID-19, including accelerating payments to subcontractors, such as Sypris Electronics. 

 

The majority of the government aerospace and defense programs that we support require specific components that are sole-sourced to specific suppliers; therefore, the resolution of supplier constraints requires coordination with our customers or the end-users of the products. We have partnered with our customers to qualify alternative components or suppliers and will continue to focus on our supply chain to attempt to mitigate the impact of supply component shortages on our business. While the COVID-19 outbreak did not have a material impact on our supply chain in 2020 or the first quarter of 2021, electronic component shortages may become a challenge in 2021. We may not be successful in addressing these shortages and other supply chain issues.

 

During 2020 and the first quarter of 2021, we announced new program awards for Sypris Electronics, with certain programs continuing into 2022. In addition to contract awards from DoD prime contractors related to weapons systems, electronic warfare and infrared countermeasures in our traditional aerospace and defense markets, we have also been awarded subcontracts related to the communication and navigation markets, which align with our advanced capabilities for delivering products for complex, high cost of failure platforms.

 

On December 27, 2020, the President of the United States signed the fiscal year (FY) 2021 Consolidated Appropriations Act, providing annual funding for the DoD, other government agencies, and COVID-19 relief. The appropriations provide $741 billion in discretionary funding for national defense (including DoD funding and defense-related spending in energy and water development, homeland security, and military construction appropriations), of which $671 billion is in base funding and $69 billion is Overseas Contingency Operations Funding (“OCO”)/emergency funding (OCO and emergency supplemental funding do not count toward discretionary spending caps). Of the $741 billion, the DoD was allocated $704 billion, composed of $635 billion in base funding and $69 billion in OCO and emergency funding. The appropriations adhere to the Bipartisan Budget Act of 2019 (BBA 2019), which increased the spending limits for both defense and non-defense discretionary funds for the final two years (FY 2020 and FY 2021) of the Budget Control Act (BCA).

 

 

On April 9, 2021, President Biden released his initial discretionary funding request for FY 2022. The document outlines the Biden administration’s discretionary funding priorities, including the discretionary topline requests for the DoD and other agencies. The request includes $715 billion in discretionary funding for the DoD. The proposed funding level for the DoD is approximately $11 billion above the enacted amount for FY 2021. The President’s full budget release is expected later in the second quarter of 2021 and is expected to include his full agenda of investments, spending, and revenues.

 

We expect to compete for follow-on business opportunities as a subcontractor on future builds of several existing government programs. However, the long-term impacts of COVID-19 and the new Presidential Administration 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 2021 to the first quarter of 2020. It presents the results for each period, the change in those results from 2020 to 2021 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 columns entitled “Year Over Year Change” and “Year Over Year Percentage Change” show the change in results, both in dollars and percentages. These two columns show favorable changes as positive and unfavorable changes as negative. For example, when our net revenue increases from one period to the next, that change is shown as a positive number in both columns. 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. These amounts are shown in italics.

 

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

 

 

Three Months Ended April 4, 2021 Compared to Three Months Ended April 5, 2020

 

														Year Over
										Year Over				Year				Results as Percentage of
										Year				Percentage				Net Revenue for the Three
		Three Months Ended,								Change				Change				Months Ended
		April 4,				April 5,				Favorable				Favorable				April 4,				April 5,
		2021				2020				(Unfavorable)				(Unfavorable)				2021				2020
		(in thousands, except percentage data)
Net revenue:
Sypris Technologies		$	13,190			$	13,717			$	(527	)			(3.8	)%			66.0	%			61.2	%
Sypris Electronics			6,792				8,708				(1,916	)			(22.0	)			34.0				38.8
Total			19,982				22,425				(2,443	)			(10.9	)			100.0				100.0
Cost of sales:
Sypris Technologies			12,019				11,224				(795	)			(7.1	)			91.1				81.8
Sypris Electronics			6,147				7,476				1,329				17.8				90.5				85.9
Total			18,166				18,700				534				2.9				90.9				83.4
Gross profit:
Sypris Technologies			1,171				2,493				(1,322	)			(53.0	)			8.9				18.2
Sypris Electronics			645				1,232				(587	)			(47.6	)			9.5				14.1
Total			1,816				3,725				(1,909	)			(51.2	)			9.1				16.6
Selling, general and administrative			2,882				3,448				566				16.4				14.4				15.4
Operating (loss) income			(1,066	)			277				(1,343	)			NM				(5.3	)			1.2
Interest expense, net			222				227				5				2.2				1.1				1.0
Other expense, net			221				283				62				21.9				1.1				1.3
Loss before taxes			(1,509	)			(233	)			(1,276	)			(547.6	)			(7.6	)			(1.1	)
Income tax expense, net			121				72				(49	)			(68.1	)			0.6				0.3
Net loss		$	(1,630	)		$	(305	)		$	(1,325	)			(434.4	)%			(8.2	)%			(1.4	)%

 

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 3.8%, or $0.5 million, for the first quarter of 2021 compared to the first quarter of 2020. The net revenue decrease for the quarter was primarily attributable to a $1.9 million decline in energy related product sales partially offset by increased sales volumes of $1.4 million with customers in the commercial vehicle market.

 

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 decreased $1.9 million to $6.8 million in the first quarter of 2021 compared to $8.7 million in the first quarter of 2020. Revenue for the first quarter of 2021 was negatively impacted by a stop work order received related to the redesign of a component by the customer. The stop work order was lifted during the last week of the first quarter. Additionally, sales to customers serving the communications industry decreased as compared to the first quarter of 2020 due to delayed orders that are expected to be received in the second quarter of 2021 and be converted to revenue over the balance of the year.

 

Gross Profit. Sypris Technologies’ gross profit decreased $1.3 million to $1.2 million in the first quarter of 2021 as compared to $2.5 million in the first quarter of 2020.  During the first quarter of 2021, results were negatively impacted by a lower contribution margin from the net decrease in sales volume over the prior year period and an unfavorable product mix.  Additionally, results for the first quarter of 2021 were impacted by unfavorable labor productivity due to COVID-19 related absences during the period.

 

Sypris Electronics’ gross profit decreased $0.6 million to $0.6 million in the first quarter of 2021 as compared to $1.2 million for the first quarter of 2020. The decrease in gross profit was primarily a result of the decrease in revenue during the quarter, which also had a negative impact on overhead absorption, and an unfavorable mix. The order backlog for Sypris Electronics is expected to support a stable revenue rate during the balance of 2021. Gross margin for the first quarter of 2021 was 9.5% as compared to 14.1% in the first quarter of 2020.

 

 

Selling, General and Administrative. Selling, general and administrative expense decreased $0.6 million to $2.9 million in the first quarter of 2021 as compared to $3.4 million for the same period in 2020 primarily as a result of a reduction in spending implemented during the first half of 2020 across the Company amid the COVID-19 pandemic. This included 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. These reductions remained in effect during the first quarter of 2021.

 

Income Taxes. The Company’s income tax expense for the three months ended April 4, 2021 and April 5, 2020 consists primarily of currently payable state and local income taxes on domestic operations and foreign income taxes on one of its Mexican subsidiaries.

 

Deferred tax assets and liabilities are determined separately for each tax jurisdiction in which we conduct our operations or otherwise incur taxable income or losses. The Company evaluates its deferred tax position on a quarterly basis and valuation allowances are provided as necessary. During this evaluation, the Company reviews its forecast of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred tax assets to determine if a valuation allowance is needed. Based on its current forecast, the Company has established a valuation allowance against all U.S. deferred tax assets. Until an appropriate level and characterization of profitability is attained, the Company expects to continue to maintain a valuation allowance on its net deferred tax assets related to future U.S. tax benefits. If we determine that we would be able to realize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income in the period that such determination is made. 

 

Liquidity and Capital Resources

 

Payroll Protection Program.  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%.  The term of the PPP Loan is two years, with no payments due under the PPP Loan until July 2021, although interest will accrue during the deferment period.  Beginning July 2021, the Company expects to pay equal monthly installments of principal and interest in the amount necessary to fully amortize the PPP Loan through the maturity date, less any amount of potential forgiveness.  Recent legislation under the Paycheck Protection Program Flexibility Act of 2020 provides for an extension of the maturity date up to five years, an extension of the principal and interest deferral period to the date of a loan forgiveness determination 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. 

 

Under the terms of the CARES Act, all or a portion of the principal of the PPP Loan may be forgiven. Such forgiveness will be determined, subject to limitations, based on the use of the PPP Loan proceeds for payroll costs, mortgage interest payments, lease payments or utility payments. On November 24, 2020, the Company submitted an application for forgiveness of the entire amount due on the PPP Loan. As of April 1, 2021, the Company has not made any principal or interest payments related to the PPP Loan. The Company cannot provide assurance that the principal and interest amounts under the PPP Loan will be forgiven. The Company also anticipates that any payments due on the PPP Loan will be deferred beyond July 2021 in the event that the SBA does not respond to the Company’s forgiveness application prior to that date.

 

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 4, 2021 and December 31, 2020 (the “Note”). GFCM is an entity controlled by the Company’s Chairman, President and Chief Executive Officer, Jeffrey T. Gill and one of our directors, R. Scott Gill. GFCM, Jeffrey T. Gill and R. Scott Gill are significant beneficial stockholders of the Company. As of April 4, 2021, our principal commitment under the Note was $2.5 million due on April 1, 2022, $2.0 million on April 1, 2024 and the balance on April 1, 2026. Interest on the Note is reset on April 1 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 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 2022 and 2024. 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. All accrued but unpaid interest was paid on January 4, 2021.

 

 

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. dollars. 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 $2.1 million for the building as of April 4, 2021.

 

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 4, 2021 was $0.2 million.

 

Equipment Financing Obligations

 

As of April 4, 2021, the Company had $0.3 million outstanding under equipment financing facilities, with fixed interest rates ranging from 8.02% to 8.06% and payments due through 2025.

 

Purchase Commitments. We had purchase commitments totaling approximately $24.6 million at April 4, 2021, primarily for inventory and manufacturing equipment.

 

Cash Balance. As of April 4, 2021, we had approximately $9.4 million of cash and cash equivalents, of which $3.6 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes.

 

We have projected that our cash and cash equivalents will be sufficient to allow us to continue operations for the next 12 months. Significant changes from our current forecasts, including, but not limited to: (i) the impact of the COVID-19 pandemic and changes in worldwide and U.S. economic conditions (ii) meaningful shortfalls in projected revenue or sales proceeds from underutilized or non-core equipment, (iii) unexpected costs or expenses, and/or (iv) operating difficulties which cause unexpected delays in scheduled shipments, could require us to seek additional funding or force us to make further reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail planned programs. Any of these actions could materially harm our business, results of operations and future prospects.

 

Cash Flows

 

Operating Activities. Net cash used in operating activities was $0.9 million in the first quarter of 2021, as compared to cash provided of $0.7 million in the same period of 2020. The aggregate increase in accounts receivable in 2021 resulted in a usage of cash of $0.7 million primarily as a result of an early payment by a customer at the end of 2020. The increase in inventory in 2021 resulted in a use of cash of $2.4 million. The increase in inventory primarily is in support of new program revenue growth for Sypris Electronics anticipated to begin in the second half of 2021. Additionally, there was an increase in accounts payable during the first quarter of 2021, providing a source of cash of $3.3 million. Accrued and other liabilities decreased during the first quarter of 2021, resulting in a use of cash of $0.3 million, primarily as a result of the payment of the Company’s matching contribution under the company sponsored defined contribution plan paid during the first quarter of 2021.

 

Investing Activities. Net cash used in investing activities was $0.8 million for the first quarter of 2021 as compared to $0.2 million for the first quarter of 2020. Net cash used in investing activities for the first quarter of 2021 included capital expenditures of $0.8 million. 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.

 

Financing Activities. Net cash used in financing activities was $0.4 million for the first quarter of 2021 and was comprised of capital lease and equipment financing obligation payments of $0.1 million and payments of $0.3 million for minimum statutory tax withholdings on stock-based compensation. Net cash used in financing activities was $0.2 million for the first quarter of 2020 and was primarily comprised of capital lease payments.

 

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, 2020. There have been no significant changes in our critical accounting policies during the three months ended April 4, 2021.

 

 

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. 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.

 

A number of significant factors could materially affect our specific business operations and cause our performance to differ materially from any future results projected or implied by our prior statements. Many of these factors are identified in connection with the more specific descriptions contained throughout this report. Other factors which could also materially affect such future results currently include: the impact of COVID-19 and economic conditions on our future operations; possible public policy response to the pandemic, including legislation or restrictions that may impact our operations or supply chain; our failure to successfully complete final contract negotiations with regard to our announced contract “orders”, “wins” or “awards”; our failure to successfully win new business; the termination or non-renewal of existing contracts by customers; 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 require us to sell assets to fund operating losses; breakdowns, relocations or major repairs of machinery and equipment, especially in our Toluca Plant; the cost, quality, timeliness, efficiency and yield of our operations and capital investments, including the impact of tariffs, product recalls or related liabilities, employee training, working capital, production schedules, cycle times, scrap rates, injuries, wages, overtime costs, freight or expediting costs; dependence on, retention or recruitment of key employees and distribution of our human capital; disputes or litigation involving governmental, supplier, customer, employee, creditor, stockholder, product liability, warranty or environmental claims; our failure to achieve targeted gains and cash proceeds from the anticipated sale of certain equipment and other assets; the fees, costs and supply of, or access to, debt, equity capital, or other sources of liquidity; our ability to comply with the requirements of the SBA and seek forgiveness of all or a portion of the PPP loan; our inability to develop new or improved products or new markets for our products; cost, quality and availability or lead times of raw materials such as steel, component parts (especially electronic components), natural gas or utilities; our ability to maintain compliance with the NASDAQ listing standards minimum closing bid price; our reliance on a few key customers, third party vendors and sub-suppliers; inventory valuation risks including excessive or obsolescent valuations or price erosions of raw materials or component parts on hand or other potential impairments, non-recoverability or write-offs of assets or deferred costs; other potential weaknesses in internal controls over financial reporting and enterprise risk management; failure to adequately insure or to identify product liability, environmental or other insurable risks; unanticipated or uninsured disasters, public health crises, losses or business risks; unanticipated or uninsured product liability claims; 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; the costs of compliance with our auditing, regulatory or contractual obligations; labor relations; strikes; union negotiations; pension valuation, health care or other benefit costs; costs associated with environmental claims relating to properties previously owned; our inability to patent or otherwise protect our inventions or other intellectual property from potential competitors; adverse impacts of new technologies or other competitive pressures which increase our costs or erode our margins; U.S. government spending on products and services that Sypris Electronics provides, including the timing of budgetary decisions; changes in licenses, security clearances, or other legal rights to operate, manage our work force or import and export as needed; risks of foreign operations; currency exchange rates; war, terrorism, or political uncertainty; cyber security threats and disruptions; inaccurate data about markets, customers or business conditions; risk related to owning our common stock including increased volatility; 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, 2020.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K and thus are not required to provide the quantitative and qualitative disclosures about market risk specified in Item 305 of Regulation S-K.

 

 

Item 4.

Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and our Principal Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

 

(b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

Part II.

Other Information

 

Item 1.

Legal Proceedings

 

Groundwater and other contamination has occurred at certain of our current and former facilities during the operation of those facilities by their former owners, and this contamination may occur at future facilities we operate or acquire. There is no assurance that environmental indemnification agreements we have secured from the former owners of certain of these properties will be adequate to protect us from liability. No administrative or judicial proceedings with respect to these or any other environmental regulations or conditions are pending against the Company or known by the Company to be contemplated by Government authorities.

 

The Company is subject to other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for these other asserted legal and other claims. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. In addition, there may be other potential claims, liabilities, materials or design defects, or other customer complaints that have not been asserted, but which could adversely impact us in the future. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these other legal matters or potential matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

 

The information set forth in Note 12 to the consolidated financial statements in this Quarterly Report on Form 10-Q is incorporated by reference into this Item 1.

 

Item 1A.

Risk Factors

 

Information regarding risk factors appears in Part I — Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” in this Quarterly Report on Form 10-Q, and in Part I — Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. There have been no material changes during the fiscal quarter from the risk factors disclosed in our Annual Report on Form 10-K.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

None

 

 

Item 6.

Exhibits

 

Exhibit Number	Description
10.1	Sypris Solutions, Inc., Directors Compensation Program adopted on September 1, 1995 Amended and Restated on March 9, 2021 (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed on March 18, 2021 (Commission File No. 000-24020)).
31(i)-1	CEO certification pursuant to Section 302 of Sarbanes - Oxley Act of 2002.
31(i)-2	Principal Financial Officer certification pursuant to Section 302 of Sarbanes - Oxley Act of 2002.
32	CEO and Principal Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				SYPRIS SOLUTIONS, INC.
				(Registrant)
Date:	May 18, 2021		By:	/s/ Anthony C. Allen
				(Anthony C. Allen)
				Vice President & Chief Financial Officer
Date:	May 18, 2021		By:	/s/ Rebecca R. Eckert
				(Rebecca R. Eckert)
				Controller (Principal Accounting Officer)

 

Exhibit 31(i).1

 

 

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

 

 

I, Jeffrey T. Gill, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Sypris Solutions, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date:	May 18, 2021		By:	/s/ Jeffrey T. Gill
				Jeffrey T. Gill
				President & Chief Executive Officer

 

Exhibit 31(i).2

 

 

CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002

 

 

I, Anthony C. Allen, certify that:

 

1.	I have reviewed this quarterly report on Form 10-Q of Sypris Solutions, Inc.;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date:	May 18, 2021		By:	/s/ Anthony C. Allen
				Anthony C. Allen
				Vice President & Chief Financial Officer

 

Exhibit 32

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the Quarterly Report of Sypris Solutions, Inc. (the Company) on Form 10-Q for the period ending April 4, 2021 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Sypris Solutions, Inc., that to his knowledge:

 

(1)

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date:	May 18, 2021		By:	/s/ Jeffrey T. Gill
				Jeffrey T. Gill
				President & Chief Executive Officer
Date:	May 18, 2021		By:	/s/ Anthony C. Allen
				Anthony C. Allen
				Vice President & Chief Financial Officer

 

 

 

 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Sypris Solutions, Inc. and will be retained by Sypris Solutions, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.