sypr20220703

sypr20220703_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the quarterly period ended July 3, 2022

☐ Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
For the transition period from _____ to _____

Commission file number: 0-24020

SYPRIS SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware	61-1321992
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222	(502) 329-2000
(Address of principal executive	(Registrant’s telephone number,
offices) (Zip code)	including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SYPR	Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☐ Large accelerated filer	☐ Accelerated filer	☒ Non-accelerated filer	☒ Smaller reporting company
☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 1, 2022, the Registrant had 22,134,021 shares of common stock outstanding

Table of Contents

Part I. Financial Information

Item 1.	Financial Statements

	Consolidated Statements of Operations for the Three and Six Months Ended July 3, 2022 and July 4, 2021	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended July 3, 2022 and July 4, 2021	3

	Consolidated Balance Sheets at July 3, 2022 and December 31, 2021	4

	Consolidated Cash Flow Statements for the Six Months Ended July 3, 2022 and July 4, 2021	5

	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended July 3, 2022 and July 4, 2021	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24

Item 4.	Controls and Procedures	24

Part II. Other Information

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Mine Safety Disclosures	25

Item 5.	Other Information	25

Item 6.	Exhibits	26

Signatures		27

Part I. Financial Information

Item 1. Financial Statements

Sypris Solutions, Inc.

Consolidated Statements of Operations

(in thousands, except for per share data)

	Three Months Ended						Six Months Ended
	July 3,			July 4,			July 3,			July 4,
	2022			2021			2022			2021
	(Unaudited)						(Unaudited)

Net revenue	$	29,044		$	25,969		$	55,210		$	45,951
Cost of sales		25,264			21,660			46,921			39,826

Gross profit		3,780			4,309			8,289			6,125
Selling, general and administrative		3,737			3,416			7,126			6,298

Operating income (loss)		43			893			1,163			(173	)

Interest expense, net		263			211			511			433
Other expense, net		104			145			273			366
Forgiveness of PPP Loan and related interest		0			(3,599	)		0			(3,599	)

Loss (income) before taxes		(324	)		4,136			379			2,627
Income tax expense		305			313			771			434

Net (loss) income	$	(629	)	$	3,823		$	(392	)	$	2,193

(Loss) income per share:
Basic	$	(0.03	)	$	0.18		$	(0.02	)	$	0.10
Diluted	$	(0.03	)	$	0.17		$	(0.02	)	$	0.10

Weighted average shares outstanding:
Basic		21,723			21,356			21,700			21,475
Diluted		21,723			22,846			21,700			22,979

Dividends declared per common share	$	0.00		$	0.00		$	0.00		$	0.00

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

Sypris Solutions, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Three Months Ended					Six Months Ended
	July 3,			July 4,		July 3,			July 4,
	2022			2021		2022			2021
	(Unaudited)					(Unaudited)

Net (loss) income	$	(629	)	$	3,823	$	(392	)	$	2,193

Other comprehensive (loss) income
Foreign currency translation adjustments		(152	)		355		431			(51	)

Comprehensive (loss) income	$	(781	)		4,178	$	39		$	2,142

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

Sypris Solutions, Inc.

Consolidated Balance Sheets

(in thousands, except for share data)

	July 3,			December 31,
	2022			2021
	(Unaudited)
*Assets*
Current assets:
Cash and cash equivalents	$	7,486		$	11,620
Accounts receivable, net		9,478			8,467
Inventory, net		29,379			30,100
Other current assets		6,792			5,868
Total current assets		53,135			56,055

Property, plant and equipment, net		14,625			14,140
Operating lease right-of-use assets		4,699			5,140
Other assets		3,902			4,170
Total assets	$	76,361		$	79,505
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,838		$	11,962
Accrued liabilities		21,086			19,646
Operating lease liabilities, current portion		1,114			1,063
Finance lease obligations, current portion		1,016			983
Equipment financing obligations, current portion		347			336
Note payable – related party, current portion		2,500			0

Total current liabilities		38,901			33,990

Operating lease liabilities, net of current portion		4,306			4,878
Finance lease obligations, net of current portion		2,957			3,469
Equipment financing obligations, net of current portion		692			868
Note payable – related party, net of current portion		3,987			6,484
Other liabilities		5,880			10,530

Total liabilities		56,723			60,219

Stockholders’ equity:
Preferred stock, par value $0.01 per share, 975,150 shares authorized; no shares issued		0			0
Series A preferred stock, par value $0.01 per share, 24,850 shares authorized; no shares issued		0			0
Common stock, non-voting, par value $0.01 per share, 10,000,000 shares authorized; no shares issued		0			0
Common stock, par value $0.01 per share, 30,000,000 shares authorized; 22,132,002 shares issued and 22,131,983 outstanding in 2022 and 21,864,743 shares issued and 21,864,724 outstanding in 2021		221			218
Additional paid-in capital		155,214			154,904
Accumulated deficit		(113,234	)		(112,842	)
Accumulated other comprehensive loss		(22,563	)		(22,994	)
Treasury stock, 19 in 2022 and 2021		0			0

Total stockholders’ equity		19,638			19,286

Total liabilities and stockholders’ equity	$	76,361		$	79,505

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

Sypris Solutions, Inc.

Consolidated Cash Flow Statements

(in thousands)

	Six Months Ended
	July 3,			July 4,
	2022			2021
	(Unaudited)
Cash flows from operating activities:
Net (loss) income	$	(392	)	$	2,193
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		1,531			1,274
Forgiveness of PPP Loan and related interest		0			(3,599	)
Deferred income taxes		225			266
Stock-based compensation expense		349			163
Deferred loan costs recognized		3			3
Net loss on the sale of assets		10			11
Provision for excess and obsolete inventory		129			65
Non-cash lease expense		442			438
Other noncash items		91			90
Contributions to pension plans		(47	)		(254	)
Changes in operating assets and liabilities:
Accounts receivable		(1,155	)		(3,270	)
Inventory		711			(7,063	)
Other current assets		(819	)		(335	)
Accounts payable		805			7,218
Accrued and other liabilities		(3,892	)		11,406

Net cash (used in) provided by operating activities		(2,009	)		8,606

Cash flows from investing activities:
Capital expenditures		(1,840	)		(1,213	)
Proceeds from sale of assets		0			10

Net cash used in investing activities		(1,840	)		(1,203	)

Cash flows from financing activities:
Principal payments on finance lease obligations		(479	)		(211	)
Principal payments on equipment financing obligations		(165	)		(65	)
Indirect repurchase of shares for minimum statutory tax withholdings		(36	)		(382	)

Net cash used in financing activities		(680	)		(658	)

Effect of exchange rate changes on cash balances		395			(157	)

Net (decrease) increase in cash and cash equivalents		(4,134	)		6,588

Cash and cash equivalents at beginning of period		11,620			11,606

Cash and cash equivalents at end of period	$	7,486		$	18,194

Supplemental disclosure of cash flow information:
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for finance lease obligations	$	0		$	168
Capital expenditures purchased through equipment financing obligations		0			1,070

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

Sypris Solutions, Inc.

Consolidated Statements of Stockholders’ equity

(in thousands)

	Three Months Ended July 3, 2022
											Accumulated
					*Additional*						*Other*
	*Common Stock*				*Paid-In*			*Accumulated*			*Comprehensive*			*Treasury*
	*Shares*		*Amount*		*Capital*			*Deficit*			*Loss*			*Stock*

April 3, 2022 balance		22,088,344	$	220	$	155,061		$	(112,605	)	$	(22,411	)	$	0
Net income		0		0		0			(629	)		0			0
Foreign currency translation adjustment		0		0		0			0			(152	)		0
Exercise of stock options		28,639		1		(20	)		0			0			0
Noncash compensation		15,000		0		173			0			0			0
July 3, 2022 balance		22,131,983	$	221	$	155,214		$	(113,234	)	$	(22,563	)	$	0

	Three Months Ended July 4, 2021
											Accumulated
					*Additional*						*Other*
	*Common Stock*				*Paid-In*			*Accumulated*			*Comprehensive*			*Treasury*
	*Shares*		*Amount*		*Capital*			*Deficit*			*Loss*			*Stock*

April 4, 2021 balance		21,436,963	$	214	$	154,783		$	(117,395	)	$	(25,104	)	$	0
Net income		0		0		0			3,823			0			0
Foreign currency translation adjustment		0		0		0			0			355			0
Exercise of stock options		60,482		1		(81	)		0			0			0
Noncash compensation		17,500		0		102			0			0			0
July 4, 2021 balance		21,514,945	$	215	$	154,804		$	(113,572	)	$	(24,749	)	$	0

	Six Months Ended July 3, 2022
											Accumulated
					*Additional*						*Other*
	*Common Stock*				*Paid-In*			*Accumulated*			*Comprehensive*			*Treasury*
	*Shares*		*Amount*		*Capital*			*Deficit*			*Loss*			*Stock*

January 1, 2022 balance		21,864,724	$	218	$	154,904		$	(112,842	)	$	(22,994	)	$	0
Net income		0		0		0			(392	)		0			0
Foreign currency translation adjustment		0		0		0			0			431			0
Issuance of restricted common stock		197,500		2		(2	)		0			0			0
Exercise of stock options		39,759		1		(37	)		0			0			0
Noncash compensation		30,000		0		349			0			0			0
July 3, 2022 balance		22,131,983	$	221	$	155,214		$	(113,234	)	$	(22,563	)	$	0

	Six Months Ended July 4, 2021
											Accumulated
					*Additional*						*Other*
	*Common Stock*				*Paid-In*			*Accumulated*			*Comprehensive*			*Treasury*
	*Shares*		*Amount*		*Capital*			*Deficit*			*Loss*			*Stock*

January 1, 2021 balance		21,300,958	$	213	$	155,025		$	(115,765	)	$	(24,698	)	$	0
Net income		0		0		0			2,193			0			0
Foreign currency translation adjustment		0		0		0			0			(51	)		0
Exercise of stock options		196,487		2		(384	)		0			0			0
Noncash compensation		17,500		0		163			0			0			0
July 4, 2021 balance		21,514,945	$	215	$	154,804		$	(113,572	)	$	(24,749	)	$	0

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

Sypris Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

(1)

Nature of Business

All references to “Sypris,” the “Company,” “we” or “our” include Sypris Solutions, Inc. and its wholly-owned subsidiaries. Sypris is a diversified provider of truck components, oil and gas pipeline components and aerospace and defense electronics. The Company produces a wide range of manufactured products, often under multi-year, sole-source contracts. The Company offers such products through its two business segments, Sypris Technologies, Inc. (“Sypris Technologies”) and Sypris Electronics, LLC (“Sypris Electronics”) (See Note 10).

(2)

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Sypris Solutions, Inc. and its wholly-owned subsidiaries and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted. The December 31, 2021 consolidated balance sheet data was derived from audited statements, but does not include all disclosures required by U.S. GAAP. The Company’s operations are domiciled in the United States (U.S.) and Mexico, and we serve a wide variety of domestic and international customers. All intercompany transactions and accounts have been eliminated.

These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the results of operations, financial position and cash flows for the periods presented, and the disclosures herein are adequate to make the information presented not misleading. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the COVID-19 pandemic has increased the uncertainty with respect to developing these estimates and assumptions. The COVID-19 pandemic continues to rapidly evolve and the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. Changes in facts and circumstances could have a significant impact on the resulting estimated amounts included in our consolidated financial statements. Actual results could differ from these estimates. Actual results for the three and six months ended July 3, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements, and notes thereto, for the year ended December 31, 2021 as presented in the Company’s Annual Report on Form 10-K.

(3)

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Credit Losses – Measurement of Credit Losses on Financial Instruments, new guidance for the accounting for credit losses on certain financial instruments. This guidance introduces a new approach to estimating credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. This guidance, which becomes effective January 1, 2023, is not expected to have a material impact on our consolidated financial statements.

SEC Form 10-Q filed by Sypris Solutions Inc.