The following discussion of our consolidated results of operations and financial
condition should be read together with the other financial information and
consolidated financial statements included in this Annual Report on Form 10-K.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
anticipated in the forward-looking statements as a result of a variety of
factors, including those discussed in "Item 1A. Risk Factors" and elsewhere in
this Annual Report on Form 10-K.



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, Inflation and Supply Chain Challenges on Our Business





The COVID-19 pandemic negatively impacted the Company's results of operations,
cash flows and financial position in 2021 and to a lesser extent in 2022. We
have also continued to experience various degrees of supply chain challenges in
2022, including increased lead times for raw materials due to availability
constraints and high demand. While we have elevated our engagement with our
suppliers and used secondary suppliers and new methods of procurement where
available to mitigate the supply chain pressures, we expect supply chain
challenges to continue throughout 2023.

In connection with the supply chain challenges described above, we have experienced inflationary increases of certain raw materials, as well as logistics, transportation, utilities and labor costs. While we have taken pricing actions and we strive for productivity improvements that could help offset these inflationary cost increases, we expect inflationary cost increases to continue throughout 2023.

Sypris Technologies Outlook





Demand in the North American Class 4-8 commercial vehicle market began to
recover in the second half of 2020 following an anticipated market decline in
the first half of 2020 that was deepened by the impact of the COVID-19 pandemic.
Market conditions have improved since then for commercial vehicles in addition
to the automotive, sport utility vehicle and off-highway markets also served by
Sypris Technologies. While there is growing evidence of a slowing North American
economy, 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 the demand cycles for our products in these markets differs from
than the Class 8 commercial vehicle market, thereby reducing volatility in our
revenue profile.



Reduced travel, business closures, and other economic impacts related to the
COVID-19 pandemic suppressed oil and natural gas demand, thereby adversely
impacting the oil and gas markets served by our Tube Turns® brand of engineered
products. This caused major pipeline developers to significantly scale back
near-term capital investments in new pipeline infrastructure, which resulted in
reduced demand for our products for the oil and gas markets during 2021 and
2022. Sales in this market are dependent on, among other things, the level of
worldwide oil and gas drilling, the price of crude oil and natural gas and
capital spending by exploration and production companies and drilling
contractors. The U.S. average land rig count continues to be below pre-pandemic
levels but rose 33% in the fourth quarter of 2022 compared to the fourth quarter
of 2021. As commodity prices improve and activity increases, particularly in
liquefied natural gas ("LNG") shipments to Europe, we currently expect customer
demand in this market to increase in 2023 compared 2022. However, the war
between Russia and Ukraine has led to disruption, instability and volatility in
global markets and industries that could negatively impact our operations.



                                       21
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Sypris Electronics Outlook



As noted above, the COVID-19 pandemic continued to contribute to business
impacts in 2022 including supply chain challenges and delays. 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. Electronic component shortages may continue to be a challenge during
2023. We may not be successful in addressing these shortages and other supply
chain issues.



During 2021 and 2022, we announced new program awards for Sypris Electronics,
with certain programs continuing into 2024. In addition to contract awards from
Department of Defense ("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 March 28, 2022, President Biden's Administration submitted to Congress the
President's Fiscal Year (FY) 2023 budget request, which proposed $813.4 billion
in total national defense spending, of which $773 billion was for the base
budget of the DoD.



On December 29, 2022, the President signed the FY 2023 Omnibus Appropriations
Act into law, which provides $858 billion in total national defense funding, of
which $816.7 billion is for the DoD base budget. This reflects a $44.6 billion
increase over the FY 2023 request for national defense spending, and a $43.7
billion increase for the DoD.



The FY 2023 Omnibus Appropriations Act also provided separate and additional
funding of $47 billion for Ukraine, the fourth supplemental since March of 2022,
bringing the total amount of supplemental funding authority provided to $113
billion.



The President's FY 2024 budget request is anticipated to be submitted to
Congress in March 2023, initiating the FY 2024 defense authorization and
appropriations legislative process. In addition to the FY 2024 budget process,
Congress will have to contend with the legal limit on U.S. debt, commonly known
as the debt ceiling. The current statutory limit of $31.4 trillion was reached
in January 2023, requiring the Treasury Department to take accounting measures
to continue normally financing U.S. government obligations while avoiding
exceeding the debt ceiling. It is expected, however, the U.S. government will
exhaust these measures by June 2023. If the debt ceiling is not raised, the U.S.
government may not be able to fulfill its funding obligations and there could be
significant disruption to all discretionary programs and wider financial and
economic repercussions. The federal budget and debt ceiling are expected to
continue to be the subject of considerable congressional debate. Although we
believe DoD, intelligence, and homeland security programs will continue to
receive consensus support for increased funding and would likely receive
priority if this scenario came to fruition, the effect on individual programs or
our results cannot be predicted at this time.



We expect to compete for follow-on business opportunities as a subcontractor on
future builds of several existing government programs. However, the federal
budget and debt ceiling are expected to continue to be the subject of
considerable uncertainty and the impact on demand for our products and services
and our business are difficult to predict.

Critical Accounting Policies and Estimates





The preparation of the consolidated financial statements and accompanying notes
in conformity with U.S. generally accepted accounting principles requires that
we make estimates and assumptions that affect the amounts reported. Changes in
facts and circumstances could have a significant impact on the resulting
estimated amounts included in our consolidated financial statements. We believe
the following critical accounting estimates are those estimates made in
accordance with generally accepted accounting principles that involve a
significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on our financial condition or results of
operations. We also have other policies that we consider to be key accounting
policies, such as our policies for revenue recognition for Sypris Technologies,
including cost of sales; however, these policies do not meet the definition of
critical accounting estimates because they do not generally require us to make
estimates or judgments that involve a significant level of estimation
uncertainty. The following discussion of accounting estimates is intended to
supplement the Summary of Significant Accounting Policies presented as Note 1 to
our consolidated financial statements in Item 8.



                                       22
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Net Revenue and Cost of Sales. The Company recognizes revenue when it satisfies
a performance obligation by transferring control of a promised product or
rendering a service to a customer. The amount of revenue recognized reflects the
consideration the Company expects to be entitled to in exchange for the product
or service (the "transaction price"). The Company's transaction price in its
contracts with customers is generally fixed; no payment discounts, rebates or
refunds are included within its contracts. The Company does not provide
service-type warranties, nor does it allow customer returns. In connection with
the sale of various parts to customers, the Company is subject to typical
assurance warranty obligations covering the compliance of the electronics parts
produced to agreed-upon specifications (See Note 1 to the consolidated financial
statements in this Annual Report on Form 10-K). Customer returns, when they
occur, relate to quality rework issues and are not connected to any repurchase
obligation of the Company.



A performance obligation is a promise in a contract to transfer a distinct
product or render a service to a customer and is the unit of account to which
the transaction price is allocated under ASC 606, Revenue from Contracts with
Customers. When a contract contains multiple performance obligations, we
allocate the transaction price to the individual performance obligations using
the price at which the promised goods or services would be sold to customers on
a standalone basis. For most sales within our Sypris Technologies segment and a
portion of sales within Sypris Electronics, control transfers to the customer at
a point in time. Indicators that control has transferred to the customer include
the Company having a present right to payment, the customer obtaining legal
title and the customer having the significant risks and rewards of ownership.
The Company's principal terms of sale are FOB Shipping Point, or equivalent,
and, as such, the Company primarily transfers control and records revenue for
product sales upon shipment.



For contracts where Sypris Electronics serves as a subcontractor for aerospace
and defense companies under federally funded programs, we generally recognize
revenue over time as we perform due to the continuous transfer of control to the
customer. This continuous transfer of control to the customer is supported by
clauses in the contracts that allow the customer to unilaterally terminate the
contract for convenience, pay us for costs incurred plus a reasonable profit and
take control of any work in process. Because control is transferred over time,
revenue and gross profit is recognized based on the extent of progress towards
completion of the performance obligation. We use labor hours incurred as a
measure of progress for these contracts because it best depicts the Company's
performance of the obligation to the customer, which occurs as we incur labor on
our contracts. Under this measure of progress, the extent of progress towards
completion is measured based on the ratio of labor hours incurred to date to the
total estimated labor hours at completion of the performance obligation.



Long-lived asset impairment. We perform periodic impairment analysis on our
long-lived amortizable assets whenever events or circumstances indicate that the
carrying amount of such assets may not be recoverable. When indicators are
present, we compare the estimated future undiscounted net cash flows of the
operations to which the assets relate to their carrying amount. If the
operations are unable to recover the carrying amount of their assets, the
long-lived assets are written down to their estimated fair value. Fair value is
determined based on discounted cash flows, third party appraisals or other
methods that provide appropriate estimates of value. A considerable amount of
management judgment and assumptions are required in performing the impairment
test, principally in determining whether an adverse event or circumstance has
triggered the need for an impairment review. The Company did not have any
long-lived assets measured at fair value on a nonrecurring basis as of December
31, 2022 or 2021.



Pension Plan Funded Status. Our U.S. defined benefit pension plans are closed to
new entrants and an insignificant amount of service-related cost was recorded in
2022 related to a small number of participants who are still accruing benefits
in the Louisville Hourly and Salaried Plans. Changes in our net obligations are
principally attributable to changing discount rates and the performance of plan
assets. Pension obligations are valued using discount rates established annually
in consultation with our outside actuarial advisers using a theoretical bond
portfolio, adjusted according to the timing of expected cash flows for our
future obligations. Plan liabilities at December 31, 2022 are based upon a
discount rate of 5.40% which reflects the Above Mean Mercer Yield Curve rate as
of December 31, 2022 rounded to the nearest 5th basis point. Declining discount
rates increase the present value of future pension obligations; a 25 basis point
decrease in the discount rate would increase our U.S. pension liability by about
$0.5 million. As indicated above, when establishing the expected long-term rate
of return on our U.S. pension plan assets, we consider historical performance
and forward-looking return estimates reflective of our portfolio mix and
investment strategy. Based on the most recent analysis of projected portfolio
returns, we concluded that the use of 2.35% for the Louisville Hourly Plan,
3.40% for the Marion Plan and 2.65% for the Louisville Salaried Plan as the
expected return on our U.S. pension plan assets for 2022 was appropriate. A
change in the assumed rate of return on plan assets of 100 basis points would
result in a $0.2 million change in the estimated 2023 pension expense.



                                       23
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At December 31, 2022, we have $10.0 million of unrecognized losses relating to
our U.S. pension plans. Actuarial gains and losses, which are primarily the
result of changes in the discount rate and other assumptions and differences
between actual and expected asset returns, are deferred in Accumulated Other
Comprehensive Income and amortized to expense following the corridor approach.
We use the average remaining service period of active participants unless almost
all of the plan's participants are inactive, in which case we use the average
remaining life expectancy for all active and inactive participants.



Based on the current funded status of our U.S. plans, we expect to contribute
less than $0.1 million during 2023, which represents the minimum funding amounts
required by federal law.



Reserve for Excess, Obsolete and Scrap Inventory. We record inventory at the
lower of cost, determined under the first-in, first-out method, or net
realizable value, and we reserve for excess, obsolete or scrap inventory. These
reserves are primarily based upon management's assessment of the salability of
the inventory, historical usage of raw materials, historical demand for finished
goods and estimated future usage and demand. An improper assessment of
salability or improper estimate of future usage or demand, or significant
changes in usage or demand could result in significant changes in the reserves
and a positive or a negative impact on our consolidated results of operations in
the period the change occurs.



Stock-based Compensation. We account for stock-based compensation in accordance
with the fair value recognition provisions using the Black-Scholes
option-pricing method, which requires the input of several subjective
assumptions. The Company uses historical Company and industry data to estimate
the expected price volatility. Due to the lack of sufficient historical exercise
data to provide a reasonable basis upon which to otherwise estimate the expected
term of the stock options, the Company uses the simplified method to estimate
the expected term. Under the simplified method, the expected term of an option
is presumed to be the mid-point between the vesting date and the end of the
contractual term. The dividend yield is assumed to be zero as we have not paid
dividends nor do we anticipate paying any dividends in the foreseeable future.
The risk-free rate is based on the U.S. Treasury yield curve in effect at the
time of grant for the estimated life of the option. Forfeitures are recorded as
they occur. Changes in the subjective assumptions can materially affect the fair
value estimate of stock-based compensation and consequently, the related expense
recognized in the consolidated statements of operations.



Income Taxes. We account for income taxes as required by the provisions of ASC
740, Income Taxes, under which deferred tax assets and liabilities are
recognized for the tax effects of temporary differences between the financial
reporting and tax bases of assets and liabilities measured using enacted tax
rates.



Management judgment is required in determining income tax expense and the
related balance sheet amounts. In addition, under ASC 740-10, Accounting for
Uncertainty in Income Taxes, judgments are required concerning the ultimate
outcome of uncertain income tax positions. Actual income taxes paid may vary
from estimates, depending upon changes in income tax laws, actual results of
operations and the final audit of tax returns by taxing authorities. Tax
assessments may arise several years after tax returns have been filed. We
believe that our recorded income tax liabilities adequately provide for the
probable outcome of these assessments.



Deferred tax assets are also recorded for operating losses and tax credit
carryforwards. However, ASC 740 requires that a valuation allowance be recorded
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. This assessment is largely dependent upon projected
near-term profitability including the effects of tax planning. 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
believes it will have sufficient future taxable income to realize the deferred
tax assets recorded by its Mexican subsidiary.



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.



                                       24
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Results of Operations



We operate in two segments, Sypris Technologies and Sypris Electronics. The
table presented below compares our segment and consolidated results of
operations from 2022 to 2021. The table presents the results for each year, the
change in those results from one year to another in both dollars and percentage
change and the results for each year 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. 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 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 each segment's net revenue. These


    amounts are shown in italics.

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

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021





                                                                            Year Over
                                                        Year Over             Year              Results as Percentage of
                               Year Ended                 Year             Percentage              Net Revenue for the
                              December 31,               Change              Change                    Year Ended
                                                        Favorable           Favorable                 December 31,
                           2022          2021         (Unfavorable)       (Unfavorable)         2022                2021
                                                       (in thousands, except percentage data)
Net revenue:
Sypris Technologies      $  69,259     $  61,737     $         7,522                12.2 %          62.9 %              63.4 %
Sypris Electronics          40,862        35,697               5,165                14.5            37.1                36.6
Total net revenue          110,121        97,434              12,687                13.0           100.0               100.0
Cost of sales:
Sypris Technologies         60,709        53,622              (7,087 )             (13.2 )          87.7                86.9
Sypris Electronics          34,559        29,306              (5,253 )             (17.9 )          84.6                82.1
Total cost of sales         95,268        82,928             (12,340 )             (14.9 )          86.5                85.1
Gross profit:
Sypris Technologies          8,550         8,115                 435                 5.4            12.3                13.1
Sypris Electronics           6,303         6,391                 (88 )              (1.4 )          15.4                17.9
Total gross profit          14,853        14,506                 347                 2.4            13.5                14.9
Selling, general and
administrative              14,489        12,596              (1,893 )             (15.0 )          13.2                12.9
Operating income               364         1,910              (1,546 )             (80.9 )           0.3                 2.0
Interest expense, net        1,110           868                (242 )             (27.9 )           1.0                 0.9
Other expense, net             800           645                (155 )             (24.0 )           0.7                 0.7
Forgiveness of PPP
Loan and related
interest                         -        (3,599 )            (3,599 )                NM               -                (3.7 )
(Loss) income before
income taxes                (1,546 )       3,996              (5,542 )                NM            (1.4 )               4.1
Income tax expense,
net                            948         1,073                 125                11.6             0.9                 1.1
Net (loss) income        $  (2,494 )   $   2,923     $        (5,417 )                NM            (2.3 )%              3.0 %




                                       25

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Net Revenue. 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 increased $7.5 million
from the prior year to $69.3 million in 2022. The increase in net revenue for
the period includes price adjustments for increases in the market price of steel
over the past year, which is contractually passed through to customers under
certain contracts. The steel price adjustments totaled approximately $4.1
million for the year ended December 31, 2022. Additionally, the Company also had
higher shipment volumes of sport utility and energy components in 2022 as
compared to 2021. Revenue for Sypris Technologies is expected to increase in
2023, primarily attributable to higher energy component sales and new program
expansion with existing 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 increased $5.2 million to
$40.9 million in 2022. The increase in revenue for the year ended December 31,
2022 was primarily related to the ramping of production during the year for two
follow-on programs that began shipments during the fourth quarter of 2021.
Results for the year ended December 31, 2022 and 2021, were impacted by material
availability. Certain programs have been impacted by material availability as
receipts of a limited number of specific parts necessary to complete the build
of the products were delayed or, in other instances, required us to resource and
obtain alternative parts or use alternative suppliers. The order backlog for
Sypris Electronics is expected to support an increase in revenue during 2023,
but revenue could continue to be negatively impacted by material availability.



Gross Profit. Sypris Technologies' gross profit increased $0.4 million to
$8.5 million in 2022 as compared to $8.1 million in the prior year. The net
increase in volumes contributed to an increase in gross profit of $2.6 million
for the year ended December 31, 2022 from the prior year. Partially offsetting
this increase were inflationary cost increases, unfavorable product mix,
increased operating supply spend, additional equipment maintenance expenses in
support of the increase in revenue in 2022.



Sypris Electronics' gross profit decreased $0.1 million to $6.3 million as
compared to $6.4 million in the prior year. The decrease in gross profit for the
year ended December 31, 2022 was primarily the result of lower margins on new
programs ramping during the period compared to margins on mature programs
completed during 2021. Additional engineering costs were also incurred in 2022
on certain programs that have not yet reached full rate production. The expected
increase in revenue during 2023 attributable to order backlog is expected to
favorably impact overhead absorption and the contribution margin from higher
volumes is further expected to generate gross profit expansion.



Selling, General and Administrative. Selling, general and administrative expense
increased $1.9 million to $14.5 million in 2022 as compared to $12.6 million in
2021. The increase in selling general and administrative expense for the year
ended December 31, 2022 was the result of a reinstatement of compensation of our
Chairman, President and CEO and certain other senior leadership and corporate
personnel and our Board of Directors, which had been reduced in 2020 across the
Company amid the onset of the COVDID-19 pandemic. Additionally, the Company
experienced higher employee medical insurance claim expense and an increase in
headcount to support the increase in volumes for Sypris Technologies. Selling,
general and administrative expense increased as a percentage of revenue to 13.2%
for the year ended December 31, 2022 from 12.9% for the year ended December 31,
2021.



Other Expense, Net. Other expense, net, was $0.8 million in 2022 as compared to
$0.6 million for 2021. During the year ended December 31, 2022, the Company
recognized pension expense of $0.6 million. Foreign currency related expenses
were not material for the year ended December 31, 2022.



During the year ended December 31, 2021, the Company pension expense of $0.6
million. Foreign currency related expenses were not material for the year ended
December 31, 2021.



Forgiveness of PPP Loan and related interest. On June 28, 2021, the Company
received notice from BMO that BMO had received confirmation from the SBA that
the application for forgiveness of the PPP Loan had been approved. The loan
forgiveness request in the amount of $3.6 million was applied to the Company's
entire outstanding PPP Loan balance with BMO. During the year ended December 31,
2021, the Company recorded a gain on the forgiveness of the PPP Loan and accrued
interest in the amount of $3.6 million.



Income Taxes. The 2022 income tax provision consists of current tax expense of
$0.6 million and deferred tax expense of $0.3 million. The 2021 income tax
provision consists of current tax expense of $0.1 million and a deferred tax
expense of $1.0 million. The current tax expense in 2022 and 2021 includes taxes
paid by our Mexican subsidiary and domestic state income taxes and adjustments.
The 2022 and 2021 deferred tax expense includes net changes in the foreign
deferred tax assets during the year.



                                       26
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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 believes it will have sufficient future taxable income to
realize the deferred tax assets recorded by its Mexican subsidiary.



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





Cash Balance. At December 31, 2022, we had approximately $21.6 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 expect
existing cash and cash flows from operations to continue to be sufficient to
fund our operating activities and cash commitments for investing and financing
activities, such as capital expenditures, for at least the next 12 months and
beyond. Significant changes from our current forecasts, including, but not
limited to: (i) meaningful shortfalls in our projected revenues, (ii) unexpected
costs or expenses, and/or (iii) 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.



Material Cash Requirements



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 December 31, 2022 and 2021 (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 December 31, 2022, our principal commitment
under the Note was $2.5 million due on April 1, 2023, $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 2023
and 2024.

The Note provides for a first security interest in substantially all of the Company's assets, including those in Mexico (see Note 12 to the consolidated financial statements in this Annual Report on Form 10-K).





Finance Lease Obligations. As of December 31, 2022, the Company had $3.6 million
outstanding under finance lease obligations for both property and machinery and
equipment with maturities through 2026 and a weighted average interest rate of
8.5%.

Equipment Financing Obligations. As of December, 2022, the Company had $1.1 million outstanding under equipment financing facilities, with effective interest rates ranging from 4.4% to 8.1% and payments due through 2028.

Purchase Commitments. We had purchase commitments totaling approximately $68.9 million at December 31, 2022, primarily for inventory.

Cash Flows from Operating, Investing and Financing Activities





Operating Activities. Net cash provided by operating activities was
$13.8 million in 2022, as compared to $4.2 million in 2021. The increase in
inventory in 2022 resulted in a usage of cash of $11.8 million. The increase in
inventory is primarily in support of new program revenue growth for Sypris
Electronics. A significant portion of the inventory receipts were funded through
prepayments from customers of Sypris Electronics in 2022, which are recorded as
contract liabilities and are the primary component of the $20.4 million increase
in accrued and other liabilities during 2022. Accounts payable also increased
during 2022, primarily associated with the inventory additions, providing a
source of cash of $5.6 million. Prepaid expenses and other current assets
increased during 2022 resulting in a cash use of $3.1 million primarily as a
result of an increase in taxes refundable in Mexico, increased capitalized costs
associated with programs in the startup phase of production at Sypris
Electronics and increased contract assets.



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Investing Activities. Net cash used in investing activities was comprised of capital expenditures of $3.0 million and $2.8 million in 2022 and 2021, respectively.





Financing Activities. Net cash used in financing activities was $1.4 million in
2022 as compared to $1.3 million in 2021. Net cash used in financing activities
in 2022 included principal payments on finance lease and equipment financing
obligations of $1.3 million and payments of $0.1 million for minimum statutory
tax withholdings on stock-based compensation. Net cash used in financing
activities in 2021 included principal payments on finance lease and equipment
financing obligations of $0.7 million and payments of $0.6 million for minimum
statutory tax withholdings on stock-based compensation.

Recent Accounting Pronouncements





See Note 1 to our consolidated financial statements for a full description of
recent accounting pronouncements, including the respective dates of adoption and
effects on our results of operations and financial condition.

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