Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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 provide products and engineering, design, and manufacturing services for a variety of critical infrastructure sectors, including energy, space, communications, defense, transport, chemical, and water. Sypris serves its customers globally through its operations located in North America. We produce 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.

Economic Conditions

Our operations are impacted by global economic conditions, including inflationary increases of certain raw materials, as well as logistics, tariffs, transportation, utilities and labor costs, supply chain constraints and increased interest rates. While we have taken pricing actions and implemented transformation initiatives that we expect to improve productivity and offset these cost increases, we expect supply chain pressures and inflationary cost increases to continue throughout 2026, which may continue thereafter and could negatively impact our results of operations.

Sypris Technologies Outlook

The North American Class 8 commercial vehicle market experienced a downturn in 2025, in addition to the automotive and sport utility vehicle markets also served by Sypris Technologies. New heavy-duty truck demand has historically been cyclical and is particularly sensitive to the industrial sector of the economy, which generates a significant portion of the freight tonnage hauled by commercial vehicles. During 2025, production of Class 8 trucks in North America decreased 24% from 2024. According to industry publications, the outlook for 2026 and 2027 is forecasting a slight increase in production over 2025, before increasing 27% in 2028. 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 the Class 8 commercial vehicle market, thereby reducing volatility in our revenue profile.

The oil and gas markets served by our Tube Turns® brand of engineered products continues to be shaped largely by geopolitical factors, macroeconomic variables such as high interest rates and rising material costs, evolving policies and regulations and the emergence of new technologies. Sales in this market are dependent on, among other things, the level of worldwide oil and natural gas demand, the price of crude oil and natural gas and capital spending by exploration and production companies and drilling contractors. The conflicts in the Middle East, including military hostilities between Israel and Hamas and the U.S., Israel and Iran, the war between Russia and Ukraine and inflationary pressures have also led to disruption, instability and volatility in global markets and industries that could negatively impact our operations.

We will continue to pursue new business in a wide variety of markets from light automotive to new pressure vessel and pipeline applications to achieve a more balanced portfolio across our customers, markets and products.

Sypris Electronics Outlook

Ongoing demand in the electronic circuit card assembly industry across multiple manufacturing sectors continues to create shortages and extended lead times. In some instances, waiting times for certain components approach a year or more. We factor supplier-provided lead times into internal planning schedules and new customer quotations. From time to time, we encounter part obsolescence which requires us to identify an alternate part suitable for use. We continue to work with our customers on strategies to mitigate any adverse impact upon our ability to service their requirements. Factors which arise after the placement of the customer's order may cause us to miss projected delivery dates. Inflationary costs are expected to continue through 2026.

The electronic circuit card assembly industry is highly competitive, and demand can be volatile from period to period. Increasing demand for advanced technologies, supply chain diversification, and continued strong government defense spending along with geopolitical factors, including ongoing U.S.-China trade tensions and regulatory shifts, are prompting companies to adopt supply chain resilience strategies, such as "friendshoring", nearshoring and onshoring that benefit domestic suppliers. Additionally, OEMs are expected to continue the trend of outsourcing lower-level electronic assemblies, while focusing on their core competencies of design and system integration. However, challenges such as labor cost fluctuations, raw material constraints, and evolving trade policies may impact operational efficiency and cost structures. Overall, the sector is positioned for growth, with companies focusing on technological innovation, strategic partnerships, and supply chain optimization to maintain competitiveness in a rapidly evolving defense and aerospace market. During 2024 and 2025, we announced new program awards and releases for Sypris Electronics, with certain programs continuing into 2026. In addition to contract awards from DoW prime contractors related to weapons systems, electronic warfare and infrared countermeasures in our traditional aerospace and defense markets, we have also been awarded subcontracts for manufacturing services to the communication and navigation markets, which require our advanced capabilities for delivering products for complex, high cost of failure platforms.

While we do not serve as a prime contractor to the U.S. government, we serve as a subcontractor on various U.S. government programs. Funding for U.S. Government programs is subject to a variety of factors that can affect our business, including the U.S. presidential administration's budget requests and procurement priorities and policies, annual congressional budget authorization and appropriation processes, and other U.S. government domestic and international priorities. U.S. government spending levels, particularly defense spending, and timely funding thereof can affect our financial performance over the short and long term.

The U.S. presidential administration published its FY 2026 budget request in June 2025. The budget request includes $848.3 billion in the base budget (discretionary) funding, and $113.3 billion in reconciliation (mandatory) funding for the DoW. The One Big Beautiful Bill Act passed the Senate and House and was signed by the President on July 4, 2025. The bill provides more than $150 billion in mandatory funding (inclusive of the $113.3 billion) for DoW available until September 30, 2029.

The National Defense Authorization Act (NDAA) for FY2026 was signed into law on December 18, 2025. This legislation authorizes $901 billion for defense spending which includes an $8 billion increase over the President's DoW budget request. On November 12, 2025, the President signed into law a continuing resolution funding the DoW through January 30, 2026. On January 20, 2026, Congress unveiled its final appropriations package, which includes the Defense Appropriations Act conference report. This legislation provides $839.2 billion in funding for the DoW representing an $8.4 billion increase over the topline in the President's DoW budget request. On February 3, 2026, the Consolidated Appropriations Act of 2026 was passed, which further extended government funding through September 30, 2026.

While the U.S. presidential administration has announced their proposal for a significant increase in defense spending in FY 2027, we anticipate the federal budget, debt ceiling and regulatory environment will continue to be subject to debate and compromise shaped by, among other things, the U.S. presidential administration and Congress, heightened political tensions, the global security environment, inflationary pressures, and macroeconomic conditions. The result may be shifting funding priorities, which could have material impacts on defense spending broadly, and the effect on individual programs or our results cannot be predicted at this time. Additionally, the U.S. presidential administration continues to take steps to evaluate government-wide and defense-specific staffing and procurement, which includes assessing mission priorities, procurement methods, program performance, and other factors and then potentially taking action based on those assessments. The impact on demand for our products and services and our business are difficult to predict.

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.

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, 2025 or 2024.

Pension Plan Funded Status. Our U.S. defined benefit pension plans are closed to new entrants and there were no participants still accruing benefits under any of the plans in 2025. 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, 2025 are based upon a discount rate of 5.20% which reflects the Above Mean Mercer Yield Curve rate as of December 31, 2025 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 $0.4 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 3.95% for the Louisville Hourly Plan, 4.65% for the Marion Plan and 4.45% for the Louisville Salaried Plan as the expected return on our U.S. pension plan assets for 2025 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 2026 pension expense.

At December 31, 2025, we have $6.2 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 Loss 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 $0.3 million during 2026, 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 option 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.

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 2025 to 2024. 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.

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

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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.

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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, 2025 Compared to Year Ended December 31, 2024

														Year Over				Results as Percentage of
										Year Over				Year				Net Revenue for the
		Year Ended								Year				Percentage				Year Ended
		December 31,								Change				Change				December 31,
										Favorable				Favorable
		2025				2024				(Unfavorable)				(Unfavorable)				2025				2024
		(in thousands, except percentage data)
Net revenue:
Sypris Technologies		$	51,746			$	75,207			$	(23,461	)			(31.2	)%			43.2	%			53.7	%
Sypris Electronics			68,141				64,973				3,168				4.9				56.8				46.3
Total net revenue			119,887				140,180				(20,293	)			(14.5	)			100.0				100.0
Cost of sales:
Sypris Technologies			45,343				62,383				17,040				27.3				87.6				82.9
Sypris Electronics			65,146				57,907				(7,239	)			(12.5	)			95.6				89.1
Total cost of sales			110,489				120,290				9,801				8.1				92.2				85.8
Gross profit:
Sypris Technologies			6,403				12,824				(6,421	)			(50.1	)			12.4				17.1
Sypris Electronics			2,995				7,066				(4,071	)			(57.6	)			4.4				10.9
Total gross profit			9,398				19,890				(10,492	)			(52.8	)			7.8				14.2
Selling, general and administrative			16,004				16,963				959				5.7				13.3				12.1
Operating (loss) income			(6,606	)			2,927				(9,533	)			NM				(5.5	)			2.1
Interest expense, net			1,631				1,684				53				3.1				1.4				1.2
Other (income) expense, net			(1,960	)			1,217				3,177				NM				(1.6	)			0.9
(Loss) income before income taxes			(6,277	)			26				(6,303	)			NM				(5.2	)			0.0
Income tax expense, net			61				1,706				1,645				96.4				0.1				1.2
Net loss		$	(6,338	)		$	(1,680	)		$	(4,658	)			(274.1	)			(5.3	)%			(1.2	)%

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 decreased $23.5 million from the prior year to $51.7 million in 2025. The net revenue decrease was primarily attributable to the cyclical decline in the commercial vehicle market. During 2025, production of Class 8 trucks in North America decreased 24% from 2024. Additionally, during the first quarter of 2025, Sypris Technologies began operating under a sub-maquiladora services agreement with one of its customers in Mexico. As a result, the customer retains ownership of the inventory, and revenue is recognized on the value-add portion only, resulting in a decrease of $4.8 million for the year ended December 31, 2025 as compared to the prior year. Energy product sales decreased $1.9 million as compared to the prior year due to the impact of tariffs on sales volumes. Revenue for Sypris Technologies is expected to decrease slightly in 2026, due to the anticipated decline in the commercial vehicle market during the first half of 2026, partially offset by 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 $3.2 million to $68.1 million in 2025. The increase in revenue for the year ended December 31, 2025 was primarily related to the ramping of production during the year on several new programs. This was partially offset by the completion of shipments under one of its long-term contracts. The order backlog for Sypris Electronics is expected to support an increase in revenue during 2026.

Gross Profit. Sypris Technologies' gross profit decreased $6.4 million to $6.4 million in 2025 as compared to $12.8 million in the prior year due to the significant decrease in volumes and lower absorption of fixed overhead costs as a result of lower production.

Sypris Electronics' gross profit decreased $4.1 million to $3.0 million as compared to $7.1 million in the prior year. The decrease in gross profit for the year ended December 31, 2025 was primarily a result of an unfavorable mix of programs and delays of certain customer deliveries, which has limited our ability to ramp up production to the levels anticipated and resulted in increased costs and decreased operational efficiency. Additionally, Sypris Electronics incurred additional engineering costs for scope modifications on new contracts during 2025. Furthermore, Sypris Electronics recorded charges of $1.2 million related to excess and obsolete inventory during the year as a result of changes in estimated future demand on various programs. The expected increase in revenue during 2026 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 decreased $1.0 million to $16.0 million in 2025 as compared to $17.0 million in 2024. The decrease in selling, general and administrative expense for the year ended December 31, 2025 was primarily as a result of lower consulting costs, reduced headcount and favorable medical claims. Selling, general and administrative expense increased as a percentage of revenue to 13.3% for the year ended December 31, 2025 from 12.1% for the year ended December 31, 2024.

Interest Expense, Net. Interest expense for the year ended December 31, 2025 decreased $0.1 million due to the reduction in interest incurred on extended terms on certain accounts payable for Sypris Electronics, partially offset by an increase in the weighted average debt outstanding. The weighted average debt outstanding under the Note increased to $11.4 million during 2025 from $8.7 million in 2024.

Other (Income) Expense, Net. Other (income) expense, net, was income of $2.0 million in 2025 as compared to expense of $1.2 million for 2024. During the year ended December 31, 2025, the Company closed on a sale leaseback transaction with an unrelated third party. Under this transaction, the Company sold its facility located in Louisville, Kentucky, with a net book value of $0.4 million for net cash proceeds of approximately $2.9 million. The Company recognized a gain of $2.5 million on this transaction, which is included in other income (expense), net in the consolidated statements of operations. This gain was partially offset by pension expense of $0.6 million. Foreign currency related expenses were not material for the year ended December 31, 2025.

During the year ended December 31, 2024, the Company recognized pension related expense of $0.8 million. Foreign currency related expenses were not material for the year ended December 31, 2024.

Income Taxes. The 2025 income tax provision consists of a current tax benefit of $0.1 million and deferred tax expense of $0.1 million. The 2024 income tax provision consists of current tax expense of $1.5 million and deferred tax expense of $0.2 million. The current tax expense in 2025 and 2024 includes taxes accrued by our Mexican subsidiary and domestic state income taxes and adjustments. The 2025 and 2024 deferred tax expense includes net changes in the foreign deferred tax assets during the year.

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

As reflected in the consolidated financial statements, the Company reported a net loss of $6.3 million and $1.7 million for the year ended December 31, 2025 and 2024, respectively, and cash used in operating activities of $5.7 million for the year ended December 31, 2025. The Company's net inventory increased significantly in 2023, primarily related to contracts with Sypris Electronics' aerospace and defense customers. Shipments to customers on certain of these contracts were delayed beyond the initial delivery dates, which negatively impacted the cycle time to convert inventory to cash. Additionally, the Company experienced a significant drop in volumes within the Sypris Technologies business attributable to the cyclical decline in the commercial vehicle market in 2025, which led to a corresponding decrease in gross profit. As a result, the Company experienced a liquidity shortfall beginning in the fourth quarter of 2023 and at various times during 2024, 2025 and into 2026. The shipment delays also contributed to an increase in trade payable balances with certain suppliers during 2023 and 2024, The Company successfully negotiated amended payment and other terms on the past due balances with certain suppliers and is continuing to work with suppliers to improve terms and maintain consistency in its supply chain relationships.

The Company received the benefit of additional loans of $3.0 million and $2.5 million during the years ended December 31, 2025 and 2024, respectively from Gill Family Capital Management, Inc. ("GFCM") to help the Company manage its liquidity during those periods. This additional $5.5 million loaned to the Company by GFCM in 2024 and 2025 was approved by the Audit Committee and provided the Company with necessary liquidity. Additionally, during the first quarter of 2026, the Company and GFCM amended the Note to extend the maturity dates for $2.0 million of the obligation to April 1, 2027, $2.0 million to April 1, 2028, $5.0 million to April 1, 2029 and $3.0 million to April 1, 2030 (see Note 12 to the consolidated financial statements in this Annual Report on Form 10-K).

Our ability to service our current liabilities will require a significant amount of cash. Management has evaluated our ability to generate this cash to meet our obligations for the next twelve months. Our primary sources of funds to meet our liquidity and capital requirements include cash on hand, funds generated through revenue growth from the Company's consolidated operations and reductions in the Company's investment in working capital. Based upon our current forecast, we believe that we will have sufficient liquidity to finance our operations for the next twelve months.

Although we believe the assumptions underlying our current forecast are reasonable, management is also prepared to implement contingency plans that include other cost reduction initiatives to improve profitability and cash flow, or management can take additional steps such as adjusting the timing and amount of certain operating expenses as well as capital expenditures or the issuance of new debt. If we are unable to achieve our forecasted revenue, or if our costs are higher than expected, we may be required to revise our plans to provide for additional cost-cutting measures, seek additional financing or to consider other strategic alternatives. We may not be able to secure additional financing on favorable terms, if at all.

Cash Balance. At December 31, 2025, we had approximately $6.8 million of cash and cash equivalents, of which $1.8 million was held in jurisdictions outside of the U.S. that, if repatriated, could result in withholding taxes. 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 twelve months. 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 financing 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. And as noted above, additional financing may not be available to us.

Material Cash Requirements

Gill Family Capital Management Note. The Company has received the benefit of loans from GFCM in the form of secured promissory note obligations totaling $12.0 million in principal as of December 31, 2025 and $9.0 million as of December 31, 2024. 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.

During the year ended December 31, 2025, the Company and GFCM amended the Note to, among other things: (i) increase the principal amount by $3.0 million to $12.0 million, (ii) extend the maturity dates for $2.0 million of the obligation to April 1, 2026, $2.0 million to April 1, 2027, $5.0 million on April 1, 2028 and the balance of $3.0 million on April 1, 2029, and (iii) allow for the deferral of payment for up to 100% of the interest due on the Note to April 1, 2026. During the first quarter of 2026, the Company further amended the Note to extend the maturity dates on all tranches by one year and allow for the continued deferral of payment for up to 100% of the interest due on the Note to April 1, 2027. Interest on the Note is payable quarterly, unless the deferral option is elected, and the rate is reset on April 1 of each year at the greater of 8% or 500 basis points above the five-year Treasury note average during the previous 90-day period. The additional amounts loaned to the Company in 2024 and 2025 and the Note modification in 2026, were approved by the Audit Committee and provided the Company with necessary liquidity.

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, 2025, the Company had $4.6 million outstanding under finance lease obligations for both property and machinery and equipment with maturities through 2031 and a weighted average interest rate of 13.1%.

Equipment Financing Obligations. As of December 31, 2025, the Company had $1.4 million outstanding under equipment financing facilities, with payments due through 2030, and a weighted average interest rate of 6.9%.

Purchase Commitments. We had purchase commitments totaling approximately $25.2 million at December 31, 2025, primarily for inventory.

Cash Flows from Operating, Investing and Financing Activities

Operating Activities. Net cash used in operating activities was $5.7 million in 2025, as compared to cash provided of $2.0 million in 2024. The aggregate decrease in accounts receivable in 2025 resulted in a source of cash of cash of $0.7 million as a result of the timing of shipments during the period. The decrease in inventory in 2025 resulted in a source of cash of $13.3 million. The decrease in inventory was primarily as a result of a ramp up of shipments within Sypris Electronics and the reflection of our strategic inventory management efforts. A significant portion of the inventory had been purchased in previous periods and was funded through prepayments from customers, which was recorded as contract liabilities. As shipments have increased with Sypris Electronics during the year, these contract liabilities have also decreased, which is the primary component of the $10.0 million change in accrued and other liabilities during 2025. Accounts payable decreased during 2025, resulting in a use of cash of $8.2 million. This change in accounts payable was driven by an effort within Sypris Electronics to pay down past due payables and reduce inventory purchases during the period. Prepaid expenses and other assets decreased during 2025 resulting in cash provided of $0.6 million primarily as a result of decreased contract assets and capitalized costs associated with programs in the startup phase of production at Sypris Electronics.

Investing Activities. Net cash provided by investing activities was $2.2 million during the year ended December 31, 2025. During 2025, the Company closed on a sale leaseback transaction with an unrelated third party. Under this transaction, the Company sold its facility located in Louisville, Kentucky, with a net book value of $0.4 million for net cash proceeds of approximately $2.9 million. Partially offsetting this was capital expenditures during the same period of $0.8 million.

Net cash used in investing activities for the year ended December 31, 2024 was comprised of capital expenditures of $1.1 million.

Financing Activities. Net cash provided by financing activities was $0.8 million in 2025 and was comprised of proceeds from the Note of $3.0 million, partially offset by payments on finance leases and equipment financing obligation of $2.1 million and $0.1 million for minimum statutory tax withholdings on stock-based compensation. Net cash used in financing activities in 2024 was comprised of proceeds from the Note of $2.5 million and proceeds from equipment financing obligations of $0.4 million, partially offset by payments on finance leases and equipment financing obligations of $2.0 million and payments of $0.1 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.