This section augments and updates certain risk factors disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended January 31, 2020 (the Annual Report). We are providing the following information regarding changes that have occurred to the previously disclosed risk factors in our Annual
Report on Form 10-K. In addition to the other information in this Quarterly Report on Form 10-Q, all risk factors should be carefully considered in evaluating us
and our common stock. Any of these risks, many of which are beyond our control, could materially and adversely affect our financial condition, results of operations or cash flows, or cause our actual results to differ materially from those projected
in any forward-looking statements. We may also face other risks and uncertainties that are not presently known, are not currently believed to be material, or are not identified below because they are common to all businesses. Past financial
performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. For more information, see Forward-Looking Statements elsewhere in this
The ongoing COVID-19 pandemic has adversely affected and will likely continue to
adversely affect our revenues, results of operations and financial condition.
Our business has been and will likely continue to be
materially adversely affected by the widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus known as COVID-19. COVID-19 has been declared by the World Health Organization to be a pandemic and has spread to many of the countries in which we, our customers, our suppliers and our other business partners do business.
National, state and local governments in affected regions have implemented and may continue to implement safety precautions, including quarantines, travel restrictions, business closures, cancellations of public gatherings and other measures. Other
organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work. These measures are disrupting normal business operations both inside and outside of affected areas and have
had significant negative impacts on businesses and financial markets worldwide.
We continue to monitor our operations and government
recommendations and have made modifications to our normal operations because of the COVID-19 outbreak, including requiring most non-production related team members to
work remotely. We have maintained a substantial portion of our manufacturing operational capacity at our manufacturing facilities located in West Warwick, Rhode Island, as well as our manufacturing facilities in Canada and Germany, at this time, and
we have instituted heightened cleaning and sanitization standards and several health and safety protocols and procedures to safeguard our team members. However, we have experienced a number of adverse impacts as a result of the COVID-19 outbreak, including reductions in demand for our products, delays and cancellations of orders for our products, difficulties in obtaining raw materials and components for our products, shortages of labor to
manufacture our products, inefficiencies caused by remote workers difficulties in performing their normal work outputs, closures of the facilities of some of our suppliers and customers, and delays in collecting accounts receivable.
While it is not possible at this time to estimate the full scope of the impact that COVID-19 will have
on our business, customers, suppliers or other business partners, we expect that the continued spread of COVID-19, the measures taken by the governments of affected countries, actions taken to protect
employees, and the impact of the pandemic on all business activities to further adversely impact our operational capacity and the efficiency of our team members and will continue to materially adversely affect our results of operations and financial
The adverse effect of COVID-19 on our business has negatively impacted our ability to
comply with the covenants governing our credit facility, and disruptions in the credit and capital markets as a result of COVID-19 have and may continue to adversely affect the terms on which we are able to
obtain new financing.
The aerospace industry, which we serve through our aerospace product line, has been significantly disrupted by the COVID-19 outbreak, both inside and outside of the United States. The decline in air travel has had and will continue to have a material adverse impact on our financial results, the ultimate scope of which we cannot
estimate at this time. Should one or more of our airplane OEM manufacturing customers or a significant number of airline customers fail to continue business as a going concern, declare bankruptcy, or otherwise reduce the demand for our products as a
result of the impact of the COVID-19 pandemic, it would have a material adverse impact on our business operations and financial results.
If we are unable to successfully negotiate an amendment to our credit agreement with Bank of America or secure alternative financing,
our business and financial condition could be materially adversely affected.
Our credit agreement with
Bank of America requires us, among other things, to satisfy certain financial ratios and conditions on an ongoing basis. Specifically, we are required to maintain minimum EBITDA (as defined in the credit agreement) of $9.5 million on a trailing
twelve-months basis and our consolidated leverage ratio is not permitted to exceed 3.0 to 1.0, in each case as of the end of each fiscal quarter. Our actual EBITDA dropped below the required level for such period ended May 2, 2020, primarily as
a result of the declines in our revenue attributable to the reduced demand for aircraft cockpit printers for the Boeing 737 MAX aircraft and the reduced demand for aircraft driven by the global reduction in air travel caused by the COVID-19 outbreak. While we entered into a Letter Agreement with Bank of America on June 22, 2020 that, among other things, waived our noncompliance with the financial covenants in the credit agreement noted
above for the measurement period ending May 2, 2020, the Letter Agreement requires us to have, as of June 30, 2020, a consolidated EBITDA of not less than $9.5 million on a trailing twelve month basis, and to report our compliance
with such additional covenant on or before August 15, 2020. While we and Bank of America have agreed in the Letter Agreement that this additional covenant will not be tested until August 15, 2020, we do not expect to comply with this
additional covenant when it is tested. If an event of default occurs with respect to our obligations under the credit agreement, Bank of America is entitled to declare all of our outstanding borrowings under the credit agreement immediately due and
payable. In addition, the loan agreement governing our PPP Loan includes a cross-default provision whereby a default under other debt facilities could result in a default and acceleration of our repayment obligations under the PPP Loan. While we are
actively negotiating an amendment to restructure the terms of our credit agreement with Bank of America, there can be no assurance that we will be able to successfully complete such amendment or secure alternative financing on acceptable terms or at
all. If we are unable to renegotiate the terms of our credit agreement or secure alternative financing and Bank of America declares our outstanding borrowings immediately due and payable, we would be unable to satisfy that demand. If that occurred
it would have a material adverse impact on us.