PERCEPTRON, INC. SAFE HARBOR STATEMENT
Certain statements in this report, including statements made in this Management's Discussion and Analysis of Financial Condition and Results of Operations, may be "forward-looking statements" within the meaning of the Securities Exchange Act of 1934, including our expectation as to our fiscal year 2021 and future results, operating data, new order bookings, revenue, expenses, net income and backlog levels, trends affecting our future revenue levels, the rate of new orders, the timing of revenue and net income increases from new products which we have recently released or have not yet released, the timing of the introduction of new products and our ability to fund our fiscal year 2021 and future cash flow requirements. We may also make forward-looking statements in our press releases or other public or shareholder communications. Whenever possible, we have identified these forward-looking statements by words such as "target," "will," "should," "could," "believes," "expects," "anticipates," "estimates," "prospects," "outlook," "guidance" or similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the risks and uncertainties discussed from time to time in our periodic reports filed with theSecurities and Exchange Commission , including those listed in "Item 1A: Risk Factors" of our Annual Report on Form 10-K for our fiscal year 2020. Except as required by applicable law, we do not undertake, and expressly disclaim, any obligation to publicly update or alter our statements whether as a result of new information, events or circumstances occurring after the date of this report or otherwise.
EXECUTIVE SUMMARY
Perceptron, Inc. ("Perceptron", "we", "us" or "our") develops, produces and sells a comprehensive range of automated industrial metrology products and solutions to manufacturing organizations for dimensional gauging, dimensional inspection and 3D scanning. Our primary operations are inNorth America ,Europe andAsia . All of our products rely on our core technologies and are divided into the following:
• In-Line and Near-Line Measurement Solutions - engineered metrology systems
for industrial automated process control and assembly using fixed and robot
mounted laser scanners. We also provide Value Added Services including
training, field service, calibration, launch support services, consulting
services, maintenance agreements and repairs related to our In-Line and
Near-Line Measurement Solutions.
• Off-Line Measurement Solutions - tailored metrology products for industrial
gauging and dimensional inspection using standalone robot-mounted laser
scanners and Coordinate Measuring Machines ("CMM"). We also provide Value
Added Services including training, calibration, maintenance agreements and
repairs related to our Off-Line Measurement Solutions.
• 3D Scanning Solutions - laser scanner products that target the digitizing,
reverse engineering, inspection and original equipment manufacturers wheel
alignment sectors.
The largest end-use sector we serve is the automotive industry. New automotive tooling programs represent the most important selling opportunity for our In-Line and Near-Line Measurement Solutions. The number and timing of new vehicle tooling programs vary based on the plans of the individual automotive manufacturers. The existing installed base of In-Line and Near-Line Measurement Solutions also provides a continuous revenue stream in the form of system additions, upgrades and modifications as well as Value Added Services such as customer training and support.
Our Off-Line Measurement and 3D Scanning Solutions are utilized by a wide variety of targeted industrial customers, with the automotive industry representing the largest source of customers for industrial metrology products.
COVID-19 Pandemic
The COVID-19 pandemic poses significant risks to our business. See Note 18 of the Notes to the Consolidated Financial Statements, "COVID-19 Pandemic" contained in this Quarterly Report on Form 10-Q for a discussion of the impact of COVID-19 on our business. The ongoing global public health actions attempting to reduce the spread of COVID-19 are creating and may continue to create significant disruptions to our operations, our customer and supplier relationships, and general global economic conditions. Accordingly, we are closely monitoring and adjusting for the impact of COVID-19 on our global operations, communicating with and monitoring the actions of our customers and suppliers, and reviewing our near-term financial performance as we manage the Company through the uncertainty related to the COVID-19 pandemic. Over the last six months, first inChina and then inEurope andthe United States , the Company either closed or limited operations at its facilities due to local government mandates requiring citizens to shelter- 21 -------------------------------------------------------------------------------- in-place, as have its customers and suppliers. During that period, our employees have continued to operate remotely and, in some cases, on site with customers where allowable. The Company has gradually reopened previously closed facilities as permitted by law and as required to meet customer requirements. We have incurred some additional costs as we resume operations in order to comply with government requirements and guidelines. We expect to be able to fund these costs as described under "Liquidity and Capital Resources - Impact of COVID-19 Pandemic" below. We believe that the Company currently has sufficient raw material and finished goods inventory to support customer demand and, to date, have experienced minimal disruption to our supply chain. We have implemented cost reduction efforts to help mitigate the impact on our business including reducing discretionary spending and various other measures. Some of our orders from customers have been delayed as a result of the COVID-19 pandemic and we may continue to experience such delays. Delays in these orders could affect our ability to fund our business solely through near-term revenue, our cash, cash equivalents, short-term investments and our existing lines of credit. To help provide us with additional liquidity in theU.S. during this period and in light of economic uncertainties posed by the COVID-19 pandemic, we applied for and received a loan under theU.S. government Paycheck Protection Program. See "Liquidity and Capital Resources - Impact of COVID-19 Pandemic" for a description of this loan. Merger Agreement OnSeptember 27, 2020 , we entered into the Merger Agreement with Parent and Merger Subsidiary, providing for the Merger and, withPerceptron surviving the Merger as a wholly owned subsidiary of Parent. At the effective time of the Merger, each issued and outstanding share of our common stock immediately prior to the Effective Time shall be converted into the right to the Merger Consideration. The Merger is subject to customary closing conditions, including shareholder and regulatory approvals. For additional information regarding the Merger, see our other filings made with theSEC , which are available at theSEC's public reference facilities or on theSEC's website at www.sec.gov, including our Current Report on Form 8-K filed with theSEC onSeptember 28, 2020 , and Note 19, of the Notes to the Consolidated Financial Statements, "Merger Agreement", contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. RESULTS OF OPERATIONS
Three Months Ended
September 30, 2019 Overview - The Company reported net loss of$0.4 million , or ($0.04 ) per diluted share, for the first quarter of fiscal 2021 compared with net income of$0.6 million , or$0.06 per diluted share, for the first quarter of fiscal 2020. The Company's quarterly results vary from quarter to quarter, and are dependent upon delivery and installation schedules determined by our customers. These schedules are customer directed, and the Company has limited to no ability to control schedule changes. Bookings - Bookings represent new orders received from the customers. The Company expects the level of new orders to fluctuate from quarter to quarter and do not believe new order bookings during any particular period are indicative of the future operating performance.
Bookings by geographic location were (in millions):
Three Months Ended September 30,
2020 2019 Increase/(Decrease)
Geographic Region
Americas $ 4.6 31.5 % $ 6.9 40.1 % $ (2.3 ) (33.3 %)
Europe 6.4 43.8 % 7.5 43.6 % (1.1 ) (14.7 %)
Asia 3.6 24.7 % 2.8 16.3 % 0.8 28.6 %
Totals $ 14.6 100.0 % $ 17.2 100.0 % $ (2.6 ) (15.1 %)
The decrease in bookings in the first quarter of fiscal 2021 as compared to the
first quarter of fiscal 2020 of $2.6 million , including a favorable currency
impact of $1.0 million , is primarily due to a decrease of $1.2 million in the
In-Line and Near-Line Measurement Solutions, a decrease of $0.9 million in the
3D Scanning Solutions, a decrease of $0.4 million in the Off-Line Measurement
Solutions, and a decrease of $0.1 million in the Value Added Services. On a
geographic basis, the $2.3 million decrease in Americas region is primarily due
to a decrease of $2.4 million in the In-Line and Near-Line Measurement
Solutions, partially offset by an increase of $0.1 million in the Value Added
Services. The $1.1 million decrease in Europe region is primarily due to a
decrease of $0.6 million in the Off-Line Measurement Solutions, a decrease of
$0.3 million in the In-Line and Near-Line Measurement Solutions, and a decrease
of $0.2 million in the Value Added Services. The $0.8 million increase in Asia
region is primarily due to an increase of $1.5 million in the In-Line and
Near-Line Measurement Solutions, an increase of $0.2 million in the Off-Line
Measurement Solutions, partially offset by a decrease of $0.9 million in the 3D
Scanning Solutions.
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-------------------------------------------------------------------------------- Backlog - Backlog represents orders or bookings the Company has received but has not yet been filled, that is, our unsatisfied performance obligations as of the reporting date. The Company believes that the level of backlog during any particular period is not necessarily indicative of its future operating performance. Although most of the backlog is subject to cancellation by the customers, the Company expects to fill substantially all of the orders in its backlog.
Backlog by geographic location was (in millions):
As of September 30,
2020 2019 Increase/(Decrease)
Geographic Region
Americas $ 7.3 19.7 % $ 12.3 32.6 % $ (5.0 ) (40.7 %)
Europe 17.5 47.3 % 18.6 49.3 % (1.1 ) (5.9 %)
Asia 12.2 33.0 % 6.8 18.1 % 5.4 79.4 %
Totals $ 37.0 100.0 % $ 37.7 100.0 % $ (0.7 ) (1.9 %)
The current quarter ending backlog decreased by $0.7 million compared to the
ending backlog at September 30, 2020 . The decrease in the backlog was primarily
due to a decrease of $0.9 million in the Off-Line Measurement Solutions, a
decrease of $0.8 million in the 3D Scanning Solutions, a decrease of $0.5
million in the Value Added Services, partially offset by an increase of $1.5
million in the In-Line and Near-Line Measurement Solutions. On a geographic
basis, the $5.0 million decrease in Americas region is due to a decrease of $5.1
million in the In-Line and Near-Line Measurement, partially offset by an
increase of $0.1 million in the Off-Line Measurement Solutions. The $1.1 million
decrease in Europe region is primarily due to a decrease of $1.3 million in the
Off-Line Measurement Solutions, a decrease of $0.5 million in the Value Added
Services, a decrease of $0.2 million in the 3D Scanning Solutions, partially
offset by an increase of $0.9 million in the In-Line and Near-Line Measurement
Solutions. The $5.4 million increase in Asia region is primarily due to an
increase of $5.7 million in the In-Line and Near-Line Measurement Solutions, an
increase of $0.3 million in the Off-Line Measurement Solutions, partially offset
by a decrease of $0.6 million in the 3D Scanning Solutions.
A summary of our operating results is shown below (in millions):
Three Months Ended September 30,
2020 % of Sales 2019 % of Sales
Americas Sales $ 3.6 25.9 % $ 6.2 34.6 %
Europe Sales 6.9 49.6 % 7.1 39.7 %
Asia Sales 3.4 24.5 % 4.6 25.7 %
Net Sales $ 13.9 100.0 % $ 17.9 100.0 %
Cost of Sales 9.5 68.3 % 10.8 60.3 %
Gross Profit 4.4 31.7 % 7.1 39.7 %
Operating Expenses
Selling, General and Administrative 3.8 27.3 % 4.3 24.0 %
Engineering, Research and Development 1.3 9.4 % 1.8 10.1 %
Operating (Loss) Income (0.7 ) (5.0 %) 1.0 5.7 %
Other Income and (Expenses), net
Interest Expense, net - 0.0 % - 0.0 %
Foreign Currency Gain (Loss), net 0.2 1.4 % (0.2 ) (1.2 %)
Other Income and (Expense), net (0.1 ) (0.7 %) - 0.0 %
(Loss) Income Before Income Taxes (0.6 ) (4.3 %) 0.8 4.5 %
Income Tax Expense 0.2 1.4 % (0.2 ) (1.1 %)
Net (Loss) Income $ (0.4 ) (2.9 %) $ 0.6 3.4 %
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-------------------------------------------------------------------------------- Sales - Net sales of$13.9 million for the first quarter of fiscal year 2021 decreased$4.0 million , or (22.3%), including an unfavorable currency impact of$0.5 million , when compared to the same period a year ago. The decrease is primarily due to a decrease of$3.0 million in the In-Line and Near-Line Measurement Solutions, a decrease of$0.9 million in the 3D Scanning Solutions, a decrease of$0.2 million in the Value Added Services, partially offset by an increase of$0.1 million in the Off-Line Measurement Solutions. On a geographic basis, the decrease of$2.6 million inAmericas region is primarily due to a decrease of$2.4 million in the In-Line and Near-Line Measurement Solutions, a decrease of$0.1 million in the Value Added Services, and a decrease of$0.1 million in the 3D Scanning Solutions. The decrease of$1.2 million inAsia region is primarily due to a decrease of$0.6 million in the 3D Scanning Solutions, a decrease of$0.5 million in our In-Line and Near-Line Measurement Solutions, and a decrease of$0.1 million in the Off-Line Measurement Solutions. The decrease of$0.2 million inEurope region is primarily due to a decrease of$0.2 million in the 3D Scanning Solutions, a decrease of$0.1 million in the In-Line and Near-Line Measurement Solutions, and a decrease of$0.1 million in the Value Added Services, partially offset by an increase of$0.2 million in the Off-Line Measurement Solutions. Gross Profit - Gross profit percentage was 31.7% in the first quarter of fiscal 2021 compared to 39.7% in the same period a year ago. The lower gross profit percentage in the first quarter of fiscal 2021 was primarily due to the mix of revenue and increased cost of sales. Selling, General and Administrative (SG&A) Expenses - SG&A expenses were approximately$3.8 million in the first quarter of fiscal 2021, a decrease of$0.5 million compared to the same period a year ago. The decrease is primarily due to a decrease in our employee-related costs given the benefit of our cost cutting initiatives. Engineering, Research and Development (R&D) Expenses - Engineering, research and development expenses were approximately$1.3 million in the first quarter of fiscal 2021, a decrease of$0.5 million compared to the first quarter of fiscal 2020. The decrease is primarily due to decreases in employee-related costs. Foreign Currency Gain (Loss), net - Foreign Currency Gain (Loss), net was a gain of$0.2 million in the first quarter of fiscal 2021 compared to$0.2 million loss in first quarter of fiscal 2020. The gain in the first quarter of fiscal 2021 was primarily related to changes in the values of the Euro and the Japanese Yen in relation to the US Dollar. The loss in the first three months of fiscal 2020 was primarily related to changes in the value of the Euro and Chinese Yuan in relation to the US Dollar.
Other Income and (Expense), net - Net other expense was
Income Taxes - The effective tax rate for the first quarter of fiscal 2021 was 27.5% compared to 18.6% in the first quarter of fiscal 2020. We have previously established full valuation allowances against ourU.S. Federal,Germany ,Japan ,Brazil ,Netherlands , andIndia net deferred tax assets. The effective tax rates in fiscal 2021 and fiscal 2020 were impacted by not recognizing tax expense on pre-tax income or tax benefits on pre-tax losses in some of the jurisdictions where we have previously established full valuation allowances against our net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund product development and capital expenditures as well as support working capital requirements. In general, our principal sources of liquidity are cash and cash equivalents on hand, cash flows from operating activities and borrowings under available credit facilities.
Cash on Hand. Our cash and cash equivalents were
Cash Flow. The$2.3 million increase in cash, cash equivalents and restricted cash fromJune 30, 2020 toSeptember 30, 2020 resulted from$2.2 million of cash provided by operating activities,$0.1 million cash used for investing activities and a$0.2 million favorable impact from changes in exchange rates. There was no material impact to cash from financing activities in the period. Cash used for investing activities in the first three months of fiscal 2020 is due to capital expenditures of$0.1 million and purchases of short-term investments$0.2 million partially offset by sales of short-term investments$0.2 million . During the three-month period endedSeptember 30, 2020 , cash provided by operations resulted from our net loss of$0.4 million favorably adjusted by$0.5 million of non-cash items and cash inflows related to working capital changes of$2.1 million , primarily arising from a change in receivables. 24 -------------------------------------------------------------------------------- Working Capital Reserves. We provide a reserve for obsolescence to recognize inventory impairment for the effects of engineering change orders as well as the age and usage of inventory that affect the value of the inventory. The reserve for obsolescence creates a new cost basis for the impaired inventory. When inventory that has previously been impaired is sold or disposed, the related obsolescence reserve is reduced resulting in the reduced cost basis being reflected in cost of goods sold. A detailed review of the inventory is performed annually with quarterly updates for known changes that have occurred since the annual review. During the three months endedSeptember 30, 2020 , we increased the reserve for obsolescence modestly. We determine our allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer's current ability to pay their outstanding balance due to us, and the condition of the general economy and the industry as a whole. We write off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. During the three months endedSeptember 30, 2020 , we slightly increased the allowance for doubtful accounts. Investments. AtSeptember 30, 2020 andJune 30, 2020 , we had short-term investments totaling$0.4 million and a long-term investment recorded at$0.7 million . See Note 5 of the Notes to the Consolidated Financial Statements, "Short-Term and Long-Term Investments" contained in this Quarterly Report on Form 10-Q for further information on our investments and their current valuation. The market for our long-term investment is currently illiquid. We have$0.4 million of our short-term investments serving as collateral for bank guarantees for certain customer obligations inChina . The cash is restricted as to withdrawal or use while the related bank guarantees are outstanding. Interest is earned on the restricted cash and recorded as interest income.
Credit Facilities.
The Company had
OnDecember 4, 2017 , the Company entered into a Loan Agreement (the "Loan Agreement") withChemical Bank ("Chemical"), and related documents, including a Promissory Note. The Loan Agreement is an on-demand line of credit and is cancelable at any time by eitherPerceptron or Chemical and any amounts outstanding would be immediately due and payable. The Loan Agreement is guaranteed by ourU.S. subsidiaries. The Loan Agreement allows for maximum permitted borrowings of$8.0 million . The borrowing base is calculated at the lesser of (i)$8.0 million or (ii) the sum of 80% of eligible accounts receivable balances ofU.S. customers, and subject to limitations, certain foreign customers, plus the lesser of 50% of eligible inventory or$3.0 million . AtSeptember 30, 2020 , our available borrowing under this facility was approximately$3.3 million . Security for the Loan Agreement is substantially all of our assets in theU.S. Interest is calculated at 2.65% above the 30-day LIBOR Rate. The Company is not allowed to pay cash dividends under the Loan Agreement. OnApril 16, 2020 , the Company entered into an unsecured loan withTCF National Bank in an aggregate principal amount of$2.5 million (the "PPP Loan"), pursuant to the Paycheck Protection Program "PPP loan" under the Cares Act. See "Liquidity and Capital Resources - Impact of COVID-19 Pandemic" for a description of the Company's loan under the Paycheck Protection Program. Our Brazilian subsidiary ("Brazil") has several borrowing facilities with total available borrowings of B$354,000 (equivalent to approximately$63,000 USD ). AtSeptember 30, 2020 , the outstanding balances totaled B$218,000 (equivalent to approximately$39,000 USD and are included in Lines of credit and current portion of long-term debt on the Consolidated Balance Sheet). The monthly interest rate on the outstanding balances range from 0.37% to 13.94%. AtJune 30, 2020 , the outstanding balances totaled B$250,000 (equivalent to approximately$46,000 USD and are included in Lines of credit and current portion of long-term debt on the Consolidated Balance Sheet). The monthly interest rate on the outstanding balances range from 0.37% to 13.94%. Commitments and Contingencies. In the third quarter of fiscal 2018, theCanadian Revenue Agency (CRA) completed a Goods and Services Tax/Harmonized Sales Tax Returns (GST/HST) audit. Based on this audit, the CRA has preliminarily proposed to assess us approximatelyC$1.2 million (equivalent to approximately$0.9 million ) in taxes related to sales from 2013 through 2018. CRA has indicated that we are entitled to invoice our customers to recover this amount and our customers are required to remit payment. In addition, we will be charged interest and penalties if this preliminary finding is finalized. Our response to the CRA was delivered inApril 2018 . InJune 2018 , we received the final assessment, which confirmed the preliminary assessment. InAugust 2018 , we filed a formal appeal request and posted a surety bond as security for this claim. We did not record an accrual related to this preliminary audit finding because we are disputing several of the CRA's conclusions and a loss is not considered probable. We expect to ultimately receive the funds from our customers (excluding any interest or penalties) if we are ultimately required to pay the CRA, although there may be a timing difference between when we must pay the CRA and when we collect the funds from our customers. In the fourth quarter of fiscal 2019, we identified a potential concern regarding the residency status of certainU.S. employees as it relates to payroll taxes and withholdings in their country of residency. We estimated the range to correct this issue, including interest and penalties to range from$0.2 million to$0.3 million . We are not able to reasonably estimate the amount within this range that we would be required to pay for this matter. As a result, we recorded a reserve of$0.3 million representing the minimum amount we estimate would be paid. 25 -------------------------------------------------------------------------------- See Note 17, of the Notes to the Consolidated Financial Statements, "Commitments and Contingencies" contained in this Quarterly Report on Form 10-Q. See Item 3, "Legal Proceedings" and Note 17, of the Notes to the Consolidated Financial Statements, "Commitments and Contingencies" contained in our Annual Report on Form 10-K for fiscal year 2020 for a discussion of certain other contingencies relating to our liquidity, financial position and results of operations. See also, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Litigation and Other Contingencies" of our Annual Report on Form 10-K for fiscal year 2020. Capital Spending. We spent$0.1 million on capital equipment in the first three months of fiscal 2021 compared to$0.3 million on capital equipment and$0.1 million on intangible projects in the first three months of fiscal 2020. We continue to closely analyze all potential capital projects and review the project's expected return on investment. Capital Resources and Outlook. Information in this "Outlook" section should be read in conjunction with the "Safe Harbor Statement," cautionary statements and discussion of risk factors included elsewhere in this report and in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2020 . AtSeptember 30, 2020 , we had$13.3 million in cash, cash equivalents and short-term investments of which$8.0 million , or approximately 60%, was held in foreign bank accounts. We have not been repatriating our foreign earnings. OnDecember 22, 2017 , the Tax Cuts and Jobs Act (the "Act") was enacted by theU.S. The Act implements comprehensive tax legislation which, among other changes, imposes a tax on the untaxed foreign earnings of foreign subsidiaries ofU.S. companies by deeming those earnings to be repatriated (the "Transition Tax"). Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate and the remaining earnings are taxed at an 8% rate. We completed our evaluation and related calculations related to the Transition Tax during the second quarter of fiscal 2019, which confirmed our previous conclusion that our foreign tax credits would completely offset any tax calculated. As a result, we have not made any cash payments related to the Transition Tax. As a result of the Act, we may be in a position to repatriate our past and future foreign earnings to theU.S. in a more cost-effective manner than under prior law, which could positively impact our liquidity in theU.S. Any such repatriation may be subject to taxation under foreign laws or the laws of theState of Michigan . We have determined not to repatriate such earnings at this time because of the associated costs to do so and the financial requirements of our subsidiaries outsidethe United States . We continue to expect capital spending including development of intangible assets to be less than$2.0 million during fiscal 2021, although there is no binding commitment to do so. Furthermore, the level of our capital spending is dependent on our continued financial strength. Impact of COVID-19 Pandemic. We are continuously reviewing our liquidity and anticipated capital requirements in light of the uncertainty created by the COVID-19 pandemic. To provide additional liquidity during this period and in light of economic uncertainties posed by the COVID-19 pandemic, the Company entered into a loan withTCF National Bank onApril 16, 2020 (the "PPP Loan"), pursuant to the Paycheck Protection Program (the "PPP") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The PPP Loan was in an aggregate principal amount of$2.5 million . The PPP Loan is evidenced by a promissory note (the "Note") datedApril 16, 2020 . The PPP Loan matures two years from the disbursement date and bears interest at a rate of 1.000% per annum. Principal and interest are payable monthly commencing with a date determined by the lender following the remittance of the amount of the PPP Loan to be forgiven by the SBA to the lender or potentially earlier, as determined under applicableSmall Business Administration rules, if the Company's PPP Loan is reviewed. The PPP Loan may be prepaid by us at any time prior to maturity with no prepayment penalties. We can apply for forgiveness for all or a portion of the PPP Loan. The loans issued under PPP are subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest expenses incurred or paid during a 24 week period (the "Covered Period") following the disbursement date (collectively, "Qualifying Expenses"), pursuant to the terms and limitations of the PPP. We expect to be able to use a significant portion of the PPP Loan proceeds for Qualifying Expenses and to have a significant portion of the PPP Loan eligible for forgiveness. Any portion of the PPP Loan that is not used for Qualifying Expenses or is not otherwise forgiven is expected to be repaid on the terms set forth above. We cannot be certain as to the amount of the PPP Loan that will be forgiven, if any. In connection with the PPP Loan, as required by the CARES Act, we certified that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant" and were otherwise eligible for the PPP Loan. While we believe we are eligible for the PPP Loan, in the event it was determined that we were not eligible for the PPP Loan, it is possible we would be required to repay the PPP Loan on an accelerated basis, rather than over two years provided under the PPP Loan promissory note, and at a higher interest rate than 1.000% per annum. As a result of our PPP Loan, utilization of our existing credit facility with Chemical, continued collection of customer receivables, and cash, cash equivalents and short-term investments, we believe we have sufficient cash resources to fund our current operations and strategic plans for at least the next twelve months. Our expectations are based upon our internal projections about the global automotive industry and related economic conditions, as well as our current understanding of our key customers' plans for retooling projects. If our key customers' plans differ from our understanding or the impact of the COVID-19 pandemic varies from our expectations, our results of operations and financial condition could be more negatively impacted. 26
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CRITICAL ACCOUNTING POLICIES
A summary of critical accounting policies is presented in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" of our Annual Report on Form 10-K for fiscal year 2020, which are unchanged as ofSeptember 30, 2020 except for our policies on Lease Accounting. NEW ACCOUNTING PRONOUNCEMENTS For a discussion of new accounting pronouncements, see Note 2, of the Notes to the Consolidated Financial Statements, "New Accounting Pronouncements" contained in this Quarterly Report on Form 10-Q.
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