BROADWIND, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As used in this Annual Report, the terms “we,” “us,” “our,” “Broadwind,” and the “Co mpany” refer to Broadwind , Inc., a Delaware corporation headquartere d in Cicero, Illinois, and its S ubsidiaries. (Dollar amounts are presented in thousands, except per share data and unless otherwise stated) We booked $148,882 in net new orders in 2020 , down from $221,549 in 2019 which was predominately driven by a reduction in tower orders within our Heavy Fabrications segment, as certain tower customers secured production capacity in the prior year in advance of historical lead times due to surging wind tower installation expectations in 2020. Other industrial fabrication orders, also included in the Heavy Fabrications segment, decreased $5,036 or 24%, primarily due to weaker mining and construction demand as customers deferred or reduced inventory purchases due to economic uncertainty stemming from the COVID-19 pandemic. Gearing orders declined $349, primarily due to reduced global demand for O&G and mining customers reducing capital purchases due to the demand effects associated with the COVID-19 pandemic, partially offset by the timing of orders from aftermarket wind customers. Our Industrial Solutions segment had $17,922 in orders in 2020 , an increase of $1,496 over 2019 , primarily due to higher customer demand for gas turbine components, partially offset by the absence of a solar kitting project order received in the prior year. At December 31, 2020 , total backlog was $92,854, down 35% from $142,302 at December 31, 2019 primarily due to the aforementioned reduction in tower and other industrial fabrication orders. We recognized revenue of $198,496 in 2020 , up 11% from revenue of $178,220 in 2019 . Within the Heavy Fabrications segment, tower revenue increased 20% primarily due to the expansion of the customer base and an overall increase in U.S. wind tower installations. Additionally, within the Heavy Fabrications segment, industrial fabrication product line revenues increased 22% from 2019, primarily as a result of our ongoing diversification efforts, where growth in material handling and mining markets offset declines in the construction market. Gearing revenue was down $9,741 from 2019, driven primarily by lower order intake during the current year due to reduced global demand for oil and general market uncertainty stemming from the COVID-19 pandemic. The COVID-19 pandemic also negatively impacted other cyclical end markets. Industrial Solutions revenue was up $3,635 or 25% primarily due to higher customer demand for new gas turbine content, partially offset by the absence of revenue associated with a solar kitting project in 2019. We reported a net loss of $1,487, or $0.09 per share in 2020 , compared to a net loss of $4,523 or $0.28 per share in 2019 . The improvement in earnings was primarily due to higher capacity utilization in our Heavy Fabrications segment and improved operating performance in the Industrial Solutions segment. Partially offsetting this improvement was decreased revenue, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels in the Gearing segment. 20 We use our credit facility to fund working capital requirements and believe that our credit facility, together with the operating cash generated by our businesses, and any potential proceeds from access to the public or private debt or equity markets, are sufficient to meet all cash obligations over the next twelve months. On December 31, 2020 , we had $1,245 drawn under our $35,000 line of credit, and $3,372 of cash on hand, resulting in $24,050 of available liquidity. For a further discussion of our capital resources and liquidity, including a description of recent amendments and waivers under our credit facility, please see the discussion under “Liquidity, Financial Position and Capital Resources” in this Annual Report on Form 10-K. COVID-19 Pandemic In March 2020, the World Health Organization recognized a novel strain of coronavirus (COVID-19) as a pandemic. In response to this pandemic, the United States and various foreign, state and local governments have, among other actions, imposed travel and business restrictions and required or advised communities in which we do business to adopt stay-at-home orders and social distancing guidelines, causing some businesses to adjust, reduce or suspend operating activities. The pandemic and the various governments’ response have caused significant and widespread uncertainty, volatility and disruptions in the U.S. and global economies, including in the regions in which we operate. Overall, through December 31, 2020, we have experienced an adverse impact to our business, operations and financial results as a result of this pandemic due in part to the decline in order activity levels for Gearing and Heavy Fabrications. Additionally, throughout 2020, we incurred manufacturing inefficiencies associated with supply chain disruptions and realized employee staffing constraints due to the spread of the COVID-19 pandemic. Our facilities have continued operations as essential businesses in light of the customers and markets served. In response to the pandemic, we continue to right-size our workforce and delay certain capital expenditures. In future periods, we may experience weaker customer demand, requests for extended payment terms, customer bankruptcies, additional supply chain disruption, employee staffing constraints and difficulties, government restrictions or other factors that could negatively impact the Company and its business, operations and financial results. As we cannot predict the duration or scope of the pandemic or its impact on economic and financial markets, any negative impact to our results cannot be reasonably estimated, but it could be material. We continue to monitor closely the Company’s financial health and liquidity and the impact of the pandemic on the Company. We have been able to serve the needs of our customers while taking steps to protect the health and safety of our employees, customers, partners, and communities. Among these steps, we have followed the guidance provided by the U.S. Centers for Disease Control and Prevention to protect the continued safety and welfare of our employees. KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE In addition to measures of financial performance presented in our consolidated financial statements in accordance with GAAP, we use certain other financial measures to analyze our performance. These non-GAAP financial measures primarily consist of adjusted EBITDA and free cash flow which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate our overall financial performance. Key Financial Measures Year Ended December 31, 2020 2019 Net revenues $ 198,496 $ 178,220 Net loss $ (1,487 ) $ (4,523 ) Adjusted EBITDA (1) $ 7,985 $ 7,226 Capital expenditures $ 1,547 $ 1,844 Free cash flow (2) $ 6,956 $ 4,803 Operating working capital (3) $ 5,062 $ 5,580 Total debt (4) $ 10,787 $ 13,422 Total orders $ 148,882 $ 221,549 Backlog at end of period (5) $ 92,854 $ 142,302 Book-to-bill (6) 0.8 1.2 (1) We provide non-GAAP adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, share based compensation, and other stock payments, restructuring costs, impairment charges, and other non-cash gains and losses) as supplemental information regarding our business performance. Our management uses adjusted EBITDA when they internally evaluate the performance of our business, review financial trends and make operating and strategic decisions. We believe that this non-GAAP financial measure is useful to investors because it provides a better understanding of our past financial performance and future results, and it allows investors to evaluate our performance using the same methodology and information as used by our management. Our definition of adjusted EBITDA may be different from similar non-GAAP financial measures used by other companies and/or analysts. 21 (2) We define free cash flow as adjusted EBITDA plus or minus changes in operating working capital less capital expenditures net of any proceeds from disposals of property and equipment. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our business for purposes such as repaying maturing debt and funding business acquisitions. (3) We define operating working capital as accounts receivable and inventory net of accounts payable and customer deposits. (4) Total debt at December 31, 2020 includes PPP loans totaling $9,151. (5) Our backlog at December 31, 2020 is net of revenue recognized over time. (6) We define book-to-bill as the ratio of new orders we received, net of cancellations, to revenue during a period. The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure: Year Ended December 31, 2020 2019 Net loss from continuing operations $ (1,487 ) $ (4,586 ) Interest expense 1,984 2,309 Income tax provision 48 38 Depreciation and amortization 6,279 7,497 Share-based compensation and other stock payments 1,161 1,956 Restructuring costs — 12 Adjusted EBITDA 7,985 7,226 Changes in operating working capital 518 (580 ) Capital expenditures (1,547 ) (1,844 ) Proceeds from disposal of property and equipment — 1 Free Cash Flow $ 6,956 $ 4,803 22 RESULTS OF OPERATIONS Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 The summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 . Year Ended December 31, 2020 vs. 2019 % of Total % of Total 2020 Revenue 2019 Revenue $ Change % Change Revenues $ 198,496 100.0 % $ 178,220 100.0 % $ 20,276 11.4 % Cost of sales 180,495 90.9 % 162,808 91.4 % 17,687 10.9 % Gross profit 18,001 9.1 % 15,412 8.6 % 2,589 16.8 % Operating expenses Selling, general and administrative expenses 16,846 8.5 % 16,086 9.0 % 760 4.7 % Intangible amortization 733 0.4 % 1,683 0.9 % (950 ) (56.4 )% Total operating expenses 17,579 8.9 % 17,769 10.0 % (190 ) (1.1 )% Operating income (loss) 422 0.2 % (2,357 ) (1.3 )% 2,779 117.9 % Other expense, net — % Interest expense, net (1,984 ) (1.0 )% (2,309 ) (1.3 )% 325 14.1 % Other, net 123 0.1 % 118 0.1 % 5 4.2 % Total other expense, net (1,861 ) (0.9 )% (2,191 ) (1.2 )% 330 15.1 % Net loss before provision for income taxes (1,439 ) (0.7 )% (4,548 ) (2.6 )% 3,109 68.4 % Provision for income taxes 48 0.0 % 38 0.0 % 10 26.3 % Loss from continuing operations (1,487 ) (0.7 )% (4,586 ) (2.6 )% 3,099 67.6 % Income from discontinued operations, net of tax — — % 63 0.0 % (63 ) (100.0 )% Net loss $ (1,487 ) (0.7 )% $ (4,523 ) (2.5 )% $ 3,036 67.1 % Consolidated Revenues increased by $20,276 during the year ended December 31, 2020 . Higher capacity utilization in the Heavy Fabrications segment was driven primarily by an expansion of our customer base and an increase in wind tower deliveries to support industry-wide installation growth in the current year. Also, within the Heavy Fabrications segment, industrial fabrication product line revenues increased 22% from 2019 primarily as a result of our ongoing diversification efforts. Partially offsetting this improvement was a decrease in Gearing segment revenues of $9,741 due primarily to lower order intake during the current year due to reduced global demand for oil and general market uncertainty stemming from the COVID-19 pandemic. Industrial Solutions revenue was up $3,635 or 25% primarily due to higher customer demand for new gas turbine content, partially offset by the absence of revenue associated with a solar kitting project recognized in 2019. Gross profit increased by $2,589 during the year ended December 31, 2020 . The increase in gross profit reflects improved capacity utilization in the Heavy Fabrications segment, partially offset by increased manufacturing inefficiencies associated with lower activity levels in the Gearing segment and supply chain constraints associated with the COVID-19 pandemic. As a result, our gross margin increased from 8.6% for the year ended December 31, 2019 , to 9.1% for the year ended December 31, 2020 . Operating expenses for the year ended December 31, 2020 were flat compared to the prior year as an increase in professional fees was more than offset by reduced amortization expenses attributable to the absence of the accelerated amortization of the Red Wolf trade name in the prior year. Operating expenses as a percentage of sales decreased from 10.0% to 8.9% in 2020 as compared to 2019. 23 Loss from continuing operations improved significantly from $4,586 for the year ended December 31, 2019 to $1,487 for the year ended December 31, 2020 , primarily as a result of the factors described above. Heavy Fabrications Segment The following table summarizes the Heavy Fabrications segment operating results for the twelve months ended December 31, 2020 and 2019 : Year Ended December 31, 2020 2019 Orders $ 105,843 $ 179,657 Tower sections sold 1,150 934 Revenues 155,198 128,686 Operating income 10,385 1,861 Operating margin 6.7 % 1.4 % The reduction in Heavy Fabrications orders was a result of certain tower customers securing production capacity in the prior year in advance of historical lead times due to surging wind tower installation expectations in 2020. Other industrial fabrication orders decreased $5,036 or 24%, primarily due to weaker mining and construction demand as customers deferred or reduced inventory purchases due to economic uncertainty stemming from the COVID-19 pandemic, partially offset by growth in other industrial markets. Segment revenues increased by 21% during the year ended December 31, 2020 primarily due to a 23% increase in tower sections sold and a $3,553 increase in other industrial fabrication revenue, reflecting an expansion of our customer base and investments to broaden our manufacturing capabilities. Heavy Fabrications segment operating results improved by $8,524 versus the prior year. The improvement primarily reflected the higher segment capacity utilization and a more profitable product mix sold. This improvement was partially offset by a more complex product mix sold and other manufacturing variances primarily attributable to supply chain constraints and other impacts of the COVID-19 pandemic. Operating profit margin was 6.7% during the year ended December 31, 2020 compared to 1.4% during the year ended December 31, 2019 . Gearing Segment The following table summarizes the Gearing segment operating results for the twelve months ended December 31, 2020 and 2019 : Year Ended December 31, 2020 2019 Orders $ 25,117 $ 25,466 Revenues 25,136 34,877 Operating (loss) income (3,883 ) 3,237 Operating margin (15.4 )% 9.3 % Gearing segment orders for the year ended December 31, 2020 declined $349 compared to the year ended December 31, 2019 primarily due to reduced O&G orders attributable to decreased global demand for oil. Other markets within the Gearing segment, primarily mining, realized lower new order demand in 2020 as customers delayed or reduced capital purchases due to economic uncertainty stemming from the COVID-19 pandemic. These decreases were partially offset by the timing of orders from the aftermarket wind market, which are typically placed by customers to secure production capacity over multiple periods. Revenues decreased 28% during the year ended December 31, 2020 primarily due to lower order intake during recent periods due to the aforementioned low oil prices and reduction of customer orders due to general market uncertainty associated with the COVID-19 pandemic. 24 The Gearing segment reported an operating loss of $3,883 during the year ended December 31, 2020 primarily due to a decrease in sales, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. Operating margin was (15.4)% for the year ended December 31, 2020 compared to 9.3% during the year ended December 31, 2019 . Industrial Solutions Segment The following table summarizes the Industrial Solutions segment operating results for the twelve months ended December 31, 2020 and 2019 . Year Ended December 31, 2020 2019 Orders $ 17,922 $ 16,426 Revenues 18,299 14,664 Operating income (loss) 881 (1,059 ) Operating margin 4.8 % (7.2 )% Industrial Solutions segment orders and revenues increased in 2020 primarily due to stronger demand for gas turbine content. This was partially offset by the absence of a solar kitting order received in 2019. The Industrial Solutions segment operating results improved by $1,940 during the year ended December 31, 2020 as a result of the revenue growth and general operating efficiencies. In addition, the current year benefitted from the absence of $871 of accelerated amortization charges associated with the Red Wolf trade name. The operating margin improved from a loss of 7.2% during the year ended December 31, 2019 , to 4.8% during the year ended December 31, 2020 . Corporate and Other Corporate and Other expenses increased by $557 during the year ended December 31, 2020 . The increase was primarily attributable to increased professional service expenses in the current year, partially offset by lower incentive compensation. SUMMARY OF CRITICAL ACCOUNTING POLICIES The methods, estimates and judgments that we use in applying our critical accounting policies have a significant impact on the results that we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. We have identified the accounting policies listed below to be critical to obtain an understanding of our consolidated financial statements. This section should also be read in conjunction with Note 1, “Description of Business and Summary of Significant Accounting Policies” in the notes to our consolidated financial statements for further discussion of these and other significant accounting policies. 25 Revenue Recognition We recognize revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Customer deposits and other receipts are deferred and recognized when the revenue is realized and earned. Cash payments to customers, like those made for liquidated damages, are presumed to be classified as reductions of revenue in our statement of operations. In many instances within our Heavy Fabrications segment, wind towers are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition versus shipment, due to our customers’ preference to ship products in batches to support efficient construction of wind farms. We recognize revenue under these arrangements when there is a substantive reason for the arrangement (i.e., the buyer requests the arrangement), the ordered goods are segregated from inventory and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and we do not have the ability to use the product or to direct it to another customer. Assuming these required revenue recognition criteria are met, revenue is recognized upon completion of product manufacture and customer acceptance. During 2020, we also recognized revenue over time, versus point in time, when products in the Gearing and Heavy Fabrications segments had no alternative use to us and we had an enforceable right to payment, including profit, upon termination of the contract by the customer. Since the projects are labor intensive, we use labor hours as the input measure of progress for the contract. Contract assets are recorded when performance obligations are satisfied but we are not yet entitled to payment. We recognize contract assets associated with this revenue which represents our rights to consideration for work completed but not billed at the end of the period. We did not recognize any revenue over time during the year ended December 31, 2019. Warranty Liability We provide warranty terms that generally range from one to five years for various products relating to workmanship and materials supplied by us. In certain contracts, we have recourse provisions for items that would enable us to seek recovery from third parties for amounts paid to customers under warranty provisions. We estimate the warranty accrual based on various factors, including historical warranty costs, current trends, product mix and sales. Inventories Inventories consist of raw materials, work-in-process and finished goods. Raw materials consist of components and parts for general production use. Work-in-process consists of labor and overhead, processing costs, purchased subcomponents, and materials purchased for specific customer orders. Finished goods consist of components purchased from third parties as well as components manufactured by us. Inventories are stated at the lower of cost or net realizable value. Where necessary, we have recorded a reserve for the excess of cost over market value in our inventory allowance. Market value of inventory, and management’s judgment concerning the need for reserves, encompasses consideration of many business factors including physical condition, inventory holding period, contract terms and usefulness. Inventories are valued based either on actual cost or using a first-in, first out method. 26 Long-Lived Assets We review property and equipment and other long-lived assets (“long-lived assets”) for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Due to the Gearing's segment recent operating losses, we continue to evaluate the recoverability of certain of the long-lived assets associated with that segment. During October 2020, we identified a triggering event associated with the Gearing's segment operating losses. In accordance with GAAP, we compared the carrying value of the Gearing asset group to the forecast undiscounted cash flows associated with this asset group. Based on the analysis performed, the forecast undiscounted cash flows exceeded the carrying value resulting in no recorded impairment of this group. Income Taxes We account for income taxes based upon an asset and liability approach. Deferred tax assets and liabilities represent the future tax consequences of the differences between the financial statement carrying amounts of assets and liabilities versus the tax basis of assets and liabilities. Under this method, deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of tax rate changes on deferred tax assets and liabilities is recognized in the year that the change is enacted. In connection with the preparation of our consolidated financial statements, we are required to estimate our income tax liability for each of the tax jurisdictions in which we operate. This process involves estimating our actual current income tax expense and assessing temporary differences resulting from differing treatment of certain income or expense items for income tax reporting and financial reporting purposes. We also recognize the expected future income tax benefits of net operating loss (“NOL”) carryforwards as deferred income tax assets. In evaluating the realizability of deferred income tax assets associated with NOL carryforwards, we consider, among other things, expected future taxable income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Changes in, among other things, income tax legislation, statutory income tax rates or future taxable income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods. We also account for the uncertainty in income taxes related to the recognition and measurement of a tax position taken or expected to be taken in an income tax return. We follow the applicable pronouncement guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition related to the uncertainty in these income tax positions. 27 LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES As of December 31, 2020 , cash totaled $3,372 , an increase of $956 from December 31, 2019 . We have in place a line of credit with CIBC Bank (the “Credit Facility”) under which we can borrow up to $35,000, depending on our borrowing base. Debt and finance lease obligations at December 31, 2020 totaled $14,210, and we had the ability to borrow up to $20,678 under the Credit Facility. We also utilize supply chain financing arrangements as a component of our funding for working capital, which accelerates receivable collections and helps to better manage cash flow. Under these agreements, we have agreed to sell certain of our accounts receivable balances to banking institutions who have agreed to advance amounts equal to the net accounts receivable balances due, less a discount as set forth in the respective agreements. The balances under these agreements are accounted for as sales of accounts receivable, as they are sold without recourse. Cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the consolidated statements of cash flows. Fees incurred in connection with the agreements are recorded as interest expense. On October 29, 2020, we executed the First Amendment to the 2016 Amended and Restated Loan Agreement, implementing a payoff of a syndicated lender and a pricing grid based on our trailing twelve month EBITDA under which applicable margins range from 2.25% to 2.75% for LIBOR rate loans and 0.00% and 0.75% for base rate loans, and extending the term of the Credit Facility to July 31, 2023. We were in compliance with all covenants under the Credit Facility as of December 31, 2020 . On February 23, 2021, we executed the Second Amendment to the 2016 Amended and Restated Loan Agreement (the “Second Amendment”) which waived testing of the fixed charge coverage covenant for the quarters ending March 31, 2021 and June 30, 2021, added a new liquidity covenant applicable to the quarter ending March 31, 2021, and new minimum EBITDA covenants applicable to the quarters ending March 31, 2021 and June 30, 2021. For a more detailed description of the Second Amendment refer to Item 9B of this Form 10-K. On April 15, 2020, we received unsecured funds under notes and related documents (“PPP Loans”) with CIBC under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 in response to the COVID-19 pandemic and is administered by the U.S. Small Business Administration (the “SBA”). We received total proceeds of $9,530 from the PPP loans and made repayments of $379 on May 13, 2020. Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 enacted on June 5, 2020 (the “Flexibility Act”), the PPP Loans, and accrued interest and fees may be forgiven following a period of twenty-four weeks after PPP Loan proceeds are received (the “covered period”) if they are used for qualifying expenses as described in the CARES Act including payroll costs and benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities, which are subject to certain reductions based on the number of full time equivalent employees and the level of compensation for employees during such covered period. The amount of loan forgiveness will be reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions. Subject to the terms and conditions applicable to loans administered by the SBA under the PPP, as amended by the Flexibility Act, the unforgiven portion of a PPP Loan is payable over a two year period at an interest rate of 1.00%, with a deferral of payments of principal, interest and fees until the date on which the SBA conveys the loan forgiveness amount to the lender (or notifies the lender that no loan forgiveness is allowed), provided that the borrower applies for forgiveness within 10 months after the last day of the covered period (and if not, payment of principal and interest shall commence 10 months after the last day of the covered period). We used at least 60% of the amount of the PPP Loans proceeds to pay for payroll costs and the balance on other eligible qualifying expenses that we believe to be consistent with the terms of the PPP and plan to submit our forgiveness applications to CIBC during the first quarter of 2021. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, we cannot provide assurance that we have not taken and will not take actions that could cause us to be ineligible for forgiveness of the PPP Loans, in whole or in part. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, our Credit Facility, additional equipment financing, and access to the public or private debt and/or equity markets, including the option to raise additional capital from the sale of our securities under a “shelf” registration statement on Form S-3. Other In 2016, we entered into a $570 unsecured loan agreement with the Development Corporation of Abilene which is included in long-term debt, less current maturities. The loan is forgivable upon us meeting and maintaining specific employment thresholds. During each of the years ended December 31, 2020 and 2019 , $114 of the loan was forgiven. As of December 31, 2020 , the loan balance was $228 . In addition, we have outstanding notes payable for capital expenditures in the amount of $163 and $1,563 as of December 31, 2020 and 2019 , respectively, with $161 and $1,400 included in the “Line of credit and other notes payable” line item of our consolidated financial statements as of December 31, 2020 and 2019 , respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from February 2021 to August 2022. Sources and Uses of Cash The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2020 and 2019 : Year Ended December 31, 2020 2019 Total cash provided by (used in): Operating activities $ 5,191 $ 4,521 Investing activities (1,547 ) (1,843 ) Financing activities (2,688 ) (1,444 ) Discontinued operations — 5 Net increase in cash $ 956 $ 1,239 28 Operating Cash Flows During the year ended December 31, 2020 , net cash provided by operations was $5,191 compared to net cash provided by operating activities of $4,521 for the year ended December 31, 2019 . The increase in net cash provided by operating activities was primarily due to improved operating performance and a decrease in inventory levels in the current year, partially offset by reductions in accounts payable and customer deposits. Investing Cash Flows During the year ended December 31, 2020 , net cash used in investing activities was $1,547 compared to net cash used in investing activities of $1,843 for the year ended December 31, 2019 . The decrease was the result of a $296 decrease of net purchases of property and equipment during the year as we deferred capital investments in response to general economic uncertainty associated with the COVID-19 pandemic. Financing Cash Flows During the year ended December 31, 2020 , net cash used in financing activities totaled $2,688 compared to net cash used in financing activities of $1,444 for the year ended December 31, 2019 . The increase in net cash used in financing activities was primarily due to increased net repayments on our Credit Facility in the current year, partially offset by PPP loan proceeds received in the current year. Contractual Obligations We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial information required by Item 8 is contained in Part IV, Item 15 “EXHIBITS AND FINANCIAL STATEMENT SCHEDULES” of this Annual Report. 29 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.