What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 815 added, 205 removed, 276 unchanged (79% of the section changed)

Financial Statements

BROADWIND, INC.

BROADWIND, INC.

AND SUBSIDIARIES

2 unchanged sentences

CURRENT ASSETS:

$ 4,757  

$ 3,372  

Accounts receivable, net

17,614  

15,337  

Employee retention credit receivable

1 unchanged sentence

Inventories, net

31,951  

26,724  

Prepaid expenses and other current assets

Total current assets

60,586  

50,595  

LONG-TERM ASSETS:

Property and equipment, net

45,186  

45,195  

Operating lease right-of-use assets

18,926  

19,321  

Intangible assets, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 129,019  

$ 119,682  

LIABILITIES AND STOCKHOLDERS’

CURRENT LIABILITIES:

Line of credit and other notes payable

$ 6,392  

$ 1,406  

Current portion of finance lease obligations

1 unchanged sentence

Accounts payable

17,096  

18,180  

Accrued liabilities

Customer deposits

15,470  

18,819  

Total current liabilities

47,100  

47,971  

LONG-TERM LIABILITIES:

2 unchanged sentences

Long-term operating lease obligations, net of current portion

19,310  

19,569  

Total long-term liabilities

23,123  

31,050  

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:

STOCKHOLDERS’

Preferred stock, $ 0.001 par value;

3 unchanged sentences

30,000,000 shares authorized;

18,474,170 and 17,211,498 shares issued as of March 31, 2021, and December 31, 2020, respectively

Treasury stock, at cost, 273,937 shares as of March 31, 2021 and December 31, 2020

19,658,998 and 17,211,498 shares issued as of June 30, 2021, and December 31, 2020, respectively

Treasury stock, at cost, 273,937 shares as of June 30, 2021 and December 31, 2020

( 1,842 )  

Additional paid-in capital

393,839  

384,749  

Accumulated deficit

Total stockholders’ equity

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

( 333,221 )  

Total stockholders’

58,796  

40,661  

TOTAL LIABILITIES AND STOCKHOLDERS’

$ 129,019  

$ 119,682  

The accompanying notes are an integral part of these condensed consolidated financial statements.

BROADWIND, INC.

BROADWIND, INC.

AND SUBSIDIARIES

1 unchanged sentence

(in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of sales

5 unchanged sentences

OTHER INCOME (EXPENSE), net:

Paycheck Protection Program loan forgiveness

Interest expense, net

Total other income (expense), net

Net (loss) income before provision for income taxes

Net income before provision for income taxes

Provision for income taxes

NET (LOSS) INCOME

NET (LOSS) INCOME PER COMMON SHARE—BASIC:

Net (loss) income

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC

NET (LOSS) INCOME PER COMMON SHARE—DILUTED:

Net (loss) income

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED

NET INCOME PER COMMON SHARE—BASIC:

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC

NET INCOME PER COMMON SHARE—DILUTED:

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED

The accompanying notes are an integral part of these condensed consolidated financial statements.

BROADWIND, INC.

BROADWIND, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands, except share data)

4 unchanged sentences

BALANCE, March 31, 2020

Stock issued for restricted stock

Share-based compensation

BALANCE, June 30, 2020

BALANCE, December 31, 2020

5 unchanged sentences

BALANCE, March 31, 2021

Stock issued for restricted stock

Stock issued under defined contribution 401(k) retirement savings plan

Share-based compensation

Shares withheld for taxes in connection with issuance of restricted stock

Sale of common stock, net

BALANCE, June 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

BROADWIND, INC.

BROADWIND, INC.

AND SUBSIDIARIES

1 unchanged sentence

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

Adjustments to reconcile net cash used in operating activities:

Depreciation and amortization expense

Paycheck Protection Program loan forgiveness

Deferred income taxes

4 unchanged sentences

Gain on disposal of assets

Changes in operating assets and liabilities, net of acquisition:

Changes in operating assets and liabilities:

Accounts receivable

20 unchanged sentences

Net cash provided by financing activities

NET (DECREASE) INCREASE IN CASH

NET INCREASE (DECREASE) IN CASH

CASH beginning of the period

1 unchanged sentence

The accompanying notes are an integral part of these condensed consolidated financial statements.

BROADWIND, INC.

BROADWIND, INC.

AND SUBSIDIARIES

1 unchanged sentence

(Dollars are presented in thousands, except share, per share and per employee data or unless otherwise stated)

NOTE 1 — BASIS OF PRESENTATION

NOTE 1 —

BASIS OF PRESENTATION  

The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind, Inc.

(the “Company”) and its wholly-owned subsidiaries Broadwind Heavy Fabrications, Inc.

(“Broadwind Heavy Fabrications”), Brad Foote Gear Works, Inc.

(“Brad Foote”) and Broadwind Industrial Solutions, LLC (“Broadwind Industrial Solutions”).

(the “Company”) and its wholly-owned subsidiaries Broadwind Heavy Fabrications, Inc.

(“Broadwind Heavy Fabrications”), Brad Foote Gear Works, Inc.

(“Brad Foote”) and Broadwind Industrial Solutions, LLC (“Broadwind Industrial Solutions”).

All intercompany transactions and balances have been eliminated.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, the financial statements do not include all of the information and notes required by GAAP for complete financial statements.

In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2021, or any other interim period, which may differ materially due to, among other things, the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2020 .

Operating results for the 

three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2021, or any other interim period, which may differ materially due to, among other things, the risk factors set forth in our Annual Report on Form 10 -K for the year ended December 31, 2020 .

The December 31, 2020 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP.

This financial information should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 .

There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2021 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 .

Company Description

There have been no material changes in the Company’s significant accounting policies during the 

six months ended June 30, 2021 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2020 .

Company Description   

Through its subsidiaries, the Company is a precision manufacturer of structures, equipment and components for clean technology and other specialized applications.

The Company provides technologically advanced high value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure sectors, primarily in the United States of America (the “U.S.”).

The Company’s capabilities include, but are not limited to the following:

heavy fabrications, welding, metal rolling, coatings, gear cutting and shaping, heat treatment, assembly, engineering and packaging solutions.

The Company’s most significant presence is within the U.S.

wind energy industry, which accounted for 63% and 74% of the Company’s revenue during the first three months of 2021 and 2020, respectively.

The Company typically meets its short term liquidity needs through cash generated from operations, its available cash balances, the Credit Facility (as defined below), equipment financing, and access to the public or private debt and/or equity markets, including the option to raise capital from the sale of our securities under the Form S-3 (as discussed below).

See Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements for a complete description of the Credit Facility and the Company’s other debt.

Total debt and finance lease obligations at March 31, 2021 totaled $17,803, which includes current outstanding debt and finance leases totaling $6,532.

The current outstanding debt includes $4,468 outstanding under the Company’s revolving line of credit.

Long-term debt includes $9,151 of Payroll Protection Program loans (“PPP Loans”), which may be forgiven if the Company meets certain requirements.

See Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements for a complete description of the PPP Loans.

On August 18, 2020, the Company filed a “shelf” registration statement on Form S-3, which was declared effective by the Securities and Exchange Commission (the “SEC”) on October 13, 2020 (the “Form S-3”) and expires on October 12, 2023.

The Company’s most significant presence is within the U.S.

wind energy industry, which accounted for 68 % and 72 % of the Company’s revenue during the first  

six months of 2021  and 2020, respectively. 

See Note 7, “Debt and Credit Agreements,”

of these condensed consolidated financial statements for a complete description of the Credit Facility and the Company’s other debt. 

Total debt and finance lease obligations at 

June 30, 2021 totaled $ 11,079 , which includes current outstanding debt and finance leases totaling $ 8,193 .

The Company's revolving line of credit balance is included in the line titled “Line of credit and other notes payable” line item in the Company's condensed consolidated balance sheet. Long-term debt at December 31, 2020 

included $ 9,151 of Payroll Protection Program loans (“PPP Loans”), which were forgiven by the U.S.

Small Business Administration (“SBA”) during the quarter ended June 30, 2021.

The loan forgiveness is recorded in “Other income (expense), net”

in the Company’s condensed consolidated statement of operations. See Note 7,  “Debt and Credit Agreements,”

of these condensed consolidated financial statements for a complete description of the PPP Loans. 

On August 18, 2020, the Company filed a “shelf”

registration statement on Form S- 3, which was declared effective by the Securities and Exchange Commission (the “SEC”) on October 13, 2020 ( the “Form S- 3”

) and expires on October 12, 2023.

This shelf registration statement, which includes a base prospectus, allows the Company at any time to offer any combination of securities described in the prospectus in one or more offerings.

Unless otherwise specified in the prospectus supplement accompanying the base prospectus, the Company would use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes.

On March 9, 2021, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Craig-Hallum Capital Group, LLC (the “Manager”).

Pursuant to the terms of the Equity Distribution Agreement, the Company may sell from time to time through the Manager shares of the Company’s common stock, par value $0.001 per share with an aggregate sales price of up to $10,000.

The Company will pay a commission to the Manager of 2.75% of the gross proceeds of the sale of the shares sold under the Equity Distribution Agreement and reimburse the Manager for all expenses incident to the performance of its obligations under the Equity Distribution Agreement.

During the quarter ended March 31, 2021, the Company issued 1,100,000 shares of the Company’s common stock thereunder.

The net proceeds (before upfront costs) to the Company from the sale of such shares were approximately $6,436 after deducting commissions paid of approximately $182 and before deducting other expenses of $335.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.

The ERC is available through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees.

During each quarter in 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC.

On March 9, 2021, the Company entered into a $ 10,000  Equity Distribution Agreement (the “Equity Distribution Agreement”) with Craig-Hallum Capital Group, LLC.

Pursuant to the terms of the Equity Distribution Agreement, the Company issued 1,897,697  

shares of the Company’s common stock thereunder during the six months ended June 30, 

The net proceeds (before upfront costs) to the Company from the sale of such shares were approximately $ 9,725  

after deducting commissions paid of approximately $ 275  

and before deducting other expenses of $ 376 . 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law providing numerous tax provisions and other stimulus measures, including an employee retention credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.

The ERC is available for wages paid through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees.

During each quarter of 

2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC.

Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter.

The Company qualified for the ERC in the first quarter of 2021 because it had a gross receipts decrease of more than 20% from the first quarter of 2019, the relevant criteria for the ERC.

As a result of the Company averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than just wages paid to employees not providing services).

During the three months ended March 31, 2021, the Company recorded a benefit of $3,372 in Other income (expense), net in the Company’s condensed consolidated statement of operations which is included in the line titled Employee retention credit receivable in the Company’s condensed consolidated balance sheet at March 31, 2021.

The Company anticipates that current cash resources (which includes proceeds from the PPP Loans), expected cash proceeds or savings from the ERC, amounts available under the Credit Facility, cash to be generated from operations and any potential proceeds from the sale of further Company securities under the Form S-3 will be adequate to meet the Company’s liquidity needs for at least the next twelve months.

If assumptions regarding the Company’s production, sales and subsequent collections from certain of the Company’s large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, particularly in light of the COVID-19 pandemic and its effects on domestic and global economies, the Company may in the future encounter cash flow and liquidity issues.

If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the Credit Facility.

This could limit the Company’s operational flexibility, require a delay in making planned investments and/or require the Company to seek additional equity or debt financing.

In the first quarter of 2021, the Company received an ERC benefit of $ 3,372 , which was recorded in “Other income (expense), net”

in the Company’s condensed consolidated statement of operations. The Company also qualified for the ERC in the second quarter of 2021 because it had a gross receipts decrease of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC.

As a result of the Company averaging 

500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than only wages paid to employees not providing services).

During the second quarter of 2021, the Company recorded a benefit of $ 3,593  in “Other income (expense), net”

in the Company’s condensed consolidated statement of operations.

The Company used $ 1,879 of this amount to reduce payroll tax payments. The receivable for the remaining ERC benefit was $ 1,714  as of June 30, 2021 and is included in the line titled “Employee retention credit receivable”

in the Company’s condensed consolidated balance sheet at June 

The Company anticipates that current cash resources, expected cash proceeds or savings from the ERC, amounts available under the Credit Facility, cash to be generated from operations and any potential proceeds from the sale of further Company securities under the Form S- 3 will be adequate to meet the Company’s liquidity needs for at least the next twelve months.

If assumptions regarding the Company’s production, sales and subsequent collections from certain of the Company’s large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, particularly in light of the COVID- 19 pandemic, emerging variants and its effects on domestic and global economies, the Company may in the future encounter cash flow and liquidity issues.

If the Company’s operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could lose access to the Credit Facility.

This could limit the Company’s operational flexibility, require a delay in making planned investments and/or require the Company to seek additional equity or debt financing.

Any additional equity financing, if available, may be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other restrictions on the Company.

While the Company believes that it will continue to have sufficient cash available to operate its businesses and to meet its financial obligations and debt covenants, there can be no assurances that its operations will generate sufficient cash, or that credit facilities will be available in an amount sufficient to enable the Company to meet these financial obligations.

Management’s Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reported period.

Significant estimates, among others, include revenue recognition, future cash flows, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts and health insurance reserves.

Although these estimates are based upon management’s best knowledge of current events and actions that the Company may undertake in the future, actual results could differ from these estimates, particularly in light of the COVID-19 pandemic.

NOTE 2 — REVENUES

Revenues are recognized when the promised goods or services are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenues disaggregated by revenue source for the three months ended March 31, 2021 and 2020 :

Three Months Ended March 31,

NOTE 2 —

Revenues are recognized when the promised goods or services are transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The following table presents the Company’s revenues disaggregated by revenue source for the three and six months ended June 30, 2021 and 2020 :

Three Months Ended June 30,

Six Months Ended June 30,

Heavy Fabrications

$ 35,830  

$ 43,614  

$ 58,607  

$ 81,983  

12,753  

13,149  

Industrial Solutions

Revenue within the Company’s Gearing and Industrial Solutions segments, as well as industrial fabrication product line revenues within the Heavy Fabrications segment, are generally recognized at a point in time, typically when the promised goods or services are physically transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services.

( 284 )  

( 286 )  

$ 46,491  

$ 54,926  

$ 79,219  

$ 103,560  

A performance obligation is a promise in a contract to transfer a distinct product or service to the customer.

1 unchanged sentence

If applicable, the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation.

For tower sales within the Company’s Heavy Fabrications segment, products are sold under terms included in bill and hold sales arrangements that result in different timing for revenue recognition.

The Company recognizes revenue under these arrangements only when there is a substantive reason for the agreement, the ordered goods are identified separately as belonging to the customer and not available to fill other orders, the goods are currently ready for physical transfer to the customer, and the Company does 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 the three months ended March 31, 2021, the Company recognized $172 of revenue within the Gearing segment and $1,153 within the Heavy Fabrications segment over time, as the products had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contracts.

Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the applicable contracts.

Contract assets are recorded when performance obligations are satisfied but the Company is not yet entitled to payment.

The Company recognized $269 of net contract assets during the first quarter associated with this revenue which represents the Company’s rights to consideration for work completed but not billed at the end of the period.

The Company did not recognize any revenue over time during the quarter ended March 31, 2020.

During the six  months ended June 

2021, the Company recognized a portion of revenue within the Gearing and Heavy Fabrications segments over time, as the products had no alternative use to the Company and the Company had an enforceable right to payment, including profit, upon termination of the contracts.

Since the projects are labor intensive, the Company uses labor hours as the input measure of progress for the applicable contracts.

Within the Heavy Fabrications segment, the Company recognized revenue over time of $ 1,276 and $ 2,429 for the three  and six months ended June 30, 2021, respectively. Within the Gearing segment, the Company recognized revenue over time of $ 975  and $ 1,532  for the three and six months ended June 30, 2021, respectively. Contract assets are recorded when performance obligations are satisfied but the Company is not yet entitled to payment.

Contract assets represent the Company’s rights to consideration for work completed but not billed at the end of the period.

The Company did not recognize any revenue over time during the three and six months ended June 

The Company generally expenses sales commissions when incurred.

1 unchanged sentence

Customer deposits, deferred revenue and other receipts are deferred and recognized when the revenue is realized and earned.

Cash payments to customers are classified as reductions of revenue in the Company’s statement of operations.

The Company does not disclose the value of the unsatisfied performance obligations for contracts with an original expected length of one year or less.

NOTE 3 — EARNINGS PER SHARE

The following table presents a reconciliation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020 , as follows:

NOTE 3 —

EARNINGS PER SHARE  

The following table presents a reconciliation of basic and diluted earnings per share for the three and six months ended June 30, 2021 and 2020 , as follows: 

Three Months Ended

Six Months Ended

Basic earnings per share calculation:

Net (loss) income

$ 10,252  

$ 9,042  

$ 1,482  

Weighted average number of common shares outstanding

Basic net (loss) income per share

18,760,910  

16,760,702  

17,973,896  

16,678,469  

Basic net income per share

$ 0.55  

$ 0.03  

$ 0.50  

$ 0.09  

Diluted earnings per share calculation:

Net (loss) income

$ 10,252  

$ 9,042  

$ 1,482  

Weighted average number of common shares outstanding

18,760,910  

16,760,702  

17,973,896  

16,678,469  

Common stock equivalents:

Non-vested stock awards

639,150  

363,917  

889,874  

255,336  

Weighted average number of common shares outstanding

Diluted net (loss) income per share

Restricted stock units granted and outstanding of 1,171,093 as of March 31, 2021, are excluded from the computation of diluted earnings due to the anti-dilutive effect as a result of the Company’s net loss for the three months ended March 31, 2021.

NOTE 4 — INVENTORIES

The components of inventories as of March 31, 2021 and December 31, 2020 are summarized as follows:

19,400,060  

17,124,619  

18,863,770  

16,933,805  

Diluted net income per share

$ 0.53  

$ 0.03  

$ 0.48  

$ 0.09  

NOTE 4 —

INVENTORIES  

The components of inventories as of June 30, 2021 and December 31, 2020 are summarized as follows:

Raw materials

$ 20,529  

$ 14,586  

Work-in-process

11,218  

12,634  

Finished goods

34,457  

29,924  

Reserve for excess and obsolete inventory

( 2,506 )  

Net inventories

NOTE 5 — INTANGIBLE ASSETS

Intangible assets represent the fair value assigned to definite-lived assets such as trade names and customer relationships as part of the Company’s acquisition of Brad Foote completed in 2007 as well as the noncompetition agreements, trade names and customer relationships that were part of the Company’s acquisition of Red Wolf Company, LLC completed in 2017.

Intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 2 to 7 years.

As of March 31, 2021 and December 31, 2020 , the cost basis, accumulated amortization and net book value of intangible assets were as follows:

March 31, 2021

$ 31,951  

$ 26,724  

NOTE 5 —

INTANGIBLE ASSETS

Intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 

As of June 30, 2021 and December 31, 2020 , the cost basis, accumulated amortization and net book value of intangible assets were as follows:

June 30, 2021

December 31, 2020

1 unchanged sentence

Noncompete agreements

$ ( 125 )  

$ ( 111 )  

Customer relationships

15,979  

( 7,132 )  

( 7,592 )  

15,979  

( 6,979 )  

( 7,592 )  

( 6,580 )  

( 6,380 )  

Intangible assets

As of March 31, 2021 , estimated future amortization expense was as follows:

$ 25,248  

$ ( 13,837 )  

$ ( 7,592 )  

$ 3,819  

$ 25,248  

$ ( 13,470 )  

$ ( 7,592 )  

$ 4,186  

As of June 30, 2021 , estimated future amortization expense was as follows:

2026 and thereafter

NOTE 6 — ACCRUED LIABILITIES

Accrued liabilities as of March 31, 2021 and December 31, 2020 consisted of the following:

$ 3,819  

NOTE 6 —

ACCRUED LIABILITIES

Accrued liabilities as of June 30, 2021 and December 31, 2020 consisted of the following: 

Accrued payroll and benefits

$ 3,016  

$ 5,320  

Fair value of interest rate swap

6 unchanged sentences

Total accrued liabilities

NOTE 7 — DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of March 31, 2021 and December 31, 2020 consisted of the following:

$ 4,612  

$ 6,307  

NOTE 7 —

DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of June 30, 2021 and December 31, 2020 consisted of the following:

Line of credit

$ 6,000  

$ 1,245  

Other notes payable

1 unchanged sentence

Current portion

( 6,392 )  

Long-term debt, net of current maturities

$ 9,381  

Credit Facility

On October 26, 2016, the Company established a three-year secured revolving line of credit with CIBC Bank USA (“CIBC”).

On October 26, 2016, the Company established a three -year secured revolving line of credit with CIBC Bank USA (“CIBC”).

This line of credit has been amended from time to time.

On February 25, 2019, the line of credit was expanded and extended for three years when the Company and its subsidiaries entered into an Amended and Restated Loan and Security Agreement (the “2016 Amended and Restated Loan Agreement”), with CIBC as administrative agent and sole lead arranger and the other financial institutions party thereto, providing the Company and its subsidiaries with a $35,000 secured credit facility (as amended to date, the “Credit Facility”).

On February 25, 2019, the line of credit was expanded and extended for three years when the Company and its subsidiaries entered into an Amended and Restated Loan and Security Agreement (the “2016 Amended and Restated Loan Agreement”), with CIBC as administrative agent and sole lead arranger and the other financial institutions party thereto, providing the Company and its subsidiaries with a $ 35,000 secured credit facility (as amended to date, the “Credit Facility”).

The obligations under the Credit Facility are secured by, subject to certain exclusions, (i) a first priority security interest in all accounts receivable, inventory, equipment, cash and investment property, and (ii) a mortgage on the Abilene, Texas tower and Pittsburgh, Pennsylvania gearing facilities.

On October 29, 2020, the Company executed the First Amendment to the 2016 Amended and Restated Loan Agreement (the “First Amendment”), implementing a payoff of a syndicated lender and a pricing grid based on the Company’s 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.

The Credit Facility is an asset-based revolving credit facility, pursuant to which the CIBC advances funds against a borrowing base consisting of approximately (a) 85% of the face value of eligible receivables of the Company and the subsidiaries, plus (b) the lesser of (i) 50% of the lower of cost or market value of eligible inventory of the Company, (ii) 85% of the orderly liquidation value of eligible inventory and (iii) $12.5 million, plus (c) the lesser of (i) the sum of (A) 75% of the appraised net orderly liquidation value of the Company’s eligible machinery and equipment plus (B) 50% of the fair market value of the Company’s mortgaged property and (ii) $12 million.

On October 

29, 2020, the Company 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 the Company’s 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 

The Credit Facility is an asset-based revolving credit facility, pursuant to which the CIBC advances funds against a borrowing base consisting of approximately (a) 85 % of the face value of eligible receivables of the Company and the subsidiaries, plus (b) the lesser of (i) 50 % of the lower of cost or market value of eligible inventory of the Company, (ii) 85 % of the orderly liquidation value of eligible inventory and (iii) $ 12.5 million, plus (c) the lesser of (i) the sum of (A) 75 % of the appraised net orderly liquidation value of the Company’s eligible machinery and equipment plus (B) 50 % of the fair market value of the Company’s mortgaged property and (ii) $ 12 million.

Subject to certain borrowing base conditions, the aggregate Credit Facility limit under the 2016 Amended and Restated Loan Agreement is $ 35 million with a sublimit for letters of credit of $ 10 million.

1 unchanged sentence

The Company must also pay an unused facility fee equal to 0.50 % per annum on the unused portion of the Credit Facility along with other standard fees.

With the exception of the balance impacted by the interest rate swap (as described below), the Company is allowed to prepay in whole or in part advances under the Credit Facility without penalty or premium other than customary “breakage” costs with respect to LIBOR loans.

The Credit Facility contains customary representations and warranties applicable to the Company and the subsidiaries.

costs with respect to LIBOR loans.

The Credit Facility contains customary representations and warranties applicable to the Company and its subsidiaries.

It also contains a requirement that the Company, on a consolidated basis, maintain a minimum quarterly fixed charge coverage ratio, along with other customary restrictive covenants, certain of which are subject to materiality thresholds, baskets and customary exceptions and qualifications.

The Company was in compliance with all covenants under the Credit Facility as of March 31, 2021.

On February 23, 2021, the Company 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.

The Company was in compliance with all covenants under the Credit Facility as of June 

On February 

2021,  the Company executed the Second Amendment to the 

2016  Amended and Restated Loan Agreement, 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.

As of June 30, 2021, the Company was in compliance with the terms of the Credit Facility. Pursuant to the Second Amendment, as of the September 30, 2021 reporting date, the Company will transition back to a fixed charge coverage covenant. 

In conjunction with the 2016 Amended and Restated Loan Agreement, during June 2019, the Company entered into a floating to fixed interest rate swap with CIBC.

The swap agreement has a notional amount of $6,000 and a schedule matching that of the underlying loan that synthetically fixes the interest rate on LIBOR borrowings for the entire term of the Credit Facility at 2.13%, before considering the Company’s risk premium.

The swap agreement has a notional amount of $ 6,000 and a schedule matching that of the underlying loan that synthetically fixes the interest rate on LIBOR borrowings for the entire term of the Credit Facility at 2.13 %, before considering the Company’s risk premium.

The interest rate swap is accounted for using mark-to-market accounting.

Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, which may subject the Company’s results of operations to non-cash volatility.

The interest rate swap liability is included in the “Accrued liabilities” line item of the Company’s condensed consolidated financial statements as of March 31, 2021 and December 31, 2020 .

As of March 31, 2021 , there was $4,468 of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional $18,640, under the Credit Facility.

In 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in the “Long-term debt, less current maturities” line item of our condensed consolidated financial statements as of March 31, 2021 and December 31, 2020 .

Accordingly, changes in the fair value of the swap each reporting period are adjusted through earnings, which may subject the Company’s results of operations to non-cash volatility.

The interest rate swap liability is included in the “Accrued liabilities”

line item of the Company’s condensed consolidated financial statements as of June 30, 2021 and December 31, 2020 .

As of June 30, 2021 , there was $ 6,000  

of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional $ 18,928 , under the Credit Facility.

In 2016, the Company entered into a $ 570 loan agreement with the Development Corporation of Abilene which is included in the “Long-term debt, less current maturities”

line item of our condensed consolidated financial statements as of June 30, 2021 and December 31, 2020 .

The loan is forgivable upon the Company meeting and maintaining specific employment thresholds.

During each of the years 2020, 2019, and 2018, $ 114 of the loan was forgiven.

As of March 31, 2021 , the loan balance was $228.

In addition, the Company has outstanding notes payable for capital expenditures in the amount of $609 and $163 as of March 31, 2021 and December 31, 2020 , respectively, with $609 and $161 included in the “Line of credit and other notes payable” line item of the Company’s condensed consolidated financial statements as of March 31, 2021 and December 31, 2020 , respectively.

The notes payable have monthly payments that range from $1 to $36 and an interest rate of approximately 5%.

As of June 30, 2021 , the loan balance was $ 228 .

In addition, the Company has outstanding notes payable for capital expenditures in the amount of $ 392  

and $ 163 as of June 30, 2021 and December 31, 2020 , respectively, with $ 392  

and $ 161  included in the “Line of credit and other notes payable”

line item of the Company’s condensed consolidated financial statements as of June 30, 2021 and December 31, 2020 , respectively.

The notes payable have monthly payments that range from $ 1 to $ 7  and an interest rate of approximately 8 %.

The equipment purchased is utilized as collateral for the notes payable.

The outstanding notes payable have maturity dates that range from May 2021 to August 2022.

On April 15, 2020, the Company received funds under notes and related documents with CIBC, under the Paycheck Protection Program (the “PPP”) which was established under the 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”).

The outstanding notes payable have maturity dates that range from March 

2022  to August 2024.

On April 15, 2020, the Company received funds under notes and related documents with CIBC, under the Paycheck Protection Program (the “PPP”) which was established under the CARES Act enacted on March 27, 2020 in response to the COVID- 19 pandemic and is administered by the SBA.

The Company 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.

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 certain employee benefits (which must equal or exceed 60% of the amount requested to be forgiven), rent, mortgage interest, and utilities.

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 remits 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).

The Company 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 the Company believes to be consistent with the terms of the PPP and submitted its forgiveness applications to CIBC during the first quarter of 2021.

While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the PPP Loans, the Company cannot provide assurance that it has not taken and will not take actions that could cause the Company to be ineligible for forgiveness of the PPP Loans, in whole or in part.

NOTE 8 — LEASES

The Company 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 consistent with the terms of the PPP and submitted its forgiveness applications to CIBC during the first quarter of 2021.

During the second quarter of 2021, all loans were forgiven by the SBA and a gain of $ 9,151 was recorded in “Other income (expense), net”

in the Company's condensed consolidated statements of operations. 

NOTE 8 —

The Company leases certain facilities and equipment.

On January 1, 2019, the Company adopted ASU 2016-02, Leases (“Topic 842”) and ASU 2018-11 using the cumulative effect method and has elected to apply each available practical expedient.

The adoption of Topic 842 resulted in the Company recognizing operating lease liabilities totaling $19,508 with a corresponding right-of-use (“ROU”) asset of $17,613 based on the present value of the minimum rental payments of such leases.

On January 1, 2019, the Company adopted Accounting Standard Update (“ASU”) 

2016 - 02, Leases (“Topic 842”

) and ASU 

2018 - 11 using the cumulative effect method and has elected to apply each available practical expedient.

The adoption of Topic 842 resulted in the Company recognizing operating lease liabilities totaling $ 19,508 with a corresponding right-of-use (“ROU”) asset of $ 17,613 based on the present value of the minimum rental payments of such leases.

The variance between the ROU asset balance and the lease liability is a deferred rent liability that existed prior to the adoption of Topic 842 and was offset against the ROU asset balance during the adoption.

The discount rates used for leases accounted for under ASC 842 are based on an interest rate yield curve developed for the leases in the Company’s lease portfolio.

The Company has elected to apply the short-term lease exception to all leases of one year or less.

During the three months ended March 31, 2021 and March 31, 2020, the Company had an additional operating lease that resulted in right-of-use assets obtained in exchange for lease obligations of $907 and $4,380, respectively.

Additionally, during the three months ended March 31, 2021 , the Company had additional finance leases that resulted in property, plant, and equipment obtained in exchange for lease obligations of $263.

Some of the Company’s facility leases include options to renew.

The exercise of the renewal options is typically at the Company’s discretion.

During the six months ended June 30, 2021 , the Company had an additional operating lease that resulted in right-of-use assets obtained in exchange for lease obligations of $907.

Additionally, during the 

six months ended June 30, 2021  and 2020, the Company had additional finance leases that resulted in property, plant, and equipment obtained in exchange for lease obligations of $ 1,896  

and $ 1,918 , respectively. 

Some of the Company’s facility leases include options to renew.

The exercise of the renewal options is typically at the Company’s discretion.

The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them.

Quantitative information regarding the Company’s leases is as follows:

Three Months Ended March 31,

Quantitative information regarding the Company’s leases is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Components of lease cost

8 unchanged sentences

Sublease income

( 46 )  

( 45 )  

( 92 )  

Total operating lease costs

Total lease cost

Supplemental cash flow information related to our operating leases is as follows for the three months ended March 31, 2021 and 2020:

$ 1,448  

$ 1,318  

$ 2,841  

$ 2,520  

Supplemental cash flow information related to our operating leases is as follows for the six months ended June 30, 2021 and 2020:

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflow from operating leases

$ 1,800  

$ 1,764  

Weighted-average remaining lease term-finance leases at end of period (in years)

2 unchanged sentences

Weighted-average discount rate-operating leases at end of period

Variable lease costs consist primarily of taxes, insurance, utilities, and common area or other maintenance costs for the Company’s leased facilities and equipment.

As of March 31, 2021 , future minimum lease payments under finance leases and operating leases were as follows:

Variable lease costs consist primarily of taxes, insurance, utilities, and common area or other maintenance costs for the Company’s leased facilities and equipment.

As of June 30, 2021 , future minimum lease payments under finance leases and operating leases were as follows:

$ 1,120  

$ 1,754  

$ 2,874  

2026 and thereafter

17,104  

17,159  

Total lease payments

Less—portion representing interest

31,668  

36,619  

Less—portion representing interest

( 492 )  

( 10,629 )  

Present value of lease obligations

Less—current portion of lease obligations

21,039  

25,498  

Less—current portion of lease obligations

( 1,801 )  

( 1,729 )  

Long-term portion of lease obligations

NOTE 9 — FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash, accounts receivable, accounts payable and customer deposits, approximate their respective fair values due to the relatively short-term nature of these instruments.

Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value.

The Company entered into an interest rate swap in June 2019 to mitigate the exposure to the variability of LIBOR for its floating rate debt described in Note 7, “Debt and Credit Agreements,” of these condensed consolidated financial statements.

The fair value of the interest rate swap is reported in “Accrued liabilities” and the change in fair value is reported in “Interest expense, net” of these condensed consolidated financial statements.

$ 2,658  

$ 19,310  

$ 21,968  

NOTE 9 —

FAIR VALUE MEASUREMENTS  

Fair Value of Financial Instruments  

Based upon interest rates currently available to the Company for debt with similar terms, the carrying value of the Company’s long-term debt is approximately equal to its fair value. 

The Company entered into an interest rate swap in June 2019 to mitigate the exposure to the variability of LIBOR for its floating rate debt described in Note 7, “Debt and Credit Agreements,”

of these condensed consolidated financial statements.

The fair value of the interest rate swap is reported in “Accrued liabilities”

and the change in fair value is reported in “Interest expense, net”

of these condensed consolidated financial statements.

The fair value of the interest rate swap is estimated as the net present value of projected cash flows based on forward interest rates at the balance sheet date.

5 unchanged sentences

The fair value hierarchy is defined as follows:

Level 1 — Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3 — Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following tables represent the fair values of the Company’s financial liabilities as of March 31, 2021 and December 31, 2020 :

March 31, 2021

Level 1 —

Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 —

Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. 

Level 3 —

Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following tables represent the fair values of the Company’s financial liabilities as of June 30, 2021 and December 31, 2020 :

June 30, 2021

Liabilities measured on a recurring basis:

5 unchanged sentences

Total liabilities at fair value

NOTE 10 — INCOME TAXES

Effective tax rates differ from federal statutory income tax rates primarily due to changes in the Company’s valuation allowance, permanent differences and provisions for state and local income taxes.

As of March 31, 2021 , the Company has a full valuation allowance recorded against deferred tax assets.

During the three months ended March 31, 2021 , the Company recorded a provision for income taxes of $32, compared to a provision for income taxes of $52 during the three months ended March 31, 2020 .

NOTE 10 —

INCOME TAXES  

As of June 30, 2021 , the Company has a full valuation allowance recorded against deferred tax assets.

During the six months ended June 30, 2021 , the Company recorded a provision for income taxes of $ 77 , compared to a provision for income taxes of $ 83  during the six months ended June 30, 2020 . 

The Company files income tax returns in U.S.

federal and state jurisdictions.

As of March 31, 2021 , open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust operating loss carryforwards.

As of December 31, 2020 , the Company had federal and unapportioned state net operating loss (“NOL”) carryforwards of $260,598 of which $227,781 will generally begin to expire in 2026.

As of June 30, 2021 , open tax years in federal and some state jurisdictions date back to 1996 due to the taxing authorities’

ability to adjust operating loss carryforwards.

As of December 31, 2020 , the Company had federal and unapportioned state net operating loss (“NOL”) carryforwards of $ 260,598  of which $ 227,781 will generally begin to expire in 2026.

The majority of the NOL carryforwards will expire in various years from 2028 through 2037.

1 unchanged sentence

Since the Company has no unrecognized tax benefits, they will not have an impact on the condensed consolidated financial statements as a result of the expiration of the applicable statues of limitations within the next twelve months.

In addition, Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated built-in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership.

The Company’s ability to utilize NOL carryforwards and built-in losses may be limited, under IRC Section 382 or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership.

Upon completion of the Company’s analysis of IRC Section 382 in 2010, the Company determined that aggregate changes in stock ownership have triggered an annual limitation on NOL carryforwards and built-in losses available for utilization, thereby currently limiting annual NOL usage to $14,284 per year.

In addition, Section 

382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated built-in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership.

Upon completion of the Company’s analysis of IRC Section 

382 in 2010, the Company determined that aggregate changes in stock ownership have triggered an annual limitation on NOL carryforwards and built-in losses available for utilization, thereby currently limiting annual NOL usage to $ 14,284 per year.

Further limitations may occur, depending on additional future changes in stock ownership.

To the extent the Company’s use of NOL carryforwards and associated built-in losses is significantly limited in the future, the Company’s income could be subject to U.S.

corporate income tax earlier than it would be if the Company were able to use NOL carryforwards and built-in losses without such limitation, which could result in lower profits and the loss of benefits from these attributes.

In February 2013, the Company adopted a Stockholder Rights Plan, which was amended and extended in February 2016 and again in February 2019 (as amended, the “Rights Plan”).

The Rights Plan is designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under IRC Section 382.

The amendment to the Rights Plan was most recently approved by the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders and has a term of three years.

The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, becoming the beneficial owner of 4.9% or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards.

In connection with the adoption of the Rights Plan, the Board declared a non-taxable dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013.

Each Right entitles its holder to purchase from the Company one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $4.25 per Right, subject to adjustment.

As a result of the Rights Plan, any person or group that acquires beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group.

Stockholders who owned 4.9% or more of the outstanding shares of the Company’s common stock as of February 12, 2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date.

As of March 31, 2021 , the Company had no unrecognized tax benefits.

To the extent the Company’s use of NOL carryforwards and associated built-in losses is significantly limited in the future, the Company’s income could be subject to U.S.

In February 2013, the Company adopted a Stockholder Rights Plan, which was amended and extended in February 2016 and again in February 2019 ( as amended, the “Rights Plan”).

The Rights Plan is designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under IRC Section 382.

The amendment to the Rights Plan was most recently approved by the Company’s stockholders at the Company’s 2019 Annual Meeting of Stockholders and has a term of three years.

The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, becoming the beneficial owner of 4.9 % or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards.

Each Right entitles its holder to purchase from the Company one one -thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $ 4.25 per Right, subject to adjustment.

As a result of the Rights Plan, any person or group that acquires beneficial ownership of 4.9 % or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group.

Stockholders who owned 4.9 % or more of the outstanding shares of the Company’s common stock as of February 

12, 2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date. 

As of June 30, 2021 , the Company had no unrecognized tax benefits.

The Company recognizes interest and penalties related to uncertain tax positions as income tax expense.

The Company had no accrued interest and penalties as of March 31, 2021 .

NOTE 11 — SHARE-BASED COMPENSATION

There was no stock option activity during the three months ended March 31, 2021 and no stock options were outstanding as of March 31, 2021.

The following table summarizes the Company’s restricted stock unit and performance award activity during the three months ended March 31, 2021 :

The Company had no accrued interest and penalties as of June 30, 2021 .

NOTE 11 —

SHARE-BASED COMPENSATION  

There was no  stock option activity during the six months ended June 30, 2021  and no  stock options were outstanding as of June 30, 2021 . 

The following table summarizes the Company’s restricted stock unit and performance award activity during the six months ended June 30, 2021 : 

Weighted Average

1 unchanged sentence

Unvested as of December 31, 2020

Unvested as of March 31, 2021

1,332,884  

$ 1.86  

393,592  

$ 4.82  

( 682,411 )  

$ 1.93  

Unvested as of June 30, 2021

1,044,065  

$ 2.75  

Under certain situations, shares are withheld from issuance to cover taxes for the vesting of restricted stock units and performance awards.

For the three months ended March 31, 2021, 105,399 of such shares were withheld to cover $847 of tax obligations.

The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 , as follows:

Three Months Ended March 31,

For the six  months ended June 

30, 2021, 230,213  of such shares were withheld to cover $ 1,491  of tax obligations. 

The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the six months ended June 30, 2021 and 2020 , as follows: 

Six Months Ended June 30,

Share-based compensation expense:

4 unchanged sentences

Basic earnings per share

$ 0.04  

$ 0.03  

Diluted earnings per share

NOTE 12 — LEGAL PROCEEDINGS

$ 0.04  

$ 0.03  

NOTE 12 —

LEGAL PROCEEDINGS

The Company is party to a variety of legal proceedings that arise in the normal course of its business.

While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect, individually or in the aggregate, on the Company’s results of operations, financial condition or cash flows.

Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

It is possible that if one or more of such matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could also be material to the Company’s financial condition and cash flows in the periods the Company would be required to pay such liability.

NOTE 13 — RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 13 —

RECENT ACCOUNTING PRONOUNCEMENTS  

The Company reviews new accounting standards as issued.

Although some of the accounting standards issued or effective in the current fiscal year may be applicable to it, the Company believes that none of the new standards have a significant impact on its condensed consolidated financial statements.

NOTE 14— SEGMENT REPORTING

The Company is organized into reporting segments based on the nature of the products offered and business activities from which it earns revenues and incurs expenses for which discrete financial information is available and regularly reviewed by the Company’s chief operating decision maker.

The Company’s segments and their product and service offerings are summarized below:

NOTE 14—

SEGMENT REPORTING  

The Company’s segments and their product and service offerings are summarized below: 

Heavy Fabrications

The Company provides large, complex and precision fabrications to customers in a broad range of industrial markets.

The Company’s most significant presence is within the U.S.

wind energy industry, although it has diversified into other industrial markets in order to improve capacity utilization, reduce customer concentrations, and reduce exposure to uncertainty related to governmental policies currently impacting the U.S.

4 unchanged sentences

domestic wind energy and equipment manufacturing hubs.

The Company has expanded production capabilities and leveraged manufacturing competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and original equipment manufacturer (“OEM”) components utilized in surface and underground mining, construction, material handling, oil and gas (“O&G”) and other infrastructure markets.

The Company provides gearing and gearboxes to a broad set of customers in diverse markets including; onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other infrastructure markets.

The two facilities have a combined annual tower production capacity of up to approximately 550 towers ( 1,650 tower sections), sufficient to support turbines generating more than 1,100  megawatts of power. The Company has expanded production capabilities and leveraged manufacturing competencies, including welding, lifting capacity and stringent quality practices, into aftermarket and original equipment manufacturer (“OEM”) components utilized in surface and underground mining, construction, material handling, oil and gas (“O&G”) and other infrastructure markets.

Gearing 

The Company provides gearing and gearboxes to a broad set of customers in diverse markets including;

onshore and offshore O&G fracking and drilling, surface and underground mining, wind energy, steel, material handling and other infrastructure markets.

The Company has manufactured loose gearing, gearboxes and systems, and provided heat treat services for aftermarket and OEM applications for nearly a century.

The Company uses an integrated manufacturing process, which includes machining and finishing processes in Cicero, Illinois, and heat treatment in Neville Island, Pennsylvania.

Industrial Solutions 

The Company provides supply chain solutions, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market, as well as other clean technology markets.

“Corporate”

includes the assets and selling, general and administrative expenses of the Company’s corporate office.

“Eliminations”

comprises adjustments to reconcile segment results to consolidated results. 

The accounting policies of the reportable segments are the same as those referenced in Note 1, “Basis of Presentation”

of these condensed consolidated financial statements.

Summary financial information by reportable segment for the three and six months ended June 30, 2021 and 2020 is as follows:

Heavy Fabrications

Industrial Solutions

The Company provides supply chain solutions, inventory management, kitting and assembly services, primarily serving the combined cycle natural gas turbine market.

“Corporate” includes the assets and selling, general and administrative expenses of the Company’s corporate office.

“Eliminations” comprises adjustments to reconcile segment results to consolidated results.

The accounting policies of the reportable segments are the same as those referenced in Note 1, “Basis of Presentation” of these condensed consolidated financial statements.

Summary financial information by reportable segment for the three months ended March 31, 2021 and 2020 is as follows:

For the Three Months Ended June 30, 2021

Revenues from external customers

$ 35,825  

$ 7,404  

$ 3,262  

$ 46,491  

Intersegment revenues

( 284 )  

35,830  

( 284 )  

46,491  

Operating profit (loss)

( 882 )  

( 47 )  

( 1,631 )  

( 22 )  

Depreciation and amortization

Capital expenditures

Heavy Fabrications

Industrial Solutions

For the Three Months Ended March 31, 2021

For the Three Months Ended June 30, 2020

Revenues from external customers

$ 43,614  

$ 6,915  

$ 4,397  

$ 54,926  

Intersegment revenues

43,614  

54,926  

Operating profit (loss)

( 651 )  

( 1,730 )  

Depreciation and amortization

Capital expenditures

Heavy Fabrications

Industrial Solutions

For the Six Months Ended June 30, 2021

Revenues from external customers

$ 58,602  

$ 12,753  

$ 7,864  

$ 79,219  

Intersegment revenues

( 286 )  

58,607  

12,753  

( 286 )  

79,219  

Operating loss

( 1,429 )  

( 1,871 )  

( 61 )  

( 3,239 )  

( 22 )  

Depreciation and amortization

2 unchanged sentences

Industrial Solutions

For the Three Months Ended March 31, 2020

For the Six Months Ended June 30, 2020

Revenues from external customers

$ 81,983  

$ 13,142  

$ 8,435  

$ 103,560  

Intersegment revenues

81,983  

13,149  

103,560  

Operating profit (loss)

( 912 )  

( 3,523 )  

Depreciation and amortization

2 unchanged sentences

Heavy Fabrications

$ 44,588  

$ 40,438  

45,604  

43,319  

Industrial Solutions

NOTE 15 — COMMITMENTS AND CONTINGENCIES

Environmental Compliance and Remediation Liabilities

The Company’s operations and products are subject to a variety of environmental laws and regulations in the jurisdictions in which the Company operates and sells products governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous materials, soil and groundwater contamination, employee health and safety, and product content, performance and packaging.

10,244  

230,099  

220,428  

( 199,893 )  

$ 129,019  

$ 119,682  

NOTE 15 —

COMMITMENTS AND CONTINGENCIES  

Environmental Compliance and Remediation Liabilities  

Certain environmental laws may impose the entire cost or a portion of the cost of investigating and cleaning up a contaminated site, regardless of fault, upon any one or more of a number of parties, including the current or previous owners or operators of the site.

These environmental laws also impose liability on any person who arranges for the disposal or treatment of hazardous substances at a contaminated site.

Third parties may also make claims against owners or operators of sites and users of disposal sites for personal injuries and property damage associated with releases of hazardous substances from those sites.

Allowance for Doubtful Accounts

Based upon past experience and judgment, the Company establishes an allowance for doubtful accounts with respect to accounts receivable.

The Company’s standard allowance estimation methodology considers a number of factors that, based on its collections experience, the Company believes will have an impact on its credit risk and the collectability of its accounts receivable.

These factors include individual customer circumstances, history with the Company, the length of the time period during which the account receivable has been past due and other relevant criteria.

The Company monitors its collections and write-off experience to assess whether or not adjustments to its allowance estimates are necessary.

Changes in trends in any of the factors that the Company believes may impact the collectability of its accounts receivable, as noted above, or modifications to its credit standards, collection practices and other related policies may impact the Company’s allowance for doubtful accounts and its financial results.

The activity in the accounts receivable allowance liability for the three months ended March 31, 2021 and 2020 consisted of the following:

For the Three Months Ended March 31,

The activity in the accounts receivable allowance liability for the six months ended June 30, 2021 and 2020 consisted of the following: 

For the Six Months Ended June 30,

Balance at beginning of period

Bad debt expense

( 429 )  

Other adjustments

Balance at end of period

In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations.

Liquidated Damages

Collateral  

In select instances, the Company has pledged specific inventory and machinery and equipment assets to serve as collateral on related payable or financing obligations. 

Liquidated Damages  

In certain customer contracts, the Company has agreed to pay liquidated damages in the event of qualifying delivery or production delays.

These damages are typically limited to a specific percentage of the value of the product in question and/or are dependent on actual losses sustained by the customer.

The Company does not believe that this potential exposure will have a material adverse effect on the Company’s consolidated financial position or results of operations.

There was no reserve for liquidated damages as of March 31, 2021 or December 31, 2020.

The Company does not believe that this potential exposure will have a material adverse effect on the Company’s consolidated financial position or results of operations.

There was no reserve for liquidated damages as of 

June 30, 2021 or December 31, 2020. 

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto in Item 1, “Financial Statements,”

of this Quarterly Report and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances including, but not limited to, those identified in “Cautionary Note Regarding Forward-Looking Statements”

at the end of Item 2.

Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties including those arising as a result of, or amplified by, the COVID-19 pandemic.

As used in this Quarterly Report on Form 10-Q, the terms “we,”

“us,”

“our,”

and the “Company”

refer to Broadwind, Inc., a Delaware corporation headquartered in Cicero, Illinois, and its subsidiaries, as appropriate. 

(Dollars are presented in thousands except share, per share and per employee data or unless otherwise stated)  

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 (as defined below) 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

Three Months Ended

Six Months Ended

Adjusted EBITDA (1)

Capital expenditures

Free cash flow (2)

Operating working capital (3)

Total debt (4)

Backlog at end of period (5)

Book-to-bill (6)

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.

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 future investments.

We define operating working capital as accounts receivable and inventory net of accounts payable and customer deposits.

Total debt at June 30, 2020 includes PPP Loans totaling $9,151.

Our backlog at June 30, 2021 is net of revenue recognized over time. 

We define the 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:

Three Months Ended

Six Months Ended

Interest expense

Income tax provision

Depreciation and amortization

Share-based compensation and other stock payments

Adjusted EBITDA

Changes in operating working capital

Employee retention credit receivable

Capital expenditures

Proceeds from disposal of property and equipment

Free Cash Flow

OUR BUSINESS  

Second Quarter Overview  

We booked $26,441 in new orders in the second quarter of 2021, down from $39,558 in the second quarter of 2020.

Within our Heavy Fabrication segment, wind tower orders decreased 61%, as customers delayed orders due to elevated steel prices and uncertainty regarding the timing and likelihood of potential wind energy incentives. 

Industrial fabrications product line orders, within the Heavy Fabrications segment, doubled compared to the prior year quarter, primarily due to higher order intake within mining markets, as customers resumed capital spending and inventory purchases. Gearing segment orders more than doubled compared to the second quarter of 2020 primarily due to increased demand from oil and gas (“O&G”) and mining customers. Orders within our Industrial Solutions segment decreased by 14% as compared to the prior year, primarily due to the timing of orders associated with gas turbine and aftermarket projects.

We recognized revenue of $46,491 in the second quarter of 2021, down 15% compared to the second quarter of 2020, primarily due to a decrease in the Heavy Fabrications segment, as tower sections sold decreased 6% compared to the prior year quarter due to project delays, lower industry wide activity levels and a lower average selling price due to the mix of tower designs sold. 

Industrial fabrications product line revenue, within the Heavy Fabrications segment, decreased 42% primarily due to timing of projects and lower order levels in the second half of 2020. Gearing revenue increased by $482  

from the second quarter of 2020, driven by higher order intake in recent quarters from O&G customers, partially offset by decreased revenue from industrial customers.

Industrial Solutions revenue decreased $856 from the second quarter of 2020, representing a 19% decrease compared to the prior year quarter, primarily due to the timing of new gas turbine customer projects and global logistics delays.

We recorded net income of $10,252 or $0.55 per share in the second quarter of 2021, compared to net income of $529 or $0.03 per share in the second quarter of 2020 primarily due to income of $9,151 recognized from the Paycheck Protection Program (“PPP”) loan forgiveness and a $3,593 ERC benefit (described below).

Both of these items were recognized in “Other income (expense), net”

in our condensed consolidated statement of operations for the three months ended June 30, 2021.

This income was partially offset by the volume related decrease discussed above. 

On March 27, 2020, the CARES Act was signed into law providing numerous tax provisions and other stimulus measures, including the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.

The ERC is available for wages paid through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees.

During each quarter of 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC.

Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter.

In addition to qualifying in the first quarter, we also qualified for the ERC in the second quarter of 2021 because we had a gross receipts decrease of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC.

As a result of us averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than only wages paid to employees not providing services). In the first quarter of 2021, we received an ERC benefit of $3,372, which was recorded in “Other income (expense), net”

in our condensed consolidated statement of operations. During the second quarter of June 30, 2021, we recorded an additional benefit of $3,593 in “Other income (expense), net”

in our condensed consolidated statement of operations.

We used $1,879 of this amount to reduce payroll tax payments.

The remaining receivable for the ERC benefit is $1,714 as of June 30, 2021 and is included in the line titled “Employee retention credit receivable”

in our condensed consolidated balance sheet at June 30, 2021. 

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 June 30, 2021, we have experienced an adverse impact to our business, operations and financial results as a result of this pandemic due in part to a decline in order activity levels, manufacturing inefficiencies associated with supply chain disruptions and employee staffing constraints due to the spread of the COVID-19 pandemic. 

Our facilities continued to operate 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, including in light of the emerging variants, 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, including emerging variants.

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.

RESULTS OF OPERATIONS  

Three months ended June 30, 2021, Compared to Three months ended June 30, 2020  

The condensed consolidated statement of operations table below should be read in connection with a review of the following discussion of our results of operations for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.

Three Months Ended June 30,

Cost of sales

Operating expenses

Selling, general and administrative expenses

Intangible amortization

Total operating expenses

Operating (loss) income

Other income (expense), net

Paycheck Protection Program loan forgiveness

Interest expense, net

Total other income (expense), net

Net income before provision for income taxes

Provision for income taxes

Consolidated  

Revenues decreased by $8,435 versus the prior year quarter, which was primarily driven by project delays in our Heavy Fabrications segment, which realized a 6% decrease in  

tower sections sold, a lower average selling price due to mix of tower designs sold, and a 42% decrease in industrial fabrications revenue. Gearing segment revenue was up $482 from the second quarter of 2020, primarily driven by higher order intake in recent quarters from O&G customers, partially offset by decreased revenue from industrial customers.

Industrial Solutions revenue decreased $856 representing a 19% decrease compared to the prior year quarter, primarily due to the timing of new gas turbine customer projects and global logistics delays.

Gross profit decreased by $3,219 from the prior year quarter primarily due to lower Heavy Fabrications segment sales and higher manufacturing inefficiencies within the Gearing segment.

 As a result, gross margin decreased to 4.7% during the three months ended June 30, 2021, from 9.9% during the three months ended June 30, 2020.

Due to lower revenue levels, operating expenses as a percentage of sales increased to 9.7% in the current-year quarter from 8.0% in the prior year quarter.

Net income was $10,252 during the three months ended June 30, 2021, compared to $529 during the three months ended June 30, 2020.

The increase was primarily due to income of $9,151 recognized from the PPP Loan forgiveness and income of $3,593  

recognized from the ERC benefit.

Both of these items were recognized in “Other income (expense), net”

in our condensed consolidated statements of operations. 

Heavy Fabrications Segment  

Three Months Ended

Tower sections sold

Operating income

Operating margin

Heavy Fabrications segment wind tower orders decreased 61% as compared to the second quarter of 2020 as customers delayed orders due to elevated steel prices and uncertainty regarding the timing and likelihood of potential wind energy incentives. Industrial fabrication product line orders,  

within the Heavy Fabrication segment, doubled quarter-over-quarter primarily due to higher order intake within mining markets as customers resumed capital spending and inventory purchases.

Segment revenues decreased $7,784 from the prior year quarter primarily due to a 6% decrease in tower sections sold due to project delays and a lower average selling price due to the mix of tower designs sold.

Lower industrial fabrication order intake from mining and industrial customers in recent quarters lead to lower revenue in the current year quarter. 

Heavy Fabrications segment operating income decreased by $2,928  

compared to the prior year.

The quarter-over-quarter degradation in operating performance reflects the adverse volume impacts described previously as well as the underutilization of plant capacity in the quarter.

Operating margin was 0.8% during the three months ended June 30, 2021, a decrease from 7.3% during the three months ended June 30, 2020.

Gearing Segment

Three Months Ended

Operating loss

Operating margin

Gearing segment orders increased 111% from the prior year period primarily due to increased demand from O&G and mining customers.

Gearing revenue was up 7% relative to the comparable prior year period, a reflection of higher order intake in the current year, primarily from O&G customers.

Gearing segment operating loss increased $231  

from the prior year period.

This was primarily attributable to a less profitable product mix sold and increased manufacturing inefficiencies.

Operating margin was (11.9)% during the three months ended June 30, 2021, down from (9.4)% during the three months ended June 30, 2020, driven primarily by the items identified above.

Industrial Solutions Segment  

Three Months Ended

Operating (loss) income

Operating margin

Industrial Solutions segment orders decreased by 14% from the prior year period primarily due to the timing of orders associated with aftermarket projects. Segment revenue decreased by 19% from the prior year period primarily due to the timing of new gas turbine projects and global logistics delays.

The decrease in operating income versus the prior-year quarter was primarily a result of lower sales  

during the quarter. 

Corporate and Other  

Corporate and Other expenses during the three months ended June 30, 2021 decreased from the prior year period primarily due to lower insurance expenses. 

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

The condensed consolidated statement of operations table below should be read in connection with a review of the following discussion of our results of operations for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Six Months Ended June 30,

Cost of sales

Operating expenses

Selling, general and administrative expenses

Intangible amortization

Total operating expenses

Operating (loss) income

Other income (expense), net

Paycheck Protection Program loan forgiveness

Interest expense, net

Total other income (expense), net

Net income before provision for income taxes

Provision for income taxes

Consolidated  

Revenues decreased by $24,341 from the six months ended June 30, 2020, primarily due to a 25% decrease in  

tower sections sold due to customer driven project delays and a lower average selling price due to the mix of tower designs sold. The industrial  

fabrications product line, within the Heavy Fabrications segment, was adversely impacted by lower order intake in recent quarters. Gearing revenue was down $396 from the first half of 2020, primarily driven by lower order intake in the second half of the prior year, from industrial and mining customers, partially offset by increased revenue from O&G and aftermarket wind.

Industrial Solutions revenue decreased $290 from the six months ended June 30, 2020, representing a 3% decrease, primarily due to the timing of aftermarket customer installations and global logistics delays.

Gross profit decreased by $9,109 from the first half of 2020 primarily due to lower sales and manufacturing inefficiencies caused by supply chain disruptions, a temporary shut-down of our Abilene, Texas plant due to a weather event in the first quarter and increased manufacturing variances within our Gearing segment.

As a result, gross margin decreased to 3.1% during the six months ended June 30, 2021, from 11.2% during the six months ended June 30, 2020.

Due to lower revenue levels, operating expenses as a percentage of sales increased to 11.5% in the current year from 8.6% in the prior year period.

Net income was $9,042  

during the six months ended June 30, 2021, compared to $1,482 during the six months ended June 30, 2020.

The increase was primarily attributable to income of $9,151 recognized from the PPP Loan forgiveness and income of $6,965  

recognized from the ERC benefit.

Both of these items were recognized in “Other income (expense), net”

in our condensed consolidated statements of operations. 

Heavy Fabrications Segment  

Six Months Ended

Tower sections sold

Operating (loss) income

Operating margin

Heavy Fabrications segment wind tower orders decreased 30% compared to the prior year as customers delayed orders due to elevated steel prices and uncertainty regarding the timing and likelihood of potential wind energy incentives. 

Industrial fabrication product line orders, within the Heavy Fabrication segment, were flat year-over-year. Segment revenues decreased by $23,376 from the prior year primarily due to a 25% decrease in tower sections sold and a lower average selling price due to the mix of tower designs sold.

Revenues also decreased due to lower order intake within our industrial fabrication product line in recent quarters.

Heavy Fabrications segment operating income decreased by $8,169  

compared to the prior year.

The year-over-year  

degradation in operating performance reflects the adverse volume impacts described previously, the underutilization of plant capacity, manufactured inefficiencies caused by supply chain disruptions and a temporary shut-down of our Abilene, Texas plant due to a weather event in the first quarter.

Operating margin was (2.4)% during the six months ended June 30, 2021, a decrease from 8.2% during the six months ended June 30, 2020.

Gearing Segment

Six Months Ended

Operating loss

Operating margin

Gearing segment orders increased 10% from the six months ended June 30, 2020 primarily due to increased demand from O&G customers, partially offset by the timing of aftermarket wind gearing orders, which can fluctuate based on customer order patterns and market conditions.

Gearing revenue was down 3% compared to the prior year, a reflection of lower order intake in the second half of the prior year, primarily within industrial and mining markets, partially offset by increased revenue from O&G and aftermarket wind customers.

Gearing segment operating loss increased $959 from the prior year period.

This was primarily attributable to lower revenue and increased manufacturing inefficiencies.

Operating margin was (14.7)% during the six months ended June 30, 2021, down from (6.9)% during the six months ended June 30, 2020, driven primarily by the items identified above.

Industrial Solutions Segment  

Six Months Ended

Operating (loss) income

Operating margin

Industrial Solutions segment orders decreased by 29% from the prior year period primarily due to the timing of orders associated with new gas turbine and aftermarket projects. Segment revenue decreased by 3% from the prior year period primarily due to the timing of aftermarket installations and global logistics delays.

The decrease in operating income versus the prior year was primarily a result of a lower margin sales mix sold during the first half of 2021. 

Corporate and Other  

Corporate and Other expenses during the six months ended June 30, 2021 decreased from the prior year period due to lower marketing expenses and incentive compensation. 

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES  

As of June 30, 2021, cash and cash equivalents totaled $4,757, an increase of $1,385  

from December 31, 2020.

Cash balances remain limited as operating receipts and disbursements flow through our Credit Facility (as defined in Note 7, “Debt and Credit Agreements,”

in the notes to our condensed consolidated financial statements), which is in a drawn position.

Debt and finance lease obligations at June 30, 2021 totaled $11,079.

As of June 30, 2021, we had the ability to borrow up to an additional $18,928 un der the Credit Facility.

On March 9, 2021, we entered into a $10,000 Equity Distribution Agreement (the “Equity Distribution Agreement”) with Craig-Hallum Capital Group, LLC (the Manager”).

Pursuant to the terms of the Equity Distribution Agreement, we issued 1,897,697 shares of the Company's common stock thereunder during the six month period ended June 30, 2021.

The net proceeds (before upfront costs) to the Company from the sales of such shares were approximately $9,725 after deducting commissions paid of approximately $275  

and before deducting other expense of $376. 

We anticipate that current cash resources, expected cash proceeds or savings from the ERC, amounts available under the Credit Facility, cash to be generated from operations and any potential proceeds from the sale of further securities under the Form S-3 will be adequate to meet our liquidity needs for at least the next twelve months.

If assumptions regarding our production, sales and subsequent collections from certain of our large customers, as well as customer deposits and revenues generated from new customer orders, are materially inconsistent with management’s expectations, particularly in light of the COVID-19 pandemic, and emerging variants, and its effects on domestic and global economies, we may encounter cash flow and liquidity issues.

If our operational performance deteriorates, we may be unable to comply with existing financial covenants, and could lose access to the Credit Facility.

This could limit our operational flexibility, require a delay in making planned investments and/or require us to seek additional equity or debt financing.

Any attempt to raise equity through the public markets could have a negative effect on our stock price, making an equity raise more difficult or more dilutive.

Any additional equity financing or equity linked financing, if available, will be dilutive to stockholders, and additional debt financing, if available, would likely require new financial covenants or impose other operating and financial restrictions on us.

While we believe that we will continue to have sufficient cash available to operate our businesses and to meet our financial obligations and debt covenants, there can be no assurances that our operations will generate sufficient cash or that existing or new credit facilities or equity or equity linked financings will be available in an amount sufficient to enable us to meet these financial obligations.

Sources and Uses of Cash  

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2021 and 2020:

Six Months Ended

Total cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash

Operating Cash Flows  

During the six months ended June 30, 2021, net cash used in operating activities totale d $9,987  

com pared to net cash used in operating activities of $8,238 during the prior year period. The increase in net cash used was primarily due to our operating performance excluding non-cash items and the timing of accruals, partially offset by a decrease in net cash used to fund operating working capital in the current year period.

Investing Cash Flows  

During the six months ended June 30, 2021, net cash used in investing activities tot aled $742, comp ared to net cash used in investing activities of $929 during the prior year period.

The decrease in net cash used in investing activities as compared to the prior-year period was primarily due to a decrease in net purchases of property and equipment.

Financing Cash Flows  

During the six months ended June 30, 2021, net cash provided by financing activities tot aled $12,114, co mpared to net cash provided by financing activities of $8,870 during the prior year period.

The increase versus the prior-year period was primarily due to proceeds from the sale of securities under the Equity Distribution Agreement received in the current year and increased net borrowings under our Credit Facility in the current year, partially offset by the PPP Loan (defined below) proceeds received in 2020. 

In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in the “Long-term debt, less current maturities”

line item of our condensed consolidated financial statements as of June 30, 2021 and December 31, 2020.

The loan is forgivable upon the Company meeting and maintaining specific employment thresholds.

During each of the years 2020, 2019 and 2018, $114 of the loan was forgiven.

As of June 30, 2021, the loan balance was $228.

In addition, we have outstanding notes payable for capital expenditures in the amount of $392  

and $163 as of June 30, 2021 and December 31, 2020, respectively, with $392  

and $161 included in the “Line of Credit and other notes payable”

line item of our condensed consolidated financial statements as of June 30, 2021 and December 31, 2020, respectively.

The notes payable have monthly payments that range from $1 to $7 and an interest rate of approximately  

The equipment purchased is utilized as collateral for the notes payable.

The outstanding notes payable have maturity dates that range from March 2022  

to August 2024.

On April 15, 2020, we received funds under notes and related documents executed under the Paycheck Protection Program (“PPP Loans”) with CIBC Bank, USA under 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.

The amount of loan forgiveness will be reduced if the borrower terminates employees or significantly reduces salaries during such period, subject to certain exceptions.

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 consistent with the terms of the PPP and submitted our forgiveness applications to CIBC Bank, USA during the first quarter of 2021. During the second quarter of 2021, all loans were forgiven by the SBA and a gain of $9,151 was recorded in Other income (expense), net in our condensed consolidated statements of operations. 

The CARES Act also provided for the ERC, which is a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the ERC.

The ERC is available for wages paid through December 31, 2021 and is equal to 70% of qualified wages (which includes employer qualified health plan expenses) paid to employees.

During each quarter in 2021, a maximum of $10,000 in qualified wages for each employee is eligible for the ERC.

Therefore, the maximum tax credit that can be claimed by an eligible employer in 2021 is $7,000 per employee per calendar quarter.

In addition to qualifying in the first quarter, we qualified for the ERC in the second quarter of 2021 because we had a gross receipts decrease of more than 20% for the first quarter of 2021 compared to the first quarter of 2019, the relevant criteria for the ERC.

As a result of us averaging 500 or fewer full-time employees in 2019, all wages paid to employees were eligible for the ERC (rather than only wages paid to employees not providing services). In the first quarter of 2021, we received an ERC benefit of $3,372, which was recorded in “Other income (expense), net”

in our condensed consolidated statement of operations.

During the second quarter of June 30, 2021, we recorded an additional benefit of $3,593 in “Other income (expense), net”

in our condensed consolidated statement of operations.

We used $1,879 of this amount to reduce payroll tax payments.

The receivable for the ERC was $1,714 as of June 30, 2021 and is included in the line titled “Employee retention credit receivable”

in our condensed consolidated balance sheet at June 30, 2021. 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS  

The preceding discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020.

Portions of this Quarterly Report on Form 10-Q, including the discussion and analysis in this Part I, Item 2, contain “forward looking statements”, as defined in Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that reflect our current expectations regarding our future growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities, as well as assumptions made by, and information currently available to, our management.

We have tried to identify forward looking statements by using words such as “anticipate,”

“believe,”

“expect,”

“intend,”

“will,”

“should,”

“may,”

“plan”

and similar expressions, but these words are not the exclusive means of identifying forward looking statements.

Forward looking statements include any statement that does not directly relate to a current or historical fact.

Our forward-looking statements may include or relate to our beliefs, expectations, plans and/or assumptions with respect to the following, many of which are, and will be, amplified by the COVID-19 pandemic, including as a result of emerging variants:

(i) the impact of global health concerns, including the impact of the current COVID-19 pandemic on the economies and financial markets and the demand for our products;

(ii) state, local and federal regulatory frameworks affecting the industries in which we compete, including the wind energy industry, and the related extension, continuation or renewal of federal tax incentives and grants and state renewable portfolio standards as well as new or continuing tariffs on steel or other products imported into the United States;

(iii) our customer relationships and our substantial dependency on a few significant customers and our efforts to diversify our customer base and sector focus and leverage relationships across business units;

(iv) the economic and operational stability of our significant customers and suppliers, including their respective supply chains, and the ability to source alternative suppliers as necessary, in light of the COVID-19 pandemic;

(v) our ability to continue to grow our business organically and through acquisitions, and the impairment thereto by the impact of the COVID-19 pandemic;

(vi) the production, sales, collections, customer deposits and revenues generated by new customer orders and our ability to realize the resulting cash flows;

(vii) information technology failures, network disruptions, cybersecurity attacks or breaches in data security, including with respect to any remote work arrangements implemented in response to the COVID-19 pandemic;

(viii) the sufficiency of our liquidity and alternate sources of funding, if necessary;

(ix) our ability to realize revenue from customer orders and backlog;

(x) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow;

(xi) the economy, including its stability in light of the COVID-19 pandemic, and the potential impact it may have on our business, including our customers;

(xii) the state of the wind energy market and other energy and industrial markets generally and the impact of competition and economic volatility in those markets;

(xiii) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities;

(xiv) competition from new or existing industry participants including, in particular, increased competition from foreign tower manufacturers;

(xv) the effects of the change of administrations in the U.S.

federal government;

(xvi) our ability to successfully integrate and operate acquired companies and to identify, negotiate and execute future acquisitions;

(xvii) the potential loss of tax benefits if we experience an “ownership change”

under Section 382 of the Internal Revenue Code of 1986, as amended;

(xviii) our ability to utilize various relief options enabled by the CARES Act;

(xix) the limited trading market for our securities and the volatility of market price for our securities;

and (xx) the impact of future sales of our common stock or securities convertible into our common stock on our stock price.

These statements are based on information currently available to us and are subject to various risks, uncertainties and other factors that could cause our actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements including, but not limited to, those set forth under the caption “Risk Factors”

in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

We are under no duty to update any of these statements.

You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or other factors that could cause our current beliefs, expectations, plans and/or assumptions to change.

Accordingly, forward-looking statements should not be relied upon as a predictor of actual results.

Quantitative and Qualitative Disclosures About Market Risk  

We are a smaller reporting company as defined by Item 10(f)(1) of Regulation S-K under the Securities Act and as such are not required to provide information under this Item pursuant to Item 305I of Regulation S-K. 

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements