UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2019~~March 31, 2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-34278

BROADWIND, ~~ENERGY,~~ INC.

(Exact name of registrant as specified in its charter)

Delaware		88-0409160
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3240 S. Central Avenue, Cicero, IL 60804

(Address of principal executive offices)

(708) 780-4800

(Registrant’s telephone number, including area code)

~~Not applicable~~Broadwind Energy, Inc.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	BWEN	The NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐		Accelerated filer ☐

Non-accelerated filer ☒ Emerging growth company ☐		Smaller reporting company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period to comply with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of registrant’s common stock, par value $0.001, outstanding as of ~~July 30, 2019: 16,163,172.~~May 1, 2020: 16,640,043.

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BROADWIND, ~~ENERGY,~~ INC. AND SUBSIDIARIES

INDEX

		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25 23
Item 4.	Controls and Procedures	25 23
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26 25
Item 1A.	Risk Factors	26 25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26 25
Item 3.	Defaults Upon Senior Securities	26 25
Item 4.	Mine Safety Disclosures	26 25
Item 5.	Other Information	26 25
Item 6.	Exhibits	26 25
Signatures		28 27

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PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

BROADWIND, ~~ENERGY,~~ INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	74	$	1,177
Cash					$	2,743	$	2,416
Accounts receivable, net		20,273		17,455		16,244		18,310
Inventories, net		35,758		22,670		40,754		31,863
Prepaid expenses and other current assets		1,760		1,776		2,600		2,124
Total current assets		57,865		43,078		62,341		54,713
LONG-TERM ASSETS:
Property and equipment, net		48,197		49,087		46,989		46,940
Operating lease right-of-use assets		16,651		—		19,932		15,980
Other intangible assets, net		6,196		6,602
Intangible assets, net						4,736		4,919
Other assets		349		398		300		314
TOTAL ASSETS	$	129,258	$	99,165	$	134,298	$	122,866
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Line of credit and other notes payable	$	27,555	$	11,930	$	16,350	$	12,917
Current portion of finance lease obligations		825		967		462		546
Current portion of operating lease obligations		1,591		—		1,579		1,326
Accounts payable		15,484		11,618		25,132		21,876
Accrued liabilities		4,372		3,806		4,392		4,911
Customer deposits		18,561		23,507		23,022		22,717
Current liabilities held for sale		26		27
Total current liabilities		68,414		51,855		70,937		64,293
LONG-TERM LIABILITIES:
Long-term debt, net of current maturities		998		1,408		355		505
Long-term finance lease obligations, net of current portion		553		571		594		673
Long-term operating lease obligations, net of current portion		17,020		—		20,324		16,591
Other		69		1,969		66		44
Total long-term liabilities		18,640		3,948		21,339		17,813
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding		—		—		—		—
Common stock, $0.001 par value; 30,000,000 shares authorized; 16,437,109 and 15,982,622 shares issued as of June 30, 2019, and December 31, 2018, respectively		16		16
Treasury stock, at cost, 273,937 shares as of June 30, 2019 and December 31, 2018		(1,842)		(1,842)
Common stock, $0.001 par value; 30,000,000 shares authorized; 16,913,980 and 16,830,930 shares issued as of March 31, 2020, and December 31, 2019, respectively						17		17
Treasury stock, at cost, 273,937 shares as of March 31, 2020 and December 31, 2019						(1,842)		(1,842)
Additional paid-in capital		382,343		381,441		383,669		383,361
Accumulated deficit		(338,313)		(336,253)		(339,822)		(340,776)
Total stockholders’ equity		42,204		43,362		42,022		40,760
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	129,258	$	99,165	$	134,298	$	122,866

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

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BROADWIND, ~~ENERGY,~~ INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)


	Three Months Ended June 30,					Six Months Ended June 30,			Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Revenues	$	41,169	$	36,781	$	82,829	$	66,748	$	48,634	$	41,660
Cost of sales		37,277		34,442		75,388		64,426		42,462		38,111
Restructuring		—		116		12		231		—		12
Gross profit		3,892		2,223		7,429		2,091		6,172		3,537
OPERATING EXPENSES:
Selling, general and administrative		3,895		2,495		7,723		6,393		4,309		3,828
Impairment charges		—		4,993		—		4,993
Intangible amortization		203		471		406		942		183		203
Restructuring		—		—		—		36
Total operating expenses		4,098		7,959		8,129		12,364		4,492		4,031
Operating loss		(206)		(5,736)		(700)		(10,273)
Operating income (loss)										1,680		(494)
OTHER EXPENSE, net:
Interest expense, net		(773)		(352)		(1,309)		(650)		(673)		(536)
Other, net		(16)		(1)		(18)		(4)		(1)		(1)
Total other expense, net		(789)		(353)		(1,327)		(654)		(674)		(537)
Net loss before provision (benefit) for income taxes		(995)		(6,089)		(2,027)		(10,927)
Provision (benefit) for income taxes		23		(6)		34		(33)
LOSS FROM CONTINUING OPERATIONS		(1,018)		(6,083)		(2,061)		(10,894)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS		—		(33)		1		(60)
NET LOSS	$	(1,018)	$	(6,116)	$	(2,060)	$	(10,954)
NET LOSS PER COMMON SHARE—BASIC:
Loss from continuing operations	$	(0.06)	$	(0.40)	$	(0.13)	$	(0.71)
Income (loss) from discontinued operations		0.00		0.00		0.00		0.00
Net loss	$	(0.06)	$	(0.40)	$	(0.13)	$	(0.71)
Net income (loss) before provision for income taxes										1,006		(1,031)
Provision for income taxes										52		11
NET INCOME (LOSS)									$	954	$	(1,042)
NET INCOME (LOSS) PER COMMON SHARE—BASIC:
Net income (loss)									$	0.06	$	(0.07)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC		16,046		15,421		15,917		15,339		16,596		15,786
NET LOSS PER COMMON SHARE—DILUTED:
Loss from continuing operations	$	(0.06)	$	(0.40)	$	(0.13)	$	(0.71)
Income (loss) from discontinued operations		0.00		0.00		0.00		0.00
Net loss	$	(0.06)	$	(0.40)	$	(0.13)	$	(0.71)
NET INCOME (LOSS) PER COMMON SHARE—DILUTED:
Net income (loss)									$	0.06	$	(0.07)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED		16,046		15,421		15,917		15,339		16,733		15,786

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

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BROADWIND, ~~ENERGY,~~ INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share data)


	Common Stock			Treasury Stock										Common Stock			Treasury Stock			Additional
	Shares	Issued			Issued		Additional		Accumulated					Shares	Issued			Issued		Paid-in		Accumulated
	Issued	Amount		Shares	Amount		Paid-in Capital		Deficit			Total
BALANCE, December 31, 2017	15,480,299	$	15	(273,937)	$	(1,842)	$	380,005	$	(312,107)		$	66,071
Stock issued for restricted stock	96,534		1	—		—		—		—			1
Stock issued under defined contribution 401(k) retirement savings plan	74,123		—	—		—		167		—			167
Share-based compensation	—		—	—		—		262		—			262
Net loss	—		—	—		—		—		(4,838)			(4,838)
BALANCE, March 31, 2018	15,650,956	$	16	(273,937)	$	(1,842)	$	380,434	$	(316,945)		$	61,663
Stock issued for restricted stock	18,869		—	—		—		—		—			—
Stock issued under defined contribution 401(k) retirement savings plan	74,820		—	—		—		171		—			171
Share-based compensation	—		—	—		—		227		—			227
Net loss	—		—	—		—		—		(6,116)			(6,116)
BALANCE, June 30, 2018	15,744,645	$	16	(273,937)	$	(1,842)	$	380,832	$	(323,061)	$		55,945
														Issued	Amount		Shares	Amount		Capital		Deficit		Total
BALANCE, December 31, 2018	15,982,622	$	16	(273,937)	$	(1,842)	$	381,441	$	(336,253)		$	43,362	15,982,622	$	16	(273,937)	$	(1,842)	$	381,441	$	(336,253)	$	43,362
Stock issued for restricted stock	141,384		—	—		—		—		—			—	141,384		—	—		—		—		—		—
Stock issued under defined contribution 401(k) retirement savings plan	135,636		—	—		—		187		—			187	135,636		—	—		—		187		—		187
Share-based compensation	—		—	—		—		255		—			255	—		—	—		—		255		—		255
Net loss	—		—	—		—		—		(1,042)			(1,042)	—		—	—		—		—		(1,042)		(1,042)
BALANCE, March 31, 2019	16,259,642	$	16	(273,937)	$	(1,842)	$	381,883	$	(337,295)		$	42,762	16,259,642		16	(273,937)		(1,842)		381,883		(337,295)		42,762

BALANCE, December 31, 2019														16,830,930	$	17	(273,937)	$	(1,842)	$	383,361	$	(340,776)	$	40,760
Stock issued for restricted stock	53,740		—	—		—		—		—			—	83,050		—	—		—		—		—		—
Stock issued under defined contribution 401(k) retirement savings plan	123,727		—	—		—		205		—			205
Share-based compensation	—		—	—		—		255		—			255	—		—	—		—		308		—		308
Net loss	—		—	—		—		—		(1,018)			(1,018)
BALANCE, June 30, 2019	16,437,109	$	16	(273,937)	$	(1,842)	$	382,343	$	(338,313)		$	42,204
Net income														—		—	—		—		—		954		954
BALANCE, March 31, 2020														16,913,980	$	17	(273,937)	$	(1,842)	$	383,669	$	(339,822)	$	42,022

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

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BROADWIND, ~~ENERGY,~~ INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,060)	$	(10,954)
Income (loss) from discontinued operations		1		(60)
Loss from continuing operations		(2,061)		(10,894)
Net income (loss)					$	954	$	(1,042)
Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization expense		3,390		4,706		1,612		1,761
Deferred income taxes		(5)		(42)		22		(9)
Impairment charges		—		4,993
Change in fair value of interest rate swap agreements		26		—		138		—
Stock-based compensation		510		489		308		255
Allowance for doubtful accounts		(12)		(25)		29		(14)
Common stock issued under defined contribution 401(k) plan		392		338		—		187
Gain on disposal of assets		(1)		—		—		(1)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(2,806)		(4,232)		2,037		(5,040)
Inventories		(13,088)		(1,003)		(8,891)		(10,274)
Prepaid expenses and other current assets		16		49		(476)		70
Accounts payable		3,306		4,823		3,545		8,132
Accrued liabilities		540		325		(657)		321
Customer deposits		(4,946)		(1,141)		305		(5,752)
Other non-current assets and liabilities		127		(1,179)		49		57
Net cash used in operating activities of continuing operations		(14,612)		(2,793)
Net cash used in operating activities						(1,025)		(11,349)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1,183)		(1,676)		(670)		(577)
Proceeds from disposals of property and equipment		1		—		—		1
Net cash used in investing activities of continuing operations		(1,182)		(1,676)
Net cash used in investing activities						(670)		(576)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit		91,007		66,985		51,552		42,440
Payments on line of credit		(75,370)		(63,200)		(49,070)		(31,191)
Proceeds from long-term debt		—		1,410
Payments on long-term debt		(462)		(313)		(242)		(228)
Principal payments on finance leases		(485)		(377)		(218)		(236)
Net cash provided by financing activities of continuing operations		14,690		4,505
DISCONTINUED OPERATIONS:
Operating cash flows		1		(38)
Net cash provided by (used in) discontinued operations		1		(38)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,103)		(2)
CASH AND CASH EQUIVALENTS beginning of the period		1,177		78
CASH AND CASH EQUIVALENTS end of the period	$	74	$	76
Supplemental cash flow information:
Interest paid	$	825	$	537
Income taxes paid	$	49	$	84
Non-cash activities:
Issuance of restricted stock grants	$	510	$	489
Non-cash purchases of property and equipment	$	325	$	—
Net cash provided by financing activities						2,022		10,785
NET INCREASE (DECREASE) IN CASH						327		(1,140)
CASH beginning of the period						2,416		1,177
CASH end of the period					$	2,743	$	37

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

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BROADWIND, ~~ENERGY,~~ INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands, except share and per share data)

NOTE 1 — BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements presented herein include the accounts of Broadwind, ~~Energy,~~ Inc. (the “Company”) and its wholly-owned subsidiaries Broadwind ~~Towers,~~Heavy Fabrications, Inc. (“Broadwind ~~Towers”~~Heavy Fabrications”), Brad Foote Gear Works, Inc. (“Brad Foote”), and ~~Red Wolf Company,~~Broadwind Industrial Solutions, LLC (“~~Red Wolf”~~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 ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, ~~2019.~~2020. The December 31, ~~2018~~2019 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, ~~2018.~~

During the first quarter of 2019, the Company assessed its segment reporting by evaluating various qualitative and quantitative measures for each business and product line. Following the execution of the Company’s 2018 restructuring plan and the resulting exit of the leased Abilene facility at the end of 2018, the Company revised its segment presentation by moving its Abilene compressed natural gas and heavy fabrication business from the Process Systems segment to the Towers and Heavy Fabrications segment. The Company made this determination because, post-restructuring, the residual heavy fabrications business activities previously carried out in the now vacated space were transferred to the nearby tower plant under the supervision of Towers and Heavy Fabrications segment management. The Company has restated prior periods presented to reflect this change. See Note 14, “Segment Reporting” of these condensed consolidated financial statements for further discussion of reportable segments.2019.

There have been no material changes in the Company’s significant accounting policies during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018, other than the adoption of Accounting Standards Updates (“ASU”) 2016-02 described in Note 8 “Leases” of these condensed consolidated financial statements.~~2019.

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~~high value products to customers with complex systems and stringent quality standards that operate in energy, mining and infrastructure ~~sector customers,~~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 ~~65%~~74% of the Company’s revenue during the first ~~six~~three months of ~~2019.~~

The Company has increasingly diversified its operations to provide precision gearing and gearboxes, heavy fabrications, kitting and assemblies of industrial systems to a broad range of industrial customers for oil and gas (“O&G”), mining, steel, and other industrial applications.

Please refer to Note 16, “Restructuring” of these condensed consolidated financial statements for the discussion of the restructuring plan which the Company initiated in the first quarter of 2018. The Company has incurred a total of approximately $12 and $267 of net costs during the six months ended June 30, 2019 and 2018, respectively, to implement this restructuring plan.2020.

Liquidity

The Company 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 equity markets and has the option to raise capital under the Company’s 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.

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Total debt and finance lease obligations at ~~June 30, 2019~~March 31, 2020 totaled ~~$29,931,~~$17,761, which includes current outstanding debt and finance leases totaling ~~$28,380.~~$16,812. The current outstanding debt includes ~~$26,637~~$14,000 outstanding under the Company’s revolving line of credit.

On August 11, 2017, 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 10, 2017 (the “Form S-3”). 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 July 31, 2018, the Company entered into an At Market Issuance Sales Agreement (the ~~"ATM Agreement"~~“ATM Agreement”) with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, the Company may sell from time to time through the Agent 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 Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. During the year ended December 31, 2018, the Company issued 15,112 shares of the Company’s common stock under the ATM Agreement and the net proceeds (before upfront costs) to the Company from the sale of the Company’s common stock were approximately $33 after deducting commissions paid of approximately $1. As of ~~June 30, 2019,~~March 31, 2020, the Company’s common stock having a value of approximately $9,967 remained available for issuance with respect to the ATM Agreement. The Company has not used the ATM Agreement in 2019 or 2020.

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In April 2020, the Company received funds under notes and related documents with CIBC under the new U.S. Paycheck Protection Program. For additional discussion, refer to Note 16, “Subsequent Events” of these condensed consolidated financial statements.

The Company anticipates that current cash resources, amounts available under the Credit Facility, the loans received

by the Company under the U.S. Payroll Protection Program, 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. However, the Company does not anticipate that it will have the ability to generate a significant amount of capital from equity markets in the near-term as a result of the low trading volume of the Company’s common stock on the NASDAQ exchange and limitations on the aggregate amount of securities the Company may offer under the Form S-3 due to its public float size. The Form S-3 will expire on October 10, 2020.

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, 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 ~~tax rates, future~~ cash flows, inventory reserves, warranty reserves, impairment of long-lived assets, allowance for doubtful accounts ~~workers’ compensation reserves,~~ 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.

NOTE 2 — REVENUES

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

The following table presents the Company’s revenues disaggregated by revenue source for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018
Towers and Heavy Fabrications
$
28,970
$
25,552
$
57,264
$
43,747
Gearing

9,266

8,632

19,293

17,438
Process Systems

2,933

2,620

6,272

5,586
Eliminations

-

(23)

-

(23)
Consolidated
$
41,169
$
36,781
$
82,829
$
66,748


		Three Months Ended March 31,
		2020		2019
Heavy Fabrications	$	38,368	$	28,294
Gearing		6,227		10,027
Industrial Solutions		4,039		3,339
Consolidated	$	48,634	$	41,660

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Revenue within the Company’s Gearing and ~~Process Systems~~Industrial Solutions segments, as well as ~~heavy~~industrial fabrication revenues within the ~~Towers and~~ Heavy Fabrications segment, isare generally recognized at a point in time, typically when control of the promised goods or services is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. A performance obligation is a promise in a contract to transfer a distinct product or service to the customer. The Company measures revenue based on the consideration specified in the purchase order and revenue is recognized when the performance obligations are satisfied. 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 many tower sales within the Company’s ~~Towers and~~ 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

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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.

The Company generally expenses sales commissions when incurred. These costs are recorded within selling, general and administrative expenses. 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 ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
Basic earnings per share calculation:
Net loss	$	(1,018)	$	(6,116)	$	(2,060)	$	(10,954)
Net income (loss)									$	954	$	(1,042)
Weighted average number of common shares outstanding		16,045,790		15,420,704		15,916,590		15,339,420		16,596,236		15,785,954
Basic net loss per share	$	(0.06)	$	(0.40)	$	(0.13)	$	(0.71)
Basic net income (loss) per share									$	0.06	$	(0.07)
Diluted earnings per share calculation:
Net loss	$	(1,018)	$	(6,116)	$	(2,060)	$	(10,954)
Net income (loss)									$	954	$	(1,042)
Weighted average number of common shares outstanding		16,045,790		15,420,704		15,916,590		15,339,420		16,596,236		15,785,954
Common stock equivalents:
Stock options and non-vested stock awards (1)		—		—		—		—
Non-vested stock awards (1)										137,038		—
Weighted average number of common shares outstanding		16,045,790		15,420,704		15,916,590		15,339,420		16,733,274		15,785,954
Diluted net loss per share	$	(0.06)	$	(0.40)	$	(0.13)	$	(0.71)
Diluted net income (loss) per share									$	0.06	$	(0.07)

(1)

Stock options and restricted stock units granted and outstanding of ~~1,489,660 and 942,378~~683,019 as of March 31, 2019 are excluded from the computation of diluted earnings ~~for the three and six months ended June 30, 2019 and 2018~~ due to the ~~anti dilutive~~anti-dilutive effect as a result of the Company’s net loss for ~~those respective periods.~~three months ended March 31, 2019.

NOTE 4 — INVENTORIES

The components of inventories as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are summarized as follows:


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Raw materials	$	26,264	$	16,394	$	24,325	$	22,759
Work-in-process		7,342		5,426		11,496		8,366
Finished goods		3,728		2,958		6,926		2,915
		37,334		24,778		42,747		34,040
Less: Reserve for excess and obsolete inventory		(1,576)		(2,108)		(1,993)		(2,177)
Net inventories	$	35,758	$	22,670	$	40,754	$	31,863

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NOTE 5 — ~~GOODWILL AND OTHER~~ INTANGIBLE ASSETS

Goodwill represents the excess of the purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities. Goodwill is not amortized but is tested at least annually for impairment or more frequently whenever events or circumstances occur indicating that those assets might be impaired.

~~Other intangible~~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 ~~in 2017.~~Company, LLC. Other intangible assets are amortized on a straight-line basis over their estimated useful lives, with a remaining life range from 43 to 98 years. ~~The Company tests other intangible assets for impairment when events or circumstances indicate that the carrying value~~

Table of ~~these assets may not be recoverable.~~Contents

The Company added $4,993 of goodwill and $13,270 of other intangible assets, as a result of the Red Wolf acquisition, which was included in the Process Systems segment. See Note 14, “Segment Reporting,” of these condensed consolidated financial statements for further discussion of the Company’s segments.

During the second quarter of 2018, the Company determined that the carrying amount of the Red Wolf reporting unit exceeded the fair value and recorded a $4,993 goodwill impairment charge. In addition, during the fourth quarter of 2018, the Company determined that its customer relationship intangible asset was impaired, and recorded a corresponding $7,592 impairment charge.

During the second quarter of 2019, the Company also identified a further triggering event associated with Red Wolf’s recent operating losses. The Company relied upon an undiscounted cash flow analysis performed in the prior quarter and determined that no significant changes to the previously used inputs or assumptions were needed. As a result, the Company concluded that no impairment to this asset group was indicated as of June 30, 2019.

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the cost basis, accumulated amortization and net book value of intangible assets were as follows:


	June 30, 2019									December 31, 2018									March 31, 2020									December 31, 2019
									Remaining									Remaining									Remaining									Remaining
									Weighted									Weighted									Weighted									Weighted
					Accumulated		Net		Average					Accumulated		Net		Average					Accumulated		Net		Average					Accumulated		Net		Average
	Cost		Accumulated		Impairment		Book		Amortization			Accumulated		Impairment		Book		Amortization	Cost		Accumulated		Impairment		Book		Amortization			Accumulated		Impairment		Book		Amortization
	Basis		Amortization		Charges		Value		Period	Cost		Amortization		Charges		Value		Period	Basis		Amortization		Charges		Value		Period	Cost		Amortization		Charges		Value		Period
Other intangible assets:
Intangible assets:
Noncompete agreements	$	170	$	(69)	$	—	$	101	3.6	$	170	$	(54)	$	—	$	116	4.1	$	170	$	(90)	$	—	$	80	2.8	$	170	$	(83)	$	—	$	87	3.1
Customer relationships		15,979		(6,521)		(7,592)		1,866	6.3		15,979		(6,369)		(7,592)		2,018	6.8		15,979		(6,750)		(7,592)		1,637	5.6		15,979		(6,674)		(7,592)		1,713	5.8
Trade names		9,099		(4,870)		—		4,229	9.0		9,099		(4,631)		—		4,468	9.5		9,099		(6,080)		—		3,019	7.5		9,099		(5,980)		—		3,119	7.8
Other intangible assets	$	25,248	$	(11,460)	$	(7,592)	$	6,196	6.1	$	25,248	$	(11,054)	$	(7,592)	$	6,602	6.5
Intangible assets																			$	25,248	$	(12,920)	$	(7,592)	$	4,736	6.3	$	25,248	$	(12,737)	$	(7,592)	$	4,919	6.5

As of ~~June 30, 2019,~~March 31, 2020, estimated future amortization expense is as follows:


2019	$	406
2020		812	$	550
2021		812		733
2022		812		725
2023		786		664
2024 and thereafter		2,568
2024				661
2025 and thereafter				1,403
Total	$	6,196	$	4,736

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NOTE 6 — ACCRUED LIABILITIES

Accrued liabilities as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 consisted of the following:


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Accrued payroll and benefits	$	2,885	$	2,126	$	3,256	$	3,870
Fair value of interest rate swap						216		78
Accrued property taxes		315		—		158		—
Income taxes payable		56		66		69		61
Accrued professional fees		132		101		91		136
Accrued warranty liability		214		226		118		163
Accrued self-insurance reserve		125		374
Self-insured workers compensation reserve						112		115
Accrued other		645		913		372		488
Total accrued liabilities	$	4,372	$	3,806	$	4,392	$	4,911

NOTE 7 — DEBT AND CREDIT AGREEMENTS

The Company’s outstanding debt balances as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 consisted of the following:


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Line of credit	$	26,637	$	11,000	$	14,000	$	11,517
Other notes payable		1,445		1,882		2,363		1,563
Long-term debt		471		456		342		342
Less: Current portion		(27,555)		(11,930)		(16,350)		(12,917)
Long-term debt, net of current maturities	$	998	$	1,408	$	355	$	505

Credit Facility

On October 26, 2016, the Company established a ~~$20,000~~ 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 “Amended and Restated Loan Agreement”), with CIBC as administrative agent and sole lead arranger and the other financial institutions party thereto (the “Lenders”), providing the Company and its subsidiaries with a $35,000 secured credit facility (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.

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The Credit Facility is an asset-based revolving credit facility, pursuant to which the Lenders advance 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 Amended and Restated Loan Agreement is $35 million with a sublimit for letters of credit of $10 million. Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the option of the Company, the one, two or three-month LIBOR rate or the base rate, plus a margin. The applicable margin is 5.50% for LIBOR rate loans and 3.50% for base rates loans. Upon certain pay downs, a pricing grid based on the Company’s trailing twelve month fixed charge coverage ratio may become effective under which applicable margins would range from 2.25% to 2.75% for LIBOR rate loans and 0.00% to 0.75% for base rate loans. 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. The initial term of the Amended and Restated Loan Agreement ends on February 25, 2022. ~~The~~With the exception of the balance impacted by the interest rate swap (as defined 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 Amended and Restated Loan Agreement contains customary representations and warranties applicable to the Company and the subsidiaries. It also contains a requirement that the Company, on a consolidated basis, maintain minimum quarterly earnings before interest, taxes, depreciation, amortization, share-based payments, restructuring costs, and intangible impairments (“EBITDA”) levels through September 30, 2019 and a minimum quarterly fixed charge coverage ratio ~~thereafter,~~ 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 financial covenants as of ~~June 30, 2019.~~

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March 31, 2020.

In conjunction with the Amended and Restated Loan Agreement, ~~during~~in 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 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, 2020 and December 31, 2019.

As of ~~June 30, 2019,~~March 31, 2020, there was ~~$26,637~~$14,000 of outstanding indebtedness under the Credit Facility, with the ability to borrow an additional ~~$8,033~~$16,283, under the Credit Facility.

Other

In 2016, the Company entered into a $570 loan agreement with the Development Corporation of Abilene which is included in ~~long-term~~the “Long-term debt, less current ~~maturities.~~maturities” line item of our condensed consolidated financial statements as of March 31, 2020 and December 31, 2019. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2019 and 2018, $114 of the loan was forgiven. As of March 31, 2020, the loan balance was $342. In addition, the Company has outstanding notes payable for capital expenditures in the amount of ~~$1,445~~$2,363 and ~~$1,882~~$1,563 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, with ~~$918~~$2,350 and ~~$930~~$1,400 included in the “Line of credit and other notes payable” line item of the Company’s condensed consolidated financial statements as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of approximately 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to August 2022.

In April 2020, the Company received loans totaling $9,530 as part of the 2020 Coronavirus Aid, Relief and Economic Stability Act. Please refer to Note 16, “Subsequent Events” of these condensed consolidated financial statements for additional details.

NOTE 8 — LEASES

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 standard requires companies to recognize operating lease assets and liabilities on the balance sheet and to disclose key information regarding leasing arrangements. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842 while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under legacy accounting. ASU 2018-11 also allows an exception so that companies do not have to make the new required lease disclosures for periods before the effective date. The Company has elected to apply the short-term lease exception to all leases of one year or less.

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

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adoption of ~~ASC~~Topic 842 and was offset against the ROU asset balance during the adoption. As of June 30, 2019, the ROU asset had a balance of $16,651 which is included in the “Operating lease right-of-use assets” line item of these condensed consolidated financial statements and current and non-current lease liabilities relating to the ROU asset of $1,591 and $17,020, respectively, and are included in the “Current portion of operating lease obligations” and “Long-term operating lease obligations, net of current portion” line items of these condensed consolidated financial statements. 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, 2020, the Company had an additional operating lease that resulted in right-of-use assets obtained in exchange for lease obligations of $4,380.

Some of the Company’s facility leases include options to renew. The exercise of the renewal options is typically at the Company’s discretion. ~~Therefore the majority of renewals to extend the lease terms are not included in ROU assets and lease liabilities as they are not reasonably certain of exercise.~~ The Company regularly evaluates the renewal options and includes them in the lease term when the Company is reasonably certain to exercise them.

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


	Three Months Ended	Six Months Ended	For the Three Months Ended
	June 30, 2019	June 30, 2019	March 31, 2020	March 31, 2019
Components of lease cost
Finance lease cost components:
Amortization of finance lease assets	$ 136	$ 272	$ 129	$ 136
Interest on finance lease liabilities	25	54	26	29
Total finance lease costs	161	326	155	165
Operating lease cost components:
Operating lease cost	755	1,541	765	786
Short-term lease cost	158	304	132	146
Variable lease cost (1)	207	385	195	178
Sublease income	(44)	(88)	(45)	(44)
Total operating lease costs	1,076	2,142	1,047	1,066

Total lease cost	$ 1,237	$ 2,468	$ 1,202	$ 1,231

Supplemental cash flow information related to our operating leases is
as follows for the six months ended June 30, 2019:
as follows for the three months ended March 31, 2020 and 2019:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash outflow from operating leases		1,750	$ 888	$ 875


Weighted-average remaining lease term-finance leases at 6/30/19 (in years)		1.4
Weighted-average remaining lease term-operating leases at 6/30/19 (in years)		10.8
Weighted-average discount rate-finance leases at 6/30/19		8.6%
Weighted-average discount rate-operating leases at 6/30/19		9.0%
Weighted-average remaining lease term-finance leases at end of period (in years)			1.2	1.6
Weighted-average remaining lease term-operating leases at end of period (in years)			10.5	10.9
Weighted-average discount rate-finance leases at end of period			9.2%	8.4%
Weighted-average discount rate-operating leases at end of period			8.8%	9.0%

⁽¹⁾

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, 2019,~~March 31, 2020, future minimum lease payments under finance leases and operating leases were as follows:


	Finance		Operating				Finance		Operating
	Leases		Leases		Total		Leases		Leases		Total
2019	$	590	$	1,755	$	2,345
2020		499		2,900		3,399	$	409	$	2,628	$	3,037
2021		376		2,766		3,142		527		3,387		3,914
2022		51		2,503		2,554		202		2,902		3,104
2023		—		2,355		2,355		34		2,884		2,918
2024 and thereafter		—		18,115		18,115
2024								—		2,906		2,906
2025 and thereafter								—		20,119		20,119
Total lease payments	$	1,516	$	30,394	$	31,910		1,172		34,826		35,998
Less—portion representing interest		(138)		(11,783)		(11,921)		(116)		(12,923)		(13,039)
Present value of lease obligations		1,378		18,611		19,989		1,056		21,903		22,959
Less—current portion of lease obligations		(825)		(1,591)		(2,416)		(462)		(1,579)		(2,041)
Long-term portion of lease obligations	$	553	$	17,020	$	17,573	$	594	$	20,324	$	20,918

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NOTE 9 — FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, 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

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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.

The Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Financial instruments are assessed quarterly to determine the appropriate classification within the fair value hierarchy. Transfers between fair value classifications are made based upon the nature and type of the observable inputs. 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. For the Company’s corporate and municipal bonds, although quoted prices are available and used to value said assets, they are traded less frequently.

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 Company used market negotiations to value the Gearing segments assets.~~

The following ~~table represents~~tables represent the fair values of the ~~Companies~~Company’s financial liabilities as of ~~June 30,~~March 31, 2020 and December 31, 2019:


	June 30, 2019								March 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities measured on a recurring basis:
Interest rate swap	$	—	$	81	$	—	$	81	$	—	$	216	$	—	$	216
Total liabilities at fair value	$	—	$	81	$	—	$	81	$	—	$	216	$	—	$	216


	December 31, 2019
	Level 1		Level 2		Level 3		Total
Liabilities measured on a recurring basis:
Interest rate swap	$	—	$	78	$	—	$	78
Total liabilities at fair value	$	—	$	78	$	—	$	78

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 ~~June 30, 2019,~~March 31, 2020, the Company has a full valuation allowance recorded against deferred tax assets. During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the Company recorded a provision for income taxes of ~~$34,~~$52, compared to a ~~benefit~~provision for income taxes of ~~$33~~$11 during the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019.

The Company files income tax returns in U.S. federal and state jurisdictions. As of ~~June 30, 2019,~~March 31, 2020, 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, ~~2018,~~2019, the Company had federal and unapportioned state net operating loss (“NOL”)

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carryforwards of ~~$248,717~~$258,834 of which ~~$228,787~~$227,781 will generally begin to expire in ~~2022.~~2026. The majority of the NOL carryforwards will expire in various years from 2028 through 2037. NOLs generated after January 1, 2018 will not expire.

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. 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 our stockholders at our 2019 Annual Meeting of Stockholders and has a term of three years.

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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 ~~June 30, 2019,~~March 31, 2020, 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 ~~June 30, 2019.~~March 31, 2020.

NOTE 11 — SHARE-BASED COMPENSATION

~~Overview of Share-Based Compensation Plans~~

The ~~Company has granted incentive~~following table summarizes stock ~~options and other equity awards pursuant to previously Board approved Equity Incentive Plans (“2007 and 2012 EIPs”). Most recently,~~option activity during the Company has granted equity awards pursuant to the Broadwind Energy, Inc. 2015 Equity Incentive Plan, which was approved by the Board in February 2015 and by the Company’s stockholders in April 2015. On February 8, 2019, the Board approved an Amended and Restated 2015 Equity Incentive Plan (as amended, the “2015 EIP,” and together with the 2007 and 2012 EIPs, the “Equity Incentive Plans”), which, among other things, increased the number of shares of our common stock authorized for issuance under the 2015 EIP from 1,100,000 to 2,200,000. The amendment and restatement of the 2015 EIP was approved by the Company’s stockholders at the 2019 Annual Meeting of Stockholders.three months ended March 31, 2020:



		Weighted Average
	Options	Exercise Price
Outstanding as of December 31, 2019	54,362	$	11.16
Forfeited	—	$	—
Outstanding as of March 31, 2020	54,362	$	11.16
Exercisable as of March 31, 2020	54,362	$	11.16

The purposes of the Equity Incentive Plans are to (a) align the interests of the Company’s stockholders and recipients of awards by increasing the proprietary interest of such recipients in the Company’s growth and success; (b) advance the interests of the Company by attracting and retaining officers, other employees, non-employee directors and independent contractors; and (c) motivate such persons to act in the long-term best interests of the Company and its stockholders. Under the 2015 EIP, the Company may grant (i) non-qualified stock options; (ii) “incentive stock options” (within the meaning of IRC Section 422); (iii) stock appreciation rights; (iv) restricted stock and restricted stock units (“RSUs”); and (v) performance awards (“PSUs”).

~~Stock Options.~~ The exercise price of stock options granted under the Equity Incentive Plans is equal to the closing price of the Company’s common stock on the date of grant. Stock options generally become exercisable on the anniversary of the grant date, with vesting terms that may range from one to five years from the date of grant. Additionally, stock options expire ten years after the date of grant. The fair value of stock options granted is expensed ratably over their vesting term.

~~Restricted Stock Units (RSUs).~~ The granting of RSUs is provided for under the Equity Incentive Plans. RSUs generally contain a vesting period of one to five years from the date of grant. The fair value of each RSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the vesting term of the RSU award.

~~Performance Awards (PSUs)~~. The granting of PSUs is provided for under the Equity Incentive Plans. Vesting of PSUs is conditioned upon the Company meeting applicable performance measures over the performance period. The fair value of each PSU granted is equal to the closing price of the Company’s common stock on the date of grant and is generally expensed ratably over the term of the PSU award plan.

The Equity Incentive Plans reserve shares of the Company’s common stock for grants to officers, directors, employees, consultants and advisors upon whose efforts the success of the Company and its affiliates depends to a large degree. The 2007 and 2012 EIPs reserved 1,891,051 shares of the Company’s common stock. As of June 30, 2019, 888,748 shares of common stock reserved for issuance pursuant to stock options and RSU awards granted under the 2007 and 2012 EIPs had been issued in the form of common stock, and 56,862 shares of common stock remained reserved for issuance upon the exercise of stock options outstanding under the 2007 and 2012 EIPs. The 2015 EIP reserves 2,200,000 shares of the Company’s common stock. As of June 30, 2019, 538,553 shares of common stock reserved for issuance pursuant to stock options and RSU awards granted under the 2015 EIP had been issued in the form of common stock and 1,432,798 shares of common stock remained reserved for issuance upon the exercise of stock options outstanding under the 2015 EIP.

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The following table summarizes the Company’s restricted stock ~~option~~unit and performance award activity during the ~~six~~three months ended ~~June 30, 2019 under the Equity Incentive Plans, as follows:~~March 31, 2020:

Weighted Average


Options

Exercise Price

Outstanding as of December 31, 2018

56,862

$
15.06

Granted

—

$
—

Expired

—

$
—

Outstanding as of June 30, 2019

56,862

$
15.06

Exercisable as of June 30, 2019

56,862

$
15.06


		Weighted Average
	Number of	Grant-Date Fair Value
	Shares	Per Share
Unvested as of December 31, 2019	1,356,915	$	2.39
Granted	—	$	—
Vested	(121,132)	$	3.41
Forfeited	(89,464)	$	5.43
Unvested as of March 31, 2020	1,146,319	$	2.05

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and sometimes subjective variables. These variables include, but are not limited to, the expected volatility of the price of the Company’s stock over the expected life of the awards and actual and projected stock option exercise behavior. No stock options were granted during the six months ended June 30, 2019 and 2018.

~~The following table summarizes RSU’s and PSU’s activity during the six months ended June 30, 2019 under the Equity Incentive Plans, as follows:~~

Weighted Average

Grant-Date Fair Value

Number of Shares

Per Share

Unvested as of December 31, 2018

805,844

$
3.16

Granted

860,381

$
1.91

Vested

(233,427)

$
2.88

Unvested as of June 30, 2019

1,432,798

$
2.46

RSUs and PSUs are generally subject to ratable vesting over a three year period. Compensation expense related to these service-based awards is recognized on a straight-line basis over the vesting period. The Company utilized a forfeiture rate of 25% during the six months ended June 30, 2019 and 2018 for estimating the forfeitures of equity compensation granted.

The following table summarizes share-based compensation expense included in the Company’s condensed consolidated statements of operations for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ as follows:



	Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2020		2019
Share-based compensation expense:
Cost of sales	$	60	$	61	$	22	$	30
Selling, general and administrative		450		428		286		225
Net effect of share-based compensation expense on net income	$	510	$	489	$	308	$	255
Reduction in earnings per share:
Basic earnings per share	$	0.03	$	0.03	$	0.02	$	0.02

Diluted earnings per share	$	0.03	$	0.03	$	0.02	$	0.02

As of June 30, 2019, the Company estimates that pre-tax compensation expense for all unvested share-based RSUs and PSUs in the amount of approximately $1,861 will be recognized through 2021. The Company expects to satisfy the exercise of stock options and future distribution of shares of restricted stock by issuing new shares of common stock.

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

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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

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, except as discussed below. The Company is currently evaluating the impact of the new standards on its condensed consolidated financial~~ statements.

The Company adopted the amendments to certain disclosure requirements in Securities Act of 1933, as amended, Release No. 33-10532, “Disclosure Update and Simplification” on November 5, 2018, the effective date of the release. Among the amendments is a requirement to present the changes in shareholders’ equity in the interim financial statements (either in a separate statement or footnote) in quarterly reports on Form 10-Q. See the condensed consolidated statement of stockholders’ equity.

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. During the first quarter of 2019, the Company revised its segment presentation by moving its Abilene compressed natural gas and heavy fabrication business from the Process Systems segment to the Towers and Heavy Fabrications segment. The Company believes that this change more appropriately aligns its businesses in terms of the nature of its products and services, as well as its production processes and customers. The Company has restated prior periods presented to reflect this change.

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

~~Towers and~~ Heavy Fabrications

The Company ~~manufactures towers for~~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 ~~turbines, specifically the large and heavier wind towers that are designed for multiple megawatt (“MW”) wind turbines, as well as heavy fabrications for mining and~~energy industry, although it has diversified into other industrial ~~customers.~~markets in order to improve capacity utilization, reduce customer concentrations, and reduce exposure to uncertainty related to governmental policies currently impacting the U.S. wind energy industry. Within the U.S. wind energy industry, the

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Company provides steel towers and adapters primarily to wind turbine manufacturers. Production facilities, located in Manitowoc, Wisconsin and Abilene, Texas, are situated in close proximity to the primary U.S. domestic wind energy and equipment manufacturing hubs. 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 MWmegawatts 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 ~~engineers, builds~~provides gearing and ~~remanufactures precision gears~~gearboxes to a broad set of customers in diverse markets including; onshore and ~~gearing systems for~~offshore O&G fracking and drilling, surface and underground mining, defense, wind ~~mining,~~energy, steel, material handling and other ~~industrial applications.~~infrastructure markets. The Company has manufactured loose gearing, gearboxes and systems, and provided heat treatment 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 ~~processes~~ in Neville Island, Pennsylvania.

~~Process Systems~~Industrial Solutions

~~This segment~~The Company provides ~~contract manufacturing services that include build-to-print,~~supply chain solutions, inventory management, kitting and ~~inventory management for customers throughout~~assembly services, primarily serving the ~~U.S. and in foreign countries, primarily supporting the~~combined cycle natural gas ~~electrical generation~~turbine market.

Corporate

“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, 2020 and 2019 is as follows:




	Heavy Fabrications		Gearing		Industrial Solutions		Corporate		Eliminations		Consolidated
For the Three Months Ended March 31, 2020
Revenues from external customers	$	38,368		6,227		4,039		—		—	$	48,634
Operating profit (loss)		3,541		(261)		192		(1,792)		—		1,680
Depreciation and amortization		963		512		104		33		—		1,612
Capital expenditures		381		168		120		1		—		670




	Heavy Fabrications		Gearing		Industrial Solutions		Corporate		Eliminations		Consolidated
For the Three Months Ended March 31, 2019
Revenues from external customers	$	28,294		10,027		3,339		—		—	$	41,660
Operating (loss) profit		(222)		1,387		(285)		(1,374)		—		(494)
Depreciation and amortization		1,095		482		122		62		—		1,761
Capital expenditures		201		367		—		9		—		577

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~~Summary financial information by reportable segment for the three and six months ended June 30, 2019 and 2018 is as follows:~~

Towers and




Process





Heavy Fabrications

Gearing

Systems

Corporate

Eliminations

Consolidated

For the Three Months Ended June 30, 2019

Revenues from external customers

$
28,970

$
9,266

$
2,933

$
—

$
—

$
41,169

Operating profit (loss)

318

913

28

(1,465)

—

(206)

Depreciation and amortization

978

483

122

45

—

1,628

Capital expenditures

308

273

14

11

—

606

Towers and



Process






Heavy Fabrications

Gearing

Systems

Corporate

Eliminations

Consolidated

For the Three Months Ended June 30, 2018

Revenues from external customers

$
25,529

$
8,632

$
2,620

$
—

$
—

$
36,781

Intersegment revenues

23

—

—

—

(23)

—

Net revenues

25,552

8,632

2,620

—

(23)

36,781

Operating profit (loss)

541

(662)

(5,589)

(26)

—

(5,736)

Depreciation and amortization

1,317

586

386

60

—

2,349

Capital expenditures

1,198

247

—

2

—

1,447

Towers and


Process






Heavy Fabrications

Gearing

Systems

Corporate

Eliminations

Consolidated
For the Six Months Ended June 30, 2019

Revenues from external customers

$
57,264

$
19,293

$
6,272

$
—

$
—

$
82,829
Operating profit (loss)

96

2,300

(256)

(2,840)

—

(700)
Depreciation and amortization

2,073

964

245

108

—

3,390
Capital expenditures

509

640

14

20

—

1,183

Towers and


Process






Heavy Fabrications

Gearing

Systems

Corporate

Eliminations

Consolidated
For the Six Months Ended June 30, 2018

Revenues from external customers

$
43,724

$
17,438

$
5,586

$
—

$
—

$
66,748
Intersegment revenues

23

—

—

—

(23)

—
Net revenues

43,747

17,438

5,586

—

(23)

66,748
Operating (loss) profit

(1,554)

(1,288)

(5,890)

(1,541)

—

(10,273)
Depreciation and amortization

2,638

1,176

773

119

—

4,706
Capital expenditures

1,198

467

—

11

—

1,676


	Total Assets as of				Total Assets as of
	June 30,		December 31,		March 31,		December 31,
Segments:	2019		2018		2020		2019
Towers and Heavy Fabrications	$	55,116	$	34,839
Heavy Fabrications					$	52,904	$	41,432
Gearing		49,004		37,028		46,802		47,022
Process Systems		10,746		11,758
Industrial Solutions						9,107		8,893
Corporate		256,659		243,867		239,429		239,629
Eliminations		(242,267)		(228,327)		(213,944)		(214,110)
	$	129,258	$	99,165	$	134,298	$	122,866

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

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safety, and product content, performance and packaging. 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.

Warranty Liability

The Company warrants its products for terms that range from one to five years. In certain contracts, the Company has recourse provisions for items that would enable recovery from third parties for amounts paid to customers under warranty provisions. As of ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ estimated product warranty liability was ~~$214~~$118 and ~~$593,~~$218, respectively, and is recorded within accrued liabilities in the Company’s condensed consolidated balance sheets.

The changes in the carrying amount of the Company’s total product warranty liability for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ were as follows:


	For the Six Months Ended June 30,				For the Three Months Ended March 31,
	2019		2018		2020		2019
Balance, beginning of period	$	226	$	581	$	163	$	226
(Reduction of) addition to warranty reserve		(4)		15
Warranty claims		(19)		(3)
Reduction of warranty reserve						(25)		(19)
Other adjustments		11		-		(20)		11
Balance, end of period	$	214	$	593	$	118	$	218

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.

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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 ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ consisted of the following:



	For the Six Months Ended June 30,				For the Three Months Ended March 31,
	2019		2018		2020		2019
Balance at beginning of period	$	190	$	225	$	127	$	190
Bad debt expense (recoveries)		2		(12)
Bad debt expense						55		—
Write-offs		(14)		(13)		(19)		—
Other adjustments						(7)		(14)
Balance at end of period	$	178	$	200	$	156	$	176

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 ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

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NOTE 16 — ~~RESTRUCTURING~~SUBSEQUENT EVENTS

COVID-19

~~During~~In March 2020, the ~~first quarter~~World Health Organization characterized the novel coronavirus disease (“COVID-19”) a pandemic, and the President of ~~2018,~~the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. The Company’s operations and those of its suppliers and customers, and the supply chains that support the Company’s and its suppliers’ and customers’ operations have been and continue to be affected by COVID-19. In response to the virus, the Company ~~conducted a review~~is following the guidance provided by the U.S. Centers for Disease Control and Prevention to protect the continued safety and welfare of ~~its~~our employees, business ~~strategies~~partners and ~~product plans given the outlook for the industries it serves and its business environment. As a result,~~their respective communities. In addition, the Company ~~began~~has taken various precautionary actions including, but not limited to, ~~execute a restructuring plan~~analyzing its supply chain to ~~rationalize~~determine its ~~facility capacity~~exposure and ~~management structure,~~identify alternative sourcing, reducing board of director and executive compensation, delaying applicable merit increases and other discretionary spending, restricting employee travel, encouraging employees that have the ability to ~~consolidate~~work from home to do so, implementing social distancing best practices and ~~increase~~preparing various contingency plans in the ~~efficiencies~~event the Company faces any material adverse impacts from COVID-19.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States in response to COVID-19. The Paycheck Protection Program (“PPP”) was formed as part of ~~its Abilene facility operations.~~the CARES Act and is administered by the U.S. Small Business Administration (the “SBA”). The PPP allows certain companies to apply for aid through forgivable loans (“PPP Loans”). Under the terms of the PPP, certain amounts of the PPP Loans may be forgiven if they are used for qualifying expenses as described in the CARES Act. The Company ~~exited the CNG~~applied for these loans through CIBC Bank and Fabrication Manufacturing location in Abilene, TX in 2018 and consolidated these manufacturing activities into other locations. All remaining costs associated with this facility were recorded as restructuring expenses.

received total proceeds of $9,530. The Company ~~expects that any additional~~intends to use proceeds from the PPP Loans primarily for payroll costs, ~~related~~in accordance with terms and conditions applicable to loans administered by the SBA. The PPP Loans have a 1.00% interest rate and are scheduled to mature starting on April 5, 2022.

For more information, refer to the ~~2018 restructuring initiative will be immaterial. The~~Company’s supplemental risk factor included in the Company’s Current Report on Form 8-K filed April 17, 2020.

Name Change

In connection with the Company’s rebranding efforts previously announced, following the approval of the Company’s stockholders at the Company’s 2020 Annual Meeting of Stockholders on May 1, 2020, the Company ~~projected annual cost savings going forward~~filed a Certificate of ~~approximately $575 in facility expenses related~~Amendment to the ~~restructuring.~~

~~The Company’s total net restructuring charges for~~Certificate of Incorporation with the ~~three and six months ended June 30, 2019 and 2018 consist~~Secretary of State of Delaware, changing the name of the ~~following:~~Company from “Broadwind Energy, Inc.” to “Broadwind, Inc.” effective on May 4, 2020. In connection with the Company’s name change, the board of directors of the Company amended the Company’s Second Amended and Restated Bylaws to reflect the Company’s new corporate name.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018
Cost of sales:

    Facility costs

$
—

$
64

$
2

$
146
    Moving and remediation

—

1

10

1
    Salary and severance

—

—

—

17
    Depreciation

—

51

—

67
        Total cost of sales

—

116

12

231
Selling, general, and administrative expenses:

   Salary and severance

—

—

—

36
        Total selling, general, and administrative expenses

—

—

—

36
        Grand Total

$
—

$
116

$
12

$
267

Item 2.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, ~~2018.~~2019. 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.~~uncertainties including those arising as a result of COVID-19. As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and the “Company” refer to Broadwind, ~~Energy,~~ Inc., a Delaware corporation headquartered in Cicero, Illinois, and its subsidiaries.

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

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KEY METRICS USED BY MANAGEMENT TO MEASURE PERFORMANCE

In addition to measures of financial performance presented in our consolidated financial statements in accordance with GAAP, we use certain other financial measures to analyze our performance. These non-GAAP financial measures primarily consist of adjusted EBITDA and free cash flow which help us evaluate growth trends, establish budgets, assess operational efficiencies, oversee our overall liquidity, and evaluate our overall financial performance.

Key Financial Measures


	Three Months Ended
	March 31,
	2020		2019
Net revenues	$	48,634	$	41,660
Net income (loss)	$	954	$	(1,042)
Adjusted EBITDA (1)	$	3,605	$	1,715
Capital expenditures	$	670	$	577
Free cash flow (2)	$	(329)	$	(11,468)
Operating working capital (3)	$	8,844	$	17,607
Total debt	$	16,705	$	24,384
Total orders	$	33,809	$	24,006
Backlog at end of period	$	127,401	$	81,126
Book-to-bill (4)		0.7		0.6

(1)We provide non-GAAP adjusted EBITDA (earnings before interest, income taxes, depreciation, amortization, share based compensation and other stock payments, restructuring costs, impairment charges, and other non-cash gains and losses) as supplemental information regarding our business performance. Our management uses adjusted EBITDA when they internally evaluate the performance of our business, review financial trends and make operating and strategic decisions. We believe that this non-GAAP financial measure is useful to investors because it provides a better understanding of our past financial performance and future results, and it allows investors to evaluate our performance using the same methodology and information as used by our management. Our definition of adjusted EBITDA may be different from similar non-GAAP financial measures used by other companies and/or analysts.

(2)We define free cash flow as adjusted EBITDA plus or minus changes in operating working capital less capital expenditures net of any proceeds from disposals of property and equipment. We believe free cash flow is a useful measure for investors because it portrays our ability to generate cash from our business for purposes such as repaying maturing debt and funding future investments.

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

(4)We define the book-to-bill as the ratio of new orders we received to units shipped and billed during a period.

The following table reconciles our non-GAAP key financial measures to the most directly comparable GAAP measure:


	Three Months Ended
	March 31,
	2020		2019
Net income (loss)	$	954	$	(1,042)
Interest expense		673		536
Income tax provision (benefit)		52		11
Depreciation and amortization		1,612		1,761
Share-based compensation and other stock payments		314		437
Restructuring costs		—		12
Adjusted EBITDA		3,605		1,715
Changes in operating working capital		(3,264)		(12,607)
Capital expenditures		(670)		(577)
Proceeds from disposal of property and equipment		—		1
Free Cash Flow	$	(329)	$	(11,468)

OUR BUSINESS

~~Second quarter~~First Quarter Overview

We booked ~~$104,612~~$33,809 in new orders in the ~~second~~first quarter of 2020, up from $24,006 in the first quarter of 2019 ~~up five-fold from $18,602~~driven primarily by a $5,286 increase in ~~the second quarter of 2018. The increase was~~aftermarket wind Gearing and other industrial Gearing orders and a $3,004 rise in Heavy Fabrication orders, predominately driven ~~primarily~~ by an increase in ~~tower orders as~~mining and other industrial customers, ~~booked production slots to support strong 2020 turbine demand.~~

We recognized revenue of $41,169 in the second quarter of 2019, up 12% from revenue of $36,781 in the second quarter of 2018, reflecting sales growth in each segment. Although the number of tower sections sold was flat compared to the prior year quarter, Towers and Heavy Fabrications segment revenues were up $3,418 or 13% due primarily to a higher average sales price for a more complex mix of towers sold, and as a result of ~~higher steel prices.~~

We reported a net loss of $1,018 or $0.06 per share in the second quarter of 2019, compared to a net loss of $6,116 or $0.40 per share in the second quarter of 2018. The significant improvement was due primarily to the absence of the $4,993 goodwill impairment charge that occurred during the prior year quarter, higher sales, and improved manufacturing efficienciesour ongoing

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~~within our Gearing~~diversification efforts. Our Industrial Solutions segment realized a $1,513 increase in orders for new gas turbine content, partially offset by a decrease in aftermarket demand.

We recognized revenue of $48,634 in the ~~absence~~first quarter of ~~a beneficial $1,140 earn-out reversal recorded in 2018 and lower margins in our Towers and Heavy Fabrications segment.~~

~~As noted in Note 14, “Segment Reporting,” of these condensed consolidated financial statements, during~~2020, up 17% compared to the first quarter of 2019, ~~we revised our~~primarily due to sales growth in the Heavy Fabrications segment ~~presentation and moved our Abilene compressed natural gas and heavy fabrication business from the Process Systems segment~~as tower sections sold surged 66% compared to the ~~Towers~~prior year quarter driven primarily by customer demand to support the expected increase of wind turbine tower installations. This growth was partially offset by a lower average sales price on towers sold due to higher levels of customer supplied materials in the current year. Industrial Solutions revenue was up $700, or 21% primarily due to higher near-term demand for new gas turbine content, partially offset by weaker aftermarket demand. Gearing revenue was down $3,800 driven primarily by lower order intake in the second half of 2019 and ~~Heavy Fabrications~~as customers delayed approximately $1,000 of purchases into future periods.

We reported net income of $954 or $0.06 per share in the first quarter of 2020, compared to a net loss of $1,042 or $0.07 per share in the first quarter of 2019 primarily due to higher capacity utilization in towers and overall improved operating efficiencies, partially offset by decreased profitability in our gearing segment due to decreased sales, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. Although our financial results were not materially impacted in the quarter ending March 31, 2020, our operations and those of our suppliers and customers, and the supply chains that support our and their operations have been and continue to be affected by COVID-19. Order activity levels for Gearing, Industrial Solutions and industrial fabrications have declined since the COVID-19 outbreak. Additionally, customers have delayed scheduled purchases in our Gearing segment. ~~We have restated prior periods presented~~For more information, refer to ~~reflect~~Note 16, “Subsequent Events” in the notes to our condensed consolidated financial statements in Part I, Item 1 of this ~~change.~~Quarterly Report on Form 10-Q and our supplemental risk factor included in our Current Report on Form 8-K filed April 17, 2020.

RESULTS OF OPERATIONS

Three months ended ~~June 30, 2019,~~March 31, 2020, Compared to Three months ended ~~June 30, 2018~~March 31, 2019

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, 2019,~~March 31, 2020, compared to the three months ended ~~June 30, 2018.~~March 31, 2019.


	Three Months Ended June 30,								2019 vs. 2018				Three Months Ended March 31,								2020 vs. 2019
			% of Total				% of Total								% of Total				% of Total
	2019		Revenue		2018		Revenue		$ Change		% Change		2020		Revenue		2019		Revenue		$ Change		% Change
Revenues	$	41,169	100.0	%	$	36,781	100.0	%	$	4,388	11.9	%	$	48,634	100.0	%	$	41,660	100.0	%	$	6,974	16.7	%
Cost of sales		37,277	90.5	%		34,442	93.6	%		2,835	8.2	%		42,462	87.3	%		38,111	91.5	%		4,351	11.4	%
Restructuring		—	—	%		116	0.3	%		(116)	(100.0)	%		—	—	%		12	0.0	%		(12)	(100.0)	%
Gross profit		3,892	9.5	%		2,223	6.0	%		1,669	75.1	%		6,172	12.7	%		3,537	8.5	%		2,635	74.5	%
Operating expenses
Selling, general and administrative expenses		3,895	9.5	%		2,495	6.8	%		1,400	56.1	%		4,309	8.9	%		3,828	9.2	%		481	12.6	%
Impairment charges		—	—	%		4,993	13.6	%		(4,993)	(100.0)	%
Intangible amortization		203	0.5	%		471	1.3	%		(268)	(56.9)	%		183	0.4	%		203	0.5	%		(20)	(9.9)	%
Total operating expenses		4,098	10.0	%		7,959	21.6	%		(3,861)	(48.5)	%		4,492	9.2	%		4,031	9.7	%		461	11.4	%
Operating loss		(206)	(0.5)	%		(5,736)	(15.6)	%		5,530	96.4	%
Operating income (loss)														1,680	3.5	%		(494)	(1.2)	%		2,174	440.1	%
Other expense, net
Interest expense, net		(773)	(1.9)	%		(352)	(1.0)	%		(421)	(119.6)	%		(673)	(1.4)	%		(536)	(1.3)	%		(137)	(25.6)	%
Other, net		(16)	(0.0)	%		(1)	(0.0)	%		(15)	(1,500.0)	%		(1)	(0.0)	%		(1)	(0.0)	%		—	—	%
Total other expense, net		(789)	(1.9)	%		(353)	(1.0)	%		(436)	(123.5)	%		(674)	(1.4)	%		(537)	(1.3)	%		(137)	(25.5)	%
Net loss before provision (benefit) for income taxes		(995)	(2.4)	%		(6,089)	(16.6)	%		5,094	83.7	%
Provision (benefit) for income taxes		23	0.1	%		(6)	(0.0)	%		29	483.3	%
Loss from continuing operations		(1,018)	(2.5)	%		(6,083)	(16.5)	%		5,065	83.3	%
Income (loss) from discontinued operations		—	—	%		(33)	(0.1)	%		33	100.0	%
Net loss	$	(1,018)	(2.5)	%	$	(6,116)	(16.6)	%	$	5,098	83.4	%
Net income (loss) before provision for income taxes														1,006	2.1	%		(1,031)	(2.5)	%		2,037	197.6	%
Provision for income taxes														52	0.1	%		11	0.0	%		41	372.7	%
Net income (loss)													$	954	2.0	%	$	(1,042)	(2.5)	%	$	1,996	191.6	%

Consolidated

Revenues increased ~~from $36,781 during~~by $6,974, primarily due to higher production levels in the ~~three months ended June 30, 2018, to $41,169 during the three months ended June 30, 2019, including increases in each segment. Towers and~~ Heavy Fabrications segment ~~revenues were up $3,418 or 13% due primarily to~~as towers sections sold increased 66% from the first quarter of 2019, partially offset by a ~~higher~~lower average sales price on ~~the~~ towers sold primarily due to higher levels of customer supplied materials in the current year. Industrial Solutions revenue was up $700 from the first quarter of 2019, primarily due to increased shipments of new gas turbine content. Partially offsetting these improvements was a ~~more complex mix of towers sold and as a result of higher steel prices.~~

Gross profit increased by $1,669, from $2,223 during the three months ended June 30, 2018, to $3,892 during the three months ended June 30, 2019. Gross margin increased from 6.0% during the three months ended June 30, 2018, to 9.5% during the three months ended June 30, 2019. The increasedecrease in ~~gross profit was primarily attributable to improved manufacturing efficiencies in our~~ Gearing segment ~~partially offset by lower margins in our Towers and Heavy Fabrications segment, where margins have been depressed because~~revenue of ~~increased competition from foreign tower manufacturers.~~

~~Operating expenses decreased from $7,959 during the three months ended June 30, 2018,~~$3,800 due primarily to $4,098 during the three months ended June 30, 2019. The decrease was primarily attributable to the absence of the $4,993 goodwill impairment charge that occurred during the prior year quarter, partially offset by the absence of the reversal of the $1,140 Red Wolf earn-out reserve, which also occurred during the prior year quarter. As a result, operating expenses as a percentage of sales normalized to 10.0%weak order intake in the ~~current-year quarter.~~

~~Net loss decreased from $6,116 during the three months ended June 30, 2018, to $1,018 during the three months ended June 30, 2019, as a result~~second half of ~~the factors described above.~~

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2019 primarily within O&G and other industrial markets. In addition, due to declining oil prices and general market uncertainty, customers delayed approximately $1,000 of purchases into future periods.

Gross profit increased by $2,635 due primarily to higher capacity utilization in towers and overall improved operating efficiencies. This benefit was partially offset by lower gearing sales across all core industries, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. As a result, gross margin increased to 12.7% during the three months ended March 31, 2020, from 8.5% during the three months ended March 31, 2019.

Due to higher revenue levels, operating expenses as a percentage of sales improved to 9.2% in the current-year quarter from 9.7% in the prior year quarter.

Net income increased to $954 during the three months ended March 31, 2020 from a net loss of $1,042 during the three months ended March 31, 2019 due to the factors described above.

~~Towers and~~ Heavy Fabrications Segment


	Three Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020			2019
Orders	$	96,328		$	9,870		$	15,514		$	12,510
Tower sections sold								312			188
Revenues		28,970			25,552			38,368			28,294
Operating income		318			541
Operating income (loss)								3,541			(222)
Operating margin		1.1	%		2.1	%		9.2	%		(0.8)	%

~~Towers and~~ The increase in Heavy Fabrications segment orders ~~spiked as both new~~was primarily due to increased demand for other industrial fabrications of $4,935, primarily from mining and ~~existing~~other industrial customers ~~secured capacity~~resulting from ongoing diversification efforts. Partially offsetting this increase was a reduction in tower orders, primarily due to ~~support strong turbine installations~~timing of customer purchases. Segment revenues increased by $10,074 due to a 66% increase in 2020. In addition, our largest customer fulfilled orders under a three-year framework agreement in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis. Although the number oftower sections sold ~~was flat~~ compared to the prior year quarter ~~segment revenues were up $3,418 or 13% due primarily to~~and the benefit of improved customer diversification. This was partially offset by a ~~higher~~lower average sales price on ~~the~~ towers sold primarily due to ~~a more complex design and higher steel prices.~~increased customer supplied materials in the current year.

~~Towers and~~ Heavy Fabrications segment operating ~~income decreased~~results improved by ~~$223 from $541~~$3,763 compared to the prior year. The quarter-over-quarter improvement reflected the higher capacity utilization associated with tower production and overall improved operating efficiencies. Operating margin was 9.2% during the three months ended ~~June 30, 2018, to $318~~March 31, 2020, an increase from (0.8%) during the three months ended ~~June 30,~~March 31, 2019. Despite higher selling prices, margins have been adversely impacted by increased competition from offshore tower manufacturers. Also impacting profitability were higher legal fees and increases in incentive compensation. Operating margin decreased from 2.1% during the three months ended June 30, 2018, to 1.1% during the three months ended June 30, 2019.

Gearing Segment


	Three Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020			2019
Orders	$	5,572		$	6,148		$	12,421		$	7,135
Revenues		9,266			8,632			6,227			10,027
Operating income (loss)		913			(662)
Operating (loss) income								(261)			1,387
Operating margin		9.9	%		(7.7)	%		(4.2)	%		13.8	%

Gearing segment orders ~~for the three months ended June 30, 2019 decreased $576~~increased 74% compared to the prior year period primarily due to ~~timing of orders received from mining industry customers. Revenue increased from $8,632 during the three months ended June 30, 2018, to $9,266 during the three months ended June 30, 2019. The~~an increase ~~was driven primarily by increased~~in aftermarket wind shipments and stronger mining industry demand, partially offset by lower O&G demand as the fracking capacity expansions underway in 2018 have subsided, and some customers have shifted purchases to low cost countries.

gearing orders, which can fluctuate based on customer order patterns. Gearing segment ~~operating income improved by $1,575,~~orders also benefitted from a loss of $662 during the three months ended June 30, 2018, to income of $913 during the three months ended June 30, 2019. The improvement was primarily attributable to a better product mix, improved plant throughput and improved manufacturing efficiencies including lower scrap and warranty expense. Operating margin was 9.9% during the three months ended June 30, 2019, up sharply from (7.7%) during the three months ended June 30, 2018.

~~Process Systems Segment~~

Three Months Ended

June 30,

2019

2018
Orders
$
2,712

$
2,584

Revenues

2,933

2,620

Operating income (loss)

28

(5,589)

Operating margin

1.0
%

(213.3)
%

~~Process Systems segment orders and revenues have increased modestly~~an increase in other industrial customer demand. Revenue decreased 38% from the prior year ~~period~~quarter due primarily to lower order intake in the second half of 2019 within O&G and other industrial markets. In addition, due to ~~stronger demand for new gas turbine content. The Process Systems segment operating income improvement was the result~~declining oil prices and general market uncertainty, customers delayed approximately $1,000 of the absence of a $4,993 goodwill impairment charge that occurred during the prior year quarter, improvements in product mix sold and lower amortization expense during the current year quarter. The operating margin improved from (213.3%) during the three months ended June 30, 2018 to 1.0% during the three months ended June 30, 2019. purchases into future periods.

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~~Corporate and Other~~

~~Corporate and Other expenses normalized~~Gearing segment operating results decreased $1,648 from $26 during the three months ended June 30, 2018, to $1,465 during the three months ended June 30, 2019. The increase was primarily attributable to the absence of a reversal of the final Red Wolf earn-out reserve which benefitted the prior year ~~quarter, and increased incentive compensation for the current year.~~

~~Six months ended June 30, 2019, Compared to Six months ended June 30, 2018~~

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, 2019, compared to the six months ended June 30, 2018.

Six Months Ended June 30,

2019 vs. 2018

% of Total

% of Total

2019

Revenue

2018

Revenue

$ Change

% Change

Revenues

$
82,829

100.0
%
$
66,748

100.0
%
$
16,081

24.1
%
Cost of sales

75,388

91.0
%

64,426

96.5
%

10,962

17.0
%
Restructuring

12

0.0
%

231

0.3
%

(219)

(94.8)
%
Gross profit

7,429

9.0
%

2,091

3.1
%

5,338

255.3
%
Operating expenses

Selling, general and administrative expenses

7,723

9.3
%

6,393

9.6
%

1,330

20.8
%
Impairment charges

—

—
%

4,993

7.5
%

(4,993)

(100.0)
%
Intangible amortization

406

0.5
%

942

1.4
%

(536)

(56.9)
%
Restructuring

—

—
%

36

0.1
%

(36)

(100.0)
%
Total operating expenses

8,129

9.8
%

12,364

18.5
%

(4,235)

(34.3)
%
Operating loss

(700)

(0.8)
%

(10,273)

(15.4)
%

9,573

93.2
%
Other expense, net

Interest expense, net

(1,309)

(1.6)
%

(650)

(1.0)
%

(659)

(101.4)
%
Other, net

(18)

(0.0)
%

(4)

(0.0)
%

(14)

(350.0)
%
Total other expense, net

(1,327)

(1.6)
%

(654)

(1.0)
%

(673)

(102.9)
%
Net loss before provision (benefit) for income taxes

(2,027)

(2.4)
%

(10,927)

(16.4)
%

8,900

81.4
%
Provision (benefit) for income taxes

34

0.0
%

(33)

(0.0)
%

67

203.0
%
Loss from continuing operations

(2,061)

(2.5)
%

(10,894)

(16.3)
%

8,833

81.1
%
Income (loss) from discontinued operations, net of tax

1

0.0
%

(60)

(0.1)
%

61

101.7
%
Net loss

$
(2,060)

(2.5)
%
$
(10,954)

(16.4)
%
$
8,894

81.2
%

~~Consolidated~~

Revenues increased from $66,748 during the six months ended June 30, 2018, to $82,829 during the six months ended June 30, 2019, including increases in each segment. Towers and Heavy Fabrications segment revenues were up $13,517 or 31% due to a 13% increase in tower sections sold, a higher average sales price due to a more complex mix of towers sold and as a result of higher steel prices. Heavy fabrications revenues increased due to higher demand from mining and construction customers, partially offset by decreases in O&G fabrications. Gearing segment revenues were up $1,855 or 11%, primarily as a result of increased aftermarket wind shipments and stronger mining demand, partially offset by lower O&G demand.

Gross profit increased by $5,338, from $2,091 during the six months ended June 30, 2018, to $7,429 during the six months ended June 30, 2019. Gross margin increased from 3.1% during the six months ended June 30, 2018, to 9.0% during the six months ended June 30, 2019. The increase in gross profit was primarily attributable to higher plant utilization and improved manufacturing efficiencies in our Towers and Heavy Fabrications and Gearing segments. The negative impacts from pricing pressure were offset by increased production volumes and the absence of plant start-up costs incurred in the prior year.

~~Operating expenses decreased from $12,364 during the six months ended June 30, 2018, to $8,129 during the six months ended June 30, 2019.~~period. The decrease was primarily attributable to ~~the absence of~~ a ~~$4,993 goodwill impairment charge that occurred~~decrease in sales across all core markets, a lower margin sales mix and manufacturing inefficiencies associated with lower activity levels. Operating margin was (4.2%) during the ~~prior year and lower amortization and commission expense. Partially offsetting these factors was the absence of a $1,140 reversal of the final Red Wolf earn-out reserve which occurred~~three months ended March 31, 2020, down from 13.8% during the ~~prior year and higher incentive compensation costs. Operating expenses as a percentage of revenue decreased to 9.8% in the first two quarters of 2019, compared to 18.5% during the prior year period.~~

~~Net loss decreased from $10,954 during the six~~three months ended ~~June 30, 2018, to $2,060 during the six months ended June 30, 2019, as a result of the factors described above.~~ March 31, 2019.

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~~Towers and Heavy Fabrications~~Industrial Solutions Segment


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020				2019
Orders	$	108,839		$	19,674		$	5,874		$	4,361
Revenues		57,264			43,747			4,039			3,339
Operating income (loss)		96			(1,554)			192			(285)
Operating margin		0.2	%		(3.6)	%		4.8	%		(8.5)	%

~~Towers and Heavy Fabrications~~Industrial Solutions segment orders ~~spiked as both new~~ and existing customers secured capacity to support strong turbine demand in 2020. In addition, our largest customer fulfilled orders under a three-year customer framework agreement in which minimum contract orders were reported in backlog at the onset of the agreement in 2016 and is now placing orders on a project-by-project basis. Towers and Heavy Fabrications segment revenues increased by $13,517 due to a 13% increase in tower sections sold, a higher average sales price on the towers sold due to a more complex design, and higher steel prices. Heavy fabrication revenues increased due to higher demand from ~~mining and construction customers, partially offset by decreases in O&G.~~

Towers and Heavy Fabrications segment operating results improved by $1,650, from a loss of $1,554 during the six months ended June 30, 2018, to income of $96 during the six months ended June 30, 2019. The negative impacts from increased competitive pricing pressure in the current year, were offset by increased production volumes and the absence of plant start-up costs incurred in the prior year.

~~Gearing Segment~~

0

Six Months Ended

June 30,

2019

2018

Orders

$
12,707

$
21,514

Revenues

19,293

17,438

Operating income (loss)

2,300

(1,288)

Operating margin

11.9
%

(7.4)
%

~~Gearing segment orders decreased $8,807 during the six months ended June 30, 2019 compared to~~ the prior year period primarily due to ~~a decrease in~~stronger near-term demand from O&G customers as the prior year period benefitted from the industry’s expansion of fracking capacity and significantly longer lead times due to steel availability issues. Revenue increased from $17,438 during the six months ended June 30, 2018, to $19,293 during the six months ended June 30, 2019. The increase was driven primarily by increased aftermarket wind shipments and stronger mining demand,for new gas turbine content, partially offset by lower ~~O&G~~aftermarket demand.

The ~~Gearing segment~~revenue increase was a result of recent strong order activity levels associated with an increase in global new gas turbine activity levels. The operating ~~profit improved by $3,588, from a loss of $1,288 during the six months ended June 30, 2018, to~~ income ~~of $2,300 during the six months ended June 30, 2019. The~~ improvement was primarily attributable to the product mix sold, improved plant throughput and improved manufacturing efficiencies including lower scrap and warranty costs. Operating margin was 11.9% during the six months ended June 30, 2019, up sharply from (7.4%) during the six months ended June 30, 2018.

~~Process Systems Segment~~

Six Months Ended

June 30,

2019

2018
Orders

$
7,072

$
5,555
Revenues

6,272

5,586
Impairment charges

-

4,993
Operating loss

(256)

(5,890)
Operating margin

(4.1)
%

(105.4)

Process Systems segment orders increased $1,517, from $5,555 during the six months ended June 30, 2018, to $7,072 during the six months ended June 30, 2019. The increase in orders is primarily due to higher customer demand for new gas

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turbine content. Process Systems segment revenues increased by $686, from $5,586 during the six months ended June 30, 2018, to $6,272 during the six months ended June 30, 2019 primarily due to increased sales for aftermarket products.

~~The Process Systems segment operating loss improvement was the~~a result of the ~~absence of a $4,993 goodwill impairment charge that occurred during the prior year~~revenue growth and ~~lower amortization expense.~~general operating efficiencies. The operating margin improved to ~~(4.1%~~4.8% during the three months ended March 31, 2020 from (8.5%) during the ~~six~~three months ended ~~June 30, 2019 from (105.4%) during the six months ended June 30, 2018, due to the factors mentioned above.~~March 31, 2019.

Corporate and Other

Corporate and Other expenses ~~normalized from $1,541~~increased by $418 during the ~~six~~three months ended ~~June 30, 2018, to $2,840 during the six months ended June 30, 2019. The increase was~~March 31, 2020 primarily ~~attributable to the absence of a $1,140 benefit in the prior year associated with the reversal of the final Red Wolf earn-out reserve and also~~ due to ~~higher incentive compensation~~increased salary and benefit related expenses in the current ~~year.~~year quarter.

LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

As of ~~June 30, 2019,~~March 31, 2020, cash and cash equivalents totaled ~~$74 a decrease~~$2,743 an increase of ~~$1,103~~$327 from December 31, ~~2018.~~2019. Cash balances remain minimal as operating receipts and disbursements flow through our Credit Facility, which is in a drawn position. Debt and finance lease obligations at ~~June 30, 2019~~March 31, 2020 totaled ~~$29,931.~~$17,761. As of ~~June 30, 2019,~~March 31, 2020, we had the ability to borrow up to an additional ~~$8,033~~$16,283 under the Credit Facility (as defined in Note 7, “Debt and Credit Agreements,” in the notes to our condensed consolidated financial statements). On July 31, 2018, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with Roth Capital Partners, LLC (the “Agent”). Pursuant to the terms of the ATM Agreement, we may sell from time to time through the Agent 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 Agent of 3% of the gross proceeds of the sale of the shares sold under the ATM Agreement and reimburse the Agent for the expenses of their counsel. We anticipate that we will be able to satisfy the cash requirements associated with, among other things, working capital needs, capital expenditures and lease commitments through at least the next twelve months primarily through cash generated from operations, available cash balances, the Credit Facility, additional equipment financing, and access to the public or private debt equity markets, including the option to raise capital from the sale of our securities under the Form S-3.

~~On February 25, 2019,~~ However, we ~~executed an Amended and Restated Loan and Security Agreement (the “Amended and Restated Loan Agreement”) which expanded our Credit Facility~~do not anticipate that we will have the ability to ~~$35,000 and extended the term to February 25, 2022. The Amended and Restated Loan Agreement includes minimum EBITDA covenants through September 30, 2019, replaced by~~generate a ~~Fixed Charge Coverage Ratio thereafter.~~

~~In conjunction with the Amended and Restated Loan Agreement, during June 2019, we entered into a floating to fixed interest rate swap with CIBC. The swap agreement has a notional~~significant amount of ~~$6,000 and~~capital from equity markets in the near-term as a ~~schedule matching that~~result of the ~~underlying loan~~low trading volume of our common stock on the NASDAQ exchange and limitations on the aggregate amount of securities that ~~synthetically fixes~~we may offer under the ~~interest rate~~Form S-3 due to our public float size. The Form S-3 will expire on LIBOR borrowings for the entire term of the Credit Facility at 2.13%, before considering our 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.October 10, 2020.

We anticipate that current cash resources, amounts available under the Credit Facility, the loans received under the U.S. Payroll Protection Program, cash to be generated from operations, and any potential proceeds from the sale of our securities under the Form S-3 ~~or other privately raised funds~~ 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, we may encounter cash flow and liquidity issues. Additionally new or existing customers may request acceleration of production or we may accept new orders or modify existing orders to purchase steel opportunistically or to build products without deposits, which will reduce our liquidity. Further in advance of anticipated cash needs, we may also issue debt or sell equity or equity linked securities.

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If our operational performance ~~does not improve,~~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

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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 three months ended March 31, 2020 and 2019:


	Three Months Ended
	March 31,
	2020		2019
Total cash provided by (used in):
Operating activities	$	(1,025)	$	(11,349)
Investing activities		(670)		(576)
Financing activities		2,022		10,785
Net increase (decrease) in cash	$	327	$	(1,140)

Operating Cash Flows

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, net cash used in operating activities totaled ~~$14,612,~~$1,025, compared to net cash used in operating activities of ~~$2,793~~$11,349 for the ~~six~~three months ended ~~June 30, 2018. Net~~March 31, 2019. This decrease in net cash used inwas primarily due to improved operating ~~activities increased versus the prior year period due primarily to~~performance, a lower working capital build ~~of inventory driven by higher production levels within the Towers and Heavy Fabrications segment. Additionally, customer deposits decreased by $4,946~~ in the current year period, ~~due to increased tower shipments and~~largely as a result of the timing of new ~~tower~~ orders that ~~include customer~~included deposit provisions.

Investing Cash Flows

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, net cash used in investing activities totaled ~~$1,182,~~$670, compared to net cash used in investing activities of ~~$1,676~~$576 during the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019. The ~~decrease~~increase in net cash used in investing activities as compared to the prior-year period was ~~primarily~~ due to ~~a $493 decrease~~an increase in net ~~investments in~~purchases of property and equipment.

Financing Cash Flows

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, net cash provided by financing activities totaled ~~$14,690,~~$2,022, compared to net cash provided by financing activities of ~~$4,505~~$10,785 for the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019. The ~~increase in net cash provided by financing activities as compared to~~decrease versus the prior-year period was primarily due to ~~increased~~lower usage of our Credit Facility in ~~2019.~~the current year.

Other

In 2016, we entered into a $570 loan agreement with the Development Corporation of Abilene which is included in ~~long-term~~the “Long-term debt, less current ~~maturities.~~maturities” line item of our condensed consolidated financial statements as of March 31, 2020 and December 31, 2019. The loan is forgivable upon the Company meeting and maintaining specific employment thresholds. During each of the years 2019 and 2018, $114 of the loan was forgiven. As of March 31, 2020, the loan balance was $342. In addition, we have outstanding notes payable for capital expenditures in the amount of ~~$1,445~~$2,363 and ~~$1,882~~$1,563 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, with ~~$918~~$2,350 and ~~$930~~$1,400 included in the “Line of Credit and other notes payable” line item of our condensed consolidated financial statements as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The notes payable have monthly payments that range from $1 to $36 and an interest rate of approximately 5%. The equipment purchased is utilized as collateral for the notes payable. The outstanding notes payable have maturity dates that range from April 2020 to August 2022.

In April 2020, we received loans totaling $9,530 as part of the 2020 Coronavirus Aid, Relief and Economic Stability Act. Please refer to Note 16, “Subsequent Events” in the notes to our condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more details.

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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, ~~2018.~~2019. 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”). 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:~~following, many of which are, and will be, amplified by the COVID-19 pandemic: (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; (ii)~~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; ~~(iii)~~(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; (iv)~~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; ~~(v)~~(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; ~~(vi)~~(ix) our ability to realize revenue from customer orders and backlog; ~~(vii)~~(x) our ability to operate our business efficiently, comply with our debt obligations, manage capital expenditures and costs effectively, and generate cash flow; ~~(viii)~~(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; ~~(ix)~~(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; ~~(x)~~(xiii) the effects of market disruptions and regular market volatility, including fluctuations in the price of oil, gas and other commodities; ~~(xi)~~(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; ~~(xii)~~(xvi) our ability to successfully integrate and operate acquired companies and to identify, negotiate and execute future acquisitions; ~~(xiii)~~(xvii) the potential loss of tax benefits if we experience an “ownership change” under Section 382 of the ~~IRC; (xiv)~~Internal Revenue Code of 1986, as amended; (xviii) our ability to utilize various relief options enabled by the Coronavirus Aid, Relief and Economic Security Act; (xix) the limited trading market for our securities and the volatility of market price for our securities; and ~~(xv)~~(xx) the impact of future sales of our common stock or

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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, ~~2018.~~2019, as supplemented by our Current Report on Form 8-K filed April 17, 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.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by ~~Rule 12b-2~~Item 10(f)(1) of Regulation S-K under the ~~Exchange~~Securities Act and as such are not required to provide information under this ~~Item.~~Item pursuant to Item 305(e) of Regulation S-K.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We seek to maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the

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supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal quarter reported on herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~June 30, 2019.~~March 31, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

The information required by this item is incorporated herein by reference to Note 12, “Legal Proceedings” of the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A.Risk Factors

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~ 2019 except as supplemented by the risk factor set forth on our Current Report on Form 8-K filed April 17, 2020.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not Applicable.

Item 5.Other Information

Not Applicable.

Item 6.Exhibits

The exhibits listed on the Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.

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EXHIBIT INDEX

BROADWIND, ~~ENERGY,~~ INC.

FORM 10-Q FOR THE QUARTER ENDED ~~JUNE 30, 2019~~MARCH 31, 2020


Exhibit Number		Exhibit
3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10‑Q for the quarterly period ended June 30, ~~2008)~~2008
3.2		Certificate of Amendment to the Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8‑K filed August 23, 2012)
3.3		~~Second Amended and Restated Bylaws~~Certificate of Amendment to the Certificate of Incorporation of the Company ~~adopted as of May 20, 2014~~ (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8‑K filed May ~~23, 2014)~~6, 2020)
3.4	Third Amended and Restated Bylaws of the Company, adopted as of May 4, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8‑K filed May 6, 2020)
10.1	Note dated April 5, 2020 by and between Brad Foote Gear Works, Inc. and CIBC Bank USA*
10.2	Note dated April 5, 2020 by and between Broadwind Heavy Fabricators, Inc. and CIBC Bank USA*
10.3	Note dated April 5, 2020 by and between Broadwind Industrial Services, Inc. and CIBC Bank USA*
10.4	Note dated April 8, 2020 by and between Broadwind Energy, Inc. n/k/a Broadwind, Inc. and CIBC Bank USA*
31.1		Rule 13a-14(a) Certification of Chief Executive Officer*
31.2		Rule 13a-14(a) Certification of Chief Financial Officer*
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer*
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer*
101		The following financial information from this Form 10-Q of Broadwind, ~~Energy,~~ Inc. for the quarter ended ~~June 30, 2019,~~March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.

________________________

*Filed herewith.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BROADWIND, ~~ENERGY,~~ INC.


~~August 2, 2019~~May 8, 2020	By:	/s/ ~~Stephanie K. Kushner~~Eric B. Blashford
		~~Stephanie K. Kushner~~Eric B. Blashford
		President, Chief Executive Officer
		(Principal Executive Officer)
~~August 2, 2019~~May 8, 2020	By:	/s/ Jason L. Bonfigt
		Jason L. Bonfigt
		Vice President, Chief Financial Officer (Principal Financial Officer)

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		Weighted Average
		Grant-Date Fair Value
	Number of Shares	Per Share
Unvested as of December 31, 2018	805,844	$	3.16
Granted	860,381	$	1.91
Vested	(233,427)	$	2.88
Unvested as of June 30, 2019	1,432,798	$	2.46



	Towers and				Process
	Heavy Fabrications		Gearing		Systems		Corporate		Eliminations		Consolidated
For the Three Months Ended June 30, 2019
Revenues from external customers	$	28,970	$	9,266	$	2,933	$	—	$	—	$	41,169
Operating profit (loss)		318		913		28		(1,465)		—		(206)
Depreciation and amortization		978		483		122		45		—		1,628
Capital expenditures		308		273		14		11		—		606