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 12 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 12 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying 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 ☑

As of October ~~21, 2019,~~14, 2020, there were ~~8,787,837~~8,829,732 shares of the Registrant’s common stock outstanding.

	Three months ended					Nine months ended			��	Three months ended					Nine months ended
	September 30,					September 30,				September 30,					September 30,
	2019		2018			2019		2018		2020		2019			2020		2019

Net sales	$	56,568	$	69,056	$	187,836	$	198,864		$	37,434	$	56,568	$	148,407	$	187,836
Cost of products sold		51,260		58,631		166,052		167,472			41,861		51,260		145,988		166,052

Gross margin		5,308		10,425		21,784		31,392			(4,427)		5,308		2,419		21,784
Selling, general and administrative expenses		4,525		5,131		15,095		16,187			4,153		4,525		15,458		15,095

Operating income		783		5,294		6,689		15,205
Operating (loss) income											(8,580)		783		(13,039)		6,689
Interest expense and other financing costs		1,045		966		2,980		3,440			642		1,045		2,401		2,980
Other income, net		(452)		(48)		(421)		(690)			(288)		(452)		(302)		(421)

Income before income taxes		190		4,376		4,130		12,455
Provision (benefit) for income taxes		(577)		460		55		2,376
(Loss) income before income taxes											(8,934)		190		(15,138)		4,130
(Benefit) provision for income taxes											(1,934)		(577)		(3,396)		55

Net income	$	767	$	3,916	$	4,075	$	10,079
Net (loss) income										$	(7,000)	$	767	$	(11,742)	$	4,075

Net income per common share - Basic	$	0.09	$	0.45	$	0.46	$	1.27
Net (loss) income per common share - Basic										$	(0.79)	$	0.09	$	(1.33)	$	0.46

Net income per common share - Diluted	$	0.09	$	0.44	$	0.46	$	1.23
Net (loss) income per common share - Diluted										$	(0.79)	$	0.09	$	(1.33)	$	0.46

Weighted average shares of common stock outstanding
Basic		8,787,837		8,699,953		8,780,590		7,931,783			8,829,732		8,787,837		8,813,880		8,780,590
Diluted		8,879,441		8,952,749		8,870,240		8,166,759			8,829,732		8,879,441		8,813,880		8,870,240

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

September 30,

December 31,

2019

2018

(Unaudited)

ASSETS

Current assets:

Cash

$
1,204

$
3,696
Accounts receivable (less allowance for doubtful accounts of $295)

36,422

32,618
Inventory, net

140,672

134,738
Other current assets

5,756

3,756

Total current assets

184,054

174,808

Property, plant and equipment, net

175,962

177,844
Other long-term assets

1,002

668

Total assets

$
361,018

$
353,320

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
32,154

$
44,379
Accrued employment costs

3,830

7,939
Current portion of long-term debt

3,929

3,907
Other current liabilities

912

2,929

Total current liabilities

40,825

59,154

Long-term debt, net

62,155

42,839
Deferred income taxes

12,097

11,481
Other long-term liabilities, net

3,283

2,835

Total liabilities

118,360

116,309

Stockholders’ equity:

Senior preferred stock, par value $0.001 per share; 1,980,000 shares authorized; 0 shares issued and outstanding

-

-
Common stock, par value $0.001 per share; 20,000,000 shares authorized; 9,082,116 and 9,045,345 shares issued, respectively

9

9
Additional paid-in capital

94,548

93,100
Other comprehensive income

125

1
Retained earnings

150,287

146,191
Treasury stock, at cost; 294,279 and 292,855 common shares held, respectively

(2,311)

(2,290)

Total stockholders’ equity

242,658

237,011

Total liabilities and stockholders’ equity

$
361,018

$
353,320

	Three months ended						Nine months ended
	September 30,						September 30,
	2020			2019			2020				2019

Net (loss) income	$	(7,000	)	$	767	$		(11,742	)	$		4,075
Other comprehensive income (loss), net of tax
Adoption of ASU 2018-02		-			-			-				(21	)
Unrealized (loss) gain on foreign currency contracts		(63	)		58			32				145
Comprehensive (loss) income	$	(7,063	)	$	825	$		(11,710	)	$		4,199

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

Nine months ended

September 30,

2019

2018

Operating Activities:

Net income

$

4,075

$

10,079

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

14,235

14,460

Deferred income tax

577

2,327

Share-based compensation expense

1,100

1,046

Changes in assets and liabilities:

Accounts receivable, net

(3,804
)

(19,195
)
Inventory, net

(7,628
)

(7,890
)
Accounts payable

(9,728
)

(3,964
)
Accrued employment costs

(4,109
)

2,595

Income taxes

(56
)

(36
)
Other, net

(3,735
)

1,307

Net cash (used in) provided by operating activities

(9,073
)

729

Investing Activity:

Capital expenditures

(13,308
)

(13,211
)

Net cash used in investing activity

(13,308
)

(13,211
)

Financing Activities:

Borrowings under revolving credit facility

145,688

347,395

Payments on revolving credit facility

(123,097
)

(351,918
)
Proceeds under New Markets Tax Credit financing

-

2,835

Payments on term loan facility, finance leases, and notes

(3,424
)

(11,821
)
Payments of financing costs

-

(1,105
)
Proceeds from public offering, net of cash expenses

-

32,246

Proceeds from the exercise of stock options

327

834

Net cash provided by financing activities

19,494

18,466

Net (decrease) increase in cash and restricted cash

(2,887
)

5,984

Cash and restricted cash at beginning of period

4,091

207

Cash and restricted cash at end of period

$

1,204

$

6,191

	September 30,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Current assets:
Cash	$	58	$	170
Accounts receivable (less allowance for doubtful accounts of $203 and $295, respectively)		26,451		35,595
Inventory, net		120,947		147,402
Other current assets		4,824		8,300

Total current assets		152,280		191,467

Property, plant and equipment, net		168,623		176,061
Other long-term assets		997		871

Total assets	$	321,900	$	368,399

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,443	$	40,912
Accrued employment costs		3,235		4,449
Current portion of long-term debt		16,690		3,934
Other current liabilities		1,664		830

Total current liabilities		34,032		50,125

Long-term debt, net		43,879		60,411
Deferred income taxes		7,609		10,962
Other long-term liabilities, net		3,739		3,765

Total liabilities		89,259		125,263

Stockholders’ equity:
Senior preferred stock, par value $0.001 per share; 1,980,000 shares authorized; 0 shares issued and outstanding		-		-
Common stock, par value $0.001 per share; 20,000,000 shares authorized; 9,124,011 and 9,093,715 shares issued, respectively		9		9
Additional paid-in capital		96,197		94,982
Accumulated other comprehensive income (loss)		1		(31)
Retained earnings		138,745		150,487
Treasury stock, at cost; 294,279 common shares held		(2,311)		(2,311)

Total stockholders’ equity		232,641		243,136

Total liabilities and stockholders’ equity	$	321,900	$	368,399

~~The following table reconciles cash and restricted cash above to the Consolidated Balance Sheets~~

Amounts included in restricted cash represent those funds required to be used pursuant to the construction of a new bar cell unit at the Company's Dunkirk, NY facility. These funds were obtained pursuant to the terms of the New Markets Tax Credit Program.

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

Accumulated

Common

Additional

other

shares

Common

paid-in

Retained

comprehensive

Treasury

Treasury

outstanding

stock

capital

earnings

income (loss)

shares

stock

For the nine months ended September 30, 2019

Balance at December 31, 2018

8,752,490

$

9

$

93,100

$

146,191

$

1

292,855

$

(2,290
)
Common stock issuance under

Employee Stock Purchase Plan

9,270

-

128

-

-

-

-

Exercise of stock options

4,050

-

41

-

-

-

-

Share-based compensation

6,401

-

432

-

-

-

-

Net loss on derivative instruments

-

-

-

-

(67
)

-

-

Adoption of ASU 2018-02

-

-

-

21

(21
)

-

-

Net income

-

-

-

1,222

-

-

-

Balance at March 31, 2019

8,772,211

$

9

$

93,701

$

147,434

$

(87
)

292,855

$

(2,290
)
Common stock issuance under

Employee Stock Purchase Plan

11,182

-

152

-

-

-

-

Exercise of stock options

600

-

17

-

-

-

-

Share-based compensation

3,844

-

357

-

-

1,424

(21
)
Net gain on derivative instruments

-

-

-

-

154

-

-

Net income

-

-

-

2,086

-

-

-

Balance at June 30, 2019

8,787,837

$

9

$

94,227

$

149,520

$

67

294,279

$

(2,311
)
Common stock issuance under

Employee Stock Purchase Plan

-

-

(11
)

-

-

-

-

Share-based compensation

-

-

332

-

-

-

-

Net gain on derivative instruments

-

-

-

-

58

-

-

Net income

-

-

-

767

-

-

-

Balance at September 30, 2019

8,787,837

$

9

$

94,548

$

150,287

$

125

294,279

$

(2,311
)

	Nine months ended
	September 30,
	2020			2019

Operating Activities:
Net (loss) income	$	(11,742	)	$	4,075
Adjustments for non-cash items:
Depreciation and amortization		14,721			14,235
Deferred income tax		(3,380	)		577
Share-based compensation expense		1,129			1,100
Changes in assets and liabilities:
Accounts receivable, net		9,144			(3,804	)
Inventory, net		25,093			(7,628	)
Accounts payable		(25,399	)		(9,728	)
Accrued employment costs		(1,214	)		(4,109	)
Income taxes		207			(56	)
Other		4,045			(3,735	)

Net cash provided by (used in) operating activities		12,604			(9,073	)

Investing Activity:
Capital expenditures		(8,480	)		(13,308	)

Net cash used in investing activity		(8,480	)		(13,308	)

Financing Activities:
Borrowings under revolving credit facility		101,559			145,688
Payments on revolving credit facility		(112,498	)		(123,097	)
Proceeds from Paycheck Protection Program Note		10,000			-
Payments on term loan facility, finance leases, and notes		(3,383	)		(3,424	)
Issuance of common stock under share-based plans		86			327
Net cash (used in) provided by financing activities		(4,236	)		19,494

Net decrease in cash and restricted cash		(112	)		(2,887	)
Cash and restricted cash at beginning of period		170			4,091

Cash and restricted cash at end of period	$	58		$	1,204

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

Accumulated

Common

Additional

other

shares

Common

paid-in

Retained

comprehensive

Treasury

Treasury

outstanding

stock

capital

earnings

income (loss)

shares

stock

For the nine months ended September 30, 2018

Balance at December 31, 2017

7,257,787

$

8

$

58,514

$

135,529

$

(93
)

292,855

$

(2,290
)
Common stock issuance under

Exercise of stock options

4,550

-

54

-

-

-

-

Share-based compensation

2,848

-

401

-

-

-

-

Capital investment

-

-

33

-

-

-

-

Net loss on derivative instruments

-

-

-

-

(58
)

-

-

Net income

-

-

-

2,125

-

-

-

Balance at March 31, 2018

7,265,185

$

8

$

59,002

$

137,654

$

(151
)

292,855

$

(2,290
)
Common stock issuance under

Employee Stock Purchase Plan

7,922

-

149

-

-

-

-

Exercise of stock options

5,375

-

59

-

-

-

-

Public offering

1,408,163

1

32,253

-

-

-

-

Share-based compensation

-

-

351

-

-

-

-

Net gain on derivative instruments

-

-

-

-

166

-

-

Net income

-

-

-

4,038

-

-

-

Balance at June 30, 2018

8,686,645

$

9

$

91,814

$

141,692

$

15

292,855

$

(2,290
)
Common stock issuance under

Exercise of stock options

38,345

-

572

-

-

-

-

Public offering

-

-

(7
)

-

-

-

-

Share-based compensation

-

-

368

-

-

-

-

Net gain on derivative instruments

-

-

-

-

5

-

-

Net income

-

-

-

3,916

-

-

-

Balance at September 30, 2018

8,724,990

$

9

$

92,747

$

145,608

$

20

292,855

$

(2,290
)

										Accumulated
	Common				Additional					other
	shares		Common		paid-in		Retained			comprehensive			Treasury			Treasury
	outstanding		stock		capital		earnings			income (loss)			shares			stock

For the nine months ended September 30, 2020

Balance at December 31, 2019		8,799,436	$	9	$	94,982	$	150,487		$	(31	)		294,279	$		(2,311	)
Share-based compensation		3,680		-		511		-			-			-			-
Net gain on derivative instruments		-		-		-		-			120			-			-
Net loss		-		-		-		(1,411	)		-			-			-
Balance at March 31, 2020		8,803,116	$	9	$	95,493	$	149,076		$	89			294,279	$		(2,311	)
Common stock issuance under
Employee Stock Purchase Plan		11,884		-		86		-			-			-			-
Share-based compensation		14,732		-		323		-			-			-			-
Net loss on derivative instruments		-		-		-		-			(25	)		-			-
Net loss		-		-		-		(3,331	)		-			-			-
Balance at June 30, 2020		8,829,732	$	9	$	95,902	$	145,745		$	64			294,279	$		(2,311	)
Share-based compensation		-		-		295		-			-			-			-
Net loss on derivative instruments		-		-		-		-			(63	)		-			-
Net loss		-		-		-		(7,000	)		-			-			-
Balance at September 30, 2020		8,829,732	$	9	$	96,197	$	138,745		$	1			294,279	$		(2,311	)

For the nine months ended September 30, 2019

Balance at December 31, 2018	8,752,490	$	9	$	93,100		$	146,191	$	1		292,855	$	(2,290	)
Common stock issuance under
Employee Stock Purchase Plan	9,270		-		128			-		-		-		-
Exercise of stock options	4,050		-		41			-		-		-		-
Share-based compensation	6,401		-		432			-		-		-		-
Net loss on derivative instruments	-		-		-			-		(67	)	-		-
Adoption of ASU 2018-02	-		-		-			21		(21	)	-		-
Net income	-		-		-			1,222		-		-		-
Balance at March 31, 2019	8,772,211	$	9	$	93,701		$	147,434	$	(87	)	292,855	$	(2,290	)
Common stock issuance under
Employee Stock Purchase Plan	11,182		-		152			-		-		-		-
Exercise of stock options	600		-		17			-		-		-		-
Share-based compensation	3,844		-		357			-		-		1,424		(21	)
Net gain on derivative instruments	-		-		-			-		154		-		-
Net income	-		-		-			2,086		-		-		-
Balance at June 30, 2019	8,787,837	$	9	$	94,227		$	149,520	$	67		294,279	$	(2,311	)
Common stock issuance under
Employee Stock Purchase Plan	-		-		(11	)		-		-		-		-
Share-based compensation	-		-		332			-		-		-		-
Net gain on derivative instruments	-		-		-			-		58		-		-
Net income	-		-		-			767		-		-		-
Balance at September 30, 2019	8,787,837	$	9	$	94,548		$	150,287	$	125		294,279	$	(2,311	)

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

Universal Stainless & Alloy Products, Inc., and its wholly-owned subsidiaries (collectively, “Universal,” “we,” “us,” “our,” or the “Company”), manufacture and market semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. Our manufacturing process involves melting, remelting, heat treating, hot and cold rolling, forging, machining and cold drawing of semi-finished and finished specialty steels. Our products are sold to service centers, forgers, rerollers, original equipment manufacturers and wire redrawers. Our customers further process our products for use in a variety of industries, including the aerospace, power generation, oil and gas, heavy equipment, and general industrial manufacturing industries. We also perform conversion services on materials supplied by customers.

The accompanying unaudited consolidated statements include the accounts of Universal Stainless & Alloy Products, Inc. and its subsidiaries and are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reports and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. GAAP have been condensed or omitted pursuant to such regulations. Although the December 31, ~~2018~~2019 consolidated balance sheet data was derived from the audited financial statements, it does not include all disclosures required by U.S. GAAP. However, we believe that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our most recently audited financial statements and the notes thereto included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments necessary to present a fair presentation of the consolidated financial statements for the periods shown. Interim results are not necessarily indicative of the operating results for the full fiscal year or any future period. The preparation of these financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results may differ from our estimates. The consolidated financial statements include our accounts and the accounts of our wholly–owned subsidiaries. We also consolidate, regardless of our ownership percentage, variable interest entities (each a “VIE”) for which we are deemed to have a controlling financial interest. All intercompany transactions and balances have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if the entity is a VIE, and if we are deemed to be a primary beneficiary. As a part of our evaluation, we are required to qualitatively assess if we are the primary beneficiary of the VIE based on whether we hold the power to direct those matters that most significantly impacted the activities of the VIE and the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant. Refer to Note 7, New Markets Tax Credit Financing Transaction, for a description of the ~~VIE’s~~VIEs included in our consolidated financial statements.

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842),” which amends existing accounting standards for leases. The ASU requires lessees to recognize most leases on their balance sheet as a lease liability with a corresponding right-of-use asset. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. The criteria for evaluating are similar to those applied in current lease accounting. The Company adopted the ASU effective January 1, 2019. The adoption resulted in the recognition of current and noncurrent lease liabilities and corresponding right-of-use assets on the balance sheet, which did not have a material impact on the consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income,” that permits companies the option to reclassify stranded tax effects caused by the 2017 U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The Company adopted the ASU effective January 1, 2019 and recorded the reclassification to retained earnings as of the effective date of the adoption. The adoption did not have a material impact on the consolidated financial statements.

The Company considers the applicability and impact of all ASUs. Recently issued ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.

~~In August 2018, the FASB issued ASU~~ 2018-13, “Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement,” which ~~will modify~~modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including the removal of certain disclosure requirements. The amendments in the ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until the effective date. We ~~are currently evaluating~~adopted this guidance as of January 1, 2020 and the adoption did not have a material impact ~~of this guidance~~ on our consolidated financial ~~statements~~statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments in this ASU also improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. An entity is permitted to early adopt ~~on or before~~the guidance, and we early adopted ASU 2019-12 as of January 1, 2020. The adoption did not have a material impact on our consolidated financial statements.

The Company considers the applicability and impact of all ASUs. Recently issued ASUs not listed here were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial statements.

The following table sets forth the computation of basic and diluted net income per common share:

On May 25, 2018, the Company completed an underwritten, public offering involving the issuance and sale by the Company of 1,224,490 shares of common stock at a public offering price of $24.50 per share. In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 183,673 shares of common stock. On June 1, 2018, the underwriters exercised the option in full, and an additional 183,673 shares of common stock were issued and sold on June 5, 2018. The public offering resulted in gross proceeds to the Company of approximately $34.5 million, or $32.2 million net of the underwriting discount and other offering fees and expenses. We used the net proceeds from the public offering to repay amounts outstanding under the Company’s revolving credit facility.

We had options to purchase ~~609,750~~821,025 and ~~236,000~~609,750 shares of common stock outstanding at a weighted average price of ~~$26.71~~$21.71 and ~~$34.53~~$26.71 for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which were excluded in the computation of diluted net (loss) income per common share. We had options to purchase ~~609,750~~791,025 and ~~261,000~~609,750 shares of common stock outstanding at a weighted average price of ~~$26.71~~$22.23 and ~~$33.86~~$26.71 for the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, which were excluded in the computation of diluted net (loss) income per common share. These options were not included in the computation of diluted net (loss) income per common share because their exercise prices were greater than the average market price of our common stock. In addition, the calculation of diluted net (loss) per share excluded 510 shares and 4,803 shares, for the three and nine months ended September 30, 2020, respectively, for the assumed exercise of stock options as a result of being in a net loss position.

The Company’s revenues are primarily comprised of sales of products. Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product. A performance obligation is a promise in a contract to transfer a distinct product to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales and other taxes are excluded from revenues. Invoiced shipping and handling costs are included in revenue.

The Company’s revenue is primarily from products transferred to customers at a point in time. The Company recognizes revenue at the point in time in which the customer obtains control of the product, which is generally when product title passes to the customer upon shipment.

We have determined that there are certain customer agreements involving production of specified product grades and shapes that require revenue to be recognized over time, in advance of shipment, due to there being no alternative use for these grades and shapes without significant economic loss. Also, the Company maintains an enforceable right to payment including a normal profit margin from the customer in the event of contract termination. Contract assets related to services performed and not yet billed of $2.2 ~~million and $1.0~~ million are included in Accounts Receivable in the Consolidated Balance Sheets at September 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019.

The Company has elected the following practical expedients allowed under Accounting Standards Codification Topic 606:

Our raw material and starting stock inventory is primarily ~~comprised of~~includes ferrous and non-ferrous scrap metal and alloys such as nickel, chrome, molybdenum, cobalt, vanadium and copper. Our semi-finished and finished steel products are work-in-process in various stages of production or are finished products waiting to be shipped to our customers.

Operating materials ~~are~~ primarily ~~comprised of~~include forge dies and production molds and rolls that are consumed over their useful lives. During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we amortized these operating materials in the amount of $1.4 million and $1.7 million, ~~in each period.~~respectively. This expense is recorded as a component of cost of products sold on the consolidated statements of operations and included as a part of our total depreciation and amortization on the consolidated statements of cash flows.

Inventory is stated at the lower of cost or net realizable value with cost principally determined on a weighted average cost method. Such costs include the acquisition cost for raw materials and supplies, direct labor and applied manufacturing overhead. We assess market based upon actual and estimated transactions at or around the balance sheet date. Typically, we reserve for slow-moving inventory and inventory that is being evaluated under our quality control process. The reserves are based upon management’s expected method of disposition.

Due to lower activity levels at our production facilities caused by the COVID-19 pandemic, management revised its accounting estimates for the absorption of costs into inventory. As a result, $4.3 million of fixed overhead costs were not absorbed into inventory and $2.1 million of negative operating efficiency variances were incurred. The total impact of $6.4 million was charged directly to expense in the quarter.

The Company periodically enters into leases in its normal course of business. At September 30, ~~2019,~~2020, the leases in effect were primarily related to mobile and other production equipment. The term of our leases is generally 60 months or less, and the leases do not have significant restrictions, covenants, or other nonstandard terms.

We adopted the guidance effective in Leases (Topic 842) on January 1, 2019. Adoption of this guidance did not change the balance sheet recognition of our finance leases or the income statement recognition of our finance or operating leases. As a result of adopting the guidance, the Company recorded lease liabilities and right-of-use assets related to its operating leases. The impact at adoption was immaterial to the Company’s consolidated financial statements.

Right-of-use assets and lease liabilities are recorded at the present value of minimum lease payments. For our operating leases, the assets are included in Other long-term assets on the consolidated balance ~~sheet at September 30, 2019~~sheets and are amortized within operating income over the respective lease terms. The long-term component of the lease liability is included in Other long-term liabilities, net, and the current component is included in Other current liabilities. ~~During the nine months ended September 30, 2019, the Company entered into three new lease agreements accounted for as operating leases.~~

For our finance leases, the assets are included in Property, plant and equipment, net on the consolidated balance sheets and are depreciated over the respective lease terms which range from three to five years. The long-term component of the lease liability is included in Long-term debt and the current component is included in Current portion of long-term debt.

The Company ~~did not enter~~entered into ~~any material~~1 new lease ~~agreements~~agreement accounted for as ~~a finance~~an operating lease during the ~~nine months ended September 30, 2019 and 2018.~~ third quarter of 2020.

As of September 30, ~~2019,~~2020, future minimum lease payments applicable to operating and finance leases were as follows:

Right-of-use assets recorded to the consolidated balance sheet at September 30, ~~2019~~2020 were ~~$0.7~~$0.8 million for operating leases and ~~$0.8~~$0.7 million for finance leases. For the three and nine months ended September 30, ~~2019,~~2020, the amortization of finance lease assets was $0.1 million and ~~$0.4~~$0.3 million, respectively, and was included in cost of products sold in the Consolidated Statements of Operations.

The Company elected the practical expedient allowed under Leases (Topic 842) to exclude leases with a term of 12 months or less from the calculation of our lease liabilities and right-of-use assets.

In determining the lease liability and corresponding right-of-use asset for each lease, the Company calculated the present value of future lease payments using the interest rate implicit in the lease, when available, or the Company’s incremental borrowing rate. The incremental borrowing rate was determined with reference to the interest rate applicable under our senior secured revolving credit facility discussed in Note 6, Long-Term Debt, as this facility is collateralized by a first lien on substantially all of the assets of the Company and its term is similar to the term of our leases.

On August 3, 2018, we entered into the First Amended and Restated Revolving Credit, Term Loan and Security Agreement (“Credit Agreement”) with PNC Bank, National Association, as administrative agent and co-collateral agent, Bank of America, N.A., as co-collateral agent, and PNC Capital Markets LLC, as sole lead arranger and sole bookrunner. The Credit Agreement ~~amended the prior Revolving Credit, Term Loan and Security Agreement (“Prior Agreement”), and~~ provides for a senior secured revolving credit facility not to exceed $110.0 million (“Revolving Credit Facility”) and a senior secured term loan facility (“Term Loan”) in the amount of $10.0 million (together with the Revolving Credit Facility, the “Facilities”). The Company was in compliance with all the applicable financial covenants ~~prior to the August 3, 2018 amendment to the Credit Agreement and~~at all reporting periods through September 30, ~~2019.~~2020.

The Facilities, which expire on August 3, 2023 (the ‘Expiration Date”), are collateralized by a first lien inon substantially all of the assets of the company and its subsidiaries, except that no real property is collateral under the Facilities other than Company’s real property in North Jackson, Ohio.

Availability under the Credit Agreement is based on eligible accounts receivable and inventory. Further, the Company must maintain undrawn availability under the Credit Agreement of at least an amount equal to payments due on the notes issued in connection with the acquisition of the North Jackson facility, as defined in the Credit Agreement, plus ~~12.5%~~12.5% of the maximum borrowing amount of $110.0 million “(“(Minimum

Liquidity”). At September 30, ~~2019,~~2020, there were no0 payments due on the notes relevant to the Minimum Liquidity calculation. This requirement exists until the ~~Notes~~notes are paid in full, refinanced or extended.

The Company is required to pay a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit Facility.

With respect to the Term Loan, the Company pays quarterly installments of the principal of approximately $0.4 million, plus accrued and unpaid interest, on the first day of each fiscal quarter beginning after September 30, 2018. To the extent not previously paid, the Term Loan will become due and payable in full on the Expiration Date.

Amounts outstanding under the Facilities, at the Company’s option, ~~will~~ bear interest at either a base rate or a LIBOR based rate, in either case calculated in accordance with the terms of the Credit Agreement. Interest under the Credit Agreement is payable monthly. We elected to use the LIBOR based rate for the majority of the debt outstanding under the Facilities for the three months ended September 30, ~~2019,~~2020, which was ~~3.86%~~1.91% on our Revolving Credit Facility and ~~4.36%~~2.41% for the Term Loan.

The Credit Agreement contains customary affirmative and negative covenants. If a triggering event occurs as defined in the Credit Agreement, the Company must maintain a fixed charge coverage ratio of not less than 1.10 to 1.0 measured on a rolling four quarter basis and calculated in accordance with the terms of the Credit Agreement.

At September 30, ~~2019,~~2020, we had Credit Agreement related net deferred financing costs of approximately ~~$0.8~~$0.6 million. For the nine months ended September 30, ~~2019,~~2020, we amortized approximately $0.2 million of those deferred financing costs.

On April 16, 2020, the Company entered into a promissory note, dated April 15, 2020, with PNC Bank, National Association (“PNC”), evidencing an unsecured loan with a principal amount of $10.0 million ~~was drawn~~made to the Company pursuant to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Term Note is guaranteed by the United States Small Business Administration.

The PPP Term Note bears interest at a fixed annual rate of 1.00%, with the first six months of interest deferred. Beginning in November 2020, the Company will make 18 equal monthly payments of principal and interest with the final payment due in April 2022. The PPP Term Note may be accelerated upon the occurrence of an event of default.

The proceeds may be used to maintain payroll or make certain covered interest payments, lease payments and utility payments. Under the terms of the CARES Act, the Company may be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the ~~Revolving Credit Facility~~use of the loan proceeds for payment of payroll costs and any payments of certain covered interest, lease and utility payments.

The Company applied for forgiveness of the PPP Term Note during the third quarter of 2020. The Company anticipates forgiveness of the entire amount of the PPP Term Note; however, we are unable to ~~fund cash restricted for use related~~estimate the timing of the completion of the forgiveness process. We have elected to classify the ~~New Markets Tax Credit (“NMTC”) Financing Transaction. NMTC related restricted cash receipts totaling~~entire principal balance of the PPP Term Note within Long-term debt, net on the consolidated balance sheet as of September 30, 2020. Under the existing terms of the PPP Term Note, if no forgiveness were granted approximately ~~$8.0~~$6.1 million ~~in 2018 and $0.4 million in 2019 were applied to~~of the ~~Company’s Revolving Credit Facility, described in Note 7.~~principal amount would be due within twelve months.

In connection with the acquisition of the North Jackson facility, in August 2011, we issued $20.0 million in aggregate principal amount of ~~Notes~~notes to the sellers of the North Jackson facility as partial consideration of the acquisition.

On January 21, 2016, the Company entered into Amended and Restated Notes in the aggregate principal amount of $20.0 million (the “Notes”), each in favor of Gorbert Inc. (“Holder”). The Company’s obligations under the Notes are collateralized by a second lien on the same assets of the Company that collateralize the obligations of the Company under the Facilities. The Holder had the right toelectat any time on or prior to August 17, 2017 to convert all or any portion of the outstanding principal amount of the Notes. The Holder’s conversion rights expired and are no longer subject to exercise.

The Notes were originally scheduled to mature on March 17, 2019. On March 30, 2018, the Company provided notification of its intent to extend the maturity date to March 17, 2020 in accordance with the terms of the Notes. Upon the Company’s extension of the maturity date of the Notes to March 17, 2020, principal payments in the aggregate of $2.0 million were made in March 2019.

On March 18, 2019, the Company provided notification of its intent to extend the maturity date to March 17, 2021 in accordance with the terms of the Notes. ~~Extending~~Upon the Company’s extension of the maturity date of the Notes to March 17, 2021, ~~would require a~~ principal ~~payment~~payments in the aggregate ~~amount~~ of $2.0 million ~~to be~~were made in March 2020. ~~In conjunction with~~

There are no further extension options remaining, and the ~~intended extension of the maturity date~~remaining aggregate principal balance of the Notes ~~$2.0~~outstanding of $15.0 million has been classified within ~~current~~Current portion of long-term ~~debt.~~ debt as of September 30, 2020.

In accordance with the terms of the Notes, the Notes have borne interest at a rate of 6.0% per year since August 17, 2017. All accrued and unpaid interest is payable quarterly in arrears on each September 18, December 18, March 18 and June 18.

On March 9, 2018, the Company entered into a qualified New Markets Tax Credit (“NMTC”) financing program with PNC New Markets Investment Partners, LLC and Boston Community Capital, Inc. related to a new mid-size bar cell capital project at the Company’s Dunkirk, NY facility. PNC New Markets Investment Partners, LLC made a capital contribution and the Company made a loan to Dunkirk Investment Fund, LLC (“Investment

Fund”) under the qualified NMTC program. Through this financing transaction, the Company secured low interest financing and the potential for other future benefits related to its mid-size bar cell capital project.

In connection with the NMTC financing program, the Company loaned $6.7 million aggregate principal amount (“Leverage Loan”) due in March 2048, to the Investment Fund. Additionally, PNC New Markets Investment Partners, LLC contributed $3.5 million to the Investment Fund, and as such, PNC New Markets Investment Partners, LLC is entitled to substantially all tax and other benefits derived from the NMTC. The Investment Fund then contributed the proceeds to a community development entity (“CDE”). The CDE then loaned the funds, on similar terms, as the Leverage Loan to Dunkirk Specialty Steel, LLC, a wholly-owned subsidiary of the Company. The CDE loan proceeds are restricted for use on the mid-size bar cell capital project.

The NMTC is subject to 100 percent recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to comply with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, require the Company to indemnify PNC New Markets Investment Partners, LLC for any loss or recapture of NMTCs related to the financing until the Company’s obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement.

As of September 30, 2020 and December 31, 2019, the Company recorded $2.8 million within Other long-term liabilities related to this transaction, which represents the funds contributed to the Investment Fund by PNC New Markets Investment Partners, LLC.

This transaction also includes a put/call provision whereby the Company may be obligated or entitled to repurchase PNC New Markets Investment Partners, LLC’s interest in the Investment Fund. The Company believes that PNC New Markets Investment Partners, LLC will exercise the put option in March 2025, at the end of the recapture ~~period.~~period, resulting in a gain of $2.8 million at that time. The value attributed to the put/call is negligible.

Direct costs incurred in structuring this financing transaction totaled $0.7 million. These costs were deferred and are amortized over the term of the loans.

The Company has determined that the Investment Fund and CDE are each a VIE, and that it is the primary beneficiary of each VIE. This conclusion was reached based on the following:

Because the Company is the primary beneficiary of each VIE, these entities have been included in the Company’s Consolidated Financial Statements.

As of September 30, 2019 and December 31, 2018, the Company recorded $2.8 million as Other long-term liabilities related to the funds contributed to the Investment Fund by PNC New Markets Investment Partners, LLC.

The fair value hierarchy has three levels based on the inputs used to determine fair value, which are as follows:

Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date.

Level 2 — Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The carrying amounts of our cash, accounts receivable and accounts payable approximated fair value at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 due to their short-term maturities (Level 1). The fair value of the Term Loan and Revolving Credit facility at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 approximated the carrying amount as the interest rate is based upon floating short-term interest rates (Level 2). The fair value of our Notes was approximately ~~$16.9~~$15.0 million at September 30, ~~2019~~2020 and ~~$18.8~~$16.9 million at December 31, ~~2018~~2019 (Level 2).

From time to time, various lawsuits and claims have been or may be asserted against us relating to the conduct of our business, including routine litigation relating to commercial and employment matters. The ultimate cost and outcome of any litigation or claim cannot be predicted with certainty. Management believes, based on information presently available, that the likelihood that the ultimate outcome of any such pending matter will have a material adverse effect on our financial condition, or liquidity or a material impact on our results of operations is remote, although the

resolution of one or more of these matters may have a material adverse effect on our results of operations for the period in which the resolution occurs.

Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision ~~is comprised of~~includes tax on ordinary income provided at the most recent estimated annual effective tax rate (“ETR”), increased or decreased for the tax effect of discrete items.

For the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, our estimated annual effective tax rates applied to ordinary income were ~~11.2%~~23.7% and ~~18.5%~~11.2%, respectively. The difference between the federal statutory rate of 21.0% and the projected annual ETR of ~~11.2%~~23.7% for ~~2019~~2020 is primarily due to research and development credits.

Discrete items during the nine months ended September 30, 2020 and 2019 ~~reduced tax expense by $0.4 million, primarily due to increased research~~were not significant, and ~~development tax credits. Including the effect of discrete items,~~ our ETR for ~~the nine months ended September 30, 2019~~each period was ~~1.3%.~~

~~Including the effect of discrete items, our ETR for the nine months ended September 30, 2018 was 19.1%. The difference between the estimated annual ETR of 18.5%~~22.4% and ~~the quarterly rate of 19.1% for the nine months ended September 30, 2018 was primarily related to the expiration of fully vested stock options partially offset by research and development credits.~~1.3%, respectively.

The Company invoices certain customers in foreign currencies. In order to mitigate the risks associated with fluctuations in exchange rates with the US Dollar, the Company entered into foreign exchange forward contracts during ~~2019~~2020 and ~~2018~~2019 for a portion of these sales, and has designated these contracts as cash flow hedges.

At September 30, 2020, the notional value of contracts was $1.4 million, and the related accumulated unrealized gain included in other comprehensive loss was less than $0.1 million.

At December 31, 2019, the notional value of contracts was ~~$5.2 million and a related accumulated unrealized gain of $0.1 million was recorded in other comprehensive income.~~

~~At December 31, 2018, the notional value of contracts was $7.4~~$4.9 million, and the related unrealized ~~gain~~loss recorded in other comprehensive income was less than $0.1 million.

There are many uncertainties regarding the currently ongoing coronavirus ("COVID-19") pandemic, and the Company continues to closely monitor the impact of the pandemic on all aspects of its business, including how it will continue to impact its customers, employees, suppliers, vendors, business partners and distribution channels. We are unable to predict the impact that COVID-19 will have on our future financial position and operating results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its responses accordingly.

This Quarterly Report on Form 10-Q contains or incorporates forward looking statements within the meaning of the Private Securities Reform Act of 1995, which involves risks and uncertainties. The following information should be read in conjunction with the unaudited consolidated financial information and the notes thereto included in this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward looking statements. Actual events or results may differ materially due to competitive factors and other factors referred to in Part 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, our other filings with the Securities and Exchange Commission and elsewhere in this Quarterly Report. These factors may cause our actual results to differ materially from any forward looking statement. These forward looking statements are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate, and management’s beliefs and assumptions. In addition, other written or oral statements that constitute forward looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict.

We manufacture and market semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. Our manufacturing process involves melting, remelting, heat treating, hot and cold rolling, forging, machining and cold drawing of semi-finished and finished specialty steels. Our products are sold to ~~rerollers, forgers,~~ service centers, forgers, rerollers, and original equipment ~~manufacturers and wire redrawers.~~manufacturers. Our customers further process our products for use in a variety of industries, including the aerospace, power generation, oil and gas, heavy equipment and general industrial markets. We also perform conversion services on materials supplied by customers.

Sales in the third quarter of ~~2019~~2020 were ~~$56.6~~$37.4 million, a decrease of ~~$14.4~~$15.0 million, or ~~20.3%~~28.7%, from the second quarter of ~~2019.~~2020. During this period, sales to our largest end market, aerospace, decreased ~~$8.5~~$12.0 million, or ~~17.1%. Sales decreased in all~~32.3%, and sales to each of our other end markets ~~compared to the second quarter.~~

also decreased. Compared to the third quarter of ~~2018,~~2019, sales decreased by $19.1 million, or 33.8%. This decrease was attributable to each of our end markets except for general industrial and heavy equipment, which increased $0.9 million, or 42.9%, and $0.3 million, or 7.1%, respectively.

The decrease in sales is a result of the current significant challenges facing all our end markets caused primarily by the COVID-19 pandemic. The most significant direct impact on our business has been the slowdown in the ~~third quarter~~global commercial airline industry, which is the largest driver of ~~2019 decreased $12.5 million, or 18.1%. Aerospace~~the decline in sales ~~increased by $3.6 million, or 9.6%, and power generation by $0.2 million, or 6.3%. These increases were offset by decreases in~~for our ~~other~~aerospace end markets, as oil & gas decreased $3.3 million, or 36.7%, heavy equipment decreased $9.1 million, or 67.6%, general industrial decreased $3.1 million, or 60.7%, and conversion services and other sales decreased $0.8 million, or 49.7%.market.

During the third quarter of ~~2019,~~2020, our sales of premium alloy products, which we define as all vacuum induction melt products, represented ~~$8.0~~$9.2 million, or ~~14.2%~~24.5% of total sales. ~~This~~As a percent of sales, this was ~~a decrease~~an increase compared to ~~the record $12.8 million premium alloy sales in~~both the second quarter of ~~2019,~~2020 and ~~a decrease compared to $9.2 million of premium alloy sales in~~ the third quarter of ~~2018.~~2019. Our premium alloy products are primarily sold to the aerospace end market.

~~Our~~Total company backlog, before surcharges, at ~~September 30, 2019~~the end of the third quarter of 2020 was ~~$118.3~~$54.8 million, ~~an increase~~a decrease of ~~$1.4~~$64.3 million, or ~~1.2%~~54.0%, compared to ~~June 30, 2019, and an increase~~the end of ~~$6.8 million, or 6.1%, compared~~2019. The decrease in the backlog is due to ~~September 30, 2018.~~a decline in new order entry caused by the COVID-19 pandemic.

~~The Company’s~~Our gross margin for the third quarter ~~of 2019~~ was ~~$5.3~~negative $4.4 million, or ~~9.4%~~negative 11.8% of net sales, compared to $9.1 million, or 12.8% of net sales, for the second quarter of 2019 and $10.4 million, or 15.1% of net sales, for the third quarter of 2018. Gross margin in the third quarter of 2019 was negatively impacted by lower shipping volume, surcharge misalignment in certain products, and product mix.sales. The lower volume was in part due to a fire at our North Jackson facility at the end of the second quarter, which impacted the timing of production and shipments in the third quarter. In addition to the delayed sales, the Company incurred $0.5 million in increased operations cost as a result of the fire, in addition to the $0.2 million incurred during the second quarter. A portion these costs negatively impactednegative gross margin in the ~~third~~current quarter was primarily due to direct charges associated with lower activity levels. Due to the lower activity levels at our production facilities caused by the COVID-19 pandemic, management revised its accounting estimates for the absorption of costs into inventory. As a result, $4.3 million of fixed overhead costs were not absorbed into inventory and $2.1 million of negative operating efficiency variances were incurred. The total impact of $6.4 million was charged directly to expense in the quarter.

Selling, General and Administrative (“SG&A”) expenses were $4.2 million, or 11.1% of net sales, in the third quarter of 2020 compared to $5.4 million, or 10.3% of net sales, in the second quarter of 2020 and $4.5 million, or 8.0% of net sales, in the third quarter ~~2019~~of 2019. Although increased as a percent of sales, SG&A expenses have decreased for the second consecutive quarter due primarily to strategic actions to reduce spending.

The Company’s net loss for the quarter was $7.0 million, compared to ~~$5.6~~a net loss of $3.3 million ~~or 7.9% of net sales, in~~for the second quarter of ~~2019~~2020 and ~~$5.1 million, or 7.4% of net sales, in the third quarter of 2018. SG&A decreased compared to both comparison periods due primarily to a decrease in employee incentive compensation accruals.~~

~~The Company’s~~ net income ~~was~~of $0.8 million for the third quarter of ~~2019 compared to $2.1 million~~2019. Net loss for ~~the second quarter of 2019 and $3.9 million in~~ the third quarter, as adjusted for the fixed cost absorption charge of ~~2018.~~$3.3 million (net of tax) and a gain on receipt of insurance proceeds of $0.2 million (net of tax), totaled $3.9 million.

While the Company’s four plants continued to operate throughout the third quarter, COVID-19 related challenges continued to negatively impact the efficiency of our operations. These challenges are expected to continue in the fourth quarter and into 2021. The far-reaching impacts of the pandemic have impacted and will continue to impact the Company’s backlog, end markets, overall operations, cash flows and financial results.

The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve, and the outcome is uncertain. The ultimate extent of the effects of the COVID-19 pandemic on the Company, and the end markets we serve, is highly uncertain and will depend on future developments. As such, the effects could exist for an extended period, even after the pandemic may end.

Three months ended September 30, ~~2019 as~~2020 compared to the three months ended September 30, ~~2018:~~2019:

	Three months ended September 30,
(in thousands, except shipped ton information)	2020				2019

	Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar / ton variance		Percentage variance
						-
Net sales	$	37,434	100.0		$	56,568	100.0			(19,134)	(33.8)
Cost of products sold		41,861	111.8			51,260	90.6			(9,399)	(18.3)
						-
Gross margin		(4,427)	(11.8)			5,308	9.4			(9,735)	(183.4)
Selling, general and administrative expenses		4,153	11.1			4,525	8.0			(372)	(8.2)
						-		��
Operating (loss) income		(8,580)	(22.9)			783	1.4			(9,363)	NM
Interest expense		586	1.6			989	1.7			(403)	(40.7)
Deferred financing amortization		56	0.1			56	0.1			-	-
Other expense, net		(288)	(0.8)			(452)	(0.8)			(164)	36.3
						-
(Loss) income before income taxes		(8,934)	(23.8)			190	0.4			(9,124)	NM
(Benefit) provision for income taxes		(1,934)	(5.2)			(577)	(1.0)			(1,357)	235.2
						-
Net (loss) income	$	(7,000)	(18.6)	%	$	767	1.4	%	$	(7,767)	NM
						-
Tons shipped		6,046				9,776				(3,730)	(38.2)
						-
Sales dollars per shipped ton	$	6,192			$	5,786			$	406	7.0	%

Three months ended September 30,

(in thousands, except shipped ton information)

2019

2018

Amount

Percentage of net sales

Amount

Percentage of net sales

Dollar / ton variance

Percentage variance
Net sales:

Stainless steel

$
42,459

75.1
%

$
46,447

67.3
%

$
(3,988)

(8.6)
%
High-strength low alloy steel

8,206

14.5

5,751

8.3

2,455

42.7

Tool steel

4,263

7.5

13,130

19.0

(8,867)

(67.5)

High-temperature alloy steel

845

1.5

2,149

3.1

(1,304)

(60.7)

Conversion services and other sales

795

1.4

1,579

2.3

(784)

(49.7)

Total net sales

56,568

100.0

69,056

100.0

(12,488)

(18.1)

Cost of products sold

51,260

90.6

58,631

84.9

(7,371)

(12.6)

Gross margin

5,308

9.4

10,425

15.1

(5,117)

(49.1)

Selling, general and administrative expenses

4,525

8.0

5,131

7.4

(606)

(11.8)

Operating income

783

1.4

5,294

7.7

(4,511)

(85.2)

Interest expense

989

1.7

906

1.3

83

9.2

Deferred financing amortization

56

0.1

60

0.1

(4)

(6.7)

Other expense (income), net

(452)

(0.8)

(48)

(0.1)

404

NM

Income before income taxes

190

0.4

4,376

6.4

(4,186)

(95.7)

Provision (benefit) for income taxes

(577)

(1.0)

460

0.7

(1,037)

(225.4)

Net income

$
767

1.4
%

$
3,916

5.7
%

$
(3,149)

(80.4)

Tons shipped

9,776

12,385

(2,609)

(21.1)

Sales dollars per shipped ton

$
5,786

$
5,576

$
210

3.8
%

Market Segment Information
	Three months ended September 30,
(in thousands)	2020				2019
	Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar variance		Percentage variance
Net sales:
Service centers	$	25,983	69.4	%	$	38,693	68.4	%	$	(12,710)	(32.8)	%
Original equipment manufacturers		4,405	11.8			4,862	8.6			(457)	(9.4)
Rerollers		3,173	8.5			6,629	11.7			(3,456)	(52.1)
Forgers		3,451	9.2			5,589	9.9			(2,138)	(38.3)
Conversion services and other sales		422	1.1			795	1.4			(373)	(46.9)
						-
Total net sales	$	37,434	100.0	%	$	56,568	100.0	%	$	(19,134)	(33.8)	%

The majority of our products are sold to service centers rather than the ultimate end market customers. The end market information in this Quarterly Report is our estimate based upon our knowledge of our customers and the grade of material sold to them, which they will in-turn sell to the ultimate end market customer.

Net sales for the three months ended September 30, 2020 decreased $19.1 million, or 33.8%, compared to the same quarter in the prior year. This is driven by a decrease in tons shipped, primarily in our aerospace and oil and gas end markets. The decrease in aerospace is a result of the current significant challenges facing the commercial airline industry caused primarily by the COVID-19 pandemic. The decrease in oil and gas is primarily a result of a general decline in demand in the sector caused by the COVID-19 pandemic.

As a percent of sales, our gross margin for the three months ended September 30, 2020 was negative 11.8% compared to positive 9.4% for the three months ended September 30, 2019. The decrease is primarily the result of direct charges associated with lower activity levels and actions taken in response to the economic downturn in our largest end markets. The direct charges totaled $6.4 million and included $4.3 million of excess fixed costs that were not absorbed into inventory and $2.1 million of negative operating efficiency variances incurred.

Our SG&A expenses consist primarily of employee costs, which include salaries, payroll taxes and benefit related costs, professional services, stock compensation and insurance costs. SG&A expenses decreased by $0.4 million for the three months ended September 30, 2020 compared to the same period in the prior year. The decrease was driven by strategic actions to reduce spending and a decrease in employee-related costs, partially offset by an increase in the cost of business insurance.

Interest expense totaled approximately $0.6 million for the three months ended September 30, 2020, compared with $1.0 million for the same period in the prior year. Interest expense was lower due to lower interest rates on our debt and lower average outstanding debt levels.

Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision includes tax on ordinary income provided at the most recent estimated annual effective tax rate (“ETR”), increased or decreased for the tax effect of discrete items.

Our estimated annual effective tax rate applied to ordinary income at September 30, 2020 was 23.7%. The difference between the statutory rate and the projected annual ETR is primarily due to research and development credits. Our ETR for the quarter was 21.6%, which is lower than the projected annual ETR primarily due to discrete expense for the expiration of stock options.

Our estimated annual effective tax rate applied to ordinary income at September 30, 2019 was 11.2%. Including the effect of discrete items, we recorded an income tax benefit for the three months ended September 30, 2019, primarily due to increased research and development tax credits.

For the three months ended September 30, 2020, the Company recorded a net loss of $7.0 million, or $0.79 per diluted share, compared to net income of $0.8 million, or $0.09 per diluted share, for the three months ended September 30, 2019.

Nine months ended September 30, 2020 compared to the nine months ended September 30, 2019:

	Nine months ended September 30,
(in thousands, except shipped ton information)	2020							2019

	Amount			Percentage of net sales				Amount			Percentage of net sales				Dollar / ton variance			Percentage variance

Total net sales	$	148,407			100.0			$	187,836			100.0				(39,429	)		(21.0	)
Cost of products sold		145,988			98.4				166,052			88.4				(20,064	)		(12.1	)

Gross margin		2,419			1.6				21,784			11.6				(19,365	)		(88.9	)
Selling, general and administrative expenses		15,458			10.4				15,095			8.0				363			2.4

Operating (loss) income		(13,039	)		(8.8	)			6,689			3.6				(19,728	)		(294.9	)
Interest expense		2,232			1.5				2,809			1.5				(577	)		(20.5	)
Deferred financing amortization		169			0.1				171			0.1				(2	)		(1.2	)
Other income, net		(302	)		(0.2	)			(421	)		(0.2	)			119			(28.3	)

(Loss) income before income taxes		(15,138	)		(10.2	)			4,130			2.2				(19,268	)		(466.5	)
(Benefit) provision for income taxes		(3,396	)		(2.3	)			55			-				(3,451	)	NM

Net (loss) income	$	(11,742	)		(7.9	)	%	$	4,075			2.2		%	$	(15,817	)		388.1

Tons shipped		25,153							31,656							(6,503	)		(20.5	)

Sales dollars per shipped ton	$	5,900						$	5,934						$	(34	)		(0.6	)	%

Market Segment Information
	Three months ended September 30,												Nine months ended September 30,
(in thousands)	2019				2018								2020					2019
	Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar variance		Percentage variance		Amount		Percentage of net sales			Amount		Percentage of net sales				Dollar variance			Percentage variance
Net sales:
Service centers	$	38,693	68.4	%	$	49,889	72.2	%	$	(11,196)	(22.4)	%	$	103,877		70.0	%	$	129,996		69.2	%	$		(26,119	)		(20.1	)	%
Original equipment manufacturers		4,862	8.6			4,981	7.2			(119)	(2.4)			16,624		11.2			19,318		10.3				(2,694	)		(13.9	)
Rerollers		6,629	11.7			6,530	9.5			99	1.5			13,612		9.2			20,016		10.7				(6,404	)		(32.0	)
Forgers		5,589	9.9			6,077	8.8			(488)	(8.0)			12,027		8.1			15,408		8.2				(3,381	)		(21.9	)
Conversion services and other sales		795	1.4			1,579	2.3			(784)	(49.7)			2,267		1.5			3,098		1.6				(831	)		(26.8	)

Total net sales	$	56,568	100.0	%	$	69,056	100.0	%	$	(12,488)	(18.1)	%	$	148,407		100.0	%	$	187,836		100.0	%	$		(39,429	)		(21.0	)	%

End Market Information
		Three months ended September 30,												Nine months ended September 30,
(in thousands)		2019				2018								2020					2019
		Amount		Percentage of net sales		Amount		Percentage of net sales		Dollar variance		Percentage variance		Amount		Percentage of net sales			Amount		Percentage of net sales				Dollar variance			Percentage variance
Net sales:
Aerospace		$	40,876	72.3	%	$	37,302	54.0	%	$	3,574	9.6	%	$	104,686		70.5	%	$	132,818		70.7	%	$		(28,132	)		(21.2	)	%
Power generation			2,884	5.0			2,714	3.9			170	6.3			5,923		4.0			8,588		4.5				(2,665	)		(31.0	)
Oil & gas			5,653	10.0			8,926	12.9			(3,273)	(36.7)			10,778		7.3			18,767		10.0				(7,989	)		(42.6	)
Heavy equipment			4,352	7.7			13,423	19.4			(9,071)	(67.6)			16,364		11.0			17,973		9.6				(1,609	)		(9.0	)
General industrial, conversion services and other sales	General industrial, conversion services and other sales		2,803	5.0			6,691	9.8			(3,888)	(58.1)			10,656		7.2			9,690		5.2				966			10.0

Total net sales		$	56,568	100.0	%	$	69,056	100.0	%	$	(12,488)	(18.1)	%	$	148,407		100.0	%	$	187,836		100.0	%	$		(39,429	)		(21.0	)	%

Net sales for the ~~three~~nine months ended September 30, ~~2019~~2020 decreased ~~$12.5~~$39.4 million, or ~~18.1%~~21.0%, compared to the ~~three~~nine months ended September 30, ~~2018.~~2019. This ~~reflects~~is primarily due to a decrease in consolidated shipment volume of ~~21.1% and an increase in average sales dollar per shipped ton of 3.8%~~20.5%. The ~~increase~~decrease in volume is driven by significant challenges facing the end markets in which we participate, most notably aerospace and oil & gas. Challenges in our aerospace end market are primarily related to the decline in the commercial airline industry caused by the COVID-19 pandemic. The decrease in oil and gas is primarily a result of a cyclical decline in demand for our products in line with a decline in worldwide oil prices, which has also been exacerbated by the COVID-19 pandemic.

Our gross margin, as a percent of sales, ~~dollars per ton~~was 1.6% for the nine months ended September 30, 2020 compared to 11.6% for the nine months ended September 30, 2019. The decrease is primarily the result of ~~product mix.~~

~~Product sales~~direct charges associated with lower activity levels, actions taken in response to the ~~aerospace and power generation~~economic downturn in our largest end markets, increased, while sales to our other end markets decreased. As a percent of sales, our premium alloy sales increased to 14.2% of total sales for the three months ended September 30, 2019 compared to 13.3% for the three months ended September 30, 2018.

As a percent of sales, our gross margin for the three months ended September 30, 2019 was 9.4% compared to 15.1% for the three months ended September 30, 2018. The decrease is largely a result of lower production associated with longer than planned downtime on critical equipment and ~~surcharge misalignment.~~product mix.

Our SG&A expenses consist primarily of employee costs, which include salaries, payroll taxes and benefit related costs, professional services, stock compensation and insurance costs. SG&A expenses ~~decreased~~increased by $0.6 million in the three months ended September 30, 2019 compared to the three months ended September 30, 2018. The decrease is primarily due to a decrease in employee incentive compensation accruals.

~~Interest expense for the three months ended September 30, 2019 totaled $1.0 million, compared to $0.9 million for the three months ended September 30, 2018.~~

~~Other income for the three months ended September 30, 2019 totaled $0.5 million and included insurance proceeds of~~ $0.4 million ~~related to a fire at our Dunkirk facility that occurred in 2017.~~

Management estimates the annual effective income tax rate quarterly, based on current annual forecasted results. Items unrelated to current year ordinary income are recognized entirely in the period identified as a discrete item of tax. The quarterly income tax provision is comprised of tax on ordinary income provided at the most recent estimated annual effective tax rate (“ETR”), increased or decreased for the tax effect of discrete items.

~~Including the effect of discrete items, we recorded an income tax benefit for the three months ended September 30, 2019, primarily due to increased research and development tax credits.~~

Including the effect of discrete items, our ETR for the three months ended September 30, 2018 was 10.5%. Discrete items in three months ended September 30, 2018 were less favorable than 2019, primarily due to lower research and development credit benefits.

For the three months ended September 30, 2019, the Company recorded net income of $0.8 million, or $0.09 per diluted share, compared to $3.9 million, or $0.44 per diluted share, for the three months ended September 30, 2018.

~~Nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018:~~

Nine months ended September 30,

(in thousands, except shipped ton information)

2019

2018

Amount

Percentage of net sales

Amount

Percentage of net sales

Dollar / ton variance

Percentage variance
Net sales:

Stainless steel

$

136,557

72.7

%

$

136,580

68.7

%

$

(23
)

(0.0
)
%
High-strength low alloy steel

27,035

14.4

16,339

8.2

10,696

65.5

Tool steel

17,756

9.5

31,537

15.9

(13,781
)

(43.7
)

High-temperature alloy steel

3,390

1.8

9,627

4.8

(6,237
)

(64.8
)

Conversion services and other sales

3,098

1.6

4,781

2.4

(1,683
)

(35.2
)

Total net sales

187,836

100.0

198,864

100.0

(11,028
)

(5.5
)

Cost of products sold

166,052

88.4

167,472

84.2

(1,420
)

(0.8
)

Gross margin

21,784

11.6

31,392

15.8

(9,608
)

(30.6
)

Selling, general and administrative expenses

15,095

8.0

16,187

8.1

(1,092
)

(6.7
)

Operating income

6,689

3.6

15,205

7.7

(8,516
)

(56.0
)

Interest expense

2,809

1.5

3,245

1.6

(436
)

(13.4
)

Deferred financing amortization

171

0.1

195

0.1

(24
)

(12.3
)

Other expense (income), net

(421
)

(0.2
)

(690
)

(0.3
)

269

(39.0
)

Income before income taxes

4,130

2.2

12,455

6.3

(8,325
)

(66.8
)

Provision (benefit) for income taxes

55

-

2,376

1.2

(2,321
)

(97.7
)

Net income

$

4,075

2.2

%

$

10,079

5.1

%

$

(6,004
)

59.6

Tons shipped

31,656

34,681

(3,025
)

(8.7
)

Sales dollars per shipped ton

$

5,934

$

5,734

$

200

3.5

%

~~Net sales~~ for the nine months ended September 30, ~~2019 decreased $11.0 million, or 5.5%,~~2020 compared to the ~~nine months ended September 30, 2018.~~

This reflects a decrease in consolidated shipment volume of 8.7% and an increase in average sales dollar per shipped ton of 3.5%. The increase in sales dollars per ton is primarily the result of product mix.

Product sales to the aerospace and power generation end markets increased, while sales to our other end markets decreased. During the nine months ended September 30, 2019, premium alloy sales decreased by $2.8 million, or 8.5%, compared to the nine months ended September 30, 2018. As a percent of sales, our premium alloy sales decreased to 16.1% for the period.

Our gross margin, as a percent of sales, was 11.6% for the nine months ended September 30, 2019 compared to 15.8% for the nine months ended September 30, 2018. The decrease in our gross margin is largely a result of slower recovery in customer surcharges, lower production associated with longer than planned downtime on critical equipment and product mix.

Our SG&A expenses consist primarily of employee costs, which include salaries, payroll taxes and benefit related costs, legal and accounting services, stock compensation and insurance costs. SG&A expenses decreased by $1.1 millionsame period in the ~~nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.~~prior year. The ~~decrease~~increase is primarily due to ~~a decrease in~~higher business insurance costs and employee severance costs, partially offset by lower employee incentive compensation accruals.

Interest expense for the nine months ended September 30, ~~2019 totaled $2.8~~2020 was $0.6 million ~~compared~~lower than the same period in the prior year due to ~~$3.2 million for~~lower interest rates on our debt and lower average outstanding debt levels.

For the nine months ended September 30, ~~2018. Deferred financing amortization was $0.2 million~~2020 and 2019, our estimated annual effective tax rates applied to ordinary income were 23.7% and 11.2%, respectively. The difference between the federal statutory rate of 21.0% and the projected annual ETR of 23.7% for ~~the nine months ended September 30, 2019~~2020 is primarily due to research and ~~2018.~~

Other income for the nine months ended September 30, 2019 included insurance proceeds of $0.4 million related to a fire at our Dunkirk facility that occurred in 2017. Other income for the nine months ended September 30, 2018 included $0.7 million related to a favorable legal settlement.

Discrete items during the nine months ended September 30, 2019 reduced tax expense by $0.4 million, primarily due to increased research and development tax credits. Including the effect of discrete items, our ETR for the nine months ending September 30, 2019 was 1.3%.

Including the effect of discrete items, our ETR for the nine months ended September 30, 2018 was 19.1%. Discrete items for the nine months ended September 30, 2018 were less favorable than 2019 due primarily to lower research and development credit benefits.

For the nine months ended September 30, ~~2019,~~2020, the Company recorded a net loss of $11.7 million, or $1.33 per diluted share, compared to net income of $4.1 million, or $0.46 per diluted share, ~~compared to $10.1 million, or $1.23 per diluted share,~~ for the nine months ended September 30, ~~2018.~~2019.

Historically, we have financed our operations through cash provided by operating activities and borrowings on our credit facilities. At September 30, 2020, we maintained approximately $44.1 million of remaining availability under our revolving credit facility.

~~On May 25, 2018,~~We currently believe that our cash flows from continuing operations and available borrowing capacity under our credit facility are adequate to satisfy our working capital, capital expenditure requirements, and other contractual obligations for the ~~Company completed an underwritten, public offering involving~~foreseeable future, including at least the ~~issuance~~next 12 months. This belief is based in part on the continued benefits of strategic cost savings and ~~sale~~spend reduction actions implemented by the ~~Company of 1,224,490 shares of common stock at a public offering price of $24.50 per share. In addition,~~Company.

During the Company granted the underwriters a 30-day option to purchase up to an additional 183,673 shares of common stock. On June 1, 2018, the underwriters exercised the option in full, and an additional 183,673 shares of common stock were issued and sold on June 5, 2018. The public offering resulted in gross proceeds to the Company of approximately $34.5 million, or $32.2 millionnine months ended September 30, 2020, net ~~of the underwriting discount and other offering fees and expenses. We used the net proceeds from the public offering to repay amounts outstanding under the Company’s credit facility.~~

On March 9, 2018, the Company entered into a qualified NMTC financing program with PNC New Markets Investment Partners, LLC and Boston Community Capital, Inc. related to a new mid-size bar cell capital project at the Company’s Dunkirk, NY facility. PNC New Markets Investment Partners, LLC made a capital contribution and the Company made a loan to Dunkirk Investment Fund, LLC (“Investment Fund”) under the NMTC program. Through this financing transaction, the Company secured low interest financing and the potential for other future benefits related to its mid-size bar cell capital project.

~~The economic effect of the NMTC transactions described above is that the Company secured low cost financing for its mid-size bar cell project.~~

~~Net~~ cash provided by ~~(used in)~~ operating ~~activities:~~activities was $12.6 million. Our net loss, after adjustments for non-cash expenses, generated $0.7 million. We generated $8.6 million of cash from managed working capital, which we define as net accounts receivable, plus inventory and minus accounts payable. Accounts receivable decreased due to lower sales, and both inventory and accounts payable decreased due to lower melt activity levels and lower purchasing related to strategic spend reduction initiatives. In addition, we generated $3.3 million of cash from other assets and liabilities, primarily due to cash received from insurance claims.

During the nine months ended September 30, 2019, net cash used in operating activities was $9.1 million. Our net income, adjusted for non-cash expenses, generated $20.0 million. We utilized $21.2 million of cash for managed working ~~capital, which we define as net accounts receivable, plus inventory and minus accounts payable.~~capital. Accounts receivable increased $3.8 million due to the timing of sales and collections, and accounts payable decreased $9.7 million due to the timing of purchasing activity. We used $7.6 million in the growth of inventory to support our order backlog. In addition, we utilized $7.9 million of cash from other assets and liabilities, primarily decreased down payments from customers and decreased accruals for employee related costs.

During the nine months ended September 30, 2018, net cash provided by operating activities was $0.7 million. Our net income, adjusted for non-cash expenses, generated $27.9 million. We utilized $31.0 million of cash from managed working capital, which we define as net accounts receivable, plus inventory and minus accounts payable. Accounts receivable increased $19.2 million due to the increase in sales in the third quarter of 2018 compared to the fourth quarter of 2017. Inventories used $7.9 million in support of the increased backlog and $4.0 million decrease in accounts payable. Accrued Employment Costs increased $2.6 million primarily due to increased variable compensation expenses.

During the nine months ended September 30, ~~2019,~~2020, we used ~~$13.3~~$8.5 million inof cash for capital expenditures, compared to ~~$13.2~~$13.3 million for the same period in the prior year. 2020 capital spending is expected to approximate $9.0 million to $10.0 million.

Net cash used in financing activities was $4.2 million for the nine months ended September 30, ~~2018. Approximately $3.8~~2020. This includes the proceeds from our $10.0 million ofPPP Term Note (as defined below) received during the ~~current year to date capital expenditures were payments related to the mid-size bar cell capital project at our Dunkirk, NY facility.~~

Net cash provided by financing activities was $19.5 million for the nine months ended September 30, ~~2019. The change~~2019 and was driven by borrowings under our revolving credit facility to fund capital expenditures and managed working capital needs.

Net cash provided by financing activities was $18.5 million for the nine months ended September 30, 2018. The change was driven by $32.2 million of proceeds from the equity offering which we used to repay amounts outstanding under the Company’s Revolving Credit Facility, net of higher working capital levels and borrowings related to the mid-size bar cell capital project at our Dunkirk, NY facility. These borrowings were done in conjunction with utilization of the NMTC financing program, described in Note 7 to the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.

We believe that our cash flows from continuing operations as well as available borrowings under our credit facility are adequate to satisfy our working capital, capital expenditure requirements, and other contractual obligations for the foreseeable future, including at least the next 12 months.

The cost of raw materials represents approximately 45 and 40% of the cost of products sold in the first nine months of 2020 and 2019, ~~and 2018.~~respectively. The major raw materials used in our operations include nickel, ~~chrome,~~ molybdenum, vanadium, chrome and carbon scrap. ~~We continuously monitor market price fluctuations of key raw materials.~~ We maintain sales price surcharge mechanisms ~~on certain of our products, priced at time of order or shipment,~~ to mitigate the risk of substantial raw material cost fluctuations. The market values for these raw materials and others continue to fluctuate based on supply and demand, market disruptions and other factors. Over time, our surcharge mechanisms will effectively offset changes in raw material costs; however, during a period of rising or falling prices the timing will cause variation between reporting periods.

The Facilities, which expire on August 3, 2023 (the ‘Expiration Date”), are collateralized by a first lien inon substantially all of the assets of the ~~Company~~company and its subsidiaries, except that no real property is collateral under the Facilities other than Company’s real property in North Jackson, Ohio.

North Jackson facility, as defined in the Credit Agreement, plus 12.5% of the maximum borrowing amount of $110.0 million (““(Minimum Liquidity”). At September 30, ~~2019,~~2020, there were no payments due on the notes relevant to the Minimum Liquidity calculation. This requirement exists until the ~~Notes~~notes are paid in full, refinanced or extended.

The Company is required to pay a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit Facility.

On April 16, 2020, the Company entered into a promissory note, dated April 15, 2020, with PNC Bank, National Association (“PNC”), evidencing an unsecured loan with a principal amount of $10.0 million made to the Company pursuant to the Paycheck Protection Program (“PPP Term Note”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Term Note is guaranteed by the United States Small Business Administration.

The proceeds may be used to maintain payroll or make certain covered interest payments, lease payments and utility payments. Under the terms of the CARES Act, the Company may be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs and any payments of certain covered interest, lease and utility payments.

The Company applied for forgiveness of the PPP Term Note during the third quarter of 2020. The Company anticipates forgiveness of the entire amount of the PPP Term Note; however, we are unable to estimate the timing of the completion of the forgiveness process. We have elected to classify the entire principal balance of the PPP Term Note within Long-term debt, net on the consolidated balance sheet as of September 30, 2020. Under the existing terms of the PPP Term Note, if no forgiveness were granted approximately $6.7 million ~~was drawn on~~of the Revolving Credit Facility to fund cash restricted for use related to the New Markets Tax Credit (“NMTC”) Financing Transaction. NMTC related restricted cash receipts totaling $8.0 million in 2018 and $0.4 million in 2019 were applied to the Company’s Revolving Credit Facility, described in Note 7 to the unaudited consolidated financial statements included in the Quarterly Report on Form 10-Q.principal amount would be due within twelve months.

The Company periodically enters into leases in its normal course of business. We adopted the guidance effective in Leases (Topic 842) on January 1, 2019. As a result of adopting the guidance, the Company recorded lease liabilities and right-of-use assets related to its operating leases to the consolidated balance sheet at the present value of minimum lease payments. The assets are included in Other long-term assets in the consolidated balance sheet at September 30, 2019 and are amortized over the respective terms, which are five years or less. The long term component of the lease liability is recorded in Other long-term liabilities, net and the current component is included in Other current liabilities. During the nine months ended September 30, 2019, the Company entered into three new lease agreements accounted for as operating leases.

The accounting for finance leases did not change. The right-of-use assets and lease liabilities for finance leases are recorded at the present value of minimum lease payments. The assets are included in Property, plant and equipment, net on the consolidated balance sheets and are depreciated over the respective lease terms. The long-term component of the lease liability is included in Long-term debt and the current component is included in Current portion of long-term debt. During the nine months ended September 30, 2019 and 2018, the Company did not enter into any material new lease agreements accounted for as a finance lease.

The Company has reviewed its market risk and believes there are no significant changes from that disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, except as provided in this Form 10-Q in “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations” and in Part II. Item 1A. “Risk Factors.”

The Company’s management, including the Company’s Chairman, President and Chief Executive Officer and its Vice President of Finance, Chief Financial Officer and Treasurer, performed an evaluation of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chairman, President and Chief Executive Officer and its Vice President of Finance, Chief Financial Officer and Treasurer concluded that, as of the end of the fiscal period covered by this quarterly report, the Company’s disclosure controls and procedures are effective. During the fiscal quarter ended September 30, ~~2019,~~2020, there were no changes in the Company’s internal control over financial reporting which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There are no material changes from the legal proceedings disclosed in Item 3. of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 could materially affect our business, financial conditions or future results. Those risk factors are not the only risks facing us. Additional risks and uncertainties not currently known or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. We believe that there have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, except for the additional factor described below.

Our business and operations, and the operations of our customers and suppliers, have been and are expected to continue to be adversely impacted by the COVID-19 pandemic.

The recent outbreak of COVID-19 has been declared by the World Health Organization to be a “pandemic” and has spread across the world, including the United States and many countries where the Company sells its products or sources raw materials.

Our operations and financial performance have been negatively impacted by the COVID-19 pandemic that has caused, and is expected to continue to cause, a global slowdown of economic activity, disruptions in global supply chains and significant volatility and disruption of financial markets. Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the COVID-19 pandemic’s impact on our operations and financial performance cannot be determined at this time. Further, the ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited to, governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel and economic activity; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; commodity prices; and the pace of recovery when the COVID-19 pandemic subsides.

Notwithstanding our continued operations, we have experienced, and expect to continue experiencing, lower demand and volume for our products, including delivery and shipping delays and deferrals directly and indirectly to the COVID-19 pandemic that have adversely impacted, and are expected to continue to adversely impact, our businesses. For example, a significant portion of the sales result from products sold to customers in the commercial aerospace industry. In recent months, several commercial aerospace companies have announced cost-cutting and other measures in response to declining demand stemming from the COVID-19 pandemic, including measures to reduce inventory and/or downward adjustments to their production rates. Likewise, the COVID-19 pandemic has exacerbated declines in consumer activity and supply issues in the oil & gas end market. We expect that the longer the period of economic and global supply chain and disruption continues, the more material the adverse impact will be on our business operations, financial performance and results of operations.

As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity position in relation to our anticipated future liquidity needs. Under the terms of our Credit Agreement, our borrowing availability is based on eligible accounts receivable and inventory, which have been reduced to lower levels as a result of the challenging economic environment we have faced during the COVID-19 pandemic, and which may continue to be reduced as the COVID-19 pandemic persists. Also, a continued worldwide disruption could materially affect our future access to our sources of liquidity, financial condition, capitalization and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. Additionally, a prolonged period of generating lower cash from operations could adversely affect our financial condition and the achievement of our strategic objectives. Conditions in the financial and credit markets also may limit the availability of funding or increase the cost of funding, which could adversely affect our business, financial position and results of operations.

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

	DESCRIPTION	PAGE NO.

PART I.	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Consolidated Statements of Operations	1

	Consolidated Statements of Comprehensive (Loss) Income	2

	Consolidated Balance Sheets	3

	Consolidated Statements of Cash Flow	4

	Consolidated Statements of Shareholders' Equity	5

	Notes to the Unaudited Consolidated Financial Statements	76

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1413

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	20

PART II.	OTHER INFORMATION	21

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	21

Item 4.	~~Controls and Procedures~~Mine Safety Disclosures	21

~~PART II.~~	~~OTHER INFORMATION~~	22

~~Item 1.~~	~~Legal Proceedings~~	22

~~Item 1A.~~	~~Risk Factors~~	22

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	22

~~Item 3.~~	~~Defaults Upon Senior Securities~~	22

~~Item 4.~~	~~Mine Safety Disclosures~~	22

Item 5.	Other Information	2221

Item 6.	Exhibits	2322

SIGNATURES		2423

	September 30,		December 31,		September 30,		December 31,
(in thousands)	2019		2018		2020		2019

Raw materials and starting stock	$	10,206	$	9,555	$	9,510	$	9,815
Semi-finished and finished steel products		120,094		115,627		103,606		127,713
Operating materials		13,482		12,515		12,210		13,090

Gross inventory		143,782		137,697		125,326		150,618
Inventory reserves		(3,110)		(2,959)		(4,379)		(3,216)

Total inventory, net	$	140,672	$	134,738	$	120,947	$	147,402

	Operating Leases		Finance Leases		Operating Leases		Finance Leases
2019	$	53	$	150
2020		207		583	$	72	$	82
2021		184		471		269		319
2022		173		56		258		278
2023 and thereafter		84		15
2023						165		242
2024						70		225
2025						3		112
Total minimum lease payments	$	701	$	1,275	$	837	$	1,258
Less amounts representing interest		(43)		(125)		(38)		(165)
Present value of minimum lease payments	$	658	$	1,150	$	799	$	1,093
Less current obligations		(211)		(500)		(270)		(261)
Total long-term lease obligations, net	$	447	$	650	$	529	$	832
Weighted-average remaining lease term		4 years		2 years		3.3 years		3.8 years

	September 30,		December 31,		September 30,		December 31,
(in thousands)	2019		2018		2020		2019

Revolving credit facility	$	40,795	$	18,204	$	28,541	$	39,480
Notes		17,000		19,000		15,000		17,000
Paycheck Protection Program Note						10,000		-
Term loan		8,571		9,643		7,143		8,215
Finance leases		1,150		1,502		1,093		1,026

Total debt		67,516		48,349		61,777		65,721
Less: current portion of long-term debt		(3,929)		(3,907)		(16,690)		(3,934)
Less: deferred financing costs		(1,432)		(1,603)		(1,208)		(1,376)

Long-term debt, net	$	62,155	$	42,839	$	43,879	$	60,411

Exhibit Number		Exhibit

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101		The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in inline XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; the Consolidated Statements of Shareholders’ Equity; and (v) the Notes to the Consolidated Financial Statements (filed herewith).

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)

Large accelerated filer	☐	Accelerated filer	☑

Non-accelerated filer	☐	Smaller reporting company	☑

Emerging growth company	☐

	September 30, 2019		September 30, 2018
Cash	$	1,204	$	33
Restricted cash included in other long-term assets		-		6,158
Total cash and restricted cash	$	1,204	$	6,191

Melt Type Information
	Three months ended September 30,
(in thousands)	2020				2019
	Amount		Percentage of net sales			Amount	Percentage of net sales		Dollar variance		Percentage variance
Net sales:
Specialty alloys	$	27,847	74.4	%	$	47,730	84.4	%	$	(19,883)	(41.7)	%
Premium alloys (A)		9,165	24.5			8,043	14.2			1,122	14.0
Conversion services and other sales		422	1.1			795	1.4			(373)	(46.9)

Total net sales	$	37,434	100.0	%	$	56,568	100.0	%	$	(19,134)	(33.8)	%

Date: October ~~23, 2019~~21, 2020

/s/ Dennis M. Oates		/s/ Christopher T. Scanlon
Dennis M. Oates		Christopher T. Scanlon
Chairman, President and Chief Executive Officer		Vice President of Finance,
(Principal Executive Officer)		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)