UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

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

For the transition period from to

Commission File No. 001-16501

Williams Industrial Services Group Inc.

(Exact name of registrant as specified in its charter)


Delaware		73-1541378
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Crescent Centre Parkway, Suite 1240

Tucker, GA 30084

(Address of principal executive offices) (Zip code)

(770) 879-4400

(Registrant’s telephone number, including area code)

N/A

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

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.



Large accelerated filer	◻	Accelerated filer	◻
Non-accelerated filer	⌧	Smaller reporting company	⌧
Emerging growth company	◻

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 November 6, 2020, there were 25,336,442 shares of common stock of Williams Industrial Services Group Inc. outstanding.

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

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Part I—FINANCIAL INFORMATION	3

Item 1. Financial Statements	3

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)	3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	4

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	5

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited)	7

Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3. Quantitative and Qualitative Disclosures about Market Risk	30

Item 4. Controls and Procedures	31

Part II—OTHER INFORMATION

Item 1. Legal Proceedings	31

Item 1A. Risk Factors	31

Item 6. Exhibits	34

SIGNATURES	35

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Part I—FINANCIAL INFORMATION

Item 1. Financial Statements.

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)



(in thousands, except share data)	September 30, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	3,998	$	7,350
Restricted cash		468		468
Accounts receivable, net of allowance of $358 and $377, respectively		44,682		38,218
Contract assets		8,795		7,225
Other current assets		6,169		2,483
Total current assets		64,112		55,744

Property, plant and equipment, net		355		273
Goodwill		35,400		35,400
Intangible assets		12,500		12,500
Other long-term assets		6,648		8,549
Total assets	$	119,015	$	112,466

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,615	$	16,618
Accrued compensation and benefits		16,680		9,318
Contract liabilities		3,405		2,699
Short-term borrowings		8,307		10,849
Current portion of long-term debt		700		700
Other current liabilities		8,435		6,408
Current liabilities of discontinued operations		339		340
Total current liabilities		45,481		46,932
Long-term debt, net		32,462		32,658
Deferred tax liabilities		2,253		2,198
Other long-term liabilities		2,272		4,028
Long-term liabilities of discontinued operations		4,464		4,486
Total liabilities		86,932		90,302
Commitments and contingencies (Note 4, 9 and 11)
Stockholders’ equity:
Common stock, $0.01 par value, 170,000,000 shares authorized, and 25,926,333 and 19,794,270 shares issued, respectively, and 25,336,442 and 19,057,195 shares outstanding, respectively		256		198
Paid-in capital		89,582		81,964
Accumulated other comprehensive income (loss)		(66)		222
Accumulated deficit		(57,681)		(60,211)
Treasury stock, at par (589,891 and 737,075 common shares, respectively)		(8)		(9)
Total stockholders’ equity		32,083		22,164
Total liabilities and stockholders’ equity	$	119,015	$	112,466

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	2020		2019		2020		2019
Revenue	$	66,240	$	56,862	$	204,936	$	178,980
Cost of revenue		57,582		50,906		180,014		157,150

Gross profit		8,658		5,956		24,922		21,830

Selling and marketing expenses		123		63		401		468
General and administrative expenses		5,827		5,091		17,413		16,327
Depreciation and amortization expense		46		77		144		225
Total operating expenses		5,996		5,231		17,958		17,020

Operating income		2,662		725		6,964		4,810

Interest expense, net		1,541		1,511		4,640		4,504
Other income, net		(316)		(485)		(937)		(1,153)
Total other expense, net		1,225		1,026		3,703		3,351

Income (loss) from continuing operations before income tax		1,437		(301)		3,261		1,459
Income tax expense		321		62		565		141
Income (loss) from continuing operations		1,116		(363)		2,696		1,318

Loss from discontinued operations before income tax		(66)		(54)		(222)		(175)
Income tax expense (benefit)		24		(97)		(56)		(845)
Income (loss) from discontinued operations		(90)		43		(166)		670

Net income (loss)	$	1,026	$	(320)	$	2,530	$	1,988

Basic earnings (loss) per common share
Income (loss) from continuing operations	$	0.04	$	(0.02)	$	0.12	$	0.07
Income (loss) from discontinued operations		(0.00)		0.00		(0.01)		0.04
Basic earnings (loss) per common share	$	0.04	$	(0.02)	$	0.11	$	0.11

Diluted earnings (loss) per common share
Income (loss) from continuing operations	$	0.04	$	(0.02)	$	0.11	$	0.07
Income (loss) from discontinued operations		(0.00)		0.00		(0.00)		0.03
Diluted earnings (loss) per common share	$	0.04	$	(0.02)	$	0.11	$	0.10

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Net income (loss)	$	1,026	$	(320)	$	2,530	$	1,988
Foreign currency translation adjustment		(34)		17		(288)		(27)
Comprehensive income (loss)	$	992	$	(303)	$	2,242	$	1,961

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)


							Accumulated
	Common Shares						Other
	$0.01 Per Share				Paid-in		Comprehensive		Accumulated	Treasury Shares
(in thousands, except share data)	Shares		Amount		Capital		Income (Loss)		Deficit	Shares		Amount		Total
Balance, December 31, 2018	19,767,605	$	197	$	80,424	$	—	$	(62,397)	(1,107,387)	$	(11)	$	18,213
Issuance of restricted stock units	—		—		—		—		—	390,901		4		4
Tax withholding on restricted stock units	—		—		(123)		—		—	(50,738)		(2)		(125)
Stock-based compensation	—		—		408		—		—	—		—		408
Foreign currency translation	—		—		—		18		—	—		—		18
Net income	—		—		—		—		303	—		—		303
Balance, March 31, 2019	19,767,605	$	197	$	80,709	$	18	$	(62,094)	(767,224)	$	(9)	$	18,821
Issuance of restricted stock units	—		—		—		—		—	19,027		—		—
Stock-based compensation	—		—		482		—		—	—		—		482
Foreign currency translation	—		—		—		(62)		—	—		—		(62)
Net income	—		—		—		—		2,005	—		—		2,005
Balance, June 30, 2019	19,767,605	$	197	$	81,191	$	(44)	$	(60,089)	(748,197)	$	(9)	$	21,246
Issuance of restricted stock units	26,665		1		—		—		—	27,391		—		1
Tax withholding on restricted stock units	—		—		(34)		—		—	(16,269)		—		(34)
Stock-based compensation	—		—		223		—		—	—		—		223
Foreign currency translation	—		—		—		17		—	—		—		17
Net loss	—		—		—		—		(320)	—		—		(320)
Balance, September 30, 2019	19,794,270	$	198	$	81,380	$	(27)	$	(60,409)	(737,075)	$	(9)	$	21,133


							Accumulated
	Common Shares						Other
	$0.01 Per Share				Paid-in		Comprehensive		Accumulated	Treasury Shares
(in thousands, except share data)	Shares		Amount		Capital		Income (Loss)		Deficit	Shares		Amount		Total
Balance, December 31, 2019	19,794,270	$	198	$	81,964	$	222	$	(60,211)	(737,075)	$	(9)	$	22,164
Issuance of common stock	5,384,615		54		6,478		—		—	—		—		6,532
Issuance of restricted stock units	423,341		—		—		—		—	80,207		1		1
Tax withholding on restricted stock units	—		—		(65)		—		—	(41,445)		—		(65)
Stock-based compensation	—		—		376		—		—	—		—		376
Foreign currency translation	—		—		—		(258)		—	—		—		(258)
Net loss	—		—		—		—		(1,001)	—		—		(1,001)
Balance, March 31, 2020	25,602,226	$	252	$	88,753	$	(36)	$	(61,212)	(698,313)	$	(8)	$	27,749
Issuance of common stock	—		4		(48)		—		—	—		—		(44)
Issuance of restricted stock units	407,315		—		—		—		—	138,221		1		1
Tax withholding on restricted stock units	(93,234)		—		(153)		—		—	(31,570)		(1)		(154)
Stock-based compensation	—		—		650		—		—	—		—		650
Foreign currency translation	—		—		—		4		—	—		—		4
Net income	—		—		—		—		2,505	—		—		2,505
Balance, June 30, 2020	25,916,307	$	256	$	89,202	$	(32)	$	(58,707)	(591,662)	$	(8)	$	30,711
Issuance of restricted stock units	10,026		—		—		—		—	4,788		—		—
Tax withholding on restricted stock units	—		—		(9)		—		—	(3,017)		—		(9)
Share-based compensation	—		—		389		—		—	—		—		389
Foreign currency translation	—		—		—		(34)		—	—		—		(34)
Net Income	—		—		—		—		1,026	—		—		1,026
Balance, September 30, 2020	25,926,333	$	256	$	89,582	$	(66)	$	(57,681)	(589,891)	$	(8)	$	32,083

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
(in thousands)	2020		2019
Operating activities:
Net income	$	2,530	$	1,988
Adjustments to reconcile net income to net cash used in operating activities:
Net (income) loss from discontinued operations		166		(670)
Deferred income tax provision (benefit)		55		(68)
Depreciation and amortization on plant, property and equipment		144		225
Amortization of deferred financing costs		546		462
Gain on disposals of property, plant and equipment		(136)		—
Bad debt expense		19		53
Stock-based compensation		1,703		1,114
Changes in operating assets and liabilities, net of businesses sold:
Accounts receivable		(6,530)		(7,843)
Contract assets		(1,553)		(4,159)
Other current assets		(3,684)		(1,918)
Other assets		1,619		1,404
Accounts payable		(8,914)		8,016
Accrued and other liabilities		7,290		(2,705)
Contract liabilities		706		2,039
Net cash used in operating activities, continuing operations		(6,039)		(2,062)
Net cash used in operating activities, discontinued operations		(189)		(350)
Net cash used in operating activities		(6,228)		(2,412)
Investing activities:
Purchase of property, plant and equipment		(88)		(178)
Net cash used in investing activities		(88)		(178)
Financing activities:
Repurchase of stock-based awards for payment of statutory taxes due on stock-based compensation		(227)		(154)
Proceeds from issuance of common stock		6,488		—
Debt issuance costs		(325)		—
Proceeds from short-term borrowings		172,616		163,040
Repayments of short-term borrowings		(175,158)		(162,416)
Repayments of long-term debt		(350)		(350)
Net cash provided by financing activities		3,044		120
Effect of exchange rate change on cash		(80)		—
Net change in cash, cash equivalents and restricted cash		(3,352)		(2,470)
Cash, cash equivalents and restricted cash, beginning of period		7,818		4,942
Cash, cash equivalents and restricted cash, end of period	$	4,466	$	2,472

Supplemental Disclosures:
Cash paid for interest	$	2,900	$	3,527
Noncash amendment fee related to MidCap facility	$	150	$	—

See accompanying notes to condensed consolidated financial statements.

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WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Business

Williams Industrial Services Group Inc. was incorporated in 2001 under the name “Global Power Equipment Group Inc.” under the laws of the State of Delaware and became the successor to GEEG Holdings, LLC, which was formed as a Delaware limited liability company in 1998. Effective June 29, 2018, Global Power Equipment Group Inc. changed its name to Williams Industrial Services Group Inc. (together with its wholly owned subsidiaries, “Williams,” the “Company,” “we,” “us” or “our,” unless the context indicates otherwise) to better align its name with the Williams business, and our stock now trades on the OTCQX® Best Market under the ticker symbol “WLMS.” Williams has been safely helping plant owners and operators enhance asset value for more than 50 years. We provide a broad range of construction, maintenance and support services to customers in energy, power and industrial end markets. Our mission is to be the preferred provider of construction, maintenance, and specialty services through commitment to superior safety performance, focus on innovation, and dedication to delivering unsurpassed value to our customers.

Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on a basis consistent with that used in the Annual Report on Form 10-K for the year ended December 31, 2019, filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on March 27, 2020 (the “2019 Report”). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, including all normal recurring adjustments, necessary to present fairly the unaudited condensed consolidated balance sheets and statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the periods indicated. All significant intercompany transactions have been eliminated. The December 31, 2019 unaudited condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. These unaudited condensed consolidated interim financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the 2019 Report. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for any interim period are not necessarily indicative of operations to be expected for the full year.

The Company reports on a fiscal quarter basis utilizing a “modified” 4-4-5 calendar (modified in that the fiscal year always begins on January 1 and ends on December 31). However, the Company has continued to label its quarterly information using a calendar convention. The effects of this practice are modest and only exist when comparing interim period results. The reporting periods and corresponding fiscal interim periods are as follows:



Reporting Interim Period	Fiscal Interim Period
	2020	2019
Three Months Ended March 31	January 1, 2020 to March 29, 2020	January 1, 2019 to March 31, 2019
Three Months Ended June 30	March 30, 2020 to June 28, 2020	April 1, 2019 to June 30, 2019
Three Months Ended September 30	June 29, 2020 to September 27, 2020	July 1, 2019 to September 29, 2019

NOTE 2—LIQUIDITY

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis, which assumes that it will be able to meet its obligations and continue its operations during the twelve-month period following the issuance of this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2020 (this “Form 10-Q”). These financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

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The Company had negative cash flows from operations during the nine months ended September 30, 2020 and has historically raised capital to fund its working capital and growth. On January 13, 2020, the Company amended its existing credit facilities with Centre Lane (as defined below) and MidCap (as defined below), which, among other things, provided the Company with an additional $10.0 million in borrowing capacity under the MidCap Facility (as defined below). Furthermore, on August 1, 2020, the Company amended its MidCap Facility (as defined below) to increase the concentration limit under the borrowing base for certain accounts receivable to 60% through August 1, 2021, and 50% at all times thereafter (see Note 9). As of September 30, 2020, the Company had $4.8 million in available borrowing capacity (see Note 9).

In addition, during the first quarter of 2020, the Company successfully completed its fully backstopped $7.0 million registered offering of subscription rights to purchase shares of the Company’s common stock to existing holders of the Company’s common stock (the “Rights Offering”), which expired March 2, 2020, pursuant to which the Company issued 5,384,615 shares of its common stock and received net proceeds of $6.5 million. The Company is using the net proceeds from the Rights Offering, combined with the additional borrowing capacity provided by the amended MidCap Facility, for working capital and general corporate purposes to fund certain of the Company’s strategic growth initiatives. As a result, management believes that the Company has sufficient resources to satisfy its working capital requirements for at least 12 months following the issuance of these unaudited condensed consolidated financial statements. However, the Company’s liquidity could be periodically, and for certain intervals, constrained due to the working capital requirements that will be needed as it continues to execute its plans to grow the business.

The Company continues to monitor its liquidity and capital resources. If market conditions were to change, and revenue was reduced or operating costs increased, cash flows and liquidity could be significantly reduced.

In December 2019, a novel strain of the coronavirus (“COVID-19”) surfaced in Wuhan, China, spread globally, and was declared a pandemic by the World Health Organization in March 2020. The effects of COVID-19 have impacted some of the Company’s projects; for instance, in July 2020, the Company experienced an increase in COVID-19 cases at a nuclear plant construction project in Georgia, in response to which the Company began to administer and enforce stricter safety precautions. Additionally, during the third quarter of 2020, the Company experienced a delay of a major project, a complete outage cycle in Louisiana, from spring 2021 to spring 2023, and has experienced a slow-down in business development activities and bid opportunities, particularly on the eastern shore of Lake Huron area in Ontario, Canada, due to the COVID-19 pandemic. The Company continues to institute remote work policies for the corporate office in Tucker, Georgia and other offices throughout the United States and Canada. The Company also implemented enhanced safety policies at its work sites, involving modified cleaning schedules, social distancing, facial covering requirements, employee screening practices, and contact tracing methods to meet Centers for Disease Control and Prevention guidelines. While the Company has not yet experienced materially negative impacts from COVID-19, such as widespread project stoppage or cancellations or a slowdown or cessation of accounts receivables collections, the timing of future contract awards could create gaps in the Company’s project delivery schedule across quarterly periods, and the uncertainty and economic impacts created by the pandemic, could cause a temporary decline in demand for the Company’s services. The Company anticipates that its future results of operations, including the results for 2020, will be impacted by the COVID-19 outbreak, but at this time does not expect that the impact from the COVID-19 outbreak will have a material negative effect on the Company’s liquidity or financial position. The Company currently believes that the impact of COVID-19 on the Company will not negatively impact its ability to comply with the covenants under its existing credit facilities. However, given the speed and frequency of continuously evolving developments, such as the current increase in cases in the United States, and inherent uncertainty with respect to this pandemic, including the duration and severity of the pandemic and the related length of its impact on the global economy, the Company cannot provide any assurance that such impacts will not grow and become material to its liquidity or financial position. Any recovery from the COVID-19 pandemic and related economic impact may also be slowed or reversed by a number of factors, including the current widespread resurgence in COVID-19 infections, combined with the seasonable flu. In addition, even after the COVID-19 pandemic has subsided, the Company may continue to experience an adverse impact to its business as a result of the pandemic’s global economic impact, or any recession that may occur in the future. As a consequence, the Company’s estimates of the duration of the pandemic and its impact on the Company’s future earnings and cash flows could change and have a material impact on its results of operations and financial condition.

NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40).” This update aligns the requirements for capitalizing costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing

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implementation costs incurred to develop or obtain internal use software, including hosting arrangements that are service contracts, over the term of the hosting arrangement. Further, this update requires the presentation of the expense in the statement of income, the presentation of the costs on the statement of financial position and the classification of payments in the statement of cash flows related to capitalized implementation costs to be treated the same as the fees of the associated hosting arrangement. In the first quarter of 2020, the Company adopted ASU 2018-15, which did not have a material impact on its financial position, results of operations and cash flows.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820).” This amendment update modifies disclosure requirements related to fair value measurement for illiquid assets and liabilities that are the most difficult to value, which are considered Level 3. This update focuses on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop fair value measurements, and the narrative description of measurement uncertainty to be applied prospectively for the most recent interim or annual period in the initial fiscal year of adoption for Level 3 assets and liabilities. In the first quarter of 2020, the Company adopted ASU 2018-13, which did not have a material impact on its financial statement disclosures.

In November 2018, the FASB issued ASU 2018-18, “Collaborative Arrangements (Topic 808).” This amendment update clarifies the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. In addition, the amendments in this Update provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The amendments improve comparability by allowing the presentation of the units of account in collaborative arrangements to be presented with revenue accounted for under Topic 606. In the first quarter of 2020, the Company adopted ASU 2018-18, which did not have a material impact on its financial statement disclosures.

In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This amendment update amends various topics in the FASB Accounting Standards Codification (“ASC”) to make technical corrections and minor improvements to the guidance on financial instruments as part of the FASB’s ongoing project to clarify guidance and correct unintended application of the guidance. The FASB expects that the amendments will not have significant effect on current accounting practice nor create a significant administrative cost to most entities. In the second quarter of 2020, the Company adopted ASU 2020-03, which did not have a material impact on its financial statement disclosures.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions for investments, intraperiod allocations and interim calculations, and adding guidance to reduce complexity in accounting for income taxes. The update is effective for annual periods beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its results of operations, financial position and cash flows.

NOTE 4—LEASES

On January 1, 2019, the Company adopted ASU 2016-02 using the modified retrospective method, and accordingly, the new guidance was applied to leases that existed as of January 1, 2019.

The Company primarily leases office space and related equipment, as well as equipment, modular units and vehicles directly used in providing services to its customers. The Company’s leases have remaining lease terms of one to ten years. Most leases contain renewal options for varying periods, which are at the Company’s sole discretion and included in the expected lease term if they are reasonably certain of being exercised. For leases beginning in 2019 and thereafter, the Company accounts for lease components, such as fixed payments including rent, real estate taxes, and insurance costs, separately from the non-lease components, such as common area maintenance costs.

For leases with terms greater than twelve months, the Company records the related right-of-use assets and lease liabilities at the present value of the fixed lease payments over the lease term at the lease commencement date. The Company uses its incremental borrowing rate to determine the present value of the lease as the rate implicit in the lease is typically not readily determinable.

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Short-term leases (leases with an initial term of twelve months or less or leases that are cancelable by the lessee and lessor without significant penalties) are expensed on a straight-line basis over the lease term. The majority of the Company’s short-term leases relate to equipment used in delivering services to its customers. These leases are entered into at agreed upon hourly, daily, weekly or monthly rental rates for an unspecified duration and typically have a termination for convenience provision. Such equipment leases are considered short-term in nature unless it is reasonably certain that the equipment will be leased for a term greater than twelve months.

The components of lease expense were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
Lease Cost/ (Sublease Income) (in thousands)	2020		2019		2020		2019
Operating lease cost	$	850	$	1,223	$	2,950	$	3,669
Short-term lease cost		505		463		1,972		1,480
Sublease income		—		(38)		—		(86)
Total lease cost	$	1,355	$	1,648	$	4,922	$	5,063

Lease cost related to finance leases was not significant for the three and nine months ended September 30, 2020 and 2019.

Information related to the Company’s right-of-use assets and lease liabilities was as follows:


Lease Assets/Liabilities (in thousands)	Balance Sheet Classification	September 30, 2020		December 31, 2019
Lease Assets
Right-of-use assets	Other long-term assets	$	3,062	$	5,743

Lease Liabilities
Short-term lease liabilities	Other current liabilities	$	2,103	$	2,985
Long-term lease liabilities	Other long-term liabilities		1,221		2,939
Total lease liabilities		$	3,324	$	5,924

Supplemental information related to the Company’s leases was as follows:


		Nine Months Ended September 30,
(dollars in thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used by operating leases	$	3,388	$	3,696
Right-of-use assets obtained in exchange for new operating lease liabilities		2,226		9,701
Right-of-use assets obtained in exchange for new finance lease liabilities		—		27
Weighted-average remaining lease term - operating leases		1.71 years		2.25 years
Weighted-average remaining lease term - finance leases		3.48 years		4.48 years
Weighted-average discount rate - operating leases		9%		9%
Weighted-average discount rate - finance leases		9%		9%

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Total remaining lease payments under the Company’s operating and finance leases are as follows:


	Operating Leases		Finance Leases

Nine Months Ended September 30, 2020	(in thousands)
Remainder of 2020	$	724	$	1
2021		1,833		6
2022		834		6
2023		202		6
2024		6		1
Thereafter		3		—
Total lease payments	$	3,602	$	20
Less: interest		(297)		(1)
Present value of lease liabilities	$	3,305	$	19

NOTE 5—CHANGES IN BUSINESS

Discontinued Operations

Electrical Solutions

During the fourth quarter of 2017, the Company made the decision to exit and sell its Electrical Solutions segment (which was comprised solely of Koontz-Wagner Custom Controls Holdings LLC (“Koontz-Wagner”), a wholly owned subsidiary of the Company) in an effort to reduce the Company’s outstanding term debt. The Company determined that the decision to exit this segment met the definition of a discontinued operation. As a result, this segment has been presented as a discontinued operation for all periods presented.

On July 11, 2018, Koontz-Wagner filed a voluntary petition for relief under Chapter 7 of Title 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Texas. The filing was for Koontz-Wagner only, not for the Company as a whole, and was completely separate and distinct from the Williams business and operations. As a result of the July 11, 2018 bankruptcy of Koontz-Wagner, the Company recorded $11.4 million of exit costs, consisting of a lease guarantee, liability for salary and benefit continuation and a pension withdrawal liability, which were included in loss from discontinued operations in the Company’s consolidated statements of operations for the year ended December 31, 2018. The Company satisfied the liability related to the lease guarantee settlement and substantially all of the salary and benefit continuation liability through cash payments by the end of 2018. Certain claims that the Chapter 7 Trustee might assert on behalf of the Koontz-Wagner bankruptcy estate are now time-barred by operation of the U.S. Bankruptcy Code. The pension liability is expected to be satisfied by annual cash payments of $0.3 million each, paid in quarterly installments, which began in 2018 and will continue to be paid over the next eighteen years.

Mechanical Solutions

During the third quarter of 2017, the Company made the decision to exit and sell substantially all of the operating assets and liabilities of its Mechanical Solutions and determined that the decision to exit this segment met the definition of a discontinued operation. As a result, this segment, including TOG Manufacturing Company, Inc., has been presented as a discontinued operation for all periods presented.

In connection with the sale of its Mechanical Solutions segment during 2017, the Company entered into a transition services agreement with the purchaser to provide certain accounting and administrative services for an initial period of nine months. In April 2019, the purchaser of the Company’s former Mechanical Solutions segment went into receivership and in connection with this event, the Company recognized a write down to the estimated fair value of its amounts due under the transition services agreement of $0.2 million in the three months ended March 31, 2019. At the time the purchaser went into receivership, the Company also had remaining balances of $0.2 million and $0.8 million included in other current assets and other current liabilities, respectively, on its condensed consolidated balance sheet. In November 2019, the Company executed, and the U.S. Bankruptcy Court for the Northern District of Oklahoma approved, an agreement with the purchaser to settle the disputes related to the remaining asset and liability. As a result, the Company recorded a net gain of $0.4 million, which was included in other (income) expense, net on its consolidated statement of operations for the year ended December 31, 2019.

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As of September 30, 2020 and December 31, 2019, the Company did not have any assets related to its Electrical and Mechanical Solutions’ discontinued operations. The following table presents a reconciliation of the carrying amounts of major classes of liabilities of Electrical and Mechanical Solutions’ discontinued operations:



(in thousands)	September 30, 2020		December 31, 2019
Liabilities:
Current liabilities of discontinued operations	$	339	$	340
Liability for pension obligation		2,730		2,708
Liability for uncertain tax positions		1,734		1,778
Long-term liabilities of discontinued operations		4,464		4,486
Total liabilities of discontinued operations	$	4,803	$	4,826

The following table presents a reconciliation of the major classes of line items constituting the net income (loss) from discontinued operations. In accordance with GAAP, the amounts in the table below do not include an allocation of corporate overhead.


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
General and administrative expenses	$	14	$	1	$	20	$	15
Loss on disposal - Electrical Solutions		—		—		45		—
Interest expense		52		53		157		160
Loss from discontinued operations before income tax		(66)		(54)		(222)		(175)
Income tax expense (benefit)		24		(97)		(56)		(845)
Income (loss) from discontinued operations	$	(90)	$	43	$	(166)	$	670

NOTE 6—REVENUE

Disaggregation of Revenue

Disaggregated revenue by type of contract was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Cost-plus reimbursement contracts	$	57,123	$	47,128	$	182,689	$	155,427
Fixed-price contracts		9,117		9,734		22,247		23,553
Total	$	66,240	$	56,862	$	204,936	$	178,980

Disaggregated revenue by the geographic area where the work was performed was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
United States	$	57,984	$	51,858	$	178,447	$	167,960
Canada		8,256		5,004		26,489		11,020
Total	$	66,240	$	56,862	$	204,936	$	178,980

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Contract Balances

The Company enters into contracts that allow for periodic billings over the contract term that are dependent upon specific advance billing terms, as services are provided, or as milestone billings based on completion of certain phases of work. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported in the Company’s unaudited condensed consolidated balance sheets as contract assets. Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date are reported in the Company’s unaudited condensed consolidated balance sheets as contract liabilities. At any point in time, each project in process could have either contract assets or contract liabilities.

The following table provides information about contract assets and contract liabilities from contracts with customers:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Costs incurred on uncompleted contracts	$	57,582	$	50,906	$	180,014	$	157,211
Earnings recognized on uncompleted contracts		8,658		5,955		24,922		21,750
Total		66,240		56,861		204,936		178,961
Less—billings to date		(60,850)		(49,801)		(199,546)		(171,901)
Net	$	5,390	$	7,060	$	5,390	$	7,060
Contract assets	$	8,795	$	12,377	$	8,795	$	12,377
Contract liabilities		(3,405)		(5,317)		(3,405)		(5,317)
Net	$	5,390	$	7,060	$	5,390	$	7,060

For the three and nine months ended September 30, 2020, the Company recognized revenue of approximately $1.1 million and approximately $2.6 million, respectively, on approximately $2.8 million in the corresponding contract liability balance at December 31, 2019.

Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2020:


(in thousands)	Remainder of 2020		2021		2022		Thereafter		Total
Remaining performance obligations	$	59,860	$	127,154	$	71,553	$	199,366	$	457,932

NOTE 7—EARNINGS PER SHARE

In March 2020, the Company successfully completed its fully backstopped $7.0 million Rights Offering, which expired March 2, 2020, pursuant to which the Company issued 5,384,615 shares of its common stock and received net proceeds of $6.5 million.

As of September 30, 2020, the Company’s 25,336,442 shares outstanding included 550,857 shares of contingently issued but unvested restricted stock. As of September 30, 2019, the Company’s 19,057,195 shares outstanding included 307,164 shares of contingently issued but unvested restricted stock. Restricted stock is excluded from the calculation of basic weighted average shares outstanding, but its impact, if dilutive, is included in the calculation of diluted weighted average shares outstanding.

Basic earnings per common share are calculated by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per common share are based on the weighted average common shares outstanding during the period, adjusted for the potential dilutive effect of common shares that would be issued upon the vesting and release of restricted stock awards and units and stock options, if any.

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Basic and diluted earnings (loss) per common share from continuing operations were calculated as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	2020		2019		2020		2019
Income (loss) from continuing operations	$	1,116	$	(363)	$	2,696	$	1,318

Basic earnings (loss) per common share:
Weighted average common shares outstanding		24,689,337		18,732,402		23,304,059		18,653,301

Basic earnings (loss) per common share	$	0.04	$	(0.02)	$	0.12	$	0.07

Diluted earnings (loss) per common share:
Weighted average common shares outstanding		24,689,337		18,732,402		23,304,059		18,653,301

Diluted effect:
Unvested portion of restricted stock units and awards		494,969		—		532,739		323,318
Weighted average diluted common shares outstanding		25,184,306		18,732,402		23,836,798		18,976,619

Diluted earnings (loss) per common share	$	0.04	$	(0.02)	$	0.11	$	0.07

The weighted average number of shares outstanding used in the computation of basic and diluted earnings per common share does not include the effect of the following potential outstanding common stock. The effects of the potentially outstanding service-based restricted stock and restricted stock unit awards were not included in the calculation of diluted earnings per common share because the effect would have been anti-dilutive. The effects of the potentially outstanding performance- and market-based restricted stock unit awards were not included in the calculation of diluted earnings per common share because the performance and/or market conditions had not been satisfied as of September 30, 2020 and 2019.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Unvested service-based restricted stock and restricted stock unit awards	391,601	196,910	262,705	211,243
Unvested performance- and market-based restricted stock unit awards	1,585,703	618,482	1,585,703	618,482
Stock options	—	122,000	—	122,000

NOTE 8—INCOME TAXES

The effective income tax expense rate for continuing operations for the three and nine months ended September 30, 2020 and 2019 was as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Income tax expenses	$321	$62	$565	$141
Effective income tax rate for continuing operations	22.3%	(20.6)%	17.3%	9.7%

The effective income tax rate differs from the statutory federal income tax rate of 21% primarily because of the partial valuation allowances recorded on the Company’s deferred tax assets, the interest and penalties accrued on the existing liabilities for uncertain tax positions, and the Canadian income tax provision.

For the three months ended September 30, 2020, the Company recorded income tax expense from continuing operations of $0.3 million, or 22.3% of pretax income from continuing operations compared with income tax expense from continuing operations of $0.1 million, or (20.6)% of pretax loss from continuing operations, in the corresponding period in 2019. For the nine months ended September 30, 2020, the Company recorded income tax expense from continuing operations of $0.6 million, or 17.3% of pretax income from continuing operations, compared with income tax expense from continuing operations of $0.1 million, or 9.7% of pretax income from continuing operations, in the corresponding period in 2019.

The increases in income tax provision from continuing operations for the three and nine months ended September 30, 2020 compared with the corresponding periods in 2019 were primarily the result of the $0.5 million current year Canadian income

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tax provision.

As of September 30, 2020 and 2019, the Company would have needed to generate approximately $268.5 million and $276.0 million, respectively, of future taxable income in order to realize its deferred tax assets.

As of September 30, 2020, the Company had undistributed earnings in one of its Canadian subsidiaries. It is the intention of the Company to reinvest the earnings of its non-U.S. subsidiary in the subsidiary’s operations. Income taxes have not been recognized for the excess, if any, of the amount for financial reporting over the tax basis of the Company’s investment in its foreign subsidiary that is indefinitely reinvested outside the United States. This amount may become taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. Determination of the amount of any unrecognized deferred income tax liability (including non-U.S. withholding taxes) is not practicable for the interim period reporting.

As of both September 30, 2020 and September 30, 2019, the Company provided for a total liability of $2.8 million, of which $1.7 million was related to discontinued operations, for unrecognized tax benefits related to various federal, foreign and state income tax matters, which were included in long-term deferred tax assets and other long-term liabilities. If recognized, the entire amount of the liability would affect the effective tax rate. As of both September 30, 2020 and September 30, 2019, the Company accrued approximately $1.2 million, of which $0.7 million related to discontinued operations, in other long-term liabilities for potential payment of interest and penalties related to uncertain income tax positions.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. The CARES Act did not have a material impact on the Company’s unaudited condensed consolidated financial condition or results of operations as of and for the three and nine months ended September 30, 2020. However, the Company deferred payments of federal employer payroll taxes of approximately $3.3 million, as permitted by the CARES Act.

NOTE 9—DEBT

As of September 30, 2020, the Company was in compliance with all debt covenants. After considering the current and potential effects of the COVID-19 pandemic, the Company currently expects to remain in compliance with its debt covenants. However, the Company cannot provide any assurance that the assumptions used to estimate its liquidity requirements will remain accurate due to the unprecedented nature and the unpredictability of the COVID-19 global pandemic. As a consequence, the Company’s estimates of the duration of the pandemic and its impact on the Company’s future earnings and cash flows could change and have a material impact on its results of operations and financial condition, including negatively affecting the Company’s ability to remain in compliance with its debt covenants.

The following table provides information about the Company’s debt, net of unamortized deferred financing costs:


(in thousands)	September 30, 2020		December 31, 2019
MidCap Facility	$	8,307	$	10,849
Current portion of New Centre Lane Facility		700		700
Current debt	$	9,007	$	11,549

New Centre Lane Facility	$	33,338	$	33,687
Unamortized deferred financing costs		(876)		(1,029)
Long-term debt, net	$	32,462	$	32,658

Total debt, net	$	41,469	$	44,207

MidCap Facility

On October 11, 2018, the Company entered into a three-year, $15.0 million Credit and Security Agreement with MidCap Financial Trust (“MidCap”), as agent and as a lender, and other lenders that may be added as a party thereto (as amended, the “MidCap Facility”). The MidCap Facility is a secured asset-based revolving credit facility that provides borrowing availability against the sum of 85% of eligible accounts receivable plus the lesser of 80% of eligible contract assets and $1.0 million, after certain customary exclusions and reserves, and allows for up to $6.0 million of non-cash collateralized letters of credit. The Company can, if necessary, make daily borrowings under the MidCap Facility with twenty-four to forty-eight hour funding. The outstanding loan balance under the MidCap Facility is reduced through the daily automated sweeping of the Company’s depository accounts to the lender’s account under the terms of deposit account control agreements.

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The MidCap Facility requires the Company to regularly provide financial information to the lenders, and, beginning on December 31, 2018, to maintain certain total leverage and fixed charge coverage ratios and meet minimum consolidated adjusted EBITDA and minimum liquidity requirements (each of which as defined in the MidCap Facility).

On January 13, 2020, the Company entered into the Third Amendment to the MidCap Facility (the “MidCap Amendment”) to, among other things, extend the maturity date of the revolving loan facility by one year to October 11, 2022 and increase the maximum available principal amount of revolving loans by $10.0 million to $25.0 million. The MidCap Amendment also changed the leverage ratio requirement to a “net” leverage ratio, enabling the Company to net unrestricted cash and cash equivalents in excess of $2.5 million against its Total Debt (as defined in the MidCap Facility) when determining the total net leverage ratio; amended the calculation of consolidated adjusted EBITDA; revised the required levels of the total net leverage ratio and minimum consolidated adjusted EBITDA for certain future periods; required the payment of a $0.2 million amendment fee, which was included in debt issuance costs; increased the monthly collateral management fee and a certain prepayment fee; and made certain other changes to the MidCap Facility, in each case subject to the terms and conditions of the MidCap Amendment.

On August 1, 2020, the Company entered into a Fourth Amendment to the MidCap Facility that, among other things, (a) extended the payment terms of certain deferred origination fees scheduled to expire on each of October 11, 2020 and October 11, 2021; provided that no such fee shall be payable within 90 days of the maturity date, and (b) increased the concentration limit under the borrowing base for certain accounts receivable to 60% through August 1, 2021, and 50% at all times thereafter. This increased availability under the borrowing base will enable the Company to maintain sufficient liquidity to accommodate its growth initiatives and better scale its operations in order to meet increased customer demand for its services.

As of September 30, 2020 and December 31, 2019, the Company had $8.3 million and $10.8 million, respectively, outstanding under the MidCap Facility, which was included in short-term borrowings on the unaudited condensed consolidated balance sheets. As of September 30, 2020, the Company had $4.8 million in available borrowings under the MidCap Facility. As of September 30, 2020 and December 31, 2019, the Company was in compliance with all of its current, and then existing, financial covenants.

Borrowings under the MidCap Facility bear interest at LIBOR plus 6.0% per year, subject to a minimum LIBOR rate of 1.0%, which is payable in cash on a monthly basis.

The Company must pay a customary unused line fee equal to 0.5% per annum of the average unused portion of the commitments under the MidCap Facility, certain other customary administration fees and a minimum balance fee. In addition, while any letters of credit are outstanding under the MidCap Facility, the Company must pay a letter of credit fee equal to 6.0% per annum, in addition to any other customary fees required by the issuer of the letter of credit.

The Company’s obligations under the MidCap Facility are secured by first priority liens on substantially all of its assets, other than the Excluded Collateral (as defined in the MidCap Facility), subject to the terms of an intercreditor agreement, dated as of October 11, 2018 (as amended, the “Intercreditor Agreement”), entered into by an affiliate of Centre Lane Partners, LLC (“Centre Lane”) as a lender under the New Centre Lane Facility (as defined below), and MidCap, as agent, and to which the Company consented. The Intercreditor Agreement was entered into as required by the MidCap Facility and the New Centre Lane Facility. The first priority liens previously granted by the Company and certain of its wholly owned subsidiaries in favor of Centre Lane in connection with the New Centre Lane Facility are also subject to the Intercreditor Agreement, which, among other things, specifies the relative lien priorities of the secured parties under each of the MidCap Facility and the New Centre Lane Facility in the relevant collateral. It contains customary provisions regarding, among other things, the rights of the respective secured parties to take enforcement actions against the collateral and certain limitations on amending the documentation governing each of the MidCap Facility and the New Centre Lane Facility. It additionally provides secured parties under each of the MidCap Facility and the New Centre Lane Facility the option, in certain instances, to purchase all outstanding obligations of the Company under the other respective loan facility.

The Company may from time to time voluntarily prepay outstanding amounts under the MidCap Facility, in whole or in part, in a minimum amount of $0.1 million. If at any time the principal amount outstanding under the MidCap Facility exceeds the borrowing base in effect at such time, the Company must repay the excess amount in cash, cash collateralize liabilities under letters of credit, or cause the cancellation of outstanding letters of credit (or any combination of the foregoing), in an aggregate amount equal to such excess. The Company is also required to repay certain amounts outstanding under the MidCap Facility upon the occurrence of certain events involving the assets upon which the borrowing base is calculated, including receipt of payments or proceeds from the Company’s accounts receivable, certain casualty proceeds in excess of $25,000, and receipt of proceeds following certain asset dispositions. The Company also has certain reimbursement obligations in the event of

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payments by the agent or a lender against draws under outstanding letters of credit.

In the event the MidCap Facility is terminated (by reason of an event of default or otherwise) 90 days or more prior to the maturity date, the Company will be required to pay a deferred loan origination fee in an amount equal to the aggregate commitment under the MidCap Facility at the time of termination, multiplied by 2.0% in the first two years following October 11, 2018, 1.5% in the third year, and 1.0% thereafter.

The MidCap Facility also contains customary representations and warranties, as well as customary affirmative and negative covenants. The MidCap Facility contains covenants that may, among other things, limit the Company’s ability to incur additional debt, incur liens, make investments, engage in mergers, dispositions or sale-leasebacks, engage in new lines of business or certain transactions with affiliates and change accounting policies or fiscal year.

Events of default under the MidCap Facility include, but are not limited to, failure to timely pay any amounts due and owing, a breach of certain covenants or any representations or warranties, the commencement of any bankruptcy or other insolvency proceeding, judgments in excess of certain acceptable amounts, certain events related to ERISA matters, impairment of security interests in collateral or invalidity of guarantees or security documents, and a default or event of default under the New Centre Lane Facility or the Intercreditor Agreement.

Upon default, MidCap would have the right to declare all borrowings under the MidCap Facility to be immediately due and payable, together with accrued interest and fees, and exercise remedies under the other Financing Documents (as defined in the MidCap Facility).

Centre Lane Facilities

On September 18, 2018, the Company refinanced and replaced its 4.5 year senior secured term loan facility with a four-year, $35.0 million senior secured credit agreement with an affiliate of Centre Lane as Administrative Agent and Collateral Agent, and the other lenders from time to time party thereto (as amended, the “New Centre Lane Facility”). The New Centre Lane Facility requires payment of an annual administration fee of $25,000. Borrowings under the New Centre Lane Facility bear interest at LIBOR (with a minimum rate of 2.5%) plus 10.0% per year, which is payable monthly in cash. The Company was required to repay an amount equal to 0.25% of the original aggregate principal amount of the New Centre Lane Facility in consecutive quarterly installments, beginning on December 31, 2018 through June 30, 2019. The Company must repay an amount equal to 0.50% of the original aggregate principal amount of the New Centre Lane Facility in consecutive quarterly installments, beginning on September 30, 2019.

The Company’s obligations under the New Centre Lane Facility are guaranteed by all of its wholly owned domestic subsidiaries, subject to customary exceptions. The Company’s obligations are secured by first priority security interests on substantially all of its assets and those of its wholly owned domestic subsidiaries. This includes 100% of the voting equity interests of the Company’s domestic subsidiaries and directly owned foreign subsidiaries.

Beginning on September 19, 2019, the Company may voluntarily prepay the New Centre Lane Facility at any time or from time to time, in whole or in part, in a minimum amount of $1.0 million of the outstanding principal amount, plus any accrued but unpaid interest on the aggregate principal amount being prepaid, plus a prepayment premium, to be calculated as follows (the “Prepayment Premium”):


	Prepayment Premium as a
	Percentage of Aggregate
Period	Outstanding Principal Prepaid
January 13, 2020 to January 13, 2021		2%
January 14, 2021 to January 13, 2022		1%
After January 13, 2022		0%

Subject to certain exceptions, the Company must prepay an aggregate principal amount equal to 75% of its Excess Cash Flow (as defined in the New Centre Lane Facility), minus the sum of all voluntary prepayments, within five business days after the date that is 90 days following the end of each fiscal year. The New Centre Lane Facility also requires mandatory prepayment of certain amounts in the event the Company or its subsidiaries receive proceeds from certain events and activities, including, among others, asset sales, casualty events, the issuance of indebtedness and equity interests not otherwise permitted under the New Centre Lane Facility and the receipt of tax refunds or extraordinary receipts in excess of $500,000, plus, in certain instances, the applicable Prepayment Premium, calculated as set forth above.