Quarterly report pursuant to Section 13 or 15(d)

LIQUIDITY

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LIQUIDITY
6 Months Ended
Jun. 30, 2018
LIQUIDITY  
LIQUIDITY

NOTE 2—LIQUIDITY

The Company’s 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 six months ended June 30, 2018 (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.

Management has assessed the Company’s financial condition and has concluded that the following factors, taken in the aggregate, raise substantial doubt regarding the Company’s ability to continue as a going concern for the twelve-month period following the issuance of this Form 10-Q:

·

For the past several years, the Company has incurred both net losses and negative cash flows from operations.

·

For the three and six months ended June 30, 2018, the Company had a net loss (including discontinued operations) of $7.5 million and $11.5 million, respectively.

·

As of both June 30, 2018 and December 31, 2017, Koontz-Wagner Custom Controls Holdings LLC (“Koontz-Wagner”), a wholly owned subsidiary of the Company and the sole component of the Electrical Solutions segment was presented as a discontinued operation. However, Koontz-Wagner has continued to incur operating losses resulting in its bankruptcy filing in July 2018. Please refer to “Note 12–Subsequent Events” for additional discussion on the bankruptcy filing.

·

The Company’s liquidity has been, and is currently projected to remain, very constrained. The Company’s lack of access to readily available capital resources and unexpected delays in collecting projected cash receipts could create significant liquidity problems.

·

Under the Centre Lane Facility (as defined below), tax refunds and/or any extraordinary receipts in excess of $0.5 million in the aggregate in any fiscal year, with the exception of $3.7 million of certain future cash receipts waived in the Fourth Amendment (as defined below), must be used to prepay amounts outstanding under the Centre Lane Facility.

·

The Fourth Amendment to the Centre Lane Facility required prepayment of all outstanding amounts due and payable on the earlier of (i) May 31, 2019, (ii) the date Williams Industrial Services Group, LLC and its subsidiaries are sold or (iii) the date of acceleration of the loans pursuant to an additional event of default.

Management’s mitigation plans, which aim to alleviate the factors that caused the substantial doubt, include the following:

·

In July 2018, the Company entered into a Fifth Amendment to the Centre Lane Facility (as defined below) which extended the required prepayment of all outstanding amounts due and payable to the earlier of April 1, 2020 or the date of acceleration of loans pursuant to an additional event of default.

·

The Fifth Amendment to the Centre Lane Facility also extended the first required date for the Company to satisfy the total leverage and fixed charge coverage ratios to June 30, 2020.

·

In April 2018, as part of the Fourth Amendment to the Centre Lane Facility, the Company negotiated a $3.0 million Incremental Loan Commitment the Company can draw upon in minimum increments of $1.0 million. This Loan Commitment can provide emergency funding to the Company in the event of a cash shortfall.

·

The Company aggressively pursued the sale of Koontz-Wagner while concurrently initiating the closure of one of Koontz-Wagner’s leased facilities to streamline its operations in an effort to curtail further losses and negative cash flows. The Company was ultimately unsuccessful in completing the sale, and on July 11, 2018, Koontz-Wagner filed for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code (the “Code”). Koontz-Wagner used $3.6 million of cash during the first six months of 2018. The Company could incur additional liabilities associated with the shutdown of Koontz-Wagner. Please refer to “Note 12–Subsequent Events” for additional discussion on the bankruptcy filing.

·

With the more streamlined company structure resulting from the completed disposal of Mechanical Solutions and the bankruptcy of Koontz-Wagner, the Company accelerated plans to significantly reduce its corporate headquarters costs, including headcount.

While management believes its mitigation plans alleviate the substantial doubt regarding the Company’s ability to continue as a going concern during the ensuing twelve-month period, there can be no assurances management will be successful, and investors could lose the full value of their investment in the Company’s common stock if bankruptcy protection is ultimately sought.