What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-12 compared with 2021-05-13 · 102 added, 77 removed, 329 unchanged (35% of the section changed)

3 unchanged sentences

(In thousands of US dollars, except share and per share amounts)

March 31, 2021

June 30, 2021

December 31, 2020

21 unchanged sentences

Preferred stock, $ 10.00 par value, authorized 10,000,000 shares;

outstanding 568 shares of Series N as of March 31, 2021 and December 31, 2020

outstanding 568 shares of Series N as of June 30, 2021 and December 31, 2020

Common stock, $ 0.01 par value, authorized 300,000,000 shares;

and outstanding 35,647,477 shares as of March 31, 2021 and 35,281,183 as of

and outstanding 36,284,382 shares as of June 30, 2021 and 35,281,183 as of

December 31, 2020

7 unchanged sentences

(In thousands of US dollars, except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Services revenue

9 unchanged sentences

Interest and other expense, net

Income before income tax expense

Income tax expense

Income before income tax benefit

Income tax benefit

Weighted average common shares outstanding – basic

12 unchanged sentences

Balance as of March 31, 2021

Issuance of common stock from stock option awards

Issuance of restricted common stock

Stock-based compensation expense

Balance at June 30, 2021

Preferred stock

4 unchanged sentences

Balance as of March 31, 2020

Issuance of common stock from stock option awards

Stock-based compensation expense

Balance at June 30, 2020

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

2 unchanged sentences

(In thousands of US dollars)

Six Months Ended June 30,

Cash flows used in operating activities:

26 unchanged sentences

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents as of beginning of period

3 unchanged sentences

Cash paid for interest

Noncash change in Right-of-use assets

Noncash change in Lease liabilities

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

19 unchanged sentences

These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 8, 2021 (the “Form 10-K”).

The results of operations for the three month period ended March 31, 2021 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2021.

The results of operations for the six month period ended June 30, 2021 are not necessarily indicative of those operating results to be expected for any subsequent interim period or for the entire year ending December 31, 2021.

The accompanying condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited consolidated balance sheet as of December 31, 2020, contained in the Company’s Form 10-K.

The spread of the novel coronavirus (“COVID-19”) had a minor negative impact on the Company’s performance during the first quarter of 2021 due to evolving travel and work restrictions, stimulus payments and credit policies impacting debt sales, and a delay in the sale of certain assets.

Going forward, the Company does not believe the COVID-19 pandemic will have material negative impacts on the Company’s financial performance, as its asset liquidation business is highly concentrated in distressed and surplus assets and the Company expects that there will be an increased supply of distressed and surplus assets as a result of the COVID-19 pandemic and any downward trends in the overall economy, resulting in more potential for principal and fee based deals.

The novel coronavirus (“COVID-19”) pandemic had a negative impact on the Company’s performance during the first and second quarter of 2021 due to evolving travel and work restrictions, stimulus payments and credit policies impacting debt sales, and a delay in the sale of certain assets.

Going forward, and subject to the caveat below, the Company does not believe the COVID-19 pandemic will have material negative impacts on the Company’s financial performance, as its asset liquidation business is highly concentrated in distressed and surplus assets and the Company expects that there will be an increased supply of distressed and surplus assets as a result of the COVID-19 pandemic and any downward trends in the overall economy, resulting in more potential for principal and fee based deals.

The Company believes that the continuing disruptions to the global supply chain, particularly those involving industrial assets, will further increase demand for U.S.-based surplus assets.

Further, the Company expects that the COVID-19 pandemic will have the following positive impacts:

• continued increase in demand for HGP’s online auctions as a result of ongoing social distancing requirements in connection with the COVID-19 pandemic;

Further, when stimulus payments conclude, the Company expects that the COVID-19 pandemic will have the following positive impacts:

• increased activity for NLEX and HGC due to expanding volumes of nonperforming and charged-off consumer loans;

• increased funding opportunities for HGC due to tightening underwriting standards at conventional lenders;

• increased funding opportunities for HGC as lenders begin to increase loan volume while loosening underwriting standards, which will subsequently increase loans available to debt buyers of charged-off accounts;

• incremental valuation opportunities for our valuation business as a result of greater focus on collateral on bank balance sheets.

However, positive expected impacts of the COVID-19 pandemic on the Company could be offset, at least in part, by negative impacts on certain of its business units relying on nonperforming and charged-off consumer loans.

Any continuation of stimulus

payments and additional credit policies impacting debt sales may result in de layed revenues depending on the scope and magnitude of such policies.

A new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread in the United States and across the globe.

Further surges in COVID-19 infection rates could result in the continuation of stimulus payments and the

implementation of additional credit policies impacting debt sales that may result in delayed revenues for the Company's Financial Asset Division depending on the scope and magnitude of such policies.

Note 2 – Summary of Significant Accounting Policies

15 unchanged sentences

The exception to recognition at a point in time occurs when certain contracts provide for advance payments recognized over a period of time.

Services revenue recognized over a period of time is not material in comparison to the Company’s total revenues (less than 1% of total revenues for the three month period ended March 31, 2021) and, therefore, not reported on a disaggregated basis.

Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability.” As of March 31, 2021, the deferred revenue balance was approximately $21,000.

Services revenue recognized over a period of time is not material in comparison to the Company’s total revenues (less than 1 % of total revenues for the six month period ended June 30, 2021) and, therefore, not reported on a disaggregated basis.

Further, as certain contracts stipulate that the customer make advance payments, amounts not recognized within the reporting period are considered deferred revenue and the Company’s “contract liability.” As of June 30, 2021, the deferred revenue balance was approximately $ 15,000 .

Revenue is generally recognized in the period that the Company satisfies the performance obligation and cash is collected;

16 unchanged sentences

The revenue recognition policy was established due to the uncertainty of timing of the amount of backend profit share percentage that will be realized, and the lack of historical precedent as this is a new business for the Company.

During the three months ended March 31, 2021 and 2020, the Company generated revenues specific to one customer representing 10% and 19% of total revenues, respectively.

During the six months ended June 30, 2021 and 2020, the Company generated revenues specific to one customer representing 10 % and 15 % of total revenues, respectively.

During the three months ended June 30, 2021 and 2020, the Company generated revenues specific to the same customer representing 11 % and 12 % of total revenues for the respective periods.

The Company is obligated to make future payments under existing lease agreements that (1) specifically identify the asset, and (2) convey the right to control the use of the identified asset in exchange for consideration for a period of time.

4 unchanged sentences

The critical accounting policies used in the preparation of the Company’s audited consolidated financial statements are discussed in the Company’s Form 10-K.

There have been no changes to these policies in the three months ended March 31, 2021.

There have been no changes to these policies in the six months ended June 30, 2021.

Recent Accounting Pronouncements

9 unchanged sentences

Note 3 – Notes Receivable, net

The Company’s notes receivable balance consists of loans to buyers of charged-off receivable portfolios which resulted in a total outstanding principal balance as of March 31, 2021 of approximately $3.6 million, net of unamortized deferred fees and costs on originated loans.

The Company’s notes receivable balance consists of loans to buyers of charged-off receivable portfolios which resulted in a total outstanding principal balance as of June 30, 2021 of approximately $ 2.3 million, net of unamortized deferred fees and costs on originated loans.

As of December 31, 2020, the Company’s notes receivable balance was $ 2.1 million, net of unamortized deferred fees and costs on originated loans.

The activity during the three months ended March 31, 2021 includes the issuance of additional notes of approximately $2.5 million, principal payments made by borrowers of approximately $0.9 million, and adjustments to our deferred fees and costs balance of approximately $0.1 million.

As of March 31, 2021, the Company has not recorded an allowance for credit losses related to notes receivable outstanding.

The activity during the six months ended June 30, 2021 includes the issuance of additional notes of approximately $ 4.8 million offset by principal payments made by borrowers of approximately $ 2.5 million, the transfer of notes to partners of approximately $ 2.0 million, and adjustments to our deferred fees and costs balance of approximately $ 0.1 million.

As of June 30, 2021, the Company has no t recorded an allowance for credit losses related to notes receivable outstanding.

Note 4 – Stock-based Compensation

As of March 31, 2021, the Company had four stock-based compensation plans, which are described more fully in Note 16 to the audited consolidated financial statements for the year ended December 31, 2020, contained in the Company’s Form 10-K.

During the three months ended March 31, 2021, the Company issued options to purchase 30,000 shares of common stock to certain of the Company’s employees and options to purchase 50,000 shares of common stock to the Company’s non-employee directors as part of their annual compensation.

The following summarizes the changes in common stock options for the three months ended March 31, 2021:

As of June 30, 2021, the Company had four stock-based compensation plans, which are described more fully in Note 16 to the audited consolidated financial statements for the year ended December 31, 2020, contained in the Company’s Form 10-K.

During the six months ended June 30, 2021, the Company issued options to purchase 272,500 shares of common stock to certain of the Company’s employees and options to purchase 50,000 shares of common stock to the Company’s non-employee directors as part of their annual compensation.

During the same period, the Company cancelled options to purchase 67,500 shares of common stock as a result of employee resignations.

The following summarizes the changes in common stock options for the six months ended June 30, 2021:

Outstanding as of December 31, 2020

Outstanding as of March 31, 2021

Options exercisable as of March 31, 2021

The Company recognized stock-based compensation expense related to common stock options of $0.1 million for the three months ended March 31, 2021.

As of March 31, 2021, there was approximately $0.7 million of unrecognized stock-based compensation expense related to unvested common stock options outstanding, which is expected to be recognized over a weighted average period of 3.2 years.

Outstanding as of June 30, 2021

Options exercisable as of June 30, 2021

The Company recognized stock-based compensation expense related to common stock options of $ 0.1 million for the six months ended June 30, 2021.

As of June 30, 2021, there was approximately $ 1.2 million of unrecognized stock-based compensation expense related to unvested common stock options outstanding, which is expected to be recognized over a weighted average period of 3.3 years.

Restricted Stock

5 unchanged sentences

The shares are subject to certain restrictions on transfer and a right of repurchase over five years , ending May 31, 2023, and require a continued term of service to the Company.

Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $0.43 per share, was $12,900 for the three months ended March 31, 2021.

The unrecognized stock-based compensation expense as of March 31, 2021 was approximately $0.1 million.

Stock-based compensation expense related to the restricted stock awards, calculated by using the grant date fair value of $ 0.43 per share, was $ 12,900 for the six months ended June 30, 2021.

The unrecognized stock-based compensation expense as of June 30, 2021 was approximately $ 0.1 million.

On March 30, 2021, the Company and Scott West entered into a Separation Agreement and General Release (the “Separation Agreement”).

Under the terms of the Separation Agreement, Mr.

West’s separation from the Company was effective on March 31, 2021.

On April 8, 2021 , the Company granted 25,000 shares of the Company’s restricted common stock, which will be forfeited to the Company during the two years following the effective date of the Separation Agreement in the event Mr.

West breaches the terms of the Separation Agreement.

In addition, the Separation Agreement provides for customary mutual releases by the Company and Mr.

West, and the Separation Agreement includes confidentiality, non-disparagement and other obligations.

The full amount of the restricted common stock was expensed as of March 31, 2021 and there was no remaining unrecognized stock-based compensation expense as of June 30, 2021 .

On March 19, 2019, the Company entered into a Warrant Agreement (the “Warrant Agreement”) with Napier Park Industrial Asset Acquisition LP, a Delaware limited partnership (“Napier Park”).

Pursuant to the Warrant Agreement, Napier Park is entitled to receive warrants to acquire shares of Company common stock with a fair market value of $ 71,368 for each $ 500,000 increment in excess of $ 2.5 million of Cumulative Gross Profit (as defined in the Warrant Agreement) achieved prior to December 19, 2022 to which the Company may become entitled in connection with its equity joint venture with Napier Park.

During the fiscal year ended December 31, 2020 and the three months ended March 31, 2021, Napier Park did not receive any warrants.

During the fiscal year ended December 31, 2020 and the six months ended June 30, 2021, Napier Park did not receive any warrants.

Note 5 – Lessor Arrangement

3 unchanged sentences

The purchase option for both the real estate and machinery and equipment can be exercised at any time on or after December 1, 2019 and before May 31, 2021 for a total purchase price of $ 20.0 million, of which $ 12.0 million and $ 8.0 million are allocated to the real estate and machinery and equipment, respectively.

On May 31, 2021, the lessee delivered written notice to exercise the purchase option.

The lessor arrangement is classified as a sales-type lease, and, therefore, the present value of future lease payments was recognized as revenue and a lease receivable as of the effective date of the lease agreement.

8 unchanged sentences

In March 2020, HGC Origination I LLC and HGC Funding I LLC were formed as joint ventures with a partner for purposes of conducting business relating to the sourcing, origination and funding of loans to debt purchasing clients.

The table below details the Company’s joint venture revenues and earnings during the three months ended March 31, 2021 and 2020 (in thousands):

The table below details the Company’s joint venture revenues and earnings during the six months ended June 30, 2021 and 2020 (in thousands):

Six Months Ended June 30,

Oak Grove Asset Acquisitions LP

5 unchanged sentences

Total operating income

The table below details the summarized components of assets and liabilities of the Company’s joint ventures, as of March 31, 2021 and December 31, 2020 (in thousands):

The table below details the summarized components of assets and liabilities of the Company’s joint ventures, as of June 30, 2021 and December 31, 2020 (in thousands):

Oak Grove Asset Acquisitions LP

12 unchanged sentences

The table below shows the calculation of the shares used in computing diluted EPS.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Weighted Average Shares Calculation:

2 unchanged sentences

Diluted weighted average common shares outstanding

For the three months ended March 31, 2021 and 2020, there were potential common shares of 30,000 and approximately 0.1 million, respectively, that were excluded from the computation of diluted EPS, as the inclusion of such common shares would have been anti-dilutive.

For the six months ended June 30, 2021 and 2020, there were potential common shares of 0.4 million and approximately 0.2 million, respectively, that were excluded from the computation of diluted EPS, as the inclusion of such common shares would have been anti-dilutive.

For the three months ended June 30, 2021 and 2020 there were potential common shares totaling approximately 0.1 million and 0.2 million, respectively, that were excluded.

Note 8 – Leases

The Company leases office and warehouse space primarily in three locations:

Burlingame, CA;

and Edwardsville, IL.

As each contract does not meet any of the four criteria of ASC 842 for financing lease classification, the Company has determined that each lease arrangement should be classified as an operating lease.

On October 27, 2020, the Company entered into an agreement (the “ Lease ”) with Hayward FGHK Industrial, LLC (“ Landlord ”) pursuant to which the Company leases 30,321 square feet of industrial space in Hayward, California from Landlord.

The Lease has a commencement date of April 1, 2021 and an initial term of ninety (90) months, unless terminated earlier by either party pursuant to the terms of the Lease.

The Lease provides for an initial monthly base rent of $ 27,289 , which increases on an annual basis to $ 33,562 per month in the final year.

In addition, the Company is obligated to pay its share of maintenance costs of common areas.

The Burlingame, CA warehouse lease was terminated on April 30, 2021 .

The right-of-use assets and lease liabilities for each location are as follows (in thousands):

Right-of-use assets:

Burlingame, CA

Edwardsville, IL

Lease liabilities:

Burlingame, CA

Edwardsville, IL

3 unchanged sentences

As of January 1, 2019, the Company’s incremental borrowing rate was 5.25 %.

For leases commencing after January 1, 2019, the Company uses its incremental borrowing rate at time of commencement.

As of April 1, 2021, the Company’s incremental borrowing rate was 4.95 %.

Lease expense for these leases is recognized on a straight-line basis over the lease term.

For both three month periods ended March 31, 2021 and 2020, lease expense was approximately $0.1 million.

Undiscounted future minimum lease payments as of March 31, 2021 that have initial or remaining lease terms in excess of one year are as follows (in thousands):

2021 (remainder of year from April 1, 2021 to December 31, 2021)

For both six month periods ended June 30, 2021 and 2020, lease expense was approximately $ 0.3 million.

Undiscounted future minimum lease payments as of June 30, 2021 that have initial or remaining lease terms in excess of one year are as follows (in thousands):

2021 (remainder of year from July 1, 2021 to December 31, 2021)

Total undiscounted future minimum lease payments

13 unchanged sentences

Trade Name (NLEX)

Amortization expense during the three months ended March 31, 2021 and 2020 was $0.1 million.

As of March 31, 2021, the estimated amortization expense for the remainder of the current fiscal year and the next three fiscal years is shown below (in thousands):

2021 (remainder of year from April 1, 2021 to December 31, 2021)

Amortization expense during the six months ended June 30, 2021 and 2020 was $ 0.1 million.

As of June 30, 2021, the estimated amortization expense for the remainder of the current fiscal year and the next three fiscal years is shown below (in thousands):

2021 (remainder of year from July 1, 2021 to December 31, 2021)

The Company’s goodwill is related to its asset liquidation business and is comprised of goodwill from the acquisitions of HGP in 2012 and NLEX in 2014, as shown in the table below (in thousands).

There were no additions to goodwill and no impairment losses to the carrying amount of goodwill during the three months ended March 31, 2021.

March 31, 2021

There were no additions to goodwill and no impairment losses to the carrying amount of goodwill during the six months ended June 30, 2021.

June 30, 2021

December 31, 2020

1 unchanged sentence

Note 10 – Debt

The Company had no outstanding debt as of March 31, 2021 and December 31, 2020.

The Company had no outstanding debt as of June 30, 2021 and December 31, 2020.

In September 2018, Heritage Global Inc.

16 unchanged sentences

The 2020 Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets.

During the year ended December 31, 2020, the Company drew

on the line of credit for a total of $ 5.6 million and made repayments of principal totaling $ 5.6 million resulting in a zero balance as of December 31, 2020.

During the three months ended March 31, 2021, the Company made no additional draws or repayments on the line of credit.

As described more fully in Note 14 — Subsequent Events, the Company entered into a New Credit Facility (as defined herein) for a $ 10.0 million revolving line of credit, which terminated the Credit Facility.

During the year ended December 31, 2020, the Company drew on the line of credit for a total of $ 5.6 million and made repayments of principal totaling $ 5.6 million resulting in a zero balance as of December 31, 2020.

In January 2018, HG LLC, a wholly-owned subsidiary of HGI, settled a long-standing litigation matter that was commenced against the predecessor in interest of HG LLC.

7 unchanged sentences

During 2020, the Company made the remaining scheduled payments on the Note totaling $ 455,000 resulting in a zero balance on the Note as of December 31, 2020.

On May 11, 2021, the Company entered into a promissory note, business loan agreement, commercial security agreement and pledge agreement (the “ 2021 Credit Facility ”) with C3bank, National Association for a $ 10.0 million revolving line of credit.

2021 Credit Facility matures on May 11, 2023 and replaces the 2020 Credit Facility.

The Company is permitted to use the proceeds of the loan solely for its business operations.

The 2021 Credit Facility accrues at a variable interest rate, which is based on the rate of interest last quoted by The Wall Street Journal as the “prime rate,” plus a margin of 1.70 % (such rate not to be less than 4.950 % per annum).

The Comp any will pay interest on the 2021 Credit Facility in regular monthly payments, beg inning on June 11, 2021.

The 2021 Credit Facility also provides for a minimum fee, which is offset by interest payments.

The Company may prepay the 2021 Credit Facility without penalty and may convert up to $ 5.0 million of revolving debt into term debt.

The Compa ny is the borrower under the 2021 Credit Facility.

The 2021 Credit Facility is secured by a security interest in certain of the Company’s and its certain subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles and a pledge of the equity of the direct and indirect subsidiaries of the Company.

The availability o f additional draws under the 2021 Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including default, insolvency or bankruptcy, material adverse change in financial condition and any guarantor’s attempt to revise its guarantee.

The agreement governing the 2021 Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of several financial covenants.

The 2021 Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets.

On May 11, 2021, the Company terminated the 2020 Credit Facility a s a result of entry into the 2021 Credit Facility.

During the six months ended June 30, 2021, the Company made no draws or repayments on the line of credit.

Note 11 – Income Taxes

As of March 31, 2021, the Company had aggregate tax net operating loss carry forwards of approximately $77.6 million ($61.6 million of unrestricted net operating tax losses and approximately $16.0 million of restricted net operating tax losses).

As of June 30, 2021, the Company had aggregate tax net operating loss carry forwards of approximately $ 77.6 million ($ 61.6 million of unrestricted net operating tax losses and approximately $ 16.0 million of restricted net operating tax losses).

Substantially all of the net operating loss carry forwards expire between 2024 and 2037.

3 unchanged sentences

The Company records net deferred tax assets to the extent that it believes such assets will more likely than not be realized.

As a result of cumulative losses and uncertainty with respect to future taxable income, the Company has provided a partial valuation allowance against its net deferred tax assets as of March 31, 2021 and December 31, 2020.

Note 12 – Related Party Transactions

As part of the operations of NLEX, the Company leases office space in Edwardsville, IL that is owned by David Ludwig, the Company’s President of its Financial Assets Division and a member of its board of directors.

The total amount paid to the related party for the three month periods ended March 31, 2021 and 2020 was approximately $28,000 and $27,000, respectively, and is included in selling, general and administrative expenses in the condensed consolidated income statements.

All lease payments during the three months ended March 31, 2021 and the fiscal year ended December 31, 2020 were made to Mr.

The total amount paid to the related party for the six month periods ended June 30, 2021 and 2020 was approximately $ 55,000 and $ 54,000 , respectively, and is included in selling, general and administrative expenses in the condensed consolidated income statements.

All lease payments during the six months ended June 30, 2021 and the fiscal year ended December 31, 2020 were made to Mr.

On June 1, 2018, the Company amended its lease agreement with David Ludwig to extend the term of the lease to May 31, 2023 and to set the rent amounts for the new term.

3 unchanged sentences

West will receive a payment of $ 200,000 (payable in equal installments over six months) and monthly payments of $ 775 for up to a year to offset health coverage costs.

West received 25,000 shares of the Company’s common stock, which will be forfeited to the Company during the two years following the effective date of the Separation Agreement in the event Mr.

breaches the terms of the Separation A greement.

West received 25,000 shares of the Company’s restricted common stock, which will be forfeited to the Company during the two years following the effective date of the Separation Agreement in the event Mr.

West breaches the terms of the Separation Agreement.

In addition, the Separation Agreement provides for customary mutual releases by the Company and Mr.

11 unchanged sentences

The following table sets forth certain financial information for the Company's reportable segments (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Industrial Assets Division:

7 unchanged sentences

Note 14 – Subsequent Events

The Company has evaluated events subsequent to March 31, 2021 for potential recognition or disclosure in its condensed consolidated financial statements.

There have been no material subsequent events requiring recognition or disclosure in this Quarterly Report on Form 10-Q, other than noted below.

On May 11, 2021, the Company entered into a promissory note, business loan agreement, commercial security agreement and pledge agreement (the “ New Credit Facility ”) with C3bank, National Association for a $10.0 million revolving line of credit.

The New Credit Facility matures on May 11, 2023 and replaces the Credit Facility.

The Company is permitted to use the proceeds of the loan solely for its business operations.

The New Credit Facility accrues at a variable interest rate, which is based on the rate of interest last quoted by The Wall Street Journal as the “prime rate,” plus a margin of 1.70% (such rate not to be less than 4.950% per annum).

The Company will pay interest on the New Credit Facility in regular monthly payments, beginning on June 11, 2021.

The New Credit Facility also provides for a minimum fee, which is offset by interest payments.

The Company may prepay the New Credit Facility without penalty and may convert up to $5.0 million of revolving debt into term debt.

The Company is the borrower under the New Credit Facility.

The New Credit Facility is secured by a security interest in certain of the Company’s and its certain subsidiaries’ current and future tangible and intangible assets, inventory, chattel paper, accounts, equipment and general intangibles and a pledge of the equity of the direct and indirect subsidiaries of the Company.

The availability of additional draws under the New Credit Facility is conditioned, among other things, on the compliance with certain customary representations and warranties, including default, insolvency or bankruptcy, material adverse change in financial

condition and any guarantor’s attempt to revise its guarantee.

The agreement governing the New Credit Facility also contains customary affirmative covenants regarding, among other things, the maintenance of records, maintenance of certain insurance coverage, compliance with governmental requirements and maintenance of several financial covenants.

The New Credit Facility contains certain customary financial covenants and negative covenants that, among other things, include restrictions on the Company’s ability to create, incur or assume indebtedness for borrowed money, including capital leases or to sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of the Company’s assets.

On May 11, 2021, the Company terminated the Credit Facility as a result of entry into the New Credit Facility.

See Note 10—Debt for a description of the material terms and conditions of the Credit Facility.

The Company has evaluated events subsequent to June 30, 2021 for potential recognition or disclosure in its condensed consolidated financial statements.

There have been no material subsequent events requiring recognition or disclosure in this Quarterly Report on Form 10-Q.

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

What changed 10-Q

Item 1. Financial Statements