What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-13 compared with 2020-08-04 · 96 added, 92 removed, 302 unchanged (38% of the section changed)

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On July 31, 2020 we were notified by Nasdaq that we had regained compliance with the Nasdaq listing requirements.

On September 11, 2020, we received notice from Nasdaq that during the prior 30 day period we had not met a listing requirement to maintain a minimum Market Value of Publicly Held Shares of $15,000,000.

We have until March 10, 2021 to cure this deficiency and/or meet any of Nasdaq’s other alternative continuing qualification criteria.

Explanatory Note

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Shipping and handling activities are considered part of our obligation to transfer the products and therefore are recorded as direct selling expenses, as incurred.

Our reserve for sales returns and allowances amounted to $32.3 million as of June 30, 2020 and $38.4 million as of December 31, 2019.

Our reserve for sales returns and allowances amounted to $44.2 million as of September 30, 2020 and $38.4 million as of December 31, 2019.

Fair value measurements.

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Based on our April 1 annual assessment, we determined the fair values of our reporting units were not less than the carrying amounts.

No goodwill impairment was determined to have occurred for the six months ended June 30, 2020.

No goodwill impairment was determined to have occurred for the nine months ended September 30, 2020.

Impairment of Long-Lived Assets.

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Discrete Items for Income Taxes.

The discrete expense recorded in the six months ended June 30, 2020 is $29,000 which is primarily related to excess tax deficiencies fully offset by valuation allowance, state income taxes, foreign return-to-provision adjustment, and change in uncertain tax positions.

The discrete benefit recorded in the nine months ended September 30, 2020 is $0.4 million which is primarily related to change in uncertain tax positions, excess tax deficiencies fully offset by valuation allowance, state income taxes, and foreign return-to-provision adjustments.

For the comparable period in 2019, a discrete tax expense of $0.1 million was recorded related to excess tax deficiencies fully offset by valuation allowance, return-to-provision adjustments for foreign jurisdictions, state income taxes, and change in uncertain tax positions.

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The reserve is based upon management’s assessment of all relevant information and is periodically reviewed and adjusted as circumstances warrant.

As of June 30, 2020 and December 31, 2019, our income tax reserves were approximately $1.5 million and $1.6 million, respectively.

The $1.5 million balance primarily relates to the potential tax settlements in Hong Kong and adjustments in the area of withholding taxes.

As of September 30, 2020 and December 31, 2019, our income tax reserves were approximately $0.9 million and $1.6 million, respectively.

The $0.9 million balance primarily relates to the potential tax settlements in Hong Kong.

Our income tax reserves are included in income tax payable on the Condensed Consolidated Balance Sheets and within provision for (benefit from) income taxes on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

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The following unaudited table sets forth, for the periods indicated, certain statement of income data as a percentage of net sales.

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of sales

Gross profit 21.3 18.6 22.8 19.3

Selling, general and administrative expenses

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Acquisition related and other

Loss from operations (12.4) (19.6) (17.7) (25.7)

Income (loss) from operations

Income from joint ventures

Other income (expense), net

Loss on extinguishment of debt

Change in fair value of preferred stock derivative liability

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Interest expense

Loss before provision for income taxes (29.2) (23.0) (23.9) (30.9)

Provision for income taxes 0.3 0.6 0.4 0.2

Net loss (29.5) (23.6) (24.3) (31.1)

Net income attributable to non-controlling interests — 0.1 — —

Net loss attributable to JAKKS Pacific, Inc.

(29.5) % (23.7) % (24.3) % (31.1) %

Income (loss) before provision for (benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Net income (loss) attributable to non-controlling interests

Net income (loss) attributable to JAKKS Pacific, Inc.

The following unaudited table summarizes, for the periods indicated, certain statements of operations data by segment (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Three Months Ended

September 30,

Nine Months Ended

September 30,

Toys/Consumer Products

$ 56,214 $ 58,795 $ 118,779 $ 125,981

Halloween 22,544 36,387 26,536 40,027

78,758 95,182 145,315 166,008

Cost of Sales

Toys/Consumer Products

42,942 48,818 90,378 102,117

Halloween 19,046 28,618 21,817 31,805

61,988 77,436 112,195 133,922

Toys/Consumer Products

Halloween 3,498 7,769 4,719 8,222

$ 16,770 $ 17,746 $ 33,120 $ 32,086

Comparison of the Three Months Ended June 30, 2020 and 2019

Comparison of the Three Months Ended September 30, 2020 and 2019

Toys/Consumer Products.

Net sales of our Toys/Consumer Products segment were $56.2 million for the three months ended June 30, 2020 compared to $58.8 million for the prior year period, representing a decrease of $2.6 million, or 4.4%.

Net sales of our Toys/Consumer Products segment were $187.3 million for the three months ended September 30, 2020 compared to $204.3 million for the prior year period, representing a decrease of $17.0 million, or 8.3%.

Sales were negatively impacted by the closure of many of the stores operated by the Company’s retail customers during the stay-at-home mandates, both in the U.S.

Increases in Boys’ and Girls’ toys were more than offset by declines in Seasonal products.

The Seasonal downside was primarily driven by the discontinuation of our Funnoodle business at the end of calendar year 2019.

Net sales of our Halloween segment were $22.5 million for the three months ended June 2020 compared to $36.4 million for the prior year period, representing a decrease of $13.9 million, or 38.2%.

Sales from Boys’ toys increased in the quarter led by Nintendo and Sonic, while offset by declines in Girls’ toys and Seasonal products.

Both Girls’ and Seasonal saw a decline due to unusually strong sales in the third quarter of last year powered by the release of Frozen 2.

Net sales of our Halloween segment were $55.0 million for the three months ended September 2020 compared to $75.8 million for the prior year period, representing a decrease of $20.8 million, or 27.4%.

Sales for the quarter were lower due to retailers reducing orders due to concerns about the impact of the COVID-19 pandemic on traditional Halloween celebrations.

Last year also saw unusually strong sales in the second quarter powered by a stronger entertainment calendar, including the releases of Toy Story 4 and Frozen 2.

Last year also saw unusually strong sales in the third quarter powered by a stronger entertainment calendar, including the releases of Toy Story 4 and Frozen 2.

Cost of Sales

Toys/Consumer Products.

Cost of sales of our Toys/Consumer Products segment was $42.9 million, or 76.3% of related net sales for the three months ended June 30, 2020 compared to $48.8 million, or 83.0% of related net sales for the prior year period, representing a decrease of $5.9 million, or 12.1%.

Cost of sales of our Toys/Consumer Products segment was $125.1 million, or 66.8% of related net sales for the three months ended September 30, 2020 compared to $138.7 million, or 67.9% of related net sales for the prior year period, representing a decrease of $13.6 million, or 9.8%.

The decrease in dollars is due to lower overall sales in 2020.

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This decrease is partially offset by a higher average royalty rate, in part driven by the mix of products sold in the quarter.

Cost of sales of our Halloween segment was $19.0 million, or 84.4% of related net sales for the three months ended June 30, 2020 compared to $28.6 million, or 78.6% of related net sales for the prior year period, representing a decrease in dollars of $9.6 million, or 33.6%.

Cost of sales of our Halloween segment was $42.5 million, or 77.3% of related net sales for the three months ended September 30, 2020 compared to $60.6 million, or 79.9% of related net sales for the prior year period, representing a decrease in dollars of $18.1 million, or 29.9%.

The decrease in dollars is due to lower overall sales in 2020.

The increase as a percentage of net sales, year over year, is due to a higher average royalty rate, in part driven by the mix of products sold in the quarter.

The decrease as a percentage of net sales, year over year, is due to a lower product costs, driven by a focused effort to design and develop our product lines for greater product margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $24.7 million for the three months ended June 30, 2020 compared to $33.9 million for the prior year period constituting 31.3% and 35.6% of net sales, respectively.

Selling, general and administrative expenses were $37.0 million for the three months ended September 30, 2020 compared to $44.6 million for the prior year period constituting 15.3% and 16.0% of net sales, respectively.

Selling, general and administrative expenses decreased by $7.6 million from the prior year period primarily driven by company-wide cost savings initiatives begun in 2019 as well as other pandemic-driven cost mitigation programs.

Restructuring Charge

During the three months ended June 30, 2020, we recognized $1.6 million of restructuring charges as a result of a company-wide restructuring initiative.

The restructuring charges primarily related to employee severance costs.

Pandemic Related Charges

During the three months ended June 30, 2020, we recognized $0.2 million spending directly attributable to making necessary accommodations related to the COVID-19 pandemic.

During the three months ended September 30, 2020, we recognized $0.1 million spending directly attributable to making necessary accommodations related to the COVID-19 pandemic.

Acquisition Related and Other

During the three months ended June 30, 2019, we recognized $2.5 million in acquisition related and other charges as a result of our ongoing evaluation and negotiation of a strategic and/or re-financing transaction, including Hong Kong Meisheng Cultural Company Limited's expression of interest in acquiring additional shares of our common stock and the refinancing of our convertible senior notes due in 2020.

During the three months ended September 30, 2019, we recognized $0.6 million in acquisition related and other charges related to strategic and/or refinancing transactions, including the Recapitalization Transaction closed in August 2019.

Interest Expense

Interest expense was $5.5 million for the three months ended June 30, 2020, as compared to $2.9 million in the prior year period.

During the three months ended June 30, 2020, we booked interest expense of $0.6 million related to our convertible senior notes due in 2020 and 2023, $4.6 million related to our Term Loan, and $0.3 million related to our revolving credit facility.

During the three months ended June 30, 2019, we booked interest expense of $1.6 million related to our convertible senior notes due in 2020, and $1.1 million related to our revolving credit and term loan facilities.

Interest expense was $5.6 million for the three months ended September 30, 2020, as compared to $4.6 million in the prior year period.

During the three months ended September 30, 2020, we booked interest expense of $0.5 million related to our convertible senior notes due in 2023, $4.6 million related to our Term Loan, $18,873 related to our Paycheck Protection Program Loan (the “PPP Loan”) and $0.4 million related to our revolving credit facility.

During the three months ended September 30, 2019, we booked interest expense of $1.1 million related to our convertible senior notes due in 2020, and $3.5 million related to our revolving credit and term loan facilities.

Provision for (Benefit from) Income Taxes

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $0.3 million, or an effective tax rate of (1.2)%, for the three months ended June 30, 2020.

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $0.3 million, or an effective tax rate of (0.8%) for the three months ended September 30, 2020.

During the comparable period in 2019, our income tax expense was $1.0 million, or an effective tax rate of 5.8%.

Comparison of the Six Months Ended June 30, 2020 and 2019

Comparison of the Nine Months Ended September 30, 2020 and 2019

Toys/Consumer Products.

Net sales of our Toys/Consumer Products segment were $118.8 million for the six months ended June 30, 2020 compared to $126.0 million for the prior year period, representing a decrease of $7.2 million, or 5.7%.

The decrease in net sales is primarily driven by the discontinuation of our low-growth, low-margin Funnoodle business within our Seasonal division at the end of calendar year 2019.

Net sales of our Halloween segment were $26.5 million for the six months ended June 30, 2020 compared to $40.0 million for the prior year period, representing a decrease of $13.5 million, or 33.8%.

Net sales of our Toys/Consumer Products segment were $306.1 million for the nine months ended September 30, 2020 compared to $330.3 million for the prior year period, representing a decrease of $24.2 million, or 7.3%.

The decrease in net sales is primarily driven by the discontinuation of our low-growth, low-margin Funnoodle business within our Seasonal division at the end of calendar year 2019 as well as last year’s stronger entertainment calendar which included the releases of Toy Story 4 and Frozen 2.

Net sales of our Halloween segment were $81.5 million for the nine months ended September 30, 2020 compared to $115.8 million for the prior year period, representing a decrease of $34.3 million, or 29.6%.

Sales were lower due to retailers reducing orders due to concerns about the impact of the COVID-19 pandemic on traditional Halloween celebrations.

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Toys/Consumer Products.

Cost of sales of our Toys/Consumer Products segment was $90.4 million, or 76.1% of related net sales for the six months ended June 30, 2020 compared to $102.1 million, or 81.0% of related net sales for the prior year period, representing a decrease of $11.7 million, or 11.5%.

Cost of sales of our Toys/Consumer Products segment was $215.5 million, or 70.4% of related net sales for the nine months ended September 30, 2020 compared to $240.8 million, or 72.9% of related net sales for the prior year period, representing a decrease of $25.3 million, or 10.5%.

The decrease in dollars is due to lower overall sales in 2020.

The decrease as a percentage of net sales, year over year, is due to lower average manufacturing costs resulting from a focused effort to design and develop our product lines for greater product margins.

This decrease is partially offset by a higher average royalty rate, in part driven by the mix of products sold during the six-month period.

Cost of sales of our Halloween segment was $21.8 million, or 82.2% of related net sales for the six months ended June 30, 2020 compared to $31.8 million, or 79.5% of related net sales for the prior year period, representing a decrease in dollars of $10.0 million, or 31.4%.

The decrease in dollars is due to lower overall sales in 2020.

The increase as a percentage of net sales is due primarily to higher average royalty rate compared to prior period.

This decrease is partially offset by a higher average royalty rate, in part driven by the mix of products sold during the nine-month period.

Cost of sales of our Halloween segment was $64.3 million, or 78.9% of related net sales for the nine months ended September 30, 2020 compared to $92.4 million, or 79.8% of related net sales for the prior year period, representing a decrease in dollars of $28.1 million, or 30.4%.

For the nine-month period, the decrease in dollars is due to lower overall sales in 2020, while the cost of sales as a percentage of net sales has remained relatively flat.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $57.0 million for the six months ended June 30, 2020 compared to $69.1 million for the prior year period constituting 39.2% and 41.6% of net sales, respectively.

Selling, general and administrative expenses were $94.0 million for the nine months ended September 30, 2020 compared to $113.7 million for the prior year period constituting 24.2% and 25.5% of net sales, respectively.

Selling, general and administrative expenses decreased by $19.7 million from the prior year period primarily driven by company-wide cost savings initiatives begun in 2019 as well as other COVID-19 pandemic-driven cost mitigation programs.

In addition, the write-down of the Maui intangible asset during the fourth quarter of 2019 results in a year-over-year reduction of amortization expense of $1.7 million in the first half of 2020.

Restructuring Charges

During the six months ended June 30, 2020, we recognized $1.6 million of restructuring charges as a result of a company-wide restructuring initiative.

In addition, the write-down of the Maui intangible asset during the fourth quarter of 2019 results in a year-over-year reduction of amortization expense of $2.7 million during the nine months ended September 30, 2020.

Restructuring Charge

During the nine months ended September 30, 2020, we recognized $1.6 million of restructuring charges as a result of a company-wide restructuring initiative.

The restructuring charges primarily related to employee severance costs.

During the nine months ended September 30, 2019, we recognized $0.3 million of restructuring charges as a result of a Company-wide restructuring initiative in 2018 fourth quarter.

The restructuring charges are primarily related to employee severance costs.

Pandemic Related Charges

During the six months ended June 30, 2020, we recognized $0.2 million spending directly attributable to making necessary accommodations related to the COVID-19 pandemic.

During the nine months ended September 30, 2020, we recognized $0.4 million spending directly attributable to making necessary accommodations related to the COVID-19 pandemic.

Acquisition Related and Other

During the six months ended June 30, 2019, we recognized $5.4 million in acquisition related and other charges as a result of our ongoing evaluation and negotiation of a strategic and/or refinancing transaction, including Hong Kong Meisheng Cultural Company Limited's expression of interest in acquiring additional shares of our common stock and the refinancing of our convertible senior notes due in 2020.

During the nine months ended September 30, 2019, we recognized $6.0 million in acquisition related and other charges related to strategic and/or refinancing transactions, including the Recapitalization Transaction closed in August 2019.

Interest Expense

Interest expense was $11.1 million for the six months ended June 30, 2020, as compared to $5.9 million in the prior year period.

During the six months ended June 30, 2020, we booked interest expense of $1.2 million related to our convertible senior notes due in 2020 and 2023, $9.3 million related to our Term Loan, and $0.6 million related to our revolving credit facility.

During the six months ended June 30, 2019, we booked interest expense of $3.2 million related to our convertible senior notes due in 2020, and $1.8 million related to our revolving credit and term loan facilities.

Interest expense was $16.7 million for the nine months ended September 30, 2020, as compared to $10.6 million in the prior year period.

During the nine months ended September 30, 2020, we booked interest expense of $1.7 million related to our convertible senior notes due in 2020 and 2023, $14.0 million related to our Term Loan, $18,873 related to our PPP Loan, and $1.0 million related to our revolving credit facility.

During the nine months ended September 30, 2019, we booked interest expense of $4.7 million related to our convertible senior notes, and $5.9 million related to our revolving credit and term loan facilities.

Provision for (Benefit from) Income Taxes

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $0.5 million, or an effective tax rate of (1.6)%, for the six months ended June 30, 2020.

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $0.3 million, or an effective tax rate of (11.0%) for the nine months ended September 30, 2020.

During the comparable period in 2019, our income tax expense was $1.4 million, or an effective tax rate of (4.0%).

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Liquidity and Capital Resources

As of June 30, 2020, we had working capital of $85.3 million, compared to $107.5 million as of December 31, 2019.

The decrease was primarily attributable to the net loss and a lower accounts receivable balance, partially offset by lower accounts payable and accrued expense balances.

Operating activities used net cash of $11.9 million in the six months ended June 30, 2020, as compared to $8.9 million in the prior year period.

Net cash during the six months ended June 30, 2020 was primarily impacted by a decrease in accounts payable, accrued expenses and reserve for sales returns and allowances, partially offset by a decrease in accounts receivable.

Net cash during the six months ended June 30, 2019 was primarily impacted by a decrease in accounts receivable and an increase in accounts payable and accrued expenses, partially offset by an increase in prepaid and other assets and a decrease in the reserve for sales returns and allowances.

As of September 30, 2020, we had working capital of $105.9 million, compared to $107.5 million as of December 31, 2019.

Operating activities provided net cash of $15.9 million in the nine months ended September 30, 2020, as compared to $26.1 million in the prior year period.

The decrease in net cash provided by operating activities was primarily due to higher working capital usage, partially offset by lower net loss, excluding the impact of non-cash charges.

Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers.

However, we may incur costs or other losses as a result of not placing orders consistent with our forecasts for product manufactured by our suppliers or manufacturers for a variety of reasons including customer order cancellations or a decline in demand.

As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties generally ranging from 1% to 23% payable on net sales of such products.

As of June 30, 2020, these agreements required future aggregate minimum royalty guarantees of $45.0 million, exclusive of $30.9 million in advances already paid.

As part of our strategy to develop and market new products, we have entered into various characters and product licenses with royalties/obligations generally ranging from 1% to 25% payable on net sales of such products.

As of September 30, 2020, these agreements required future aggregate minimum royalty guarantees of $34.0 million, exclusive of $18.3 million in advances already paid.

Of this $34.0 million future minimum royalty guarantee, $27.6 million is due over the next twelve months.

Our investing activities used net cash of $4.3 million in the six months ended June 30, 2020, as compared to using net cash of $5.2 million in the prior year period, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.

Our financing activities provided net cash of $4.1 million for the six months ended June 30, 2020, primarily consisting of proceeds from the loan under the Paycheck Protection Program, partially offset by the retirement of convertible senior notes.

Our financing activities used net cash of $7.9 million for the six months ended June 30, 2019, primarily consisting of the repayment of credit facility borrowings.

As of June 30, 2020, we have substantial indebtedness including $134.8 million of outstanding indebtedness under a First Lien Term Loan Facility Credit Agreement (the “New Term Loan Agreement).

As of June 30, 2020, we have no outstanding indebtedness under an amended and extended Credit Agreement (the “Amended ABL Credit Agreement” or “Amended Wells Fargo Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”).

Our investing activities used net cash of $6.1 million in the nine months ended September 30, 2020, as compared to using net cash of $7.6 million in the prior year period, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.

Our financing activities provided net cash of $4.1 million for the nine months ended September 30, 2020, primarily consisting of proceeds from the loan under the Paycheck Protection Program (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) secured under the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), partially offset by the retirement of convertible senior notes.

Our financing activities used net cash of $0.8 million for the nine months ended September 30, 2019, primarily consisting of the repayment of our GACP term loan and net credit facility payments as well as debt issuance costs incurred in connection with the Recapitalization Transaction (see Note 5 - Debt), partially offset by the net proceeds included as part of our New Term Loan Agreement.

As of September 30, 2020, we have $138.8 million (including $4.0 million in payment-in-kind interest) of outstanding indebtedness under a First Lien Term Loan Facility Credit Agreement (the “New Term Loan Agreement) and we have no outstanding indebtedness under an amended and extended Credit Agreement (the “Amended ABL Credit Agreement” or “Amended Wells Fargo Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”).

We also have a $6.2 million PPP Loan under the PPP secured under the CARES Act.

The New Term Loan Agreement and Amended ABL Credit Agreement each contain negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates, as well as cross-default provisions.

Commencing with the fiscal quarter ending September 30, 2020, we are also required under the New Term Loan Agreement to maintain a minimum EBITDA of not less than $34.0 million over the previous twelve months and a minimum liquidity of not less than $10.0 million.

The original terms of the New Term Loan Agreement required us to maintain a trailing 12-month Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) (as defined and adjusted therein) of not less than $34.0 million and a minimum liquidity of not less than $10.0 million commencing with the fiscal quarter ending September 30, 2020.

On October 16, 2020, we reached an agreement (the “Amendment”) with holders of our term loan and Wells Fargo, holder of our revolving credit facility, to amend the New Term Loan Agreement and defer the EBITDA covenant calculation until March 31, 2022.

Under the Amendment, the trailing 12-month EBITDA requirement has been reduced to $25.0 million, which will not be calculated earlier than March 31, 2022.

The Amendment also requires us to pre-pay $15.0 million of the New Term Loan immediately and, under certain conditions, pre-pay up to an additional $5.0 million no later than the third quarter of fiscal year 2021.

As a result, we reclassified $20.0 million from long term debt to short term debt as of September 30, 2020.

The New Term Loan Agreement contains events of default that are customary for a facility of this nature, including nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to other material indebtedness, bankruptcy or insolvency events, material judgment defaults and a change of control as specified in the New Term Loan Agreement, and cross-default provisions with the Amended Wells Fargo Credit Agreement.

If an event of default occurs under either Agreement, the maturity of the amounts owed under the New Term Loan Agreement and the Amended Wells Fargo Credit Agreement may be accelerated.

We were in compliance with the financial covenants under the New Term Loan Agreement as of June 30, 2020.

However, given the current uncertainties created by the COVID-19 pandemic, as discussed further in Note 1 "Basis of Presentation," it is probable that we will not achieve the minimum EBITDA threshold required under the New Term Loan Agreement at September 30, 2020.

Failure to satisfy such requirement would constitute an event of default under the New Term Loan Agreement and Amended ABL Credit Agreement unless the lenders agreed to waive compliance with such requirement.

We were in compliance with the financial covenants under the New Term Loan Agreement as of September 30, 2020.

Debt and Credit Facilities

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We may redeem the New Oasis Notes in cash if a person, entity or group acquires shares of our Common Stock, par value $0.001 per share (the “Common Stock”), and as a result owns at least 49% of our issued and outstanding Common Stock.

Excluding the impact of the 1 for 10 reverse stock split the conversion price of the new Oasis Notes reset on February 9, 2020 to $1.00 per share.

In June 2020, $7.1 million of the New Oasis Notes (including $0.2 million in payment-in-kind interest) were converted for 710,100 shares of our common stock.

On February 9, 2020, excluding the impact of the 1 for 10 reverse stock split, the conversion price of the New Oasis Notes reset to $1.00 per share ($10.00 per share after reverse stock split).

On August 9, 2020, the conversion price of the New Oasis Notes reset to $5.647.

In June 2020, $7.1 million of the New Oasis Notes (including $0.2 million in payment-in-kind interest) were converted for 710,100 shares of common stock.

As a result, we recorded an increase to additional paid-in capital of $9.5 million.

In August 2020, $1.0 million of the New Oasis Notes (including $27,288 in payment-in-kind interest) were converted for 177,085 shares of common stock.

As a result, we recorded an increase to additional paid-in capital of $1.3 million.

In June 2014, we sold an aggregate of $115.0 million principal amount of 4.875% convertible senior notes due 2020 (the “2020 Notes”).

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The New Term Loan Agreement contains negative covenants that, subject to certain exceptions, limit our ability and the ability of our subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.

Commencing with the fiscal quarter ending September 30, 2020, we are also required to maintain a minimum EBITDA of not less than $34.0 million and a minimum liquidity of not less than $10.0 million.

The original terms of the New Term Loan Agreement required us to maintain a trailing 12-month EBITDA (as defined and adjusted therein) of not less than $34.0 million and a minimum liquidity of not less than $10.0 million commencing with the fiscal quarter ending September 30, 2020.

Under the Amendment, the trailing 12-month EBITDA requirement has been reduced to $25.0 million, which will not be calculated earlier than March 31, 2022.

As a result, we reclassified $20.0 million from long term debt to short term debt as of September 30, 2020.

As of September 30, 2020, we had $138.8 million (including $4.0 million in payment-in-kind interest) outstanding on the Term Loan.

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Loan under Paycheck Protection Program

On June 12, 2020, we received a $6.2 million loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) within the Coronavirus Aid Relief and Economic Security Act (the “CARES Act”).

On June 12, 2020, we received a $6.2 million PPP Loan under the PPP within the CARES Act.

The PPP Loan matures on June 2, 2022 and is subject to the CARES Act terms which include, among other terms, an interest rate of 1.00% per annum and monthly installment payments of $261,275 commencing on December 1, 2020.

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Any loan amounts forgiven will be removed from liabilities recorded.

While we intend to use the proceeds of the PPP Loan only for permissible purposes, there can be no assurance that we will be eligible for forgiveness of the PPP Loan, in full or in part.

While we used the proceeds of the PPP Loan only for permissible purposes, there can be no assurance that we will be eligible for forgiveness of the PPP Loan, in full or in part.

In March 2014, we and our domestic subsidiaries entered into a secured credit facility with General Electric Capital Corporation (“GECC”).

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The obligations under the Amended ABL Credit Agreement are guaranteed by us, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries and are secured by substantially all of our assets, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.

As of June 30, 2020, the amount of outstanding borrowings was nil, the amount of outstanding stand-by letters of credit totaled $10.4 million and the total excess borrowing capacity was $23.6 million.

As of September 30, 2020, the amount of outstanding borrowings was nil, the amount of outstanding stand-by letters of credit totaled $10.4 million and the total excess borrowing capacity was $36.6 million.

As of December 31, 2019, the amount of outstanding borrowings was nil, the amount of outstanding stand-by letters of credit totaled $9.2 million and the total excess borrowing capacity was $41.8 million.

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We are also required to maintain a fixed charge coverage ratio of not less than 1.1 to 1.0 under certain circumstances, and a minimum liquidity of $25.0 million and a minimum availability of at least $9.0 million.

As of June 30, 2020 and December 31, 2019, we are in compliance with the financial covenants under the Amended ABL Credit Agreement and the previous Credit Facility, as applicable.

As of September 30, 2020 and December 31, 2019, we are in compliance with the financial covenants under the Amended ABL Credit Agreement and the previous Credit Facility, as applicable.

Any amounts borrowed under the Amended ABL Credit Agreement accrue interest, at either (i) LIBOR plus 1.50%-2.00% (determined by reference to a fixed charge coverage ratio-based pricing grid) or (ii) base rate plus 0.50%-1.00% (determined by reference to a fixed charge coverage ratio-based pricing grid).

As of June 30, 2020, the weighted average interest rate on the credit facility with Wells Fargo was 0%.

As of September 30, 2020, the weighted average interest rate on the credit facility with Wells Fargo was 0%.

As of December 31 2019, the weighted average interest rate on the credit facility with Wells Fargo was 4.53%.

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For certain events of default relating to insolvency, all outstanding obligations become due and payable.

As described in the aforementioned Term Loan section, on October 16, 2020, the Company amended the New Term Loan Agreement to reduce the amount and defer the calculation of its EBITDA covenant, with Wells Fargo as party to the agreement.

Great American Capital Partners

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Our failure to comply with such covenants or any other breach of the Amended Wells Fargo Credit Agreement or New Term Loan Agreement could cause a default and we may then be required to repay borrowings under our Amended Wells Fargo Credit Agreement or New Term Loan Agreement with capital from other sources, or reach some other accommodation with those parties.

As of June 30, 2020 and December 31, 2019, we held cash and cash equivalents, including restricted cash, of $52.7 million and $66.3 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $24.7 million and $27.0 million as of June 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020 and December 31, 2019, we held cash and cash equivalents, including restricted cash, of $79.8 million and $66.3 million, respectively.

Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $56.9 million and $27.0 million as of September 30, 2020 and December 31, 2019, respectively.

The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S.

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tax should such amounts be repatriated in the form of dividends or deemed distributions.

Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of June 30, 2020.

Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of September 30, 2020.

Our primary sources of working capital are cash flows from operations and borrowings under our Amended Wells Fargo Credit Agreement (see Note 6 - Credit Facilities).

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Off-Balance Sheet Arrangements

As of June 30, 2020, off-balance sheet arrangements include letters of credit issued by Wells Fargo of $10.4 million.

As of September 30, 2020, off-balance sheet arrangements include letters of credit issued by Wells Fargo of $10.4 million.

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 2. Management’s Discussion and Analysis