What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-01-27 compared with 2020-10-28 · 95 added, 93 removed, 293 unchanged (39% of the section changed)

11 unchanged sentences

Our portfolio of solutions includes:

• StorNext scale out file storage :

We offer a line of products designed for the highest speed ingest, processing, and analysis of video and other forms of unstructured data.

• CatDV Asset Management Software —An agile asset management and workflow automation platform that helps organizations with large amounts of video and digital image content to communicate and collaborate more effectively.

• StorNext high performance file system —We offer a line of products designed for the highest speed ingest, processing, and analysis of video and other forms of unstructured data.

Powered by the StorNext file system software and data management platform, this product line includes new NVMe flash storage servers (F-series) and hybrid SSD/HDD storage arrays.

• Video Surveillance Systems :

We offer a broad portfolio of solutions designed for video surveillance and physical security, including network video recording servers (NVRs), hyperconverged (HCI) storage servers to host multiple physical security workloads, GPU-based analytics servers, and file and object storage systems for large scale surveillance archives.

• ActiveScale Object Storage :

We also sell massively scalable object storage systems used to preserve and protect data with high levels of data durability.

• Tape Storage:

We provide low cost, secure storage systems for long term archiving and ransomware protection.

We provide both the storage systems and sells tape media under the Quantum brand.

• Backup Storage Systems :

We offer high-performance, scalable storage for backup and multi-site disaster recovery.

• Quantum Services :

We offer a full line of services including managed services and Storage-as-a-Service offerings, as well as maintenance, implementation, training and consulting services.

• Quantum All - Terrain File System (ATFS)—An easy to deploy, easy to use network attached storage (“NAS”) platform with integrated data classification.

• ActiveScale Object Storage —We also sell massively scalable object storage systems used to preserve and protect data with high levels of data durability.

• Tape Storage —We provide low cost, secure storage systems for long term archiving and ransomware protection.

We provide both the storage systems and sell tape media under the Quantum brand.

• Video Surveillance Systems —We offer a broad portfolio of solutions designed for video surveillance and physical security, including network video recording servers (NVRs), hyperconverged (HCI) storage servers to host multiple physical security workloads, GPU-based analytics servers, and file and object storage systems for large scale surveillance archives.

• Backup Storage Systems —We offer high-performance, scalable storage for backup and multi-site disaster recovery.

• Quantum Services —We offer a full line of services including managed services and Storage-as-a-Service offerings, as well as maintenance, implementation, training and consulting services.

COVID-19 IMPACT AND ASSOCIATED ACTIONS

17 unchanged sentences

Adjusted EBITDA is a non-U.S.

GAAP financial measure defined by us as net loss before interest expense (net), provision for income taxes, depreciation and amortization expense, stock-based compensation expense, restructuring charges, long-term debt related costs, costs related to the financial restatement and related activities described in the Explanatory Paragraph and Note 2:

– Restatement in our Annual Report on Form 10-K for the year ended March 31, 2019, and other non-recurring expenses.

described in our Annual Report on Form 10-K for the year ended March 31, 2020, and other non-recurring expenses.

Adjusted Net Income (Loss) is a non-U.S.

GAAP financial measure defined by us as net loss before restructuring charges, stock-based compensation expense, long-term debt related costs, costs related to the financial restatement and related activities described in the Explanatory Paragraph and Note 2:

– Restatement in the Annual Report on Form 10-K for the year ended March 31, 2019 and other non-recurring (income) expenses.

GAAP financial measure defined by us as net loss before restructuring charges, stock-based compensation expense, long-term debt related costs, business acquisition costs, costs related to the financial restatement and related activities described in the Annual Report on Form 10-K for the year ended March 31, 2020 and other non-recurring (income) expenses.

The Company calculates Adjusted Net Income (Loss) per Basic and Diluted share using the Company’s above-referenced definition of Adjusted Net Income (Loss).

The Company considers non-recurring expenses to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years.

The Company considers other non-recurring expenses to be expenses that have not been incurred within the prior two years and are not expected to recur within the next two years.

Such expenses include certain strategic and financial restructuring expenses.

15 unchanged sentences

(6) potential future restructuring expenses;

(7) potential future costs related to business acquisitions;

or (8) potential future costs related to our financial statement restatement and other related activities;

3 unchanged sentences

(3) potential future costs related to our long-term debt;

or (4) potential future costs related to our financial statement restatement and other related activities;

(4) potential future costs related to business acquisitions;

(5) potential future costs related to our financial statement restatement and other related activities;

• Other companies, including companies in our industry, may calculate Adjusted EBITDA, Adjusted Net Income (Loss) or similarly titled measures differently, which reduces its usefulness as a comparative measure.

4 unchanged sentences

GAAP financial measure, Net Loss (in thousands):

Three Months Ended Six Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Net loss $ (4,592) $ (2,315) $ (15,328) $ (6,122)

Interest expense, net 7,578 6,347 14,015 12,653

Three Months Ended Nine Months Ended

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Net income (loss) $ (2,669) $ 4,749 $ (17,997) $ (1,373)

Interest expense 7,808 6,425 21,823 19,079

Provision for income taxes 256 (110) 877 471

2 unchanged sentences

Long-term debt related costs 208 — 1,377 —

Acquisition related costs 393 — 393 —

Restructuring charges 200 (64) 2,837 1,020

2 unchanged sentences

The following is a reconciliation of Adjusted Net Income (Loss) to the most comparable U.S.

GAAP financial measure, Net Loss (in thousands):

Three Months Ended Six Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Net loss $ (4,592) $ (2,315) $ (15,328) $ (6,122)

GAAP financial measure, Net Income (Loss) (in thousands):

Three Months Ended Nine Months Ended

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Net income ( loss) $ (2,669) $ 4,749 $ (17,997) $ (1,373)

Restructuring charges 200 (64) 2,837 1,020

1 unchanged sentence

Long-term debt related costs 208 — 1,377 —

Acquisition related costs 393 — 393 —

Cost related to financial restatement and related activities — 564 — 12,743

7 unchanged sentences

RESULTS OF OPERATIONS

Three Months Ended September 30, Six Months Ended September 30,

Three Months Ended December 31, 2020 Nine Months Ended December 31,

(in thousands) 2020 2019 2020 2019

19 unchanged sentences

(1) Includes stock-based compensation as follows:

Three Months Ended September 30, Six Months Ended September 30,

Three Months Ended September 30, Nine Months Ended December 31,

(in thousands) 2020 2019 2020 2019

4 unchanged sentences

Total $ 1,878 $ 2,056 $ 6,428 $ 5,408

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

Three Months Ended September 30,

Comparison of the Three Months Ended December 31, 2020 and 2019

Three Months Ended December 31,

(dollars in thousands) 2020 % of

9 unchanged sentences

Total revenue $ 98,023 100 % $ 103,315 100 % $ (5,292) (5)

1 Primary and Secondary storage system revenue has been adjusted for the three months ended September 30, 2019 due to certain reclassifications from Primary to Secondary storage systems.

1 Primary and Secondary storage system revenue has been adjusted for the three months ended December 31, 2019 due to certain reclassifications from Primary to Secondary storage systems.

Product revenue

In the three months ended September 30, 2020, product revenue decreased $17.3 million, or 25%, as compared to the same period in 2019.

Primary storage systems represented $0.7 million of the decrease, driven by declines in the media and entertainment industry as a result of the COVID-19 pandemic.

Secondary storage systems represented $9.9 million of the decrease, driven primarily by fluctuating purchase cycles with our hyperscale customers.

In the three months ended December 31, 2020, product revenue decreased $3.4 million, or 5%, as compared to the same period in 2019.

Primary storage systems represented $2.0 million of the decrease, driven by a decrease in sales to the US federal government due to related purchasing activity.

Devices and media represented $1.4 million of the decrease, driven by a lower volume of LTO media sold through our high-volume channel partners.

4 unchanged sentences

Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service revenue decreased 3% in the three months ended September 30, 2020 compared to the same period in 2019 due to a combination of reduced new customer installations and reduced support renewals from our legacy customers.

Service revenue decreased 5% in the three months ended December 31, 2020 compared to the same period in 2019 due to a combination of reduced new customer installations and reduced support renewals from our legacy customers.

Royalty revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium.

Royalty revenue decreased $1.8 million, or 34%, in the three months ended September 30, 2020 compared to the same period in 2019 due to lower overall market volume .

Royalty revenue decreased $0.2 million, or 4%, in the three months ended December 31, 2020 compared to the same period in 2019 due to lower overall market volume .

Gross Profit and Margin

Three Months Ended September 30,

Three Months Ended December 31,

(dollars in thousands) 2020 Gross

6 unchanged sentences

Product Gross Margin

Product gross margin increased 380 basis points for the three months ended September 30, 2020, as compared with the same period in 2019.

This increase was due primarily to a more favorable mix of enterprise products sold, along with a relatively flat operations departmental expense.

Product gross margin decreased 300 basis points for the three months ended December 31, 2020, as compared with the same period in 2019.

This decrease was due primarily to a less favorable mix of enterprise products sold, along with a relatively flat operations departmental expense.

Service Gross Margin

Service gross margin increased 110 basis points for the three months ended September 30, 2020, as compared with the same period in 2019.

This increase was primarily the effect of reduced repair costs.

Service gross margin decreased 170 basis points for the three months ended December 31, 2020, as compared with the same period in 2019.

This decrease was primarily the effect of lower service revenue on a relatively flat expense profile

Royalty Gross Margin

1 unchanged sentence

Operating expenses

Three Months Ended September 30,

Three Months Ended December 31,

(dollars in thousands) 2020 % of

6 unchanged sentences

Total operating expenses $ 36,186 36.9 % $ 35,401 34.3 % $ 785 2

In the three months ended September 30, 2020, research and development expense increased $0.9 million, or 9%, as compared with the same period in 2019.

In the three months ended December 31, 2020, research and development expense increased $0.3 million, or 3%, as compared with the same period in 2019.

This increase was due in part to an increase in personnel costs due to increased headcount focused on new product development.

In the three months ended September 30, 2020, sales and marketing expenses decreased $1.7 million, or 11%, as compared with the same period in 2019.

This decrease was largely driven by an overall decrease in compensation and benefits as the result of lower headcount, a decrease in marketing programs and professional services costs, and suspended travel and entertainment expense due to current COVID-19 related restrictions.

In the three months ended September 30, 2020, general and administrative expenses decreased $4.1 million, or 28% as compared with the same period in 2019.

This decrease was due primarily to higher costs in 2019 related to the financial restatement and related activities.

In the three months ended September 30, 2020, restructuring expenses increased $0.8 million, or 93% as compared with the same period in 2019.

In the three months ended December 31, 2020, sales and marketing expenses decreased $0.1 million, or 1%, as compared with the same period in 2019.

This decrease was largely driven by suspended travel and entertainment expense due to current COVID-19 related restrictions.

In the three months ended December 31, 2020, general and administrative expenses increased $0.4 million, or 4% as compared with the same period in 2019.

This increase was due primarily to increased legal and other expenses related to our long-term debt amendments and business acquisition related activities.

In the three months ended December 31, 2020, restructuring expenses increased $0.3 million, or 413% as compared with the same period in 2019.

The increase was the result of a reduction in workforce to improve operational efficiency and rationalize our cost structure.

Other Income (Expense)

Three Months Ended September 30,

Three Months Ended December 31,

(dollars in thousands) 2020 % of

3 unchanged sentences

Interest expense (7,808) (8) (6,425) 6 (1,383) 22

Other income (expense), net during the three months ended September 30, 2020 and 2019 were related primarily to fluctuations in foreign currency exchange rates.

In the three months ended September 30, 2020, interest expense increased $1.2 million, or 19%, as compared with the same period in 2019 due primarily to a higher principal balance.

Three Months Ended September 30,

Other income (expense), net during the three months ended December 31, 2020 and 2019 were related primarily to fluctuations in foreign currency exchange rates.

In the three months ended December 31, 2020, interest expense increased $1.4 million, or 22%, as compared with the same period in 2019 due primarily to a higher principal balance.

Three Months Ended December 31,

(dollars in thousands) 2020 % of

2 unchanged sentences

Income tax provision $ 256 1 % $ (110) — % $ 366 (333) %

The income tax provision for the three months ended September 30, 2020 and 2019 is primarily influenced by foreign and state income taxes.

The income tax provision for the three months ended December 31, 2020 and 2019 is primarily influenced by foreign and state income taxes.

Due to our history of net losses in the United States, the protracted period for utilizing tax attributes in certain foreign jurisdictions, and the difficulty in predicting future results, we believe that we cannot rely on projections of future taxable income to realize most of our deferred tax assets.

4 unchanged sentences

Our income tax expense recorded in the future will be reduced to the extent that sufficient positive evidence materializes to support a reversal of, or decrease in, our valuation allowance.

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

Six Months Ended September 30,

Comparison of the Nine Months Ended December 31, 2020 and 2019

Nine Months Ended December 31,

(dollars in thousands) 2020 % of

9 unchanged sentences

Total revenue $ 257,149 100 % $ 314,734 100 % $ (57,585) (18)

1 Primary and Secondary storage system revenue has been adjusted for the six months ended September 30, 2019 due to certain reclassifications from Primary to Secondary storage systems.

1 Primary and Secondary storage system revenue has been adjusted for the six months ended December 31, 2019 due to certain reclassifications from Primary to Secondary storage systems.

Product revenue

In the six months ended September 30, 2020, product revenue decreased $43.4 million, or 32%, as compared to the same period in 2019.

Secondary storage systems represented $29.1 million of the decrease, driven primarily by fluctuating purchase cycles with our hyperscale customers.

In the nine months ended December 31, 2020, product revenue decreased $46.8 million, or 23%, as compared to the same period in 2019.

Secondary storage systems represented $29.2 million of the decrease, driven primarily by fluctuating purchase cycles with our hyperscale customers in addition to the impact of decreased purchasing due to COVID-19.

Devices and media represented $10.6 million of the decrease, driven by lower volume of LTO media sold through our high-volume channel partners.

5 unchanged sentences

Standard service contracts may be extended or include enhanced service, such as faster service response times.

Service revenue decreased 6% in the six months ended September 30, 2020 compared to the same period in 2019 due to a combination of reduced new customer installations and reduced support renewals from our legacy customers.

Service revenue decreased $5.6 million, or 6% in the nine months ended December 31, 2020 compared to the same period in 2019 due to a combination of reduced new customer installations and reduced support renewals from our legacy customers.

Royalty revenue

We receive royalties from third parties that license our LTO media patents through our membership in the LTO consortium.

Royalty revenue decreased $5.0 million, or 43%, in the six months ended September 30, 2020 compared to the same period in 2019 due to lower overall market volume .

Royalty revenue decreased $5.2 million, or 33%, in the nine months ended December 31, 2020 compared to the same period in 2019 due to lower overall market volume .

Gross Profit and Margin

Six Months Ended September 30,

Nine Months Ended December 31,

(dollars in thousands) 2020 Gross

6 unchanged sentences

Product Gross Margin

Product gross margin was flat for the six months ended September 30, 2020, as compared with the same period in 2019.

Product gross margin decreased 70 basis points for the nine months ended December 31, 2020, as compared with the same period in 2019.

This decrease was primarily the result of a less favorable product mix to our enterprise customers.

Service Gross Margin

Service gross margin decreased 40 basis points for the six months ended September 30, 2020, as compared with the same period in 2019.

Service gross margin decreased 80 basis points for the nine months ended December 31, 2020, as compared with the same period in 2019.

This decrease was due primarily to total service revenue decreases of 6% with relatively flat corresponding departmental expense.

2 unchanged sentences

Operating expenses

Six Months Ended September 30,

Nine Months Ended December 31,

(dollars in thousands) 2020 % of

6 unchanged sentences

Total operating expenses $ 105,767 41.1 % $ 117,802 37.4 % $ (12,035) (10)

In the six months ended September 30, 2020, research and development expense increased $7.0 million, or 39%, as compared with the same period in 2019.

In the nine months ended December 31, 2020, research and development expense increased $2.9 million, or 11%, as compared with the same period in 2019.

This increase was due in part to an increase in personnel costs due to increased headcount focused on new product development.

In the six months ended September 30, 2020, sales and marketing expenses decreased $8.9 million, or 29%, as compared with the same period in 2019.

In the nine months ended December 31, 2020, sales and marketing expenses decreased $6.1 million, or 13%, as compared with the same period in 2019.

This decrease was due primarily to a decrease in personnel costs due to lower headcount, a decrease in marketing programs and professional services costs, and suspended travel and entertainment expense due to current COVID-19 related restrictions.

In the six months ended September 30, 2020, general and administrative expenses decreased $12.5 million, or 38% as compared with the same period in 2019.

In the nine months ended December 31, 2020, general and administrative expenses decreased $10.7 million, or 25% as compared with the same period in 2019.

This decrease was due primarily to higher costs in 2019 related to the financial restatement and related activities.

In the six months ended September 30, 2020, restructuring expenses increased $1.6 million, or 143% as compared with the same period in 2019.

In the nine months ended December 31, 2020, restructuring expenses increased $1.8 million, or 178% as compared with the same period in 2019.

The increase was the result of a reduction in workforce to improve operational efficiency and rationalize our cost structure.

Other Income (Expense)

Six Months Ended September 30,

Nine Months Ended December 31,

(dollars in thousands) 2020 % of

3 unchanged sentences

Interest expense (21,823) (8) (19,079) 6 (2,744) 14

Other income (expense), net during the six months ended September 30, 2020 and 2019 were related primarily to fluctuations in foreign currency exchange rates.

In the six months ended September 30, 2020, interest expense increased $1.4 million, or 11%, as compared with the same period in 2019 due primarily to a higher principal balance.

Six Months Ended September 30,

Other income (expense), net during the nine months ended December 31, 2020 and 2019 were related primarily to fluctuations in foreign currency exchange rates.

In the nine months ended December 31, 2020, interest expense increased $2.7 million, or 14%, as compared with the same period in 2019 due primarily to a higher principal balance.

Nine Months Ended December 31,

(dollars in thousands) 2020 % of

2 unchanged sentences

Income tax provision $ 877 — % $ 471 — % $ 406 86 %

The income tax provision for the six months ended September 30, 2020 and 2019 is primarily influenced by foreign and state income taxes.

The income tax provision for the nine months ended December 31, 2020 and 2019 is primarily influenced by foreign and state income taxes.

14 unchanged sentences

We expect the impact of COVID-19 to have a significant impact on our liquidity and capital resources.

We had cash and cash equivalents of $12.5 million as of September 30, 2020, compared to $6.4 million as of March 31, 2020.

We had cash and cash equivalents of $11.6 million as of December 31, 2020, compared to $6.4 million as of March 31, 2020.

These amounts exclude, as of both dates, $5.0 million in restricted cash that we are required to maintain under the Credit Agreements (as defined below), and $0.8 million of short-term restricted cash.

Our outstanding long-term debt amounted to $171.0 million as of September 30, 2020, net of $22.8 million in unamortized debt issuance costs and $1.4 million in current portion of long-term debt, and $146.8 million as of March 31, 2020, net of $13.7 million in unamortized debt issuance costs and $7.3 million in current portion of long-term debt.

Included in long-term debt as of September 30, 2020 is $10.0 million borrowed under the Paycheck Protection Program which was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

September 30, 2020, we had $21.8 million of borrowing availability on our Amended PNC Credit Facility (subject to change based on certain financial metrics).

Our outstanding long-term debt amounted to $178.3 million as of December 31, 2020, net of $21.0 million in unamortized debt issuance costs and $1.9 million in current portion of long-term debt, and $146.8 million as of March 31, 2020, net of $13.7 million in unamortized debt issuance costs and $7.3 million in current portion of long-term debt.

Included in long-term debt as of December 31, 2020 is $10.0 million borrowed under the Paycheck Protection Program which was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

December 31, 2020, we had $19.2 million of borrowing availability on our Amended PNC Credit Facility (subject to change based on certain financial metrics).

See “—Debt Profile and Covenants” and “—Contractual Obligations” below for further information about our outstanding debt.

3 unchanged sentences

The following table summarizes our consolidated cash flows for the periods indicated.

Six Months Ended September 30,

Nine Months Ended December 31,

(Dollars in thousands) 2020 2019

6 unchanged sentences

Cash Used In Operating Activities

Net cash used in operating activities was $19.3 million for the six months ended September 30, 2020.

This use of cash is primarily attributable to changes in working capital of $20.0 million driven by the increase in manufacturing and service inventory of $13.6 million and a decrease in deferred revenue of $12.6 million.

These were partially offset by an increase in accounts receivable of $7.6 million.

Net cash used in operating activities was $20.3 million for the nine months ended December 31, 2020.

This use of cash is primarily attributable to changes in working capital of $26.3 million driven by the increase in manufacturing and service inventory of $12.3 million, a decrease in deferred revenue of $9.7 million, and a decrease in accounts payable of $5.0 million.

The decrease in deferred revenue reflects the seasonal nature of service contract renewals which peak in the fourth fiscal quarter.

Net cash used in operating activities was $9.7 million for the six months ended September 30, 2019 which is primarily attributable to a decrease in deferred revenue related to the timing of service contract renewals which are historically more heavily weighted to our third and fourth fiscal quarters.

Net cash used in operating activities was $5.0 million for the nine months ended December 31, 2019 which is primarily attributable to a decrease of $17.1 million in deferred revenue related to the timing of service contract renewals which are historically more heavily weighted to our third and fourth fiscal quarters, a decrease in manufacturing and service inventory of $11.7 million and a decrease in accounts receivable of $11.7 million, partially offset by an increase in accounts payable of $7.6 million.

Cash Used in Investing Activities

Net cash used in investing activities was $1.4 million in the six months ended September 30, 2020, which was mostly flat compared to the same period in the prior year.

Our capital expenditures in both periods consisted primarily of tooling purchases and leasehold improvements.

Net cash used in investing activities was $7.3 million in the nine months ended December 31, 2020, which included approximately $3.1 million related to the Square Box Systems acquisition and capital expenditures.

Net cash used in investing activities in the nine months ended December 31, 2019 consisted of fixed asset purchases.

Cash Provided by Financing Activities

Net cash provided by financing activities was $26.9 million in the six months ended September 30, 2020 which included Senior Secured Term Loan borrowings of $19.4 million (net of lender fees of $0.6 million), $10.0 million in borrowings under the Paycheck Protection Program and the net pay-down of our Amended PNC Credit Facility.

Net cash provided by financing activities was $6.0 million in the six months ended September 30, 2019 related primarily to borrowings under our credit facility.

Net cash provided by financing activities was $32.8 million in the nine months ended December 31, 2020 which included Senior Secured Term Loan borrowings of $19.4 million (net of lender fees of $0.6 million), $10.0 million in borrowings under the Paycheck Protection Program and the net pay-down of our Amended PNC Credit Facility.

Net cash provided by financing activities was $3.9 million in the nine months ended December 31, 2019 related primarily to borrowings under our credit facility.

Debt Profile and Covenants

1 unchanged sentence

We are party to the Amended PNC Credit Agreement, a senior secured revolving credit facility in an available principal amount equal to the lesser of (i) $45.0 million and (ii) the “borrowing base” (as defined under the Amended PNC Credit Agreement).

The Amended PNC Credit Facility had a borrowing base of $23.6 million as of September 30, 2020, $21.8 million of which was available to us at that date.

The Amended PNC Credit Facility had a borrowing base of $27.0 million as of December 31, 2020, $19.2 million of which was available to us at that date.

On June 16, 2020, we entered into an amendment to the Amended PNC Credit Facility.

1 unchanged sentence

The Amended PNC Credit Facility continues to include a covenant that requires a minimum of $5.0 million of PNC qualified cash at all times.

On December 10, 2020, we amended the Amended PNC Credit Facility to, among other things, allow the SBS acquisition.

The amendment added a covenant requiring the us to maintain at least $30.0 million average liquidity (the “Average Liquidity Requirement”), as defined in the Amended PNC Credit Facility, for the preceding thirty days measured as of the last day of each month.

If the Average Liquidity Requirement has not been satisfied during the period prior to the payment of the deferred payments related to the Square Box Systems acquisition, a reserve will be established to reduce borrowings availability under the Amended PNC Credit Facility in an amount equal to (a) $2.0 million during the period from the amendment date through the first anniversary of the amendment, and, (b) $1.0 million during the period from the first anniversary of the amendment through the second anniversary of the amendment

Senior Secured Term Loan

We are also party to a senior secured term loan facility in an aggregate principal amount of $185.2 million as of September 30, 2020 (the “Senior Secured Term Loan” and together with the Amended PNC Credit Agreement, the “Credit Agreements”).

We are also party to a senior secured term loan facility in an aggregate principal amount of $185.2 million as of December 31, 2020 (the “Senior Secured Term Loan” and together with the Amended PNC Credit Agreement, the “Credit Agreements”).

The Senior Secured Term Loan initially provided for borrowings of $165.0 million.

3 unchanged sentences

The amendment, among other things, waived compliance with the total net leverage ratio, fixed charge coverage ratio, minimum liquidity and minimum EBITDA financial covenants for the quarters ending on June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021, added a financial covenant that requires a minimum monthly average undrawn availability of $7.0 million under the Amended PNC Credit Facility during the period from June 30, 2020 through and including May 31, 2021 and amended the covenant levels for the total net leverage ratio, fixed charge coverage ratio, and minimum EBITDA financial covenants, commencing with the quarter ending June 30, 2021.

On December 10, 2020, we amended the Senior Secured Term Loan to, among other things, allow the SBS acquisition.

Paycheck Protection Program

On April 13, 2020, we entered into a Paycheck Protection Program (the “PPP”) Term Loan (the “PPP Loan”) effective April 11, 2020 with PNC in an aggregate principal amount of $10.0 million pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act ).

The PPP Loan bears interest at a fixed rate of 1% per annum, with interest deferred up to a maximum of 10 months after the expiration of the covered period, as defined in the PPP Loan agreement, payable monthly thereafter.

The PPP Loan bears interest at a fixed rate of 1% per annum.

The PPP Loan has an initial term of two years and is unsecured and guaranteed by the Small Business Administration.

Under the terms of the PPP Note, we may apply for forgiveness of the amount due on the PPP Loan.

We used the proceeds from the PPP Loan for qualifying expenses and have applied for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

We used the proceeds from the PPP Loan for qualifying expenses as defined in the PPP Loan and has applied for forgiveness of the PPP Loan in accordance with the terms of the CARES Act.

However, we cannot assure at this time that the PPP Loan will be forgiven partially or in full.

1 unchanged sentence

Our contingent liabilities consist primarily of certain financial guarantees, both express and implied, related to product liability and potential infringement of intellectual property.

We have little history of costs associated with such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage.

We have little history of costs associated with

such indemnification requirements and contingent liabilities associated with product liability may be mitigated by our insurance coverage.

In the normal course of business to facilitate transactions of our services and products, we indemnify certain parties with respect to certain matters, such as intellectual property infringement or other claims.

16 unchanged sentences

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