Asure Software(ASUR) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Asure Software, Inc., including balance sheets, statements of comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, investments, intangible assets, debt, equity, revenue, leases, share-based compensation, discontinued operations, net loss per share, and subsequent events Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total Current Assets | $154,011 | $184,443 | | Total Assets | $302,598 | $335,044 | | Total Current Liabilities | $143,498 | $166,589 | | Total Liabilities | $168,512 | $197,465 | | Total Stockholders' Equity | $134,086 | $137,579 | - Total assets decreased from $335,044 thousand at December 31, 2019, to $302,598 thousand at June 30, 2020[5] - Total liabilities decreased from $197,465 thousand at December 31, 2019, to $168,512 thousand at June 30, 2020[5] Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $14,115 | $17,274 | $33,061 | $37,684 | | Gross Profit | $8,107 | $10,215 | $19,213 | $24,371 | | Loss from Operations | $(3,581) | $(2,833) | $(6,026) | $(3,310) | | Net Loss | $(3,944) | $(4,967) | $(5,711) | $(7,861) | | Basic and Diluted Loss Per Share | $(0.25) | $(0.32) | $(0.36) | $(0.51) | - Total revenue decreased by 18.3% for the three months ended June 30, 2020, and by 12.3% for the six months ended June 30, 2020, compared to the prior year periods[7] - Net loss improved for both the three-month and six-month periods ended June 30, 2020, compared to the same periods in 2019[7] Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Equity Component (in thousands) | Balance at Dec 31, 2019 | Stock Issued (3M) | ESPP (3M) | Share-based Comp (3M) | Net Loss (3M) | Other Comp Income (3M) | Balance at Jun 30, 2020 | | :------------------------------ | :---------------------- | :---------------- | :-------- | :---------------------- | :------------ | :--------------------- | :---------------------- | | Common Stock Amount | $161 | $1 | $- | $- | $- | $- | $162 | | Additional Paid-in Capital | $396,102 | $301 | $157 | $588 | $- | $- | $397,692 | | Accumulated Deficit | $(253,642) | $- | $- | $- | $(3,944) | $- | $(259,353) | | Other Comprehensive Income | $(25) | $- | $- | $- | $- | $562 | $602 | | Total Stockholders' Equity | $137,579 | $302 | $157 | $588 | $(3,944) | $562 | $134,086 | - Total stockholders' equity decreased from $137,579 thousand at December 31, 2019, to $134,086 thousand at June 30, 2020[9] - The company recorded a net loss of $3,944 thousand for the three months ended June 30, 2020, contributing to the accumulated deficit[9] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash (Used in) Operating | $(4,131) | $2,842 | | Net Cash Provided by Investing | $29,891 | $21,396 | | Net Cash Used in Financing | $(25,327) | $(25,042) | | Net Increase (Decrease) in Cash | $433 | $(788) | | Cash and Cash Equivalents at End | $29,259 | $14,656 | - Operating activities used $4,131 thousand in cash for the six months ended June 30, 2020, a significant change from $2,842 thousand provided in the prior year[10] - Investing activities provided $29,891 thousand, primarily due to changes in funds held for clients[10] - Cash and cash equivalents increased by $433 thousand, reaching $29,259 thousand at June 30, 2020[10] Notes to Condensed Consolidated Financial Statements NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION - Asure Software, Inc. is a leading provider of Human Capital Management (HCM) solutions, including cloud-based Payroll & Tax, HR, and Time & Attendance software, and HR Services[11] - In December 2019, the company completed the sale of its Workspace Management business for approximately $121,500 thousand in cash, using proceeds to pay down debt[12] NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES - The COVID-19 pandemic has negatively impacted the company's business, financial condition, results of operations, and growth prospects, particularly affecting small and medium-sized business customers[17] - The company adopted ASU No. 2018-13 (Fair Value Measurement) and ASU No. 2018-15 (Intangibles-Goodwill and Other-Internal-Use Software) on January 1, 2020, with no material impact on financial statements[19][20] - ASU No. 2016-13 (Financial Instruments – Credit Losses) is effective for the company beginning January 1, 2023, and ASU No. 2019-12 (Simplifying the Accounting for Income Taxes) is effective for fiscal years beginning after December 15, 2020[21][22] NOTE 3 – INVESTMENTS AND FAIR VALUE MEASUREMENTS Investments and Fair Value Measurements (in thousands) | Investment Type (in thousands) | June 30, 2020 | December 31, 2019 | | :----------------------------- | :------------ | :---------------- | | Available-for-sale securities | $27,591 | $24,136 | | Money market funds | $47,694 | $48,500 | | Cash equivalents (money market)| $16,505 | Not material | - As of June 30, 2020, available-for-sale securities held for clients had aggregate estimated fair value of $27,591 thousand, with gross unrealized gains of $602 thousand and zero unrealized losses[27][29] Expected Maturities of Available-for-Sale Securities (in thousands) | Expected Maturities (in thousands) | Amount | | :--------------------------------- | :----- | | One year or less | $4,823 | | After one year through five years | $22,768 | | Total | $27,591 | NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill remained at $68,697 thousand as of June 30, 2020, with no impairment recognized during the six months ended June 30, 2020[34] Intangible Assets, Net (in thousands) | Intangible Asset (in thousands) | June 30, 2020 Net | December 31, 2019 Net | | :------------------------------ | :---------------- | :-------------------- | | Customer relationships | $56,458 | $58,801 | | Developed technology | $3,168 | $3,997 | | Trade names | $585 | $702 | | Total Intangible Assets, Net | $60,477 | $63,850 | Estimated Amortization Expense (in thousands) | Calendar Year | Estimated Amortization Expense (in thousands) | | :------------ | :-------------------------------------------- | | 2020 (rem.) | $5,374 | | 2021 | $10,548 | | 2022 | $10,015 | | 2023 | $8,889 | | 2024 | $8,662 | | Thereafter | $16,989 | | Total | $60,477 | NOTE 5 – NOTES PAYABLE Notes Payable (in thousands) | Debt Type (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :---------------- | | Subordinated Notes Payable | $5,276 | $7,185 | | Term Loan – Pinnacle (PPP Loan) | $8,856 | $- | | Term Loan – Wells Fargo Syndicate | $19,750 | $20,000 | | Total Notes Payable | $33,882 | $27,185 | - The company obtained an $8,856 thousand PPP Loan in April 2020, with a 1% interest rate, potentially forgivable if used for qualifying expenses[47][48][49] - As of June 30, 2020, the company was not in compliance with its minimum EBITDA financial covenant due to COVID-19 impacts[51] NOTE 6 – STOCKHOLDERS' EQUITY - On May 28, 2020, authorized common stock shares increased from 22,000,000 to 44,000,000[52] - A new stock repurchase program was authorized on March 10, 2020, allowing repurchases of up to $5,000 thousand of common stock, though no repurchases occurred in 2020 or 2019[53][55] - The Employee Stock Purchase Plan (ESPP) shares reserved for issuance were increased by an additional 250,000 shares on May 27, 2020[56] NOTE 7 – CONTRACTS WITH CUSTOMERS AND REVENUE CONCENTRATION Customer Contracts and Revenue Concentration Metrics (in thousands) | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------------- | :------------ | :---------------- | | Accounts Receivable, net | $5,541 | $4,808 | | Deferred Commission Costs | $3,148 | $2,697 | | Deferred Revenue (current) | $3,766 | $5,500 | - As of June 30, 2020, one customer accounted for 13% of net accounts receivable, but no single customer represented 10% or more of consolidated revenue for the periods presented[58][62] - Approximately $27,272 thousand of revenue is expected to be recognized from remaining performance obligations, with 65% recognized over the next 12 months[61] NOTE 8 – LEASES Net Rent Expense (in thousands) | Lease Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Rent Expense | $473 | $526 | $977 | $1,068 | - The weighted average discount rate for operating leases was 10% at June 30, 2020, and the weighted average remaining lease term was five years[66] Future Minimum Lease Payments (in thousands) | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :----- | | 2020 (remainder) | $1,129 | | 2021 | $2,354 | | 2022 | $1,837 | | 2023 | $1,142 | | 2024 | $1,022 | | Thereafter | $2,630 | | Total Lease Liabilities | $8,012 | NOTE 9 – SHARE-BASED COMPENSATION - The company has one active equity plan, the 2018 Incentive Award Plan, with 1,096,104 shares available for grant as of June 30, 2020[69][73] - As of June 30, 2020, there were 1,366,692 outstanding options (weighted average exercise price $7.77) and 585,050 outstanding restricted stock units[70] Share-based Compensation Expense (in thousands) | Share-based Compensation (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Expense | $588 | $392 | $1,026 | $1,003 | NOTE 10 – DISCONTINUED OPERATIONS - In December 2019, the Workspace Management business was sold for approximately $121,500 thousand in cash, allowing the company to focus on HCM solutions[75] Discontinued Operations Financials (in thousands) | Discontinued Operations (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :------------------------------------- | :------------------------------- | :----------------------------- | | Revenue | $7,567 | $13,917 | | Income from discontinued operations | $1,303 | $1,904 | | Income from discontinued operations, net of taxes | $1,331 | $1,874 | NOTE 11 – NET LOSS PER SHARE Loss Per Share Data (in thousands, except per share data) | Loss Per Share (in thousands, except per share data) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss from continuing operations | $(3,944) | $(6,298) | $(5,711) | $(9,735) | | Net loss | $(3,944) | $(4,967) | $(5,711) | $(7,861) | | Basic and diluted loss per share | $(0.25) | $(0.32) | $(0.36) | $(0.51) | - Approximately 1,951,000 and 1,502,000 stock options and restricted stock units were excluded from diluted EPS computation for the three and six months ended June 30, 2020 and 2019, respectively, as their inclusion would have been anti-dilutive[79] NOTE 12 – SUBSEQUENT EVENTS - On July 7, 2020, the senior lender identified events of default under the Third Restated Credit Agreement, primarily due to the company's failure to achieve Minimum EBITDA for Q1 2020, impacted by COVID-19[83] - On August 10, 2020, the company entered into a Fourth Amendment to the credit agreement, reducing the facility from $30,000 thousand to $15,000 thousand and requiring a $9,750 thousand principal payment[84][86][144] - The Fourth Amendment reset financial covenants, including a minimum EBITDA covenant and a new minimum recurring revenue covenant, and waived default interest[88][89][91] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, recent developments, detailed analysis of revenues, expenses, and profitability, and a discussion of liquidity and capital resources It highlights the impact of the COVID-19 pandemic and the subsequent amendments to credit agreements CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS - The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially[94] - Key risks include the impact of COVID-19 on the economy, employment, customer demand, and the company's ability to achieve profitability and retain customers[94] OVERVIEW - Asure is a leading provider of cloud-based Human Capital Management (HCM) software and services, focusing on Payroll & Tax, HR, and Time & Attendance[96][97] - The company's strategy is to help small and mid-sized businesses (SMBs) grow by addressing HR complexity, capital allocation, and team building[96][97] - Sales and marketing efforts utilize both direct channels (SMBs, advisors) and indirect channels (resellers) across North America[100] Recent Developments - The COVID-19 pandemic is expected to negatively and materially impact revenues for the remainder of 2020, particularly in Q2 and Q3[101] - The company implemented cost-saving initiatives and secured an $8,856 thousand Paycheck Protection Program (PPP) loan in April 2020[101] RESULTS OF OPERATIONS Revenue Revenue by Type (Three Months, in thousands) | Revenue Type (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | | Recurring | $13,733 | $16,624 | (17.4)% | | Professional services, etc. | $382 | $650 | (41.2)% | | Total Revenue | $14,115 | $17,274 | (18.3)% | Revenue by Type (Six Months, in thousands) | Revenue Type (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------------- | :----------------------------- | :----------------------------- | :--------- | | Recurring | $32,168 | $36,415 | (11.7)% | | Professional services, etc. | $893 | $1,269 | (29.6)% | | Total Revenue | $33,061 | $37,684 | (12.3)% | - The decrease in recurring revenue was primarily due to the impact of COVID-19, the loss of a major client, and lower interest rates[105][106] Gross Profit and Gross Margin Gross Profit and Margin (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | Gross Profit | $8,107 | $10,215 | (20.6)% | | Gross Margin | 57.4% | 59.1% | (1.7) pp | Gross Profit and Margin (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | Gross Profit | $19,213 | $24,371 | (21.2)% | | Gross Margin | 58.1% | 64.7% | (6.6) pp | - The decline in gross margin is primarily attributed to lower sales volumes, increased investment in HCM service resources, migration to cloud hosting, and higher amortization of capitalized software costs[109][110] Sales and Marketing Expenses Sales and Marketing Expenses (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | S&M Expenses | $2,769 | $3,058 | (9.4)% | | S&M as % of Revenue | 19.6% | 17.7% | 1.9 pp | Sales and Marketing Expenses (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | S&M Expenses | $6,344 | $5,763 | 10.1% | | S&M as % of Revenue | 19.2% | 15.3% | 3.9 pp | - The three-month decrease was due to reduced travel expenses from COVID-19, while the six-month increase was driven by higher personnel costs for direct sales[112][113] General and Administrative Expenses General and Administrative Expenses (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | G&A Expenses | $5,193 | $6,618 | (21.6)% | | G&A as % of Revenue | 36.8% | 38.3% | (1.5) pp | General and Administrative Expenses (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | G&A Expenses | $11,646 | $14,807 | (21.4)% | | G&A as % of Revenue | 35.2% | 39.3% | (4.1) pp | - The decrease in G&A expenses was primarily due to reduced personnel costs, lower rent expenses from facility closures post-acquisition, and a reduction in professional fees[116][117] Research and Development Expenses Research and Development Expenses (Three Months, in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | | R&D Expenses | $1,377 | $969 | 42.1% | | R&D as % of Revenue | 9.8% | 5.6% | 4.2 pp | Research and Development Expenses (Six Months, in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | | R&D Expenses | $2,551 | $2,290 | 11.4% | | R&D as % of Revenue | 7.7% | 6.1% | 1.6 pp | - The increase in R&D expenses was primarily due to increased personnel costs and COVID-19 related initiatives to comply with the CARES Act legislation[120][121] - New product launches in Q2 2020 included Simple Payroll Entry cloud solution, Essential HR product tier, and the Asure Mobile app for Mid-Market HCM[125] Amortization of Intangible Assets Amortization Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization Expense | $2,349 | $2,403 | $4,698 | $4,821 | | As % of Revenue | 16.6% | 13.9% | 14.2% | 12.8% | - Amortization expense remained consistent year-over-year for both the three and six-month periods[126][127] Interest Expense and Other, net Interest and Other, Net (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest & Other, net | $14 (gain) | $(3,069) (loss) | $710 (gain) | $(5,783) (loss) | | As % of Revenue | 0.1% | (17.8)% | 2.1% | (15.3)% | - The significant improvement from a net loss to a net gain was primarily due to income from the transition services agreement with FM:Systems following the Workspace business sale in 2019, offsetting interest expense on notes payable[128][129] Income Taxes Income Tax Expense (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income Tax Expense | $377 | $396 | $395 | $642 | - Income tax expense decreased by 38.4% for the six months ended June 30, 2020, primarily due to a reduction in deferred tax liabilities[130] Loss From Continuing Operations Loss from Continuing Operations (in thousands, except per share data) | Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss from Operations | $(3,944) | $(6,298) | $(5,711) | $(9,735) | | Loss per Share | $(0.25) | $(0.41) | $(0.36) | $(0.63) | - Loss from continuing operations improved significantly for both the three-month and six-month periods ended June 30, 2020, compared to the prior year[132][133] - The company plans to continue investing modestly in revenue-generating areas but acknowledges uncertainties, including COVID-19 effects, in achieving profitability in fiscal year 2020[134] LIQUIDITY AND CAPITAL RESOURCES Working Capital and Cash & Equivalents (in thousands) | Metric (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------- | :------------ | :---------------- | | Working Capital | $10,513 | $17,854 | | Cash & Equivalents | $29,259 | $28,826 | - Working capital decreased by $7,341 thousand, primarily due to a $9,750 thousand reclassification of outstanding principal on the credit facility from current to short term[135] Cash Flow Activities (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Operating Activities | $(4,131) | $2,842 | | Investing Activities | $29,891 | $21,396 | | Financing Activities | $(25,327) | $(25,042) | - Principal sources of liquidity include $29,259 thousand in cash and cash equivalents, cash from operations, and $9,500 thousand available under the Wells Fargo revolver (before subsequent amendment)[141] - The company was not in compliance with its minimum EBITDA financial covenant as of March 31, 2020, and June 30, 2020, due to COVID-19 impacts, leading to a subsequent waiver and amendment of the credit agreement[142][143][144] OFF-BALANCE SHEET ARRANGEMENTS - As of June 30, 2020, the company did not have any off-balance sheet arrangements[148] COMMITMENTS AND CONTINGENCIES - There were no material commitments and contingencies as of June 30, 2020[149] CRITICAL ACCOUNTING POLICIES - Information regarding recent accounting pronouncements is incorporated by reference from Note 2, Significant Accounting Policies[150] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the company's exposure to market risks since its 2019 Annual Report on Form 10-K - No material changes to market risk exposure from those disclosed in the 2019 Annual Report on Form 10-K[151] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures and any changes in internal controls over financial reporting Evaluation of Disclosure Control and Procedures - Management concluded that disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal control over financial reporting reported in Q4 2019[152] Change in Internal Controls over Financial Reporting - No material changes in internal control over financial reporting occurred during the period ended June 30, 2020, except for remediation efforts related to the noted material weakness[153] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section confirms that there are no material pending legal proceedings against the company as of June 30, 2020 - As of June 30, 2020, the company was not a party to any pending legal proceedings material to its business[153] Item 1A. Risk Factors This section updates the risk factors, emphasizing the material impact and uncertainty of the COVID-19 pandemic on the company's business operations, customer demand, IT spending, and overall financial performance - The COVID-19 pandemic has materially affected business operations and customer behavior, with its duration and extent of impact remaining uncertain[155][157] - Containment measures like shutdowns and travel restrictions have disrupted operations and could adversely affect customer purchasing decisions, payment terms, and attrition rates[157][158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds to report[160] Item 3. Defaults upon Senior Securities This section details the events of default under the Third Amended and Restated Credit Agreement, primarily due to the failure to meet Minimum EBITDA, and the subsequent waiver and amendment that reset financial covenants and required a principal payment - On July 7, 2020, the senior lender identified events of default, mainly the failure to achieve Minimum EBITDA of $3,750,000 for Q1 2020, due to COVID-19 impacts[160] - On August 10, 2020, a waiver and amendment to the Credit Agreement was executed, resetting financial covenants and waiving the default in exchange for a $9,750 thousand principal payment and a $225 thousand amendment fee[160] Item 5. Other Information This section reports the resignation of Kelyn Brannon as CFO and the appointment of James (Jay) A. Powers, detailing his background, compensation, and severance arrangements for both the new and outgoing CFOs - Kelyn Brannon resigned as CFO and secretary, effective August 10, 2020, with severance including $131,968.36 and accelerated vesting of stock options and RSUs[161][165] - James (Jay) A. Powers was appointed as the new CFO and secretary, effective August 11, 2020, with an initial annual base salary of $260,000, a target cash bonus of 50% of salary, and grants of 10,000 RSUs and options to purchase 75,000 shares[161][162][163] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including amendments to credit agreements, promissory notes, incentive plans, and certifications - Key exhibits include Certificate of Amendment to Certificate of Incorporation, Amendment No. 2, 3, and 4 to Third Amended and Restated Credit Agreement, Promissory Note dated April 15, 2020, 2018 Incentive Award Plan, and Employee Stock Purchase Plan[167] Signatures This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report