BANK CREDIT LINES AND GOVERNMENT LOANS

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

BANK CREDIT LINES AND GOVERNMENT LOANS

(5) BANK CREDIT LINES AND GOVERNMENT LOANS

Bank Credit Line

On March 12, 2021, the Company terminated its Financing Agreement and entered into a loan and security agreement with Silicon Valley Bank (the “SVB Loan Agreement”). On November 1, 2021, the Company entered into the first amendment to the SVB Loan Agreement (the “First Amendment”). The SVB Loan Agreement, as amended, provides for a revolving facility up to a principal amount of $25.0 million. The borrowing base equals the sum of (a) 85.0 percent of eligible customer receivables, plus (b) the least of (i) 60 percent of the value of eligible inventory (valued at cost), (ii) 85% of the net orderly liquidation value of inventory, and (iii) $6.2 million in each, as determined by SVB from the Company’s most recent borrowing base statement; provided that SVB has the right to decrease the foregoing percentages in its good faith business judgment to mitigate the impact of events, conditions, contingencies, or risks which may adversely affect the collateral or its value.

The SVB Loan Agreement is secured by substantially all of the Company’s assets but excludes the Company’s intellectual property. Loans under the credit facility bear interest at a rate per annum equal to (i) at all times when a streamline period is in effect, the greater of (a) one-half of one percent (0.50%) above the Prime Rate or (b) three and three-quarters of one percent (3.75%) and (ii) at all times when a streamline period is not effect, the greater of (a) one percent (1.0%) above the Prime Rate and (b) four and one-quarter of one percent (4.25%).

On December 12, 2022, the Company entered into its second Amendment to the SVB Loan Agreement (the “Second Amendment”). The Second Amendment (i) reduced the aggregate amount available under the revolving credit line from $25 million to $10 million, (ii) extends maturity to January 15, 2024, and (iii) provides a waiver for an existing default under the SVB Loan Agreement by virtue of the Company having entered into a Bridge Loan and Security Agreement dated as of November 23, 2022 by and among Borrower and Slingshot Capital, LLC, under which Borrower incurred certain Indebtedness and granted a Lien to Slingshot Capital.

The Company incurred $143 thousand in origination costs in connection with entering into the SVB Loan Agreement. These origination costs were recorded as a debt discount and are being expensed over the remaining term of the facility. Amortization of debt issuance costs was $8 thousand and $18 thousand for the three months ended September 30, 2023 and 2022, respectively. Amortization of debt issuance costs was $29 thousand and $53 thousand for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, the Company had $0.9 million outstanding, net of origination costs of $0 thousand, under the SVB Loan Agreement, and this credit line had availability of $0 thousand.

The interest rate on the bank credit lines was 9.5% as of September 30, 2023.

On March 10, 2023, Silicon Valley Bank went into receivership with the Federal Deposit Insurance Corporation (FDIC) and is now the Silicon Valley Bridge Bank. The SVB Loan Agreement has been transferred to Silicon Valley Bridge Bank, and the revolving facility remains accessible to the Company. On March 27, 2023, the SVB Loan Agreement was transferred to First-Citizens Bank & Trust Company (“First-Citizens”) upon which First-Citizens entered into a purchase and assumption agreement for all deposits and loans of Silicon Valley Bridge Bank. The Company has had no business service interruptions or funding issues due to the bank transfer.

On October 18, 2023, the Company fully paid the $0.9 million outstanding balance and accrued interest, and the SVB Loan Agreement was immediately terminated.

Covenants

The SVB Loan Agreement includes a minimum interest expense per month of $20 thousand. The First Amendment required the Company to maintain certain levels of minimum adjusted EBITDA, which were tested on the last day of each calendar quarter and measured for the trailing 3-month period ending on the last day of each quarter. The Second Amendment removed the minimum EBITDA covenants.

In addition, pursuant to the SVB Loan Agreement, the Company cannot pay any dividends without the prior written consent of SVB.

Bridge Loan

On November 30, 2022 (the “Effective Date”), the Company and Slingshot Capital, LLC (“Slingshot Capital”) entered into a Bridge Loan Agreement (the “Bridge Loan Agreement”) pursuant to which Slingshot Capital agreed to make available a bridge loan in the principal amount up of up to $1,500,000. In conjunction with the Bridge Loan Agreement, the Company executed a bridge term note (the “Bridge Term Note”) in favor of Slingshot Capital. The Company has drawn down $1,000,000 under the Bridge Loan Agreement. Subject to Slingshot Capital’s sole discretion, the other $500,000 may be drawn by the Company.

Principal amounts borrowed under the Bridge Loan Agreement bear interest for the period from the Effective Date until February 28, 2023 of 8.00% per annum. Unpaid principal after February 28, 2023 bear an interest of 14.00% per annum until paid in full. In the event of default, all outstanding principal and interest shall bear interest at an annual rate of 18%.

In connection with the Bridge Loan Agreement, the Company, Slingshot Capital, and Silicon Valley Bank (the “Senior Lender”) executed a subordination agreement (the “Subordination Agreement”) on November 30, 2022. The Loan Agreement is subordinated to the outstanding indebtedness and obligations under the Company’s senior credit facility. Subject to the Senior Lender’s written consent, the Company shall grant Slingshot Capital a second-priority security interest in all of the Company’s collateral, which shall be subordinated to any and all security interests granted to the Senior Lender and at all times shall be limited to the same collateral granted to the Senior Lender under the senior credit facility.

Principal and interest are not due and payable until the maturity date, which is January 15, 2024, unless the Company’s senior credit facility with the Senior Lender is paid in full in cash on an earlier date. As of September 30, 2023, the accrued interest is $104 thousand and is included in accrued expenses in the condensed consolidated balance sheet.

The Company reimbursed Slingshot Capital $20,000 for its reasonable and documented expenses and fees related to the negotiations, documentation, and execution of the Bridge Loan Agreement, Subordination Agreement, and Bridge Term Note.

Slingshot Capital is owned by the Company’s Chairperson of the Board and a Board of Director, Jeremy Hitchcock and Elizabeth Hitchcock, respectively.

On December 6, 2023, the Company and Slingshot Capital executed a debt conversion agreement, whereby the total outstanding principal and accrued but interest, which aggregated to $1,125,778, was converted to 734,343 common stock of the Company. Upon the execution of the debt conversion agreement and issuance of the common stock, the Bridge Loan Agreement and Bridge Term Note were terminated.

Government Loans

During 2020, the Company participated in the Coronavirus Aid, Relief, and Economic Security Act and received an aggregate $1,128,000 in unsecured loans under the Small Business Administration Paycheck Protection Program, at a fixed rate of 1% per annum. Under the terms of the loans, the Company received forgiveness of an aggregate $1,068,000. The Company repaid $34,000 during the nine months ended September 30, 2022. As of September 30, 2023, the Company had no outstanding balances under the government loans.