Note 5 - Borrowings

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Debt Disclosure [Text Block]

5. Borrowings

CRG

On September 22, 2015, the Company entered into a Term Loan Agreement, as amended (the “Loan Agreement”) with CRG under which, subject to certain conditions, the Company had the right to borrow up to $50 million in principal amount from CRG on or before March 29, 2017. The Company borrowed $30 million on September 22, 2015. The Company borrowed an additional $10 million on June 15, 2016 under the Loan Agreement.

On February 14, 2018, the Company and CRG further amended the Loan Agreement concurrent with the conversion of $38 million of the principal amount of the senior secured term loan (plus $3.8 million in back-end fees and prepayment premium applicable thereto) into a newly authorized Series A convertible preferred stock (see below).

On March 2, 2020, the Company entered into Amendment No. 3 to the Loan Agreement to, among other things:

● extend the period that the Company can make interest payments in payment in kind (“PIK”) to June 30, 2021;

● lower the Minimum Revenue Covenants to $10 million for 2020, $12 million for 2021, and $15 million for 2022;

● insert certain terms to clarify that all fees, including the prepayment premium, are due if the obligations are accelerated; and

● insert a new provision to make clear that to the extent the Company divides its assets/liabilities into divisions, such assets/liabilities will be treated as transferred to a third party.

On May 12, 2020, the Company entered into Amendment No. 4 to the Loan Agreement to, among other things:

● grant to the Company the right to optionally prepay in whole or in part the outstanding principal amount of the Loans for the Redemption Price, subject to certain conditions; and

● waive the Company’s requirement to comply with the Minimum Revenue Covenant for 2020.

On January 22, 2021, the Company entered into Amendment No. 5 to the Loan Agreement to, among other things:

● extend the maturity date of the Loan Agreement from June 30, 2023 to December 31, 2025;

● extend the interest only payment period and the period that the Company can make interest payments in PIK to December 31, 2023;

● lower the Minimum Revenue Covenants to $8 million and $10 million for 2021 and 2022, respectively and establish revenue covenants of $12 million for 2023; $14.5 million for 2024, and $17 million for 2025;

● change the date under the on-going stand-alone representation regarding no Material Adverse Change to December 31, 2020; and

● amend the on-going stand-alone representation and stand-alone event of default regarding “Material Adverse Change” such that any adverse change in or effect upon the revenue of the Company and its subsidiaries due to the outbreak of COVID-19 will not constitute a Material Adverse Change.

Under the amended Loan Agreement, no cash payments for either principal or interest are due until the first quarter of 2024. The accrued interest will be accrued and included in the debt balance based (to the extent not paid) on principal amounts outstanding at the beginning of the quarter at an interest rate of 12.5%. Beginning in the first quarter of 2024, the Company will be required to make quarterly principal payments (in addition to the interest) of $1.9 million with total principal payments of $7.5 million in 2024 and $7.5 million in 2025. The maturity date of the Loan is December 31, 2025.

The Company may voluntarily prepay the borrowings in full, with a prepayment premium beginning at 5.0% and declining by 1.0% annually thereafter, with no premium being payable if prepayment occurs after seven and half years of the loan. Each tranche of borrowing required the payment, on the borrowing date, of a financing fee equal to 1.5% of the borrowed loan principal, which is recorded as a discount to the debt. In addition, a facility fee equal to 15.0% of the amounts borrowed plus any payment-in-kind (“PIK”) is to be payable at the end of the term or when the borrowings are repaid in full. A long-term liability is being accreted using the effective interest method for the facility fee over the term of the Loan Agreement with a corresponding discount to the debt. The borrowings are collateralized by a security interest in substantially all of the Company’s assets.

The Loan Agreement requires that the Company adheres to certain affirmative and negative covenants, including financial reporting requirements, certain minimum financial covenants for pre-specified liquidity and revenue requirements and a prohibition against the incurrence of indebtedness, or creation of additional liens, other than as specifically permitted by the terms of the Loan Agreement. In particular, the covenants of the amended Loan Agreement included a covenant that the Company maintain a minimum of $3.5 million of cash and certain cash equivalents, and the Company has to achieve certain minimum revenues. If the Company fails to meet the applicable minimum revenue target in any calendar year, the Loan Agreement provides the Company with a cure right if it prepays a portion of the outstanding principal equal to 2.0 times the revenue shortfall. In addition, the Loan Agreement prohibits the payment of cash dividends on the Company’s capital stock and also places restrictions on mergers, sales of assets, investments, incurrence of liens, incurrence of indebtedness and transactions with affiliates. CRG may accelerate the payment terms of the Loan Agreement upon the occurrence of certain events of default set forth therein, which include the failure of the Company to make timely payments of amounts due under the Loan Agreement, the failure of the Company to adhere to the covenants set forth in the Loan Agreement, the insolvency of the Company or upon the occurrence of a material adverse change.

As of September 30, 2021, the Company was in compliance with all applicable covenants under the Loan Agreement.

As of September 30, 2021, principal, final facility fee and PIK payments under the Loan Agreement, which incorporates all aforementioned amendments, were as follows (in thousands):

Year Ending December 31,
2021 (remaining three months of the year)	$	—
2022		—
2023		—
2024		9,045
2025		10,339
		19,384
Less: Amount of PIK additions and final facility fee to be incurred subsequent to September 30, 2021		(7,177	)
Less: Amount representing debt issuance costs		(354	)
Borrowings, long term portion, as of September 30, 2021	$	11,853

In connection with drawdowns under the Loan Agreement, the Company recorded aggregate debt discounts of $1.3 million as contra-debt. The debt discounts are being amortized as non-cash interest expense using the effective interest method over the term of the Loan Agreement. As of September 30, 2021 and December 31, 2020, the balance of the aggregate debt discount was approximately $354,000 and $418,000, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $21,000 and $42,000 during the three months ended September 30, 2021 and 2020, respectively. The Company’s interest expense associated with the amortization of debt discount was approximately $65,000 and $127,000 during the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, the Company incurred interest expense of approximately $419,000 and $427,000, respectively. For each of the nine months ended September 30, 2021 and 2020, the Company incurred interest expense of approximately $1.2 million.

As of September 30, 2021, all of the CRG borrowings and associated aggregate debt discount were classified as non-current.

Paycheck Protection Program

On April 23, 2020, the Company received loan proceeds of $2.3 million (the “PPP Loan”) pursuant to the PPP under the CARES Act.

The Loan, which was in the form of a promissory note, dated April 20, 2020 (the “Promissory Note”), between the Company and Silicon Valley Bank (“SVB”) as the lender, was set to mature on April 20, 2022 and bore interest at a fixed rate of 1% per annum, payable monthly commencing six months from the date of the Loan. The Company may voluntarily prepay the borrowings in full with no associated penalty or premium.

As previously disclosed, the PPP was administered by the SBA. The SBA was given the authority under the PPP to forgive loans if all employees were kept on the payroll for a required period and the loan proceeds were used for payroll, rent and utilities. The Company applied for debt forgiveness in December 2020.

On April 17, 2021, the Company was notified by SVB that its PPP Loan had been fully forgiven by the U.S. Small Business Administration (the “SBA”) and that there was no remaining balance on the PPP Loan. The Company recorded the forgiveness as other income in April 2021 in the amount of $2.4 million, of which approximately $23,000 was accrued interest.

For the three months ended September 30, 2021, the Company incurred no interest expense. For the nine months ended September 30, 2021, the Company incurred interest expense of approximately $7,000 related to the PPP Loan. For the three and nine months ended September 30, 2020, the Company recognized interest expense of approximately $4,000 and $10,000, respectively, related to the PPP Loan.