Note 10 - Notes Payable, Net
|6 Months Ended|
Jun. 30, 2023
|Notes to Financial Statements|
|Long-Term Debt [Text Block]||
10. Notes Payable, net
PWB Term Loan
In August 2020, the Company entered into a loan agreement (the "PWB Loan Agreement") with a lender, Pacific Western Bank, and received a loan in the principal amount of $2,000 (the "PWB Term Loan") that bears interest on the outstanding daily balance at a rate equal to the greater of: (a) 0.50% above the variable rate of interest announced by the lender as its “prime rate” then in effect; or (b) 4.50%. The PWB Loan Agreement created a first priority security interest with respect to substantially all assets of the Company, including proceeds of intellectual property, but expressly excluding intellectual property itself.
The Company is required to pay accrued interest on the current loan on the 13th day of each month through and including August 13, 2023. The principal balance of the PWB Term Loan matures on August 13, 2023, at which time all unpaid principal and accrued and unpaid interest shall be due and payable in full. The interest rate of the PWB Term Loan is subject to increase in the event of late payments and after occurrence of and during the continuation of an event of default. The Company may elect to prepay the PWB Term Loan at any time, in whole or in part, without penalty or premium.
The PWB Loan Agreement contains a liquidity covenant, which requires that the Company maintain cash in accounts of the lender or subject to control agreements in favor of the lender in an amount equal to at least the outstanding balance of the PWB Term Loan, which was $2,000 as of June 30, 2023. On June 30, 2023, with cash on hand of $13,307, the Company was compliant with this covenant. In March 2023, the Company entered into an amendment to the PWB Loan Agreement increasing the primary depository covenant, which restricts the Company from having more than $3,000 held in subsidiary accounts outside of the United States until July 2, 2023. In July 2023, the Company entered into another amendment to the PWB Loan Agreement extending the aforementioned date to August 13, 2023.
The debt issuance costs and debt discounts combined with the stated interest resulted in an effective interest rate of 8.87% and 8.70% for the three and six months ended June 30, 2023, respectively. The debt issuance costs are amortized to interest expense using the effective interest method over the life of the loan.
The following table presents scheduled principal payments of the Company’s PWB term loan as of June 30, 2023:
Parker Hannifin Promissory Note
In connection with the HMC Acquisition, on December 5, 2022, the Company delivered a $5,000 unsecured, subordinated promissory note (the "Promissory Note") to Parker. The Promissory Note, subordinate to the PWB Term Loan, bears no interest with principal payable in sixteen equal installments due on the last day of each quarter, commencing on December 31, 2023 and maturing on September 30, 2027. For additional information see Note 4.
The Promissory Note, upon the occurrence of an event of default, allows for the levying of interest equal to the lesser of (a) 5% per annum and (b) the maximum interest rate permitted under applicable law on the then entire outstanding principal balance, and also for the acceleration of all outstanding liabilities and obligations, making them immediately payable. Under the terms of the Promissory Note, the following occurrences constitute a default, and could, upon written notice or declaration by Parker, allow for the levying of interest and or the acceleration of principal outstanding: (i) failure to pay any amount of the principal when due and payable, (ii) the dissolution of the Company (including the declaration of bankruptcy), and (iii) the acquisition of the Company by another entity or the sale of substantially all of its assets to another entity.
The Company recorded the Promissory Note of $4,055 in its condensed consolidated balance sheets under the captions Notes Payable, Current and Notes Payable, Net, estimating an implicit discount rate of 7.5% via reference to the interest charged on the Company's PWB Term Loan and other relevant economic factors present at the execution date of the Promissory Note. The amortization of debt discounts resulted in an effective interest rate of 7.45% for the three and six months ended June 30, 2023. The debt discount is amortized to interest expense using the effective interest method over the life of the loan. Interest expense on the Promissory Note was $79 and $159 for the three and six months ended June 30, 2023, respectively.
The following table presents scheduled principal payments of the Company's note payable as of June 30, 2023:
The entire disclosure for long-term debt.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef