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Loans Payable
 9 Months Ended
Mar. 31, 2023
Loans Payable  
Loans Payable

11. Loans Payable

 

As of March 31, 2023 and June 30, 2022, loans payable primarily consisted of the BankUnited Term Loan (as defined below) payable to BankUnited N.A. (“BankUnited”). On February 26, 2019, we entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to a maximum amount of $2,000,000 (the “BankUnited Revolving Line”), (ii) a term loan in the amount of up to $5,813,500 (“BankUnited Term Loan”), and (iii) a non-revolving guidance line of credit up to a maximum amount of $10,000,000 (the “Guidance Line” and, together with the BankUnited Revolving Line and BankUnited Term Loan, the “BankUnited Loans”), which Guidance Line has since been terminated. Each of the BankUnited Loans is evidenced by a promissory note in favor of BankUnited (the “BankUnited Notes”).

 

On May 6, 2019, we entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the “First Amendment”). The First Amendment amended the definition of the fixed charge coverage ratio to more accurately reflect the parties’ understandings at the time the Loan Agreement was executed. On September 9, 2021, we entered into a letter agreement with BankUnited (the “Letter Agreement”). The Letter Agreement adjusted certain financial covenants through December 31, 2021, terminated the Guidance Line, and granted us a waiver of default arising prior to the Letter Agreement for our failure to comply with the fixed charge coverage ratio measured on June 30, 2021. Based on the waiver, we were no longer in default of the Amended Loan Agreement as of June 30, 2021. Finally, in connection with the Letter Agreement, we paid BankUnited a fee equal to $10,000.

 

On November 5, 2021, we entered into a second letter agreement with BankUnited (the “Second Letter Agreement”) and thereafter, in accordance with the Second Letter Agreement, on December 20, 2021, we entered into the Second Amendment to the Loan Agreement dated February 26, 2019 (the “Second Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Second Amendment, the parties agreed to the following terms, among others: (i) a maturity date of April 15, 2023 with respect to the Term Loan (as defined in the Amended Loan Agreement); (ii) an increased monthly payment amount of $100,000 commencing on November 1, 2022; (iii) beginning on December 20, 2021, each facility would bear interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time; (iv) an exit fee equal to 4% of the outstanding principal balance of the Term Loan on April 15, 2023 (to the extent the Term Loan is still outstanding on such date and has not been refinanced with another lender); and (v) a fee of $50,000 payable upon execution of the Second Amendment. The Second Amendment also granted us a waiver of compliance for the Financial Covenants (as set forth in the Amended Loan Agreement) for the periods ended December 31, 2021, March 31, 2022 and June 30, 2022.

 

On May 11, 2022, we entered into the Third Amendment to the Loan Agreement dated February 26, 2019 (the “Third Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Third Amendment, the parties agreed to the following terms, among others: (i) an amended maturity date of April 15, 2024 with respect to the Term Loan (as defined in the Amended Loan Agreement); and (ii) an amended exit fee equal to (a) 2% of the outstanding principal balance of the Term Loan on September 30, 2022, (b) 1% of the outstanding principal balance on December 31, 2022, (c) 1% of the outstanding principal balance on March 31, 2023, and (d) 4% of the outstanding principal balance on April 15, 2024 (to the extent the Term Loan is still outstanding on the respective dates and has not been refinanced with another lender).  Prior to September 30, 2022, BankUnited agreed to defer the exit fee that would have been due on September 30, 2022 to October 30, 2022, and reduce the amount to 1%.  On December 31, 2022, BankUnited agreed to reduce the December 31, 2022 penalty to 0.25% of the outstanding principal balance as of that date.

 

On February 7, 2023, we entered into the Fourth Amendment to the Loan Agreement dated February 26, 2019 (the “Fourth Amendment” and, together with the First Amendment, the Letter Agreement and the Second Letter Agreement, the Second Amendment, and the Third Amendment, the “Amended Loan Agreement”), which further amended the Loan Agreement with BankUnited. In accordance with the Fourth Amendment, the parties agreed to the following terms, among others: (i) an amended maturity date of December 31, 2024 with respect to the Term Loan (as defined in the Amended Loan Agreement); and (ii) an amended exit fee equal to (a) 1% of the outstanding principal balance on December 31, 2023 and (b) 4% of the outstanding principal balance on December 31, 2024 (to the extent the Term Loan is still outstanding on the respective dates and has not been refinanced with another lender); (iii) a principal reduction payment of $1,000,000 on or before February 28, 2023; (iv) commencing on March 1, 2023 and continuing on the first day of each month thereafter until December 31, 2023, monthly payments of $75,000, and commencing on January 1, 2024 and continuing on the first day of each month thereafter until the maturity date, monthly payments of $100,000, with each such payment applied first to interest, costs and expenses and then to principal; (v) commencing on March 1, 2023, each facility will bear interest at BankUnited’s then prime rate of interest (7.75% as of March 31, 2023) and (vi) BankUnited has waived compliance with certain financial covenants until December 31, 2023.

 

On May 9, 2023, we entered into the Fifth Amendment to the Loan Agreement dated February 26, 2019 (the “Fifth Amendment”), which further amended the Loan Agreement with BankUnited.  In accordance with the Fifth Amendment, the parties agreed to the following terms, among others: (i) BankUnited agreed to release its security interest in the collateral securing the BankUnited Loans other than a cash collateral account maintained at BankUnited in the amount of $2,457,151, with a portion of such cash collateral to be released on a quarterly basis equal to 110% of the principal reductions effected during that quarter, and (ii) certain other requirements and restrictions of the Loan Agreement were removed, including, among others, financial covenants, restrictions on acquisitions, and limitations on other financing sources. 

 

BankUnited Revolving Line

 

Pursuant to the BankUnited Loan Agreement, BankUnited agreed to make loan advances under the BankUnited Revolving Line to us up to a maximum aggregate principal amount outstanding not to exceed $2,000,000, which proceeds could have been used for working capital and general corporate purposes. No amounts were due upon its expiration on February 26, 2022.

 

BankUnited Term Loan

 

Pursuant to the BankUnited Loan Agreement, BankUnited advanced us $5,813,500 to satisfy in full the amounts owed to Avidbank, including the outstanding principal amount and all accrued interest under the acquisition term loan and to pay the fees and expenses incurred in connection with the closing of the BankUnited Loans. The Term Loan was for a 5-year term, but co-terminus with the BankUnited Revolving Line should the BankUnited Revolving Line not be renewed beyond February 26, 2022. Pursuant to the Second Amendment, the maturity date of the Term Loan was extended to April 15, 2023, and pursuant to the Third Amendment, the maturity date of the Term Loan was extended to April 15, 2024. Pursuant to the Fourth Amendment, the maturity date of the Term Loan was extended to December 31, 2024. The Term Loan initially bore interest at a per annum rate equal to 2.75% above the 30-day LIBOR. However, pursuant to the Fourth Amendment, beginning on March 1, 2023, each facility bears interest at BankUnited’s then-prime rate of interest (7.75% as of March 31, 2023). Initially, equal monthly principal payments of approximately $48,446, plus accrued interest, were due and payable, in arrears, on the first day of each month during the term; pursuant to the Second Amendment, the monthly payments, including principal and interest,  increased to $100,000 on November 1, 2022; and pursuant to the Fourth Amendment, monthly payments, including principal and interest, decreased to $75,000 beginning March 1, 2023, but shall increase to $100,000 on January 1, 2024. Upon maturity, all principal and interest shall be immediately due and payable.

 

Security and Guarantees

 

Our obligations under the Amended Loan Agreement are collateralized by a first priority security interest (subject to permitted liens) in all of our assets and the assets of our U.S. subsidiaries, GelTech, Inc. (“GelTech”), and ISP, pursuant to a Security Agreement granted by GelTech, ISP, and us in favor of BankUnited. Our equity interests in, and the assets of, our foreign subsidiaries are excluded from the security interest. In addition, all of our subsidiaries have guaranteed our obligations under the Amended Loan Agreement and related documents, pursuant to Guaranty Agreements executed by us and our subsidiaries in favor of BankUnited.

 

General Terms

 

The Amended Loan Agreement contains customary covenants, including, but not limited to: (i) limitations on the disposition of property; (ii) limitations on changing our business or permitting a change in control; (iii) limitations on additional indebtedness or encumbrances; (iv) restrictions on distributions; and (v) limitations on certain investments. The Amended Loan Agreement also contains certain financial covenants, including obligations to maintain a fixed charge coverage ratio of 1.25 to 1.00 and a total leverage ratio of 4.00 to 1.00. Pursuant to the Fourth Amendment, the financial covenants are waived until December 31, 2023, and we were in compliance with all other required covenants, as amended.

 

We may prepay any or all of the BankUnited Loans in whole or in part at any time, without penalty or premium, other than the exit fees, as discussed above. Late payments are subject to a late fee equal to five percent (5%) of the unpaid amount. Amounts outstanding during an event of default were to accrue interest at a rate of five percent (5%) above the 30-day LIBOR applicable immediately prior to the occurrence of the event of default. Pursuant to the Second Amendment, beginning on December 20, 2021, the default rate was converted to five percent (5%) above BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time. The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and others.

 

Financing costs incurred related to the BankUnited Loans were recorded as a discount on debt and will be amortized over the term. Amortization of approximately $55,700 and $33,400 is included in interest expense for the nine-month periods ended March 31, 2023 and 2022, respectively.

 

In December 2020, ISP Latvia entered into an equipment loan with a third party (the “Equipment Loan”), which party is also a significant customer, and which the Equipment Loan is subordinate to the BankUnited Loans, and collateralized by certain equipment. The initial advance under the Equipment Loan was 225,000 EUR (or USD $275,000), payable in equal installments over 60 months, the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date. An additional 225,000 EUR (or USD $267,000) was drawn in September 2021, which proceeds were paid to the vendor for the equipment, payable in equal installments over 52 months. The Equipment Loan bears interest at a fixed rate of 3.3%.

Future maturities of loans payable are as follows:

 

 

 

BankUnited

Term Loan

 

 

Equipment

Loan

 

 

Unamortized

Debt Costs

 

 

Total

 

Fiscal year ending:

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2023 (remaining three months)

 

$180,602

 

 

$26,655

 

 

 

(3,093)

 

$204,164

 

June 30, 2024

 

 

758,322

 

 

 

106,619

 

 

 

—

 

 

 

864,941

 

June 30, 2025

 

 

1,412,504

 

 

 

106,619

 

 

 

—

 

 

 

1,519,123

 

June 30, 2026

 

 

—

 

 

 

44,424

 

 

 

—

 

 

 

44,424

 

After June 30, 2026

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total payments

 

$2,351,428

 

 

$284,317

 

 

$(3,093)

 

 

2,632,652

 

Less current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(849,327)

Non-current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

$1,783,325