Loans Payable

12 Months Ended

Jun. 30, 2022

Loans Payable

Loans Payable

13. Loans Payable

BankUnited Loans

On February 26, 2019, the Company entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to 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”).  Each of the BankUnited Loans is evidenced by a promissory note in favor of BankUnited (the “BankUnited Notes”).

On May 6, 2019, the Company entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the “Amendment” and, together with the Loan Agreement, the “Amended Loan Agreement”).  The 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, the Company entered into a letter agreement with BankUnited (the “Letter Agreement”).  The Letter Agreement:  (i) reduces the fixed charge coverage ratio to 1.0 for the quarter ending September 30, 2021 and to 1.1 for the quarter ended December 31, 2021; (ii) modifies the calculation for both the fixed charge coverage ratio and the total leverage ratio to provide for adjustments related to expenses incurred in connection with the events at LPOI and LPOIZ, which expenses must be approved by BankUnited; (iii) terminates the Guidance Line; and (iv) requires approval from BankUnited prior to our being able to draw upon the Revolving Line, subject to our compliance with the fixed charge coverage ratio for the quarters ending September 30, 2021 and December 31, 2021.  The Letter Agreement also granted the Company a waiver of default arising prior to the Letter Agreement for its failure to comply with the fixed charge coverage ratio measured on June 30, 2021.  Based on the waiver, the Company was no longer in default of the Amended Loan Agreement.  Finally, in connection with the Letter Agreement, the Company paid BankUnited a fee equal to $10,000.

On November 5, 2021, the Company entered into a letter agreement with BankUnited (the “Second Letter Agreement”). In accordance with the Second Letter Agreement, the parties agreed to initiate discussions regarding a possible modification, forbearance, or other resolution of the Amended Loan Agreement (as defined below), which resolution would occur on or before December 31, 2021. On December 20, 2021, the Company 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 will bear interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points (4.25% as of June 30, 2022), as adjusted from time to time, (iv) the Term Loan will bear a higher interest rate commencing on August 1, 2022; (v) 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 (vi) 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, the Company entered into the Third Amendment to the Loan Agreement dated February 26, 2019 (the “Third Amendment”; and, together with the First Amendment, the Letter Agreement and the Second Letter Agreement, the “Amended Loan Agreement”), 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).

BankUnited Revolving Line

Pursuant to the Amended Loan Agreement, BankUnited agreed to make loan advances to the Company under the BankUnited Revolving Line 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. The BankUnited Revolving Line expired on February 26, 2022.  No amounts were outstanding under the BankUnited Revolving Line as of June 30, 2021 or February 26, 2022.

BankUnited Term Loan

Pursuant to the Amended Loan Agreement, BankUnited advanced the Company $5,813,500 to satisfy in full the amounts owed to Avidbank and to pay the fees and expenses incurred in connection with closing of the BankUnited Loans.  The BankUnited Term Loan is 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.  Management expects the BankUnited Revolving Line to be renewed.  Pursuant to the Second Amendment, the maturity date of the Term Loan was April 15, 2023, and pursuant to the Third Amendment, the maturity date of the Term Loan is April 15, 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 Second Amendment, beginning on December 20, 2021, each facility bears interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points (4.25% as of June 30, 2022), as adjusted from time to time.  Equal monthly principal payments of approximately $48,446, plus accrued interest, are due and payable, in arrears, on the first day of each month during the term.  Pursuant to the Second Amendment, the monthly payment, including principal and interest, will increase to $100,000, commencing November 1, 2022. Upon maturity, all principal and interest shall be immediately due and payable.  As of June 30, 2022, the applicable interest rate on the BankUnited Term Loan was 4.25%.

Guidance Line

The Amended Loan Agreement provided BankUnited, in its sole discretion, could make loan advances to the Company under the Guidance Line up to a maximum aggregate principal amount outstanding not to exceed $10,000,000, which proceeds could have been used for capital expenditures and approved business acquisitions.  The Guidance Line terminated on September 9, 2022 in accordance with the Letter Agreement.  There were no amounts outstanding under the Guidance Line at June 30, 2021 or on September 9, 2022.

Security and Guarantees

The Company’s obligations under the Amended Loan Agreement are collateralized by a first priority security interest (subject to permitted liens) in all of its assets and the assets of the Company’s U.S. subsidiaries, GelTech, and ISP, pursuant to a Security Agreement granted by GelTech, ISP, and the Company in favor of BankUnited.  The Company’s equity interests in, and the assets of, its foreign subsidiaries are excluded from the security interest.  In addition, all of the Company’s subsidiaries have guaranteed the Company’s obligations under the Amended Loan Agreement and related documents, pursuant to Guaranty Agreements executed by the Company and its 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 the Company’s 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.  The Letter Agreement granted the Company a waiver of default arising prior to the Letter Agreement from its failure to comply with the fixed charge coverage ratio measured on June 30, 2021.  The Second Amendment to the Amended Loan Agreement granted us a waiver of compliance for the Financial Covenants (as set forth in the Amended Loan Agreement) through June 30, 2022.  Based on the waivers, the Company is no longer in default of the Amended Loan Agreement.  As of June 30, 2022, the Company was in compliance with all other covenants.

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 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.  The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and confidentiality.

Financing costs related to the BankUnited Loans were recorded as a discount on debt and are being amortized over the term.  Amortization of approximately $52,000 and $19,000 for each the years ended June 30, 2022 and 2021, respectively, is included in interest expense.

Equipment Loan

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.  The Equipment Loan bears interest at a fixed rate of 3.3%. 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.

Future maturities of loans payable are as follows:

	BankUnited Term Loan		Equipment Loan		Unamortized Debt Costs			Total
Fiscal year ending:
June 30, 2023	$	896,758	$	103,005		(58,775	)	$	940,988
June 30, 2024		3,027,355		103,005		—			3,130,360
June 30, 2025		—		103,005		—			103,005
June 30, 2026		—		42,919		—			42,919
After June 30, 2026		—		—		—			—
Total payments	$	3,924,113	$	351,934	$	(58,775	)		4,217,272
Less current portion									(998,692	)
Non-current portion								$	3,218,580

Liquidity

The Company generally relies on cash from operations and equity offerings, and commercial debt, to the extent available, to satisfy its liquidity needs and to meet its payment obligations, including payments due under the BankUnited Term Loan.  The Company has commenced discussions with other lenders, and anticipates refinancing its debt obligations with a new lender prior to the maturity date of the Term Loan, of which there can be no assurances. If the Company is unable to refinance the credit facility with other commercial lenders prior to maturity, it may need to raise additional equity financing, source financing through non-commercial lenders or further reduce certain operating expenses and capital expenditures in order to repay the credit facility and all charges related thereto upon its maturity on April 14, 2024. In February 2022, the Company filed a shelf registration statement to facilitate the issuance of its Class A common stock, warrants exercisable for shares of its Class A common stock, and/or units up to an aggregate offering price of $75.8 million from time to time. In connection with the filing of the shelf registration statement, the Company also included a prospectus supplement relating to an at-the-market equity program under which the Company may issue and sell shares of its Class A common stock up to an aggregate offering price of $25.2 million from time to time, decreasing the aggregate offering price available under its shelf registration statement to $50.6 million. The shelf registration statement was declared effective by the SEC on March 1, 2022.  The Company has not issued any shares of its Class A common stock pursuant to the at-the-market equity program.

There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums, and increases in other costs. In addition, greater than 50% of the Company’s cash and cash equivalents is held by its foreign subsidiaries and, although the Company regularly repatriates cash, it may not be readily available to repay its liabilities in the U.S.  The Company will also continue efforts to keep costs under control as it seeks renewed sales growth. The Company’s efforts are directed toward generating positive cash flow and profitability.  If these efforts are not successful, the Company may need to raise additional capital. Should capital not be available to the Company at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase sales. These actions may include exploring strategic options for the sale of the Company, the sale of certain product lines, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, the creation of licensing arrangements with respect to our technology, or other alternatives.