|12 Months Ended|
Dec. 31, 2019
|Debt Disclosure [Abstract]|
Note 6 – Term Debt
On December 13, 2019 (the “Effective Date”), the Company entered into a loan and security agreement (the “Term Debt”) with Silicon Valley Bank (the “Bank” or “SVB”). The Term Debt is for $8,000, matures on December 1, 2023 and bears an interest rate equal to the greater of (i) one-half of one percent (0.50%) above the Prime Rate and (ii) five and one-half percent (5.50%). At December 31, 2019, the interest rate was 5.50%. The Term Debt is collateralized by substantially all assets of the Company. Additionally, the Company has pledged 65% of the outstanding capital stock in the Company’s foreign subsidiary, Motus GI Medical Technologies, Ltd., to collateralize the Term Debt.
Interest payments will commence January 1, 2020, following each month until the maturity date. Principal payments will commence January 1, 2022, and continuing for 24 consecutive months thereafter. The Company may prepay all, but not less than all, of the outstanding principal balance of the Term Debt subject to prepayment premium of $240, plus all other sums, if any, that shall have become due and payable.
The Company incurred $250 of debt issuance costs related to the Term Debt. For the year ended December 31, 2019, $4 of debt issuance costs was amortized to interest expense using the effective interest method. The effective interest rate on the Term Debt for the year ended December 31, 2019 was 6.73%. The Company accounts for its bank indebtedness at amortized cost.
During the period of time commencing on the Effective Date and continuing through the earlier of forty-five (45) days or an event of default (the “Transition Period”), the Company shall be permitted to maintain its existing bank accounts. Thereafter, the Company must maintain all cash with SVB and is permitted one (1) bank account with Bank Leumi in Israel where cash shall not exceed $3,000. As of December 31, 2019, the Company was operating within the Transition Period.
Further, under the terms of the agreement, the Company must maintain unrestricted cash in accounts with the Bank of at least $10,000. As of December 31, 2019, the Company was still transitioning banks and did not maintain at least $10,000 in its SVB accounts; however, this liquidity requirement covenant was waived by SVB through January 9, 2020, and is not considered an event of default. If this covenant is not met after January 9, 2020, the Company must immediately deposit the remaining amount outstanding on the loan into a cash collateral account. The covenant was met by the Company at January 9, 2020. The Company’s cash forecast indicates that it will need to raise additional funds during 2020, which is part of the current operating plan, in order to meet this liquidity requirement covenant during the coming year.
The Term Debt includes a subjective acceleration clause. Subsequent to year-end, and prior to the date the financial statements were issued, a pandemic occurred, which caused a shift in the capital markets. In response to the pandemic, certain measures were taken by authorities that could result in adverse financial impacts to the Company, including requiring Company workers to stay home. The Company considered the probability of a further slow- down of its sales team and the related impact on the potential to trigger the liquidity covenant, along with the tightening of the capital markets, which could cause SVB to exercise the subjective acceleration clause in determining the classification of the Company’s Term Debt. When considering these factors, the Company determined the likelihood of acceleration could be probable during 2020 if the pandemic continues, and therefore Company has classified the Term Debt in current liabilities.
Future maturities of the Term Debt are as follows:
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef