Note 7 – Mortgage and Loans payable, net

Loans payable, net

On March 31, 2023, we entered into a Revolving Loan and Security Agreement (the “Credit Facility”) among Enzo Clinical Labs, Inc. and Enzo Life Sciences, Inc., and the Company as borrowers and certain of its domestic subsidiaries, as guarantors (the “Guarantors”), and Gemino Healthcare Finance, LLC d/b/a SLR Healthcare ABL as lender (“SLR”). The Credit Facility provides for a maximum $8 million revolving line of credit. The Company is using the borrowing proceeds under the Credit Facility for working capital and general corporate purposes. The commitment under the Credit Facility expires after one year and all outstanding borrowings under the Credit Facility will become due and payable at that time. Prior to its expiration, the Company expects to prepay and terminate the Credit Facility upon the closing of the Asset Purchase Agreement pertaining to the Clinical Labs business, and a standard termination fee would be payable in connection therewith. The Credit Facility is secured by a first priority perfected security interest in the collateral. The collateral includes substantially all the U.S. assets of the Company and the Guarantors, including among other assets, cash, receivables, inventory and fixed assets.

Borrowings under the Credit Facility, which are based on eligible receivables of the Company’s Clinical Labs and U.S.-based Life Sciences operating segments, accrue interest at the rate per annum equal to Term SOFR (Secured Overnight Financing Rate) for a three-month tenor of 5.30% at April 30, 2023 plus 5.50%. Other fees, such as an unused line fee and a collateral monitoring fee, also apply. The Company borrowed $5,500 under the Credit Facility upon the closing thereof. As of April 30, 2023, the net balance outstanding was $3,354, which is classified as Loans payable, net in current liabilities.

The Credit Facility includes customary affirmative and negative covenants for revolving credit facilities of this nature, including certain limitations on the incurrence of additional indebtedness and liens. In addition, the Credit Facility requires the Borrowers to maintain certain minimum liquidity levels as of the last day of each calendar month. The levels decline over time, starting at $4 million as of April 30, 2023, then $3 million as of May 31, 2023 and $2 million as of the end of each month thereafter. As of April 30, 2023, the Company was not in compliance with SLR’s minimum liquidity covenant as per the strict definitions in the agreement pertaining to qualified cash, which constituted an event of default. On June 12, 2023, SLR and the Company agreed to a waiver limited to the specific event of default with respect to the minimum liquidity covenant.

The Credit Facility includes customary events of default for revolving credit facilities of this nature, including failure to pay outstanding principal or interest, failure of applicable representations or warranties to be correct in any material respects, failure to perform any other term, covenant or agreement, certain defaults upon obligations under the Employee Retirement Income Security Act, bankruptcy or a change in control. Such events of default would require the repayment of any outstanding borrowings and the termination of the right to borrow additional funds under the Credit Facility.

In April 2020, our subsidiary in Switzerland received a loan of CHF 400 (or $400, based on the foreign exchange rate at that time) from the Swiss government under the “Corona Krise” emergency loan program in response to the pandemic. This loan is uncollateralized and bears 0% interest. In January 2022, the bank agent of the Swiss government informed our subsidiary that the loan had to be fully amortized within a maximum of eight years and that the first of semi-annual amortization payments of CHF 33 would begin in March 2022. In September 2022 and March 2023, the subsidiary made its second and third semi-annual principal repayments of CHF 33 (or $38 based on exchange rates). Based on this amortization schedule, the loan will be repaid by September 2027. The current portion of this loan of $75 is included in other current debt and finance leases and the long term portion of $247 is in long term debt – net as of April 30, 2023.

Mortgage debt, net

In connection with the purchase of a building in Farmingdale, NY in November 2018, a wholly-owned subsidiary (the “mortgagor subsidiary”) of the Company entered into a Fee Mortgage and Security Agreement (the “mortgage agreement”) with Citibank, N.A. (the “mortgagee”). The mortgage agreement provides for a loan of $4,500 for a term of 10 years, bears a fixed interest rate of 5.09% per annum and requires monthly mortgage payments of principal and interest of $30. Debt issuance costs of $72 are being amortized over the life of the mortgage agreement. The balance of unamortized debt issuance cost was $40 at April 30, 2023. At April 30, 2023, the balance owed by the subsidiary under the mortgage agreement was $3,861. The Company’s obligations under the mortgage agreement are secured by the building and by a $1,000 cash collateral deposit with the mortgagee as additional security. This restricted cash is included in other assets as of April 30, 2023.

The mortgage agreement includes affirmative and negative covenants and events of default, as defined. Events of default include non-payment of principal and interest on debt outstanding, non-performance of covenants, material changes in business, breach of representations, bankruptcy or insolvency, and changes in control. The mortgage includes certain financial covenants. Effective October 2020, the Company and the mortgagee agreed to a covenant restructure whereby the mortgagee waived the Company’s financial ratio covenant for the fiscal period ended July 31, 2020 and modified the mortgage to replace that covenant with a liquidity covenant. The liquidity covenant requires that we own and maintain at all times and throughout the remaining term of the loan at least $25,000 of liquid assets, defined as time deposits, money market accounts and obligations issued by the U.S. government or any of its agencies. The cash collateral agreement was also modified to require compliance with the liquidity covenant for two consecutive fiscal years before the collateral is released back to us. Effective September 29, 2021, the Company and the mortgagee agreed to further covenant restructuring whereby (a) the liquidity covenant was reduced to 150% of the loan principal (or approximately $5,911 as of April 30, 2023) from $25,000 previously, and (b) the collateral requirement was increased from $750 to $1,000. As of April 30, 2023, the Company was not in compliance with the liquidity covenant or an unsubordinated liabilities to net capital base leverage ratio covenant. While the Company believes it will be able to either achieve compliance or obtain waivers going forward, as there can be no assurances, all of the mortgage debt is classified as current in the consolidated balance sheet as of April 30, 2023.

Minimum future annual principal payments under the mortgage and Corona Krise agreements as of April 30, 2023 are as follows:

The CARES Act expanded the U.S. Small Business Administration’s (SBA) business loan program to create the Paycheck Protection Program (PPP), which provided employers with uncollateralized loans whose primary purpose was to retain or maintain workforce and salaries for a twenty-four week period (“covered period”) following receipt of the loan. We applied for the PPP loan based on the eligibility and need requirements established when the program was announced and in April 2020 received $7,000 through Citibank N.A., the Company’s existing lender, pursuant to the PPP (the “PPP Loan”). In June 2021, the SBA approved in full our request for loan forgiveness and in the fiscal year 2021 the Company recognized the forgiveness of the $7,000 loan in Other income. The SBA announced its intention to audit loans in excess of $2,000 and in June 2022 requested through Citibank N.A. the production of documents and information related to our loan and our request for forgiveness. We provided that information to the SBA via Citibank N.A. In October 2022 the SBA requested through Citibank N.A. that we complete a new version of their loan necessity questionnaire with respect our forgiven loan, which we provided. The SBA subsequently requested additional information with respect to wages paid which was provided in January 2023. We have been notified by Citibank N.A. that on the SBA Forgiveness Portal, the status of our PPP loan forgiveness audit shows as “Review Complete.”