Note 8 – Long term debt

In connection with the purchase of a building in Farmingdale, NY on November 27, 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 $53 at July 31, 2021. At July 31, 2021, the balance owed by the subsidiary under the mortgage agreement was $4,100. The Company’s obligations under the mortgage agreement are secured by the building and by a $750 cash collateral deposit with the mortgagee as additional security. This restricted cash is included in other assets as of July 31, 2021. We assumed from the seller an operating lease for a tenant at the facility which expired on June 30, 2020. Rental income from the assumed lease is included in other income.

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. As of July 31, 2020, the Company was not in compliance with a financial ratio covenant related to the mortgage. Effective October 19, 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. As of July 31, 2021, the Company was in compliance with all the financial and liquidity covenants related to this mortgage. 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 $6,000 July 31, 2021) from $25,000 previously, and (b) the collateral requirement was increased from $750 to $1,000.

In April 2020, our subsidiary in Switzerland received a loan of CHF 400 ($400, based on the foreign exchange rate as of July 31, 2020) from the Swiss government under the “Corona Krise” emergency loan program in response to the pandemic. This loan is uncollateralized, bears 0% interest, is due in 5 years, and may be repaid at any time. This loan is included in long term debt – net as of July 31, 2021.

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 is to retain or maintain workforce and salaries for a twenty-four week period (“covered period”) following receipt of the loan. PPP loans have a 1% fixed interest rate and are due from two to five years. The primary features of the PPP loan program are to provide funding to companies to cover eligible expenses, and the potential for forgiveness of that portion of the loan spent on payroll and other permitted operating expenses during the covered period, subject to reductions if the borrower fails to maintain or restore employee and salary levels. 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”). The SBA has announced its intention to audit loans in excess of $2,000. To date, the SBA has not informed the Company of its intention to audit the Company’s PPP loan. We accrued no interest on the loan.

In June 2021, the SBA approved in full our request for loan forgiveness. For the year ended July 31, 2021, we recognized the forgiveness of the $7,000 loan in Other income.

Minimum future annual principal payments under these agreements as of July 31, 2021 are as follows: