Debt | 8. Debt Ares term loan On December 30, 2019, the Company entered into a Credit Agreement (the Ares Agreement) with Ares Capital Corporation and Ares Direct Finance I LP (collectively, Ares) to raise up to $ 40.0 million in debt financing (the Ares Loan) consisting of $ 30.0 million advanced at the closing of the agreement (Tranche A), with the option to draw up to an additional $ 10.0 million (Tranche B) on or before December 31, 2020 , which was conditioned upon achieving a minimum of $ 30.0 million in net revenues in the prior 12-month period. The Ares Loan has a three-year term maturing on December 31, 2022 , which includes eight quarters of interest-only payments followed by four quarters of equal payments of principal and interest. The interest-only period could be extended to ten quarters if the Company satisfied certain amortization period extension conditions prior to December 31, 2021. In May 2020, the Company satisfied one of the amortization period extension conditions and the interest-only period was extended to ten quarters. Borrowings under the Ares Agreement, including the Ares Loan, bear interest at either the ABR plus 8.5% per annum or the Eurodollar Rate plus 9.5% per annum, as applicable. The ABR equals the greatest of (a) 3.0%, (b) the prime rate, (c) the federal funds rate plus 0.5% and (d) the three-month Eurodollar Rate plus 1.0%. The Eurodollar Rate equals the greater of (a) 2.0% and (b) the rate per annum appearing on Bloomberg Professional Service Page BBAM1 offered rate for deposits in U.S. dollars at approximately two business days prior to the first day of such interest period for a three (3) month term; multiplied by the Statutory Reserve Rate. The Statutory Reserve Rate is based on a fraction, the numerator of which is the number one and the denominator of which is the number one minus the applicable reserve percentage for that day. Payments of interest under Ares Loan are to be made quarterly commencing on March 31, 2020. Through December 31, 2021, the Company has the option to pay all accrued interest in cash or by paying up to 50.0 % of accrued interest in kind (PIK interest) by increasing the principal amount of Ares L oan. On each payment date through June 30, 2021, the Company elected the PIK option, issuing PIK notes totaling $ 2.9 million. For three months ended September 30, 2021, the Company did not use PIK option and paid all interest in cash. As of October 8, 2021 (repayment date) the Ares Loan had an annual effective interest rate of 24.9 % per annum. As of December 31, 2020 the annual effective interest rate of was 22.7 % per annum. The Ares Loan is collateralized by substantially all of the Company’s assets. The Company may prepay the loan, subject to prepayment premium equal to 30.0 % of the principal amount being prepaid less all interest payments and fees paid in cash on or prior to the date of such prepayment, provided that in no event shall the prepayment premium be less than zero. The Ares Loan includes a fee upon repayment of the loan ranging from 4.0 % to 10.0 % of the aggregate principal amount being prepaid or repaid including all PIK notes added to the principal amount. The Ares Agreement includes customary restrictive covenants, financial covenants, events of default and other customary terms and conditions. The financial covenants in the Ares Agreement require the Company to have revenue for the four consecutive fiscal quarters period ending on March 31, 2020, and the last day of each June, September, December and March thereafter, off not less than the minimum revenue amount specified in the Ares Agreement and maintain a minimum cash and cash equivalents balance of $ 5.0 million at any time. In January 2021, the Company entered into a waiver and amendment agreement to the Ares Agreement to receive a waiver for certain reporting covenants for which the Company was not in compliance. Additionally, the amendment extended the Tranche B availability date to June 30, 2021. The amendment was accounted for as a debt modification and no gain or loss was recognized. In March 2021, the Company entered into a second amendment to the Ares Agreement to extend the compliance period for certain reporting covenants. The amendment was accounted for as a debt modification and no gain or loss was recognized. In July 2021, the Company amended the terms of the Ares Agreement to waive a default in connection with the Company’s failure to satisfy a covenant relating to delivery of financial statements and modify that financial reporting covenant. The amendment also served to modify the fee due to Ares upon repayment of the loan from a variable amount based on equity value of the Company to a fixed exit fee of 6.25 % of the principal amount of the Loans funded under the Ares Agreement. In addition, the timing for delivery of the Company’s annual audited financial statements was amended to 210 days from the end of the fiscal year for the year ended December 31, 2020. The amendment was accounted for as a debt modification and no gain or loss was recognized. The Company may be required to make mandatory prepayments of the Ares Loan upon the occurrence of specified prepayment trigger events, including the occurrence of any event of default or the occurrence of a change in control event. Upon the prepayment of all or any of the outstanding principal balance, the Company shall pay, in addition to such prepayment, the prepayment premium noted above. As Ares may exercise the option to require prepayment by the Company, the prepayment premium is considered to be an embedded derivative which is required to be bifurcated from its host contract and accounted for as a separate financial instrument. The mandatory prepayment derivative liability had a fair value of $ 4.3 million upon entering into the Ares Agreement, which was accounted for as a debt discount. On October 8, 2021, the Company repaid its entire obligation under the Ares Loan amounting to $ 35.5 million, including principal of $ 32.8 million, accrued interest of $ 0.1 million and fees of $ 2.6 million, using the proceeds from CIBC Term Loan (described below). The repayment of the obligation under the term loan agreement with ARES was accounted as a debt extinguishment and the Company recorded a loss on a debt extinguishment of $ 4.4 million accordingly in the statements of operations. The Ares Loan consists of the following (in thousands): December 31, 2020 Term loan principal $ 31,878 Less: debt issuance cost and debt discount ( 4,120 ) Add: exit fee 312 Term loan $ 28,070 The Co mpany paid $ 1.4 million in fees to the lender and third parties which is reflected as a discount on the Ares Loan and is being accreted over the life of the term loan using the effective interest method. During the years ended December 31, 2021 and 2020, the Company recorded interest expense of $ 4.9 million and $ 5.6 million, respectively, which includes interest expense related to the accretion of debt discount, debt issuance costs and exit fee of the Ares Loan of $ 2.0 million and $ 1.9 million, respectively . As of December 31, 2021 and 2020, the estimated fair value of the aggregate outstanding derivative instrument associated with the Ares Loan was zero and $ 4.5 million, respectively. Paycheck Protection Program In April 2020, the Company received $ 3.0 million from a Federal Small Business Administration (SBA) loan under the Paycheck Protection Program (the PPP Loan). The PPP Loan bore interest at 1.0 % per year on the outstanding principal amount and was scheduled to mature 24 months from the date of the note. No payments were due for initial six-month period of the PPP Loan. Afterwards, payments of principal and interest were due over the following 18 months. In June 2021, the Company received formal notification from the SBA that the Company’s PPP Loan and interest had been formally forgiven in the principal amount of $ 3.0 million, plus interest of less than $ 0.1 million. As a result, the Company recognized a $ 3.0 million gain on forgiveness of PPP loan in the statement of operations for the year ended December 31, 2021. CIBC term loan On October 8, 2021, the Company entered into a Loan and Security Agreement (the CIBC Agreement) with Canadian Imperial Bank of Commerce (CIBC), which provides for a senior secured term loan in an aggregate principal amount of $ 40.0 million (the CIBC Loan), the full amount of which was funded at the closing of the CIBC Agreement. Most of the proceeds of the CIBC Loan were used to repay the Company’s entire obligation under its existing loan agreement with Ares, including the principal, interest, prepayment premium and fees, in a total amount of $ 35.5 million. The CIBC Loan provides for 24 months of interest-only payments followed by 36 equal monthly payments of principal, plus accrued and unpaid interest, with the final obligations due and payable in full on October 8, 2026. The CIBC Loan accrues interest at a floating rate equal to 2.5 % above the prime rate, an d the interest is payable monthly in arrears. As of December 31, 2021, the CIBC Loan had an annual effective interest rate of 6.72 % per annum. Obligations under the CIBC Agreement are secured by substantially all of the Company’s assets. The CIBC Agreement contains customary affirmative and n egative covenants, including, among other requirements, financial statement reporting requirements, limitations on the incurrence of certain indebtedness and liens, limitations on the disposition of assets, restrictions on certain transactions with affiliates, limitations on dividends and stock repurchases and a material adverse change event of default. The CIBC Agreement also contains financial covenants that require the Company to maintain minimum revenue and minimum cash thresholds. The Company may prepay the CIBC Loan in whole or in part, subject to a prepayment premium ranging from 0.0 % to 3.0 % of the principal amount of the CIBC Loan that is prepaid, depending on the timing of the prepayment. In connection with issuance of the Loan, the Company entered into a Success Fee Agreement with CIBC on the same date. In the event of a sale or other disposition by the Company of all or substantially all of its assets, a merger or consolidation, or an initial public offering before the expiration of the Success Fee Agreement on October 8, 2026, the Company is required to pay to CIBC the Success Fee of up to $ 0.4 million. On October 26, 2021, in connection with the IPO, the Success Fee derivative liability was settled upon the Company paying $ 0.4 million Success Fee to CIBC pursuant to the Success Fee Agreement. The CIBC Agreement contains customary events of default subject to customary cure periods for certain defaults that include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness, bankruptcy, and insolvency events with respect to the Company, and material judgements. Upon the occurrence and during the continuance of an event of default, CIBC may a ccelerate the Company’s obligations under the CIBC Agreement, increase the applicable interest rate by 5.0 % and exercise other remedies provide d for under the CIBC Agreement and applicable law. The CIBC Loan consists of the following (in thousands): December 31, 2021 Term loan principal $ 40,000 Less: Debt issuance cost and debt discount ( 915 ) Accrued interest 189 Term loan $ 39,274 The Company paid $ 1.0 million in fees to CIBC and third parties which is reflected as a debt discount and debt issuance costs, respectively, and are being accreted over the life of the term loan using the effective interest method. During the year ended December 31, 2021 the Company recorded interest expense of $ 0.6 million, which includes interest expense related to accretion of debt discount and debt issuance costs of the CIBC Loan of $ 0.1 million. Convertible notes In March and December 2018, the Company entered into Second Lien Loan and Security Agreements (the 2018 Note Agreements) with certain investors, for up to $ 20.0 million and $ 10.0 million in convertible notes, respectively. The convertible notes under these 2018 Note Agreements are collateralized by assets, including cash and cash equivalents, accounts receivable, and property and equipment. Under the 2018 Note Agreements, the investors agreed to make one or more convertible notes (the 2018 Notes) to the Company during the period beginning in March and December 2018, respectively, and ending on the one-year anniversary of the 2018 Note Agreements, the maturity date. In May and November 2019, the Company entered into additional Second Lien Loan and Security Agreements (the 2019 Note Agreements) with certain investors, each for up to $ 10.5 million in convertible notes. With the exception of the issuance date of offering and maturity date, all remaining contractual terms of the 2019 Note Agreement are similar to the 2018 Note Agreements. Under the 2019 Note Agreements, the investors agreed to make one or more convertible notes to the Company during the period beginning in May and November 2019 (the 2019 Notes) and ending on the one-year anniversary of the 2019 Note Agreement, the maturity date. In December 2019, the Company and the investors entered into an amendment to the 2018 Notes and 2019 Notes (the Amendment), which extended the maturity of the 2018 Notes and 2019 Notes to June 2023 . Moreover, the 2018 Notes and 2019 Notes were subordinated to the term loan with Ares Capital Corporation, and collateralized by assets, including cash and cash equivalents, accounts receivable, and property and equipment. In May 2020, the Company entered into another Second Lien Loan and Security Agreement (the 2020 Note Agreement) with certain investors, for up to $ 30.0 million in convertible notes. The convertible notes under the 2020 Note Agreement are subordinated to the term loan with Ares Capital Corporation and are also collateralized by assets, including cash and cash equivalents, accounts receivable and property and equipment. Under the 2020 Note Agreement, the investors agreed to make one or more convertible notes to the Company during the period beginning in May 2020 (the 2020 Notes), and ending on June 30, 2023 , the maturity date. On September 3, 2021, the Company amended the 2018 Note Agreements, 2019 Note Agreements, and 2020 Note Agreement to modify the maturity dates to December 31, 2026 and to add automatic conversion of these convertible notes’ outstanding principal and accrued interest into shares of common stock if either (i) the offering price per share of our IPO is greater than $ 5.61 and the aggregate gross proceeds to the Company from the IPO are greater than $ 50.0 million or (ii) the Company receives a written request from the holders of at least 66 2/3% of the redeemable convertible preferred stock to convert all outstanding redeemable convertible preferred stock to common stock. The Amendment was accounted for as a debt extinguishment, and the Company recognized a $ 16.9 million extinguishment loss in other income (expense), net in the statement of operations for the year ended December 31, 2021. The 2018 Notes, 2019 Notes, and 2020 Notes (collectively, the Convertible Notes) accrue interest at a fixed rate of 8.0 % per annum. Interest accrues until the convertible notes are converted to equity shares or paid in full. Each convertible note is evidenced by a separate Secured Convertible Note. The Company borrowed $ 29.2 million in 2018, $ 21.0 million in 2019, and $ 15.0 million in 2020 under the Second Lien Loan and Security Agreements with investors. At October 21, 2021 (prior to the closing of the IPO date), the Company retained the ability to draw up to an additional $ 15.0 million under the 2020 Note Agreement in order to satisfy certain deferred payment obligations due to BSC. Immediately prior to the closing of the IPO, $ 79.2 million in aggregate outstanding p rincipal and accrued interest of the convertible notes converted into 7,006,228 shares of redeemable convertible preferred stock at a conversion price of $ 11.31 per share. Upon conversion the carrying value of the debt, including the $ 79.2 million in aggregate outstanding principal and accrued interest and $ 10.1 million in unamortized premium, was reclassified to additional paid-in capital. Also immediately prior to the IPO closing, all outstanding shares of the Company's redeemable convertible preferred stock (including th ose issued upon conversion of the convertible notes) converted into 19,404,066 shares of common stock which resulted in the reclassification of the carrying value of the preferred stock to common stock and additional paid-in capital. The convertible notes contained embedded features – a qualified financing put, non-qualified financing put, and change of control put features that were bifurcated and accounted as derivative liabilities and recorded as debt discount. Debt discount is reported as a direct deduction to the carrying amount of the convertible notes and amortized using the effective interest rate over the life of the convertible notes as interest expense. The embedded derivative features are recorded at fair value upon entering into the note purchase agreements and are subject to remeasurement to fair value at each balance sheet date, with any changes in fair values recognized in the statements of operations. During the years ended December 31, 2021 and 2020, the Company reported amortization of debt premium and discount of $ 1.3 million and $ 1.4 million, respectively. The convertible notes consist of the following (in thousands): December 31, 2020 Principal $ 69,245 Less: debt issuance costs ( 38 ) Less: debt discount ( 8,145 ) Accrued interest 5,134 Convertible notes $ 66,196 During the year ended December 31, 2021, the Company recorded interest expense of $ 6.3 million on the 2018, 2019 and 2020 Notes. During the year ended December 31, 2021, the Convertible Notes had an annual effective interest rate ranging from 5.0 % to 6.2 % per year. During the year ended December 31, 2020, the Company recorded interest expense of $ 6.5 million on the 2018, 2019 and 2020 Notes. During the year ended December 31, 2020, the Convertible Notes had an annual effective interest rate ranging from 9.0 % to 31.0 % per year. As of December 31, 2020, the Convertible Notes had accrued interest of $ 5.1 million. Contractual maturities of financing obligations As of December 31, 2021, the aggregate future payments under the CIBC Loan (including interest payments) are as follows (in thousands): 2022 $ 2,300 2023 4,457 2024 14,807 2025 14,060 2026 12,229 Total 47,853 Less: unamortized debt discounts and issuance costs ( 915 ) Less: interest ( 7,664 ) Term loan $ 39,274 |