In exchange for waiving and/or resetting the financial restrictive covenant, most lenders require a new clause that requires the borrower to reach a minimum level of liquidity each day of the waiver period of the financial agreement. For lenders, monitoring a borrower`s liquidity ensures that the borrower has sufficient liquidity to meet the obligations arising from the existing loan agreement. Liquidity is defined as the sum of unlimited liquidity plus undrawn bonds under revolving credit facilities. Temporary suspension of discretionary baskets. Most of the waivers to the financial agreements were accompanied by temporary suspensions of certain limited payments based on EBITDA and quotas, baskets of debt and privileges, and/or a reduction in fixed baskets during the waiver period of budgetary commitments. If only consent to the revolving facility is obtained and the revolving lenders are not the required lenders authorized to amend the entire loan agreement, breach of these restrictions will terminate the waiver period for the financial arrangements instead of resulting in default. As of March 31, 2020, we had cash and cash equivalents of $21.5 million. We will need to raise significant additional capital to continue the financing operations and maintain the liquidity arrangement. We may attempt to sell common or preferred shares, convertible bonds or other forms of debt financing. In addition, we can try to raise funds through cooperation agreements or government grants.

The sale of shares and convertible debentures may result in dilution of our shareholders, and some of these securities may have rights that outweigh those of our common shares. If we raise additional funds through the issuance of preferred shares, convertible debentures or other debt securities, those securities or other debts may contain restrictive covenants that would limit our business. Any other third-party funding agreement may require us to waive valuable rights. The source, timing and availability of future funding will depend primarily on market conditions and, in particular, on the progress of our product and clinical development programs and business activities. Funding may not be available when necessary, at all or on terms that are acceptable to us. Lack of necessary resources may, among other things, cause us to delay, reduce or eliminate costs, including those associated with our product development, clinical trials and commercial efforts. The pact measures the amount of money a company needs to manage its operations and meet its financial obligations. Supply has increased since the beginning of the health crisis. Companies that anticipate lower profit margins — often measured as earnings before interest, taxes, depreciation and amortization (Ebtida) — are seeking test relief in their loan agreements, according to law firm Ropes & Gray. The most common approach in the changes we have seen so far has been to refrain from meeting financial commitments from the first quarter of 2020 to the fourth quarter of 2020 inclusively. The exact period of waiver of the financial restrictive covenant depends on the borrower`s situation, so it can begin in the second fiscal quarter of 2020 and end only after the first quarter of fiscal 2021. The borrower has the option to prematurely terminate the Financial Covenant Waiver Period if it corresponds to the EBITDA-based Financial Covenant calculated in accordance with the relevant loan agreement (or after the effective date of EBITDA adjustments that apply after the end of the Financial Covenant Waiver Period in changes more favorable to the borrower).

In addition, we are required to comply with a continuous minimum liquidity obligation. As part of the change in the first quarter of 2020 described above, the minimum liquidity requirement for a specified period of time has also been waived, with this waiver period ending on June 30, 2020 and the termination of the ADVANZ Agreement (as defined herein). At the time of preparation of this annual report, we are complying with the amended minimum liquidity requirement. Delaying or avoiding interest and amortization payments in cash is a convenient way to save money, but it can be difficult to achieve. For most loan agreements, the conversion of cash interest into PIK interest and the suspension or deferral of planned amortization payments trigger a vote by the relevant lender. Incentives to persuade lenders to accept PIK interest and/or suspend amortization payments often involve an increase in the applicable margin for loans that result in PIK interest (often in the range of 100 to 150 basis points) and/or fees (sometimes structured as PIK or exit fees). In the case of largely syndicated loans, however, the composition of the lender group may further influence the extent to which interest payments can be converted into PIK. This is because some non-bank lenders may have restrictions in their founding documents that prevent them from accepting PIK interest. Months after its onset, the COVID-19 pandemic continues to hurt businesses around the world, and the duration and extent of its damage is increasingly uncertain. Many borrowers are therefore looking to modify their existing credit facilities in order to allow them greater financial flexibility as the pandemic continues. In fact, the LCD Daily Playbook (May 20, 2020) reports three times as many changes to loan agreements so far this year than at the same time last year. Since EBITDA is not only integrated with restrictive covenant compliance, but is also widely used by investors to assess a company`s financial performance, borrowers have worked to ensure that the EBITDA of their loan agreements reflects their typical business performance despite the disruptions caused by COVID-19.

In most of the changes we have observed, after the end of the financial obligation waiver period, the calculation of EBITDA will be modified for financial agreement purposes (and in some cases for all purposes) to exclude the impact of financial quarters affected by COVID-19. Among the different formulations we`ve seen is, ”Some people don`t want to spend time and energy quantifying the EBITDA pact because it requires a revenue adjustment,” Wedinger said. If you just look at the minimum liquidity, you take Ebitda out of the equation. Every conversation was about liquidity. These investors, also known as alternative lenders, are modifying existing businesses to include minimum liquidity requirements in loan agreements, provisions that require companies to have a certain amount of cash to protect their investments, according to several private credit sources. Interestingly, we found that a recent change included bond-type provisions in the additional facilities for the first two years (and also, probably due to the borrower`s difficult financial situation, in the event that the borrower was subject to insolvency proceedings or if obligations under the loan agreement were accelerated). The company has suffered significant operating losses since its inception and expects to continue to suffer significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2020, the Company had a cumulative deficit of $90.9 million. In March 2020, the Company entered into a mezzanine loan agreement (see Note 7) and borrowed $35.0 million outstanding as of September 30, 2020.As mentioned in Note 7, the mezzanine loan agreement was amended on October 26, 2020 and now includes a minimum liquidity requirement. If the Company does not meet the minimum liquidity ratio, outstanding debt and all related closing payment charges, prepayment charges and accrued interest will become due upon request. The Company anticipates that without additional funding, it is likely that it will not reach the minimum liquidity ratio at some point in the next twelve months.

Even if the Company does not meet the minimum liquidity ratio requirement and the debt matures, management believes that the Company currently has sufficient funds to meet its operational needs for at least the next twelve months from the date of publication of these financial statements. .