Quarterly report pursuant to Section 13 or 15(d)

Notes Payable

v3.21.2
Notes Payable
 9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]  
Notes Payable Notes Payable
Overview

On June 4, 2021, the Company entered into a $35.0 million Loan Agreement with Horizon Technology Finance Corporation (“Horizon”) and Powerscourt Investments XXV, LP (“Powerscourt”, together with Horizon, the “Lenders”). In accordance with the Loan Agreement, $20.0 million of the $35.0 million was funded on the closing date (the “Initial Note”), with the remaining $15.0 million fundable upon the Company achieving certain predetermined milestones, which the Company met in the third quarter of 2021. On July 30, 2021, after achieving the predetermined milestones, the Company borrowed $10.0 million, which was evidenced by a second note payable (the “Second Note”). On September 29, 2021, after achieving the predetermined milestones, the Company borrowed the remaining $5.0 million, which was evidenced by a third note payable (the “Third Note”, and collectively with the Initial and Second Notes, the “Notes”).
Each advance under the Loan Agreement will mature 42 months from the first day of the month following the funding of the advance. Each advance accrues interest at a per annum rate of interest equal to 6.25% plus the prime rate, as reported in the Wall Street Journal (subject to a floor of 3.25%). The Loan Agreement provides for interest-only payments for each advance for the first 18 months, however the interest-only period was extended to 24 months as a result of the Company satisfying the Interest Only Extension Milestone (as defined in the Loan Agreement) in the third quarter of 2021. Thereafter, amortization payments will be payable in monthly installments of principal and interest through each advance’s maturity date. Upon ten business days’ prior written notice, the Company may prepay all of the outstanding advances by paying the entire principal balance and all accrued and unpaid interest, subject to prepayment charges of up to 3% of the then outstanding principal balance. Upon the earlier of (i) payment in full of the principal balance, (ii) an event of default, or (iii) the maturity date, the Company will pay an additional final payment of 3% of the principal loan amount to the Lenders.

Each advance of the loan is secured by a lien on substantially all of the assets of the Company, other than Intellectual Property and Excluded Collateral (in each case as defined in the Loan Agreement), and contains customary covenants and representations, including a financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions taxes, corporate changes, deposit accounts, and subsidiaries.

The events of default under the Loan Agreement include but are not limited to, failing to make a payment, breach of covenant, or occurrence of a material adverse change. If an event of default occurs, the Lenders are entitled to accelerate the loan amounts due, or take other enforcement actions. As of the filing date of this Quarterly Report on Form 10-Q, the Company was not aware of any breach of covenants nor received any notice of event of default from the Lenders.

On June 4, 2021, pursuant to the Loan Agreement, the Company issued warrants to the Lenders to purchase 403,844 shares of the Company’s common stock with an exercise price of $2.60 (the “Warrants”). The Warrants are exercisable for ten years from the date of issuance. The Lenders may exercise the Warrants either by (a) cash or check or (b) through a net issuance conversion. The Warrants, which met equity classification, were recognized as a component of permanent stockholders’ equity within additional paid-in-capital and were recorded at the issuance date using a relative fair value allocation method. The Company valued the Warrants at issuance, which resulted in a discount on the debt, and allocated the proceeds from the loan proportionately to the Notes and to the Warrants, of which $0.9 million was allocated to the Warrants.

For the nine months ended September 30, 2021, the Company incurred $2.1 million in debt issuance costs, including legal fees in connection with the Loan Agreement, fees paid directly to the lender, and other direct costs, of which $1.7 million were paid in the third quarter of 2021. All fees, warrants, and costs paid to the Lenders and all direct costs incurred by the Company are recognized as a debt discount and are amortized to interest expense using the effective interest method over the term of the loan. The Company did not incur any debt issuance costs for the three months ended September 30, 2021.

The effective interest rate of the Notes, including the accretion of the final payment, was 13.5% as of September 30, 2021.

Balance sheet information related to the note payable for the Notes is as follows (in thousands):
As of
  September 30, 2021 December 31, 2020 Maturity
Initial Note 20,600  —  January 2025
Second Note 10,300  —  February 2025
Third Note 5,150  —  April 2025
Notes payable, gross1
36,050  — 
Less: Unamortized debt discount and issuance costs 3,567  — 
Carrying value of notes payable, non-current $ 32,483  $ — 

1 Balance includes $1.1 million final payment fee for the Notes, which represents 3% of the principal loan amount.

As of September 30, 2021, the estimated future principal payments due on the Notes were as follows (in thousands):
  As of September 30, 2021
2021 $ — 
2022 — 
2023 10,278 
2024 23,333 
2025 2,439 
Total principal payments1
$ 36,050 

1 Balance includes $1.1 million final payment fee, which represents 3% of the principal loan amount.