Quarterly report pursuant to Section 13 or 15(d)

Notes Payable

v3.23.2
Notes Payable
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Notes Payable Notes Payable
On June 4, 2021, the Company entered into a $35.0 million venture loan and security agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”) and Powerscourt Investments XXV, LP (“Powerscourt”, and together with Horizon, the “Lenders”). In accordance with the Loan Agreement, $20.0 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 a predetermined milestone, the Company borrowed an additional $10.0 million, which was evidenced by a second note payable (the “Second Note”). On September 29, 2021, after achieving a second predetermined milestone, 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”).

In June of 2023, the Company, as collectively agreed upon with the Lenders, prepaid $6.0 million of principal. Additionally, in the second quarter of 2022, the Company, as collectively agreed upon with the Lenders, prepaid $15.0 million, of which $14.8 million was applied to principal and the remainder applied to accrued interest. As of June 30, 2023, the outstanding notes payable balance was $15.2 million, inclusive of the final payment fee.

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 (see below), 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.

On July 20, 2023, the Company entered into a Forbearance Agreement with the Lenders, pursuant to which the Company and the Lenders agreed that an event of default had occurred due to a material adverse change in the Company’s business and the Lenders agreed to forbear from enforcing its full remedies related to the Existing Default, including acceleration of the outstanding principal payments and final payment fees of $15.2 million, plus interest, fees, other amounts accrued, until the earliest of (i) August 15, 2023, (ii) the occurrence of any default or event of default (other than the Existing Default) under the Loan Agreement, or (iii) the occurrence of a breach by the Company of any provision in the Forbearance Agreement. In exchange for the Lenders agreeing to enter the Forbearance Agreement, the Company agreed to maintain cash on deposit in deposit accounts subject to an Account Control Agreement (as defined in the Loan Agreement) in an amount not less than the sum of (a) $3.0 million plus (b) one-hundred percent (100%) of the aggregate cash proceeds received by Company as a result of the any future sale of the Company’s equity securities while the Forbearance Agreement is in effect. As of June 30, 2023, the carrying value of the notes payable was $14.1 million and is classified as a current liability.

On June 4, 2021, pursuant to the Loan Agreement, the Company issued warrants to the Lenders to purchase 33,656 shares of the Company’s common stock with an exercise price of $31.20 per share (the “Warrants”). The Warrants are exercisable for ten years from the date of issuance. Debt issuance costs and the amount allocated to the warrants were recognized as a debt discount on the date of issuance and are amortized to interest expense using the effective interest method over the term of the loan. The $1.1 million final payment fee is included in the contractual cash flows and is accreted to interest expense using the effective interest method over the term of the loan.

The effective interest rate of the Notes was 17.1% as of June 30, 2023.

Balance sheet information related to the note payable for the Notes is as follows (in thousands):
As of
  June 30, 2023 December 31, 2022 Maturity
Initial Note $ 8,711  $ 12,139  January 2025
Second Note 4,355  6,070  February 2025
Third Note 2,178  3,035  April 2025
Notes payable, gross1
$ 15,244  $ 21,244 
Less: Unamortized debt discount and issuance costs 1,129  1,828 
Carrying value of notes payable, current $ 14,115  $ 19,416 
Less: Current portion 14,115  5,930 
Carrying value of notes payable, non-current $ —  $ 13,486 

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

As of June 30, 2023, the contractual future principal payments, excluding the Lender’s right to accelerate the maturity of the obligations on the earliest of (i) August 15, 2023, (ii) the occurrence of any default or event of default (other than the Existing Default) under the Loan Agreement, or (iii) the occurrence of a breach by the Company of any provision in the Forbearance Agreement, were as follows (in thousands):

  As of June 30, 2023
2023 $ 4,168 
2024 9,463 
2025 1,613 
2026 — 
Total principal payments1
$ 15,244 

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

If the Company is unable to reach an agreement with its Lenders to waive the Existing Default or extend the forbearance period prior to the expiration of the Forbearance Agreement on August 15, 2023, the Forbearance Agreement will terminate automatically and without further notice or action, the effect of which shall permit the Lenders to immediately exercise any and all rights and remedies available under the Loan Agreement, including acceleration of the outstanding principal payments and final payment fees, plus interest, fees, and other amounts accrued.