Term Loan

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Term Loan

Note 8 – Term Loan

On October 29, 2020, the Company entered into a loan facility (“Term Loan”) with an initial draw of $25.0 million. Proceeds were used to help fund the Company’s ongoing operations. In March 2021, the Company drew an additional $5.0 million from the facility for the purpose of funding ongoing operations. In June 2021, the Company drew an additional $10.0 million from the facility for the purpose of funding ongoing operations. Another $10.0 million of the term-loan facility was available for additional draws during 2021, which were not borrowed and $10.0 million is to be available in the first quarter of 2022, if the Company reaches certain sales milestones.

The Term Loan is secured by substantially all of the Company’s assets, including a negative lien on the Company’s intellectual property assets. The Company is subject to various standard covenants, such as quarterly reporting, annual audits, submission of annual projections and limitations on dividends, further investments and indebtedness. The Term Loan also contains a covenant (“Performance to Plan”) that provides that, beginning on March 31, 2022 and measured monthly, the Company must achieve trailing twelve-month revenue equal to or greater than 50% of the Company’s annual operating budget as approved by the Company’s Board of Directors and the lender. In July 2021, the Company completed its initial public offering with greater than $70.0 million in proceeds, which allowed the Company to continue either the Performance to Plan covenant or may replace it with a positive lien on its intellectual property.
 

Interest for all borrowings under the Term Loan is determined as the greater of (1) 9.25% or (2) 9.09% plus the greater of 30-day LIBOR published in the Wall Street Journal and 0.16%. The Company may elect an interest rate equal to 10.25% plus the greater of (1) the Wall Street Journal Prime rate or (2) 7%. The interest rate resets monthly on the last day of the month prior to the month in which interest accrues, and an actual/360-day convention applies. If the Company is considered to be in default as defined by the Term Loan, additional interest of 5% applies. The LIBOR rate is subject to change to another basis, presently undetermined, when LIBOR ceases to exist.

The Term Loan requires 36 months of interest-only payments, followed by 23-months of amortization. If the Company is in compliance with the Performance to Plan covenant through October 31, 2023, the interest-only period is extended by 12 months, and the amortization period is reduced by 11 months. Payments are due on the first day of each month in arrears. All unpaid amounts under the Term Loan mature on October 1, 2025.

The Term Loan is prepayable at any time without penalty; however, the loan must be prepaid in full or in specific increments, and amounts prepaid may not be subsequently reborrowed. The loan may also be accelerated by the lender in the event of a default.

As the loan was not fully prepaid by December 31, 2021, the Company became subject to an additional fee (the “Exit Fee”). The fee is 3% of the original draw amount if prepaid between January 1, 2022 and October 31, 2022 ($750,000), 4% if prepaid between November 1, 2022 and October 31, 2023 ($1.0 million) and 5% ($1.25 million) if paid subsequently, including at maturity. The Exit Fee is being accreted to the carrying value of the debt as a debt premium and interest expense over the life of the loan using the effective interest method. Third-party professional service fees totaling $819,000 were incurred by the lender and the Company that are directly attributable to execution of the Term Loan transaction. These issuance costs have been recorded as a discount to the carrying amount of the debt and are being amortized to interest expense over the effective term of the debt using the effective interest method.

As of December 31, 2021, annual principal payments due under the Term Loan were as follows (in thousands):

Year Ended December 31,
2022	$	—
2023		1,739
2024		20,870
2025		17,391
2026		—
Total		40,000
Less: unamortized issuance costs and exit fee		(240	)
Term loan, net	$	39,760

During 2021 and 2020, cash interest paid for all borrowings under the Term Loan was 9.25%. The effective interest rate for the year ended December, 31 2021 and 2020 was 10.90% and 11.31%, respectively. As of December 31, 2021 and 2020, the Company was in compliance with all covenants.