Debt Obligations

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Debt Obligations

Note 8. Debt Obligations

Current portion of long-term debt consisted of the following as of the dates indicated:

	September 30,		December 31,
	2021		2020
SVB Term Loan	$	3,750,000	$	2,000,000
PPP Loan		—		857,040
2021 Insurance Note		417,107		—
2020 Insurance Note		—		165,099
	$	4,167,107	$	3,022,139

Long-term debt, net of current portion, discount and debt issuance costs, consisted of the following as of the dates indicated:

	September 30,		December 31,
	2021		2020
SVB Term Loan, net of discount and debt issuance costs	$	6,309,416	$	7,708,348
PPP Loan		—		859,960
	$	6,309,416	$	8,568,308

SVB Term Loan

On June 24, 2020 (the “Closing Date”), the Company entered into the SVB Term Loan, by and among the Company and SVB, as lender, which provides a secured term loan in the principal amount of $10.0 million.  

The proceeds from the SVB Term Loan were fully funded on June 25, 2020. Together with cash on hand, the proceeds were used to repay in full all outstanding amounts and fees due under the Company’s credit facility with MidCap Financial Trust (the “MidCap Credit Facility”) in an aggregate amount equal to $7.5 million, including collateral agent legal fees and prepayment fees, in addition to the Company’s subordinated convertible promissory note to QNAH (the “QNAH Convertible Note”) and related accrued interest in the aggregate amount of $3.2 million. As a result of the repayment, the Company recorded a loss on extinguishment of the MidCap Credit Facility and the QNAH Convertible Note of $0.5 million in other income (expense) in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2020. All obligations under the MidCap Credit Facility and the QNAH Convertible Note were fulfilled as a result of this extinguishment.

The SVB Term Loan bears interest at a floating rate equal to the greater of 2.50% above the Prime Rate (as defined in the Loan Agreement) and 5.75%. Interest on the SVB Term Loan is due and payable monthly in arrears. The SVB Term Loan originally required interest-only payments through June 30, 2021. As a result of the Company’s achievement of an equity milestone defined in the Loan Agreement during the quarter ended June 30, 2021, the interest-only period has been extended for six months. The extended interest-only period will be followed by equal monthly payments of principal and interest through the maturity date of December 1, 2023.

The Company’s obligations under the Loan Agreement are secured by a security interest in substantially all of its assets, excluding intellectual property (which is subject to a negative pledge), and the Company’s future subsidiaries, if any, may be required to become co-borrowers or guarantors under the Loan Agreement. In addition, the Company must comply with a financial covenant in the SVB Term Loan requiring the Company to maintain unrestricted cash of not less than the greater of (i)

$12.5 million and (ii) an amount equal to six times the amount of the Company’s average monthly Cash Burn (as defined in the Loan Agreement) over the trailing three months.

In connection with the Loan Agreement, the Company granted to SVB a warrant to purchase up to 42,894 shares of the Company’s common stock at a purchase price of $11.6565 per share. The warrant will expire on June 24, 2030 and may be exercised for cash or at the election of the holder on a cashless, net exercise basis. The fair value of the warrant on the date of issuance was approximately $0.4 million, determined using the Black-Scholes option-pricing model, and was recorded as a discount to the SVB Term Loan, with a corresponding credit to additional paid in capital since the warrant met the requirements to be classified as equity.

The Company included $0.7 million and $1.1 million of debt discount associated with the SVB Term Loan, resulting from fees and debt issuance costs, inclusive of the fair value of warrants issued, in long-term debt, net of current portion, discount and debt issuance costs in the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. Amortization of the debt discount associated with the SVB Term Loan was $0.1 million and $0.4 million for the three and nine months ended September 30, 2021, respectively, compared to $0.1 million for the three and nine months ended September 30, 2020, respectively, and was included in interest expense in the accompanying condensed consolidated statements of operations.

The remaining principal repayments due under the SVB Term Loan as of September 30, 2021 are as follows for each fiscal year:

2021	$	-
2022		5,000,000
2023		5,000,000
Total SVB Term Loan payments		10,000,000
Less discount and deferred financing costs		(740,584	)
Plus final fee premium		800,000
Total SVB Term Loan, net	$	10,059,416

Paycheck Protection Program Loan

On April 21, 2020, the Company received proceeds from a loan in the amount of $1.7 million from SVB, as lender, pursuant to the PPP. The PPP Loan was evidenced by a promissory note, which bore interest at an annual rate of 1%, and contained customary events of default relating to, among other things, payment defaults and breaches of representations, warranties or terms of the PPP Loan documents. Under the CARES Act and PPP Flexibility Act, loan forgiveness was available for the sum of documented payroll costs (including benefits), rent and utility obligations, and interest on certain of the Company’s other debt obligations incurred during the 24-week period beginning on the date of loan approval, as defined by the applicable guidelines and the SBA. The Company applied for full PPP Loan forgiveness in October 2020.

On May 26, 2021 the Company received notification from SVB that the PPP Loan and related accrued interest was forgiven in full by the SBA, and the PPP Loan note had been canceled. Accordingly, the Company recorded a gain on forgiveness of the PPP Loan of $0 and $1.7 million for the three and nine months ended September 30, 2021, included in other income (expense) in the accompanying condensed consolidated statements of operations. The Company has not accrued any liability associated with the risk of an adverse SBA review.

Insurance Note

On April 27, 2020, the Company entered into a commercial financing agreement to extend the payment period related to its director and officer insurance policy (the “2020 Insurance Note”). The 2020 Insurance Note required a down payment to be made upon signing the agreement equal to approximately $0.2 million. The unpaid premium balance of approximately $0.7 million was financed at an annual rate of 3.61% and was repaid in nine equal monthly payments of principal and interest through February 2021.

On May 5, 2021, the Company entered into a new commercial financing agreement to extend the payment period related to its director and officer insurance policy (the “2021 Insurance Note”). The 2021 Insurance Note required a down payment to be made upon signing the agreement equal to approximately $0.4 million. The remaining unpaid premium balance of approximately $0.7 million has been financed at an annual rate of 3.57% and is to be repaid in nine equal monthly payments of principal and interest beginning in June 2021. The 2021 Insurance Note contains customary events of default relating to, among other things, payment defaults and breaches of representations, warranties or terms of the 2021 Insurance Note documents, and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.