Debt

9 Months Ended

Sep. 30, 2021

Debt

Debt

Note 5. Debt

In December 2020, the Company entered into a $20.0 million convertible debt financing agreement with Pontifax Medison Debt Financing (“Pontifax”), the healthcare-dedicated venture and debt fund of the Pontifax life science funds. Under the terms of the agreement with Pontifax, the Company will have access to up to $20.0 million in convertible debt financing in three tranches, which will mature on June 15, 2025 and have an interest only period for the first two years with an interest rate of 8.47% on borrowed amounts and an interest rate of 1% on amounts available but not borrowed as an unused line of credit fee. The agreement is secured by a lien covering substantially all of the Company’s assets, other than intellectual property. The agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, including on intellectual property, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. Upon the closing of this transaction, the Company accessed the first tranche of $10.0 million, and has the option to draw the second tranche of $5.0 million at any time by December 15, 2021 and the third tranche of $5.0 million upon filing of the HyBryte™ NDA, subject to certain conditions. Interest expense incurred for the three and nine months ended September 30, 2021 was $226,093 and $670,907, respectively.

Interest expense paid for the three and nine months ended September 30, 2021 was $0 and $444,814, respectively. The Company amortized $10,470 and $31,456 of issuance costs during the three and nine months ended September 30, 2021, respectively. Net deferred issuance costs of $154,317 has been recorded as a reduction of the carrying value of the $10.0 million convertible debt borrowed as of September 30, 2021.

Pontifax may elect to convert the outstanding loan drawn into shares of the Company’s common stock at any time prior to repayment at a conversion price of $4.10 per share. The Company also has the ability to force the conversion of the loan into shares of the Company’s common stock at the same conversion price, subject to certain conditions.

Principal and interest payments due, assuming no conversion or additional borrowings over the next five years is as follows:

Year	Principal		Interest		Total
October 2021 to December 2021	$	—	$	452,186	$	452,186
2022		—		897,000		897,000
2023		4,000,000		769,138		4,769,138
2024		4,000,000		430,338		4,430,338
2025		2,000,000		110,566		2,110,566
Total	$	10,000,000	$	2,659,228	$	12,659,228

CARES Act Loan

In April 2020, the Company was advised that its principal bank, JPMorgan Chase Bank, N.A., had approved a $417,830 loan (the “Loan”) under the Paycheck Protection Program (“PPP”) pursuant to the Coronavirus Aid, Relief and Economic Security Act that was signed into law in March 2020.

As a U.S. small business, the Company qualified for the PPP, which allows businesses and nonprofits with fewer than 500 employees to obtain loans of up to $10 million to incentivize companies to maintain their workers as they manage the business disruptions caused by the COVID-19 pandemic. The PPP provides for loans for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The PPP loan proceeds may be used for eligible purposes, including payroll, benefits, rent and utilities.

The Loan had a term of two years, was unsecured, and was guaranteed by the Small Business Administration (“SBA”). The Loan bore interest at a fixed rate of 0.98% per annum, with interest and principal deferred during the eight-week or twenty-four-week period following the Loan origination date (“the loan forgiveness period”) and subsequent 10 months. Some or all of the Loan was eligible for forgiveness if at least 60% of the Loan proceeds were used by the Company to cover payroll costs, including benefits and if the Company maintained its employment and compensation within certain parameters during the loan forgiveness period and complied with other relevant conditions. The Company used the proceeds for purposes consistent with the PPP and met the conditions for forgiveness of the Loan.

On June 29, 2021, the SBA and JPMorgan notified the Company that the entire balance of this note has been forgiven. The Company recorded the forgiveness of the principal and accrued interest of $421,584 as a gain on forgiveness in other income on the consolidated statement of operations.