Debt

12 Months Ended

Dec. 31, 2021

Debt

Debt

Note 5.Debt

On December 16, 2020, the Company entered into a $20 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 had access to up to $20 million in convertible debt financing in three tranches, which will mature on June 15, 2025 and have an interest only period through December 2022 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. Affirmative covenants include, among others, covenants requiring us to protect and maintain our intellectual property and comply with all applicable laws, deliver certain financial reports, maintain a minimum cash balance and maintain insurance coverage. Upon the closing of this transaction, the Company accessed the first tranche of $10 million, had the option to draw the second tranche of $5 million at any time over during the initial 12 months of the loan and the third tranche of $5 million upon filing of the HyBryte™ new drug application, subject to certain conditions. The Company has elected to let both the second and third tranches expire as of December 15, 2021 and March 15, 2022, respectively. Interest expense incurred during the years ended December 31, 2021 and 2020 was $894,808 and $34,306, respectively. Interest expense paid during the years ended December 31, 2021 and 2020 was $668,715 and $34,306, respectively. The Company amortized $41,926 and $1,205 of issuance costs during the years ended December 31, 2021 and 2020, respectively. The net deferred issuance costs of $143,847 has been recorded as a reduction of the carrying value of the $10,000,000 convertible debt borrowed as of December 31, 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 is as follows:

Year	Principal		Interest		Total
2022	$	—	$	847,000	$	847,000
2023		4,000,000		719,138		4,719,138
2024		4,000,000		380,338		4,380,338
2025		2,000,000		60,566		2,060,566
Total	$	10,000,000	$	2,007,042	$	12,007,042

CARES Act Loan

On April 13, 2020, the Company was advised that one of its principal banks, JPMorgan Chase Bank, N.A., had approved a $417,830 loan (the “Loan”) under the PPP pursuant to the Coronavirus Aid, Relief and Economic Security Act that was signed into law on March 27, 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 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 maintains its employment and compensation within certain parameters during the forgiveness period and complied with other relevant conditions. The Company used the proceeds for purposes consistent with the PPP and met the conditions for the 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.