Annual report pursuant to Section 13 and 15(d)

NOTES PAYABLE

v3.20.4
NOTES PAYABLE
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
NOTES PAYABLE

 

7. NOTES PAYABLE

 

D&O Financing

 

In November 2019, the Company entered into a loan agreement with a financing company for $963,514 to finance one of the Company’s insurance policies. The terms of the loan stipulated equal monthly payments of principal and interest payments of $109,413 over a nine-month period. Interest accrued on this loan at an annual rate of 5.25%. This loan was fully repaid in July 2020.

 

In November 2020, the Company entered into a loan agreement with a financing company for $909,375 to finance one of the Company’s insurance policies. The terms of the loan stipulate equal monthly payments of principal and interest payments of $103,112 over a nine-month period. Interest accrues on this loan at an annual rate of 4.89%. Prepaid expenses as of December 31, 2020 included approximately $1,010,000, related to this insurance policy.

 

Loan and Security Agreement with K2 HealthVentures LLC

 

On July 28, 2020, the Company, with its subsidiary, Corbus Pharmaceuticals, Inc., as borrower, entered into a $50,000,000 secured Loan and Security Agreement with K2HV, an unrelated third party (the “Loan Agreement”) and received the first $20,000,000 tranche upon signing. The second tranche of $20,000,000 and the third tranche of $10,000,000 will be made available at the Company’s option subject to the achievement of certain clinical and regulatory milestones. The loan matures on August 1, 2024 and the Company is obligated to make interest only payments for the first 24 months and then interest and equal principal payments for the next 24 months. Interest accrues at a variable annual rate equal to the greater of (i) 8.5% and (ii) the rate of interest noted in The Wall Street Journal, Money Rates section, as the “Prime Rate” plus 5.25%, in each case, subject to a step-down of 25 basis points upon the funding of the second tranche. The interest rate used at December 31, 2020 was 8.5%. K2HV may elect to convert up to $5,000,000 of the outstanding loan into common stock at a conversion price of $9.40 per share.

 

In connection with the Loan Agreement, on July 28, 2020, the Company issued the Lenders a warrant to purchase up to 86,206 common shares (the “K2 Warrant”) at an exercise price of $6.96 (the “Warrant Price”). The K2 Warrant may be exercised either for cash or on a cashless “net exercise” basis and expires on July 28, 2030. The total proceeds attributed to the K2 Warrant was approximately $472,000 based on the relative fair value of the K2 Warrant as compared to the sum of the fair values of the K2 Warrant, prepayment feature, default feature, and debt. Total proceeds attributed to the prepayment and default features was approximately $546,000. The Company also incurred approximately $1,244,000 of debt issuance costs and is required to make a final payment equal to approximately $1,190,000. See Note 13 for more detail on assumptions used in the valuation of the K2 warrant and see Note 14 for more information on the assumptions used in valuation of the default and prepayment features.

 

The total principal amount of the loan under the Loan Agreement outstanding at December 31, 2020, including the $1,190,000 final payment discussed above, is $21,190,000.

 

Upon the occurrence of an Event of Default (as defined in the Loan Agreement), and during the continuance of an Event of Default, the applicable rate of interest, described above, will be increased by 5.00% per annum. The secured term loan maturity date is August 1, 2024, and the Loan Agreement includes both financial and non-financial covenants. The Company was in compliance with these covenants as of December 31, 2020. The obligations under the Loan Agreement are secured on a senior basis by a lien on substantially all of the assets of the Company and its subsidiaries. The subsidiaries of the Company are guarantors of the obligations of the Company under the Loan Agreement.

 

The total debt discount related to Lenders of approximately $2,262,000 is being charged to interest expense using the effective interest method over the term of the debt. At December 31, 2020, the fair value of our outstanding debt, which is considered Level 3 in the fair value hierarchy, is estimated to be approximately $18,029,005. Interest expense for the year ended December 31, 2020 was approximately $1,126,534. No interest expense or amortization of debt discount recorded in 2019 related to the Loan Agreement.

 

The net carrying amounts of the liability components consists of the following:

 

    December 31, 2020  
       
Principal   $ 20,000,000  
Less: debt discount     (2,262,388 )
Accretion of Debt Discount     291,393  
Net Carrying amount   $ 18,029,005  

 

The following table summarizes the future principal payments due under long-term debt; 

 

    December 31, 2020  
   

Principal Payments

and final payment

on Loan Agreement

 
       
2021   $ -  
2022     3,093,344  
2023     9,835,341  
2024     8,261,315  
Total   $ 21,190,000