The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Description of Business
scPharmaceuticals LLC was formed as a Limited Liability Company under the laws of the State of Delaware on February 19, 2013. On March 24, 2014, scPharmaceuticals LLC was converted to a Delaware corporation and changed its name to scPharmaceuticals Inc. (“the Company”). The Company is a pharmaceutical company focused on developing and commercializing products that have the potential to optimize the delivery of infused therapies, advance patient care and reduce healthcare costs. The Company’s proprietary platform is designed to enable the subcutaneous administration of therapies that have previously been limited to intravenous, or IV, delivery. The Company’s headquarters and primary place of business is Burlington, Massachusetts.
In January 2019, following a Type C meeting with the Food and Drug Administration, management implemented a restructuring plan to reduce operating costs and better align its workforce with the needs of its business. The Company recorded a charge of $1.4 million during the nine months ended September 30, 2019 related to the restructuring plan, which included severance, benefits and related costs. The Company recorded $966,000 and $426,000 in research and development expenses and general and administrative expenses related to the restructuring, respectively. The Company paid $1.3 million of these costs during the nine months ended September 30, 2019 and expects to pay $18,000 in the fourth quarter of 2019. The remainder of the restructuring charge consists of a non-cash charge of $70,000 related to the modification of stock options (Note 6). As of September 30, 2019, the Company had a balance of $18,000 in accrued expenses related to severance benefits, and related costs associated with the restructuring plan.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and have been prepared on a basis which assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiary, scPharmaceuticals Securities Corporation. Certain information and disclosures normally included in financial statements in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related notes for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 21, 2019. The Company has determined that it operates in one segment.
The accompanying condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations and comprehensive loss and stockholders’ equity for the three and nine months ended September 30, 2018 and 2019 and condensed consolidated statements of cash flows for the nine months ended September 30, 2018 and 2019 are unaudited. The unaudited condensed consolidated financial statements have been prepared on a basis consistent with that used to prepare the Company’s audited annual financial statements and include, in the opinion of management, adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements. The operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results expected for the full year ending December 31, 2019.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reported periods. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash consists of bank deposits, certificates of deposit and money market accounts with financial institutions. Cash equivalents are carried at cost which approximates fair value due to their short-term nature and which the Company believes do not have a material exposure to credit risk. The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. The Company’s cash and cash equivalent accounts, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
5
As of September 30, 2019, the Company classified $182,000 as restricted cash related to a letter of credit issued as a security deposit in connection with the Company’s lease of its corporate office facilities (Note 10). Cash, cash equivalents and restricted cash consist of the following:
|
December 31,
2018
|
|
|
September 30,
2019
|
|
Cash and cash equivalents
|
$
|
89,478
|
|
|
$
|
83,562
|
|
Restricted cash
|
|
182
|
|
|
|
182
|
|
Cash, cash equivalents and restricted cash
|
$
|
89,660
|
|
|
$
|
83,744
|
|
Derivative Liability
In September 2019, the Company entered into a new loan and security agreement with Solar Capital Ltd. and Silicon Valley Bank (the “2019 Loan Agreement”) to refinance the Company’s 2017 Loan Agreement (Note 8). In connection with the 2019 Loan Agreement, the Company also entered into an exit agreement with Solar Capital Ltd. and Silicon Valley Bank (the “Exit Agreement”). The Exit Agreement provides for a payment to the lenders in the amount of 4% of the loan commitment, or $800,000, upon the occurrence of an exit event, as defined in the Exit Agreement. The Company classifies the exit payment obligation as a liability on its balance sheet because it represents a contingent payment obligation that is not clearly and closely related to the host instrument and meets the definition of a derivative. The derivative liability was initially recorded at fair value upon execution of the 2019 Loan Agreement and is subsequently remeasured to fair value at each reporting date. Changes in the fair value of the derivative liability are recognized as a component of other income (expense), net in the statement of operations and comprehensive loss. Changes in the fair value of the derivative liability will continue to be recognized until an exit event occurs.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) lease assets, current portion of lease obligations, and long term lease obligations on the Company’s balance sheets.
ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease. Operating ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The ROU lease asset excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Income Taxes
The Company accounts for income taxes in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes. Deferred tax assets and liabilities are recorded to reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured under enacted tax laws. A valuation allowance is required to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized.
The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions. The tax benefits recorded are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is “more likely than not” to be realized following resolution of any uncertainty related to the tax benefit, assuming that the matter in question will be raised by the tax authorities. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense. At September 30, 2019, the Company had no such accruals.
Recently Issued Accounting Standards
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”). ASU 2018-13 modifies fair value disclosure requirements, specifically around level transfers and valuation of Level 3 assets and liabilities. ASU 2018-13 is effective for financial statements issued for annual and interim periods beginning after December 15, 2019 for all entities. Early adoption of all or part of ASU No. 2018-13 is permitted. The Company does not expect ASU 2018-13 to have a material impact on its financial statements.
6
3. Net Loss per Share
Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share of common stock (in thousands, except share and per share data):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
Net loss and comprehensive loss
|
|
$
|
(5,761
|
)
|
|
$
|
(6,207
|
)
|
|
$
|
(24,343
|
)
|
|
$
|
(22,182
|
)
|
Weighted-average shares used in computing net loss per share
|
|
|
18,569,289
|
|
|
|
18,584,327
|
|
|
|
18,551,690
|
|
|
|
18,580,192
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.31
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(1.31
|
)
|
|
$
|
(1.19
|
)
|
The Company’s potentially dilutive securities, which include stock options and unvested restricted stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
Stock options to purchase common stock
|
|
|
1,746,287
|
|
|
|
1,424,018
|
|
|
|
1,746,287
|
|
|
|
1,424,018
|
|
Unvested restricted stock
|
|
|
—
|
|
|
|
160,900
|
|
|
|
—
|
|
|
|
160,900
|
|
Total
|
|
|
1,746,287
|
|
|
|
1,584,918
|
|
|
|
1,746,287
|
|
|
|
1,584,918
|
|
4. Property and Equipment
Purchased property and equipment consist of the following (dollars in thousands):
|
|
ESTIMATED
USEFUL LIFE
|
|
December 31,
2018
|
|
|
September 30,
2019
|
|
Office equipment
|
|
5 years
|
|
$
|
10
|
|
|
$
|
10
|
|
Office furniture
|
|
7 years
|
|
|
116
|
|
|
|
116
|
|
Computer equipment
|
|
3 years
|
|
|
8
|
|
|
|
8
|
|
Leasehold improvements
|
|
Life of lease
|
|
|
95
|
|
|
|
95
|
|
|
|
|
|
|
229
|
|
|
|
229
|
|
Less: Accumulated depreciation
|
|
|
|
|
(65
|
)
|
|
|
(93
|
)
|
Property and equipment, net
|
|
|
|
$
|
164
|
|
|
$
|
136
|
|
Depreciation expense for the three months ended September 30, 2018 and September 30, 2019 was $10,000 and $10,000, respectively.
Depreciation expense for the nine months ended September 30, 2018 and September 30, 2019 was $29,000 and $29,000, respectively.
Leased property and equipment consist of the following (dollars in thousands):
|
|
ESTIMATED
USEFUL LIFE
|
|
December 31,
2018
|
|
|
September 30,
2019
|
|
Right-of-use lease assets - operating
|
|
Lease term
|
|
$
|
2,024
|
|
|
$
|
2,024
|
|
Less: Accumulated amortization
|
|
|
|
|
(518
|
)
|
|
|
(760
|
)
|
Right-of-use lease assets - operating, net
|
|
|
|
$
|
1,506
|
|
|
$
|
1,264
|
|
7
Amortization expense for the three months ended September 30, 2018 and September 30, 2019 was $74,000 and $82,000, respectively.
Amortization expense for the nine months ended September 30, 2018 and September 30, 2019 was $218,000 and $241,000, respectively.
5. Accrued Expenses
Accrued expenses consist of (in thousands):
|
|
December 31,
2018
|
|
|
September 30,
2019
|
|
Contract research and development
|
|
$
|
1,492
|
|
|
$
|
4,146
|
|
Unrecoverable component costs
|
|
|
—
|
|
|
|
1,668
|
|
Employee compensation and related costs
|
|
|
727
|
|
|
|
923
|
|
Consulting and professional service fees
|
|
|
356
|
|
|
|
338
|
|
State taxes
|
|
|
165
|
|
|
|
36
|
|
Severance costs
|
|
|
133
|
|
|
|
18
|
|
Other
|
|
|
49
|
|
|
|
40
|
|
Total accrued expenses
|
|
$
|
2,922
|
|
|
$
|
7,169
|
|
6. Stock-Based Compensation
Stock Options
The Company’s 2017 Stock Option and Incentive Plan (the “2017 Stock Plan”) became effective in November 2017, upon the closing of the Company’s initial public offering and will expire in October 2027. Under the 2017 Stock Plan, the Company may grant incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units (“RSUs”) and other stock-based awards. The Company’s 2014 Stock Incentive Plan (the “2014 Stock Plan”) was terminated in November 2017 upon the completion of the Company’s initial public offering and no further options were granted under the 2014 Stock Plan. At September 30, 2019, there were 830,962 options outstanding under the 2014 Plan.
As of September 30, 2019, there were 3,166,868 shares of the Company’s common stock authorized for issuance under the 2017 Stock Plan, including 252,707 options that have been forfeited from the 2014 Plan.
At September 30, 2019, there were 2,412,912 options available for issuance under the 2017 Stock Plan, 593,056 options outstanding and 160,900 restricted stock units outstanding. Awards granted under the 2017 Plan have a term of ten years. Vesting of awards under the 2017 Stock Plan is determined by the board of directors, but is generally over one to four-year terms.
The fair value of options at date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions:
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2019
|
|
Risk-free interest rate
|
|
2.42%-2.86%
|
|
|
1.61%-2.51%
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
Expected life
|
|
5.5-7.0 years
|
|
|
5.5-6.1 years
|
|
Expected volatility
|
|
76%-86%
|
|
|
72%-74%
|
|
Weighted-average grant date fair value
|
|
$
|
7.57
|
|
|
$
|
2.17
|
|
8
The following table summarizes information about stock option activity during the nine months ended September 30, 2019 (in thousands, except share and per share data):
|
|
NUMBER OF
SHARES
|
|
|
WEIGHTED-
AVERAGE
EXERCISE
PRICE
|
|
|
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
TERM
|
|
AGGREGATE
INTRINSIC
VALUE
|
|
Outstanding, December 31, 2018
|
|
|
1,588,306
|
|
|
$
|
6.75
|
|
|
|
|
|
|
|
Granted
|
|
|
145,022
|
|
|
|
3.34
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,141
|
)
|
|
|
2.62
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(289,169
|
)
|
|
|
8.54
|
|
|
|
|
|
|
|
Outstanding, September 30, 2019
|
|
|
1,424,018
|
|
|
$
|
6.09
|
|
|
7.84
|
|
$
|
1,842
|
|
Vested and exercisable, September 30, 2019
|
|
|
854,952
|
|
|
$
|
6.20
|
|
|
7.45
|
|
$
|
1,024
|
|
Vested and expected to vest, September 30, 2019
|
|
|
1,308,083
|
|
|
$
|
6.15
|
|
|
7.76
|
|
$
|
1,661
|
|
The following table summarizes information about RSU activity during the nine months ended September 30, 2019:
|
|
RSUs
|
|
|
AVERAGE GRANT DATE FAIR VALUE (IN DOLLARS PER SHARE)
|
|
Outstanding, December 31, 2018
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
160,900
|
|
|
|
1.43
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
RSUs outstanding at September 30, 2019
|
|
|
160,900
|
|
|
$
|
1.43
|
|
Unrecognized compensation expense related to unvested options as of September 30, 2019 was $1.8 million and will be recognized over the remaining vesting periods of the underlying awards. The weighted-average period over which such compensation is expected to be recognized is 1.9 years. Unrecognized compensation expense related to unvested RSUs as of September 30, 2019 was $116,000 and will be recognized over the remaining vesting periods of the underlying awards. The weighted-average period over which such compensation is expected to be recognized is 1.3 years.
During the nine months ended September 30, 2019, as part of the restructuring plan (Note 1), the Company extended the exercise period to one year for 55,677 vested options and for two years for 85,432 vested options of those affected, with a weighted average exercise price of $8.41, and recorded incremental stock-based compensation expense of $70,000.
The Company recorded stock-based compensation expense in the following expense categories of its accompanying condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2018 and 2019 (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
Research and development
|
|
$
|
154
|
|
|
$
|
75
|
|
|
$
|
394
|
|
|
$
|
215
|
|
General and administrative
|
|
|
409
|
|
|
|
258
|
|
|
|
1,288
|
|
|
|
799
|
|
Total
|
|
$
|
563
|
|
|
$
|
333
|
|
|
$
|
1,682
|
|
|
$
|
1,014
|
|
9
7. Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic, Fair Value Measurements and Disclosures (“ASC 820”), provides a fair value hierarchy, which classifies fair value measurements based on the inputs used in measuring fair value. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and observable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The carrying values of the Company’s cash and restricted cash, prepaid expenses, value added tax, or VAT, receivable and deposits approximate their fair values due to their short-term nature. The carrying value of the Company’s loan payable was considered a reasonable estimate of fair value because the Company’s interest rate is near current market rates for instruments with similar characteristics.
The following table summarizes the Company’s assets and liabilities as of September 30, 2019 that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):
|
|
TOTAL
|
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
62,549
|
|
|
$
|
62,549
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
62,549
|
|
|
$
|
62,549
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
766
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
766
|
|
Total
|
|
$
|
766
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
766
|
|
The fair value of the derivative liability recognized in connection with the Company’s 2019 Loan Agreement (Note 8) was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of the derivative liability was determined using the probability-weighted expected return method (“PWERM”), which considered as inputs the timing and probability of occurrence of an exit event, the amount of the payment, and the risk-free discount rate reflecting the expected risk profile for each of the potential settlement scenarios.
8. Term Loan
In May 2017, the Company entered into a loan and security agreement (the “2017 Loan Agreement”), with Solar Capital Ltd. and Silicon Valley Bank for $10.0 million. The 2017 Loan Agreement had a maturity date of May 1, 2021. Debt issuance costs for the 2017 Loan Agreement were to be amortized to interest expense over the remaining term of the 2017 Loan Agreement using the effective-interest method.
The interest rate under the 2017 Loan Agreement was LIBOR plus 8.45%. The initial interest-only period was until November 30, 2018, followed by a 30-month principal and interest period. The First Amendment to the Loan and Security Agreement, entered into in November 2018, extended the interest-only period through May 2019. The Third Amendment to the Loan and Security Agreement, entered into in May 2019, extended the interest-only period through August 2019, with the ability to further extend the interest only period to November 2019. Pursuant to the 2017 Loan Agreement, the Company provided a first priority security interest in all existing and after-acquired assets, excluding intellectual property, owned by the Company.
10
For the three and nine months ended September 30, 2019, the Company recorded $53,000 and $169,000, respectively, related to the amortization of debt discount associated with the 2017 Loan Agreement. For the three and nine months ended September 30, 2018 the Company recorded $68,000 and $212,000, respectively, related to the amortization of debt discount associated with the 2017 Loan Agreement.
The 2017 Loan Agreement allowed the Company to voluntarily prepay all (but not less than all) of the outstanding principal at any time. A prepayment premium of 1% would be assessed on the outstanding principal. A final payment fee of $250,000 was due upon the earlier to occur of the maturity date or prepayment of such borrowings. The final payment fee was increased to $325,000 in the First Amendment to the 2017 Loan Agreement. For the three and nine months ended September 30, 2019, the Company recorded $23,000 and $80,000, respectively, related to the amortization of the final payment fee associated with the 2017 Loan Agreement. For the three and nine months ended September 30, 2018, the Company recorded $22,000 and $66,000, respectively, related to the amortization of the final payment fee associated with the 2017 Loan Agreement.
In September 2019, the Company paid off the outstanding balance of the 2017 Loan Agreement, including accrued interest, and entered into the 2019 Loan Agreement for $20.0 million. The payoff was treated as a modification of the debt. The 2019 Loan Agreement has a maturity date of September 17, 2023. Debt issuance costs for the 2019 Loan Agreement will be amortized to interest expense over the remaining term of the 2019 Loan Agreement using the effective-interest method.
The interest rate under the 2019 Loan Agreement is the higher of (i) LIBOR plus 7.95% or (ii) 10.18% and there is an interest-only period until September 30, 2021. The rate at September 30, 2019 was 10.18%. Pursuant to the 2019 Loan Agreement, the Company provided a first priority security interest in all existing and after-acquired assets owned by the Company, including all intellectual property and subject to certain exceptions.
The Company entered into the Exit Agreement in connection with the 2019 Loan Agreement which provides for an aggregate payment of 4% of the loan commitment, or $800,000, to the lenders upon the occurrence of an exit event. The Company concluded that the exit payment obligation met the definition of a derivative that was required to be accounted for as a separate unit of accounting. The Company recorded the issuance-date fair value of the derivative liability of $763,000 as a debt discount and as a derivative liability in the Company’s balance sheet.
As of September 30, 2019, unpaid borrowings under the 2019 Loan Agreement totaled $20.0 million. For the three and nine months ended September 30, 2019, the Company recorded $5,000 related to the amortization of debt discount associated with the 2019 Loan Agreement.
The 2019 Loan Agreement allows the Company to voluntarily prepay all (but not less than all) of the outstanding principal at any time. A prepayment premium of 3% or 1% through the one-year anniversary and the two-year anniversary, respectively, would be assessed on the outstanding principal. After the two-year anniversary, a 0.5% prepayment premium would be assessed on the outstanding principal. A final payment fee of $500,000 is due upon the earlier to occur of the maturity date or prepayment of such borrowings. For the three and nine months ended September 30, 2019, the Company recorded $6,000 related to the amortization of the final payment fee associated with the 2019 Loan Agreement.
In an event of default under the 2019 Loan Agreement, the interest rate will be increased by 5% and the balance under the loan may become immediately due and payable at the option of the lenders.
The 2019 Loan Agreement includes restrictions on, among other things, the Company’s ability to incur additional indebtedness, change the name or location of the Company’s business, merge with or acquire other entities, pay dividends or make other distributions to holders of its capital stock, make certain investments, engage in transactions with affiliates, create liens, sell assets or pay subordinated debt.
Total term loan and unamortized debt discount balances are as follows (in thousands):
|
|
September 30,
2019
|
|
Face value
|
|
$
|
20,000
|
|
Less: discount
|
|
|
(1,158
|
)
|
Total
|
|
$
|
18,842
|
|
Less: current portion
|
|
|
—
|
|
Total
|
|
$
|
18,842
|
|
11
As of September 30, 2019, future principal payments due under the 2019 Loan Agreement are as follows (in thousands):
Year ended:
|
|
|
|
|
December 31, 2021
|
|
$
|
2,500
|
|
December 31, 2022
|
|
|
10,000
|
|
December 31, 2023
|
|
|
7,500
|
|
Total
|
|
$
|
20,000
|
|
9. Stockholders’ Equity
At-the-Market Issuance Sales Agreement
On August 23, 2019, the Company entered into an Open Market Sale AgreementSM (“ATM Agreement”), with Jefferies LLC (“Jefferies”) with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share (the “ATM Shares”), having an aggregate offering price of up to $15.0 million through Jefferies as its sales agent. The offering and sale of ATM Shares by the Company under the ATM Agreement will be and is being made pursuant to the Company’s shelf registration statement on Form S-3, which was declared effective by the SEC on February 11, 2019.
Subject to the terms and conditions of the ATM Agreement, Jefferies will use its commercially reasonable efforts to sell the ATM Shares, based upon instructions from the Company, consistent with its normal trading and sales practices. The Company will pay Jefferies a commission equal to 3.0% of the gross sales proceeds of such ATM Shares.
During the three months ended September 30, 2019, the Company sold a total of 40,300 ATM Shares under the ATM Agreement, in the open market, at an average gross selling price of $6.63 per share for net proceeds of $259,000.
During the three months ended September 30, 2019, the Company incurred $189,000 of legal, accounting and other costs to establish and activate the ATM program. The Company charged $3,000 of these costs against additional paid in capital upon issuance of shares during the three months ended September 30,2019.
10. Commitments and Contingencies
Operating Leases
The Company leases office facilities and equipment under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2022 and do not include renewal options.
Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The leases generally also include real estate taxes and common area maintenance (“CAM”) charges in the annual rental payments.
Pursuant to the terms of its lease agreement for the Company’s headquarters, the Company obtained a letter of credit in the amount of approximately $182,000 as security on the lease obligation. The letter of credit is listed as restricted cash on the Company’s consolidated balance sheets.
Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of September 30, 2019 (in thousands):
Year ended:
|
|
|
|
|
December 31, 2019
|
|
$
|
131
|
|
December 31, 2020
|
|
|
528
|
|
December 31, 2021
|
|
|
537
|
|
December 31, 2022
|
|
|
496
|
|
Total minimum lease payments
|
|
|
1,692
|
|
Less imputed interest
|
|
|
(247
|
)
|
Total
|
|
$
|
1,445
|
|
12
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2019
|
|
Lease cost:
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
348
|
|
|
$
|
368
|
|
Short-term lease cost
|
|
|
6
|
|
|
|
6
|
|
Sublease income
|
|
|
(26
|
)
|
|
|
(38
|
)
|
Total lease cost
|
|
$
|
328
|
|
|
$
|
336
|
|
Other information
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
302
|
|
|
$
|
384
|
|
Operating cash flows from operating leases
|
|
$
|
55
|
|
|
$
|
(21
|
)
|
Weighted-average remaining lease term - operating leases
|
|
4.2 years
|
|
|
3.2 years
|
|
Weighted-average discount rate - operating leases
|
|
|
10.1
|
%
|
|
|
10.1
|
%
|
In February 2018, the Company signed a sublease agreement for its facility located in Lexington, Massachusetts. The lease commenced on April 1, 2018 and has an initial term of three years with an extension term through December 2022.
Research and Development Agreements
As part of the Company’s research and development efforts, the Company enters into research and development agreements with unrelated companies. These agreements contain varying terms and provisions which include fees and milestones to be paid by the Company. Some of these agreements also contain provisions which require the Company to make payments for exclusivity in the development of products in the area of loop diuretics.
Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies.
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Due to the discontinuation of use of the sc2Wear Infusor, the Company has received notice of termination costs related to the program. The Company has accrued all costs for which it either believes it is contractually liable or for which the Company has negotiated settlement agreements in good faith. However, certain of the Company’s vendors have claimed or billed for additional costs for which the Company believes it is not obligated. At this time, the Company estimates that additional termination costs, if any, will be immaterial to the Company’s financial statements.
13