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Notes Payable
 3 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Notes Payable

 

7.Notes Payable

 

On November 30, 2021, (the “Closing Date”) the Company entered into a Loan and Security Agreement and the Supplement to the Loan and Security Agreement and Promissory Notes (together, the “Loan Agreement”) with Avenue Venture Opportunities Fund, L.P. (“AVOPI” and Avenue Venture Opportunities Fund II, L.P. (“AVOPII”) together (“Avenue”) for growth capital loans in an aggregate commitment amount of up to $20 million (the “Loan”). On the closing date, $15 million funded (“Tranche 1”). The Loan had the additional capacity of up to $5 million available to the Company on or prior to September 15, 2022, subject to the Company’s achievement of certain milestones with respect to certain of its ongoing clinical trials which were not achieved. The Loan bears interest at an annual rate equal to the greater of (a) the sum of 7.00% plus the prime rate as reported in The Wall Street Journal and (b) 10.75%. The prime rate at September 30, 2022 was 5.5%. The Loan is secured by a lien upon and security interest in all of the Company’s assets, including intellectual property, subject to agreed exceptions. The maturity date of the Loan is December 1, 2024.

 

The Loan Agreement requires monthly interest-only payments during the first eighteen months of the term of the Loan,. Following the interest-only period, the Company will make equal monthly payments of principal, plus accrued interest, until the Loan’s maturity date when all remaining principal and accrued interest is due. If the Company prepays the Loan, it will be required to pay (a) a prepayment fee in an amount equal to 3.0% of the principal amount of the Loan that is prepaid during the interest-only period; and (b) a prepayment fee in an amount equal to 1.0% of the principal amount of the Loan that is prepaid after the interest-only period. At the Loan’s maturity date, or on the date of the prepayment of the Loan, a final payment equal to 4.25% of the sum of (a) the Loan commitment amount under Tranche 1.

 

The Loan Agreement includes a conversion option to convert up to $5.0 million of the principal amount of the Loan outstanding at the option of the Lenders, into shares of the Company’s Class A common stock at a conversion price of $6.98 per share.

 

On the Closing Date, the Company issued to the Lenders warrants to purchase 361,002 shares of Class A common stock of the Company (the “Warrants”) at an exercise price per share equal to $5.82, the stock purchase price. The warrants are exercisable until November 30, 2026, the expiration date.

 

The amount of the carrying value of the notes payable were determined by allocating portions of the outstanding principal of the notes to the fair value of the warrants of approximately $1.4 million and the fair value of the embedded conversion option of approximately $2.2 million. Accordingly, the total amount of unearned discount of approximately $3.7 million, the total direct financing cost of approximately $390,000 and premium of $850,000 are recognized on an effective interest method over term of the Loan. The adjusted effective interest rate is 25%. The total interest expense of approximately $1.1 million for the three months ended September 30, 2022; was recognized in the accompanying statements of operations and included the interest only payments totaling approximately $470,000, the amortization of financing costs of approximately $43,000, unearned discount of approximately $400,000 and the accretion of loan premium totaled of approximately $144,000. As of September 30, 2022, the outstanding principal balance of $15 million would be paid in 18 monthly equal installments beginning July 1, 2023; a total of $10.0 million and $5.0 million in the fiscal years ended June 30, 2024 and 2025 respectively.

 

The following is a summary of the Notes Payable as of September 30, 2022 and June 30, 2022:

 

         
   September 30,
2022		   June 30,
2022		 
         
Notes Payable  $15,000,000   $15,000,000 
Less debt financing costs   (248,236)   (290,790)
Less unearned discount   (2,335,441)   (2,735,802)
Plus accretion of loan premium   309,091    165,278 
Notes Payable, net of financing costs, unearned premiums and discount  $12,725,414   $12,138,686 

 

Estimated future amortization expense and accretion of premium is as follows:

 

               
    Unearned Discount     Debt Financing Costs    Loan accretion Premium 
                
Year ending June 30, 2023 (Remaining 9 months)  $1,201,084   $127,665   $278,182 
2024   1,023,145    108,751    236,970 
2025   111,212    11,820    25,757 
Total  $2,335,441   $248,236   $540,909