Business Context and Reporting Period
Myomo, Inc. (MYO), a Delaware corporation, filed this Form 8-K on October 22, 2019. The filing reports the entry into a material definitive agreement involving a secured debt financing transaction.
Key Financial Metrics
- Debt Instrument: Secured Promissory Note with an original principal amount of $3,300,000.
- Net Proceeds: $3,000,000 paid by the lender, less $20,000 in transaction expenses.
- Interest Rate: 10% per annum (increases to 18% upon an event of default).
- Maturity: 18 months from issuance.
- Collateral: All company assets excluding intellectual property.
- Transaction Costs: 6% commission paid to placement agent Ascendiant Capital Markets, LLC.
Material Changes and Terms
The company entered into a Note Purchase Agreement with Iliad Research and Trading, L.P. Key terms include:
- Redemption: The lender may redeem portions of the note starting six months after issuance, capped at $300,000 per month.
- Prepayment Penalty: A 15% penalty applies to any prepayment of the outstanding balance.
- Equity Proceeds Sweep: The company must pay 50% of gross proceeds from future common stock sales (excluding at-market sales agreements) directly to reduce the note balance.
- Covenants: The company is restricted from entering future debt financings without lender consent and cannot pledge intellectual property to other parties while the note is outstanding.
- Default Consequences: Upon default, the outstanding balance may increase to 125% of the principal, and interest rates rise to 18%.
Guidance, Risks, and Contingencies
The filing does not provide forward-looking guidance or management commentary regarding future revenue or operational outlook. Significant risks identified include:
- Liquidity Constraints: Mandatory redemption payments and the equity proceeds sweep limit future capital raising flexibility.
- Default Risk: Events of default trigger immediate acceleration of debt, increased interest rates, and a penalty increase to the principal balance.
- Asset Encumbrance: Most company assets are pledged as security, limiting future borrowing capacity against those assets.
Investor Verification Checklist
- Verify the company's current cash position to assess ability to meet the $300,000 monthly redemption cap starting in April 2020.
- Review the impact of the 50% equity proceeds sweep on future fundraising efforts and dilution.
- Confirm the status of the company's intellectual property, which remains unpledged but is excluded from the security agreement.
- Monitor for any events of default that could trigger the 125% balance increase and 18% interest rate.