Form 10-Q - Quarterly report [Sections 13 or 15(d)]
2024年11月12日 - 9:31PM
Edgar (US Regulatory)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2024 |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ |
Commission File Number: 001-38546
NEURONETICS, INC.
(Exact name of registrant as specified in its charter)
| |
Delaware | 33-1051425 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
| |
3222 Phoenixville Pike, Malvern, PA | 19355 |
(Address of principal executive offices) | (Zip Code) |
(610) 640-4202 | |
(Registrant’s telephone number, including area code) | |
Not applicable.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | | Trading
Symbol (s) | | Name on each exchange on which registered |
Common Stock ($0.01 par value) | | STIM | | The Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 30,347,504 shares of the registrant’s common stock outstanding as of November 7, 2024.
NEURONETICS, INC.
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
NEURONETICS, INC.
Balance Sheets
(Unaudited; In thousands, except per share data)
| | | | | | | |
| | September 30, | | December 31, | |
| | 2024 | | 2023 | |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 20,867 | | $ | 59,677 | |
Accounts receivable, net | | | 16,825 | | | 15,782 | |
Inventory | | | 4,960 | | | 8,093 | |
Current portion of net investments in sales-type leases | | | 572 | | | 905 | |
Current portion of prepaid commission expense | | | 2,921 | | | 2,514 | |
Current portion of notes receivable | | | 2,477 | | | 2,056 | |
Prepaid expenses and other current assets | | | 4,837 | | | 4,766 | |
Total current assets | | | 53,459 | | | 93,793 | |
Property and equipment, net | | | 1,639 | | | 2,009 | |
Operating lease right-of-use assets | | | 2,328 | | | 2,773 | |
Net investments in sales-type leases | | | 140 | | | 661 | |
Prepaid commission expense | | | 8,733 | | | 8,370 | |
Long-term notes receivable | | | 2,878 | | | 3,795 | |
Other assets | | | 4,940 | | | 4,430 | |
Total assets | | $ | 74,117 | | $ | 115,831 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 3,295 | | $ | 4,752 | |
Accrued expenses | | | 11,429 | | | 12,595 | |
Deferred revenue | | | 1,311 | | | 1,620 | |
Current portion of operating lease liabilities | | | 862 | | | 845 | |
Total current liabilities | | | 16,897 | | | 19,812 | |
Long-term debt, net | | | 46,002 | | | 59,283 | |
Deferred revenue | | | 4 | | | 200 | |
Operating lease liabilities | | | 1,833 | | | 2,346 | |
Total liabilities | | | 64,736 | | | 81,641 | |
Commitments and contingencies (Note 18) | | | — | | | — | |
Stockholders’ equity: | | | | | | | |
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or outstanding on September 30, 2024 and December 31, 2023 | | | — | | | — | |
Common stock, $0.01 par value: 200,000 shares authorized; 30,317 and 29,092 shares issued and outstanding on September 30, 2024 and December 31, 2023, respectively | | | 303 | | | 291 | |
Additional paid-in capital | | | 416,205 | | | 409,980 | |
Accumulated deficit | | | (407,127) | | | (376,081) | |
Total Stockholders’ equity | | | 9,381 | | | 34,190 | |
Total liabilities and Stockholders’ equity | | $ | 74,117 | | $ | 115,831 | |
The accompanying notes are an integral part of these unaudited interim financial statements.
NEURONETICS, INC.
Statements of Operations
(Unaudited; In thousands, except per share data)
| | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2024 | | 2023 | | 2024 | | 2023 | |
Revenues | | $ | 18,530 | | $ | 17,884 | | $ | 52,397 | | $ | 51,034 | |
Cost of revenues | | | 4,529 | | | 6,120 | | | 13,129 | | | 15,100 | |
Gross profit | | | 14,001 | | | 11,764 | | | 39,268 | | | 35,934 | |
Operating expenses: | | | | | | | | | | | | | |
Sales and marketing | | | 11,877 | | | 12,141 | | | 35,820 | | | 35,602 | |
General and administrative | | | 7,436 | | | 6,339 | | | 19,540 | | | 19,151 | |
Research and development | | | 2,416 | | | 2,155 | | | 6,999 | | | 7,308 | |
Total operating expenses | | | 21,729 | | | 20,635 | | | 62,359 | | | 62,061 | |
Loss from operations | | | (7,728) | | | (8,871) | | | (23,091) | | | (26,127) | |
Other (income) expense: | | | | | | | | | | | | | |
Interest expense | | | 1,725 | | | 1,184 | | | 5,529 | | | 3,580 | |
Loss on extinguishment of debt | | | 4,427 | | | — | | | 4,427 | | | — | |
Other income, net | | | (539) | | | (664) | | | (2,001) | | | (4,895) | |
Net loss | | $ | (13,341) | | $ | (9,391) | | $ | (31,046) | | $ | (24,812) | |
Net loss per share of common stock outstanding, basic and diluted | | $ | (0.44) | | $ | (0.33) | | $ | (1.04) | | $ | () | |
Weighted average common shares outstanding, basic and diluted | | | 30,267 | | | 28,876 | | | 29,931 | | | 28,505 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these unaudited interim financial statements.
NEURONETICS, INC.
Statements of Changes in Stockholders’ Equity
(Unaudited; In thousands)
| | | | | | | | | | | | | | |
| | | | | | Additional | | | | Total |
| | Common Stock | | Paid-in | | Accumulated | | Stockholders’ |
| | Shares | | Amount | | Capital | | Deficit | | Equity |
Balance at December 31, 2022 | | 27,268 | | $ | 273 | | $ | 402,679 | | $ | (345,892) | | $ | 57,060 |
Share-based awards and options exercises | | 1,197 | | | 12 | | | (12) | | | — | | | — |
Share-based compensation expense | | — | | | — | | | 1,805 | | | — | | | 1,805 |
Net loss | | — | | | — | | | — | | | (10,520) | | | (10,520) |
Balance at March 31, 2023 | | 28,465 | | $ | 285 | | $ | 404,472 | | $ | (356,412) | | $ | 48,345 |
Share-based awards and options exercises | | 348 | | | 3 | | | (3) | | | — | | | — |
Share-based compensation expense | | — | | | — | | | 2,033 | | | — | | | 2,033 |
Net loss | | — | | | — | | | — | | | (4,901) | | | (4,901) |
Balance at June 30, 2023 | | 28,813 | | $ | 288 | | $ | 406,502 | | $ | (361,313) | | $ | 45,477 |
Share-based awards and options exercises | | 89 | | | 1 | | | (1) | | | — | | | — |
Share-based compensation expense | | — | | | — | | | 1,855 | | | — | | | 1,855 |
Net loss | | — | | | — | | | — | | | (9,391) | | | (9,391) |
Balance at September 30, 2023 | | 28,902 | | $ | 289 | | $ | 408,356 | | $ | (370,704) | | $ | 37,941 |
| | | | | | | | | | | | | | |
Balance at December 31, 2023 | | 29,092 | | $ | 291 | | $ | 409,980 | | $ | (376,081) | | $ | 34,190 |
Share-based awards and options exercises | | 883 | | | 9 | | | (9) | | | — | | | — |
Share-based compensation expense | | — | | | — | | | 1,338 | | | — | | | 1,338 |
Net loss | | — | | | — | | | — | | | (7,873) | | | (7,873) |
Balance at March 31, 2024 | | 29,975 | | $ | 300 | | $ | 411,309 | | $ | (383,954) | | $ | 27,655 |
Share-based awards and options exercises | | 161 | | | 1 | | | (1) | | | — | | | — |
Share-based compensation expense | | — | | | — | | | 1,563 | | | — | | | 1,563 |
Net loss | | — | | | — | | | — | | | (9,832) | | | (9,832) |
Balance at June 30, 2024 | | 30,136 | | $ | 301 | | $ | 412,871 | | $ | (393,786) | | $ | 19,386 |
Share-based awards and options exercises | | 181 | | | 2 | | | (2) | | | — | | | — |
Issuance of warrants, net of issuance costs of $35 | | — | | | — | | | 1,917 | | | — | | | 1,917 |
Share-based compensation expense | | — | | | — | | | 1,419 | | | — | | | 1,419 |
Net loss | | — | | | — | | | — | | | (13,341) | | | (13,341) |
Balance at September 30, 2024 | | 30,317 | | $ | 303 | | $ | 416,205 | | $ | (407,127) | | $ | 9,381 |
The accompanying notes are an integral part of these unaudited interim financial statements.
NEURONETICS, INC.
Statements of Cash Flows
(Unaudited; In thousands)
| | | | | | | |
| | Nine Months Ended September 30, | |
| | 2024 | | 2023 | |
Cash flows from Operating activities: | | | | | | | |
Net loss | | $ | (31,046) | | $ | (24,812) | |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | |
Depreciation and amortization | | | 1,627 | | | 1,503 | |
Allowance for credit losses | | | 1,947 | | | 369 | |
Inventory impairment | | | 346 | | | 1,905 | |
Share-based compensation | | | 4,320 | | | 5,693 | |
Non-cash interest expense | | | 580 | | | 460 | |
Loss on extinguishment of debt | | | 4,427 | | | — | |
Changes in certain assets and liabilities: | | | | | | | |
Accounts receivable, net | | | (3,834) | | | (7,933) | |
Inventory | | | 2,718 | | | (2,742) | |
Net investments in sales-type leases | | | 854 | | | 1,092 | |
Prepaid commission expense | | | (770) | | | (804) | |
Prepaid expenses and other assets | | | (374) | | | (3,338) | |
Accounts payable | | | (1,524) | | | 54 | |
Accrued expenses | | | (1,166) | | | (4,801) | |
Deferred revenue | | | (506) | | | (817) | |
Net Cash used in Operating activities | | | (22,401) | | | (34,171) | |
| | | | | | | |
Cash flows from Investing activities: | | | | | | | |
Purchases of property and equipment and capitalized software | | | (1,377) | | | (1,490) | |
Repayment of notes receivable | | | 1,340 | | | 731 | |
Net Cash used in Investing activities | | | (37) | | | (759) | |
| | | | | | | |
Cash flows from Financing activities: | | | | | | | |
Payments of debt issuance costs | | | (2,188) | | | (863) | |
Proceeds from issuance of long-term debt | | | 48,084 | | | 2,500 | |
Proceeds from issuance of warrants | | | 1,916 | | | — | |
Repayment of long-term debt | | | (60,000) | | | (1,200) | |
Payment for debt extinguishment cost | | | (4,185) | | | — | |
Proceeds from exercises of stock options | | | 1 | | | — | |
Net Cash (used in) provided by Financing activities | | | (16,372) | | | 437 | |
Net decrease in Cash and Cash equivalents | | | (38,810) | | | (34,493) | |
Cash and Cash equivalents, Beginning of Period | | | 59,677 | | | 70,340 | |
Cash and Cash equivalents, End of Period | | $ | 20,867 | | $ | 35,847 | |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | |
Cash paid for interest | | $ | 4,948 | | $ | 3,120 | |
Transfer of inventory to property and equipment | | | 92 | | | — | |
Supplemental disclosure of non-cash investing and financing activities: | | | | | | | |
Purchases of property and equipment and capitalized software in accounts payable and accrued expenses | | $ | 67 | | $ | 335 | |
Reduction of accounts receivable in current and long-term notes receivable | | $ | 606 | | $ | 6,330 | |
The accompanying notes are an integral part of these unaudited interim financial statements.
1. DESCRIPTION OF BUSINESS
Neuronetics, Inc. (the “Company”) is a commercial stage medical technology company focused on designing, developing and marketing products that improve the quality of life for patients who suffer from neurohealth disorders. The Company’s first commercial product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment that uses transcranial magnetic stimulation (“TMS”) to create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific areas of the brain associated with mood. The NeuroStar Advanced Therapy System was cleared in 2008 by the United States (“U.S.”) Food and Drug Administration (the “FDA”) to treat adult patients with major depressive disorder (“MDD”) who have failed to achieve satisfactory improvement from prior antidepressant medication in the current MDD episode. It is also cleared by the FDA as an adjunct for adults with obsessive-compulsive disorder (“OCD”), and to decrease anxiety symptoms in adult patients with MDD that may exhibit comorbid anxiety symptoms (anxious depression), and as an adjunct for the treatment of MDD in adolescent patients aged 15-21. The NeuroStar Advanced Therapy System is also available in other parts of the world, including Japan, where it is listed under Japan’s national health insurance. The Company intends to continue to pursue development of its NeuroStar Advanced Therapy System for additional indications.
Liquidity
As of September 30, 2024, the Company had cash and cash equivalents of $20.9 million and an accumulated deficit of $407.1 million. The Company incurred negative cash flows from operating activities of $22.4 million for the nine months ended September 30, 2024 and $32.0 million for the year ended December 31, 2023. The Company has incurred operating losses since its inception, and management anticipates that its operating losses will continue in the near term as the Company continues to invest in sales, marketing and product development activities. The Company’s primary sources of capital to date have been proceeds from its initial public offering (“IPO”), private placements of its convertible preferred securities, borrowings under its credit facility, proceeds from its secondary public offering of common stock and revenues from sales of its products. On July 25, 2024, the Company entered into a Credit Agreement and Guaranty with Perceptive Credit Holdings IV, LP (“Perceptive”) as collateral agent and other lenders defined in the agreement (the “Perceptive Facility”). As of September 30, 2024, the Company had $50.0 million of borrowings outstanding under its credit facility, which has a final maturity on July 25, 2029. The Perceptive Facility is subject to certain financial covenants including a minimum net revenue covenant that escalates over the term of the Perceptive Facility and a minimum liquidity covenant. Our future ability to comply with these financial covenants is subject to risks, including our ability to continue to generate sufficient revenue growth and operating efficiencies to achieve cash flow breakeven. Management believes that the Company’s cash and cash equivalents as of September 30, 2024, anticipated revenues from sales of its products, and operational cash savings from the actions described in “Note 21. Subsequent Events” are sufficient to fund the Company’s operations for at least the next 12 months from the issuance of these financial statements.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards Codification and Accounting Standards Updates (“ASUs”) promulgated by the Financial Accounting Standards Board (the “FASB”).
Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared from the books and records of the Company in accordance with U.S. GAAP for interim financial information and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”), which permit reduced disclosures for interim periods. All adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the accompanying balance sheets and statements of operations and stockholders’ equity and cash flows have been made. Although these interim financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. Unaudited interim results of operations and cash flows for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year. Unaudited interim financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2024, wherein a more complete discussion of significant accounting policies and certain other information can be found.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP and the rules and regulations of the SEC, requires the use of estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions, and given the subjective element of the estimates and assumptions made, actual results may differ materially from estimated results.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s complete summary of significant accounting policies can be found in “Note 3. Summary of Significant Accounting Policies” in the audited financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2024.
4. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Adopted by the Company
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public companies to disclose for each reportable segment the significant expense categories and amounts for such expenses. ASU 2023-07 is effective for annual periods beginning December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. This ASU will be effective for our annual period ended December 31, 2024. The Company believes that the adoption of ASU 2023-07 will not have a material effect on the Company’s financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public business entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. This ASU will be effective for our annual period ended December 31, 2025. The Company is currently evaluating the impacts of ASU 2023-09 on its disclosures.
Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our unaudited interim financial statements.
5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, prepaids and other current assets, and accounts payable on the Company’s balance sheets approximated their fair values as of September 30, 2024 and December 31, 2023 due to their short-term nature. The carrying values of the Company’s credit facility approximated its fair value as of September 30, 2024 and December 31, 2023 due to its variable interest rate. The carrying value of the Company’s notes receivable approximated its fair value as of September 30, 2024 and December 31, 2023 due to their variable interest rates.
Certain of the Company’s financial instruments are measured at fair value using a three-level hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1: | Inputs are quoted prices for identical instruments in active markets. |
Level 2: | Inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
Level 3: | Inputs are unobservable and reflect the Company’s own assumptions, based on the best information available, including the Company’s own data. |
The following tables set forth the carrying amounts and fair values of the Company’s financial instruments as of September 30, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | | | | | |
| | September 30, 2024 |
| | | | | | | | Fair Value Measurement Based on |
| | | | | | | | Quoted | | Significant | | | |
| | | | | | | | Prices In | | other | | Significant |
| | | | | | | | Active | | Observable | | Unobservable |
| | Carrying | | | | | Markets | | Inputs | | Inputs |
| | Amount | | Fair Value | | (Level 1) | | (Level 2) | | (Level 3) |
Assets | | | | | | | | | | | | | | | |
Money market funds (cash equivalents) | | $ | 13,488 | | $ | 13,488 | | $ | 13,488 | | $ | — | | $ | — |
| | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | | | | | | | Fair Value Measurement Based on |
| | | | | | | | Quoted | | Significant | | | |
| | | | | | | | Prices In | | other | | Significant |
| | | | | | | | Active | | Observable | | Unobservable |
| | Carrying | | | | | Markets | | Inputs | | Inputs |
| | Amount | | Fair Value | | (Level 1) | | (Level 2) | | (Level 3) |
Assets | | | | | | | | | | | | | | | |
Money market funds (cash equivalents) | | $ | 27,507 | | $ | 27,507 | | $ | 27,507 | | $ | — | | $ | — |
6. ACCOUNTS RECEIVABLE
The following table presents the composition of accounts receivable, net, as of September 30, 2024 and December 31, 2023 (in thousands):
| | | | | | | |
| | September 30, | | December 31, | |
| | 2024 | | 2023 | |
Gross accounts receivable - trade | | $ | 18,825 | | $ | 16,577 | |
Less: Allowances for credit losses | | | (2,000) | | | (795) | |
Accounts receivable, net | | $ | 16,825 | | $ | 15,782 | |
7. INVENTORY
Inventory is stated at the lower of cost and net realizable value, with cost being determined on a first in, first out basis. The Company’s inventory is primarily comprised of finished goods and work-in-process.
8. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE
The following table presents the composition of property and equipment, net, as of September 30, 2024 and December 31, 2023 (in thousands):
| | | | | | | |
| | September 30, | | December 31, | |
| | 2024 | | 2023 | |
Laboratory equipment | | $ | 705 | | $ | 702 | |
Office equipment | | | 495 | | | 495 | |
Auto | | | 23 | | | 23 | |
Computer equipment and software | | | 1,136 | | | 1,082 | |
Manufacturing equipment | | | 575 | | | 551 | |
Leasehold improvements | | | 1,463 | | | 1,436 | |
Rental equipment | | | 598 | | | 542 | |
Property and equipment, gross | | | 4,995 | | | 4,831 | |
Less: Accumulated depreciation | | | (3,356) | | | (2,822) | |
Property and equipment, net | | $ | 1,639 | | $ | 2,009 | |
As of September 30, 2024 and December 31, 2023, the Company had capitalized software costs, net, of $4.5 million and $4.2 million, respectively, which are included in “Prepaid expenses and other current assets” and “Other assets” on the balance sheet.
Depreciation and amortization expense was $0.5 million for the three months ended September 30, 2024 and 2023, respectively, and $1.6 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.
9. NOTES RECEIVABLE
Greenbrook TMS Inc.
On March 31, 2023, the Company entered into a Secured Promissory Note and Guaranty Agreement (the “Promissory Note”) with TMS Neurohealth Centers Inc. (the “Maker”) and Greenbrook TMS Inc. (“Greenbrook”) and its subsidiaries, excluding the Maker (the “Guarantors”), in the principal amount of $6.0 million for a period of four years.
Notes receivable outstanding from Greenbrook was $4.0 million and $5.2 million as of September 30, 2024 and December 31, 2023, respectively.
The Promissory Note bears interest at a rate equal to the sum of (a) the floating interest rate of daily secured overnight financing rate as administered by the Federal Reserve Bank of New York on its website (“SOFR”) plus (b) 7.65%.
Pursuant to the terms of the Promissory Note, in the event of an event of default thereunder, the Maker will be required to issue common share purchase warrants to the Company equal to (i) 200% of the unpaid amount of any delinquent amount or payment due and payable under the Promissory Note, together with all outstanding and unpaid accrued interest, fees, charges and costs, divided by (ii) the exercise price of the warrants, which will represent (i) if the Maker’s common shares are traded on the Nasdaq Stock Market (“Nasdaq”), a 20% discount to the 30-day volume-weighted average closing price of Greenbrook’s common shares traded on the Nasdaq prior to the date of issuance (subject to any limitations that may be required by Nasdaq), (ii) if the Maker’s common shares are not then traded on Nasdaq, but are traded on the Toronto Stock Exchange (“TSX”) or another nationally recognized U.S. or Canadian securities exchange, inter-dealer quotation system or over-the-counter market (an “Other Market”), a 20% discount to the 30-day volume-weighted average closing of Greenbrook’s common shares traded on the TSX or Other Market, as elected by the Company, or (iii) if the Maker’s common shares are not traded on any of the above trading markets, a 20% discount to the fair market value of a common share as determined pursuant to the Promissory Note.
Under the Promissory Note and related loan documents, the Maker and the Guarantors have granted to the Company a security interest in substantially all of the Maker’s and the Guarantors’ assets and the Guarantors have guaranteed the Maker’s obligations under the Promissory Note. The Company’s security interest pursuant to the Promissory Note and related loan documents ranks pari passu with the Maker’s senior lender, Madryn Fund Administration, LLC, and is subject to an intercreditor agreement.
Interest income recognized by the Company related to notes receivable was $0.1 million and $0.2 million for the three months ended September 30, 2024 and 2023. Interest income recognized by the Company related to notes receivable was $0.5 million and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively, and is included within “Other income, net” on the statements of operations.
10. LEASES
Lessee:
The Company has operating leases for its corporate headquarters, a training facility and office equipment, including copiers. The Company leases an approximately 32,000 square foot facility in Malvern, Pennsylvania for its corporate headquarters, which includes office and warehouse space. The Company leases an approximately 9,600 square foot facility in Charlotte, North Carolina as a training facility for its NeuroStar Advanced Therapy Systems. The Company does not currently have any finance leases or executed leases that have not yet commenced.
Operating lease rent expense was $0.2 million for the three months ended September 30, 2024 and 2023, and $0.6 million for the nine months ended September 30, 2024 and 2023. As of September 30, 2024, the weighted-average remaining lease term of operating leases was 3.3 years and the weighted-average discount rate was 7.2%.
The following table presents the supplemental cash flow information as a lessee related to leases (in thousands):
| | | | | | | |
| | Nine Months Ended | |
| | September 30, 2024 | | September 30, 2023 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | | $ | 827 | | $ | 807 | |
The following table sets forth by year the required future payments of operating lease liabilities (in thousands):
| | | | |
| | September 30, 2024 | |
Remainder of 2024 | | $ | 221 | |
2025 | | | 898 | |
2026 | | | 921 | |
2027 | | | 882 | |
2028 | | | 116 | |
Total lease payments | | | 3,038 | |
Less imputed interest | | | (343) | |
Present value of operating lease liabilities | | $ | 2,695 | |
Lessor sales-type leases:
Certain customers have purchased NeuroStar Advanced Therapy Systems on a rent-to-own basis. The lease term is three or four years with a customer option to purchase the NeuroStar Advanced Therapy System at the end of the lease or automatic transfer of ownership of the NeuroStar Advanced Therapy System at the end of the lease.
The following table sets forth the profit recognized on sales-type leases (in thousands):