Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by rules of the SEC for newly public companies.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. Additionally, our independent registered public accounting firm will not be required to opine on our internal control over financial reporting until we are no longer an emerging growth company.
Changes in Internal Controls over Financial Reporting
Other than disclosed below, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
Remediation of Material Weakness
Our management previously identified a material weakness in our internal control over financial reporting primarily related to a lack of timely review over the financial statement close process in connection with the audit of our financial statements as of and for the year ended December 31, 2019. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management determined that we did not have a sufficient complement of qualified personnel within the accounting function and had a lack of segregation of duties to adequately conduct review and analysis of certain routine transactions. In response to the material weakness identified, management developed and implemented the following remedial actions to address the underlying causes of the material weakness, which were subject to senior management review and Audit Committee oversight:
•
Hired a Chief Financial Officer, Corporate Controller and other accounting personnel with appropriate technical accounting and financial reporting experience;
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•
Segregated incompatible duties and implemented controls where segregation of duties could not be achieved;
•
Implemented a formal process for our review procedures during the financial close process; and
•
Developed and formally documented policies and procedures relating to our internal control over financial reporting.
Our management has concluded, based on evidence obtained in validating the design and operating effectiveness of the controls, that the efforts undertaken to enhance the design of our controls would lead to the prevention or detection of a material misstatement of our financial statements. As such, our management concluded that we have remediated this material weakness as of December 31, 2020.
Other than described above, there was no change in our internal control over financial reporting during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
On March 19, 2021, the Company and SVB entered the First Amendment, pursuant to which the Company and SVB amended the Loan Agreement. The First Amendment increases the aggregate principal amount of the Term Loan commitment by SVB to up to $30.0 million dollars. Up to $20.0 million is available under the First Tranche of the Term Loan, $5.0 million of which was advanced immediately to repay the outstanding obligations under the Term Loan prior to the First Amendment with the remainder of the First Tranche commitments available through December 31, 2021, and up to $10.0 million is available under the Second Tranche subject to the completion of certain clinical and financial milestones which Second Tranche commitment is available through December 31, 2022. Pursuant to the First Amendment, the Term Loan will mature on January 1, 2026.
Pursuant to the First Amendment, the Company is required to make monthly payments of interest only commencing on the first day of the month following the funding date of each respective tranche and continuing thereafter through December 31, 2022 to the extent that the Company does not borrow any part of the Second Tranche or December 31, 2023 if the Company has borrowed some or all of the Second Tranche. Outstanding principal balances under the Term Loan, as amended by the First Amendment, bear interest at a floating per annum rate equal to (A) if the Company does not borrow under the Second Tranche, the greater of (x) 1% above the prime rate or (y) 4.25%; or (B) if the Company does borrow under the Second Tranche, the greater of (x) 3% above the prime rate or (y) 6.25%.
Following the interest-only period, the outstanding Term Loan balance will be payable in (i) 37 consecutive monthly payments (or 25 if the Company borrows under the Second Tranche) after the end of the interest-only period and continuing on the same day of each month thereafter, in amounts that would fully amortize such Term Loan balance, as of the first business day of the first month following the interest-only period, over the repayment period, plus (ii) monthly payments of accrued but unpaid interest. The final payment due on the maturity date shall include all outstanding principal and all accrued unpaid interest and an End of Term Payment totaling (x) 6% of the original funded principal amount of the First Tranche if the Company does not borrow under the Second Tranche, or (y) 9.5% of the total original funded principal amount under the First and Second Tranche if the Company does borrow under the Second Tranche. The Company may prepay amounts outstanding under the Term Loan at any time provided certain notification conditions are met, in which case, all outstanding principal plus accrued and unpaid interest, the End of Term Payment, a prepayment fee between 1% and 3% of the commitment amount of the First and Second Tranches, and any bank expenses become due and payable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this item is set forth in our definitive proxy statement to be filed with respect to the 2021 annual meeting of stockholders (the “Proxy Statement”), all of which is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item is set forth in our Proxy Statement, all of which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is set forth in our Proxy Statement, all of which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is set forth in our Proxy Statement, all of which is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this item is set forth in our Proxy Statement, all of which is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
We have filed the following documents as part of this Annual Report:
(a)(1) Financial Statements
The financial statements are included in Item 8. “Financial Statements and Supplementary Data.”
(a)(2) Financial Statement Schedules
All schedules are omitted as information required is inapplicable or the information is presented in the financial statements and the related notes.
(a)(3) Exhibits
Exhibit
Number
Description
3.1
Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the registrant’s Current Report on Form 8-K, filed with the SEC on October 14, 2020, and incorporated by reference herein).
3.2
Amended and Restated Bylaws (filed as Exhibit 3.2 to the registrant’s Current Report on Form 8-K, filed with the SEC on October 14, 2020, and incorporated by reference herein) .
4.1
Form of Common Stock Certificate (filed as Exhibit 4.1 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on October 5, 2020, and incorporated by reference herein).
4.2
Amended and Restated Investors’ Rights Agreement, by and among the registrant and certain of its stockholders, dated February 19, 2020 (filed as Exhibit 4.2 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
4.3
Warrant to Purchase Common Stock issued to Silicon Valley Bank, dated September 23, 2019 (filed as Exhibit 4.3 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
4.4*
Description of Common Stock of the registrant.
10.1+
Spruce Biosciences, Inc. Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.1 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.2+
Forms of Grant Notice, Stock Option Agreement and Notice of Exercise under the Spruce Biosciences, Inc. Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.2 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.3+
Spruce Biosciences, Inc. 2020 Equity Incentive Plan (filed as Exhibit 10.3 to the registrant’s Current Report on Form 8-K, filed with the SEC on October 5, 2020, and incorporated by reference herein).
10.4+
Forms of Grant Notice, Stock Option Agreement and Notice of Exercise under the Spruce Biosciences, Inc. 2020 Equity Incentive Plan (filed as Exhibit 10.4 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.5+
Spruce Biosciences, Inc. 2020 Employee Stock Purchase Plan (filed as Exhibit 10.5 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on October 5, 2020, and incorporated by reference herein).
10.6+*
Spruce Biosciences, Inc. 2020 Employee Stock Purchase Plan Offering Document.
10.7+
Spruce Biosciences, Inc. 2020 Non-Employee Director Compensation Policy (filed as Exhibit 10.6 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on October 5, 2020, and incorporated by reference herein).
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10. 8 +
Form of Indemnification Agreement by and between the registrant and its directors and executive officers (filed as Exhibit 10.7 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.9+
Spruce Biosciences, Inc. Severance and Change in Control Plan (filed as Exhibit 10.9 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.10+ ¥
Employment Agreement, by and between the registrant and Richard King, dated October 1, 2019 (filed as Exhibit 10.11 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.11+ ¥
Offer Letter, by and between the registrant and Samir Gharib, dated April 8, 2020 (filed as Exhibit 10.16 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.12+ ¥
Offer Letter, by and between the registrant and Rosh Dias, M.D., M.R.C.P., dated July 28, 2020 (filed as Exhibit 10.17 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.13+
Letter Agreement, by and between the registrant and Michael Grey, dated March 24, 2017 (filed as Exhibit 10.18 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.14+
Letter Agreement, by and between the registrant and Camilla V. Simpson, dated October 11, 2017 (filed as Exhibit 10.19 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.15+
Letter Agreement, by and between the registrant and Daniel Spiegelman, dated August 31, 2020 (filed as Exhibit 10.20 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.16
Office Lease Agreement, by and between the registrant and DC Station Owner, LLC, dated February 13, 2020 (filed as Exhibit 10.21 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.17#
License Agreement, by and between the registrant and Eli Lilly and Company, dated May 2, 2016 (filed as Exhibit 10.22 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.18
Loan and Security Agreement, by and between the registrant and Silicon Valley Bank, dated September 23, 2019 (filed as Exhibit 10.23 to the registrant’s Registration Statement on Form S-1, as amended (File No. 333-248924), filed with the SEC on September 18, 2020, and incorporated by reference herein).
10.19*
First Amendment to Loan and Security Agreement, by and between the registrant and Silicon Valley Bank dated March 19, 2021.
23.1*
Consent of BDO USA, LLP, independent registered public accounting firm.
24.1
Power of Attorney (see signature pages).
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* †
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* †
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith.
+
Indicates management contract or compensatory plan
#
Pursuant to Item 601(b)(10) of Regulation S-K, certain portions of this exhibit have been omitted by means of marking such portions with asterisks because the registrant has determined that the information is not material and would likely cause competitive harm to the registrant if publicly disclosed.
¥
Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
†
The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Annual Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.
Item 16. Form 10-K Summary.
Not applicable.
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SIGN ATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized .
SPRUCE BIOSCIENCES, INC.
March 22, 2021
By:
/s/ Richard King
Richard King
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard King and Samir Gharib and each of them, as his or her true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10‑K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ Richard King
Chief Executive Officer and Director
March 22, 2021
Richard King
(Principal Executive Officer)
/s/ Samir Gharib
Chief Financial Officer
March 22, 2021
Samir Gharib
(Principal Financial Officer)
/s/ Michael Grey
Executive Chairman
March 22, 2021
Michael Grey
/s/ Tiba Aynechi, Ph.D.
Director
March 22, 2021
Tiba Aynechi, Ph.D.
/s/ Dina Chaya, Ph.D., C.F.A.
Director
March 22, 2021
Dina Chaya, Ph.D., C.F.A.
/s/ Jonas Hansson, M.Sc.
Director
March 22, 2021
Jonas Hansson, M.Sc.
/s/ Bali Muralidhar, M.D, Ph.D.
Director
March 22, 2021
Bali Muralidhar, M.D, Ph.D.
/s/ Niall O’Donnell, Ph.D.
Director
March 22, 2021
Niall O’Donnell, Ph.D.
/s/ Camilla V. Simpson, M.Sc.
Director
March 22, 2021
Camilla V. Simpson, M.Sc.
/s/ Daniel Spiegelman
Director
March 22, 2021
Daniel Spiegelman
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