Note 6 - Note Payable

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Debt Disclosure [Text Block]

6. Note Payable

On May 22, 2017, the Company entered into a Term Loan Agreement as amended on December 12, 2017 and November 29, 2018 (collectively the “2017 Loan Agreement”) with affiliates of CRG. The credit facility consists of $20,000,000 drawn at closing and access to additional funding of up to an aggregate of $10,000,000 for a total of $30,000,000 available under the credit facility. On December 29, 2017, the Company accessed the remaining $10,000,000 available under the credit facility.

In connection with the 2017 Loan Agreement, the Company issued two 10-year warrants to CRG to purchase a total of 223 shares of the Company’s common stock at an exercise price of $9,500.00 per share. (See Note 11 – Common Stock.)

Under the 2017 Loan Agreement, as in effect prior to the November 12, 2019 amendment, the credit facility had a six-year term with four years of interest-only payments after which quarterly principal and interest payments were to be due through the maturity date. Amounts borrowed under the 2017 Loan Agreement accrued interest at an annual fixed rate of 12.5%, 4.0% of which may, at the election of the Company, be paid in-kind during the interest-only period by adding such accrued amount to the principal loan amount each quarter. The Company was also required to pay CRG a final payment fee upon repayment of the loans in full equal to 5.0% of the sum of the aggregate principal amount plus the deferred interest added to the principal loan amount during the interest-only period. 

As collateral for its obligations under the 2017 Loan Agreement, the Company entered into security agreements with CRG whereby the Company granted CRG a lien on substantially all of the Company’s assets, including intellectual property.

The terms of the 2017 Loan Agreement also required the Company to meet certain financial and other covenants. The 2017 Loan Agreement also contained customary affirmative and negative covenants for a credit facility of this size and type.

On November 12, 2019, the Company and CRG amended the 2017 Loan Agreement (the “Amendment No. 3”). In connection with the amendment, the Company converted approximately $28,981,000 of the outstanding principal amount under the term loan plus accrued interest, the prepayment premium and the back-end facility fee for an aggregate amount of converted debt obligations of approximately $31,300,000. The debt obligations converted into 31,300 shares of the newly authorized Series B convertible preferred stock and warrants to purchase up to 989,379 shares of common stock were also issued. The warrants have a term of 5 years and an exercise price equal to 120% of the Series convertible B preferred stock conversion price of $15.30 or $18.36 per share. (See Note 11 – Common Stock.) CRG entered into a one-year lock-up agreement on all securities that it holds.

The Amendment No. 3 to the 2017 Loan Agreement addressed, among other things:

● repayment provisions were amended such that repayment is permitted only with, or after, the redemption in full of the Series B convertible preferred stock issued to CRG;

● the interest only payment period and the period during which the Company may elect to pay the full interest in Paid In-Kind (“PIK”) interest payments was extended through the 23rd date after the first payment date. Pursuant to the amendment, CRG shall consent to the payment of such interest in the form of PIK loans, provided that (i) as of such payment date, no default shall have occurred and be continuing, and (ii) the principal amount of each PIK loan shall accrue interest in accordance with the provisions of the 2017 Loan Agreement;

● modified certain of the covenants, including (i) to permit issuance of the Series B convertible preferred stock and any preferred stock issued in the equity financing and the exercise and performance by the Company of its rights and obligations in connection with such CRG preferred stock and any preferred stock issued in the equity financing, (ii) eliminate the Company’s ability to enter into permitted acquisitions, (iii) further restrict the incurrence of additional indebtedness and removal of the equity cure right, and (iv) eliminate the minimum revenue requirement; and

● the back-end facility fee on the aggregate remaining principal balance on the term loan shall be increased from 5% to 25%.

Pursuant to the amendment, the Company paid interest in-kind of $167,000 and $327,000 during the three and six months ended June 30, 2022, which was added to the total outstanding principal loan amount. During the three and six months ended June 30, 2021, the Company paid interest in-kind of $148,000 and $289,000, respectively, which was added to the total outstanding principal loan amount. 

As of June 30, 2022, the Company was in compliance with all covenants. 

The term loan has a maturity date of March 31, 2023.

As of June 30, 2022, $5,453,000 was recorded on the condensed consolidated balance sheets, as note payable, current portion, which is net of the remaining unamortized debt discount. As December 31, 2021, $5,124,000 was recorded on the condensed consolidated balance sheets, as note payable, noncurrent portion, which is net of the remaining unamortized debt discount. 

As of June 30, 2022, future minimum payments under the note payable were as follows (in thousands): 

Year Ending December 31,
2022 (remaining six months)	$	-
2023		5,992
Total payments		5,992
Less: Amount representing interest		(536	)
Present value of obligations		5,456
Less: Unamortized debt discount		(3	)
Note payable, current portion	$	5,453