XML 26 R15.htm IDEA: XBRL DOCUMENT v3.21.2
Notes Payable
 9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]  
Notes Payable

8. Notes Payable

 

Our long-term debt, net of original issue discount and unamortized debt issuance costs, consisted of the following:

 

   Interest   September 30,  

 

December 31,

 
(in thousands)  Rate   2021   2020 
Term Loans:            
Maryland Department of Housing & Community Development   8.00%  $819   $1,080 
Advance Cecil, Inc.   8.00%   164    216 
Paycheck Protection Program   1.00%   
-
    647 
Avenue Venture Opportunities Fund, L.P.   9.85%   20,000    
-
 
Other   0.00%   
-
    6 
         20,983    1,949 
Unamortized debt issuance costs and original issue discounts        (1,811)   
-
 
Less convertible notes payable, net of unamortized debt discount and issuance costs (see Note 11)        (4,559)   
-
 
Total notes payable       $14,613    1,949 

 

Maryland Loan

 

In February 2019, we entered into a loan agreement (the “2019 MD Loan”) with the Department of Housing and Community Development, a principal department of the State of Maryland (“Maryland”). Pursuant to the 2019 MD Loan, Maryland agreed to provide a $0.5 million term loan. Amounts outstanding under the 2019 MD Loan bear simple interest at an annual rate of 8.00%. Under the 2019 MD Loan, we agreed to affirmative and negative covenants to which we will remain subject until maturity. These covenants include providing information about the Company and our operations; limitations on our ability to retire, repurchase, or redeem our common or preferred stock, options, and warrants other than per the terms of the securities; and limitations on our ability to pay dividends of cash or property. There are no financial covenants associated with the 2019 MD Loan. Events of default under the 2019 MD Loan include failure to make payments when due, insolvency events, and failure to comply with covenants. We are not in violation of any affirmative covenants. Repayment of the full balance outstanding is due on February 22, 2034. The 2019 MD Loan establishes “Phantom Shares,” based on 119,906 shares of Common Stock (based on 863,110 Series C Preferred Shares prior to the Reverse Recapitalization), determined at issuance. The 2019 MD Loan states the repayment amount is to be the greater of the balance of principal and accrued interest or the Phantom Shares value. We determined that the note should be accounted for at fair value. We record the fair value of the debt at the end of each reporting period. In order to value the note, we consider the amount of the simple interest expense that would be due and the value of Phantom Shares. Upon the closing of the Reverse Recapitalization and as of December 31, 2020, the fair value of the 2019 MD Loan is determined based on the closing price of CLNN shares listed on Nasdaq.

 

Income of $0.5 million and $0.3 million were recognized during the three and nine months ended September 30, 2021, respectively. Expense of $0.2 million and $0.3 million was recognized during the three and nine months ended September 30, 2020, respectively. The fair value of $0.8 million and $1.1 million of principal and accrued interest is included in long-term notes payable as of September 30, 2021 and December 31, 2020, respectively.

 

Cecil County Loan 

 

In April 2019, we entered into a loan agreement (the “2019 Cecil Loan”) with Advance Cecil Inc., a non-stock corporation formed under the laws of the state of Maryland with application for 501(c)(3) non-profit status pending before the United States Internal Revenue Service at the time of execution of the 2019 Cecil Loan. Pursuant to the 2019 Cecil Loan, Cecil agreed to provide a $0.1 million term loan. Amounts outstanding under the 2019 Cecil Loan bear simple interest at an annual rate of 8.00%. Under the 2019 Cecil Loan, we agreed to affirmative covenants to which we will remain subject until maturity. These covenants include providing information about the Company and our operations. There are no financial covenants associated with the 2019 Cecil Loan. Events of default under the 2019 Cecil Loan include failure to make payments when due, insolvency events, failure to comply with covenants, and material adverse effects with respect to the Company. We are not in violation of any affirmative covenants. Repayment of the full balance outstanding is due on April 30, 2034. The 2019 Cecil Loan establishes “Phantom Shares,” based on 23,981 shares of Common Stock (based on 172,622 Series C Preferred Shares prior to the Reverse Recapitalization), determined at issuance. The 2019 Cecil Loan states the repayment amount is to be the greater of the balance of principal and accrued interest or the Phantom Share value. We determined that the note should be accounted for at fair value. We record the fair value of the debt at the end of each reporting period. In order to value the note, we consider the amount of the simple interest expense that would be due and the value of Phantom Shares. Upon the closing of the Reverse Recapitalization and as of December 31, 2020, the fair value of the 2019 Cecil Loan is determined based on the closing price of CLNN shares listed on Nasdaq.

 

Income of $0.1 million and expense of $52 thousand were recognized during the three and nine months ended September 30, 2021, respectively. Expense of $42 thousand and $55 thousand was recognized during the three and nine months ended September 30, 2020, respectively. The fair value of $0.2 million and $0.2 million of principal and accrued interest is included in long-term notes payable as of September 30, 2021 and December 31, 2020, respectively.  

 

PPP Loan 

 

In May 2020, we entered into a note payable in the amount of $0.6 million (the “PPP Note”) under the Paycheck Protection Program of the CARES Act (the “PPP”). As amended, the PPP permits forgiveness of amounts loaned for payments of payroll and other qualifying expenses within 24 weeks of receipt of loaned funds, given that at least 60% of the total loan is used for payroll. Amounts not forgiven have a repayment period of five years. In January 2021, the full $0.6 million balance of the PPP Note was forgiven and has been recorded as a gain on extinguishment of debt during the nine months ended September 30, 2021. There was no gain on extinguishment of debt recorded during the three months ended September 30, 2021.

 

Avenue Loan

 

In May 2021, we entered into the 2021 Avenue Loan with Avenue. The agreement provides for a 42-month term loan of up to $30.0 million. The first tranche is $20.0 million (“Tranche 1”), of which $15.0 million was funded at close. We incurred issuance costs for a total of $0.5 million of which $35 thousand has been expensed immediately. The remaining balance from Tranche 1 of $5.0 million was funded on September 28, 2021 and an additional tranche of $10.0 million (“Tranche 2”) is available at the Company’s request until June 30, 2022. Pursuant to the 2021 Avenue Loan, funding of Tranche 2 is subject to evidence reasonably satisfactory to Avenue of receipt of an additional $5.0 million financing through Maryland’s State Incentive Programs and/or other Maryland State programs and mutual agreement of the Company and Avenue. On September 27, 2021, we obtained a waiver from this additional financing requirement for the funding of the remaining $5.0 million of Tranche 1 and exercised the option to postpone principal repayment by one year. We incurred additional issuance costs of $75 thousand upon funding the remaining $5.0 million of Tranche 1, of which $12 thousand has been expensed immediately. Funding of Tranche 2 is also subject to (a) our achievement of a statistically significant result on the primary endpoint as defined within the statistical analysis plan for each respective study, or the totality of the results for any study warrant advancement into a subsequent clinical efficacy study, as reasonably determined by the Company and Avenue with respect to at least two of the following studies: (i) RESCUE-ALS or the Healey ALS Platform Trial; (ii) REPAIR-PD; or (iii) REPAIR-MS (“Performance Milestone 1”); and (b) our receipt of net proceeds of at least $30 million from the sale and issuance of our equity securities (including any private placement or follow-on offering) between May 2, 2021 and June 30, 2022.

 

The loans bear interest at a variable rate per annum equal to the sum of (i) the greater of (A) the prime rate, as published by the Wall Street Journal from time to time or (B) 3.25%, plus (ii) 6.60%. Payments for the loan are interest only for the initial 12 months and can be extended to (i) 12 months (the “First Interest-only Period Extension”) if we achieve Performance Milestone 1 and (ii) up to 36 months if (a) we achieve the First Interest-only Period Extension and (b) have drawn from Tranche 2. On August 16, 2021, we mutually confirmed with Avenue that Performance Milestone 1 and the First Interest-only Period Extension had been achieved. The loan will amortize in equal payments of principal from the end of the interest period to the expiration of the 42-month term on December 1, 2024. On the maturity date, an additional payment equal to 4.25% of the funded loans, or $0.6 million, is due in addition to the remaining unpaid principal and accrued interest. The final payment is recorded as a debt premium and is being amortized over the contractual term using the effective interest method. The final payment provision is related to the loan host and is not bifurcated pursuant to ASC 815.

 

Pursuant to the agreement, we granted to Avenue the Avenue Warrants for the purchase of 115,851 shares of Common Stock at an exercise price equal to the lower of (i) $8.63 (which is equal to the five-day volume weighted average price (“VWAP”) per share, determined as of the end of trading on the last trading day prior to execution of the loan agreement), or (ii) the lowest price per share paid by cash investors for our Common Stock issued in the next bona fide round of equity financing prior to March 31, 2022 (the “Next Round Price”) (see Note 10). Upon the funding of Tranche 2, the Avenue Warrant shall be automatically adjusted to include an additional estimated 86,679 shares of Common Stock, which is equal to 5% of the principal amount of Tranche 2, divided by the lower of (i) the five (5)-day VWAP per share; determined as of the end of trading on the last trading day before the date of issuance of Tranche 2; or (ii) the Next Round Price. We accounted for the Tranche 2 warrants at inception of the 2021 Avenue Loan in accordance with ASC 815 and the fair value and issuable shares will be remeasured at each reporting period (see Note 10). Avenue also has the right, in its discretion, but not the obligation, at any time from time to time from the first through the third-year anniversary of the agreement, while the loan is outstanding, to convert an amount of up to $5.0 million of the principal amount of the outstanding loan into Common Stock (the “Conversion Feature”) at a price per share equal to 120% of the stock purchase price set forth in the warrant. The Conversion Feature is subject to (i) the closing price of our Common Stock for each of the seven consecutive trading days immediately preceding the conversion being greater than or equal to the conversion price and (ii) the Common Stock issued in connection with any such conversion not exceeding 20% of the total trading volume of our Common Stock for the twenty-two consecutive trading days immediately prior to and including the effective date of such conversion.

 

Under the 2021 Avenue Loan, we agreed to affirmative and negative covenants to which we will remain subject upon maturity in the absence of prepayments. These covenants include providing information about the Company and our operations; limitation on our ability to retire, repurchase, or redeem our Common Stock, options, and warrants other than per the terms of the securities; and limitations on our ability to pay dividends of cash or property. The financial covenant associated with the loan agreement includes maintaining minimum unrestricted cash and cash equivalents of at least $5.0 million; provided that upon our (i) achievement of Performance Milestone 1, and (ii) receiving of net proceeds of at least $30.0 million from the sale and issuance of our equity securities (including any PIPE or follow-on offering) between May 1, 2021 and June 30, 2022, we shall no longer be subject to financial covenants. We are not in violation of the covenants. The agreement provides for events of default customary for loans of this type, including but not limited to non-payment, breaches, the occurrence of a material adverse change, or defaults in the performance of covenants, insolvency, and bankruptcy. The 2021 Avenue Loan is collateralized by substantially all of our assets other than intellectual property, including capital stock of the Company and its subsidiaries, in which Avenue is granted a continuing security interest. The net proceeds from the issuance of the loan were initially allocated to the warrant at an amount equal to their fair value of $1.0 million and the remainder to the loan. The allocation of incurred financing costs of $0.5 million and the fair value of the warrant, together with the final payment, are recorded as a debt discount and debt premium, respectively, and are being amortized over the contractual term using the effective interest method. During the three and nine months ended September 30, 2021, we recorded interest expense of $0.6 million and $0.8 million, respectively.

 

Following is a schedule of future payments, net of unamortized debt discounts, if Avenue does not convert up to $5.0 million of the loan into Common Stock between May 21, 2022 through May 21, 2024:

 

(in thousands)  September 30,
2021		 
2021 (remainder)  $
-
 
2022   
-
 
2023   6,667 
2024   13,333 
2025   
-
 
2026   
-
 
Thereafter   
-
 
Subtotal of future principal payments  $20,000 
Unamortized debt discount associated with issuance date warrant fair value and financing costs   (1,811)
Total  $18,189