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Note 8 - Notes Payable and Convertible Notes Payable
 9 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 8. Notes Payable and Convertible Notes Payable

 

Our notes payable and convertible notes payable as of September 30, 2024 and December 31, 2023 was as follows:

 

  

Stated

  

September 30,

  

December 31,

 

(in thousands, except interest rates)

 

Interest Rate

  

2024

  

2023

 

Notes payable

            

Advance Cecil, Inc. (commenced April 2019)

  8.00% $144  $138 

Maryland DHCD (commenced February 2019)

  8.00%  724   694 

Maryland DHCD (commenced May 2022)

  6.00%  1,083   1,083 

Avenue Venture Opportunities Fund, L.P. (commenced May 2021)

  15.10%  10,000   15,000 
       11,951   16,915 

Unamortized premium (discount) and debt issuance costs

      592   (394)

Less notes payable, current portion, net of unamortized discount and debt issuance costs

      (10,875)  (14,627)

Notes payable, net of current portion

     $1,668  $1,894 
             

Convertible notes payable

            

Avenue Venture Opportunities Fund, L.P. (commenced May 2021)

  15.10% $—  $5,000 

Maryland DHCD (commenced December 2022)

  6.00%  5,312   5,308 
       5,312   10,308 

Unamortized discount and debt issuance costs

      (41)  (174)

Less convertible notes payable, current portion, net of unamortized discount and debt issuance costs

      —   (4,876)

Convertible notes payable, net of current portion

     $5,271  $5,258 

 

Maryland Loans

 

In February 2019, we entered into a term loan agreement (the “2019 MD Loan”) with the Department of Housing and Community Development (“DHCD”), a principal department of the State of Maryland, for $0.5 million bearing simple interest at an annual rate of 8.00%. We are subject to covenants until maturity, including limitations on our ability to retire, repurchase, or redeem our stock, options, and warrants other than per the terms of the securities; and limitations on our ability to pay dividends. We are not in violation of any covenants. The 2019 MD Loan established “Phantom Shares” based on 5,995 shares of Common Stock. The 2019 MD Loan matures in full on February 22, 2034, with the repayment amount equal to the greater of (i) principal plus accrued interest or (ii) the Phantom Shares multiplied by the closing price of our Common Stock on Nasdaq on the trading day prior to the maturity date. As of September 30, 2024 and December 31, 2023, the 2019 MD Loan was recorded at principal plus accrued interest as it was greater than the value of the Phantom Shares. We recognized interest expense of $10,000 and $10,000 during the three months ended September 30, 2024 and 2023, respectively; and $30,000 and $30,000 during the nine months ended September 30, 2024 and 2023, respectively.

 

In April 2019, we entered into a term loan agreement (the “2019 Cecil Loan”) with Advance Cecil Inc., a non-stock corporation formed under the laws of the State of Maryland, for $0.1 million bearing simple interest at an annual rate of 8.00%. The 2019 Cecil Loan established “Phantom Shares” based on 1,199 shares of Common Stock. The 2019 Cecil Loan matures in full on April 30, 2034, with the repayment amount equal to the greater of (i) principal plus accrued interest or (ii) the Phantom Shares multiplied by the closing price of our Common Stock on Nasdaq on the trading day prior to the maturity date. As of September 30, 2024 and December 31, 2023, the 2019 Cecil Loan was recorded at principal plus accrued interest as it was greater than the value of the Phantom Shares. We recognized interest expense of $2,000 and $2,000 during the three months ended September 30, 2024 and 2023, respectively; and $6,000 and $6,000 during the nine months ended September 30, 2024 and 2023, respectively.

 

In May 2022, we entered into a term loan agreement (the “2022 MD Loan”) with DHCD for up to $3.0 million bearing simple interest at an annual rate of 6.00% for the purchase of certain manufacturing equipment (the “Assets”). As of September 30, 2024, we had drawn $1.0 million with the remaining balance available for future equipment purchases expiring on May 17, 2024. The first 12 payments, commencing July 1, 2022, are deferred, followed by 18 monthly installments of interest-only based on the outstanding principal, each up to $15,000 maximum; followed by monthly installments of principal and interest in the amount of $33,306, payable for the lesser of 30 months or until the principal and accrued and unpaid interest is fully repaid, with a balloon payment of all remaining principal and unpaid interest due on the maturity date of July 1, 2027. As of September 30, 2024 and December 31, 2023, the balance of accrued and unpaid interest was $50,000 and $50,000, respectively, and is recorded as part of the carrying amount of the loan. We recorded debt issuance costs of $31,000 as a debt discount. Under an agreement between DHCD and Avenue, an existing secured creditor of the Company, DHCD was granted a first priority lien on the Assets as collateral. We recognized interest expense of $15,000 and $15,000 during the three months ended September 30, 2024 and 2023, respectively; and $46,000 and $43,000 during the nine months ended September 30, 2024 and 2023, respectively.

 

In December 2022, we entered into a term loan agreement (the “2022 DHCD Loan”) with DHCD for $5.0 million bearing simple interest at an annual rate of 6.00%. The first 12 payments, commencing January 1, 2023, are deferred, followed by 48 monthly installments of interest-only, with a balloon payment of all principal and unpaid interest due on the maturity date of January 1, 2028. As of September 30, 2024 and December 31, 2023, the balance of accrued and unpaid interest was $0.3 million and $0.3 million, respectively, and is recorded as part of the carrying amount of the loan. We recorded debt issuance costs of $0.1 million as a debt discount. At any time after December 8, 2023, DHCD may, in its sole discretion, convert up to $5.0 million of principal into Common Stock in increments of $1.0 million, at a price equal to the greater of: (i) 97% of the 30-day trailing VWAP of our Common Stock; or (ii) $80.00 per share (the “DHCD Conversion Feature”). The DHCD Conversion Feature did not meet the requirements for derivative accounting. During the three months ended September 30, 2024 and 2023, we recognized (i) total interest expense of $0.1 million and $0.1 million, respectively; (ii) coupon interest expense of $0.1 million and $0.1 million, respectively; and (iii) amortization of debt issuance costs of $3,000 and $1,000, respectively; and the effective interest rate was 5.99% and 5.91%, respectively. During the nine months ended September 30, 2024 and 2023, we recognized (i) total interest expense of $0.2 million and $0.2 million, respectively; (ii) coupon interest expense of $0.2 million and $0.2 million, respectively; and (iii) amortization of debt issuance costs of $8,000 and ($1,000), respectively; and the effective interest rate was 5.99% and 5.91%, respectively.

 

Avenue Loan

 

In May 2021, we entered into a term loan agreement (the “2021 Avenue Loan”) with Avenue for up to $30.0 million, bearing interest at a variable rate equal to (i) the greater of (a) the prime rate or (b) 3.25%, plus (ii) 6.60%. As of September 30, 2024 and December 31, 2023, the interest rate was 15.10% and 14.10%, respectively. We borrowed $15.0 million in May 2021 plus $5.0 million in September 2021 (“Tranche 1”), and the remaining $10.0 million (“Tranche 2”) was not drawn and expired. We incurred $0.8 million of debt issuance costs of which $47,000 related to liability-classified warrants was expensed immediately and the remainder was recorded as a debt discount. Payments were interest-only for the first 12 months and the interest-only period was extended for (i) 12 months due to our achievement of certain clinical trial milestones, plus (ii) an additional 12 months (through June 30, 2024), pursuant to an amendment in June 2023 (the “Second Amendment”), due to our receipt of at least $35.0 million from the sale and issuance of Common Stock in a public offering in June 2023 (“Equity Milestone 1”). Following the interest-only period, from  July 2024 to September 2024, we made equal monthly principal installments of $3.3 million plus interest at the variable rate then in effect. On September 30, 2024, we entered into an amendment (the “Third Amendment”) which (i) reduced the October 2024 principal installment from $3.3 million to $2.0 million, plus interest at the applicable variable rate, (ii) reduced the November 2024 and December 2024 principal installments from $3.3 million to $0.5 million each, plus interest at the applicable variable rate, and (iii) delayed the maturity date of the loan from December 1, 2024 to April 1, 2025, with four consecutive monthly principal installments of approximately $1.8 million due from January 2025 to April 2025. On the maturity date of April 1, 2025, all principal and accrued interest then remaining unpaid plus a final payment of 4.25% of funded principal, equal to $0.9 million (the “Final Payment”), shall be due and payable. The Final Payment was previously recorded as a debt premium at the inception of the 2021 Avenue Loan.

 

The Third Amendment provided for a contingent interest-only period from November 1, 2024 through December 31, 2024 (the “Second Interest-only Period”) if we had received gross proceeds of at least $10.0 million from sales of our equity securities by October 31, 2024 (the “October Equity Milestone”), which we did not achieve. The Third Amendment also provides for a contingent extension of the maturity date and repayment period if, on or before December 31, 2024, we receive reasonably satisfactory evidence that the U.S. Food and Drug Administration (“FDA”) does not object to our submission of a new drug application (“NDA”) seeking accelerated approval for CNM-Au8 as a potential treatment for ALS and we have submitted such NDA for review (the “ALS NDA Milestone”). If we achieve the ALS NDA Milestone, the January 2025 and February 2025 principal installments shall be reduced to $0.5 million each, followed by four equal consecutive monthly principal installments in an amount sufficient to fully amortize the loan, plus interest at the applicable variable rate, with a maturity date of June 1, 2025.

 

Avenue had the right to convert up to $5.0 million of principal into Common Stock (the “Avenue Conversion Feature”), which expired on May 21, 2024 and was not exercised. The Final Payment and Avenue Conversion Feature did not meet the requirements for derivative accounting. As of  December 31, 2023, unamortized debt discount and issuance costs related to the convertible note were $0.1 million. For the convertible note during the three months ended September 30, 2023, we recognized (i) total interest expense of $0.3 million, (ii) coupon interest expense of $0.2 million, and (iii) amortization of debt discount and issuance costs of $0.1 million; and the effective interest rate was 22.79%. During the nine months ended September 30, 2024 and 2023, we recognized (i) total interest expense of $0.4 million and $0.8 million, respectively; (ii) coupon interest expense of $0.3 million and $0.6 million, respectively; and (iii) amortization of debt discount and issuance costs of $0.1 million and $0.2 million, respectively; and the effective interest rate was 17.52% and 22.79%, respectively.

 

We are subject to covenants until maturity, including limitations on our ability to retire, repurchase, or redeem our stock, options, and warrants other than per the terms of the securities; limitations on our ability to pay dividends; and we are required to maintain unrestricted cash and cash equivalents of at least $5.0 million. We are not in violation of any covenants. Avenue has the ability to immediately accelerate all obligations under the 2021 Avenue Loan upon the occurrence of certain events of default or material adverse effects. The 2021 Avenue Loan is collateralized by substantially all our assets other than intellectual property, including our capital stock and the capital stock of our subsidiaries, in which Avenue is granted a continuing security interest. We recognized interest expense of $0.8 million and $1.1 million during the three months ended September 30, 2024 and 2023, respectively, and $3.1 million and $3.0 million during the nine months ended September 30, 2024 and 2023, respectively.

 

At the inception of the 2021 Avenue Loan, we issued a warrant to Avenue to purchase Common Stock (the “2021 Avenue Warrant”). A portion of the net proceeds at issuance of the 2021 Avenue Loan were allocated to the 2021 Avenue Warrant in an amount equal to its fair value of $1.5 million and were recorded as a debt discount. Pursuant to the Second Amendment, the 2021 Avenue Warrant was cancelled and a new warrant to purchase 150,000 shares of Common Stock was issued (the “2023 Avenue Warrant”). Avenue may exercise the 2023 Avenue Warrant for cash or on a net or “cashless” basis. In the event of a change of control of the Company, the 2023 Avenue Warrant shall be automatically exchanged for the number of shares of Common Stock which remain exercisable thereunder immediately prior to the change of control transaction, for no payment or consideration from Avenue for such shares, and the 2023 Avenue Warrant shall be terminated. At issuance, the 2023 Avenue Warrant was recorded as a liability and debt discount in amount equal to its fair value of $0.7 million. The Second Amendment, including the revised terms, cancellation of the 2021 Avenue Warrant, and issuance of the 2023 Avenue Warrant was accounted for as a debt modification. Additionally, pursuant to the Third Amendment, the exercise price of the 2023 Avenue Warrant was reduced from $16.00 per share to $4.6014 per share, with the resulting change in fair value of $0.1 million recorded as a debt discount. The Third Amendment was accounted for as a debt modification that also met the requirements as a troubled debt restructuring under ASC 470, Debt (“ASC 470”), with no restructuring gain required to be recognized as the future cash payments under the 2021 Avenue Loan, as amended, were greater than its carrying amount.

 

Debt Maturities

 

Future debt payments, net of unamortized discounts and debt issuance costs, and without giving effect to any potential future exercise of conversion features, are as follows:

 

(in thousands)

 

2019 MD Loan

  

2019 Cecil Loan

  

2021 Avenue Loan

  

2022 MD Loan

  

2022 DHCD Loan

 

2024 (remainder)

 $—  $—  $3,000  $—  $— 

2025

  —   —   7,000   347   — 

2026

  —   —   —   369   — 

2027

  —   —   —   317   — 

2028

  —   —   —   —   5,000 

2029

  —   —   —   —   — 

Thereafter

  500   100   —   —   — 

Total debt principal payments

  500   100   10,000   1,033   5,000 

Accrued and unpaid interest

  224   44   —   50   312 

Unamortized premium (discount) and debt issuance costs

  —   —   608   (16)  (41)

Future debt payments, net

 $724  $144  $10,608  $1,067  $5,271