Note 8 - Secured Promissory Note Payable to Oxford Finance

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Secured Promissory Note Payable [Text Block]

NOTE 

8

.  

Secured Promissory Note Payable to Oxford Finance

On

December 

22,

2016,

the Company entered into a loan and security agreement (the “Loan Agreement”) with Oxford Finance, under which the Company borrowed

$5.0

 million. The

$5.0

 million loan, which bore interest at

30

-day U.S. LIBOR plus

6.17%,

is evidenced by a secured promissory note and was repayable over

four

 years, with interest only payable over the

first

12

months and the balance fully amortized over the subsequent

36

months. Upon repayment, an additional final payment equal to

$325,000

was due, which was being accreted as interest expense over the term of the loan using the effective-interest method. The loan was secured by substantially all the Company’s assets, except for intellectual property, which was subject to a negative pledge, and contained customary financial and operating covenants limiting the Company’s ability to transfer or dispose of assets, merge with or acquire other companies, make investments, pay dividends, incur additional indebtedness and liens and conduct transactions with affiliates.

In connection with the Loan Agreement, the Company issued a warrant to Oxford Finance to purchase

7,563

 shares of its Series C convertible preferred stock at an exercise price of

$33.11

 per share (the “Warrant”), expiring in

December 2026.

The fair value of the Warrant at the date of issuance was

$134,000,

which was recorded as debt discount and is being amortized as interest expense over the term of the loan using the effective-interest method. The annual effective interest rate of the note, including the accretion of the final payment and the amortization of the debt discount, was approximately

10.5%.

The Company recorded interest expense related to the Loan Agreement of

$82,000

and

$128,000

during the

three

months ended

September 30,

2019

and

2018

, respectively, of which

$55,000

and

$87,000

was paid, respectively, and recorded interest expense of

$284,000

and

$407,000

during the

nine

months ended

September 30,

2019

and

2018

, respectively, of which

$191,000

and

$276,000

was paid, respectively.

The Warrant provided that if the share price at the next equity financing was less than the Warrant exercise price, then the Warrant would be for the new class of shares, the exercise price would be the new class share price, and the number of shares would be calculated by dividing

$250,000

by the new class share price. Due to this antidilution protection, the Company determined that the Warrant needed to be recorded as a liability, and therefore estimated the fair value of the Warrant upon issuance and at each balance sheet date, with any changes in the fair value being recorded within the loss on revaluation of financial instruments line in the statements of operations and comprehensive loss.

Due to the antidilution protection, following the Merger, the Warrant was amended to allow the holder to purchase

10,914

shares of common stock at an exercise price of

$22.99

per share. Since the amended Warrant contains

no

non-standard antidilution protections or similar features, the fair value of

$70,000

on

February 13, 2018,

was transferred to equity.

The outstanding balance of this loan, including the additional final payment of

$325,000,

was paid in full on

November 4, 2019 (

see Note

13

).