Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Note Payable

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Note 5 - Note Payable
6 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
Debt Disclosure [Text Block]
5.
         Note Payable
  
On
June 20, 2016,
the Company entered into a Loan and Security Agreement, as amended
January 13, 2017 (
the
“2016
Loan Agreement”) with Western Alliance Bank (“WAB”), pursuant to which WAB agreed to loan the Company up to an aggregate of
$10,000,000
payable in
two
tranches of
$7,500,000
and
$2,500,000.
The funding conditions for both tranches were satisfied as of the closing date, and therefore, the aggregate principal amount of
$10,000,000
was provided on
June 20, 2016.
The terms of the loan also required the Company to meet certain financial and other covenants in connection with the
2016
Loan Agreement. In addition to all outstanding principal and accrued interest on the term loan, the terms of the loan required the Company to pay a final payment fee equal to
4.00%
of the original principal amount of the term loan. All borrowings under the
2016
Loan Agreement were collateralized by substantially all of the Company’s assets, including intellectual property. The outstanding principal balance and accrued interest related to this note payable were repaid in
May 2017.
 
In connection with the
2016
Loan Agreement, the Company issued a
10
-year warrant to WAB to purchase a total of
100,402
shares of the Company’s common stock at an exercise price of
$4.98
per share (See Note
7
). 
 
On
May 22, 2017,
the Company entered into a Term Loan Agreement (the
“2017
Loan Agreement”) with affiliates of CRG LP (“CRG”). The new credit facility consists of
$20,000,000
drawn at closing and the ability to access additional funding of up to an aggregate of
$10,000,000
for a total of
$30,000,000
available under the credit facility. The additional funding must be made on or prior to
September 17, 2018,
the availability of which is conditional on the achievement of certain revenue and market capitalization milestones including satisfying (a) minimum net revenue amounts from the Company’s products of at least
$16,000,000
during any consecutive
twelve
(
12
) month period ending on or prior to
June 30, 2018
and (b) minimum average market capitalization of at least
$60,000,000
for the
thirty
(
30
) consecutive days prior to the notice for the
second
borrowing.
 
A portion of the initial loan proceeds were used to repay all of the amounts owed by the Company under its existing
2016
Loan Agreement with WAB. The remainder of the initial loan proceeds (after deducting loan origination costs and other fees and expenses incurred in connection with the
2017
Loan Agreement), plus any additional amounts that
may
be borrowed in the future, will be used for general corporate purposes and working capital.
 
The
2017
Loan Agreement has a
six
-year term with
four
years of interest-only payments after which quarterly principal and interest payments will be due through the maturity date. Amounts borrowed under the
2017
Loan Agreement accrue interest at an annual fixed rate of
12.50%,
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. During the
three
months ended
June 30, 2017,
the Company paid interest in-kind of
$80,000
which was added to the total outstanding principal loan amount as of
June 30, 2017.
The Company is also required to pay CRG a final payment fee upon repayment of the loans in full equal to
5%
of the sum of the aggregate principal amount plus the deferred interest added to the principal loan amount during the interest-only period.
 
The Company
may
prepay all or a portion of the outstanding principal and accrued unpaid interest under the
2017
Loan Agreement at any time upon prior notice to CRG, subject to a prepayment fee during the
first
five
years of the term (which reduces each year) and
no
prepayment fee thereafter.
 
As security 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 require the Company to meet certain financial and other covenants. These covenants require the Company to maintain cash and cash equivalents of
$2.0
million and, each year through the end of
2022,
to meet a minimum total annual revenue threshold. In the event that the Company does
not
meet the minimum total annual revenue threshold for a particular year, then the Company can retroactively cure the shortfall by either issuing additional equity in exchange for cash or incurring certain additional permitted indebtedness, in each case, in an amount equal to
2.0
times the shortfall. Any such amounts shall be applied to prepay the loans. The
2017
Loan Agreement also contains customary affirmative and negative covenants for a credit facility of this size and type, including covenants that limit or restrict the Company’s ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends or make distributions, license intellectual property rights on an exclusive basis or repurchase stock, in each case subject to customary exceptions.
 
In connection with the
2017
Loan Agreement, the Company issued
two
10
-year warrants to CRG to purchase a total of
222,049
shares of the Company’s common stock at an exercise price of
$9.50
per share (See Note
7
). 
 
As of
June 30, 2017,
future minimum payments under the note payable are as follows (in thousands): 
 
Year Ending December 31,
 
 
 
 
2017 (remaining 6 months)
  $
877
 
2018
   
1,793
 
2019
   
1,867
 
2020
   
1,949
 
2021
   
11,204
 
Thereafter
   
17,154
 
Total payments
   
34,844
 
Less: Amount representing interest
   
(14,764
)
Present value of obligations
   
20,080
 
Less: Unamortized debt discount
   
(1,688
)
Note payable, noncurrent portion
  $
18,392