Annual report pursuant to Section 13 and 15(d) 12-31-2018

Debt

v3.19.1
Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt

7. Debt

 

L2 Capital Debt

 

On January 31, 2018, the Company signed a promissory note in the aggregate principal amount of up to $0.84 million (the “L2 Note”) for an aggregate purchase price of up to $0.75 million and warrants to purchase up to an aggregate of 68,257 shares of common stock (the “Warrants”) at an exercise price of $3.31 per share. The maturity date was six months from date of funding. The L2 Note’s interest rate was 8% per year and a default interest rate of 18% per year. The L2 Note was able to be converted by the holder of the Note at any time following an event of default. The conversion price of the L2 Note in the event of a default was equal to the product of (i) 0.70 multiplied by (ii) the lowest volume weighted average price, or VWAP, of the Company’s common stock during the 20-day trading period ending in the Holder’s sole discretion on the last complete trading day prior to conversion, or, the conversion date.

 

On May 14, 2018, the Company closed on an underwritten public offering of units, consisting of convertible preferred stock and warrants, for gross proceeds of $15.0 million. Part of the proceeds from this offering were used to pay off the outstanding debt with L2 Capital. The total payoff was $1.1 million, with $0.7 million in principal and $0.4 million in interest.

 

Hercules and MEF I, LP/Anson Investments Debt Exchange

 

On January 3, 2018, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with MEF I, LP and Anson Investments Master Fund (collectively the “Assignees” and each an “Assignee”), Hercules Technology III, L.P. (“HT III”) and Hercules Capital, Inc. (“HC” and, together with HT III, “Hercules”), pursuant to which Hercules assigned to the Assignees all amounts remaining due under the Loan and Security Agreement, dated June 30, 2014, as amended, between the Company and Hercules (the “Loan and Security Agreement”) and (2) the note (the “Hercules Note”) between the Company and Hercules evidencing the amounts due under the Loan and Security Agreement. The total amount assigned by Hercules to the Assignees in the aggregate was $2.3 million and was secured by the same collateral underlying the Loan and Security Agreement. Subsequently, the Company entered into an exchange agreement pursuant to which the Assignees agreed to exchange the Hercules Term Loan obligation acquired by them for two senior secured convertible promissory notes issued by the Company, each in the principal amount of $1.1 million for an aggregate principal amount of $2.2 million, (the “Exchange Notes”). The Exchange Notes were scheduled to mature on February 3, 2019 (the “Maturity Date”). The Exchange Notes had interest at a rate of 15% per annum. Prior to the Maturity Date, principal and interest accrued under the Exchange Notes was payable in cash or, if certain conditions were met, payable in shares of our common stock. All principal accrued under the Exchange Notes was convertible into shares of our common stock (“Conversion Shares”) at the election of the holders at any time at a fixed conversion price of $3.87 per share. Upon the occurrence of an event of default, the Assignees were entitled to convert all or any part of their Exchange Notes at a conversion price (the “Alternate Conversion Price”) equal to 70% of the lowest traded price of our common stock during the ten trading days prior to the conversion date, provided that (i) in no event was the Alternate Conversion Price less than $1.75 per share and (ii) the Assignees were not entitled to receive more than 19.99% of the outstanding Common Stock. So long as these Exchange Notes remained outstanding or the Assignees held any Conversion Shares, the Company was prohibited from entering into any financing transaction pursuant to which the Company sell its securities at a price lower than $1.75 per share. The Exchange Notes were secured by a first priority security interest in substantially all of the Company assets, including intellectual property, and contains covenants restricting payments to certain of our affiliates.

 

On May 14, 2018, the Company closed on an underwritten public offering of units, consisting of convertible preferred stock and warrants, for gross proceeds of $15.0 million. Part of the proceeds from this offering were used to pay off the outstanding debt with MEF I, L.P and Anson Investments. The total payoff was $1.6 million, with $1.4 million in principal and $0.2 million in interest.

 

North Stadium Term Loan – Related Party

 

On July 28, 2017, the Company entered into a $2.5 million term loan (the “North Stadium Loan”) with North Stadium Investments, LLC (“North Stadium”), a company owned and controlled by the Company’s Chief Executive Officer and Chairman of the Board. The North Stadium Loan bore interest at 10% per annum and required the Company to make monthly interest only payments from September 5, 2017 through July 5, 2018. All principal and unpaid interest (if any) under the North Stadium Loan was due and payable on July 28, 2018. The North Stadium Loan was secured by substantially all of the Company’s assets but was junior to security interest in assets encumbered by the Hercules Term Loan (see below). In connection with the North Stadium Loan the Company also issued North Stadium a warrant to purchase up to 55,000 shares of the Company’s common stock at a purchase price of $5.04 per share, subject to a 5-year term. The relative estimated value of the warrants on the date of grant approximated $0.2 million, which was being amortized as interest expense over the life of the term loan.

 

On October 1, 2018, CTL Medical assumed the North Stadium Term Loan debt as part of the sale of the retail spine business. As of December 31, 2018, the Company has been released by North Stadium from any and all obligations related to this debt.

 

Hercules Term Loan

 

On June 30, 2014, the Company entered into a Loan and Security Agreement with Hercules which provided the Company with a $20.0 million term loan. The Hercules Term Loan matured on January 1, 2018. The Hercules Term Loan included a $0.2 million closing fee, which was paid to Hercules on the closing date of the loan. The closing fee was recorded as a debt discount and was being amortized to interest expense over the life of the loan. The Hercules Term Loan also included a non-refundable final payment fee of $1.7 million. The final payment fee was being accrued and recorded to interest expense over the life of the loan.

 

On January 3, 2018, the Hercules Term Loan and all amounts owing thereunder was assigned to MEF I and Anson Investments. See discussion above for a more detailed description of that transaction.

 

Long-term debt consisted of the following (in thousands):

 

    December 31, 2018     December 31, 2017  
          Unamortized                 Unamortized        
    Outstanding    

Discount and Debt

Issuance

    Net Carrying     Outstanding    

Discount and Debt

Issuance

    Net Carrying  
    Principle     Costs     Amount     Principle     Costs     Amount  
Hercules Term Loan   $ -     $ -     $ -     $ 605     $ -     $ 605  
North Stadium            -               -           -         2,500           (144 )     2,356  
Total debt     -       -       -       3,105       (144 )     2,961  
Less: Current portion     -       -       -       (3,105 )     144       (2,961 )
Long-term debt   $ -     $ -     $ -     $ -     $ -     $ -