v3.25.1
Notes Payable
 12 Months Ended
Dec. 31, 2024
Notes Payable [Abstract]  
Notes Payable

Note 7 — Notes Payable 

 

Veru Notes Payable

 

In connection with the Veru APA (see Note 5), the Company executed three non-interest bearing notes payable (the “Notes”) in the principal amounts of $4.0 million, $5.0 million and $5.0 million with initial maturity dates of September 30, 2023, April 19, 2024, and September 30, 2024, respectively. In accordance with the Notes, no principal payments are due until maturity, however, the Company may voluntarily prepay the Notes with no penalty. Additionally, in an Event of Default, as defined in the Notes, the unpaid principal amount of the Notes will accrue interest at a rate of 10.0% per annum.

 

The Company imputed interest on the Notes using an average discount rate of 8.2% and recorded a debt discount of approximately $1.1 million at the issuance date. The debt discount is reflected as a reduction in the carrying amount of the Notes and amortized to interest expense through the respective maturity dates, using the effective interest method.

On September 29, 2023, the Company and the note holder entered into an amendment to the Veru APA, which provided that the $4.0 million note payable originally due on September 30, 2023 was deemed paid and fully satisfied upon (1) the payment to the Seller of $1.0 million in cash on September 29, 2023, and (2) the issuance to the Seller by October 3, 2023 of 3,000 shares of Series A Preferred Stock of the Company (see Note 5). In connection with the Veru APA Amendment, the Company recorded an extinguishment loss on the note payable of approximately $490,000, which represents the difference between the fair value of the Series A Preferred Stock that was issued to settle the debt and the carrying value of the note payable as of September 29, 2023. Pursuant to the Veru APA Amendment, the Series A Preferred Stock would convert to common stock of the Company one year from the date of issuance if the required stockholder approval was obtained. The Series A Preferred Stock, which was issued to the Seller on October 3, 2023 was initially convertible, in the aggregate, into 142,749 shares of the Company’s common stock, subject to adjustment and certain stockholder approval limitations specified in the Certificate of Designations. Stockholder approval was obtained during September 2024 and therefore subsequent conversion of the Series A Preferred Stock to common stock was consummated by the Company during the quarter ended September 30, 2024 (see Note 9). The Company also agreed to include the shares of common stock issuable upon conversion of the Series A Preferred Stock in the next resale registration statement filed with the SEC. To that end, the Company registered 130,321 shares of common stock, out of the 142,749 shares issued to Veru, in a registration statement filed with the SEC on November 1, 2024. Of the 142,749 shares issued to Veru originally, 12,428 shares were sold prior to registration. As a result, the remaining unsold shares of 130,321 were registered.

 

On April 24, 2024, the Company entered into a forbearance agreement with Veru (the “Original Forbearance Agreement”) due to the Company’s failure to repay the principal balance on the $5.0 million note payable that had a maturity date of April 19, 2024 (the “April Veru Note”). Pursuant to the Original Forbearance Agreement, Veru will forbear from exercising its rights and remedies under the April Veru Note as a result of this default, until March 31, 2025 (the “April 2024 Forbearance Period”).

 

Interest will accrue on any unpaid principal balance of the April Veru Note at a rate of 10% per annum, commencing on April 20, 2024 through the date that the outstanding principal balance under the April Veru Note is paid in full. Any such accrued interest will become immediately due and payable upon the earlier of (i)certain events of default under the April Veru Note or the $5.0 million note payable that matures on September 30, 2024 (the “September Veru Note”), (ii) a payment default under the September Veru Note and (iii) the final payment of any principal amount payable under the September Veru Note. No interest was to accrue under the September Veru Note during the April 2024 Forbearance Period unless an Event of Default (as defined in the Original Forbearance Agreement) occurs, in which case interest will accrue from and after the date on which such default occurs.

 

In consideration for Veru’s entrance into the Original Forbearance Agreement, the Company agreed to pay Veru:

 

  ● $50,000 of the principal due under the April Veru Note, which was paid on April 25, 2024, and up to $10,000 of out-of-pocket expenses incurred by Veru in connection with the Original Forbearance Agreement;
     
  ● 15% of (i) the monthly cash receipts of Proteomedix for the licensing or sale of any products or services, (ii) monthly cash receipts of the Company or any of its subsidiaries for the sales of Proclarix anywhere in the world, and (iii) monthly cash receipts of the Company or any of its subsidiaries for milestone payments or royalties from LabCorp; and
     
  ● 10% of the net proceeds from any financing or certain asset sale, transfer or licensing transactions that are consummated prior to March 31, 2025.

 

The Company also agreed to a general release of claims against Veru and its representatives arising out of or relating to any act or omission thereof prior to April 24, 2024.

 

The Company determined that the Original Forbearance Agreement should be accounted for as a modification of the April Veru Note and the September Veru Note in accordance with ASC 470-50, Debt - Modifications and Extinguishments (“ASC 470”), as the change in cash flows expected under the April Veru Note and the September Veru Note was not substantial. A new effective interest rate was established based on the carrying value of the original Notes and the revised cash flows and no gain or loss was recorded.

 

On September 19, 2024, the Company entered into an Amended and Restated Forbearance Agreement with Veru (the “Amended and Restated Forbearance Agreement” or “A&R Forbearance Agreement”), which amends and restates the Original Forbearance Agreement in its entirety. Pursuant to the A&R Forbearance Agreement, Veru will forbear from exercising its rights under both the April Veru Note and the September Veru Note, subject to the terms and conditions set forth below.

The A&R Forbearance Agreement extends the due date for the April 2024 and September 2024 Veru Notes until the earlier to occur of (i) June 30, 2025 or (ii) the occurrence of any Event of Default. The Amended and Restated Forbearance Agreement also effected certain modifications to the payment terms in the Original Forbearance Agreement and amended certain terms of the September Veru Note as summarized below.

 

Pursuant to the A&R Forbearance Agreement, the Company agreed to make the following required payments (the “Required Payments”) during the April 2024 Forbearance Period, first to accrued and unpaid interest under the April Veru Note and then any remainder to the outstanding principal amount of the April Veru Note:

 

  ● Interest at the rate of 10% per annum shall accrue on any unpaid principal balance of the April Veru Note commencing on April 20, 2024 through the date that the outstanding principal balance under the April Veru Note is paid in full;

 

  ● Monthly payments equal to 25% (increased from 15% in the Original Forbearance Agreement) of (i) the monthly cash receipts of Proteomedix for the licensing or sale of any products or services, (ii) monthly cash receipts of the Company or any of its subsidiaries for the sales of Proclarix anywhere in the world, and (iii) monthly cash receipts of the Company or any of its subsidiaries for milestone payments or royalties from LabCorp cash receipts of the Company or any of its subsidiaries from certain sale or licensing revenues or payments (the “Ordinary Cash Revenue”), which increased amount began October 20, 2024 for cash receipts in September 2024;

 

  ● Payment of 20% (increased from 10% in the Original Forbearance Agreement) of the net proceeds from certain financing or other transactions outside the ordinary course of business completed by the Company or any of its subsidiaries during the April 2024 Forbearance Period, which increased amount will begin for any net proceeds received after September 19, 2024; and

 

  ● The remaining balance of the April Veru Note will be due at the end of the April 2024 Forbearance Period.

 

The Company and Veru also agreed to the following amendments to the September Veru Note in the A&R Forbearance Agreement:

  

  ● As noted above, an extension of the maturity date to June 30, 2025;

 

  ● The accrual of interest at the rate of 10% per annum on any unpaid principal balance of the September Veru Note commencing on October 1, 2024 through the date that the outstanding principal balance under the September Veru Note is paid in full;

 

  ● Any amounts owed on the September Veru Note, including but not limited to unpaid principal and accrued interest, will be paid in cash or, upon the mutual written consent of Veru and the Company, in shares of the Company’s Common Stock or a combination of cash and the Company’s Common Stock;

 

  ● Following full repayment of all principal and interest under the April Veru Note, the Company will make the Required Payments first towards accrued and unpaid interest under the September Veru Note and then towards the remaining principal balance payable under the September Veru Note;

 

  ● If the aggregate unpaid principal outstanding under the April Veru Note and the September Veru Note and all accrued and unpaid interest thereon is repaid in cash on or before December 31, 2024, then the total principal balance under the September Veru Note that will be payable by the Company in satisfaction of its obligations under the September Veru Note will be reduced from $5.0 million to $3.5 million.

 

The Company determined the A&R Forbearance Agreement should be accounted for as a modification of both the April and September Veru Notes in accordance with ASC 470-50, Debt - Modifications and Extinguishments (“ASC 470”), as the change in cash flows expected under the April Veru Note and the September Veru Note was not substantial. A new effective interest rate was established based on the carrying value of the original Notes and the revised cash flows and no gain or loss was recorded.

 

On November 26, 2024, the Company entered into another Amended and Restated Forbearance Agreement with Veru (the “November Amended and Restated Forbearance Agreement” or “November A&R Forbearance Agreement”), which amends and restates certain terms of the Amended and Restated Forbearance Agreement. Pursuant to the November A&R Forbearance Agreement, Veru agreed to waive the due date for payment of applicable Cash Receipt Payments (as such term is defined in the A&R Forbearance Agreement) generated in October 2024 until the Company receives funds of at least $97,000 pursuant to its equity line of credit facility with Keystone Capital Partners LLC. In exchange, the Company agreed to increase its payments to be made to Veru out of future financing and strategic transactions through June 30, 2025, from 20% to 25% of net proceeds generated from such transactions. All other terms of the A&R Forbearance Agreement with Veru remain the same. Management has evaluated and concluded that there is no accounting impact from the A&R Forbearance Agreement with Veru.

 

During the year ended December 31, 2024 and 2023, the Company recorded approximately $1.4 million and $0.7 million of associated interest expense, respectively, which includes accrued interest and amortization of the debt discount. The unamortized debt discount as of December 31, 2024 and 2023 was $5,000 and $0.4 million. As of December 31, 2024, the Company has recorded accrued interest of approximately $0.1 million on the Notes, which is included in accrued expenses in the accompanying consolidated balance sheets.

 

Future minimum principal payments on the Notes as of December 31, 2024 include $4.3 million in principal payments that are due in March 2025 and $5.0 million principal payments that are due in June 2025.

Related Party Debenture

 

On January 23, 2024, the Company issued a non-convertible debenture (the “Debenture”) to the PMX Investor, a related party, in the principal sum of $5.0 million, in connection with the Subscription Agreement discussed in Note 8. The Debenture has an interest rate of 4.0% per annum, and the principal and accrued interest was originally payable in full upon the earlier of (i) the closing under the Subscription Agreement and (ii) June 30, 2024. Additionally, the $5.0 million subscription amount under the Subscription Agreement shall be increased by the amount of interest payable under the Debenture.

 

On April 24, 2024, the maturity date of the related party debenture was extended to October 31, 2024, through the execution of an extension agreement (the “Extension Agreement”) between the Company and the PMX investor. No other terms of the Debenture were modified in connection with the Extension Agreement.

 

The Company considered the guidance of ASC 470-60, Troubled Debt Restructuring by Debtors, and concluded that the Extension Agreement should be accounted for as a troubled debt restructuring as the Company is experiencing financial difficulty and since the effective borrowing rate under the Extension Agreement is less than the effective borrowing rate under the original agreement, which indicates that a concession is deemed to have been granted. This did not result in a gain on restructuring as the future undiscounted cash outflows required under the Extension Agreement exceed the carrying value of the Debenture immediately prior to the extension. A new effective rate was established based on the carrying value of the original Debenture and the revised cash flows.

 

In connection with the issuance of the Debenture, the Company incurred approximately $0.4 million in financing fees, which was recorded as a debt discount, and reflected as a reduction in the carrying amount of the Debenture. The debt discount is being amortized to interest expense through the maturity date. The Company did not incur any financing fees in connection with the Extension Agreement.

 

On September 24, 2024, the Company converted all unpaid principal and accrued interest due under the Debenture into 500,000 units, attributable to principal, and 13,424 units, attributable to accrued interest, upon the closing of the Subscription Agreement. Each unit consisted of 1 share of common stock and 0.30 pre-funded warrants at an exercise price of $0.04 per share. As a result of the transaction, 513,424 shares of common stock were issued, and 154,027 pre-funded warrants were issued. As of December 31, 2024, there is no outstanding balance or accrued interest remaining on the Debenture. The remaining unamortized debt discount was immediately expensed upon settlement.

 

The Company recorded approximately $0.5 million of interest expense on the Debenture during the year ended December 31, 2024, respectively, which includes accrued interest and amortization of the debt discount.

 

Insurance Financing

 

During the year ended December 31, 2024, the Company obtained financing for certain Director & Officer liability insurance policy premiums. The agreement assigns the lender a first priority lien on and security interest in the financed policies and any additional premium required in the financed policies.

 

The total premiums, taxes and fees financed are approximately $0.7 million, with an annual interest rate of 7.79%. In consideration of the premium payment by the lender to the insurance companies or the agent or broker, the Company unconditionally promised to pay the lender the amount financed plus interest and other charges permitted under the agreement. As of December 31, 2024, the company had paid off the insurance financing note payable. The Company paid the insurance financing through monthly installment payments of approximately $78,000, the last payment for the note was paid on November 17, 2024.

 

PMX Note Payable

 

The Company also assumed an obligation in the amount of 100,000 CHF, in connection with the Proteomedix acquisition. This obligation relates to a loan from an investor that was advanced to Proteomedix in March 2010. This loan bears no interest, is unsecured and may be cancelled by the Company at its discretion. The loan was terminated in the fourth quarter of 2024. The long term note payable has no outstanding balance as of December 31, 2024.