Note 8. Notes Payable and Convertible Notes Payable

Our notes payable and convertible notes payable as of June 30, 2025 and December 31, 2024 was as follows:

Maryland Loans

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 June 30, 2025 and December 31, 2024, 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 June 30, 2025 and 2024, respectively; and $4,000 and $4,000 during the six months ended June 30, 2025 and 2024, respectively.

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  June 30, 2025 and  December 31, 2024, 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 June 30, 2025 and 2024, respectively; and $20,000 and $20,000 during the six months ended June 30, 2025 and 2024, 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”). We drew a total of $1.0 million and our ability to draw the remaining $2.0 million expired in May 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 June 30, 2025 and December 31, 2024, 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. We recognized interest expense of $14,000 and $16,000 during the three months ended June 30, 2025 and 2024, respectively; and $29,000 and $31,000 during the six months ended June 30, 2025 and 2024, 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 June 30, 2025 and December 31, 2024, 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 June 30, 2025 and 2024, 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; (iii) amortization of debt issuance costs of $3,000 and $3,000, respectively; and the effective interest rate was 5.99% and 5.99%, respectively. During the six months ended June 30, 2025 and 2024, 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 $6,000 and $5,000, respectively; and the effective interest rate was 5.99% and 5.99%, respectively.

Avenue Loan

In May 2021, we entered into a term loan agreement (the “2021 Avenue Loan”) with Avenue Venture Opportunities Fund, L.P. (“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%. 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. At inception, 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”) that (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. However, we repaid the 2021 Avenue Loan in full on December 20, 2024 (the “Termination Date”) with the proceeds from the 2024 SSCP Notes (discussed below). The total repayment amount was approximately $7.9 million and included (i) the total outstanding balance of principal and accrued interest, (ii) a final payment of 4.25% of funded principal, equal to $0.9 million (the “Final Payment”), which was previously recorded as a debt premium at the inception of the 2021 Avenue Loan, and (iii) an early termination fee of 1% of the balance of outstanding principal. We recorded a loss on extinguishment of $0.2 million during the year ended December 31, 2024.

We recognized interest expense of $1.2 million and $2.3 million during the three and six months ended June 30, 2024. Avenue had the right to convert up to $5.0 million of principal into Common Stock (the “Avenue Conversion Feature”), which expired in May 2024 and was not exercised. For the convertible portion of the 2021 Avenue Loan, during the three and six months ended June 30, 2024, and prior to the expiration of the Avenue Conversion Feature in May 2024, we recognized (i) total interest expense of $0.2 million and $0.4 million, (ii) coupon interest expense of $0.1 million and $0.3 million, and (iii) amortization of debt discount and issuance costs of $0.1 million and $0.1 million, and the effective interest rate was 22.79% and 22.79%.

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”). 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.

Senior Secured Convertible Promissory Notes

In December 2024, we entered into a note purchase agreement (the “Note Purchase Agreement”) pursuant to which we sold the 2024 SSCP Notes in a principal amount totaling $10.0 million and bearing interest at an annual rate of 12.00%. The 2024 SSCP Notes were sold to related parties, including: (i) an entity controlled by a member of our board of directors, (ii) 4Life, and (iii) an entity controlled by the chairman of 4Life who is also a board member of a subsidiary of Clene (collectively, the “Holders”). Pursuant to the Note Purchase Agreement, we first used the 2024 SSCP Note proceeds to satisfy our obligations under the 2021 Avenue Loan. The 2024 SSCP Notes expire on the earlier of (i) June 20, 2026 or (ii) upon a change in control transaction. Payments are interest-only for the first 12 months, followed by monthly principal installments totaling $1.0 million per month until the maturity date, upon which date the remaining principal and accrued and unpaid interest shall be due. We recorded debt issuance costs of $1.5 million as a debt discount. We recognized interest expense of $0.3 million and $0.6 million during the three and six months ended June 30, 2025, and as of June 30, 2025 and December 31, 2024, the balance of accrued and unpaid interest was $37,000 and $37,000, respectively, and is recorded as part of the carrying amount of the notes.

We are subject to covenants until maturity, including a requirement to maintain unrestricted cash and cash equivalents of at least $2.0 million. We are not in violation of any covenants. If certain events of default occur and are continuing, the Holders of a majority of the outstanding principal balance may accelerate all obligations under the 2024 SSCP Notes, plus a penalty equal to 10% of all outstanding principal and accrued and unpaid interest (the “SSCPN Default Feature”). The 2024 SSCP Notes are collateralized by substantially all our tangible and intangible property and rights (the “Collateral”). During the continuance of an event of default, if the Collateral is sold or otherwise disposed of and the proceeds thereof are insufficient to satisfy our obligations under the 2024 SSCP Notes, we shall be liable for any deficiency, together with additional interest thereon at the rate of 10% per annum (the “SSCPN Collateral Deficiency Fee”). We account SSCPN Collateral Deficiency Fee as a contingent liability (see Note 9).

The Holders may, in their sole discretion, convert up to 65% of outstanding principal into the number of shares of our Common Stock equal to the outstanding principal to be converted divided by $5.668 (the “SSCPN Conversion Feature”). Notwithstanding, in the event a Holder declines to convert its pro rata share of outstanding principal, the remaining Holders may convert additional amounts, provided that no converted principal among all 2024 SSCP Notes exceeds $6.5 million. In the event of a change in control or any bankruptcy, liquidation, or other restructuring process, the Holders may, at their option, (i) convert up to 65% of outstanding principal into Common Stock, (ii) receive a cash payment equal to 115% of the outstanding principal, or (iii) any combination thereof, prior to such monetization event, before any security or claim junior to the 2024 SSCP Notes shall receive any proceeds from such monetization event (the “SSCPN Redemption Feature,” collectively with the SSCPN Conversion Feature and SSCPN Default Feature, the “SSCPN Derivative Liabilities”). The SSCPN Derivative Liabilities met the requirements to be separated as derivative instruments and measured at fair value (see Note 12). The issuance date fair value of the SSCPN Derivative Liabilities was $1.4 million and was recorded as a debt discount. For the convertible portion of the 2024 SSCP Notes, during the three and six months ended June 30, 2025, we recognized (i) total interest expense of $0.4 million and $0.7 million, (ii) coupon interest expense of $0.2 million and $0.4 million, and (iii) amortization of debt issuance costs of $0.2 million and $0.3 million, and (iv) the effective interest rate was 24.65% and 24.65%.

We are required to file and maintain an effective registration statement covering the resale of the shares underlying the SSCPN Conversion Feature or we shall pay the Holders a penalty equal to 2% of the face value of the 2024 SSCP Notes upon the occurrence of any such failure and for each 30-day period during which such failure is continuing (the “SSCPN Registration Fee”). The aggregate penalty will in no event exceed 10% of the face value of the 2024 SSCP Notes. We account for the SSCPN Registration Fee as a registration payment arrangement to be evaluated as a contingent liability (see Note 9).

Debt Maturities

Future debt payments, net of unamortized discounts and debt issuance costs, without giving effect to any potential future exercise of equity conversion features, and without giving effect to an amendment to the 2024 SSCP Notes which occurred subsequent to  June 30, 2025 (see Note 17), are as follows: