Note 6 - Secured Promissory Notes |
6 Months Ended |
|---|---|
Jun. 30, 2026 | |
| Notes to Financial Statements | |
| Debt Disclosure [Text Block] |
Note 6 – Secured Promissory Notes
As previously disclosed in Note 2 - Liquidity and Summary of Significant Accounting Policies, we received $500,000 in proceeds from the pre-funding of loans on December 31, 2025, an additional $500,000 in funding proceeds upon the initial closing in January 2026, and an additional $675,000 in proceeds upon the closing of an interim funding in May 2026. On January 21, 2026, we entered into a Loan and Security Agreement (the “Loan Agreement”) with four lenders (collectively, the “Initial Lenders”), including an original loan amount of $200,000 from a related party and a director of Nuo. The Loan Agreement provided for loans in an aggregate principal amount of up to $1.6 million with (a) $1.0 million funded as of the initial closing date (the “Initial Funding”) and (b) $600 thousand to be funded, if requested in advance by us and subject to closing conditions, on September 30, 2026 (the “Second Funding”). The closing of the Initial Funding occurred on January 23, 2026. On May 29, 2026, the Loan Agreement was amended (the “Loan Agreement Amendment”) to add a fifth lender (together with the Initial Lenders, the “Lenders”), increase the aggregate principal amount available under the loan to $2.0 million, and establish an interim funding of $675,000 which occurred upon the closing on May 29, 2026 (the “Interim Funding”). The loan amount from the related party increased to $300,000. Management evaluated the amendment and accounted for it as a modification.
At the closing of the Initial Funding and Interim Funding, we issued Secured Promissory Notes (each, an “Initial Note” or “Interim Note”) to the Lenders and upon any Second Funding, we will issue an additional Secured Promissory Note (each, if any, a “Second Note”). The Initial Note initially bore interest at an annual rate of 10%. Concurrent with the Interim Funding, the interest rate on the Initial Notes increased to an annual rate of 12%, the interest rate at issuance of the Interim Notes was also 12%, and the interest rate of the Second Notes will also be 12%, if issued, upon a Second Funding.
The maturity date of each Initial Note and Interim Note and any Second Note is December 31, 2028 (the “Maturity Date”).
In connection with the issuance of the secured notes payable at the Initial and Interim Fundings, we issued up to 361,665 warrants to purchase common shares of common stock at an exercise price of $1.50 per common share. (See Note 5 – Stock Purchase Warrants for further information). The 148,000 vested warrants issued at the Initial Funding had a fair value of $149,635 and the additional 120,125 vested warrants issued at the Interim Funding had a fair value of $63,660. Both issuances created a debt discount that was amortized immediately as additional interest expense.
Interest on the Initial and Interim Notes and, if any, the Second Notes (together, the “Notes”) will be payable in warrants and not in cash. Interest on the Notes will be payable and issued at the Maturity Date or earlier upon certain prepayments. Interest on the Notes will accrue on a quarterly calendar basis without regard to partial quarters. The Notes are interest only through December 31, 2026. The principal on the Notes is repayable in cash in equal quarterly installments on the last business day of each calendar quarter commencing March 31, 2027 and continuing to the Maturity Date.
We may, at our option on the last business day of a calendar quarter commencing December 31, 2026, voluntarily prepay the Notes in their entirety by paying the then outstanding principal balance and all accrued interest on the Notes, subject to a prepayment fee equal to 1.5% of the then outstanding principal balance if the Notes are prepaid on or after December 31, 2026 but before December 31, 2027, with no prepayment fee applicable to such prepayments on or after December 31, 2027. The prepayment fee, if any, is payable in Prepayment Warrants as described below, and not in cash, that will vest in the event of a voluntary prepayment.
In addition, the Loan Agreement, as amended and restated, mandates the prepayment of the Notes in the event of (i) an equity financing of at least $5 million, (ii) certain changes in control as defined in the Loan Agreement, or (iii) a default by Nuo. In the event of such an equity financing or change in control, we have agreed to repay the Notes in their entirety by paying the then outstanding principal balance and all accrued interest on the Notes, subject to a prepayment fee equal to 2.75% of the then outstanding principal balance if such event occurs before December 31, 2026 and 1.5% of the then outstanding principal balance if such event occurs on or after December 31, 2026 but before December 31, 2027, with no prepayment fee applicable if such event occurs on or after December 31, 2027. In the event of a default, we have agreed to repay the Notes in their entirety by paying the then outstanding principal balance and all accrued interest on the Notes, subject to a prepayment fee equal to 2.75% of the then outstanding principal balance. The prepayment fee, if any, is payable in warrants, and not in cash, that will vest in the event of a mandatory prepayment.
The Notes are secured by a lien upon and security interest in all of the Company’s assets, including intellectual property. The Loan Agreement, as amended and restated, contains customary representations, warranties, and covenants.
We elected to account for the secured notes payable using the fair value option. See Note 8 - Fair Value for further information. |