Quarterly report pursuant to Section 13 or 15(d)

Note 8 - Debt

v3.24.2.u1
Note 8 - Debt
 9 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 8 – Debt

 

SWK Residual Royalty Agreement

 

On March 5, 2018, the Company entered into a Credit Agreement (as amended, the “Credit Agreement”) with the financial institutions party thereto from time to time (the “Lenders”) and SWK Funding LLC, as agent for the Lenders (the “Agent”), for a synthetic royalty financing transaction. On and subject to the terms of the Credit Agreement, the Lenders provided the Company with a term loan of $10.0 million, which was advanced to the Company on the date of the Credit Agreement. The Company repaid the loan and return premium specified in the Credit Agreement in August 2021, and as a result has no further obligations under the Credit Agreement. The Agent has released its security interest in Company collateral previously pledged to secure its obligations under the Credit Agreement.

 

In connection with the Credit Agreement, the Company and the Agent also entered into a Residual Royalty Agreement, dated as of March 5, 2018 (as amended, the “Residual Royalty Agreement”), which provides for an ongoing royalty payment of 5% of product revenue from net sales of FC2. The Residual Royalty Agreement will terminate upon (i) a change of control or sale of the FC2 business and the payment by the Company of the amount due in connection therewith pursuant to the Residual Royalty Agreement, or (ii) mutual agreement of the parties. If a change of control or sale of the FC2 business occurs, the Agent will receive a payment that is the greater of (A) $2.0 million or (B) the product of (x) 5% of the product revenue from net sales of FC2 for the most recently completed 12-month period multiplied by (y) five.

 

For accounting purposes, the $10.0 million advance under the Credit Agreement was allocated between the Credit Agreement and the Residual Royalty Agreement on a relative fair value basis. A portion of the amount allocated to the Residual Royalty Agreement, equal to the fair value of the respective change of control provisions, was allocated to an embedded derivative liability. The derivative liability is adjusted to fair market value at each reporting period.

 

At June 30, 2024 and September 30, 2023, the Residual Royalty Agreement liability consisted of the following:

 

   

June 30,

    

September 30,

  
   

2024

    

2023

  
                 

Residual royalty agreement liability, fair value at inception

   $ 346,000     $ 346,000  

Add: accretion of liability using effective interest rate

     12,815,552       12,377,949  

Less: cumulative payments

     (4,827,097 )     (4,320,190 )

Residual royalty agreement liability, excluding embedded derivative liability

     8,334,455       8,403,759  

Add: embedded derivative liability at fair value (see Note 3)

     1,229,000       1,331,000  

Total residual royalty agreement liability

     9,563,455       9,734,759  

Residual royalty agreement liability, short-term portion

     (986,388 )     (864,623 )

Residual royalty agreement liability, long-term portion

   $ 8,577,067     $ 8,870,136  

 

As the Company has repaid the original principal of $10.0 million advanced in connection with the Credit Agreement and the Residual Royalty Agreement, payments under the Residual Royalty Agreement are classified as interest payments and included in operating activities on the accompanying unaudited condensed consolidated statements of cash flows. The short-term portion of the Residual Royalty Agreement liability represents the aggregate of the estimated quarterly payments on the Residual Royalty Agreement payable during the 12-month period subsequent to the balance sheet date.

 

Interest expense on the accompanying unaudited condensed consolidated statements of operations relates to the accretion of the liability for the Residual Royalty Agreement. The accretion of the liability is based on projected FC2 revenues.

 

Premium Finance Agreement

 

On November 1, 2022, the Company entered into a Premium Finance Agreement to finance $1.4 million of its directors and officers liability insurance premium at an annual percentage rate of 6.3%. The financing is payable in eleven monthly installments of principal and interest, beginning on December 1, 2022. The balance of the insurance premium liability was $0.1 million as of September 30, 2023 and was included in accrued expenses and other current liabilities on the accompanying unaudited condensed consolidated balance sheet. The last payment was made in October 2023 and there is no balance outstanding as of June 30, 2024.