Quarterly report pursuant to Section 13 or 15(d)

Note 8 - Debt

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Note 8 - Debt
 3 Months Ended
Dec. 31, 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.

 

In connection with the closing of the FC2 Business Sale, on December 30, 2024, the Company made a change of control payment of $4.2 million to SWK pursuant to the Residual Royalty Agreement, and upon such payment, the Residual Royalty Agreement terminated in accordance with its terms. The Company recognized a gain on extinguishment of debt of $8.6 million for the difference between the change of control payment of $4.2 million and the net carrying amount of the extinguished debt, which included an embedded derivative for the change of control provision at fair value. See Note 4 for additional information.

 

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 the embedded derivative liability. The derivative liability was adjusted to fair market value at each reporting period.

 

At December 31, 2024 and September 30, 2024, the Residual Royalty Agreement liability consisted of the following:

 

   

December 31,

    

September 30,

  
   

2024

    

2024

  
                 

Residual royalty agreement liability, fair value at inception

   $ 346,000     $ 346,000  

Add: accretion of liability using effective interest rate

     13,149,689       12,985,419  

Less: cumulative payments

     (5,357,616 )     (5,024,790 )

Less: extinguishments

     (8,138,073 )     —  

Residual royalty agreement liability, excluding embedded derivative liability

     —       8,306,629  

Add: embedded derivative liability at fair value (see Note 4)

     —       1,570,000  

Total residual royalty agreement liability

     —       9,876,629  

Residual royalty agreement liability, short-term portion

     —       (1,025,837 )

Residual royalty agreement liability, long-term portion

   $ —     $ 8,850,792  

 

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. The last payment was made in October 2023 and there is no balance outstanding as of December 31, 2024 or September 30, 2024.