Business Context and Reporting Period
This Form 8-K was filed by OncoCyte Corporation (trading symbol: OCX) on October 17, 2019. The filing reports the entry into a material definitive agreement with Silicon Valley Bank to amend its existing loan and security agreement.
Key Financial Metrics and Debt Structure
The filing details a new secured credit facility rather than operational financial performance metrics such as revenue or profit.
- Tranche 1 Facility: $3 million secured credit line.
- Tranche 2 Facility: Potential additional $2 million contingent on raising $20 million in equity and achieving a specific CMS coverage determination for the Razor lung cancer test.
- Use of Proceeds: Repayment of approximately $400,000 in outstanding loans and a final payment of $116,000 under the previous 2017 agreement.
- Interest Rates: Floating rate for Tranche 1 (greater of 0.75% above prime or 4.25%); Tranche 2 (greater of prime or 5%).
- Maturity Date: March 31, 2022.
- Final Payment Fee: $200,000 due at maturity.
- Collateral: Substantially all assets excluding intellectual property (patents and trade secrets).
Material Changes and Equity Issuance
In conjunction with the loan amendment, OncoCyte issued a common stock purchase warrant to Silicon Valley Bank.
- Warrant Details: Entitles the bank to purchase 98,574 shares of common stock.
- Exercise Price: $1.69 per share.
- Expiration: October 17, 2029.
- Adjustment Mechanism: The number of shares issuable increases by 0.02% of fully diluted equity for each $1 million drawn under Tranche 2. The exercise price for Tranche 2 shares will be the closing stock price on the day prior to the draw.
- Cashless Exercise: The bank may elect a cashless exercise option based on the fair market value of the stock.
Repayment Terms and Prepayment Penalties
Interest-only payments are due monthly until March 31, 2020, followed by 24 monthly principal and interest payments. If the Tranche 2 milestone is met, the interest-only period extends to September 30, 2020, followed by 18 monthly payments.
Prepayment fees apply if the loan is paid off early:
- 3.0% if prepaid within one year of October 17, 2019.
- 2.0% if prepaid between one and two years.
- 1.0% if prepaid two years or more after the agreement date.
Risks, Contingencies, and Events of Default
The agreement defines specific "Events of Default" that could accelerate the debt, including:
- Failure to make timely payments.
- Material adverse changes in business, operations, or financial condition.
- Failure to provide timely financial statements or SEC filings.
- Legal judgments or threatened actions of $50,000 or more.
- Insolvency or delisting from the NYSE American.
The filing includes standard forward-looking statement disclaimers, noting that actual results may differ due to risks detailed in recent Form 10-K and 10-Q filings.
Investor Verification Checklist
- Verify the current status of the $20 million equity capital requirement needed to unlock Tranche 2.
- Confirm the status of the Centers for Medicare and Medicaid Services (CMS) coverage determination for the Razor lung cancer test.
- Review the company's cash flow projections to ensure ability to service the new debt and pay the $200,000 maturity fee.
- Assess the dilution impact of the warrant issuance, particularly if Tranche 2 is drawn.
- Monitor compliance with covenants regarding SEC filing timeliness and delisting risks.