Note 10 - Debt
Convertible
Note
On February 23,
2022, we entered into a Securities Purchase Agreement, as amended, with Lind Global Fund II LP (“Lind Global”), pursuant to which we issued to Lind Global a two-year, secured, interest-free convertible promissory note in the amount of $5.75
million (the “Convertible Note”) and a common stock purchase warrant to acquire 1,283,732 shares of our common stock (the
“Warrant”). The Convertible Note does not bear interest but was issued at a $0.75 million discount (“OID”). We received proceeds
of approximately $4.8 million net of the OID and expenses.
|
|
Amount
|
|
|
|
|
|
Convertible Note issued
|
|
$
|
5,750
|
|
Debt discount
|
|
|
(750
|
)
|
Issuance cost:
|
|
|
|
|
Commitment fee
|
|
|
(175
|
)
|
Balance of investor’s counsel fees
|
|
|
(43
|
)
|
Net proceeds of Convertible Note
|
|
$
|
4,782
|
|
|
|
|
|
|
Fair value of Warrant Liabilities on issuance
|
|
|
(724 |
) |
Fair value of Conversion Feature on issuance
|
|
|
(306 |
) |
Allocated OID costs to Convertible Note
|
|
|
(96 |
) |
Interest expense accrued on Convertible Note as of September 30, 2022
|
|
|
926 |
|
Principal and interest payments as of September 30, 2022 |
|
|
(639 |
) |
|
|
|
|
|
Balance of Convertible Note as of September 30, 2022
|
|
$ |
3,943 |
|
The
Convertible Note provides for monthly principal repayments of $319 thousand beginning 180 days from issuance. Payments can be made
in the form of cash, shares, or a combination of both at the discretion of GSE.
The
Convertible Note is convertible into our common stock at any time after the earlier of six months from issuance of the
Convertible Note or the date of an effective registration statement filed with the SEC covering the underlying shares. The conversion price of the Convertible Note is initially equal to $1.94 per share, subject to customary adjustments. The Convertible Note matures in February of 2024, although we are permitted to prepay the Convertible Note, provided that Lind Global shall have the option to convert up to one third of the outstanding principal of the Convertible Note at a price per share equal to the lessor of the Repayment Share price or the conversion price (as
described below). The Convertible Note is guaranteed by each of our subsidiaries and is secured by a first priority lien on all of our assets. The Convertible Note is not subject to any financial covenants and events of default under the
Convertible Note are limited to events related to payment, certain events pertaining to the underlying shares of common stock and other customary events including, but not limited to, bankruptcy or insolvency. Upon the occurrence of an
event of default, the Convertible Note will become immediately due and payable, subject to any cure periods described in the Convertible Note, and the customer may demand that all or a portion of the outstanding principal amount be
converted into shares of common stock at the lower of the then current conversion price and 80% of the average of the three lowest daily volume-weighted average price (“VWAPs”) during the twenty days prior to delivery of the conversion notice. If there is a change of control of the Company, Lind Global has the right to require us to prepay the outstanding principal
amount of the Convertible Note.
A portion of
the proceeds of the Convertible Note were used to repay, in full, all outstanding indebtedness owed to Citizens Bank, N.A. (“Citizens”), and the Amended and Restated Credit and Security Agreement between us, our subsidiaries, and Citizens
was terminated. We will continue to maintain a cash management account and certain letters of credit with Citizens and, accordingly, have entered into a certain Cash Management Agreement with Citizens, as well as certain Cash Pledge
Agreements in amounts corresponding to the current outstanding letters of credits with customers.
The Warrant entitles Lind Global to purchase up to 1,283,732 shares of our common stock until February 23, 2027, at an exercise price of $1.94 per share, subject to customary adjustments described therein. The Warrant is recorded at fair value upon issuance of $0.7 million and is classified as a current liability to be remeasured at each reporting period (see Note 8). The discount created by allocating proceeds to the
Warrant results in a debt discount to be amortized as additional interest expense over the term of the Convertible Note.
The Company evaluated the Convertible Note and concluded that certain embedded redemption features are required to be accounted for as
a derivative liability. Embedded redemption features were recorded at fair value upon issuance of $0.3 million and are
classified as current liabilities to be remeasured at each reporting period (see Note 8). The discount created by allocating proceeds to the
derivative liability results in a debt discount to be amortized as additional interest expense over the term of the Convertible Notes. The Warrant is accounted for as a derivative liability based on certain features included within the
Convertible Note which caused the Company to not be able to assert that it would have sufficient shares in all cases to be able to settle the warrant. As such, the initial proceeds (approximately $4.8 million, net of original issue discounts and other payments to lender) were allocated first to the fair value of the Warrant with the
residual allocated to the Convertible Note host instrument. The proceeds allocated to the Convertible Note were further allocated first to the bifurcated derivative liability based on its fair value with the residual being allocated to
the Convertible Note host instrument.
The direct and incremental costs incurred are allocated to the Convertible Note and the Warrant based on a systematic and rational
approach. The costs allocated to the Warrant have been expensed as incurred while those allocated to the Convertible Note have been capitalized and will be amortized as interest expense over the life of the Convertible Note based on the
effective interest rate. The Company will record ongoing changes to the fair value of the derivative liabilities as other non-operating income (expense).
The Convertible Note was evaluated as a potentially dilutive security in both periods of loss and income for diluted earnings per
share purposes. The Warrant is considered a participating security and was not included in the calculation of basic earnings per share for the period ended September 30, 2022 as Company reflected net loss for this period. The Warrant
will be included in the calculation of basic earnings per share in periods of net income.
The issuance costs with respect to the Convertible Note, which are recorded as a debt discount, are deferred and amortized using
effective interest method as additional interest expense over the terms of the Convertible Note.
The Company incurred total interest expense related to the Convertible Note, including the amortization of the various discounts, of $443 thousand and $926
thousand for the three and nine months ended September 30, 2022, respectively.
Revolving Line of Credit
On March 29, 2021, we signed the Ninth Amendment and Reaffirmation Agreement
with an effective date of March 29, 2021. Pursuant to the Ninth Amendment and Reaffirmation Agreement, the Bank waived the fixed charge coverage ratio and leverage ratio for the quarters ended March 31 and June 30, 2021, and we agreed, for
each quarter thereafter, that the fixed charge coverage ratio shall not be less than 1.10 to 1.00. In addition, we agreed to
not exceed a maximum leverage ratio starting on September 30, 2021. We were also required to maintain a minimum of $2.5 million in
aggregate USA liquidity. As part of the amendment, we agreed, at closing, (i) to make a $0.5 million pay down of RLOC; (ii) RLOC
commitment to be reduced to $4.25 million; and (iii) $0.5 million of RLOC will only be available for issuance of Letters of Credit. We also agreed to pay $0.5 million to reduce RLOC to $3.75 million by June 30,
2021 and to $3.5 million by September 30, 2021. Commencing December 31, 2021 and on the last day of each quarter, we will pay $75 thousand to reduce the RLOC. We incurred $25
thousand fees related to this amendment during the year ended December 31, 2021.
On November 12,
2021, we signed the Tenth Amendment and Reaffirmation Agreement with our bank to waive the fixed charge coverage ratio and leverage ratio for the quarters ending September 30 and December 31, 2021, and we agreed, (i) interest on the
outstanding principal amount of the RLOC shall accrue at the interest rate in effect for the RLOC from time to time, but the interest due and payable on the RLOC on each Interest Payment Date shall be determined by subtracting seventy-five
(75) basis points from the Applicable Margin and (ii) the seventy-five (75) basis points of accrued interest on the RLOC not paid on any Interest Payment Date pursuant to clause (i) above shall be due and payable on the Termination Date or the date of
payment in full of the RLOC. In addition, we agreed, by December 31, 2021, to pay the Bank $0.25 million to be applied to the
principal amount outstanding under the RLOC. We incurred $15 thousand of amendment fee related to this amendment.
During the nine months ended September 30, 2022, using proceeds from the Convertible Note, we repaid in full, all outstanding indebtedness of $1.8 million owed to Citizens, and the Amended and Restated Credit and Security Agreement between us, our subsidiaries, and Citizens has been terminated. Certain letters of credit remain
in place with Citizens. As of September 30, 2022, we had four letters of credit totaling $1.1 million outstanding to certain customers which were secured with restricted cash.
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