| Debt |
Note 10 - Debt
Convertible
Note
On February 23,
2022, we entered into a Securities Purchase Agreement, as amended, with Lind Global, pursuant to which we issued to Lind Global the 2022 Convertible Note (see Note 1) and a common stock purchase warrant to acquire 1,283,732 shares of our Common Stock (the “2022 Warrant”). The 2022 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.
On June 23, 2023, we entered into a Amended & Restated Agreement to amend the February 23, 2022
Securities Purchase Agreement (Original Note).
| |
|
2022
Convertible
Note
|
|
|
2023
Convertible
Note
|
|
|
Total
Convertible
Notes
|
|
| |
|
Amount
|
|
|
Amount |
|
|
Amount |
|
| |
|
|
|
|
|
|
|
|
|
|
Convertible Note issued
|
|
$ |
5,750 |
|
|
|
1,800
|
|
|
|
7,550
|
|
|
Debt discount
|
|
|
(750 |
) |
|
|
(300 |
) |
|
|
(1,050 |
) |
|
Issuance cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment fee
|
|
|
(175 |
) |
|
|
(52 |
) |
|
|
(227 |
) |
|
Balance of investor’s counsel fees
|
|
|
(43 |
) |
|
|
(34 |
) |
|
|
(77 |
) |
|
Net proceeds of Convertible Note
|
|
$ |
4,782 |
|
|
|
1,414
|
|
|
|
6,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional OID costs not in original funds flow |
|
|
(121 |
) |
|
|
(15 |
) |
|
|
(136 |
) |
Fair value of Warrant Liabilities on issuance
|
|
|
(724 |
) |
|
|
(1,119 |
) |
|
|
(1,843 |
) |
Fair value of Conversion Feature on issuance
|
|
|
(306 |
) |
|
|
(286 |
) |
|
|
(592 |
) |
| Allocated OID costs to
Warrants |
|
|
25 |
|
|
|
30
|
|
|
|
55
|
|
|
Additional OID costs not in original funds flow
|
|
|
(660 |
) |
|
|
660
|
|
|
|
-
|
|
Interest expense accrued on Convertible Note as of June 30, 2023
|
|
|
2,346 |
|
|
|
9
|
|
|
|
2,355
|
|
| Principal and interest payments through June 30, 2023 |
|
|
(3,514 |
) |
|
|
-
|
|
|
|
(3,514 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance of Convertible Note as of June 30, 2023 |
|
$ |
1,828 |
|
|
|
693 |
|
|
|
2,521 |
|
The
Convertible Note provides for 18 monthly principal repayments of $319 thousand beginning 180 days from issuance. Payments could be
made in the form of cash, shares, or a combination of both at the discretion of GSE.
The 2022
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 2022 Convertible Note is equal to $1.94 per share, subject to customary adjustments. The 2022 Convertible Note matures in February of 2024, although we are permitted to prepay the 2022 Convertible Note, provided that Lind Global shall have the option to convert up to one third of the outstanding principal of the 2022 Convertible Note at a price per share equal to the lessor of the Repayment Share price or the conversion price (as
described below). The 2022 Convertible Note is guaranteed by each of our subsidiaries and is secured by a first priority lien on all of our assets. The 2022 Convertible Note is not subject to any financial covenants and events of default
under the 2022 Convertible Note are limited to events related to payment, market capitalization, certain events pertaining to conversion and 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 2022 Convertible Note will become immediately due and payable at an amount equal to 120% of the outstanding principal, subject to any cure periods described in the 2022 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 2022 Convertible Note.
On June 23, 2023, the Company and Lind Global agreed to amend
and restate the 2022 Convertible Note. The 2022 Convertible Note, as now amended, is now secured, interest free convertible promissory note in the principal amount of $2,747,228, such amount being the outstanding balance of the 2022 Convertible Note as of June 23, 2023. Just prior to the amendment, there was an event of default (EOD)
related to the total market capitalization provision in the original 2022 Convertible Note. The EOD that occurred was waived, and we incurred a 20% charge included in the amended and restated 2022 Convertible Note, which the Company has treated as additional interest. The 2022 Convertible Note now has a maturity
date of August 23, 2024 and is now payable, commencing on July 23, 2023, in twelve (12) consecutive monthly payments of $186,343 each and two (2) final payments of $255,556
each. The remainder of the terms of the 2022 Convertible Note, including terms around payment, prepayment, default and conversion, are unchanged.
The 2022 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.
On June
23, 2023 in connection with the 2022 amended and restated Convertible Note transaction, the Company evaluated the amendment and concluded it qualified as a troubled debt restructuring. The restructuring did not result in a gain or
loss but revised the effective interest rate used to amortized the note going forward.
On June
23, 2023, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which the Company issued to Lind Global the 2023 Convertible Note. The Company and Lind Global
also amended and restated the 2022 Convertible Note. The closings of the transactions contemplated under the 2023 Purchase Agreement may occur in tranches. The first closing occurred on June 23, 2023, and consisted of the issuance
of a secured, two-year interest free convertible promissory note with a funding amount of $1,500,000 and a principal amount of $1,800,000
(the 2023 Convertible Note) and the issuance of common stock purchase warrant to acquire 4,264,271 shares of the Company’s
common stock (the “2023 Warrant” and, together with the 2022 Warrant, the “Warrants”). The proceeds from the transactions contemplated by the 2023 Purchase Agreement were for general working capital purposes and other corporate
purposes.
Commencing
one year after the issuance of the 2023 Convertible Note, the Company shall pay the outstanding principal amount of the
2023 Convertible Note in twelve (12) consecutive monthly payments of $150,000 each. At the option
of the Company, the monthly payment can be made in cash, shares of the common stock of the Company (the “Repayment Shares”) at a price based on 90% of the average five (5) consecutive daily VWAPs during the twenty
(20) days prior to the payment date, or a combination of cash and Repayment Shares, subject to the terms of the 2023
Convertible Note. The Repayment Shares must either be eligible for immediate resale under Rule 144 or be registered. The number of Repayment Shares is limited such that, when added to the number of shares of common stock issued and
issuable pursuant to the transactions contemplated by the 2023 Purchase Agreement, it may not exceed 4,937,271 shares of
common stock unless the Company obtains stockholder approval to issue additional Repayment Shares. The holder of the 2023 Convertible Note may elect with respect to no more than two (2) of the above described monthly payments to
increase the amount of such monthly payment up to $300,000 each in Repayment Shares upon notice to the Company. Any
such increased payment shall be deducted from the amount of the last monthly payment owed under the 2023 Convertible Note. The Company can prepay Lind Global all the outstanding principal amount of the 2023 Convertible Note, provided
that Lind Global shall have the option to convert up to one third (1/3) of the outstanding principal amount of the 2023
Convertible Note at a price per share equal to the lesser of the Repayment Share price or the conversion price (as described below).
Upon the
occurrence of an event of default as described in the 2023 Convertible Note, the 2023 Convertible Note will become immediately due and payable at the default premium described in the 2023 Convertible Note, subject to any cure periods
described in the 2023 Convertible Note. Events of default include, but are not limited to, a payment default on any other indebtedness in excess of $250,000; the shares no longer publicly being traded or cease to be listed on a trading market; if after six months, the shares are not available for immediate resale under Rule 144; and the Company’s market capitalization is below $7,000,000 for ten (10) consecutive days. Upon an event of default, subject to any applicable cure period, the holder of the 2023 Convertible Note can, among
other things, accelerate payment of the 2023 Convertible Note and demand full payment and demand that all or a portion of the outstanding principal amount be converted into shares of common stock at the at the lower of the then
current conversion price and 85% of the average of the three (3) lowest daily VWAPs during the twenty (20) 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 the Company to prepay the outstanding principal amount of the 2023 Convertible Note. A change of control includes
a change in the composition of a majority of the Board of Directors of the Company, at a single shareholder meeting, a change, without prior written consent of Lind Global where a majority of the individuals that were directors as of
June 20, 2023 cease to be directors of the Company (provided that any individual who is nominated by the board of directors (or a duly authorized committee thereof) as of June 20, 2023 and is elected or appointed as a director of the
Company shall be deemed a member of the board of directors of the Company for all such purposes), a shareholder acquiring beneficial ownership of more than 50% of the common stock of the Company, or the sale or other disposition of the Company of all or substantially all of its assets. The 2023 Convertible Note is convertible
into common stock of the Company at any time after the earlier of six (6) months from issuance or the date the registration statement is effective, provided that no such conversion may be made that would result in beneficial
ownership by Lind Global and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. The
conversion price of the 2023 Convertible Note is equal to $0.50, subject to customary adjustments.
The 2023
Warrant entitles Lind Global to purchase up to 4,264,271 shares of common stock of the Company until the earlier of (a)
June 23, 2028 and (b) a merger, sale event or other reclassification of the Company’s common stock, at an exercise price of $0.50
per share, subject to customary adjustments described therein. The 2023 Warrant is in addition to the 2022 Warrant.
The Company evaluated the Convertible Notes 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 Warrants are 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 Warrants. As such, the proceeds (approximately $4.8 million, net of original issue discounts and other payments to lender) were allocated first to the fair value of the Warrants with the residual allocated to the
Convertible Notes host instrument. The proceeds allocated to the Convertible Notes were further allocated first to the bifurcated derivative liability based on its fair value with the residual being allocated to the Convertible Notes
host instrument.
Upon
issuance of the 2023 Convertible Note, the Company re-evaluated the 2022 Convertible Note, in accordance with ASC 815-40-25-10 and its sequencing policy, and concluded that the embedded conversion option is required to be bifurcated
and accounted for as a derivative liability as a result of the Company not being able to assert that it would have sufficient shares in all cases to be able to settle the conversion of the 2022 Convertible Note. The embedded
conversion option will be combined with the bifurcated redemption features as a single derivative and is classified as a current liability to be remeasured at each reporting period. The discount resulting from bifurcating the
embedded conversion option will be amortized as additional interest expense over the term of the 2022 Convertible Note.
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 Warrants 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 Notes 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 Notes were evaluated as a potentially dilutive security in both periods of loss and income for diluted earnings per
share purposes. The Warrants are considered a participating security and was not included in the calculation of basic earnings per share for the period ended June 30, 2023 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 Notes, which are recorded as a debt discount, are deferred and amortized using the
effective interest method as additional interest expense over the terms of the Convertible Note at an effective interest rate of 68.6%.
The Company incurred total interest expense related to the Convertible Notes of $1.1 million, including $0.5 million default charge
and the amortization of the various discounts for the six months ended June 30, 2023, respectively.
Revolving Line of Credit
In February 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 was terminated. Certain letters of credit remain in place with Citizens. As of June 30, 2023, we had four letters of credit totaling $1.1
million outstanding to certain customers which were secured with restricted cash.
|