| Debt |
Note 9 - 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 and a common stock purchase warrant to acquire 128,373 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, the Company entered into a second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which we issued to
Lind Global that certain Senior Convertible Promissory Note, dated February 23, 2022 (the “2023 Convertible Note” and, together with the 2022 Convertible Note, the “Convertible Notes”) and a common stock purchase warrant to acquire 426,427 shares of our Common Stock (the “2023 Warrant”). The 2023 Convertible Note does not bear interest but was issued at a $0.3 million discount (“OID”). We received proceeds of approximately $1.4 million net of the OID and expenses.
| (in thousands) |
|
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 March 31, 2024 |
|
|
3,213 |
|
|
|
459 |
|
|
|
3,672 |
|
| Principal and interest payments through March 31, 2024 |
|
|
(6,021 |
) |
|
|
- |
|
|
|
(6,021 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance of Convertible Note as of March 31, 2024 |
|
$ |
188 |
|
|
$ |
1,143 |
|
|
$ |
1,331 |
|
The
Convertible Notes provide for variable monthly principal repayments beginning 180 days from issuance (with respect to the 2022
Convertible Note) and 12 months from issuance (with respect to the 2023 Convertible Note). Remaining monthly principal payments range from $0.1
to $0.2 million and can be made in the form of cash, shares, or a combination of both at the discretion of GSE.
The following table details the future principal payments of the Convertible Note, gross of debt discounts:
(in thousands)
|
Years ended December 31:
|
|
|
|
|
2024
|
|
$
|
1,290
|
|
|
2025
|
|
|
750
|
|
|
Thereafter
|
|
|
-
|
|
| |
|
$
|
2,040
|
|
Prior to the June 2023 amendments, described below, the 2022 Convertible Note was 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 was equal to $19.40
per share, subject to customary adjustments. The 2022 Convertible Note matured in February 2024, although we were permitted to
prepay the 2022 Convertible Note, provided that Lind Global had 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 lesser 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 lender 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 was 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.
On
October 6, 2023, the Company and Lind Global entered into that certain First Amendment to the 2022 Convertible Note (“A&R Note Amendment”), amending the 2022 Convertible Note to extend the beginning period of required compliance with certain default provisions until January 31, 2024. The A&R Note Amendment amended Section 2.1 pertaining to events of default by
deleting and replacing Section 2.1(r), which previously provided for an event of default under the Note in the event that the Company’s Market Capitalization was below $7 million for ten (10) consecutive days. As amended, the A&R Note provided that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s
Market Capitalization is below $7 million for ten (10) consecutive days. Prior to the Amendment, the “Conversion
Price” in Section 3.1(b) of the A&R Note “was $19.40, and shall be subject to adjustment as provided herein.” The A&R
Note Amendment amended the definition of “Conversion Price” “the lower of (i) $19.40 and (ii) eighty-five percent (85%) of the average of the three
(3) lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of the
applicable notice of conversion.” There was
no accounting impact related to this amendment as conversion options are already bifurcated as an embedded derivative and recorded at fair value at each reporting period.
The 2022 Warrant entitles Lind Global to purchase up to 128,373 shares of our Common Stock until February 23, 2027, at an exercise price of $19.40 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 7). 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 amortize 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 at the same time that the
Company and Lind Global amended and restated the 2022 Convertible Note. The 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 (as defined above, the “2023 Convertible Note”) and the issuance of common stock
purchase warrant to acquire 426,427 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.
On
October 6, 2023, the Company and Lind Global entered into that certain First Amendment to Senior Convertible Promissory Note, amending the Company’s 2023 Convertible Note (the “Note Amendment”) to extend the beginning period of required
compliance with certain default provisions until January 31, 2024. The Note Amendment amended Section 2.1 of the 2023 Convertible Note pertaining to events of default by deleting and replacing Section 2.1(r), which previously
provided for an event of default under the Note in the event that the Company’s Market Capitalization (as defined in the Note) was below $7
million for ten (10)
consecutive days. As amended, the Note provides that, at any time after January 31, 2024, an event of default will occur in the event that the Company’s Market Capitalization is below $7 million for ten (10) consecutive days.
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 493,727 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 105% of 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 $5.00, subject to customary adjustments.
The 2023
Warrant entitles Lind Global to purchase up to 426,427 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 $5.00
per share, subject to customary adjustments described therein. Additionally, in the event of a sale of all or substantially all of the assets of the Company or a merger, tender offer or certain other change of control events involving
the Company, the Company shall, at the holder’s option, exercisable at any time concurrently with, or within 30 days
after, the consummation of the transaction, purchase the 2023 Warrant from the holder by paying to the holder an amount of cash equal to (i) if the price per share of Common Stock payable in such transaction is in excess of $10.00, the Adjusted Black Scholes Value, or (ii) if the price per share of Common Stock payable in such transaction is equal to or less
than $10.00, the Black Scholes Value, of the remaining unexercised portion of the 2023 Warrant on the date of the
consummation of such transaction. “Adjusted Black Scholes Value” means the lesser of (i) the Black Scholes Value and (ii) the price per share of Common Stock payable in the transaction minus the exercise price multiplied by the then
amount of unexercised 2023 Warrant shares. “Black Scholes Value” means the value the 2023 Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the
day of consummation of the applicable transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of
the applicable transaction and the final day of the exercise period, (B) an expected volatility equal to the greater of 100%
and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the
public announcement of the applicable transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non- cash
consideration, if any, being offered in such transaction and (ii) the greater of (x) the last volume weighted average price immediately prior to the public announcement of such transaction and (y) the last volume weighted average
price immediately prior to the consummation of such transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable transaction and the final day of the exercise period. The
2023 Warrant is in addition to the 2022 Warrant.
The Company evaluated the 2022 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 7). 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 was 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 are 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 were not included in the calculation of basic earnings per share for the three months ended March 31, 2024 and the year ended December 31, 2023 as Company
reflected net loss for the respective periods. The Warrant will be included in the calculation of diluted 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 $0.4 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.
On February 12, 2024, the Company and Lind Global entered into an agreement to amend certain provisions of the Convertible Notes (as amended) to extend the beginning period of
required compliance with certain default provisions until June 1, 2024. The agreement amended Section 2.1 pertaining to events of default, to extend the period in which an event of default would occur, as defined above, to any time
after June 1, 2024, previously any time after January 31, 2024 as provided in the October 6th amendment defined above. But for the amendment, the Company would have incurred an event of default after the tenth (10th) trading day following January 31, 2024 if the
market capitalization of the Company was less than seven million dollars ($7,000,000). The amendments amended the definition of “Conversion Price” in the 2023 Convertible Note to “the lower of (i) $5.00 and (ii) eighty-five percent (85%)
of the average of the three (3)
lowest daily VWAPs during the twenty (20) Trading Days prior to the delivery by the Holder of the applicable notice of conversion.” No other concession was given with this amendment and legal fees were expenses as incurred.
At March 31, 2024, the outstanding debt under
the Convertible Note agreement was as follows:
(in thousands)
|
|
Principal
|
|
|
Debt Discounts
|
|
|
Net
|
|
| |
|
|
|
|
|
|
|
|
|
|
Current portion of Long-Term Debt
|
|
$
|
1,740
|
|
|
$
|
(686
|
)
|
|
$
|
1,054
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt less current portion
|
|
|
300
|
|
|
|
(23
|
)
|
|
|
277
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of Convertible Notes as of March 31, 2024
|
|
$
|
2,040
|
|
|
$
|
(709
|
)
|
|
$
|
1,331
|
|
At December 31, 2023, the outstanding debt
under the Convertible Note agreement was as follows:
(in thousands)
|
|
Principal
|
|
|
Debt Discounts
|
|
|
Net
|
|
| |
|
|
|
|
|
|
|
|
|
|
Current portion of Long-Term Debt
|
|
$
|
1,849
|
|
|
$
|
(1,039
|
)
|
|
$
|
810
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt less current portion
|
|
|
750
|
|
|
|
(113
|
)
|
|
|
637
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of Convertible Notes as of December 31, 2023
|
|
$
|
2,599
|
|
|
$
|
(1,152
|
)
|
|
$
|
1,447
|
|
Letters of Credit
We maintain certain letters of credit with Citizens Bank, N.A. (“Citizens”). As of March 31, 2024, we had four letters of credit totaling $1.1 million
outstanding to certain customers which were secured with restricted cash.
|