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Secured Convertible Notes Payable
3 Months Ended
Mar. 31, 2023
Debt Disclosure [Abstract]  
Secured Convertible Notes Payable

6. Secured Convertible Notes Payable

 

Amounts outstanding under secured convertible notes payable are as follows (in thousands):

 

  

March 31,

2023

  

December 31,

2022

 
Secured Convertible Note Payable  $13,000   $10,450 
Accrued interest   2,165    1,052 
Capitalized financing costs   (1,154)   (976)
Total  $14,011   $10,526 
Current portion   (5,485)   (2,434)
Long term portion  $8,526   $8,092 

 

Secured Convertible Note Payable

 

In May 2022, the Company entered into a note purchase agreement and agreed to issue $11,250 of secured convertible promissory notes (the “Notes”) to entities affiliated with Whitebox Advisors, LLC (collectively, “Whitebox”). The Notes bear interest at a rate of 10% per annum (with 5% per annum payable in cash and 5% per annum payable in kind (“PIK”) by adding such PIK interest to the principal amount of the Notes). The Notes are secured by substantially all of the Company’s assets (including all of its intellectual property) and are subject to a collateral sharing agreement with ACS, the Company’s existing secured lender (see Note 5). The Notes mature on May 9, 2025.

 

On May 9, 2022, the Company issued $11,250 of Notes to Whitebox. In September 2022, the Company issued an additional $2,500 of Notes to Whitebox (the “September 2022 Notes”). The net proceeds from the issuance of the Notes and September 2022 Notes, after deducting placement agent fees and other debt issuance costs, was approximately $12,430. In November 2022, the Company paid off the $2,500 of September 2022 Notes in cash. Beginning in August 2022, $11,250 of the Notes have an amortization feature which requires the Company to make monthly payments of principal of $200 plus accrued interest, payable in cash or in shares of the Company’s common stock at the option of the Company. Amortization payments that are paid in shares are priced at 90% of the average of the daily volume weighted average prices of the Company’s common stock during the five trading days prior to the date of amortization payment. During the year ended December 31, 2022, the Company made monthly amortization principal payments aggregating $800, made up of $600 in cash, and the issuance of 32,362 shares of common stock valued at $200. At December 31, 2022, the principal balance of the Notes was $10,450.

 

On February 10, 2023, the Company entered into a Partial Option Exercise and Second Amendment to the 10% Convertible Notes with Whitebox. The Notes were amended so if the Company experiences a fundamental change as defined, the holders of the notes have the right to require the Company to repurchase the notes for cash at a repurchase price equal to 110% (amended from 100%) of the principal amount, plus accrued interest. In addition, Whitebox exercised a partial option to purchase $2,550 of additional notes (the “February 2023 Notes”) from the Company. The February 2023 Notes bear interest at 10% per annum. payable in cash and mature on June 20, 2023. No amortization payments (as defined in the Notes) are payable on the February 2023 Notes, and the February 2023 Notes may be prepaid without premium or penalty.

 

 

On February 13, 2023, the Company entered into a Limited Waiver and Deferral Agreement with Whitebox. Whitebox waived the Company’s covenant violation of its Excess ABL Amount at November 30, 2022, December 31, 2022, and January 31, 2023, and deferred payment of the 10% fee for the Excess ABL Amount until June 2023. In addition, Whitebox also temporarily waived any requirement that the Company repurchase the Notes in the event of fundamental change (as defined in the Notes), through April 1, 2023, subject to the terms and conditions contained therein. As an inducement, the Company issued an aggregate of 82,438 shares of common stock to the holders with a fair value of $273. These costs have been capitalized and are being amortized over the term of the waiver. For the three months ended March 31, 2023, amortization of interest was $96. The shares issued and the shares of common stock issuable upon conversion of the Option Notes are registrable and subject to that certain Registration Rights Agreement dated May 9, 2023. At March 31, 2023, the principal balance of the Notes and February 2023 Notes was $13,000.

 

Upon conversion, holders of the Note are entitled to receive an interest make-whole payment, as defined. The make-whole amount is equal to the sum of the remaining scheduled payments of interest on the Notes to be converted that would be due if such notes matured May 9, 2025, payable, at the Company’s option in cash or in shares of common stock.

 

At December 31, 2022, the balance of accrued interest was $1,052. During the three months ended March 31, 2023, the Company recorded interest of $1,113, made up of $366 of interest on the Notes, and $747 related to the excess line of credit debt fee. At March 31, 2023, the balance of accrued interest was $2,165.

 

The initial conversion rate of the Notes is 0.08306 shares of the Company’s common stock per one dollar of principal converted, or approximately $12.04 per share, subject to customary anti-dilution adjustments. In addition, if certain corporate events occur that constitute a make-whole fundamental change as defined, then the note holders are, under certain circumstances, are entitled to an increase in the conversion rate, limited to 0.12155 shares of Common Stock per one dollar of principal, or approximately $8.23 per share.

 

The Company’s ability to settle conversions and make amortization payments and interest make-whole payments using shares of the Company’s common stock is subject to certain limitations set forth in the Notes. If the Company experiences a fundamental change as defined, the holders of the notes have the right to require the Company to repurchase the notes for cash at a repurchase price equal to 100% of the principal amount, plus accrued interest thereon.

 

At March 31, 2023, the Notes, including accrued interest, are convertible into 1,257,491 shares of the Company’s common stock pursuant to a share conversion cap limit as defined in the Notes.

 

The unamortized debt discount was $976 at December 31, 2022. During the three months ended March 31, 2023, the Company incurred $145 of direct costs of the transactions, consisting primarily of placement agent fees and other offering expenses and the issuance of 82,438 valued at $273 as inducement for the aforementioned waiver. These costs have been capitalized and are being amortized over the term of the Notes and waiver period. For the three months ended March 31, 2023, amortization of debt discount was $240, and as of March 31, 2023, the remaining unamortized debt discount balance is $1,154.