Secured Convertible Notes Payable

3 Months Ended

Mar. 31, 2024

Debt Disclosure [Abstract]

Secured Convertible Notes Payable

6. Secured Convertible Notes Payable

Amounts outstanding under the Company’s convertible notes payable are as follows (amounts in 000’s except share amounts):

	March 31, 2024			December 31, 2023
Secured Convertible “Original” Notes Payable (A)	$	10,250		$	10,250
Secured Convertible “Option”” Notes Payable (B)		4,050			4,050
Accrued interest		1,457			1,059
Accrued interest on excess debt borrowing		2,989			2,824
Capitalized financing costs		(554	)		(572	)
Total	$	18,192		$	17,611

Secured Convertible Notes

(A) In May 2022, the Company issued $11,250 of convertible notes payable (the “Original Notes”) to entities affiliated with Whitebox Advisors, LLC (collectively, “Whitebox”). The Original Notes bear interest at 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), 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 Alterna Capital (ACS), the Company’s existing secured lender. The Original Notes mature the earlier of March 31, 2025 or the scheduled maturity of any unsecured indebtedness incurred by the Company that is junior in right of payment to Note obligations. The Original Notes together with the Option Notes are collectively referred to as the “Notes”. Upon conversion or early payment, holders of the Notes are entitled to receive an interest make-whole payment, as defined, equal to the sum of the remaining scheduled payments of interest on the Notes that would be due at maturity, payable, at the Company’s option, in cash or in shares of common stock. Effective August 11, 2022, the Notes were amended to add a 10% fee for the amount that the Company’s line of credit with ACS exceeds $6,000, as defined (the “Excess ABL Amount”). Effective June 30, 2023, the Excess ABL Amount was amended to $7,500. At March 31,2024 and December 31, 2023, the principal balance of the Original Notes was $10,250.

The Original 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, based on 90% of the average prices of the Company’s common stock, as defined During 2023, Whitebox waived the requirement for the Company to pay the December 2022 to October 2023 monthly amortization payments on the Original Notes. The November 2023 amortization payment of $200 principal was paid, and the amortization payment for December 2023 to May 2024 was waived. The parties agreed that amortization period shall resume on June 1, 2024.

The terms of the Original Notes contained conversion terms that are expected to be amended, subject to satisfaction of certain conditions. Under the revised terms, the conversion price of the Original Notes will be between 125% and 145% of the effective price of the company’s subsequent equity offering, with the premium set based on the aggregate gross proceeds realized by the company in the offering and the conversion price subject to a cap of $7.50 per share.

In addition on February 12, 2024, subject to the satisfaction of certain conditions, the parties agreed that a portion of the outstanding ABL accrued fees will be satisfied through payment of $132 in cash and the issuance of shares of the Company’s common stock (up to the beneficial ownership limitation applicable to each holder) at a value per share equal to the lesser of $1.50 or the per share price of securities issued in the Company’s subsequent equity offering. The remaining balance of any outstanding accrued ABL fees will be added to the principal amount of the Notes. The $132 has not been paid nor any shares issued as of the date of these financial statements.

(B) In February 2023 and May 2023, the Company issued an aggregate of $4,050 of additional Option Notes to Whitebox that substantially have the same terms as the Original Notes, except the Option Notes issued in 2023 do not require any amortization payments, initially were to bear interest at 10% payable in cash, and were initially due four months after issuance. On February 12, 2024, the parties agreed to change the terms so that the Option Notes shall bear interest at a rate of 10% per annum, with 5% per annum payable in cash and 5% per annum payable (“in kind” by adding such PIK interest to the unpaid principal amount. In addition, the parties agreed, subject to certain outstanding conditions, to amend the maturity date to the earlier of March 31, 2025 or the scheduled maturity of any unsecured indebtedness incurred by the Company that is junior in right of payment to Note obligations. Once they are amended, the Company shall have the right at any time prior to the date that is the 180th day from the effective date to prepay the amended and restated Option Notes, in whole or in part, at a price equal to 102% of the principal amount plus all accrued and unpaid interest thereon to the date of prepayment. At March 31, 2024 and December 31, 2023, the principal balance of the Option Notes was $4,050.

The terms of the Original Notes contained conversion terms that are expected to be amended , subject to the satisfaction of certain conditions by the Company. Under the revised terms, the conversion price of the Option Notes will be 120% of the arithmetic average of the Daily VWAP for the five (5) VWAP Trading Days beginning on, and including, the VWAP Trading Day immediately following the consummation of an equity offering undertaken for purposes of satisfying the terms and conditions of the Waiver and Amendment

Waiver of Default

On February 12, 2024, the Company entered into a Limited Waiver, Deferral, and Amendment and Restatement Agreement (the “Waiver and Amendment”) with each holder (each an entity affiliated with Whitebox Advisors, LLC) of the Original and Option Notes payable to Whitebox (the “Notes”). Subject to the Waiver and Amendment, the holders agreed to temporarily waive certain events of default under the Notes, including the failure to pay Excess ABL Amounts and the failure to pay amortization payments due December 1, 2023 to April 30, 2024. Subject to satisfaction of certain conditions by March 31, 2024, the parties further agreed to amend and restate the Notes, to extend the maturity date of the Option Notes originally due November 28, 2023, to March 31, 2025 and to equitize certain interest and fees owing on the Notes.

The conversion rate under the amended and restated notes is to be based on the pricing and size of the Company’s proposed equity financing of a minimum of $3 million (which will include conversion of approximately $4.1 million of previously funded SAFE investments into equity of the Company). Delays related to the Company’s evaluation of long term financing options have delayed the proposed financing. On April 1, 2024 the parties executed the Amended Limited Waiver, Deferral, and Amendment and Restatement Agreement (“Amended Waiver”). Subject to certain terms and conditions set forth in the Amended Waiver, the holders temporarily waived certain specified events of default under the Notes to April 30, 2024 and extended the waiver of monthly amortization payments to April 30, 2024. In addition, Reed’s remitted a partial interest payment of $100 to the holders.

Accrued Interest

At December 31, 2023, the balance of accrued interest was $3,883. During the period ended March 31, 2024, the Company recorded interest of $563, made up of $398 of interest on the convertible notes, and $165 related to the excess ABL fees. At March 31, 2024, the balance of accrued interest was $4,446.

Debt Discount

At December 31, 2023, the unamortized debt discount was $572. During the period ended March 31, 2024, the Company incurred $86 of costs for the aforementioned waivers. These costs have been capitalized and are being amortized over the term of the convertible notes or waiver period. For the three months ended March 31, 2024, amortization of debt discount was $104, and as of March 31, 2024, the remaining unamortized debt discount balance is $554.