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| Debt | Note 12 – Debt
The following represents a summary of the Company’s convertible notes payable and revolving credit facility, key terms, and outstanding balances at December 31, 2022 and December 31, 2021, respectively:
Convertible Notes Payable
General Terms
On June 25, 2020, the Company executed 12% original issue discount notes for $16,101,000, resulting in net proceeds of $14,169,000 (debt discount of $1,932,000). The notes bear interest at 12% and is due eighteen (18) months from the issue date on December 31, 2021. The purchase price consisted of $13,000,000 and the cancellation of $1,169,000 in outstanding debt. The Company’s obligations under these convertible notes are secured by all of the assets of the Company.
SRAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021
Payments Due and Related Extensions
Six (6) months after the issuance date (December 31, 2021), the Company was required to begin making amortization payments, with each debt holder (lenders) having the right to delay these payments three (3) separate times. In exchange for these due date extensions, the Company would have to add an addition 5% to the outstanding principal. The extension dates are based on amounts due June 30, 2022, December 31, 2022 and June 30, 2023.
Beginning on the date that the first Amortization Payment is due, and on a monthly basis thereafter, the Company will be required to pay one 115% of the value of one-twelfth of the outstanding principal plus any additional accrued interest due.
In the event a lender converts a portion of its notes into shares of the Company’s common stock, the amount converted will be deducted from the next applicable Amortization Payment. In the event any conversions exceed the next applicable Amortization Payment, the excess amount will be deducted, in reverse order, from future Amortization Payments due.
Conversion Rights (Fixed Price) – Convertible Notes Payable
These notes are convertible at the option of the holder at $2.69/share. These convertible notes do not have any price protection or price reset provisions with respect to future issuances of securities.
Right of Redemption
The Company has the right to redeem the convertible notes in cash at 115% of the outstanding principal and accrued interest. In the event that the Company sells or reprices any securities or disposes of assets (except those in the ordinary course of business), the lenders have the right if the repricing is $2.50/share or less, to mandate that 50% of the proceeds be used to redeem the outstanding convertible notes. In the event of an asset sale, the mandate increases to 100% of the proceeds received.
Warrants Issued with Convertible Notes
In addition to the convertible notes that were issued, the Company also issued 6,440,561 warrants to various lenders. These warrants expired in October 2022.
Conversion Rights (Fixed Price) – Warrants
Initially exercisable at $2.50/share and, are subject to cashless exercise after six months if the shares underlying the warrants are not subject to an effective resale registration statement.
SRAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021
The warrants do not have any price protection or price reset provisions with respect to future issuances of securities.
Equity Blocker Provision
Under the terms of the convertible notes and warrants, the lenders will not have the right to convert any portion of the convertible notes or warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% or 9.99% (at the Purchaser’s option) of the number of shares of common stock outstanding immediately after giving effect to such conversion or exercise, as such percentage ownership is determined in accordance with the terms of the convertible notes and warrants; provided that at the election of a lender and notice to the Company, such percentage ownership limitation may be increased to 9.99%; provided that any increase will not be effective until the 61st day after such notice is delivered from the holder to the Company.
Conversion of Notes Payable
In 2021, certain note holders converted $8,337,000 of note principal into shares of common stock. The remaining unamortized debt discount associated with these conversions was $2,413,000. The net carrying amount of $5,974,000 was transferred to additional paid-in capital.
See Note 20.
Payment Extensions for Convertible Notes and Warrants and Amended Conversion Prices
During the year ended December 31, 2021, the holders of the remaining convertible notes notified the Company of their election to defer the inception of amortization payments due under the Debentures until June 30, 2022.
Additional extensions for the Company’s convertible notes and warrants were made on February 3, 2023 and September 11, 2023, respectively. The new maturity dates were amended to June 30, 2024 and now November 11, 2014.
In connection with the September 11, 2023 extension, the lender is entitled to received 100% of the proceeds from the sale of any third party marketable securities held by the Company.
As a result of these extensions, the Company’s conversion price of its convertible notes was initially amended to $1 and now $0.25, respectively (original conversion price of convertible notes was $2.69/share).
SRAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021
Additionally, with these extensions, the Company’s conversion price of its warrants was initially amended to $1 and now $0.25, respectively (original conversion price of warrants was $2.50/share).
As stated previously, in connection with the loan date extensions, the holders are entitled to a 5% increase of their outstanding principal balance. The Company records the increases as a financing cost (interest expense) in the accompanying consolidated statements of operations.
Default
Subsequent to December 31, 2022, in March 2023, the convertible notes were defaulted upon since the Company failed to maintain an effective registration statement and was delisted from Nasdaq.
The extension to repay the debt in November 2024 still required the Company to pay the default rate of interest.
The following is a summary of the Company’s convertible notes payable –at December 31, 2022 and 2021:
The following is a detail of the Company’s convertible notes payable –at December 31, 2022 and 2021:
SRAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021
Senior Secured Revolving Credit Facility (Revolving Note)
General Terms
In August 2022, the Company entered into a two (2) year, senior secured revolving credit facility agreement (the “facility”) with a borrower to initially borrow up to $9,450,000. The facility is due at the earlier of August 2024 or event of default. As of the date of these financial statements, the facility is in default.
The loan maximum amount accessible is limited to $5,500,000 until the Company is current with its public reporting obligations.
The loan is secured by all the assets of the Company and is guaranteed by the Company’s wholly owned subsidiary, LD Micro, Inc. The guarantee from LD Micro, Inc. was removed after the sale on March 2023. See Note 22.
The lender is entitled to receive 10% of the proceeds received by the Company from the sale of its marketable securities, so long as the facility is outstanding. These payments to the lender are in addition to any repayments made by the Company under the terms of the facility.
Warrants as Amended
As part of the transaction, the Company also amended and restated the lender’s outstanding warrants to extend the maturity date of a total of 2,590,358 common stock purchase warrants until September 30, 2023.
In connection with the extension of the maturity date for these warrants, the Company recorded a warrant modification expense of $1,788,000. This has been recorded as a component of interest expense in the accompanying consolidated statements of operations.
The fair value of the warrants was determined using a Black-Scholes option pricing model with the following inputs:
See Note 20 for discussion of warrants.
See Note 22 regarding exercise of 2,178,172 of these warrants.
SRAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021
Cash Received by Company
On closing, the lender advanced $5,580,000 consisting of $4,930,000 in cash and the exchange of an existing outstanding $650,000 bridge note issued in July 2022 (which was outstanding for approximately 30 days at time of transaction). Upon the Company meeting certain conditions, the lender will advance up to an additional $3,870,000.
As a result of converting the bridge note, the Company was required to pay a one-time fee of $72,000. The fee was recorded as additional interest expense in the accompanying consolidated statements of operations, and increased the outstanding amount due to the lender.
Original Issue Discount
The facility contains an original issue discount of 10%, however, at any time after August 2023 (one year from issue date), original issue discount will increase to twelve percent (12%) in the event the Prime borrowing rate increases to 6.75%, and 18% in the event of default.
In connection with this facility, the Company recorded a debt discount of $750,000.
Conversion Price of the Facility and Related Conversion Price Amendments
The facility balance was initially convertible into shares of common stock at a conversion price of $15/share.
Additional amendments to the conversion price were made on February 3, 2023 and September 11, 2023, respectively.
As a result of these amendment, the Company’s conversion price of its facility was initially amended to $1 and now $0.25, respectively (original conversion price of facility was $15/share).
In connection with the September 11, 2023 extension, the lender is entitled to received 100% of the proceeds from the sale of any third party marketable securities held by the Company.
Loan Breakup Fee
In connection with obtaining this facility, the Company was required to issue shares of common stock to an unrelated lender (due to a failed public offering), as a breakup fee, having a fair value of $80,000 ($/share), based upon the quoted closing trading price.
See Note 20.
SRAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021
Default
At December 31, 2022 the facility was not in default. Subsequent to December 31, 2022, and as of the date of these financial statements, the facility is in default.
The following is a summary of the Facility at December 31, 2022 and 2021:
The following is a detail of the Facility at December 31, 2022 and 2021:
Debt Maturities
The following represents the gross amount of debt maturities (excluding unamortized debt discounts) for the Company’s various debt arrangements (principal balance) for each of the two (2) succeeding years as follows:
SRAX, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021
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