Debt

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Debt

DEBT

Credit facilities

On August 11, 2020, we entered into two debt financing arrangements (together, the “Credit Facilities”). The first arrangement is an inventory financing facility (the “Inventory Facility”) pursuant to the Loan and Security Agreement (the “Inventory Loan Agreement”), between the Company and Crossroads Financial Group, LLC, a North Carolina limited liability company (the “IF Lender”). Borrowings under the original Inventory Facility were permitted up to the lower of (i) $3.0 million, which amount was subsequently increased to $3.5 million as described below, and (ii) a borrowing base determined from time to time based on the value of the Company’s eligible inventory, valued at 75% of inventory costs or 85% of the inventory net orderly liquidation value, less the availability reserves. The outstanding indebtedness under the Inventory Facility accrues at an annual rate equal to the greater of (i) 5.75% and (ii) 4.00% plus the three (3) month LIBOR rate and is also subject to a service fee of 1% per month. The annualized interest rate at March 31, 2021 and December 31, 2020 was 22.4% and 23.6%, respectively. The Inventory Facility’s interest and service fees combined amount is subject to a minimum monthly fee of $18 thousand. There would be no breakage fee for the Company for the Inventory Facility if the Company were to refinance it with an American Bankers Association (“ABA”) equivalent institution after August 11, 2021. The Inventory Facility is secured by substantially all of the present and future assets of the Company and is also governed by an intercreditor agreement among the Company, the IF Lender and the RF Lender (defined below). The Inventory Facility matures on August 11, 2022, subject to early termination upon 90 days’ notice and otherwise in accordance with the terms of the Inventory Loan Agreement. The term is automatically extended in successive one (1) year increments unless terminated by either party in accordance with the Inventory Loan Agreement. On April 20, 2021, the Company and the IF lender entered into an amendment to the Inventory Loan Agreement to increase the maximum amount that may be available to the Company from $3.0 million previously to $3.5 million, subject to the borrowing base as set forth in the Inventory Loan Agreement. Please also refer to Note 11, “Subsequent Events”.

The second arrangement is a receivables financing facility (the “Receivables Facility”) pursuant to the Loan and Security Agreement (the “Receivables Loan Agreement”) between the Company and Factors Southwest L.L.C. (d/b/a FSW Funding), an Arizona limited liability company (the “RF Lender”). Borrowings under the Receivables Facility are permitted up to the lower of (i) $2.5 million or (ii) a borrowing base determined from time to time based on the value of the Company’s eligible accounts receivable, valued at 90% of the face value of such accounts receivable, less availability reserves, if any. Interest on outstanding indebtedness under the Receivables Facility accrues at an annual rate equal to (i) the highest prime rate announced from time to time by the Wall Street Journal plus (ii) 2%. At March 31, 2021 and December 31, 2020, the annualized interest rate was 7.6% and 7.9%, respectively. The annualized interest rate on the collateral management fee was 6% at both March 31, 2021 and December 31, 2020. The Receivables Facility is also secured by substantially all of the present and future assets of the Borrower and is also governed by an intercreditor agreement among the Company, the IF Lender and the RF Lender. A $25 thousand, or 1%, facility fee was charged at closing. There would be no breakage fee for the Company for the Receivables Facility if the Company were to refinance it with an ABA equivalent institution. The Receivables Facility matures on August 11, 2022, subject to early termination in accordance with the terms of the Receivables Loan Agreement; provided that the term is automatically extended in successive one (1) year increments unless terminated by either party in accordance with the Receivables Loan Agreement.

Borrowings under the Inventory Facility were $2.7 million and $1.3 million at March 31, 2021 and December 31, 2020, respectively. Borrowings under the Receivables Facility were $0.7 million and $1.0 million at March 31, 2021 and December 31, 2020, respectively. These facilities are recorded in the Condensed Consolidated Balance Sheet as of March 31, 2021 as a current liability under the caption “Credit line borrowings.” Outstanding balances include unamortized net issuance costs totaling $0.1 million for the Inventory Facility and $30 thousand for the Receivables Facility as of March 31, 2021, and $0.1 million for the Inventory Facility and $40 thousand for the Receivables Facility as of December 31, 2020.

The Credit Facilities replaced the Austin Credit Facility that was entered into on December 11, 2018 and was secured by a lien on our assets. The Austin Credit Facility was a three year, $5.0 million revolving line of credit. Interest on advances under the line was due monthly at the “Prime Rate,” as published by the Wall Street Journal from time to time, plus a margin of 2%. The borrowing rate as of March 31, 2020 was 5.25%. Additionally, an annual facility fee of 1% on the entire $5.0 million amount of the Austin Credit Facility was due at the beginning of each of the three years that the Austin Credit Facility was outstanding and a 0.5% collateral management fee on the average outstanding loan balance was payable monthly. Borrowings under the Austin Credit Facility were $0.8 million at March 31, 2020. On August 11, 2020, we paid

$1.4 million to close the Austin Credit Facility which included a $100 thousand termination fee. Additionally, we wrote off $59 thousand of the remaining related debt acquisition costs. For additional information regarding the Austin Credit Facility, please refer to Note 9, “Debt,” included under Item 8, “Financial Statements and Supplementary Data,” of our 2020 Annual Report.

For additional information regarding the Credit Facilities, please refer to Part II, Item 5, “Other Information,” included in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, filed on August 13, 2020.

Convertible Notes

On March 29, 2019, we issued $1.7 million aggregate principal amount of subordinated convertible promissory notes (the “Convertible Notes”) to certain investors in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The Convertible Notes bore interest at a rate of 5% per annum until June 30, 2019 and at a rate of 10% thereafter. Pursuant to their terms, on January 16, 2020, following approval by our stockholders of certain amendments to the Certificate of Incorporation, the principal amount of all of the Convertible Notes and the accumulated interest thereon ($0.1 million), which totaled $1.8 million, were converted at a conversion price of $0.67 per share into an aggregate of 2,709,018 shares of the Company’s Series A Convertible Preferred Stock, par value 0.0001 per share (“Series A Preferred Stock”), which is convertible on a one-for-five basis into shares of our common stock. During the year ended December 31, 2020, 111,548 shares of the Series A Preferred Stock were converted into 22,310 shares of common stock. No conversions occurred during the three months ended March 31, 2021. On April 1, 2021, 1,721,023 shares of Series A Preferred Stock were converted into 344,205 shares of common stock. Please also refer to Note 11, “Subsequent Events”.

The purchase agreement related to the Convertible Notes contains customary representations and warranties and provides for resale registration rights with respect to the shares of our common stock issuable upon conversion of the Series A Preferred Stock. Please also refer to Note 9, “Stockholders’ Equity”.

Iliad Note

On November 25, 2019, we entered into a note purchase agreement (the “Iliad Note Purchase Agreement”) with Iliad Research and Trading, L.P. (“Iliad”) pursuant to which the Company sold and issued to Iliad a promissory note in the principal amount of $1.3 million (the “Iliad Note”). The Iliad Note was issued with an original issue discount of $142 thousand and Iliad paid a purchase price of $1.1 million for the issuance of the Iliad Note, after deduction of $15 thousand of Iliad transaction expenses.

In December 2020, we repaid the outstanding balance on the Iliad Note in full prior to its maturity date of November 24, 2021. Remaining debt and original issue discount costs of $117 thousand were written off at that time. The Iliad Note accrued interest at 8% per annum, compounded daily, on the outstanding balance.

Pursuant to the Iliad Note Purchase Agreement and the Iliad Note, we had, among other things, agreed that, until the Iliad Note was repaid 10% of gross proceeds the Company received from the sale of our common stock or other equity must be paid to Iliad and applied to reduce the outstanding balance of the Iliad Note. In accordance with the terms of the Iliad Note, 10% of the gross proceeds from the January 2020 Equity Offering ($275 thousand) were used to make payments on the Iliad Note, of which $226 thousand went towards the outstanding principal amount.

The total liability for the Iliad Note, excluding financing fees, was $0.9 million at March 31, 2020. Unamortized loan discount and debt issuance costs were $0.2 million at March 31, 2020.

Streeterville Note

On April 27, 2021, we entered into a note purchase agreement (the “Streeterville Note Purchase Agreement”) with Streeterville Capital, LLC (“Streeterville”) pursuant to which we sold and issued to Streeterville a promissory note in the principal amount of approximately $1.7 million (the “Streeterville Note”). The Streeterville Note was issued with an original issue discount of $194 thousand and Streeterville paid a purchase price of $1.5 million for the Streeterville Note, after deduction of $15 thousand of Streeterville transaction expenses. See also Note 11, “Subsequent Events”.

PPP LoanOn April 17, 2020, the Company was granted a loan from KeyBank National Association (“KeyBank”) in the amount of approximately $795 thousand, pursuant to the Paycheck Protection Program (“PPP”) under Division A of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020. The funds were received on April 20, 2020 and accrued interest at a rate of 1.0% per annum. At December 31, 2020, $529 thousand was classified as short-term debt and $266 thousand was classified as long-term debt on the Company’s Consolidated Balance Sheet. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The entire principal balance and interest were forgiven by the Small Business Administration on February 11, 2021. The $801 thousand forgiveness income was recorded as other income in the Consolidated Statements of Operations during the three months ended March 31, 2021.