Quarterly report pursuant to Section 13 or 15(d)

Convertible Note

v3.22.2.2
Convertible Note
 9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Convertible Note Convertible Note
    
On June 28, 2022 (the “Effective Date”), we entered into the Securities Purchase Agreement with the Investor pursuant to which we sold and issued to the Investor the debt on June 29, 2022 in the principal amount of $50.0 million, which is convertible into shares of our Common Stock subject to certain conditions and limitations set
forth in the Securities Purchase Agreement and the debt. The Investor will use commercially reasonable efforts to convert $2.7 million in each 30-day period beginning on August 28, 2022, provided that certain conditions are satisfied as of each such period.

The note bears interest at an annual rate of 6.0% and has a maturity date of December 29, 2023. The debt provides a conversion right, in which any portion of the principal amount of the debt, together with any accrued but unpaid interest, may be converted into our Common Stock at a conversion price equal to the lower of (i) $4.64 or (ii) 95% of the average of the two lowest daily volume weighted average price of the Common Stock during the three (3) trading days immediately preceding the date of conversion (but not lower than a certain floor price, currently set at $2.52, that is subject to further adjustment in accordance with the terms of the debt).

The note may not be converted into Common Stock to the extent such conversion would result in the Investor and its affiliates having beneficial ownership of more than 9.99% of our then outstanding shares of Common Stock; provided that this limitation may be waived by the Investor upon not less than 65 days’ prior notice to us. The debt provides us, subject to certain conditions, with a redemption right pursuant to which we, upon three (3) business days’ prior notice to the investor in the case of a partial redemption or ten (10) business days’ notice in the case of a full redemption, may redeem, in whole or in part, any of the outstanding principal and interest thereon at a redemption price equal to 2.5% of the principal amount being redeemed on or before October 1, 2022, and thereafter at a redemption price equal to 5.0% of the principal amount being redeemed.

The note includes a repayment trigger base on if the daily volume-weighted average price (“VWAP”) of common stock is less than the floor price of $2.52 for (7) seven trading days during a period of (10) ten consecutive trading days, then the Company is required to make monthly payments, beginning on the 10th calendar day after the triggering date of $4,000,000 of principal plus the redemption premium (5% of the principal) plus accrued interest. The monthly repayment trigger will cease if the Company provides the investor a reset notice reducing the floor price, (floor price means $2.52 per share), limited to no more than 85% of VWAP and not less than $1.00 or the daily VWAP is greater than the floor price for (5) five consecutive trading days.

The Company and Investor entered into a registration rights agreement pursuant to which the Company is required to file a registration statement registering the resale by the Investor of any shares of the Company’s common stock issuable upon conversion and, subject to certain exceptions, maintain the effectiveness of that registration statement.

The Company accounts for the convertible note in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the convertible note does not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the convertible note as a liability at fair value and remeasures the convertible note to fair value at each reporting period. This liability is subject to remeasurement at each balance sheet date until fully converted into common stock, and any change in fair value is recognized in the consolidated statements of operations and comprehensive loss.

The amount of proceeds the Company received from the Investor was the full face value of $50 million. There was no discount or premium issued with this debt. As of September 30, 2022, the Company had a principal balance of $47.3 million and accrued interest expense of $0.7 million.

The note will not be included in the computation of either basic or diluted EPS for the nine months ended September 30, 2022 in Note 15. Net Loss Per Share. This financial instrument is not be included in basic EPS because it does not represent participating securities. Further, the convertible Note has not be included in diluted EPS because the Company reported a net loss from continuing operations for the nine months ended September 30, 2022; thus, including these financial instruments would have an antidilutive effect on EPS.

The Company remeasured the fair value of convertible note at September 30, 2022 with change in fair value recorded in earnings as discussed in Note 5. Fair Value Measurements. In connection with the Company's remeasurement of the convertible note to fair value, the Company recorded an unrealized gain of approximately $3.2 million for the nine months ended September 30, 2022, resulting in a fair value balance of $44.1 million.
The following table provides quantitative information regarding the Convertible Note Level 3 fair value inputs using the Monte-Carlo method for the following measurement dates:
As of
September 30,
2022		 December 31,
2021
Stock price $ 3.07  N/A
Option term (in years) 1.25 N/A
Volatility 93.9  % N/A
Risk-free interest rate 4.01  % N/A

As of
September 30,
2022		 December 31,
2021
(In thousands)
Convertible Note
Fair value as of June 30, 2022 $ 50,000  N/A
Change in fair value reported in statement of operations (3,153) N/A
Convertible note issued during the period —  N/A
Conversion of note to common stock (2,700) N/A
Ending fair value as of September 30, 2022 $ 44,147  $ — 

As of
September 30,
2022		 December 31,
2021
(In thousands)
Convertible Note Accrued Interest
Accrued interest as of June 30, 2022 $ 16  N/A
Accrued interest 747  N/A
Accrued interest paid upon conversion (32) N/A
Accrued interest as of September 30, 2022 $ 731  $ — 
As of
September 30,
2022		 December 31,
2021
Number of Common Shares Issued Upon Conversion
Common shares issued as of June 30, 2022 $ —  N/A
Common shares issued 831,356  N/A
Common shares issued as of September 30, 2022 $ 831,356  $ —