Annual report pursuant to Section 13 and 15(d)

Convertible Notes

v3.23.1
Convertible Notes
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
Convertible Notes Convertible Notes
Convertible Note with YA II PN, Ltd.
On June 28, 2022, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with the Investor pursuant to which the Company sold and issued to the Investor a convertible debenture on June 29, 2022 in the principal amount of $50.0 million, which is convertible into shares of the Company’s common stock subject to certain conditions and limitations set forth in the Purchase Agreement. The Investor is obligated to use commercially reasonable efforts to convert $2.7 million of the convertible debenture in each 30-day period beginning on August 28, 2022, provided that certain conditions are satisfied as of each such period.
The convertible debenture bears interest at an annual rate of 6.0% and has a maturity date of December 29, 2023. The convertible debenture provides a conversion right, in which any portion of the principal amount of the convertible debenture, together with any accrued but unpaid interest, may be converted into the Company’s 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 trading days immediately preceding the date of conversion (but not lower than a certain floor price, set at $1.51, as of December 31, 2022, that is subject to further adjustment in accordance with the terms of the convertible debenture), with a remaining balance due of $43.5 million.
The convertible debenture 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 the Company. The convertible debenture provides the Company, subject to certain conditions, with a redemption right pursuant to which, upon three business days’ prior notice to the investor in the case of a partial redemption or ten 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 convertible debenture includes a repayment trigger base on if the daily volume-weighted average price (“VWAP”) of common stock is less than the floor price of $1.51 for seven trading days during a period of 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 $1.51 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 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 debenture in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, under which the convertible debenture does not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the convertible debenture as a liability at fair value and remeasures the convertible debenture 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 December 31, 2022, the Company had a principal balance of $43.5 million and accrued interest expense of $1.3 million.
The convertible debenture will not be included in the computation of either basic or diluted EPS for the year ended December 31, 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 debenture has not be included in diluted EPS because the Company reported a net loss from continuing operations for the year ended December 31, 2022; thus, including these financial instruments would have an antidilutive effect on EPS.
The Company remeasured the fair value of convertible debenture at December 31, 2022 with changes in fair value recorded in earnings as discussed in Note 5. Fair Value Measurements. In connection with the Company's remeasurement of the convertible debenture to fair value, the Company recorded an unrealized loss of approximately $9.1 million for the year ended December 31, 2022, resulting in a fair value balance of $79.4 million.
The following table provides quantitative information regarding the YA II Debenture Note Level 3 fair value inputs using the Monte-Carlo method for the following measurement dates:
As of
December 31,
2022
Stock price $ 1.85 
Option term (in years) 0.99
Volatility 99.9  %
Risk-free interest rate 4.62  %
As of
December 31,
2022
(In thousands)
YA II Convertible Debenture
Fair value as of December 31, 2021
 $ — 
Change in fair value reported in statement of operations (3,635)
Convertible note issued during the period 50,000 
Conversion of note to common stock (6,500)
Ending fair value as of December 31, 2022
 $ 39,865 
As of
December 31,
2022
(In thousands)
YA II Convertible Debenture Accrued Interest
Accrued interest as of December 31, 2021
 $ — 
Accrued interest 1,439 
Accrued interest paid upon conversion (108)
Accrued interest as of December 31, 2022
 $ 1,331 
As of
December 31,
2022
Number of Common Shares Issued Upon Conversion
Common shares issued as of December 31, 2021
 $ — 
Common shares issued 2,382,497 
Common shares issued as of December 31, 2022
 $ 2,382,497 
Convertible Notes with VIL
On November 4, 2022 (the “November VIL Convertible Note”) and December 19, 2022 (the “December VIL Convertible Note” and, together with the November VIL Convertible Note, the “2022 VIL Convertible Notes”), the Company sold and issued to VIL a senior unsecured convertible note and a secured convertible note in the principal amounts of $25.0 million and $20.0 million, respectively, which are convertible into shares of the Company’s common stock or other Qualified Securities (as defined below), subject to certain conditions and limitations set forth
in the 2022 VIL Convertible Notes. The Company sold and issued the 2022 VIL Convertible Notes pursuant to subscription agreements between the Company, VIL and the Company’s domestic subsidiaries named therein (the “Guarantors”) that are jointly and severally guaranteeing our obligations under the 2022 VIL Convertible Notes. The Company agreed to use the net proceeds from the 2022 VIL Convertible Notes for working capital.
The 2022 VIL Convertible Notes contain customary events of default, bear interest at an annual rate of 6.0% (or 10.0% during the continuance of an event of default under the 2022 VIL Convertible Notes), payable in cash semi-annually, and have a maturity date of November 4, 2024, unless earlier repurchased, converted or redeemed in accordance with its terms prior to such date. Subject to any limitations under the rules of Nasdaq Stock Market, the 2022 VIL Convertible Notes will automatically convert into Qualified Securities (as defined below) at a conversion price equal to the purchase price paid by investors in the relevant Qualified Financing (as defined below) if, prior to the earliest to occur of November 4, 2024, any Fundamental Change Effective Date and the effective date of any Merger Event (each as defined in the 2022 VIL Convertible Notes), the Company consummates a bona fide third-party financing of the Company’s common stock or securities convertible into or exchangeable for our common stock for gross cash proceeds of at least $50.0 million (excluding any securities purchased by VIL or its affiliates) in one or more related and substantially similar and simultaneous transactions at the same price (a “Qualified Financing” and the securities sold in such Qualified Financing, the “Qualified Securities”). VIL will have the option to convert all or a portion of the 2022 VIL Convertible Notes in accordance with such terms in a financing by us that would have been a Qualified Financing but for the gross cash proceeds in such financing being less than $50.0 million, with such conversion effected as described above as if such financing were a Qualified Financing. Additionally, on or after October 15, 2024, VIL has the right to convert all or any portion of the 2022 VIL Convertible Notes into shares of common stock at an initial conversion rate of 345.5425 shares of common stock per $1,000 principal amount of the 2022 VIL Convertible Notes (subject to adjustments as provided in the Convertible Notes, the “Fixed Conversion Rate”). In the event of a Fundamental Change, a Merger Event (each as defined in the 2022 VIL Convertible Notes) or a redemption of the 2022 VIL Convertible Notes by the Company, or if any automatic conversion in connection with a Qualified Financing would be subject to limitations set forth in the relevant rules of Nasdaq Stock Market, VIL has the right to convert the 2022 VIL Convertible Notes at the Fixed Conversion Rate. Prior to the Maturity Date, the Company may redeem all or part of the 2022 VIL Convertible Notes for cash at a redemption price equal to 100% of the principal amount of the 2022 VIL Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The 2022 VIL Convertible Notes contain a covenant that restricts our and the Guarantors’ ability to incur liens on our and the Guarantors’ assets and properties without VIL’s consent. If the Company undergoes a Fundamental Change (as defined in the 2022 VIL Convertible Notes), then, subject to certain conditions, VIL may require the Company to repurchase for cash all or any portion of the 2022 VIL Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the 2022 VIL Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. Initially, a maximum of 8,638,563 and 6,910,850, shares of the common stock may be issued upon conversion of the November VIL Convertible Note and December VIL Convertible Note, respectively, at the Fixed Conversion Rate, subject to adjustment provisions included in the 2022 VIL Convertible Notes.
The following table provides quantitative information regarding the 2022 VIL Convertible Notes Level 3 fair value inputs using the Black-Scholes method for the following measurement dates:
As of December 31, 2022
November VIL Convertible Note
 December VIL Convertible Note
Stock price $ 1.85  $ 1.85 
Option term (in years) 1.84 1.84
Volatility 86.3  % 86.3  %
Risk-free interest rate 4.46  % 4.46  %
As of December 31, 2022
November VIL Convertible Note
 December VIL Convertible Note
(In thousands)
2022 VIL Convertible Notes
Fair value as of December 31, 2021
 $ —  $ — 
Change in fair value reported in statement of operations (5,961) 495 
Convertible notes issued during the period 25,000  20,000 
Conversion of note to common stock —  — 
Ending fair value as of December 31, 2022
 $ 19,039  $ 20,495 
As of December 31, 2022
November VIL Convertible Note
 December VIL Convertible Note
(In thousands)
VIL Convertible Notes Accrued Interest
Accrued interest as of December 31, 2021
 $ —  $ — 
Accrued interest 233  40 
Accrued interest paid upon conversion —  — 
Accrued interest as of December 31, 2022
 $ 233  $ 40 
As of December 31, 2022, there have been no common shares issued for the 2022 VIL Convertible Notes.