Quarterly report pursuant to Section 13 or 15(d)

Notes Payable

v3.23.1
Notes Payable
3 Months Ended
Mar. 31, 2023
Debt Disclosure [Abstract]  
Notes Payable Notes Payable
Notes payable as of March 31, 2023 and December 31, 2022 consist of the following:

March 31, 2023 December 31, 2022
Convertible Note $ 59,863 $ 73,863
Facility 3,000 3,000
Total debt principal 62,863 76,863
Unamortized debt discount - Convertible Note (10,086) (14,735)
Unamortized debt discount - Facility (22) (25)
Total long-term debt $ 52,755 $ 62,103

Convertible Note

In conjunction with the Business Combination, the Company entered into the 7.5% $100,000 Convertible Note and paid issuance costs of $5,000. The Convertible Note has a maturity date of May 15, 2024 and has semi-annual interest payments due May 15 and November 15 of each year starting on November 15, 2021. The Convertible Note has a conversion feature at a conversion price of $230.00 and warrants to purchase up to 434,782 shares of common stock for a per share price of $230.00. The Convertible Note has a mandatory conversion option that: a) is exercisable at the option of the Company on or after May 15, 2022; b) occurs when the Company’s stock price (1) is greater than 120% of the conversion price of $230.00, or $276.00 for 20 trading days in a period of 30 consecutive trading days and (2) the 30-day average daily trading volume during the applicable exercise period, i.e., consecutive 30 trading day period, is greater than or equal to $3,000; and c) the Company will make payments in accordance with the interest make-whole (defined below) amount in cash or issuance of additional shares of the Company’s common stock.

The interest make-whole amount means, with respect to the conversion of the Convertible Note, in an amount denominated in U.S. dollars, the sum of all regularly scheduled interest payments, if any, due on such Convertible Note on each interest payment date occurring after the conversion date for such conversion and on or before the maturity date; provided, however, that (A) for these purposes, the amount of interest due on the interest payment date immediately after such conversion date will be deemed to be the following amount: any accrued and unpaid interest, if any, at such conversion date, plus any remaining amounts that would be owed to, but excluding, the maturity date in respect of such Convertible Note, including all regularly scheduled interest payments; and (B) if such conversion date occurs after the Company has sent a mandatory conversion notice, then the interest make-whole amount for such conversion shall be the sum of all regularly scheduled interest payments, if any, due on such Convertible Note on each interest payment date occurring after the conversion date for such conversion to, but excluding, the maturity date.

If the Company incurs other unpermitted indebtedness, it is required to redeem the Convertible Notes in full including outstanding principal and accrued and unpaid interest, plus a prepayment premium equal to the amount of interest which would have accrued on the Convertible Notes through maturity (the “Redemption Feature”). In addition, the Company is required to issue to the holders a fixed number of warrants to purchase shares of Common Stock. The fixed number of warrants will be based on the principal balance of the Convertible Notes, divided by $230.00 (“Redemption Warrants”). The Redemption Warrants will be exercisable from the date of repayment of the Convertible Notes through the original maturity date of the Convertible Notes.
If the number of outstanding shares of Common Stock is increased by a stock split or other similar event, the number of shares issuable on exercise of each warrant shall be increased proportionately and the exercise price shall be decreased proportionately. Consequently, if the number of outstanding shares of Common Stock is decreased by a reverse stock split, consolidation, combination or reclassification of shares of Common Stock or other similar event, the number of shares of Common Stock issuable on exercise of each warrant shall be decreased proportionately and the exercise price shall be increased proportionately.

The Company has identified certain embedded derivatives related to its Convertible Note. Since the Convertible Note has a conversion feature whereby the principal amount will convert into a variable number of shares based on the future trading price of the Company’s common stock, the conversion feature is recorded as a derivative liability. Therefore, the fair value of the convertible feature at inception on May 6, 2021 in the amount of $17,063 was recorded as a debt discount and an addition to “Derivative liability” on the consolidated balance sheets. The derivative liability is adjusted to fair value each reporting period, with the changes in fair value reported in “(Gain) loss from change in fair value of derivative liability” on the consolidated statements of operations.

During the year ended December 31, 2021, $12,137 of Convertible Notes were converted into 52,769 shares of the Company’s common stock. The Company recognized a gain on extinguishment of $2,194 in “Gain on extinguishment of debt” on the consolidated statement of operations associated with the difference between (1) the sum of the fair value of the common stock issued of $10,089 and cash paid for the remaining annual interest due May 2022 of $668 and (2) the sum of the carrying amount of the converted debt $7,966 and the fair value of the convertible note derivative liability of $4,985.
On November 21, 2022, the Company completed an exchange with certain holders of the Convertible Notes via privately negotiated exchange agreements, pursuant to which the holders agreed to exchange$14,000 in aggregate principal amount of the Company's outstanding Convertible Notes for 663,822 newly issued shares of the Company's common stock, par value $0.0001 per share, at a price of $21.00 per share. The Company recognized a gain on extinguishment of $2,921 in “Gain on extinguishment of debt” on the consolidated statement of operations associated with the difference between (1) the sum of the fair value of the common stock issued of $8,138 and (2) the sum of the carrying amount of the converted debt $11,021 and the fair value of the convertible note derivative liability of $38.
On February 10, 2023, the Company completed an exchange with a holder of the Convertible Notes via a privately negotiated exchange agreement, pursuant to which the holder agreed to exchange $3,500 in aggregate principal amount of the Company's outstanding Convertible Notes at 95% of par for 210,443 newly issued shares of the Company's common stock, par value $0.0001 per share, at a price of $15.80 per share. The Company recognized a gain on extinguishment of $46 in “Gain on extinguishment of debt” on the consolidated statement of operations associated with the difference between (1) the sum of the fair value of the common stock issued of $2,811 and (2) the sum of the carrying amount of the converted debt $2,850 and the fair value of the convertible note derivative liability of $8.
On March 15, 2023, the Company completed an exchange with certain holders of the Convertible Notes via privately negotiated exchange agreements, pursuant to which the holders agreed to exchange $10,500 in aggregate principal amount of the Company's outstanding Convertible Notes for 937,500 newly issued shares of the Company's common stock, par value $0.0001 per share, at a price of $11.20 per share. The Company recognized a gain on extinguishment of $2,919 in “Gain on extinguishment of debt” on the consolidated statement of operations associated with the difference between (1) the sum of the fair value of the common stock issued of $5,754 and (2) the sum of the carrying amount of the converted debt $8,669 and the fair value of the convertible note derivative liability of $5.

The following table provides a reconciliation of the beginning and ending balances for the Convertible Note derivative liability measured at fair value using significant unobservable inputs (Level 3):

Three Months Ended March 31,
2023 2022
Balance at beginning of period $ 78  $ 17,418 
(Gain) Loss (39) (2,555)
Change resulting from conversions (13)
Balance at end of period $ 26 $ 14,863
The Convertible Note warrants are considered free-standing instruments and meet the criteria for equity classification because they are indexed to the Company’s own stock and provide a fixed number of shares. Therefore, the fair value of the Convertible Note warrants on May 6, 2021 in the amount of $14,522 was recorded as a debt discount and an addition to “Additional paid-in capital” on the consolidated balance sheets.

Interest expense for the three months ended March 31, 2023 and 2022 was $3,421 and $3,762, respectively, of which $1,254 and $1,647, respectively, related to contractual interest expense and $2,167 and $2,115, respectively, related to amortization of the discount.

Facility

The Facility provides for both term and working capital loans for borrowings up to $6,700 as of March 31, 2023. However, the Company’s Convertible Note requirements limit the Company’s permitted indebtedness to $5,000. Interest is payable quarterly on borrowings at a fixed annual rate of 15%. Borrowings under the Facility are secured by substantially all the Company’s assets, are subject to borrowing base limitations, and require the Company to meet certain covenants. The Facility borrowings, with a maturity date of October 21, 2024, were $3,000 as of March 31, 2023 and December 31, 2022. Interest expense related to the Facility was $118 and $118 for the three months ended March 31, 2023 and 2022, respectively.

Debt maturities

The total balance of all debt matures as follows:

Period Ending December 31,
Amount
2023 (remainder of the year)
$ — 
2024 62,863 
2025 — 
Thereafter — 
Total $ 62,863