| Debt | 8. DEBT Convertible
Note On February 23, 2022, we entered into a Securities
Purchase Agreement, as amended, with Lind Global, pursuant to which we issued to Lind Global the 2022 Convertible Note and a common stock purchase warrant to acquire 128,373 shares of our Common Stock (the “2022 Warrant”). The 2022 Convertible Note does not bear interest but was issued at a $0.75 million discount (“OID”). We received proceeds of approximately $4.8
million net of the OID and expenses. On June 23, 2023, the Company entered into a second Securities Purchase Agreement (the
“2023 Purchase Agreement”) with Lind Global, pursuant to which we issued to Lind Global that certain Senior Convertible Promissory Note, dated February 23, 2022 (the “2023 Convertible Note” and, together with the 2022 Convertible Note,
the “Convertible Notes”) and a common stock purchase warrant to acquire 426,427 shares of our Common Stock (the “2023
Warrant”). The 2023 Convertible Note does not bear interest but was issued at a $0.3 million discount (“OID”). We received
proceeds of approximately $1.4 million net of the OID and expenses.
Table 8.1: Details of Convertible Notes
2022 Convertible Note
2023 Convertible Note
Total Convertible Notes
(in thousands)
Convertible Note issued $ 5,750 $ 1,800 $ 7,550
Debt discount (750 ) (300 ) (1,050 )
Issuance cost:
Commitment fee (175 ) (52 ) (227 )
Balance of investor’s counsel fees (43 ) (34 ) (77 )
Net proceeds of Convertible Note $ 4,782 $ 1,414 $ 6,196
Additional OID costs not in original funds flow (121 ) (15 ) (136 )
Fair value of Warrant Liabilities on issuance (724 ) (1,119 ) (1,843 )
Fair value of Conversion Feature on issuance (306 ) (286 ) (592 )
A 25 30 55
A dditional OID costs not in original funds flow (660 ) 660 -
Interest expense accrued on Convertible Note as of June 30, 2024 3,265 666 3,931
Principal and interest payments through June 30, 2024 (6,261 ) (150 ) (6,411 )
Balance of Convertible Note as of June 30, 2024 $ - $ 1,200 $ 1,200 The
Convertible Notes provide for variable monthly principal repayments beginning 180 days from issuance (with respect to the 2022
Convertible Note) and 12 months from issuance (with respect to the 2023 Convertible Note). As of June 30, 2024, the 2022 Convertible Note has been fully paid off. Remaining monthly principal payments for the 2023 Convertible Note are $150,000 and can be made in the form of cash, shares, or a combination of both at the discretion of GSE.
Table 8.2: Details of Debt Balances
June 30, 2024
December 31, 2023
(in thousands)
2022 Convertible Note
$
-
$
799
2023 Convertible Note
1,650
1,800
Funded Debt
1,650
2,599
Less: Unamortized debt-issuance costs and discounts
(450
)
(1,152
)
Total debt
1,200
1,447
Less: Current portion of long-term debt
(1,200
)
(810
)
Long-term debt
$
-
$
637
Table 8.3: Details of Future Minimum Principal Payments Due
Amount
(in thousands)
July 1, 2024 through December 31, 2024
$
900
January 1, 2025 through June 30, 2025
750
$
1,650
P rior to the June 2023
amendments, described below, the 2024 one third The 2022 Convertible Note is guaranteed by each of
our subsidiaries and is secured by a first priority lien on all of our assets. The 2022 Convertible Note is not subject to any financial covenants and events of default under the 2022 Convertible Note are limited to events related to
payment, market capitalization, certain events pertaining to conversion and the underlying shares of Common Stock and other customary events including, but not limited to, bankruptcy or insolvency. Upon the occurrence of an event of
default, the 2022 Convertible Note will become immediately due and payable at an amount equal to 120% of the outstanding
principal, subject to any cure periods described in the 2022 Convertible Note, and the lender may demand that all or a portion of the outstanding principal amount be converted into shares of common stock at the lower of the then current
conversion price and 80% of the average of the three lowest daily volume-weighted average price (“VWAPs”) during the twenty days prior to
delivery of the conversion notice. If there is a change of control of the Company, Lind Global has the right to require us to prepay the outstanding principal amount of the 2022 Convertible Note. On June 23, 2023, the Company and Lind Global agreed to amend and restate the 2022 Convertible Note. The 2022 Convertible Note, as now
amended, is now secured, interest free convertible promissory note in the principal amount of $2,747,228, such amount being
the outstanding balance of the 2022 Convertible Note as of June 23, 2023. The
2022 Convertible Note was fully paid as of June 30, 2024. On October 6, 2023, the Company and
Lind Global entered into that certain First Amendment to the 2022 Convertible Note (“A&R Note Amendment”), amending the 2022 Convertible Note to extend the beginning period of required compliance with certain default provisions until January 31, 2024 ten ten There
was no accounting impact related to this amendment as conversion options are already bifurcated as an embedded derivative and recorded at fair value at each reporting period. The 2022 Warrant entitles Lind Global to purchase up to 128,373 shares of our Common Stock until February 23, 2027, at an exercise price of $19.40 per share, subject to customary adjustments described therein. The Warrant is recorded at fair value upon issuance of $0.7 million and is classified as a current liability to be remeasured at each reporting period (see Note 7). The discount created by allocating proceeds to the
Warrant results in a debt discount to be amortized as additional interest expense over the term of the Convertible Note. On June 23, 2023, in connection with the 2022
amended and restated Convertible Note transaction, the Company evaluated the amendment and concluded it qualified as a troubled debt restructuring. The restructuring did not result in a gain or loss but revised the effective interest
rate used to amortize the note going forward. On June 23, 2023, the Company entered into a
second Securities Purchase Agreement (the “2023 Purchase Agreement”) with Lind Global, pursuant to which the Company issued to Lind Global the 2023 Convertible Note at the same time that the Company and Lind Global amended and
restated the 2022 Convertible Note. The closing occurred on June 23, 2023, and consisted of the issuance of a secured, two-year
interest free convertible promissory note with a funding amount of $1,500,000 and a principal amount of $1,800,000 (as defined above, the “2023 Convertible Note”) and the issuance of common stock purchase warrant to acquire 426,427 shares of the Company’s common stock (the “2023 Warrant” and, together with the 2022 Warrant, the “Warrants”). The proceeds from
the transactions contemplated by the 2023 Purchase Agreement were for general working capital purposes and other corporate purposes. On October 6, 2023, the Company and Lind Global
entered into that certain First Amendment to Senior Convertible Promissory Note, amending the Company’s 2023 Convertible Note (the “Note Amendment”) to extend the beginning period of required compliance with certain default provisions until January 31, 2024 ten ten Commencing one year after the issuance of the 2023 Convertible Note, the Company shall pay the outstanding principal amount of the 2023 Convertible
Note in twelve (12)
consecutive monthly payments of $150,000 each. At the option of the Company, the monthly payment can be made in cash,
shares of the common stock of the Company (the “Repayment Shares”) at a price based on 90% of the average five (5) consecutive daily
VWAPs during the twenty (20)
days prior to the payment date, or a combination of cash and Repayment Shares, subject to the terms of the 2023 Convertible Note. The Repayment Shares must either be eligible for immediate resale under Rule 144 or be registered. The
number of Repayment Shares is limited such that, when added to the number of shares of common stock issued and issuable pursuant to the transactions contemplated by the 2023 Purchase Agreement, it may not exceed 493,727 shares of common stock unless the Company obtains stockholder approval to issue additional Repayment Shares. The holder of the
2023 Convertible Note may elect with respect to no more than two (2) of the above described monthly payments to increase the amount of such monthly payment up to $300,000 each in Repayment Shares upon notice to the Company. Any such increased payment shall be deducted from the amount of the last monthly payment owed under the 2023 Convertible Note. The
Company can prepay Lind Global all the outstanding principal amount of the 2023 Convertible Note, provided that Lind Global shall have the option to convert up to one third Upon the occurrence of an event of default as
described in the 2023 Convertible Note, the 2023 Convertible Note will become immediately due and payable at the default premium described in the 2023 Convertible Note, subject to any cure periods described in the 2023 Convertible
Note. Events of default include, but are not limited to, a payment default on any other indebtedness in excess of $250,000;
the shares no longer publicly being traded or cease to be listed on a trading market; if after six months, the shares are
not available for immediate resale under Rule 144; and the Company’s market capitalization is below $7,000,000 for ten – six The 2023 Warrant entitles Lind Global to
purchase up to 426,427 shares of common stock of the Company until the earlier of (a) June 23, 2028 and (b) a merger, sale
event or other reclassification of the Company’s common stock, at an exercise price of $5.00 per share, subject to
customary adjustments described therein. Additionally, in the event of a sale of all or substantially all of the assets of the Company or a merger, tender offer or certain other change of control events involving the Company, the
Company shall, at the holder’s option, exercisable at any time concurrently with, or within 30 days after, the
consummation of the transaction, purchase the 2023 Warrant from the holder by paying to the holder an amount of cash equal to (i) if the price per share of Common Stock payable in such transaction is in excess of $10.00, the Adjusted Black Scholes Value, or (ii) if the price per share of Common Stock payable in such transaction is equal to or less
than $10.00, the Black Scholes Value, of the remaining unexercised portion of the 2023 Warrant on the date of the
consummation of such transaction. “Adjusted Black Scholes Value” means the lesser of (i) the Black Scholes Value and (ii) the price per share of Common Stock payable in the transaction minus the exercise price multiplied by the then
amount of unexercised 2023 Warrant shares. “Black Scholes Value” means the value the 2023 Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the
day of consummation of the applicable transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of
the applicable transaction and the final day of the exercise period, (B) an expected volatility equal to the greater of 100%
and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the
public announcement of the applicable transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non- cash
consideration, if any, being offered in such transaction and (ii) the greater of (x) the last volume weighted average price immediately prior to the public announcement of such transaction and (y) the last volume weighted average
price immediately prior to the consummation of such transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable transaction and the final day of the exercise period. The
2023 Warrant is in addition to the 2022 Warrant. The Company evaluated the 2022 Convertible Note and concluded that certain embedded redemption features are required to be accounted
for as a derivative liability. Embedded redemption features were recorded at fair value upon issuance of $0.3 million and are
classified as current liabilities to be remeasured at each reporting period ( see Upon issuance of the 2023 Convertible Note, the
Company re-evaluated the 2022 Convertible Note, in accordance with ASC 815-40-25-10 and its sequencing policy, and concluded that the embedded conversion option was required to be bifurcated and accounted for as a derivative liability
as a result of the Company not being able to assert that it would have sufficient shares in all cases to be able to settle the conversion of the 2022 Convertible Note. The embedded conversion option will be combined with the
bifurcated redemption features as a single derivative and is classified as a current liability to be remeasured at each reporting period. The discount resulting from bifurcating the embedded conversion option will be amortized as
additional interest expense over the term of the 2022 Convertible Note. The direct and incremental costs incurred are allocated to the Convertible Note and the Warrant based on a systematic and rational
approach. The costs allocated to the Warrants have been expensed as incurred while those allocated to the Convertible Note have been capitalized and will be amortized as interest expense over the life of the Convertible Notes based on
the effective interest rate. The Company will record ongoing changes to the fair value of the derivative liabilities as other non-operating income (expense). The Convertible Notes are evaluated as a potentially dilutive security in both periods of loss and income for diluted earnings per
share purposes. The Warrants are considered a participating security and were not included in the calculation of basic earnings per share for the six months ended June 30, 2024 and the year ended December 31, 2023 as Company reflected
net loss for the respective periods. The Warrant will be included in the calculation of diluted earnings per share in periods of net income. The issuance costs with respect to the Convertible Notes, which are recorded as a debt discount, are deferred and amortized using the
effective interest method as additional interest expense over the terms of the Convertible Note at an effective interest rate of 68.6%.
The Company incurred total interest expense related to the Convertible Notes of $0.7 million for the six months ended June
30, 2024, compared to $1.1 million including $0.5 million default charge for the six months ended June 30, 2023. On February 12, 2024, the Company and Lind Global entered into an agreement to amend
certain provisions of the Convertible Notes (as amended) to extend the beginning period of required compliance with certain default provisions until June 1, 2024. The agreement amended Section 2.1 pertaining to events of default, to
extend the period in which an event of default would occur, as defined above, to any time after June 1, 2024, previously any time after January 31, 2024 as provided in the October 6th amendment defined above. But for the amendment,
the Company would have incurred an event of default after the tenth (10 th Letters of Credit We maintain certain letters of credit with Citizens
Bank, N.A. (“Citizens”) . As of June 30, 2024, we had four letters of credit totaling $1.1
million outstanding to certain customers which were secured with restricted cash. |
