Convertible Debentures & Warrants

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Convertible Debentures & Warrants

Note 10 — Convertible Debentures & Warrants

Convertible debt as of September 30, 2021, and December 31, 2020, consisted of the following (in thousands): 

	As of September 30,		As of December 31,
	2021		2020
Convertible Debentures & Warrants, net of debt discount and debt issuance costs of $1.9 million, and $1.06 million, respectively	$	11,208	$	-

2021 Convertible Debentures & Warrants

On July 7, 2021, the Company consummated the initial closing of a private placement offering (the “Offering”) pursuant to the terms and conditions of a Securities Purchase Agreement. At the initial closing, the Company sold the purchasers (i) 12.5% Original Issue Discount Convertible Debentures in an aggregate principal amount of $9,990,000 and (ii) warrants to purchase up to 3,534,751 shares of common stock of the Company. The Company received total gross proceeds of $8,880,000 taking into account the 12.5% discount before deducting placement agent fees and expenses of approximately $913,000. The Debentures mature on July 7, 2022, subject to a three-month extension upon mutual agreement of the Company and the holder.

On August 13, 2021, the company consummated the second closing of the offering pursuant to the same terms and conditions of the Securities Purchase Agreement dated July 7, 2021. At the second closing, the Company sold the purchasers (i) 12.5% Original Issue Discount Senior Secured Convertible Debentures in an aggregate principal amount of $3,976,875 and (ii) warrants to purchase up to 1,862,279 shares of common stock of the Company. The Company received a total of $3,535,000 in gross proceeds following the second closing taking into account the 12 % discount before deducting placement agent fees and expenses of approximately $354,000. The Debentures mature on August 13, 2022, subject to a three-month extension upon mutual agreement of the Company and the holder.

In conjunction with the Convertible Debentures, the Company entered into a Warrant Purchase Agreement (the “Agreement”) providing investors the right to purchase common stock of Sysorex. The exercise price will be either 1) the Qualified Offering Price, in the event of a Qualified Offering or 2) in the event of no Qualified Offering, the lower of a) $18.00 and b) an amount equal to 80% of the average of VWAP (as defined therein) for the common stock. The term of the warrant is five years. The warrants issued in connection with the debt were equity classified at issuance and were allocated a value of approximately $810,000 on a relative fair value basis.

The Company recorded the debt net of the 12.5% discount, of which totaled $1,100,000, the placement agent fees and expenses of $1,267,000 and the debt discount attributed to the fair value of the warrants of approximately $810,000. The Company accreted these values over the term of the loan, resulting in an expense of approximately $631,000 for the three and nine months ended September 30, 2021, which is included in interest expense in the condensed consolidated statement of operations.

The Convertible Note bears interest at the rate of 8% per year and is due and payable quarterly after the date of issuance. The Company recognized approximately $0.2 million of such interest expense for the quarter ended September 30, 2021. Included in short-term debt is $0.2 million of interest payable on October 1, 2021, to its’ convertible holders

Under the conversion terms of the Debentures, the Debenture is convertible, in whole or in part, into shares of Common Stock at the option of the Holder at any time until the Debenture is no longer outstanding. The Holder executes a conversion by delivering to the Company a Notice of Conversion specifying the principal amount to be converted and the date on which the conversion is to be executed. The Conversion Price is set at the lower of (i) $18.00 and (ii) 80% of the average of the VWAP during the 5 Trading Day period immediately prior to the applicable Conversion Date. The number of Conversion Shares to be issued is determined by dividing the outstanding principal amount of the debenture to be converted by the Conversion Price. The Debentures are subject to mandatory conversion (“Mandatory Conversion”) in the event the Company closes a registered public offering of its Common Stock and receives gross proceeds of not less than $40,000,000 and at the completion of which the Company’s securities are traded on a national exchange (“Qualified Offering”).