Short-term debt

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Short-term debt

Note 8 — Short-term debt

Short-term debt as of June 30, 2022, and December 31, 2021, consisted of the following (in thousands):

	June 30,		December 31,
	2022		2021
Convertible Debentures & Warrants, including interest payable to the Convertible Debenture Holders (A)	$	16,303	$	19,439
Revolving Credit Facility (B)		900		-
Total Short-Term Debt	$	17,203	$	19,439

(A) 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 for up to $15,187,500 in principal amount (“Original Principal Value”) Convertible Debentures. To manage the administration of the Offering the Company entered into a placement agency agreement with Joseph Gunner & Co. LLC, a U.S. registered broker-dealer (“Placement Agent”). At the initial closing, the Company sold the purchasers (i) 12.5% Original Issue Discount Convertible Debentures (“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.

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”). The Company determined that the conversion feature associated with the convertible debentures should be bifurcated and treated as a separate derivative liability. The Company recorded a revaluation loss of approximately $1.9 million and $2.7 million for the three and six months ended June 30, 2022, for the change in the fair value of the conversion option. As of June 30, 2022, the derivative liability associated with the conversion option was $9.2 million. In addition, during the quarter, the Company recognized an extinguishment loss of approximately $0.9 million and $1.4 million for the three and six months ended June 30, 2022, as a result of the conversion of debt of $3.7 million during the period ended June 30, 2022.  

Debenture Default

The Debentures provide that any monetary judgment filed against the Company for more than $50,000, and if such judgment remains unvacated for a period of 45 calendar days shall constitute an event of default. On December 14, 2021, the Company became aware that a Confession of Judgment (the “Confession of Judgment”) had been entered against the Company in the Superior Court of the State of California, County of Santa Clara by Tech Data on September 24, 2021. The Confession of Judgement was entered for a total sum of $5,942,559.05, which is comprised of the principal sum of $3,341,801.80 and prejudgment interest in the sum of $2,600,757.25. As a result, the Confession of Judgment was deemed to be an event of default under the Debentures although the Company only became aware of the Confession of Judgment on December 14, 2021.

On January 7, 2022, the Company received a notice of default (the “Default Notice”) from the Placement Agent stating that the Company defaulted under the Purchase Agreement as a result of: (i) the Company failing to disclose certain material indebtedness of the Company outstanding as of the date of the Purchase Agreement; and (ii) the filing of a judgment relating to such material indebtedness. Due to such events of default, (i) the Debentures are now deemed to have begun bearing interest at the default interest rate of 18% per annum from the date of the issuance of the Debentures; and (ii) the holders of the Debentures are entitled to receive in satisfaction of the amounts owing under the Debentures an amount equal to 130% of the Original Principal Value of the Debentures (“Default Principal Increase”), in accordance with the terms of the Debentures. In addition, as a result of the events of default, the exercise price for the Warrant is the lower of: (A) $18.00 and (B) an amount equal to fifty percent (50%) of the average of volume-weighted average price for the common stock of the Company over the five (5) trading days preceding the date of the delivery of the applicable exercise notice or (C) the qualified offering price as defined in the Purchase Agreement.

(B) Revolving Credit Facility

Non-Recourse Factoring and Security Agreement

Effective as June 19, 2020 (the “Effective Date”), the Company and SouthStar Financial, LLC (“SouthStar”) entered into a financing purchase order agreement. Through SouthStar, the Company receives 100% financing on purchase orders with 50% of the purchase order amount paid directly to the vendor/supplier and the remaining balance is paid to the vendor once payment is made on the Company’s customer invoice. Purchase order interest rates charged to the Company is calculated from the date funds are advanced on the purchase order to the date the Company’s customer invoice is verified and funded. The financing fees charged are 0.90% for the first 10-day period and 0.90% every 10-day period thereafter. As of June 30, 2022, the outstanding financing purchase order obligation is $900,000.