SENIOR SECURED CONVERTIBLE NOTE, RELATED PARTY

12 Months Ended

Dec. 31, 2023

Senior Secured Convertible Note Related Party

SENIOR SECURED CONVERTIBLE NOTE, RELATED PARTY

24. SENIOR SECURED CONVERTIBLE NOTE, RELATED PARTY

On October 13, 2023 (the “A&C Closing Date”), the Company entered into a note purchase agreement with Ault & Company, pursuant to which the Company sold to Ault & Company (i) a senior secured convertible promissory note in the principal face amount of $17.5 million (the “Note”) and warrants (the “Warrants”) to purchase shares of the Company’s common stock for a total purchase price of up to $17.5 million (the “Transaction”).

The purchase price was comprised of the following: (i) cancellation of $4.6 million of cash loaned by Ault & Company to the Company since June 8, 2023 pursuant to the loan agreement; (ii) cancellation of $11.6 million of term loans made by the Company to Ault & Company in exchange for Ault & Company assuming liability for the payment of $11.6 million of secured notes; and (iii) the retirement of $1.25 million stated value of 125,000 shares of the Company’s Series B Convertible Preferred Stock (representing all shares issued and outstanding of that series) being transferred from Ault & Company to the Company.

The Note had a principal face amount of $17.5 million and had a maturity date of October 12, 2028 (the “Maturity Date”). The Note bore interest at the rate of 10% per annum. The Note was repaid in full in December 2023 and the Company recorded a $4.2 million loss on extinguishment for the year ended December 31, 2023.

The Warrants grant Ault & Company the right to purchase 1.9 million shares of common stock. The Warrants have a five-year term, expiring on the fifth anniversary of the A&C Closing Date, and become exercisable on the first business day after the six-month anniversary of the A&C Closing Date. The exercise price of the Warrants is $4.5925, which is subject to adjustment in the event of customary stock splits, stock dividends, combinations or similar events.

The Company elected the fair value option and utilized a Monte-Carlo simulation at inception to value the Note. The Monte-Carlo simulation is calculated as the average present value over all simulated paths. The key inputs and assumptions used in the Monte-Carlo Simulation, including volatility, estimated market yield, risk-free rate, the probability of various scenarios, including held to maturity and subsequent preferred stock offering and various simulated paths, were utilized to estimate the fair value at $17.8 million or approximately the principal amount outstanding as of inception. The value of the 2023 Note was calculated as the average present value over 25,000 simulated paths. Given the Notes were fully satisfied in connection with issuance of the Series C convertible preferred stock, the Company calculated the fair value on the date of extinguishment as the total principal plus accrued interest outstanding.

The following table summarizes some of the significant inputs and assumptions used in the Monte-Carlo simulation:

Senior secured convertible promissory note	Amounts
Principal outstanding at valuation date	$17.5 million
Volatility	80%
Interest rate	10.0%
Risk-free interest rate range	4.7% to 5.6%
Estimated yield	19.5% to 21.0%

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $4.2 million based on the estimated fair value of the Warrants.

In addition to a 21% discount for lack of marketability, significant inputs associated with the calculation of the fair value of the Warrants included the following:

Contractual term in years	5.0
Volatility	167.3%
Dividend yield	0%
Risk-free interest rate	4.7%

The rollforward of the senior secured convertible promissory note notes is as follows:

Senior secured convertible promissory note	Total
Balance as of December 31, 2022	$	-
Exchange of loan agreement with Ault & Company		4,625,000
Ault & Company note from exchange of 12% demand promissory note		1,100,000
Ault & Company note from exchange of 10% demand promissory note		10,545,000
Exchange of Series B convertible preferred stock		1,250,000
Cash payments of senior secured convertible promissory note		(150,000	)
Payment from issuance of Series C preferred stock		(17,370,000	)
Balance as of December 31, 2023	$	-