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Loans Payable | 9 Months Ended
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Mar. 31, 2025
Loans Payable |
Loans Payable | 13. Loans Payable Acquisition Notes On February 18, 2025 we entered into the Securities Purchase Agreement (see Note 3, Acquisition of G5 Infrared), and in connection with the closing of the Securities Purchase Agreement, we issued senior secured promissory notes in an aggregate principal amount of $5.2 million (the “Acquisition Notes”). The Acquisition Notes accrue interest at the rate between 10- 12% per annum (12% as of March 31, 2025), based on the ratio of indebtedness to EBIDTA of the Company, unless an event of default (as defined in the Acquisition Notes) occurs, at which time the Acquisition Notes would accrue interest at 15% per annum. The Company determined the embedded features related to the payment of variable interest and upon an event of default are clearly and closely related to the Acquisition Notes, and are therefore not bifurcated from the Acquisition Notes. At March 31, 2025, the net carrying value of the convertible promissory notes is $4.5 million, including unamortized debt discount and issuance costs of $0.7 million, and had an effective interest rate of 5.7%. The estimated fair value (level 3) of the convertible promissory notes approximates its book value as of March 31, 2025. The Acquisition Notes will mature on February 18, 2027, the second anniversary of the issuance date. The Acquisition Notes will convert into shares of Series G Convertible Preferred Stock if the EBIDTA reported by the Company for the calendar year ending December 31, 2025 is less than $4,921,875, which are in turn convertible into Conversion Shares (the “Conversion Option”). The Series G Convertible Preferred Stock is convertible into Class A Common Stock. The Company determined that the Conversion Option did not require bifurcation from the Acquisition Notes as the Conversion Option (i) is indexed to the Company’s own stock, (ii) is settled in shares, not cash, and (iii) is only exercisable into a fixed number of shares at a fixed exercise price of $1,000 per share once it is triggered to convert and the conversion price can only be adjusted for standard antidilution provisions. All or part of the Acquisition Notes may be redeemed by the Company prior to the maturity date at a redemption price equal to the portion of principal so redeemed plus all accrued and unpaid interest thereon, provided that if the funds used for redemption were not generated internally by Company operations, the redemption amount will be multiplied by 102%. In addition, following an event of default or upon a change of control, the Purchaser may require the Company to redeem all or any portion of the Acquisition Notes. Notwithstanding anything to contrary, upon any bankruptcy event of default, the Company will immediately pay the holder an amount in cash representing all outstanding principal and accrued and unpaid interest. The Company determined that these redemption features did not require bifurcation from the Acquisition Notes as these are clearly and closely related to the Acquisition Notes. The Acquisition Notes include customary affirmative and negative covenants and events of default. Additionally, the Acquisition Notes include financial covenants requiring the Company to maintain a Total Leverage Ratio (as defined in the Acquisition Notes) of not greater than 4.00:1:00 and a Fixed Charge Covered Ratio (as defined in the Acquisition Notes) of greater than 1.20:1.00 for each fiscal quarter beginning with the fiscal quarter ending December 31, 2025. Bridge Promissory Note On August 6, 2024, we entered into a bridge promissory note (the “Bridge Note”) with Lytton-Kambara Foundation (the “Lender”, previously defined as the “Buyer”) pursuant to which the Lender extended a loan to the Company in the principal amount of $3,000,000 (the “Loan”). The Loan is subject to an original issue discount of 7%. After deducting the original issue discount, fees paid to our placement agent, and certain expenses, the Company received net proceeds of $2,700,000. The Bridge Note was unsecured, bore interest at the rate of 12.5% per annum and had a 1-year term, maturing on August 6, 2025 (the “Maturity Date”), at which time the entire principal amount of the Bridge Note and all accrued but unpaid interest would have been due and payable in full. The Bridge Note and related accrued interest were settled on February 18, 2025, in conjunction with financing for the acquisition of G5 Infrared and the closing of the Securities Purchase Agreement and Class A Common Securities Purchase Agreement (see Note 3, Acquisition of G5 Infrared) with the Lytton Buyers. The Bridge Note and $1.5 million of cash was exchanged for: (i) 687,750 shares of Class A Common Stock at a purchase price of approximately $2.15 per share issued in connection with the Class A Common Securities Purchase Agreement; (ii) approximately 1,957 shares of Series G Convertible Preferred Stock issued in connection with the Securities Purchase Agreement; (iii) warrants to purchase 512,091 shares of Class A Common Stock, with an exercise price of $2.58 per share, of which 170,697 were issued in connection with the Class A Common Securities Purchase Agreement and 341,394 were issued in connection with the Securities Purchase Agreement and (iii) an Acquisition Note in an aggregate principal amount of approximately $1.2 million issued in connection with the Securities Purchase Agreement. The exchange of the Bridge Note was accounted for as a debt extinguishment as the Conversion Option on the Acquisition Notes is substantive, the warrants, preferred stock, and common stock are equity classified and an exchange of debt for equity other than through an existing conversion feature is accounted for as an extinguishment. The loss on extinguishment of $0.4 million was computed as the difference between (i) the carrying value of the new instruments issued, including the Acquisition Note, the Series G Convertible Preferred Stock, Class A Common Stock, and Warrants. Prior to closing of the Securities Purchase Agreement and Class A Securities Purchase Agreement, the Lytton Buyers owned a de minimis amount the Company’s equity and therefore the loss was not an in-substance capital transaction and was recognized in the loss on extinguishment of debt on the condensed consolidated statements of comprehensive income (loss). Third-party costs totaling $0.3 million were recorded as issuance costs and are being amortized using the effective interest method over the term of the Acquisition Note. Equipment Loans In December 2020, ISP Latvia received an equipment loan from a third party (the “2020 Equipment Loan”), which party is also a significant customer. The 2020 Equipment Loan was collateralized by certain equipment. The initial advance under the 2020 Equipment Loan was 225,000 EUR (or USD $275,000), payable in equal installments over 60 months, the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date. An additional 225,000 EUR (or USD $267,000) was drawn in September 2021, which proceeds were paid to the vendor for the equipment, payable in equal installments over 52 months. The 2020 Equipment Loan bears interest at a fixed rate of 3.3%. In May 2023, ISP Latvia entered into an equipment loan with a third party financial institution (the “2023 Equipment Loan”). The 2023 Equipment Loan is collateralized by certain equipment. The initial advance under the 2023 Equipment Loan was 128,815 EUR (or USD $141,245), the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date. The final advance for the final payment to the equipment vendor was 132,674 EUR (or USD $141,815). The 2023 Equipment Loan is payable over 48 months, with monthly installments that began on January 1, 2024. The 2023 Equipment Loan bears interest at the six-month EURIBOR rate, plus 2.84% (4.85% as of March 31, 2025). Future maturities of loans payable are as follows:
|  | Acquisition Notes |  |  | Equipment Loans |  |  | Total |
Fiscal year ending: |  |  |  |  |  |  |  |  |
June 30, 2025 (remaining three months) |  | $ | - |  |  | $ | 61,829 |  |  | $ | 61,829 |
June 30, 2026 |  |  |  |  |  |  | 150,382 |  |  |  | 150,382 |
June 30, 2027 |  |  | 5,195,205 |  |  |  | 106,320 |  |  |  | 5,301,525 |
June 30, 2028 |  |  |  |  |  |  | 70,880 |  |  |  | 70,880 |
Total payments |  | $ | 5,195,205 |  |  | $ | 389,411 |  |  | $ | 5,584,616 |
Unamortized discount to fair value |  |  |  |  |  |  |  |  |  |  | (407,976 | )
Unamortized loan issuance costs |  |  |  |  |  |  |  |  |  |  | (297,465 | )
Loans payable |  |  |  |  |  |  |  |  |  |  | 4,879,175 |
Less current portion |  |  |  |  |  |  |  |  |  |  | (185,631 | )
Non-current portion |  |  |  |  |  |  |  |  |  | $ | 4,693,544 |

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