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Debt
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Debt

Note 8. Debt

 

Amended and Restated Senior Secured Convertible Debentures

 

In connection with the Merger, the Company entered into debentures due December 31, 2023 with each of Bristol Investment Fund, Ltd. (“Bristol”) and Barlock 2019 Fund, LP (“Barlock”), in the principal amount of $1,000,000 (“AR Debentures”). Bristol is controlled by Paul L. Kessler who was the Executive Chairman of the Company at the time of the Merger and is a current member of our Board of Directors. Barlock is controlled by Scott D. Kaufman who is a former President, Chief Executive Officer, and Director of the Company. The AR Debentures will accrue interest on the aggregate unconverted and then outstanding principal amount of the debentures at the rate of 12% per annum. Interest is payable quarterly on (i) January 1, April 1, July 1 and October 1, beginning on May 3, 2023, (ii) each date the AR Debentures are converted into Common Stock (as to that principal amount then being converted), (iii) the day that is at least five trading days following the Company’s notice to redeem some or all of the then outstanding principal of the AR Debentures (only as to that principal amount then being redeemed), which may be provided at any time after the Company’s Common Stock is listed or quoted for trading on the NYSE American (or any successor thereto) or any other national securities exchange (the “Uplisting”), and (iv) the maturity date.

 

The AR Debentures are convertible into shares of Common Stock at any time at the option of the applicable holder, at an initial conversion price of $5.00 per share. At September 30, 2023, such a conversion would have resulted in the issuance of 400,000 common shares.

 

 

If any events of default described in the AR Debentures occur, the outstanding principal amount of the AR Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the applicable holder’s election, immediately due and payable in cash. Commencing five days after the occurrence of any event of default that results in the eventual acceleration of the AR Debentures, the interest rate on the AR Debentures shall accrue at an interest rate equal to the lesser of 18% per annum and the maximum rate permitted under applicable law.

 

The AR Debentures include customary negative covenants, including covenants restricting the Company from incurring certain additional indebtedness, granting security interests or liens on its assets (other than certain permitted liens), and entering into any transaction involving the repurchase of shares of Common Stock, except as permitted under the AR Debentures.

 

In connection with the Closing, the Company entered into the Amended and Restated Security Agreement with all of the subsidiaries of the Company and each of Bristol Investment Fund and Barlock, as holders of the AR Debentures, to reflect collateral as only certain Cryptocurrency Mining assets.

 

The Company determined that the AR Debentures contain certain features that require bifurcation and separate accounting as embedded derivatives. As such, the Company elected to initially and subsequently measure the AR Debentures in their entirety at fair value with changes in fair value recognized in earnings in accordance with ASC 815. The fair value of the AR Debentures increased to $4,863,000 at September 30, 2023 representing an increase of $2,141,000 from June 30, 2023 and $3,502,000 from the date of the Merger and recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively.

 

Interest accrued for AR Debentures was $60,000 and zero at September 30, 2023 and December 31, 2022, respectively.

 

In October 2023, conversion notices were received from holders of the AR Debentures and the Company issued 400,667 shares of Common Stock to affect the conversion. This represented the full conversion of the AR Debentures and accrued interest due to one of the holders.

 

SBA Loan

 

Upon the Merger, the Company assumed a loan agreement with the SBA. The loan accrued interest at a rate of 3.75% and was scheduled to mature in June 2050. The Company elected to fully repay the SBA loan and accrued interest in September 2023.

 

The following table summarizes the Company’s debt outstanding:

 

           
   As of 
  

September 30,

2023

  

December 31,

2022

 
Short-term debt          
AR Debentures at fair value  $4,863,000   $— 
           
Total debt  $4,863,000   $— 

 

The following is a summary of scheduled debt maturities by year as of September 30, 2023:

 

      
2023  $2,000,000 
2024   — 
2025   — 
2026   — 
2027   — 
Thereafter   — 
 Long-Term Debt  $2,000,000