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Note 8 - Loans Payable
 3 Months Ended
Mar. 31, 2023
Notes to Financial Statements  
Debt Disclosure [Text Block]

 

NOTE 8: LOANS PAYABLE

 

The outstanding debt with detachable warrants, as applicable, are shown in the table below. Further discussion of the debt follows.

 

As of March 31, 2023

  

Issuance

    

Maturity

     

Debt Type

 

Date

 

Principal

 

Date

 

Warrants

 

Interest Rate Information

A

 

2/17/2022

 $10,000 

2/15/2025

  833,334 

8.0% interest(1)

B

 

2/17/2022

  1,146 

2/17/2024

  - 

4.60% interest(2)

C

 

2/17/2022

  7,185 

2/15/2025

  898,165 

10.0% interest(3)

D

 

10/31/2022

  1,750 

9/1/2023

  - 

12.5% interest(4)

  

Total debt, gross

  20,081    1,731,499  
  

Debt discount

  (2,713)      
  

Total debt, net

 $17,368       
  

Less current maturities

  (4,944)      
  

Long term debt

 $12,424       

 

As of December 31, 2022

  

Issuance

    

Maturity

     

Debt Type

 

Date

 

Principal

 

Date

 

Warrants

 

Interest Rate Information

A

 

2/17/2022

 $10,000 

2/15/2025

  833,334 

8.0% interest(1)

B

 

2/17/2022

  1,456 

2/17/2024

  - 

0.59% interest(2)

C

 

2/17/2022

  7,185 

2/15/2025

  898,165 

10.0% interest(3)

D

 

10/31/2022

  2,000 

9/1/2023

  - 

12.5% interest(4)

  

Total debt, gross

  20,641    1,731,499  
  

Debt discount

  (3,069)      
  

Total debt, net

 $17,572       
  

Less current maturities

  (4,499)      
  

Long term debt

 $13,073       

 

A – Acquisition Term Loan with related party

B – Secured Promissory Note

C – Consolidation Term Loan with related party

D – Term Loan (2022) with related party

 

(1)

8.0% cash interest per annum through maturity at February 15, 2025.

(2)

Annual interest rate on the outstanding principal increased from 0.59% to 4.60% per annum effective February 17, 2023 through maturity at February 17, 2024. Annual interest rate was 0.59% cash interest per annum (the applicable federal rate) through February 17, 2023. 

(3)

10.0% cash interest per annum through maturity date at February 15, 2025.

(4)

Interest was paid-in-kind through October 2021, at which point interest became payable in cash at the stated interest rates through maturity.

 

Secured Promissory Note

 

On February 17, 2022, in connection with the Closing, the Company issued to RSI Exit Corporation (“Stockholders’ Representative”), the representative of Reflect stockholders, a $2,500 Note and Security Agreement (the “Secured Promissory Note”).

 

The Secured Promissory Note accrued interest at 0.59% per annum (the applicable federal rate on the date of issuance of the Secured Promissory Note) and required the Company and Reflect to collectively pay equal monthly principal installments of $104 on the fifteenth (15th) day of each month, commencing on March 15, 2022. Any remaining or unpaid principal was due and payable on February 17, 2023. All payments under the Secured Promissory Note are paid to the escrow agent in the Merger Agreement to be placed into the escrow account to secure the Reflect stockholders’ indemnification obligations until released on February 17, 2023 (the one-year anniversary of the Closing), at which time any remaining proceeds not subject to a pending indemnification claim would be paid to the exchange agent for payment to the Reflect stockholders pursuant to the Merger Agreement. The Secured Promissory Note is secured by a first-lien security interest in certain contracts of Reflect, including obligations arising out of those certain contracts. The Company has the right to offset amounts payable under the Secured Promissory Note upon a final, non-appealable decision of a court that entitles the Company or its affiliates to any damages for indemnification under the Merger Agreement, or the Stockholders’ Representative’s agreement in writing to such damages.

 

On February 11, 2023, the Company and the Stockholders’ Representative executed an amendment (the “Note Amendment”) to the Secured Promissory Note. The Note Amendment eliminates the balloon payment, extending the maturity date for a one-year period, to February 17, 2024. During the extended period, the Company will continue to make monthly principal payments of $104, and the annual interest rate on the outstanding principal increased from 0.59% to 4.60%, which will accrue and is payable in full on the new maturity date.

 

Second Amended and Restated Loan and Security Agreement

 

On February 17, 2022, the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their debt facilities with Slipstream, pursuant to a Second Amended and Restated Credit and Security Agreement (the “Credit Agreement”). The Borrowers include Reflect, which became a wholly owned subsidiary of the Company as a result of the Closing on February 17, 2022. The debt facilities continue to be fully secured by all assets of the Borrowers.

 

The Credit Agreement also provides that the Company’s outstanding loans from Slipstream at December 31, 2021, consisting of its pre-existing $4,767 senior secured term loan and $2,418 secured convertible loan, with an aggregate of $7,185 in outstanding principal and accrued and unpaid interest under such loans, were consolidated into a term loan (the “Consolidation Term Loan”). The Consolidation Term Loan has an interest rate of 10.0%, with 75.0% warrant coverage (or 898,165 warrants). On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Consolidation Term Loan. Commencing on September 1, 2023, and on the first day of each month thereafter until the Maturity Date, the Borrowers will make a payment on the Consolidation Term Loan, in an equal monthly installment of principal sufficient to fully amortize the Consolidation Term Loan in eighteen equal installments. The Company assessed the combination of the pre-existing senior secured term loan and secured convertible loan in accordance with ASC 470 Debt and determined the transaction should be accounted for as an extinguishment, in part as the Consolidation Term Loan eliminated a substantive conversion feature. In aggregate the Company recorded a loss on extinguishment of $295 during the three month period ending March 31, 2022, primarily associated with the write-off of pre-existing debt discounts.

 

In addition to refinancing the existing debt with Slipstream, the Company issued to Slipstream a $10,000, 36-month senior secured term loan (the “Acquisition Term Loan”) resulting in $10,000 in gross proceeds, or $9,950 in net proceeds. The Acquisition Term Loan matures on February 17, 2025 (the “Maturity Date”) and has an interest rate of 8.0%, with 50.0% warrant coverage (or 833,334 warrants). On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Acquisition Term Loan. No principal payments on the Acquisition Term Loan are payable until the Maturity Date.

 

In connection with the Acquisition Term Loan and Consolidation Term Loan warrant coverage, the Company issued to Slipstream a warrant to purchase an aggregate of 1,731,499 shares of Company common stock (the “Lender Warrant”). The Lender Warrant has a five-year term, an initial exercise price of $6.00 per share, subject to adjustments in the Lender Warrant, and was not exercisable until August 17, 2022. The warrants were assessed in accordance with ASC 470 and ASC 815 Derivatives and were deemed to represent bifurcated derivative instruments that should be recorded as liabilities in the Condensed Consolidated Balance Sheets. The Company performed a Black-Scholes valuation of the warrants as of the issuance date, resulting in a fair value of $2.4387 per warrant. In recording the warrant liability, the Company recorded a debt discount associated with each of the Acquisition and Consolidation Term Loans in an amount of $2,032 and $2,190, respectively. These amounts are being amortized straight-line through interest expense over the life of the loans, resulting in incremental interest expense of $356 and $162 for the three months ended March 31, 2023 and 2022, respectively. The Company has deemed straight-line amortization to be materially consistent with the effective interest method.

 

In certain circumstances, upon a fundamental transaction of the Company (e.g., a disposal or sale of all or the greater part of the assets or undertaking of the Company, an amalgamation or merger with another company, or implementation of a scheme of arrangement), the holder of the Lender Warrant will have the right to require the Company to repurchase the Lender Warrant at its fair value using a Black Scholes option pricing formula; provided that such holder may not require the Company or its successor entity to repurchase the Lender Warrant for the Black Scholes value in connection with a fundamental transaction that is not approved by the Company’s Board of Directors, and therefore not within the Company’s control.

 

Effective June 30, 2022, the Company amended the terms of the Lender Warrant to remove the holder’s option to exercise such warrant on a cashless basis utilizing the VWAP of the Company’s common stock on the trading day immediately preceding the date of a notice of cashless exercise in certain circumstances, and remove the condition to exercising such warrant that the Company’s shareholders approve the exercise thereof (which has already been obtained). The amendments to the Lender Warrant also extend the term of such warrants for an additional one year, such that the Lender Warrant will expire on February 17, 2028. The foregoing amendments to the Lender Warrant caused such warrants to be accounted for as equity instruments in the Company’s Consolidated Financial Statements.

 

On October 31, 2022, the Borrowers and Slipstream amended the Credit Agreement to provide the Borrowers with a $2,000 term loan ("Term Loan (2022)"), the net proceeds of which were used by the Company to accelerate an active software development project with potential to expand SaaS revenues associated with an existing customer. The Term Loan (2022) has an annual interest rate of 12.5% and matures on September 1, 2023. Commencing on February 1, 2023, the Borrowers will make monthly installment payments of approximately $270 until the maturity date, consisting of principal and interest sufficient to fully amortize the Term Loan (2022) through the maturity date.