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Promissory Note and Convertible Note Financings
 12 Months Ended
Dec. 31, 2023
Promissory Note and Convertible Note Financings [Abstract]  
Promissory Note and Convertible Note Financings
6)
Promissory Note and Convertible Note Financings
 

On July 14, 2023, the Company received $8.7 million from a private placement in which the Company issued $8.7 million in aggregate principal amount of convertible notes (the “July 2023 convertible notes”) and warrants to purchase an aggregate of approximately 6.1 million shares of its common stock (the “July 2023 warrants”). The Company recognized approximately $0.2 million in fees associated with the transaction.


On December 8, 2023, the Company received $1.5 million in exchange for the issuance of 6% promissory note with an aggregate principal amount of $1.5 million to Charles Cherington. The promissory note was to mature on January 8, 2024, and interest accrued at a rate of 6.0% per annum, payable at maturity. On December 14, 2023, the Company repaid the $1.5 million of principal and $1,500 of accrued interest due under the promissory note. There are no further obligations under the promissory note.


On December 14, 2023, the Company entered into a purchase agreement with certain purchasers for the private placement of $9.2 million of convertible notes (the “December 2023 convertible notes” and together with the July 2023 convertible notes, the “convertible notes”) and warrants to purchase an aggregate of approximately 9.6 million shares of the Company’s common stock (the “December 2023 warrants” and together with the July 2023 warrants, the “note warrants”). There were two closings under this purchase agreement. The first closing occurred on December 15, 2023, and the Company received $7.8 million and issued $7.8 million of December 2023 convertible notes and December 2023 warrants to purchase approximately 8.1 million shares of our common stock. The second closing, in which the Company received the reaming $1.4 million under the purchase agreement, occurred in January 2024. See Note 18 for additional information regarding the second closing.


See Note 16 for more information on the note warrants.


The July 2023 convertible notes bear interest at 6% per annum, and the December 2023 convertible notes bear interest at 12% per annum, both of which are payable quarterly in arrears. At the Company’s election, it may pay interest either in cash or in-kind by increasing the outstanding principal amount of the convertible notes. The July 2023 convertible notes mature on July 14, 2028, and the December 2023 convertible notes issued on December 15, 2023 mature on December 15, 2028, unless earlier converted or repurchased.  The Company does not have the option to redeem any of the convertible notes prior to maturity.



At the option of the holders, the convertible notes may be converted from time-to-time in whole or in part into shares of the Company’s common stock at an initial conversion rate of, with respect to the July 2023 convertible notes, $2.86 per share and, with respect to the December 2023 convertible notes, $1.9194 per share, subject to customary adjustments for stock splits, stock dividends, recapitalization and the like.  As of December 31, 2023, none of the convertible notes were converted into shares of common stock.



The convertible notes do not contain any ratchet or other financial antidilution provisions.  The convertible notes contain conversion limitations such that no conversion may be made if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99%, 9.99% or 19.99% immediately after conversion thereof, subject to certain increases not in excess of either 9.99% or 19.99% at the option of such holder.



The convertible notes provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest, breach of covenants or other agreements in the convertible notes; the occurrence of a material adverse effect event (as defined in the related securities purchase agreement) and certain events of bankruptcy. Generally, if an event of default occurs and is continuing under the convertible notes, the holder thereof may require the Company to repurchase some or all of their convertible notes at a repurchase price equal to 100% of the principal amount of the convertible notes being repurchased, plus accrued and unpaid interest thereon.


In connection with the issuance of the December 2023 convertible notes, the Company agreed to reduce the exercise price of the warrants the Company issued in a private placement in December 2022 (see Note 16) to purchase an aggregate of approximately 4.4 million shares of the Company’s common stock from $3.28 to $1.43 per share and of the July 2023 warrants from $2.61 to $1.43 per share. The effect of the reduction of the exercise price of these warrants was approximately $1.6 million and measured as the excess of the fair value of the modified instruments over the fair value of the instruments immediately before they were modified. The change in the fair value of the repriced warrants is considered an issuance cost to the December 2023 convertible notes and December 2023 warrants. As such, the $1.6 million was allocated to each of those respective instruments based on their relative fair values, or approximately $0.8 million to each of the December 2023 convertible notes and December 2023 warrants.


The Company determined that there were no embedded derivatives within the convertible notes that required bifurcation from the host agreement.  The Company allocated the gross proceeds received, the fees incurred, and as applicable, the impact of repricing the warrants discussed above, over the July 2023 convertible notes and July 2023 warrants and over the December 2023 convertible notes and December 2023 warrants, as applicable, based on their relative fair values as follows (in thousands):
 
 
              
Allocation of Proceeds and Costs:
    
Allocation of
  
 
  
Relative
Fair Value
    
Allocation
Percentage
    
Proceeds
    
Costs
    
Proceeds,
Net
  
July 2023 convertible notes
  
$
8,715
      
39.94
%
  
$
3,481
    
$
(80
)
  
$
3,401
  
July 2023 warrants
    
13,103
      
60.06
%
    
5,234
      
(121
)
    
5,113
  
 
  
$
21,818
      
100.00
%
  
$
8,715
    
$
(201
)
  
$
8,514
  

 
              
Allocation of Proceeds and Costs:
    
Allocation of
  
 
  
Relative
Fair Value
    
Allocation
Percentage
    
Proceeds
    
Costs
    
Warrant
Repricing
    
Proceeds,
Net
  
December 2023 convertible notes
  
$
9,059
      
48.83
%
  
$
3,803
    
$
(81
)
  
$
(766
)
  
$
2,956
  
December 2023 warrants
    
9,495
      
51.17
%
    
3,985
      
(85
)
    
(802
)
    
3,098
  
 
  
$
18,554
      
100.00
%
  
$
7,788
    
$
(166
)
  
$
(1,568
)
  
$
6,054
  


The Company estimated the fair values of the convertible notes as of July 14, 2023 and December 15, 2023 based off a valuation performed by a third-party specialist using a binomial tree model and the following assumptions:

 
  
Stock
Price
    
Credit
Spread
    
Volatility
    
Risk-Free
Rate
  
July 2023 convertible notes
  
$
2.81
      
2,500
      
108
%
    
4.60
%
December 2023 convertible notes
  
$
1.51
      
2,000
      
109
%
    
3.90
%
 

The fair value of the note warrants, all of which qualified for equity classification, was determined using the Black-Scholes pricing model as of each of July 14, 2023 and December 15, 2023 using the following assumptions:

 
  
Stock
Price
    
Exercise
Price
  
Expected
Life
  
Volatility
    
Dividend
    
Risk-Free
Rate
  
July 2023 warrants
  
$
2.81
    
$
2.61
  
5 years
    
98
%
    
0.00
%
    
4.04
%
December 2023 warrants
  
$
1.51
    
$
1.43
  
5 years
    
101
%
    
0.00
%
    
3.91
%
 
The amount of proceeds allocated to the note warrants resulted in a corresponding reduction in the carrying value of the respective convertible notes as a debt discount, which is amortized with the debt issuance costs as a component of interest expense based on the effective interest rate method over the contractual terms of the convertible notes.

 

The following table shows the activity that occurred during the year ended December 31, 2023 for the convertible notes on the accompanying consolidated balance sheet:

Gross convertible notes at issuance
  
$
16,503
  
Debt discount and debt issuance costs
    
(10,146
)
Amortization of debt discount and debt issuance costs
    
303
  
Paid-in-kind interest added to principal
    
113
  
Convertible notes, net, at December 31, 2023
  
$
6,773
  


The future minimum principal payments under the convertible notes as of December 31, 2023 are as follows:
 
Years ending December 31,
  
Principal
Payments
  
2024
  
$
-
  
2025
    
-
  
2026
    
-
  
2027
    
-
  
2028
    
16,616
  
Total
  
$
16,616
  

 
The Company has recognized approximately $0.6 million in interest expense for the year ended December 31, 2023 for the convertible notes, which includes $0.3 million for the amortization of the debt discount and debt issuance costs.  Of the remaining $0.3 million in interest expense, $0.1 million was paid in-kind and added to the principal of the respective notes and $0.2 million of interest is in accrued expenses in the accompanying consolidated balance sheet.