| LONG-TERM DEBT AND NOTES PAYABLE |
9.
LONG-TERM DEBT AND NOTES PAYABLE
Long-term
debt and notes payable are summarized as follows:
SCHEDULE OF DEBT AND NOTES PAYABLE
| (in thousands) |
|
December 31, 2022
|
|
|
December 31, 2021
|
|
| 10% convertible debt (a) |
|
$ |
4,038 |
|
|
$ |
4,038 |
|
| 8% convertible debt (b) |
|
|
1,350 |
|
|
|
— |
|
| Convertible promissory note (measured at fair value) (c) |
|
|
1,000 |
|
|
|
1,099 |
|
| PPP loans (d) |
|
|
— |
|
|
|
4,109 |
|
| EIDL loans (e) |
|
|
300 |
|
|
|
300 |
|
| Contractor note (f) |
|
|
348 |
|
|
|
348 |
|
| Notes payable (g) |
|
|
144 |
|
|
|
— |
|
| Related party note (h)
|
|
|
625 |
|
|
|
— |
|
| Total Debt |
|
|
7,805 |
|
|
|
9,894 |
|
| Less: discount on convertible debt (a)(b)
|
|
|
(141 |
) |
|
|
(37 |
) |
| Total Debt, net of discount |
|
$ |
7,664 |
|
|
$ |
9,857 |
|
| |
|
|
|
|
|
|
|
|
| Current portion of long-term debt and notes payable |
|
$ |
3,329 |
|
|
$ |
3,264 |
|
| Long-term debt and notes payable, less current portion |
|
$ |
4,335 |
|
|
$ |
6,593 |
|
|
(a) |
In
connection with and prior to the Spin-Off and Merger, on April 1, 2020, pursuant to an agreement among Chanticleer, Oz Rey, LLC
(“Oz Rey”), a related party, and certain original holders of the 8%
non-convertible debentures that were satisfied during 2020, the Company issued a 10%
secured convertible debenture (the “10% Convertible Debt”) to Oz Rey in exchange for the 8%
non-convertible debentures. The principal amount of the 10%
Convertible Debt is $4.0
million and is payable in full on April 1, 2024, subject to extension by the holders in two-year intervals for up to 10 years from
the issuance date upon Amergent meeting certain conditions. Interest is payable quarterly in cash. In connection with the exchange
of the debentures, Amergent issued warrants to Oz Rey and the original 8% non-convertible debenture holders to purchase 2,925,200
shares of common stock. The exercise price is $0.125
for 2,462,600
warrants and $0.50
for 462,500
warrants. The warrants can be exercised on a cashless basis and expire 10
years from the issuance date. All of the assets of the Company are collateral for this debt. |
| |
|
|
| |
|
The
10% Convertible Debt was previously amended to fix the conversion rate into common stock at $0.10 per share. There is also a limitation
on Oz Rey’s ability to convert the debenture into common stock such that only the portion of the balance for which the Company
has sufficient available shares, considering all other outstanding instruments at the time of conversion on a fully diluted basis, can
be converted. Oz Rey may, however, upon reasonable notice to the Company, require the Company to include in its proxy materials, for
any annual meeting of stockholders being held by the Company, a proposal to amend the Company’s certificate of incorporation to
increase the Company’s authorized shares to a number sufficient to allow for conversion of all shares underlying the debenture,
on a fully diluted basis. Oz Rey also agreed that the Company would not be required under any circumstances to make a cash payment to
settle the conversion feature not exercisable due to the authorized share cap or in an event that the Company was unable to deliver shares
under the conversion feature. As of December 31, 2022, $2.4 million of the 10% Convertible Debt was convertible into approximately 23,700,000
shares of common stock. |
| |
|
|
| |
|
The
Company recorded a debt discount of approximately $0.4 million for the difference between the face value of the 10% Convertible Debt
and the estimated fair value at the April 1, 2020 issuance date and amortized this discount over the two-year term of the notes. |
| |
|
|
| |
|
In
connection with the 8% Convertible Debt transaction described in (b) below, the maturity date of the 10% Convertible Debt was extended
to April 1, 2024 and Oz Rey agreed to subordinate payment of its 10% Convertible Debt to payment of the 8% Convertible Debt, which has
been accounted for as a loan modification. In addition, Oz Rey received a fee equal to 2.0% of the principal amount of the 8% Convertible
Debt issued in the transaction, which has been recorded as a debt discount and is being amortized over the two-year term of the related
debt. |
|
(b) |
In
March 2022, the Company commenced a private placement of up to $3.0
million of 8% senior unsecured convertible debentures (the “8% Convertible Debt”) and 3,000,000
common stock warrants. Pursuant to a Securities Purchase Agreement (exhibit 10.34), the Company issued $1.35
million of 8% Convertible Debt and warrants to purchase the number of shares of the Company’s common stock equal to the
principal amount of 8% Convertible Debt issued. |
| |
|
|
| |
|
The
8% Convertible Debt matures on September 1, 2023 and is subject to acceleration in the event of customary events of default. Interest
is payable quarterly in cash. The 8% Convertible Debt may be converted by the holders at any time at a fixed conversion price of $0.40
per share, and each warrant entitles the holder to purchase one share of common stock at an exercise price of $0.50 per share. Both the
notes and the warrants include a beneficial ownership blocker of 4.99% and contain customary provisions preventing dilution and providing
the holders rights in the event of fundamental transactions. Upon the earlier of the maturity date or the one-year anniversary of conversion
of the 8% Convertible Debt, holders of 51% of the registerable securities may request the Company to file a registration statement for
the securities. The warrants can be exercised on a cashless basis and expire five years from the issuance date. If the Company makes
any distribution to the common stockholders, the holders of the warrants will be entitled to participate on an as-if-exercised basis.
As of December 31, 2022, the 8% Convertible Debt was convertible into 3,375,000 shares of common stock. |
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|
|
| |
|
The
Company analyzed the 8% Convertible Debt and did not identify any embedded features that require bifurcation from the host and accounting
as derivatives. However, as the convertible notes payable were issued with warrants, the net proceeds from the issuance were allocated
to the 8% Convertible Debt and the warrants based on their relative fair values, resulting in an allocation of $1.0 million to the 8%
Convertible Debt and $0.3 million to the warrants (see Note 12). The Company recorded a debt discount of approximately $0.3 million for
the difference between the face value of the 8% Convertible Debt and the amount allocated to the debt at the issuance date and is amortizing
this discount over the 18-month term of the related debt. |
| |
|
|
|
(c) |
On
August 30, 2021, the Company purchased all of the outstanding membership interests in Pie
Squared Holdings. The purchase price was funded through the issuance of an 8% secured, convertible
promissory note with a face value of $1.0 million and a fair value of $1.2 million at the
acquisition date. The note is convertible at any time, in whole or in part, at the holder’s
option but includes a beneficial ownership blocker of 4.99%. The conversion price at any
time is the volume weighted average price of the Company’s common stock the 30 trading
days immediately prior to delivery of notice of conversion, less a discount of 15%; provided,
however, that the conversion price has a floor of $0.50 per share and a cap of $2.00 per
share. As of December 31, 2022, the note was convertible into 2,000,000 shares of common
stock. |
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|
|
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|
Interest
on the convertible promissory note is due on August
30, 2023, the maturity date. The Company elected to measure the
convertible promissory note at fair value, with changes in the fair value recorded within change in fair value of convertible promissory
note in the consolidated statements of operations. See Note 5 for additional information on the valuation of the convertible promissory
note as of December 31, 2022. |
| |
|
|
|
(d) |
On
April 27, 2020, Amergent received a Paycheck Protection Program (“PPP”) loan
of approximately $2.1 million. Due to the Spin-Off and Merger, Amergent was not publicly
traded at the time of the loan application or funding. The note bore interest at 1% per year,
was due to mature in April 2022, and required monthly interest and principal payments of
approximately $0.1 million beginning in November 2020 and through maturity. On February 25,
2021, the Company received a second PPP loan in the amount of $2.0 million. The note bore
interest at 1% per year, was due to mature on February 25, 2026, and required monthly principal
and interest payments of approximately $45,000 beginning June 25, 2022 through maturity.
On November 15, 2022 and December 16, 2022, the Company received notice from the SBA that
the first and second PPP loans, respectively, had been fully forgiven with accrued interest. |
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|
|
|
(e) |
On
August 4, 2020, the Company obtained two loans under the Economic Injury Disaster Loan (“EIDL”)
assistance program from the U.S. SBA in light of the impact of the COVID-19 pandemic on the
Company’s business. The principal amount of the loans is $0.3 million, with proceeds
to be used for working capital purposes. Interest accrues at the rate of 3.75% per year.
Total installment payments of $1,462, including principal and interest, are due monthly.
The balance of principal and interest is payable over the next thirty years from the date
of the promissory note (August 2050). There are no penalties for prepayment. Based upon guidance
issued by the U.S. SBA on June 19, 2020, the EIDL loans are not required to be refinanced
by the PPP loan. In March 2022, the U.S. SBA extended the deferral period for the EIDL payments
for an additional 12 months. The Company’s installment payments will begin August 4,
2023. |
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|
|
|
(f) |
The
Company entered into a promissory note to repay a contractor for the build-out of a new Little
Big Burger location. The note bears interest at 12% per year. In connection with and prior
to the Merger and Spin-Off, on April 1, 2020, this note was assumed by Amergent. The Company
is currently in default on this loan and a writ of garnishment was ordered against the Company
in 2020 for approximately $0.4 million. The additional $0.1 million is included in accounts
payable and accrued expenses at December 31, 2022 and December 31, 2021. |
|
(g) |
In
February and March 2022, eight company-owned stores entered into notes payable to Toast Capital
Loans. The terms of the notes require payment of 13.2% of daily credit card sales of the
eight stores until the notes are paid in full. The terms of the notes are 270 days, and the
implied interest rate is approximately 15% per year. |
| |
|
|
| |
|
In
August 2022, the Company entered into a Future Revenue Sales Agreement with Sprout Funding which is being treated as a note payable.
The Company received a net $0.2 million and the terms of the note require 180 payments of $1,359 for each working day of the week. The
terms of the note are open ended until all amounts under the note are repaid with an expected maturity date of February 2024. The implied
interest rate is 80%. |
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|
|
| |
(h) |
In
August 2022 through December 2022, the Company received advances from a related party in aggregate of $0.6
million. The lending entity is an entity in which the Company’s Chairman and Chief Executive Officer has an ownership interest
and serves as the Chief Executive Officer. Interest accrues at a rate of 1%,
and principal and accrued interest was due on June 30, 2023 and the loan has not been extended. |
The
Company’s various loan agreements contain financial and non-financial covenants and provisions providing for cross-default. The
evaluation of compliance with these provisions is subject to interpretation and the exercise of judgment. Oz Rey has provided a waiver
of certain financial covenants through December 31, 2023.
Maturities
of our debt as of December 31, 2022 are presented below (in thousands):
SCHEDULE
OF FUTURE MINIMUM PAYMENTS
| Year ending December 31: |
|
|
|
|
| 2023 |
|
$ |
3,329 |
|
| 2024 |
|
|
4,185 |
|
| 2025 |
|
|
7 |
|
| 2026 |
|
|
7 |
|
| 2027 |
|
|
7 |
|
| Thereafter |
|
|
270 |
|
| Total debt maturities |
|
|
7,805 |
|
| Less: discount on convertible debt |
|
|
(141 |
) |
| Total debt |
|
$ |
7,664 |
|
|