| DEBT AND NOTES PAYABLE |
8.
DEBT AND NOTES PAYABLE
Debt
and notes payable are summarized as follows:
SCHEDULE OF DEBT AND NOTES PAYABLE
| (in thousands) |
|
December
31, 2021 |
|
|
December
31, 2020 |
|
| Convertible debt (a) |
|
$ |
4,038 |
|
|
$ |
4,038 |
|
| Convertible promissory note (measured at fair
value) (b) |
|
|
1,099 |
|
|
|
— |
|
| PPP loans (c) |
|
|
4,109 |
|
|
|
2,109 |
|
| EIDL loans (d) |
|
|
300 |
|
|
|
300 |
|
| UK Bounce Back loan (e) |
|
|
— |
|
|
|
68 |
|
| Contractor note (f) |
|
|
348 |
|
|
|
348 |
|
| Notes payable (g) |
|
|
— |
|
|
|
27 |
|
| Notes payable (h) |
|
|
— |
|
|
|
26 |
|
| Total Debt |
|
|
9,894 |
|
|
|
6,916 |
|
| Less: discount on convertible
debt (a) |
|
|
(37 |
) |
|
|
(223 |
) |
| Total
Debt, net of discount |
|
$ |
9,857 |
|
|
$ |
6,693 |
|
| |
|
|
|
|
|
|
|
|
| Current portion of long-term debt and notes
payable |
|
$ |
3,264 |
|
|
$ |
2,339 |
|
| Long-term debt and notes payable, less current
portion |
|
$ |
6,593 |
|
|
$ |
4,354 |
|
| (a) |
In
connection with and prior to the Spin-Off and Merger, on April 1, 2020, pursuant to an agreement among Chanticleer, Oz Rey and certain
original holders of the 8% non-convertible debentures that were satisfied during 2020, the Company issued a 10% secured convertible debenture
to Oz Rey in exchange for the 8% non-convertible debentures. The principal amount of the 10% secured convertible debenture is $4.0 million,
payable in full on April 1, 2022, subject to extension by the holders in two-year intervals for up to 10 years from the issuance date
upon Amergent meeting certain conditions. In March 2022, the maturity date was extended to April 2024. Interest is payable quarterly
in cash. Prior to August 17, 2020, the 10% secured convertible debenture was convertible at any time by Oz Rey into common stock at the
lower of $0.10 per share and the volume weighted average price on the last 10 trading days immediately prior to conversion. The 10% secured
convertible debenture is also subject to adjustment if Amergent sells securities below this price (down round protection), among other
triggers. 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. |
Through
August 16, 2020, Amergent did not have an adequate amount of authorized common stock to cover shares issuable upon exercise of the warrants
and conversion of the 10% convertible notes. As such, the warrants were liability classified and the conversion feature was bifurcated
from the host debt instrument and accounted for as a derivative and recorded as a liability in the accompanying consolidated and combined
balance sheets through August 16, 2020, with the change in the liability for the warrants and the conversion feature from the April 1,
2020 issuance date through August 16, 2020 recorded in the accompanying consolidated and combined statement of operations.
The
warrants issued had an estimated fair value of $0.9 million as of April 1, 2020 using a Monte Carlo simulation to determine the value.
The fair value of the conversion feature was $11.2 million as of April 1, 2020 using a Monte Carlo simulation to determine the value.
The estimated carrying value of the 10% convertible secured debentures without the conversion feature was $3.7 million, and with the
conversion feature was $14.9 million.
Amergent
Hospitality Group, Inc. and Subsidiaries
Notes
to the Consolidated and Combined Financial Statements
On
August 17, 2020, the Company and Oz Rey amended the 10% secured convertible debenture to fix the conversion rate into common stock at
$0.10 per share. Further, the amendment provides a limitation on Oz Rey’s ability to convert the debenture into common stock so
that the conversion would not result in the issuance of common stock exceeding the amount of authorized shares. Oz Rey may, however,
upon reasonable notice to the Company, require the Company to include in its proxy materials, for any annual meeting of shareholders
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. Oz Rey also
agreed to waive any event of default under the debenture that occurred or existed prior to August 17, 2020. As a result of these modifications,
the warrants are no longer liability classified and the conversion feature is no longer required to be bifurcated from the debt host
as of the date of the amendment.
Through
the date of the amendment, the warrants and the conversion feature were marked to fair value with the change in the liability recorded
in the accompanying consolidated and combined statement of operations. The liabilities for the warrants and conversion feature were reclassified
into additional paid in-capital at the amendment date. The estimated fair value of the warrants and conversion feature at August 16,
2020 were $0.9 million and $11.0 million, respectively. The change in value of these instruments from the issuance date through August
16, 2020 of ($11,000) and ($0.3 million) has been recorded as a component of other income (expense) and included in change in fair value
of derivative liabilities in the accompanying consolidated statement of operations for the year ended December 31, 2020.
The
exchange of the notes has been accounted for as an extinguishment of the 8% non-convertible notes with the difference in the carrying
value of the 8% non-convertible notes, $4.0 million, and the fair value of the 10% convertible notes and warrants, $15.8 million, at
the date of the exchange recorded as debt extinguishment expense of $11.8 million in the accompanying consolidated and combined statement
of operations for the year ended December 31, 2020.
The
Company recorded a debt discount of approximately $0.4 million for the difference between the face value of the 10% secured convertible
debenture and the estimated fair value at the April 1, 2020 issuance date and is amortizing this discount over the two-year period of
the notes. Amortization of $0.2 million and $0.1 million was recorded as interest expense during the years ended December 31, 2021 and
2020, respectively.
| (b) |
On August 30, 2021, the Company purchased all of the outstanding membership interests in Pie Squared Holdings pursuant to the Purchase Agreement (see Note 3). The purchase price was
an 8% secured, convertible promissory note (“Note”) with a face value of $1.0
million and a fair value of $1.2 million at the acquisition date. Interest on the Note is
due quarterly and $0.5 million of principal is due on August 30, 2022. Any remaining unpaid
amount is due on August 30, 2023. The Company has elected to measure the Note at fair value,
with changes being recognized in the consolidated and combined statement of operations. See
Note 4 for additional information on the valuation of the Note as of December 31, 2021. |
| (c) |
On April 27, 2020,
Amergent received a PPP loan in the amount 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 bears interest at 1%
per year, matures in April
2022, and requires monthly interest and principal
payments of approximately $0.1
million beginning in November 2020 and through
maturity. The currently issued guidelines of the program allow for the loan proceeds to be forgiven if certain requirements are met.
Any loan proceeds not forgiven will be repaid in full. The Company had applied for loan forgiveness in the full amount of the loan, but
the request was initially denied. The Company discussed the forgiveness request with the government agency that granted the loan and
in March 2022, the U.S. SBA reversed its initial decision and will once again review the Company’s application for loan forgiveness.
No assurance can be given as to the amount, if any, of forgiveness. The application for forgiveness allowed the Company to defer the
timing of repayment until the forgiveness assessment is completed.
|
|
On February 25, 2021, the
Company received a second PPP loan in the amount of $2.0 million.
Amergent was not listed on a national securities exchange at the time of the loan application or funding. The note bears interest at 1%
per year, matures on February 25, 2026, and requires monthly principal and interest payments of approximately $45,000 beginning
June 25, 2022 through maturity. The loan may be forgiven if certain criteria are met. No assurance can be given as to the amount, if
any, of forgiveness.
|
| (c) |
On April 27, 2020,
Amergent received a PPP loan in the amount 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 bears interest at 1%
per year, matures in April
2022, and requires monthly interest and principal
payments of approximately $0.1
million beginning in November 2020 and through
maturity. The currently issued guidelines of the program allow for the loan proceeds to be forgiven if certain requirements are met.
Any loan proceeds not forgiven will be repaid in full. The Company had applied for loan forgiveness in the full amount of the loan, but
the request was initially denied. The Company discussed the forgiveness request with the government agency that granted the loan and
in March 2022, the U.S. SBA reversed its initial decision and will once again review the Company’s application for loan forgiveness.
No assurance can be given as to the amount, if any, of forgiveness. The application for forgiveness allowed the Company to defer the
timing of repayment until the forgiveness assessment is completed. On February 25, 2021, the Company received a second PPP loan in the amount of $2.0 million.
Amergent was not listed on a national securities exchange at the time of the loan application or funding. The note bears interest at 1%
per year, matures on February 25, 2026, and requires monthly principal and interest payments of approximately $45,000 beginning
June 25, 2022 through maturity. The loan may be forgiven if certain criteria are met. No assurance can be given as to the amount, if
any, of forgiveness. |
| (d) |
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. |
Amergent
Hospitality Group, Inc. and Subsidiaries
Notes
to the Consolidated and Combined Financial Statements
| (e) |
On November 24, 2020, Amergent received approximately $0.1
million through the Bounce Back Loan Scheme in
the United Kingdom. The loan had a term of six
years that could be extended to 10
years. No payments were required and no interest
was accrued for the first 12 months after the loan was received. After the first year, the loan was to accrue interest at 2.5%
per year. This loan was assumed by the buyer in 2021 in conjunction with the sale of the Hooters UK entity (see Note 7). |
| (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 had a balance
of approximately $0.3
million as of both December
31, 2021 and 2020, and a stated interest rate of 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, 2021 and 2020. |
| (g) |
During September
2019 and October 2019, the Company entered into two merchant capital advances in the amount of approximately $46,000
and $0.1
million, respectively. The Company agreed to
repay these advances through daily payments until those amounts were repaid with the specified interest rate per those agreements. These
notes were fully repaid in 2021. |
| (h) |
In
connection with the assets acquired from the two BGR franchisees, the Company entered into notes payable of approximately $9,600
and $0.2
million during 2018. The notes
bore interest at 4%
per year and were due within 12 months of each acquisition date. Principal and interest payments were due monthly, and the notes were
fully repaid in 2021. |
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. The Company’s lender
has provided a waiver of certain financial covenants through December 31, 2021.
Future
minimum payments as of December 31, 2021 are as follows (in thousands):
SCHEDULE
OF MATURITIES OF LONG TERM DEBT
| Year ended December 31: |
|
|
|
|
| 2022 |
|
$ |
3,264 |
|
| 2023 |
|
|
1,033 |
|
| 2024 |
|
|
4,579 |
|
| 2025 |
|
|
547 |
|
| 2026 |
|
|
98 |
|
| Thereafter |
|
|
274 |
|
| Total |
|
|
9,795 |
|
| Less: discount on convertible debt |
|
|
(37 |
) |
| Add: fair value adjustment |
|
|
99 |
|
| Total Debt,
net of discount |
|
|
9,857 |
|
| Less: current maturities
of long-term debt and notes payable |
|
|
(3,264 |
) |
| Long-term debt and notes
payable |
|
$ |
6,593 |
|
Amergent
Hospitality Group, Inc. and Subsidiaries
Notes
to the Consolidated and Combined Financial Statements
|