LONG-TERM DEBT AND NOTES PAYABLE |
7.
LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt
and notes payable are summarized as follows:
SCHEDULE OF DEBT AND NOTES PAYABLE
(in thousands) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
10% convertible debt (a) |
|
$ |
4,038 |
|
|
$ |
4,038 |
|
10% convertible debt (a) |
|
$ |
4,038 |
|
|
$ |
4,038 |
|
8% convertible debt (b) |
|
|
1,350 |
|
|
|
— |
|
Convertible promissory note (measured at fair value) (c) |
|
|
983 |
|
|
|
1,099 |
|
PPP loans (d) |
|
|
4,109 |
|
|
|
4,109 |
|
EIDL loans (e) |
|
|
300 |
|
|
|
300 |
|
Contractor note (f) |
|
|
348 |
|
|
|
348 |
|
Notes payable (g) |
|
|
256 |
|
|
|
— |
|
Total Debt |
|
|
11,384 |
|
|
|
9,894 |
|
Less: discount on convertible debt (a), (b) |
|
|
(293 |
) |
|
|
(37 |
) |
Total Debt, net of discount |
|
$ |
11,091 |
|
|
$ |
9,857 |
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and notes payable |
|
$ |
3,651 |
|
|
$ |
3,264 |
|
Long-term debt and notes payable, less current portion |
|
$ |
7,440 |
|
|
$ |
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”) 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 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. 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. |
|
|
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 March 31, 2022, $2.4 million of the 10% Convertible Debt was convertible into approximately 23,500,000 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. Amortization of approximately $37,000 and $45,000
was recorded as interest expense during the three months ended March 31, 2022 and 2021, respectively. |
|
|
|
|
|
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, totaling $27,000, which has been recorded as a debt discount
and is being amortized over the two-year term of the related debt. Amortization for the three months ended March 31, 2022 is nominal. |
|
|
|
|
(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 the Securities Purchase Agreement, 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 18 months after issuance 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 March 31, 2022, the 8% Convertible Debt was convertible into 3,375,000 shares of common stock.
|
|
|
|
|
|
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 9). 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. Amortization of approximately $6,000
was recorded as interest expense during the
three months ended March 31, 2022.
|
|
|
|
|
(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. The note contains customary provisions preventing dilution and providing
the holder rights in the event of fundamental transactions, and it is secured by various
security and other instruments creating a first priority lien on all of the membership interests
and all of the assets of Pie Squared Holdings and subsidiaries in favor of the sellers. As
of March 31, 2022, the note was convertible into 2,000,000 shares of common stock.
Interest on the convertible promissory note is due quarterly and $0.5 million of principal is due on August 30, 2022. Any remaining unpaid/non-converted amount is due on August 30, 2023. The Company has elected to measure the convertible promissory note at fair value, with changes being recognized in the condensed consolidated statements of operations. See Note 3 for additional information on the valuation of the convertible promissory note as of March 31, 2022.
|
|
|
|
|
(d) |
On April 27, 2020, Amergent received a Paycheck Protection
Program (“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. |
|
|
|
|
(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. |
|
|
|
|
(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 March 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 intertest rate is approximately
15% per year. |
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 April 30, 2023.
Future
minimum payments are as follows (in thousands):
SCHEDULE
OF FUTURE MINIMUM PAYMENTS
Year ending December 31: |
|
|
|
|
2022 (remaining nine months) |
|
$ |
3,520 |
|
2023 |
|
|
2,383 |
|
2024 |
|
|
4,579 |
|
2025 |
|
|
547 |
|
2026 |
|
|
98 |
|
Thereafter |
|
|
274 |
|
Less: discount on convertible debt |
|
|
(293 |
) |
Less: fair value adjustment |
|
|
(17 |
) |
Debt |
|
|
11,091 |
|
Less: current maturities of long-term debt and notes payable |
|
|
(3,651 |
) |
Long-term debt and notes payable |
|
$ |
7,440 |
|
|