Quarterly report pursuant to Section 13 or 15(d)

Long Term Debt

v3.22.2.2
Long Term Debt
9 Months Ended
Sep. 30, 2022
Long-term Debt, Unclassified [Abstract]  
Long Term Debt

Note 6 – Long Term Debt

 

Long-term debt was comprised of the following as of  the dates presented:


September 30, 2022


December 31, 2021

Fair value of debt
14,475,000


17,305,000
Less: Current portion
(9,900,000 )

(13,200,000 )
Noncurrent portion $ 4,575,000

$ 4,105,000

 


Senior Convertible Notes 

On October 5, 2021we entered into the SPA resulting in the issuance of the Senior Convertible Notes to two institutional investors in a private placement transaction. The Senior Convertible Notes were issued for an aggregate principal amount of $20.0 million for $18.0 million reflecting an original issue discount of 10 percent or $2.0 million. The net proceeds from the issuance of the Senior Convertible Notes were used to payoff and retire convertible notes that were issued in 2020 (the “2020 Notes”) and fund our growth initiatives through acquisitions and continued investment in our technology infrastructure. The Senior Convertible Notes rank senior to all of our other and future indebtedness. The Senior Convertible Notes mature on October 4, 2024 and can be repaid in shares of Common Stock or cash. The Senior Convertible Notes are convertible into shares of Common Stock of Akerna at a conversion price of $4.75 per share effective October 4, 2022 which represents an adjustment, as required by the SPA, from $6.21 per share as a result of the offering of convertible preferred stock on that date (see Note 10). The Senior Convertible Notes are to be repaid in monthly installments, which was deferred to January 1, 2023 in connection with the Convertible Notes Amendment (see below).

In connection with the SPA and the Senior Convertible Notes, we and certain of our subsidiaries entered into an amended Security and Pledge Agreement (the “Security Agreement”) with the lead investor, in its capacity as collateral agent (in such capacity, the “Collateral Agent”) for all holders of the Senior Convertible Notes. The Security Agreement creates a first priority security interest in all of the personal property of the Company and certain of its subsidiaries of every kind and description, tangible or intangible, whether currently owned and existing or created or acquired in the future (the “Collateral”).

Upon the occurrence of an “Event of Default” under the Security Agreement, the Collateral Agent will have certain rights under the Security Agreement including taking control of the Collateral and, in certain circumstances, selling the Collateral to cover obligations owed to the holders of the Senior Convertible Notes pursuant to its terms. An “Event of Default” under the Security Agreement means (i) any defined event of default under any one or more of the transaction documents (including the Senior Convertible Notes), in each instance, after giving effect to any notice, grace, or cure periods provided for in the applicable document, (ii) the failure by us to pay any amounts when due under the Senior Convertible Notes or any other transaction document, or (iii) the breach of any representation, warranty or covenant by the Company under the Security Agreement.  

In connection with the occurrence of an event of default, the holders of the Senior Convertible Notes will be entitled to convert all or any portion of the Senior Convertible Notes at an alternate conversion price equal to the lower of (i) the conversion price then in effect, or (ii) 80% of the lower of (x) the volume-weighted average price (“VWAP”) of the Common Stock as of the trading day immediately preceding the applicable date of determination, or (y) the quotient of (A) the sum of the VWAP of Common Stock for each of the two trading days with the lowest VWAP of the Common Stock during the ten consecutive trading day period ending and including the trading day immediately prior to the applicable date of determination, divided by (B) two, but not less than $10.80 per share.

On June 30, 2022, we and the holders Senior Convertible Notes entered into the Convertible Notes Amendment and added covenants such that (a) we are subject to a daily cash test of having an available cash balance of at least $7.0 million, which amount shall be reduced by $1.0 million on each of the dates at which the aggregate principal due upon the Senior Convertible Notes is equal to or less than $14.0 million and $11.0 million, subject in all cases to a minimum of $5.0 million, and (b) we established and maintain bank accounts for each holder for an aggregate amount of $7.0 million with such amount to be released from the accounts only upon the written consent of such holder, provided that $1.0 million will automatically release from the accounts upon the occurrence of each of the dates at which the aggregate principal due upon the Senior Convertible Notes is equal to or less than $14.0 million and $11.0 million, subject to certain conditions. Further the holders of the Senior Convertible Notes waived provisions such that (i) no amortization payments are due and payable for any payments previously required to be made from July 1, 2022 through January 1, 2023, (ii) the holders of the Senior Convertible Notes will not accelerate any previously deferred installment amounts until January 1, 2023 and (iii) the terms of the SPA which would provide for reset of the conversion price of the Senior Convertible Notes as a result of the issuance of securities under the 2022 Unit Offering (see Note 10) and instead agree to a reset of the conversion price equal to a per share price of 135% of the 2022 Unit Offering price, or $6.21 per unit, which was subsequently reduced to $4.75 per share on October 4, 2022 as described above.

On September 27, 2022, the holders of the Senior Convertible Notes granted a waiver of the Required Reserve Amount under the Senior Convertible Notes and SPA for a period retroactive from August 30, 2022 until November 30, 2022 conditioned on the Company pursuing the Reverse Stock Split by no later than November 30, 2022, to cure the deficiency.

2020 Notes

We issued 2020 Notes with a principal amount of $17.0 million at a purchase price of $15.0 million on June 9, 2020. The 2020 Notes were paid in full on October 5, 2021 and were replaced by the Senior Convertible Notes. 

Method of Accounting and Activity During the Periods

Upon the dates that they were issued, we made irrevocable elections to apply the fair value option to account for each of the Senior Convertible Notes and the 2020 Notes. Disclosures, including the assumptions used to determine the fair values of these debt instruments, are provided in Note 11. 

During the nine months ended September 30, 2022, we made $5.4 million in principal payments on the Senior Convertible Notes, of which $1.4 million was settled in cash and the remaining $3.9 million was settled in Common Stock. During the nine months ended September 30, 2022, the fair value of the Senior Convertible Notes increased by $2.5 million. Of the adjustment, a decrease of $0.3 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and an increase of $2.8 million was recognized in our consolidated statement of operations as a change in fair value of convertible notes. As of September 30, 2022, the fair value of the Senior Convertible Notes on our consolidated balance sheet was $14.5 million. During the nine months ended September 30, 2021, we made $11.6 million in principal payments on the 2020 Notes, of which $1.2 million was settled in cash and the remaining $10.4 million was settled in Common Stock. During the nine months ended September 30, 2021, the fair value of the 2020 Notes increased by $2.0 million. Of the adjustment, an increase of less than $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and an increase of $2.0 million was recognized in our consolidated statement of operations as a change in fair value of convertible notes.