Quarterly report pursuant to Section 13 or 15(d)

Long Term Debt

v3.23.1
Long Term Debt
3 Months Ended
Mar. 31, 2023
Long-term Debt, Unclassified [Abstract]  
Long Term Debt

Note 5 – Long Term Debt

 

Long-term debt consisted of the following as of the dates presented:


March 31, 2023


December 31, 2022

Fair value of debt
8,462,000


14,607,000
Less: Current portion
(6,885,543 )

(13,200,000 )
Noncurrent portion $ 1,576,457

$ 1,407,000

 


Senior Convertible Notes 

In October 2021we entered into the 2021 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 and fund 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 2021 SPA, from $6.21 per share as a result of the offering of convertible preferred stock on that date. The Senior Convertible Notes are to be repaid in monthly installments.


In connection with the 2021 SPA and the Senior Convertible Notes, we and certain of our subsidiaries entered into an amended Security and Pledge Agreement (the “Security and Pledge 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 and Pledge 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 and Pledge Agreement, the Collateral Agent will have certain rights under the Security and Pledge 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 and Pledge 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 and Pledge 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.


In connection with the Exchange Agreements that were entered into in January 2023, the conversion price of the Senior Convertible Notes was lowered to $1.20 per share from $4.75 per share for a limited period. During the three months ended March 31, 2023,  the holders of the Senior Convertible Notes converted a total of $1.4 million of principal for 1,164,251 shares of Common Stock at the lowered price of $1.20 per share.

Method of Accounting and Activity During the Periods

Upon the date that they were issued, we made an irrevocable election to apply the fair value option to account for the Senior Convertible Notes. Disclosures, including the assumptions used to determine the fair value of the Senior Convertible Notes, are provided in Note 10. 

During the three months ended March 31, 2023, we made $6.3 million in principal payments on the Senior Convertible Notes, of which $4.9 million was settled in cash and the remaining $1.4 million was settled in Common Stock. During the three months ended March 31, 2023, the fair value of the Senior Convertible Notes increased by $0.2 million. Of the adjustment, an increase of less than $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive loss and accumulated in equity and an increase of $0.2 million was recognized in our consolidated statement of operations as a change in fair value of convertible notes. As of March 31, 2023, the fair value of the Senior Convertible Notes on our consolidated balance sheet was $8.5 million. During the three months ended March 31, 2022, we made $3.3 million in principal payments on the Senior Convertible Notes, all of which was settled in Common Stock. During the three months ended March 31, 2022, the fair value of the Senior Convertible Notes increased by $1.3 million. Of the adjustment, a decrease of $0.1 million resulted from instrument-specific credit risk and was recognized as other comprehensive income and accumulated in equity and an increase of $1.4 million was recognized in our consolidated statement of operations as a change in fair value of convertible notes.