Quarterly report pursuant to Section 13 or 15(d)

DEBENTURES

v3.23.2
DEBENTURES
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
DEBENTURES

7. DEBENTURES

 

On June 30, 2022, the Company executed the definitive agreement with arm’s length accredited institutional investors (the “Investors”) for $14,025,000 in debentures with a 10% original issue discount (“First Tranche Debentures”) for gross proceeds of $12,750,000. The First Tranche Debentures were convertible into common shares at $2.22 per share. In addition, the Investors received 4,106,418 warrants at a strike price of $2.442, which expire on December 31, 2025 (the “First Tranche Warrants”). The First Tranche Warrants and First Tranche Debentures each have down round provisions whereby the conversion and strike prices will be adjusted downward if the Company issues equity instruments at lower prices. The First Tranche Warrants strike price and the First Tranche Debenture conversion price will be adjusted down to the effective conversion price of the issued equity instruments. The transaction costs incurred in relation to first tranche were $1,634,894.

 

The Investors have the right to purchase additional tranches of $5,000,000 each, up to a total additional principal amount of $33,000,000.

 

On January 17, 2023, the Investors purchased additional debentures totaling $5,076,923 with a 10% original issue discount for gross proceeds of $4,615,385 (the “Second Tranche Debenture”). The Second Tranche Debentures were convertible into common shares at $1.24 per share and the Investors received an additional 2,661,289 warrants at a strike price of $1.24, which expire on December 31, 2025 (the “Second Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of the First Tranche Debentures and the First Tranche Warrants to $1.24. The transaction costs incurred in relation to second tranche were $325,962.

 

The First Tranche and Second Tranche Debentures (the “Debentures”) have an interest rate of 5% for the first 12 months, 6% for the subsequent 12 months, and 8% per annum thereafter. Principal repayments will be made in 25 equal installments which began on September 1, 2022 for the First Tranche Debentures and on July 1, 2023 for the Second Tranche Debentures. The Debentures may be extended by six months at the election of the Company by paying a sum equal to six months interest on the principal amount outstanding at the end of the 18th month, at the rate of 8% per annum.

 

On June 26, 2023, the Company entered into waiver and amendment agreements (“Debenture Modification Agreements”) with the Investors to modify terms of the First Tranche Debentures and the Second Tranche Debentures (the “Debentures”). The Debenture Modification Agreements provide as follows:

 

1) The July 1, 2023 interest and principal payments will be settled with the Company’s Common Shares
2) The Conversion Price has been reduced to the lower of $0.45 or the price of subsequent dilutive issuances under the Company’s ATM program.
3) 100% of ATM proceeds up to $1 million USD may be kept by Company, while any dollar amount over this threshold will be distributed 33% to the Company and 67% to the Investors.

 

 

4) The minimum tranche value for Additional Closings has been reduced from $5.0 million to $2.5 million.
5) Upon the Company’s receipt of a further shareholder approval, the Base Conversion Price shall be lowered to the lowest price at which the Company has issued a common share or a right to acquire common shares.
6) The Investors have each agreed to raise no objection to one or more private placements of securities by the Company with an aggregate purchase price of up to $1,000,000 at a purchase price of at least $0.25 per common share and two-year warrant (with a per share exercise price of $0.50, and no registration rights).
7) The Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder; However the Company must apply the approved or percentage of approved gross proceeds from the sale of its Common Stock from an at-the-market offering to prepay this Debenture (pro-rated among all Debentures) and shall be permitted to prepay the Debentures notwithstanding any contrary provision of this Debenture or the Purchase Agreement.

 

On June 29, 2023, the Company issued common shares for cash under an ATM agreement (the “ATM”) triggering the down round provision, adjusting the exercise prices of the First and Second Tranche Debentures as well as the First and Second Tranche Warrants to $0.30.

 

Due to the currency of the above noted features being different from the Company’s functional currency, the First Tranche Warrants and Second Tranche Warrants (the “Debenture Warrants), as well as the Debentures’ convertible features were classified as derivative liabilities and are further discussed in Note 9.

 

The following table summarizes the outstanding debentures as of the dates indicated:

 

    Maturity  

Cash

Interest Rate

  

June 30,

2023

    

December 31,

2022

  
Principal (First Tranche Debentures)   12/31/2024   5.00% - 8.00 % $ 14,025,000     $ 14,025,000  
Principal (Second Tranche Debentures)   17/07/2025   5.00% - 8.00 %   5,076,923       -  
Repayments and conversions             (6,139,350 )     (2,955,000 )
Debt issuance costs and discounts (Note 7 & 9)             (7,787,435 )     (7,128,084 )
Total Debentures (current)           $ 5,175,138     $ 3,941,916  

 

During the six months ended June 30, 2023, the Investors converted $1,442,400 of principal and $37,532 of interest into shares of the Company resulting in a $433,605 loss on the conversion of convertible debentures.