Quarterly report pursuant to Section 13 or 15(d)

Related Party Debt Agreements

v3.20.2
Related Party Debt Agreements
3 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
Related Party Debt Agreements

NOTE 4 - RELATED PARTY DEBT AGREEMENTS

 

Esenjay Loan

 

On March 9, 2020, the Company and Esenjay entered into a certain convertible promissory note (“Original Esenjay Note”) pursuant to which Esenjay provided the Company with a loan in the principal amount of $750,000 (the “Esenjay Loan”). The section below describes the original Esenjay Loan and subsequent changes and modifications made to the Esenjay Loan through August 31, 2020 at which time $564,000 of remaining principal and accrued interest outstanding under the Esenjay Loan became part of the Credit Facility Agreement as described below (See “Credit Facility” below).

 

The Original Esenjay Note bore an interest rate of 15% per annum and was originally due on the earlier of: (i) June 30, 2020, unless extended pursuant to the terms thereunder, or (ii) an occurrence of an event of default. The outstanding obligations under the Original Esenjay Note were convertible into shares of common stock of the Company at the cash price per share of the equity securities paid by purchasers in the offering at any time upon consummation of an offering of equity securities of at least $1,000,000 before the maturity date.

 

On June 2, 2020, the Original Esenjay Note was amended and restated to (i) extend the maturity date from June 30, 2020 to September 30, 2020, and (ii) to increase the principal amount outstanding under the Original Esenjay Note from $750,000 to $1,400,000 (the “Esenjay Note”).

 

On June 26, 2020 and July 22, 2020, Esenjay assigned a total of $900,000 of the Esenjay Note to three (3) accredited investors. On June 30, 2020, in connection with the completion of the Company’s initial closing of its private placement offering, the principal amount outstanding under the Esenjay Note became convertible into shares of common stock at $4.00 per share, which was the cash price per share of such offering. The three note holders converted their notes into an aggregate 225,000 shares of common stock at $4.00 per share.

 

On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended the Notes to, among other amended items, to include outstanding obligations for an aggregate amount of approximately$564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, under the Esenjay Note, into the Credit Facility Agreement. (See “Credit Facility” below).

 

Cleveland Loan

 

On July 3, 2019, the Company entered into a loan agreement with Cleveland, pursuant to which Cleveland agreed to loan the Company $1,000,000 (the “Cleveland Loan”). On August 19, 2020, the Company paid Cleveland the entire remaining principal balance due under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $978,000. The section below describes the original loan agreement and changes and modifications made to the Cleveland Loan through August 19, 2020.

 

In connection with the Cleveland Loan, on July 3, 2019, the Company issued Cleveland an unsecured short-term promissory note in the amount of $1,000,000 (the “Unsecured Promissory Note”). The Unsecured Promissory Note bears an interest rate of 15.0% per annum and was originally due on September 1, 2019, unless repaid earlier from a percentage of proceeds from certain identified accounts receivable. In connection with the Cleveland Loan, the Company issued Cleveland a three-year warrant (the “Cleveland Warrant”) to purchase the Company’s common stock in a number equal to 0.5% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock to be sold in a contemplated public offering and with an exercise price equal to the per share public offering price.

 

On September 1, 2019, the Company entered into the First Amendment to the Unsecured Promissory Note pursuant to which the maturity date of the Unsecured Promissory Note was modified from September 1, 2019 to December 1, 2019 (the “First Amendment”). In connection with the First Amendment, the Company replaced the Cleveland Warrant with the Amended and Restated Warrant Certificate (the “Amended Warrant”). The Amended Warrant increased the warrant coverage from 0.5% to 1% of the number of shares of common stock outstanding after giving effect to the total number of shares of common stock sold in the next private or public offering. In addition, the exercise price was also changed to equal the per share price of common stock sold in such offering. The fair value of such warrants was approximately $174,000. (See Note 6)

 

During the period of December 3, 2019 through June 30, 2020, the Company entered into an additional six amendments (Second Amendment to Seventh Amendment) to the Unsecured Promissory Note which (i) extended the maturity date of the Unsecured Promissory Note and (ii) capitalized all accrued and unpaid interest to the principal amount as of the effective date of each of such amendment. The first of such amendments, which was the Second Amendment to the Unsecured Promissory Note, waived any Event of Default (as defined in the Unsecured Promising Note) arising from the failure of the Company to make the required payment due on maturity date under the First Amendment.

 

On July 9, 2020, the Company made a payment to Cleveland in the amount of $200,000 as a partial payment of the outstanding principal balance of the Cleveland Loan.

 

On July 27, 2020, in connection with the outstanding loan from Cleveland to the Company in the principal amount of $1,157,000, the Company entered into the Eighth Amendment to the Unsecured Promissory Note which extended the maturity date from July 31, 2020 to August 31, 2020, and capitalized all accrued and unpaid interest as of July 27, 2020 to the principal amount. All accrued and unpaid interest as of July 27, 2020 was capitalized to the principal amount.

 

On August 19, 2020, the Company paid Cleveland the entire remaining principal balance due under the Cleveland Loan, together with all accrued interest payable as of August 19, 2020, in an aggregate amount of approximately $978,000.

 

Credit Facility

 

On March 22, 2018, Flux Power entered into a credit facility agreement with Esenjay with a maximum borrowing amount of $5,000,000 (the “Original Agreement”). The Original Agreement was amended multiple times to allow for, among other things, an increase in the maximum principal amount available under line of credit (“LOC”), additional lenders and extensions of the maturity date. As of September 30, 2020, there was approximately $4,396,000 in principal outstanding under the LOC and approximately $7,604,000 remained available for future draws. The section below describes the Original Agreement and changes and modifications made to such agreement through August 31, 2020.

 

Proceeds from the initial credit facility under the Original Agreement put in place on March 22, 2018 were to be used to purchase inventory and related operational expenses and accrue interest at a rate of 15% per annum. The outstanding balance of the Original Agreement and all accrued interest was due and payable on March 31, 2019.

 

The Original Agreement was amended, among other things, to (i) increase the maximum principal amount available under LOC from $5,000,000 to $7,000,000, (ii) add Cleveland as additional lender to the LOC pursuant to which each lender has a right to advance a pro rata amount of the principal amount available under the LOC, (iii) extend the maturity date from March 31, 2019 to December 31, 2019, and (iv) provide for additional parties to become a “Lender” under the Amended and Restated Credit Facility Agreement. In connection with the LOC, on March 28, 2019 the Company issued a secured promissory note to Cleveland (the “Cleveland Note”), and an amended and restated secured promissory note to Esenjay which amended and superseded the secured promissory note dated March 22, 2018 (“Esenjay Note” and together with the Cleveland Note and other secured promissory notes to Lenders (the “Notes”). The Notes were issued for the principal amount of $7,000,000 or such lesser principal amount advanced by the respective Lender under the Amended and Restated Credit Facility Agreement. The Notes bore an interest rate of fifteen percent (15%) per annum and a maturity date of December 31, 2019. To secure the obligations under the Notes, Flux Power entered into an Amended and Restated Security Agreement dated March 28, 2019 with the Lenders (as amended, the “Amended Security Agreement”). The Amended Security Agreement amended and restated the Guaranty and Security Agreement dated March 22, 2018 by and between Esenjay and the Company, and added Cleveland and other Lenders as additional secured parties to the Amended Security Agreement and appointing Esenjay as collateral agent.

 

On October 10, 2019, the Company entered into a Second Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended its line of credit and Notes to increase the maximum principal amount available under line of credit from $7,000,000 to $10,000,000. On December 31, 2019, the Company further amended the Notes to (i) increase the maximum principal amount available under line of credit from $10,000,000 to $12,000,000, (ii) capitalize all accrued and unpaid interest to the principal amount as of December 31, 2019, and (iii) extend the maturity date from December 31, 2019 to June 30, 2020. In addition, on December 31, 2019, the Company granted a right to each of the Lenders to convert their respective Note under the LOC into shares of the Company’s common stock at any time after the close of the next financing of the Company of at least $1,000,000 on or after December 31, 2019, and on or before the maturity date.

 

On June 30, 2020, the Company and the Lenders executed the Third Amendment to the Amended and Restated Secured Promissory Note which (i) extended the maturity date of the secured Notes from June 30, 2020 to December 31, 2020, and (ii) capitalized all accrued and unpaid interest to the principal amount as of June 30, 2020. In addition, in connection with the Company’s private placement of up to 2,000,000 shares of common stock, par value $0.001 to accredited investors for an aggregate amount of up to approximately $8,000,000, or $4.00 per share of Common Stock (the “Offering”), the Company completed an initial closing of the Offering on June 30, 2020 pursuant to which an aggregate of 275,000 shares were sold for cash of $1,100,000. As a result of the initial closing of the Offering, each of the Lenders had a right to convert the principal and accrued interest outstanding under their respective Notes into shares of common stock at $4.00 per share, which was the price per share of common stock sold under the Offering. On June 30, 2020, the Lenders holding an aggregate of approximately $7,383,000 in principal and accrued interest outstanding under the LOC elected to convert their Notes into 1,845,830 shares of common stock. Such partial conversion consisted of (a) partial conversion of principal plus interest under the Esenjay LOC Note in the amount of $4,400,000 into 1,100,000 shares of common stock at $4.00 per share, and (b) conversion of approximately $2,983,000 of principal plus accrued interest held by other Lenders, including certain assignees of the Esenjay LOC Note, into 745,830 shares of common stock.

 

In August 2020, the Company paid down an aggregate principal amount of approximately $1,402,000 of the outstanding balance under the LOC. On August 31, 2020, the Company entered into the Third Amended and Restated Credit Facility Agreement and pursuant to which the Company further amended the Notes to (i) extend the maturity date from December 31, 2020 to September 30, 2021, and (ii) include outstanding obligations under the Esenjay Note of approximately $564,000, consisting of $500,000 in principal and approximately $64,000 in accrued interest, into the LOC. As of September 30, 2020, there was approximately $4,396,000 in principal outstanding under the LOC of which $884,000 was held by Esenjay, $1,720,000 was held by Cleveland, and the balance of $1,792,000 was held by other Lenders. As of September 30, 2020, there was approximately $7,604,000 available for future draws.