11. Notes Payable

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Notes payable are as follows:

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Revolving Facility

On July 21, 2021, the Company, through its subsidiary, Jupiter, entered into a two-year, $10,000 asset-based revolving credit facility with Entrepreneur Growth Capital, LLC, a private lender. Borrowings under the Revolving Facility are limited to the available borrowing base, bear interest at Prime plus 3.5% with interest payments calculated based on the daily outstanding principal of the loan and payable to the lender monthly. The Revolving Facility is secured by Jupiter’s inventory, accounts receivable and related property. The Revolving Facility had a two-year initial term and will continue for successive one-year terms unless terminated by either party effective at the end of the then-current term. On March 13, 2023, the Company, through Jupiter, entered into an amendment to the Revolving Facility that increased the amount available to $12,500 and extended the maturity date to July 21, 2024, thereafter the Revolving Facility automatically renews for successive one-year terms unless terminated by the Company or the lender.

The Company paid $294 and $229 for lender fees for the years ended December 31, 2023, and 2022, respectively, which were included in debt discount and debt issuance costs. The amortization expense was $309 and $321 for the years ended December 31, 2023 and 2022, respectively, which is included in interest expenses on the consolidated statements of operations and comprehensive loss. The balance net of amortization was $143 as of December 31, 2023.

2019 Junior Notes

On November 1, 2019, the previous sellers of Jupiter and their representative (“Note Holders”) agreed to restructure the $35,000 purchase consideration payable and $1,180 accrued interest incurred in connection with the Jupiter acquisition pursuant to the 2019 Junior Notes NPA. The 2019 Junior Notes had an original maturity date of

April 1, 2023, and the outstanding balance was subject to interest at 8% per annum that accrued and was payable at maturity. During 2022, compounded interest of $3,541 was added to the principal balance. Through February 2023, $8,497 of principal was paid, then in February 2023 the 2019 Junior Notes were refinanced with the transactions described below.

NPA Amendment

On February 15, 2023, the Company and Note Holders executed an NPA Amendment which included the following transactions:

2023 Refinanced Notes

The 2023 Refinanced Notes include the remaining $38,000 in aggregate principal from the 2019 Junior Notes. The 2023 Refinanced Notes mature on February 15, 2026, and bear interest at the greater of 16% or the prime rate plus 8.5% payable monthly. The interest rate is subject to an increase by 1% annually if the aggregate principal amount outstanding under the 2023 Refinanced Notes is greater than $30,000 on the first anniversary or greater than $22,000 on the second anniversary of the Effective Date. On February 15, 2024, the interest rate increased to 18.0%, as the aggregate principal amount was greater than $30,000 on that date. During 2023, compounded interest of $1,943 was added to the principal balance. All personal property, including inventory and equipment, as well as all proceeds have been pledged as security for the 2023 Refinanced Notes.

2023 New Notes

The 2023 New Notes issued included aggregate principal of $8,260 due to the Note Holders, with a maturity date of February 15, 2027. The 2023 New Notes were issued to settle outstanding accrued interest that was previously included in account payable and accrued liabilities on the consolidated balance sheets. The 2023 New Notes bear interest at the greater of 16% or the prime rate plus 8.5% payable quarterly. During 2023, compounded interest of $1,909 was added to the principal balance.

The NPA Amendment requires principal payments of $5,000 on each anniversary, as well as an annual payment at the beginning of each calendar year that is equal to 50% of the Company’s unrestricted cash greater than $10,000 at the end of the prior calendar year. The Company is also obligated to make mandatory prepayments of net cash proceeds from asset sales, casualty and condemnation awards, future equity or debt issuances and the settlement of certain third-party assets. Principal payments are first applied to the 2023 Refinanced Notes until fully paid and then to the 2023 New Notes. No principal payments were made in 2023.

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The 2023 Refinanced Notes and the 2023 New Notes are secured by a first priority security interest in all of the assets of the Company, except that the Note Holders will receive a second priority security interest in the assets that are already pledged by Jupiter under the Revolving Facility. They are also guaranteed by the Company and all subsidiaries of the Company. The equity interests in all subsidiaries of the Company have also been pledged as security.

The NPA Amendment includes affirmative and negative covenants (including financial maintenance covenants), events of default, representations and warranties that are customary for debt securities of this type. The 2023 New Notes and 2023 Refinanced Notes may be accelerated and all remedies may be exercised by the Note Holders in case of an event of default, which includes events that customarily constitute an event of default for debt securities of this type as well as upon a change of control.

On May 15, 2023, the Company and Note Holders entered into the Consent, Confirmation, Limited Waiver and Forbearance Agreement (the “May Forbearance Agreement”), in connection with the 2023 Bridge Notes (described below). In the May Forbearance Agreement, the Note Holders waived the Company’s payment obligations during a forbearance period ending on December 8, 2023 and agreed to waive certain financial covenant defaults expected to occur during the forbearance period as a result of the Company entering into and performing their obligations under the 2023 Bridge Notes. The 2023 Refinanced Notes and 2023 New Notes will accrue interest at a default rate (the prime rate plus 8.5%) and late fees at the rate of $40 per month will be incurred during this forbearance period. All interest payments not made when due during the forbearance period will incur interest at the default rate, and late fees incurred will be due and payable at the end of the forbearance period.

On October 2, 2023, the Company and Note Holders entered into a Limited Waiver and Continued Forbearance Agreement (the “October Forbearance Agreement”), where the Note Holders agreed to modify certain terms and conditions of the May Forbearance Agreement. The October Forbearance Agreement provided a limited waiver of certain events of default under the 2023 Refinanced Notes and the 2023 New Notes and agreed to forbear from exercising certain rights of the Note Holders.

As of October 2, 2023, the October Forbearance Agreement provided that the Subsidiary Borrowers owed the Note Holders under the 2023 Refinanced Notes additional interest of 8.0% (the “Default Rate”) in the amount of $1,388 (the “Outstanding Default Interest Amount”). The October Forbearance Agreement provides that, on or before December 29, 2023 (the “Accrued Default Interest Due Date”), Subsidiary Borrowers will pay to the Holders the Outstanding Default Interest Amount.

As provided in the October Forbearance Agreement, due to continuing events of default under the 2023 Refinanced Notes, interest accrued at the Default Rate on the outstanding balance due under the 2023 Refinanced Notes from and after September 1, 2023 until the date the events of default are cured or waived (the “Provisionally Waived Default Interest Amount”). As of June 30, 2023, the default interest rate of 25.0% was in effect for the 2023 Refinanced Notes. The October Forbearance Agreement reduced the interest applicable to the 2023 Refinanced Notes to 17.0% as of September 30, 2023. However, if the Borrowers were to make all scheduled interest payments due to the Holders under the 2023 Refinanced Notes through December 31, 2024, including the Outstanding Default Interest Amount on or before the Accrued Default Interest Due Date, but excluding the Provisionally Waived Default Interest Amount, then the required noteholders, through the Noteholder Representative, would waive the Subsidiary Borrowers’ obligation to pay the Provisionally Waived Default Interest Amount and any failure to pay such amount would not constitute an event of default under the 2023 Refinanced Notes.

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The October Forbearance Agreement did not modify the terms of the May Forbearance Agreement and consistent with the 2023 New Notes, any such interest payments were to be treated as provided in such 2023 New Notes and interest will accrue on the outstanding balance of the 2023 New Notes at the Default Rate. The failure to pay the outstanding default interest amount was to constitute an event of default and result in termination of the forbearance period under the May Forbearance Agreement. As of December 30, 2023, the 2023 New Notes had a default interest rate of 25.0%.

While, as of the date of this filing, the Company is not in compliance with certain payment obligations and covenants under the 2023 Refinanced Notes and the 2023 New Notes, the Holders have not provided the requisite notice of an event of default under these notes. We are currently negotiating a waiver and forbearance agreement with the Holders to address such non-compliance. The Company can provide no assurance that the parties will reach a mutually agreeable resolution.

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Debt Modification Warrants

The Company issued to each Note Holder a warrant (collectively the “Debt Modification Warrants”) to purchase 2,421.05 common shares of the Company for every $1 principal amount of the 2023 Refinanced Notes held by each Note Holder, for a total aggregate of 91,999,901 Debt Modification Warrants with a fair value of $5,106. See Note 14 — Shareholders' Equity for additional information.

Debt Discount and Debt Issuance Costs, 2023 Refinanced Notes and 2023 New Notes

As a result of the NPA Amendment, the Company recognized total debt discount and debt issuance costs of $7,755. The amount included $5,106 from the fair value of the Debt Modification Warrants, $2,000 Note Holder fees, and $649 of debt issuance costs. The amortization expense was $1,603 for the year ended December 31, 2023, which is included in interest expense on the consolidated statements of operations and comprehensive loss. The balance net of amortization was $6,152 as of December 31, 2023.

2023 Bridge Notes

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On May 15, 2023, the Company entered into a Secured Note Purchase Agreement with certain Note Holders for the issuance of the 2023 Bridge Notes. The 2023 Bridge Notes provided gross cash proceeds of $4,000 and an original issue discount of $500 with a maturity date of December 1, 2023. The 2023 Bridge Notes were subject to interest at the greater of 16% or the prime rate plus 8.5% payable monthly. The 2023 Bridge Notes were fully repaid as of August 30, 2023. The discount was expensed during the year ended December 31, 2023.

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2019 Senior Notes

On November 4, 2019, the Company entered into a private placement with total gross proceeds of $35,800 from senior secured notes held by a syndicate consisting of new investors and existing shareholders, including the Company’s former CEO (the “2019 Senior Notes”). The 2019 Senior Notes had an original maturity date of 36 months from the closing date and had an interest rate from their date of issue at 8.0% per annum, payable quarterly, with principal due at maturity. During 2022, amendments extended the maturity date to February 28, 2023, and revised the interest rate to the prime rate plus 8.5%. During 2023 and 2022 the Company paid principal of $2,237 and $34,386, respectively, fully repaying the principal in February 2023.

Upon issuing the 2019 Senior Notes, the Company recognized $7,440 for debt discount and debt issuance costs. The amortization expense was $78 and $2,488 for the years ended December 31, 2023 and 2022, respectively, which is included in interest expenses on the consolidated statements of operations and comprehensive loss. The remaining balance was amortized in 2023.

Employee Retention Credit Note

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During August 2023, the Company filed a claim with the Internal Revenue Service (“IRS”) for employee retention credits (“ERC”) totaling $3,615 applicable to the first and second fiscal quarter of 2021. The ERC is a refundable tax credit that provides eligible employers with an offset against payroll taxes for qualified wages paid during the height of the COVID-19 pandemic. The Company’s eligibility is based on certain governmental orders in effect in certain states which had more than a normal impact on operations during the first and second fiscal quarter of 2021. This credit is accounted for under the guidance of ASC 450, Contingencies, and does not yet meet the criteria for recording a gain under ASC 450.

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In order to accelerate access to the ERC funds, the Company signed an agreement with 1861 Acquisition LLC (“1861 Acquisition”). 1861 Acquisition advanced cash of $3,594 to the Company, which included $619 for fees charged by 1861 Acquisition. These fees are included in interest expense on the consolidated statements of operations and comprehensive loss. The Company expects the IRS to approve or deny its claim within the next 12 months. Upon approval and payment of the claim, the Company will settle the outstanding balance in cash to 1861 Acquisition. In the event the claim is denied in part or in total, the Company is required to pay the outstanding balance upon the denial.

CGSF/SFNY Divestiture

During September 2023, the Company completed the CGSF/SFNY Divestiture. Pursuant the MIPA, the transaction was subject to the satisfaction or waiver of certain conditions set forth in the MIPA, including, among others, the termination of the amended and restated loan agreement dated August 24, 2021 by and between SFNY and CGSF Group (the “CGSF Loan Agreement”) in the form of a loan termination agreement (the “CGSF Loan Termination Agreement”). Under the CGSF Loan Termination Agreement, SFNY and CGSF Group mutually agreed to terminate and retire the CGSF Loan Agreement and any other agreement entered into in connection with the CGSF Loan Agreement, including the Little Beach Harvest Note and all of SFNY and CGSF Group’s obligations under the CGSF Loan Agreement, the related promissory note, and any other related loan agreements were satisfied, terminated and released as of the date of the MIPA. As a result, the Company derecognized related notes payable of $350 during the three months ended September 30, 2023.

Future maturities of all notes payable as of December 31, 2023 are as follows:

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