Note 14 - Loans Payable |
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Jun. 30, 2026 | |||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Text Block] |
14. Loans Payable
As of June 30, 2026, loans payable consisted of one third-party equipment loan. During the year ended June 30, 2026, the Acquisition Notes were redeemed and the 2020 Equipment Loan (as defined below) was paid in full. The Bridge Note (as defined below) was extinguished during the year ended June 30, 2025.
Acquisition Notes
On February 18, 2025, in connection with the closing of the Securities Purchase Agreement (see Note 3, Acquisition of G5 Infrared), we issued the Acquisition Notes. The Acquisition Notes accrue interest at the rate between 10-12% per annum (12% as of June 30, 2026), based on the ratio of indebtedness to EBITDA of the Company, unless an event of default (as defined in the Acquisition Notes) occurs, at which time the Acquisition Notes would accrue interest at 15% per annum. The Company determined the embedded features related to the payment of variable interest and upon an event of default are clearly and closely related to the Acquisition Notes, and are therefore not bifurcated from the Acquisition Notes. At June 30, 2025, the net carrying value of the convertible promissory notes is $4.6 million, including unamortized debt discount and issuance costs of $0.6 million, and had an effective interest rate of 5.7%. The estimated fair value (Level 3) of the convertible promissory notes approximates its book value as of June 30, 2025.
The Acquisition Notes would have matured on February 18, 2027, the second anniversary of the issuance date, but were redeemed by the Company on December 31, 2025, prior to the maturity date, at a redemption price equal to the portion of principal so redeemed plus all accrued and unpaid interest thereon. Pursuant to the terms of the Acquisition Notes, since the funds used for redemption were not generated internally by Company operations, the redemption amount was multiplied by 102%. We recorded a loss on extinguishment of debt of $0.5 million during the year ended June 30, 2026, based on the difference between the carrying value of the debt being extinguished and the redemption amount.
The Acquisition Notes were automatically convertible into shares of Series G Convertible Preferred Stock, which were in turn convertible into Conversion Shares, if the EBITDA reported by the Company for the calendar year ending December 31, 2025, is less than approximately $4.9 million, which are in turn convertible into Conversion Shares (the “Automatic Note Conversion”). The Series G Convertible Preferred Stock would have been convertible into Class A Common Stock. The Company determined that the Automatic Note Conversion did not require bifurcation from the Acquisition Notes as the Automatic Note Conversion (i) is indexed to the Company’s own stock, (ii) is settled in shares, not cash, and (iii) is only exercisable into a fixed number of shares at a fixed exercise price of $1,000 per share once it is triggered to convert and the conversion price can only be adjusted for standard antidilution provisions.
The Acquisition Notes included customary affirmative and negative covenants and events of default. Additionally, the Acquisition Notes included financial covenants requiring the Company to maintain a Total Leverage Ratio (as defined in the Acquisition Notes) of not greater than and a Fixed Charge Covered Ratio (as defined in the Acquisition Notes) of greater than for each fiscal quarter beginning with the fiscal quarter ending December 31, 2025.
Bridge Note
On August 6, 2024, we entered into the Bridge Note with Lytton-Kambara Foundation (the “Lender” and also the “Class A Purchaser”) pursuant to which the Lender extended a loan to the Company in the principal amount of $3.0 million (the “Loan”). The Loan is subject to an original issue discount of 7%. After deducting the original issue discount, fees paid to our placement agent, and certain expenses, the Company received net proceeds of $2.7 million. The Bridge Note was unsecured, bore interest at the rate of 12.5% per annum and had a 1-year term, maturing on August 6, 2025 (the “Maturity Date”), at which time the entire principal amount of the Bridge Note and all accrued but unpaid interest would have been due and payable in full.
The Bridge Note and related accrued interest were settled on February 18, 2025, in conjunction with financing for the acquisition of G5 Infrared and the closing of the Securities Purchase Agreement and Class A SPA (see Note 8, Stockholders' Equity) with the Lytton Buyers. The Bridge Note and $1.5 million of cash was exchanged for: (i) 687,750 shares of Class A Common Stock at a purchase price of approximately $2.15 per share issued in connection with the Class A Common Securities Purchase Agreement; (ii) approximately 1,957 shares of Series G Convertible Preferred Stock issued in connection with the Securities Purchase Agreement; (iii) warrants to purchase 512,091 shares of Class A Common Stock, with an exercise price of $2.58 per share, of which 170,697 were issued in connection with the Class A SPA and 341,394 were issued in connection with the Securities Purchase Agreement and (iii) an Acquisition Note in an aggregate principal amount of approximately $1.2 million issued in connection with the Securities Purchase Agreement. The exchange of the Bridge Note was accounted for as a debt extinguishment as the Conversion Option on the Acquisition Notes is substantive, the warrants, preferred stock, and common stock are equity classified and an exchange of debt for equity other than through an existing conversion feature is accounted for as an extinguishment. The loss on extinguishment of $0.4 million was computed as the difference between (i) the carrying value of the Bridge Note and (ii) the fair value of the new instruments issued, including the Acquisition Note, the Series G Convertible Preferred Stock, Class A Common Stock, and Warrants. Prior to closing of the Securities Purchase Agreement and Class A SPA, the Lytton Buyers owned a de minimis amount the Company’s equity and therefore the loss was not an in-substance capital transaction and was recognized as a loss on extinguishment of debt in the accompanying consolidated statements of comprehensive income (loss).
Equipment Loans
In December 2020, ISP Latvia entered into an equipment loan with a third party (the “2020 Equipment Loan”), which is also a customer. The 2020 Equipment Loan is collateralized by certain equipment. The initial advance under the 2020 Equipment Loan was EUR (or approximately USD $0.3 million), payable in equal installments over 60 months, the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date. The 2020 Equipment Loan bears interest at a fixed rate of 3.3%. An additional EUR (or approximately USD $0.3 million) was drawn in September 2021, which proceeds were paid to the vendor for the equipment, payable in equal installments over 52 months. The 2020 Equipment Loan was paid in full as of December 31, 2025.
In May 2023, ISP Latvia entered into an equipment loan with a third party financial institution (the “2023 Equipment Loan”). The 2023 Equipment Loan is collateralized by certain equipment. The initial advances under the 2023 Equipment Loan totaled EUR (or approximately USD $0.3 million), the proceeds of which were used to make prepayments to a vendor for equipment to be delivered at a future date. The final advance for the final payment to the equipment vendor was EUR (or approximately USD $0.1 million). The 2023 Equipment Loan is payable over 48 months, with monthly installments beginning January 1, 2024. The 2023 Equipment Loan bears interest at the six-month EURIBOR rate, plus 2.84% (5.20% as of June 30, 2026).
Future maturities of loans payable are as follows:
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