Iota Communications, Inc. entered into a debt restructuring agreement with Forced Conversion Rights, by and between the Company and AIP Asset Management Inc., in its capacity as Security Agent, under a Note Purchase Agreement, dated as of Oct. 31, 2018, between the Company, AIP, and AIP Convertible Private Debt Fund L.P. f/k/a/ AIP Global Macro Fund L.P, and any other parties that become Noteholders from time to time, collectively.
In connection with the Restructuring Agreement, all outstanding notes previously issued under the Note Purchase Agreement were cancelled. In addition, the 14,673,800 shares of common stock and 21,350,000 warrants to purchase shares of common stock previously issued to the Noteholders, and the Company’s obligation to issue an additional 2,000,000 shares of common stock to the Noteholders, were cancelled. The canceled notes, shares, and warrants were replaced with a secured convertible replacement note and a secured convertible royalty note. Upon execution of the Restructuring Agreement, the Company borrowed an additional $1,100,000 under the Replacement Note.
The Replacement Note, with a principal balance of $9,000,000, and the Royalty Note, with a principal balance of $6,000,000, both mature on Nov. 30, 2021, unless earlier converted in accordance with the terms of the Restructuring Agreement.
The Notes bear interest at a rate of 10% per annum, provided that during an event of default, they will bear interest at a rate of 20% per annum. The Company has prepaid interest on the Replacement Note through Dec. 31, 2020. Beginning Jan. 1, 2021, interest on the Replacement Note will be calculated monthly with 4% payable monthly, and 6% added monthly to the outstanding principal balance until the entire principal balance has been repaid in full. Interest on the Royalty Note will be calculated monthly and added to the outstanding principal balance.
In addition, and as specified within the Royalty Note, the Company will pay the Noteholders a royalty equal to 5% of the Company’s revenues, with the first payment made no later than Sept. 20, 2021 for the Company’s fiscal year ending May 31, 2021. Thereafter, and until the Royalty Note is fully repaid or converted, the royalty payments are due monthly, in arrears, in an amount equal to 5% of the Company’s revenues for such month.
The Company may elect to convert all or part of the principal balance, together with accrued and unpaid interest and any other amount then payable under the Notes, into Units at any time all of the conditions specified within the Restructuring Agreement are met., at a conversion price of $0.12 (subject to adjustment as provided in the Restructuring Agreement). Each Noteholder has the right, at such Noteholder’s option, at any time, to convert all or part of the Notes, together with accrued and unpaid interest and any other amount then payable under the Notes, into Units, at the Conversion Price. A Unit consists of one share of common stock of the Company and one warrant entitling the holder thereof to subscribe for one share of common stock of the Company for a period of 60 months from the date of issuance at an exercise price of $0.12 per share (subject to adjustment as provided in the Restructuring Agreement).
The Restructuring Agreement waives compliance by the Company, and any default associated with the Company’s failure to comply with certain monthly paydown and financial covenants under the Note Purchase Agreement provided the Company meets three specific criteria by the specified deadlines in the Restructuring Agreement. The Company has met one of the three criteria by the applicable deadline. If the other two criteria are not met by their applicable deadlines, an event of default could occur.
As part of the debt restructuring, the Company agreed to issue 5,000,000 shares of its common stock to AIP Private Capital Inc. as a prepayment of all monitoring fees payable until the Notes are fully repaid or converted.
About Iota Communications
Newark, New Jersey-based Iota Communications, Inc., formerly known as Solbright Group, Inc. is a wireless network carrier system and software applications provider dedicated to the Internet of Things. Iota sells recurring-revenue solutions that optimize energy usage, sustainability and operations for commercial and industrial facilities both directly and via third-party relationships. Iota also offers important ancillary products and services which facilitate the adoption of its subscription-based services, including solar energy, LED lighting, and HVAC implementation services.
Iota Communications reported a net loss of $56.78 million for the year ended May 31, 2019, compared to a net loss of $16.49 million for the year ended May 31, 2018. As of Nov. 30, 2019, the Company had $35.92 million in total assets, $115.05 million in total liabilities, and a total deficit of $79.13 million.
Friedman LLP, in Marlton, NJ, the Company’s auditor since 2016, issued a “going concern” qualification in its report dated Sept. 13, 2019, citing that the Company has an accumulated deficit and a working capital deficiency as of May 31, 2019, generated recurring net losses, and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern.