XML 38 R28.htm IDEA: XBRL DOCUMENT

CONVERTIBLE NOTES

9 Months Ended

Sep. 30, 2021

22. CONVERTIBLE NOTES

Convertible notes payable at September 30, 2021 and December 31, 2020, were comprised of the following:

	Interest Rate	Due Date	September 30, 2021			December 31, 2020
Convertible promissory note	4%	May 13, 2024	$	660,000		$	660,000
Less: Unamortized debt discounts				(213,000	)		(274,000	)
Total convertible notes payable, net of financing cost			$	447,000		$	386,000

4% Convertible Promissory Note

On May 20, 2019, the Company entered into a securities purchase agreement with an investor to sell, for a purchase price of $500,000, a 4% original issue discount (“OID”) convertible promissory note with an aggregate principal face amount of $660,000 and a five-year warrant to purchase an aggregate of 12,500 shares of the Company’s common stock. The Company is required to make quarterly interest payments and the principal amount of the note is due on May 20, 2024. The note is convertible into shares of common stock at $4.00 per share. The exercise price of the warrant is $12.00 per share. In addition, the Executive Chairman of the Company agreed to guarantee and act as surety for the Company’s obligation to repay the note pursuant to a personal guarantee.

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $58,000 based on the estimated fair value of the warrants. At the time of issuance of the note, the closing price of the common stock was in excess of the effective conversion price, resulting in a beneficial conversion feature (“BCF”) of $188,000, based on the difference between the effective conversion price and the fair value of the Company’s common stock at the commitment date of the transaction.

In aggregate, the Company recorded a debt discount in the amount of $407,000 based on the relative fair values of the warrants, BCF and OID. During each of the nine months ended September 30, 2021 and 2020, non-cash interest expense of $40,000 was recorded from the amortization of debt discounts. The fair value of the warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate of 2.18% was derived from the U.S. Treasury yield curve, matching the term of the warrant, in effect at the measurement date. The volatility factor of 87.51% was determined based on historical stock prices of similar technology companies.