XML 25 R14.htm IDEA: XBRL DOCUMENT v3.25.3
Note Payable, Related Party
 9 Months Ended
Sep. 30, 2025
Debt Disclosure [Abstract]  
Note Payable, Related Party

Note 8. Note payable, related party

 

Note Payable, Related Party

On December 31, 2020, and later amended, the Company executed a Revolving Promissory Note (“Note”) with DSS, a related party, which accrues interest at a rate of 4.25% and is due in full at the maturity date of September 30, 2030. The Note was further amended on July 24, 2024 with an effective date of September 16, 2024 to i) allow the Company to pay certain principal and/or interest payments owing under the repayment terms in an exchange for potential of equity in the Company, ii) change the quarterly interest due dates to the last day of each calendar quarter (i.e. December 31, March 31, September 30 and September 30), iii) to adjust the On Demand feature so that it starts after the 24th month, iv) continue the planned repayment program commencing on the 37th month and on the last day of each month thereafter through August 31, 2030 to pay a fixed monthly payment of $126,381, v) to continue the scheduled maturity date of September 30, 2030, and vi) adjusts the interest rate to be the WSJ Prime Rate plus 0.50%. This Note is secured by the assets of the Company. As of September 30, 2025, the outstanding balance, inclusive of interest was $22,881,000 (net of change in fair value of the Note of $13,210,000). The $22,881,000 is recorded in Note payable, related party at September 30, 2025. As of December 31, 2024 the outstanding balance, inclusive of interest was $8,878,000 (net of change in fair value of the Note of $5,670,000). The $8,878,000 is recorded in Note payable, related party at December 31, 2024.

 

The Company accounts for this Note as a liability under ASC 480, Distinguishing Liabilities form Equity (“ASC 480”). In accordance with ASC 825-10, the carrying value of the Note will be recorded at fair value and will be remeasured at each reporting period with the changes in fair value recognized in earnings.

 

We considered various valuation methodologies in our analysis of the embedded derivative. Valuation methodologies can generally be aggregated into the following three approaches: the Market Approach, the Income Approach, and the Cost Approach. Based on our analysis of the facts and circumstances, in estimating the fair value of the Note payable, related party, we utilized a discounted cash flow method (income approach), in the form of a Monte Carlo simulation of the Company’s stock price and volume weighted average price (“VWAP”) throughout 36-month period from the Effective Date relative to its closing stock price and VWAP. The simulated analysis estimates the expected note cash flow from the date the first payment is due and until the equity conversion rights expire under the terms of the Note payable, related party based on the following steps:

 

1) Developed the Note Payable repayment schedule
2) Developed the following inputs underlying the simulation analysis

 

  i) Stock price

 

3) Ran a simulation with 25,000 trials for purposes of capturing the key inputs discussed above (i.e., forecasting the stock price and VWAP).
4) Captured the results of the simulation and concluded based on the simulation results

 

 

Impact Biomedical, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

 

Significant Assumptions Utilized in our Analysis

 

  1. The Note Payable provides that an event of default would include a change in ownership of fifty-five percent (55%) or more of the common stock or other voting equity interests of the Company. Therefore, by virtue of the Company executing the transaction there will be an event of default.
  2. The terms negotiated between the Company and the Lender in connection with the Transaction are consistent with those of a market participant:

 

  a. The Lender would agree to accept the Company’s common stock in exchange for the full amount owing under the Note as of the projected merger date, September 1, 2025.
  b. The Lender and Company would agree that the outstanding loan balance as of September 1, 2025, will be$13,176,477 of principal and $1,813,399 of interest ($14,989,876 total).
  c. The Note Payable does not provide specific equity conversion rights in the event of a change of control. As such, the Company and the Lender would agree the 10-day VWAP is $0.46931688, or the 10-day VWAP immediately prior to September 20, 2025 (being September 18, 2025, through September 5, 2025).
  d. Given the projected Note Payable balance of $14,989,876 and a 10-day VWAP of $0.46931688, the Lender would agree to accept 31,939,778 shares in the Company for settlement of the Note Payable on September 1, 2025.

 

  3. As the payment is in shares, the discount rate is equal to the risk-free rate (Note 15).