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Note 11 - Convertible Notes Payable | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Debt Disclosure [Text Block] |
11. | Convertible NOTES PAYABLE
On April 4, 2019, the Company issued a $550,000 secured convertible debenture which had a maturity date of November 15, 2019 and was convertible into common stock at a conversion price of $1.50 per share. The note was redeemable at any time by payment of a premium to the principal balance starting at 5% and increasing to 25%. The note was issued at approximately 7% ( $40,000 ) original issue discount. Subject to the mutual agreement of the Company and the investor, the Company could issue two additional $550,000 principal amount notes on the same terms after 45 day intervals from the prior issuance, for additional net proceeds of $1,020,000. The convertible note contained anti-dilution protections if the Company issued shares of common stock for less than the conversion price. The convertible note was secured by substantially all the assets of the Company. At the closing, the Company issued 80,000 shares of common stock in payment of a $120,000 commitment fee and was obligated to issue 10,000 shares of common stock monthly in payment of a monthly commitment fee of $15,000 until the earlier of November 1, 2019 or the repayment or conversion of the note. On June 14, 2019, the Company issued a $157,000 secured 10% convertible redeemable note which had a maturity date of November 14, 2019 and was convertible into common stock at a conversion price of $1.50 per share. The convertible redeemable note contained anti-dilution protections if the Company offered a conversion discount or other more favorable conversion terms while the note was outstanding. The note was redeemable within the first five months by payment of a premium to the principal balance starting at 10% and increasing to 30% of principal plus interest. At the closing, the Company agreed to issue 200,000 shares of common stock in lieu of payment of a $30,000 commitment fee which would be reduced to 20,000 shares if the note was repaid prior to the maturity date. Both notes were repaid in full on July 10, 2019. For the two notes issued during the second quarter of 2019, the Company agreed to issue a total of 310,000 shares of common stock, amounting to $465,000 in commitment fees. Of these amounts, $195,000 was recorded as an offset to notes payable – debt issuance costs and was amortized over the life of the loan. The reduction of the commitment fee in amount of $270,000 ( 180,000 shares) was recorded as a reduction in additional paid in capital and the shares were returned to the Company on July 10, 2019. The Company also incurred $17,000 of legal fees withheld from proceeds which was also recorded as an offset to notes payable – debt issuance costs and was amortized over the life of the loan. Amortization of the debt issuance costs and debt discount are included in interest expense on the statement of operations. Securities Purchase Agreement dated July 10, 2019 On July 10, 2019, the Company issued a $3,060,000 principal amount senior secured convertible note (the “Note”). At closing, a total of $2,550,000 was funded. The original issue discount was $510,000. The principal amount due of the Note is due and payable as follows: $918,000 is due 180 days after funding, $1,071,000 is due 270 days after funding, and the remaining balance is due 12 months after the date of funding. Upon the occurrence of standard and customary events of default and expiration of any applicable cure periods, repayment of the outstanding principal amount due under the Note is subject to acceleration in the discretion of the Investor in which event, interest will accrue at the higher of 18% per annum or the maximum amount permitted by applicable law and the Company will become obligated to pay an amount equal to 20% of the then outstanding principal amount due under the Note. The Note is secured by a lien on substantially all of the Company’s assets and properties and is convertible at the option of the Investor into shares of common stock at a fixed conversion price of $1.50 per share. The Company has the right to prepay the Note in full at any time without penalty in which event, the Investor will have the option of converting 25% of the outstanding principal amount of the Note into shares of common stock. In connection with the closing, the Company issued a five year warrant to the Investor to purchase 2,000,000 shares of common stock at a fixed exercise price of $1.50 per share, paid a $50,000 commitment fee, and issued 266,667 shares of common stock in payment of a $400,000 due diligence fee. The Company also paid banker fees of $193,500 and legal fees of $71,330. The valuation of the warrant of $595,662 was recorded to debt discount and is amortized over the life of the Note. The fees associated with the agreement were allocated to debt issuance costs and additional paid-in capital based on the respective ratio of the valuation of the note and warrant. Amortization of the debt issuance costs and debt discount are included in interest expense on the statement of operations. Until the second anniversary of the closing, the Investor has the right to purchase up to 20% of the securities the Company issues in any future private placement, subject to certain exceptions for, among other things, strategic investments. Secured convertible note payable, net of unamortized debt discount and debt issuance costs at September 30, 2019 consisted of:
Principal amount |  | $ | 3,060,000 |
Less unamortized debt discount |  |  | (856,888 | )
Less unamortized debt issuance costs |  |  | (343,477 | )
Notes payable, net of unamortized debt discount and debt issuance costs |  | $ | 1,859,635 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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