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Note 11 - Convertible Notes Payable | 3 Months Ended
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Mar. 31, 2020
Notes to Financial Statements |
Debt Disclosure [Text Block] |
11. | CONVERTIBLE NOTES PAYABLE
Convertible notes payable as of March 31, 2020 and December 31, 2019 consist of the following:
|  | March 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Secured Purchase Agreement dated July 10, 2019 |  | $ | 2,061,472 |  |  | $ | 2,255,454 |
January 2020 Note |  |  | 143,913 |  |  |  | - |
February 2020 Note |  |  | 96,571 |  |  |  | - |
Convertible notes payable, net |  | $ | 2,301,956 |  |  | $ | 2,255,454 |
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 “Original Note”). At closing, a total of $2,550,000 was funded. The original issue discount was $510,000. The principal amount due of the Original Note was due and payable as follows: $918,000 was due 180 days after funding, $1,071,000 was due 270 days after funding, and the remaining balance due 12 months after the date of funding. The Original Note was secured by a lien on substantially all of the Company’s assets and properties and was convertible at the option of the Investor in shares of common stock at a fixed conversion price of $1.50 per share. The Company had the right to prepay the Original Note in full at any time without penalty in which event, the Investor had the option of converting 25% of the outstanding principal amount of the Note into shares of common stock. In connection with the closing of the Original Note, 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 was 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. On March 12, 2020, the Company issued a $3,789,000 principal amount senior secured convertible note (the “Amended Note”), which replaced the Original Note. The principal amount was due and payable in full on April 13, 2020. The Amended 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 $0.65 per share. Due to the debt restructuring, the balance of the Amended Note was increased by an additional $729,000 in interest. The Company accounted for the transaction as a debt extinguishment, and therefore, the balance of the fees and unamortized discount associated with the Original Note were written off and included as loss on extingushment of debt. On the day of the conversion, the closing stock price for the day was $0.76, which resulted in a beneficial conversion of $0.11 per share outstanding or $641,215 to be amortized to interest expense over the term of the Amended Note as adjusted for any debt conversion. At March 31, 2020, the Investor converted $1,500,000 into 2,307,690 shares of common stock. On April 12, 2020, and May 6, 2020, the Company entered into amendments (the “Amendments”) to the Amended Note. The Amendments extended the maturity date to June 12, 2020 and extended the Investor’s right to convert the Amended Note into shares of the Company’s common stock at a price of $0.65 per share through June 12, 2020. All other provisions of the Amended Note remain the same. As of the date of this report, the Investor has converted $3,500,000 into 5,384,610 shares of common stock and the remaining principal balance is $289,000. 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 relating to the Amended and Original Notes, net of unamortized debt discount and debt issuance costs consisted of:
|  | March 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Principal amount |  | $ | 3,789,000 |  |  | $ | 3,060,000 |
Less: conversion of principal into shares of common stock |  |  | (1,500,000 | ) |  |  | - |
Net Principal amount |  |  | 2,289,000 |  |  |  | 3,060,000 |
Less: unamortized debt discount and beneficial conversion feature |  |  | (227,528 | ) |  |  | (574,330 | )
Less: unamortized debt issuance costs |  |  | - |  |  |  | (230,216 | )
Notes payable, net of unamortized debt discount and debt issuance costs |  | $ | 2,061,472 |  |  | $ | 2,255,454 |
January 2020 Note On January 13, 2020, the Company issued a $157,000 principal amount secured 10% convertible redeemable note (the “January 2020 Note”) to an institutional investor with a maturity date of June 13, 2020 which is convertible into common stock at a conversion price of $1.50 per share. The January 2020 Note is redeemable at any time by payment of a premium to the principal balance starting at 10% and increasing to 30%. At the closing, the Company agreed to issue 650,000 shares of common stock in lieu of payment of a $75,000 commitment fee which would be reduced to 50,000 shares if the January 2020 Note is repaid prior to the maturity date. The Company paid $7,000 of legal fees for the January 2020 Note. Convertible note payable relating to the January 2020 Note, net of unamortized debt issuance costs consisted of:
|  | March 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Principal amount |  | $ | 157,000 |  |  | $ | - |
Add: prepayment premium |  |  | 23,550 |  |  |  | - |
Add: accrued interest |  |  | 3,270 |  |  |  | - |
Less: unamortized debt issuance costs |  |  | (39,907 | ) |  |  | - |
Notes payable, net of unamortized debt issuance costs |  | $ | 143,913 |  |  | $ | - |
February 2020 Note On February 13, 2020, the Company issued a $126,000 principal amount secured 10% convertible redeemable note (the “February 2020 Note”) to an institutional investor with a maturity date of July 13, 2020 which is convertible into common stock at a conversion price of $1.15 per share. If the Company offers a conversion discount or other more favorable conversion terms, then the investor shall be allowed to convert this February 2020 Note at the same price. On March 12, 2020, the Original Note was amended to convert at the option of the Investor into shares of common stock at a fixed conversion price of $0.65 per share, which triggered the more favorable conversion terms and resulted in an additional deemed dividend expense of $70,998. The February 2020 Note is redeemable at any time by payment of a premium to the principal balance starting at 10% and increasing to 30%. At the closing, the Company agreed to issue 550,000 shares of common stock in lieu of payment of a $57,500 commitment fee which would be reduced to 50,000 shares if the February 2020 Note is repaid prior to the maturity date. To date, the Company has only issued 50,000 shares at the request of the lender. The Company paid $6,000 of legal fees for the February 2020 Note. Secured convertible note payable relating to the February 2020 Note, net of unamortized debt issuance costs consisted of:
|  | March 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Principal amount |  | $ | 126,000 |  |  | $ | - |
Add: prepayment premium |  |  | 12,600 |  |  |  | - |
Add: accrued interest |  |  | 1,575 |  |  |  | - |
Less: unamortized debt issuance costs |  |  | (43,604 | ) |  |  | - |
Notes payable, net of unamortized debt issuance costs |  | $ | 96,571 |  |  | $ | - |

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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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