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Note 4 - Convertible Notes Payable | 12 Months Ended
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Dec. 31, 2020
Debt Disclosure [Abstract] |
Convertible Notes Payable | Convertible notes payable consisted of the following:
|  | December 31, 2020 |  |  | December 31, 2019 |
A. Notes payable issued for cash |  | $ | 24,085,000 |  |  | $ | 12,998,000 |
B. Notes payable issued for settlement agreements |  |  | 2,528,000 |  |  |  | 300,000 |
C. Notes payable issued for forbearance agreements |  |  | 3,849,000 |  |  |  | - |
D. Notes payable issued for consulting services |  |  | 360,000 |  |  |  | - |
|  |  | 30,822,000 |  |  |  | 13,298,000 |
Less unamortized debt discount |  |  | (4,519,000 | ) |  |  | (91,000 | )
Convertible notes, net of discount |  | $ | 26,303,000 |  |  | $ | 13,207,000 |
A. | Notes Payable Issued for Cash
As part of the Company’s financing activities, the Company issued convertible notes payable in exchange for cash. These notes payable are unsecured, bears interest at a rate of 10% per annum matures in six months up to one year from the date of issuance and convertible to common stock at an average conversion rate of $19.65 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. As of December 31, 2018, outstanding balance of these notes payable amounted to $10,673,000. During the year ended December 31, 2019, the Company issued similar notes payable in the aggregate of $3,827,000 in exchange for cash. These notes payable are unsecured, bears interest at a rate of 10% per annum matures in six months up to one year from the date of issuance and convertible to common stock at an average conversion rate of $5.74 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. The Company also determined that certain of these notes payable contained a beneficial conversions feature (BCF) cost of $158,000 since these notes’ were issued when the trading price of the Company’s stock was greater than the average conversion price of $5.74 per share. The BCF was accounted as a debt discount and is being amortized over the corresponding term of the notes payable to interest expense. In addition, during 2019, notes payable of $1,502,000 were converted to 205,000 shares of common stock and the Company amortized the debt discount of $505,000. As of December 31, 2019, outstanding balance of these notes payable issued for cash amounted to $12,998,000 and unamortized debt discount of $91,000. During the year ended December 31, 2020, the Company issued similar notes payable in the aggregate of $12,531,000 in exchange for cash. These notes payable are unsecured, bears interest at a rate of 10% per annum matures in six months up to one year from the date of issuance and convertible to common stock at a conversion rate of $3.40 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. The Company also determined that certain of these notes payable contained a beneficial conversions feature (BCF) cost of $4,745,000 since certain of these notes’ were issued when the trading price of the Company’s stock was greater than the average conversion price of $3.40 per share. The BCF was accounted as a debt discount and is being amortized over the corresponding term of the notes payable to interest expense. In addition, during 2020, notes payable of $1,444,000 plus accrued interest were converted to 478,510 shares of common stock and the Company amortized the debt discount of $317,000. In addition, in June 2020, the Company entered in a forbearance agreement with certain noteholders of past due notes payable in the aggregate of $13.2 million (see discussion at “C”). As of December 31, 2020, outstanding balance of these notes payable issued for cash amounted to $24,085,000 and unamortized debt discount of $4,519,000.
B. | Notes Payable Issued for Settlement Agreements
During the year ended December 31, 2019, the Company issued notes payable of $300,000 as part of a debt settlement agreement. The notes are unsecured, bears interest at a rate of 10%, matures in six months up to one year from the date of issuance and convertible to common stock at a conversion rate of $10.20 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. As of December 31, 2019, outstanding balance of notes payable issued for settlement agreements amounted to $300,000. During the year ended December 31, 2020, the Company entered into settlement agreements with certain parties such as Empery Asset Master Ltd., Empery Tax Efficient, LP, Empery Tax Efficient II, LP, Adam Kasower, East Ventures, Inc., SV Booth Investments III, LLC, and Theorem Group, LLC to resolve claims and disputes pertaining to certain debt and equity instruments issued by the Company to these parties in prior years. As part of the agreement, the Company agreed to the following considerations:
a. | Issuance of convertible notes payable in the aggregate of $2,228,000. The notes are unsecured, bears interest at a rate of 10%, matures in six months up to one year from the date of issuance and convertible to common stock at a conversion rate of $3.40 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. The Company also determined that certain of these notes payable contained a beneficial conversions feature cost of $530,000 since these notes’ were issued when the trading price of the Company’s stock was greater than the conversion price of $3.40 per share;
b. | Cash payment of $380,000;
c. | Issuance of 262,353 shares of common stock with a fair value of $1,225,000; and
d. | Issuance of warrants to purchase 323,529 shares of common stock. The warrants are fully vested, exercisable at $3.40 per share and will expire in five years with an estimated fair value of $1,021,000 using a BlackScholes option price model.
Pursuant to current accounting guidelines, the Company recorded a loss of $5,384,000 to account the cash paid and the fair value of debt and equity instruments issued in these settlement agreements. As of December 31, 2020, outstanding balance of these notes payable for settlement agreements amounted to $2,528,000.
C. | Notes Payable Issued for Forbearance Agreements
On June 23, 2020, the Company entered into Standstill and Forbearance Agreements (collectively, the “Forbearance Agreements”) with the holders of $13.2 million aggregate principal amount of the Convertible Notes (the “Default Notes”), which are currently in default. Pursuant to the Forbearance Agreements, the holders of the Default Notes have agreed to forbear from exercising their rights and remedies under the Default Notes (including declaring such Default Notes (together with any default amounts and accrued and unpaid interest) immediately due and payable) until the earlier of (i) the date that the Company completes a future financing in the amount of $15 million and, in connection therewith, commences listing on NASDAQ (collectively, the “New Financing”) or (ii) January 31, 2021 (the “Termination Date”). The obligations of the holders to forbear from exercising their rights and remedies under the Default Notes pursuant to the Forbearance Agreements will terminate on the earliest of (i) the Termination Date, (ii) the date of any bankruptcy filing by the Company or its subsidiaries, (iii) the date on which the Company defaults on any of the terms and conditions of the Forbearance Agreements or (iv) the date the Forbearance Agreements are otherwise terminated or expire. In exchange for the forbearance agreement, the Company agreed to the following considerations:
a. | Amendment of the $13.2 million Default Notes (together with default amounts and accrued and unpaid interest) to include a provision that will convert these notes payable into common stock upon the closing of a New Financing at a conversion price equal to the lesser of (i) the conversion price in effect for the Default Notes on the date of such New Financing or (ii) 75% of the lowest per share price at which common stock is or may be issued in connection with such New Financing, in each case, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). Shares of the Company’s preferred stock, which are convertible into the Company’s common stock, will be issued in lieu of common stock to the extent that conversion of the Default Notes is prohibited by such beneficial ownership limitations.
b. | Amendment of warrants granted to certain noteholders in prior year to include the following terms: (i) the exercise price of all warrants to purchase common stock held by holders of the Default Notes will be reduced to equal the conversion price of the Default Notes and (ii) the number of shares of common stock underlying such warrants shall be increased so that the total exercise price of all such warrants after the decrease in the exercise price equals the total exercise price of all such warrants prior to the decrease in the exercise price. Further, the expiration date of all such warrants shall be extended for three years following the closing date of any New Financing.
c. | Issuance of notes payable in the aggregate of $3,955,000. The notes are unsecured, bears interest at a rate of 10% per annum, matures in six months up to one year from the date of issuance and convertible to common stock at a conversion rate of $3.40 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions.
In accordance with ASC 450-70, modifications or exchanges are considered extinguishments with gains or losses recognized in current earnings if the terms of the new debt and original instrument are substantially different. The instruments are considered “substantially different” when the present value of the cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. Pursuant to ASC 470, the Company accounted the forbearance transaction as an extinguishment of debt which acquires the measurement of the modified debt and additional consideration to be at fair value. The Company determined the fair value of amended notes payable and warrants at the date of the agreement to be $28,976,000. The fair value of the host component of the notes payable was determined by discounting the future cash flows related to the notes at a market rate of interest. The conversion features of the notes payable were determined using a Monte Carlo valuation which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the conversion features, and future dividends. The fair value of the warrants was determined using a binomial option pricing model. The incremental difference between the old debt deemed extinguished and the fair value of the new debt recognized amounted to $8,643,000 and was accounted loss on forbearance agreement and additional paid in capital. In addition, the Company also accounted the issuance of the new notes payable of $3,955,000 as part of loss on forbearance agreement for a total loss of $12,598,000. In addition, during 2020, notes payable of $106,000 plus accrued interest were converted to 33,369 shares of common stock. As of December 31, 2020, outstanding balance of the notes payable amounted to $3,849,000.
D. | Notes Payable issued for Consulting Agreements
During the year ended December 31, 2020, the Company issued notes payable of $360,000 in exchange for consulting services. The notes are unsecured, bears interest at a rate of 10%, matures in one year from the date of issuance and convertible to common stock at a conversion rate of $3.40 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. As of December 31, 2020, outstanding balance of these notes payable amounted to $360,000. As of December 31, 2020, total outstanding convertible notes payable that are matured and past due amounted to $16,824,000. On February 11, 2021, all outstanding notes payable in the aggregate of $32 million and accrued interest of $5.5 million were converted to 11million shares of common stock (see Note 12)

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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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