NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

3 Months Ended

Mar. 31, 2022

Debt Disclosure [Abstract]

NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

The Company funded operations through cash flows generated from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of March 31, 2022 and 2021. Related parties noted below are either members of management, board of directors, significant shareholders or individuals in which have significant influence over the Company.

Subordinated Notes Payable

In 2016, the Company issued $350 thousand in subordinated notes payable to third parties that incurred interest at 10% per annum. On September 30, 2021, the Company converted the notes issued for $530 thousand of principal and interest into 55,767 shares of the Company’s common stock. Since the notes were converted to equity, there will no longer be any accrued interest related to the subordinated notes.

Convertible Notes Payable

In 2020, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $300 thousand convertible note bearing interest at 12% per annum (the “Note”). The Note matures in 365 days from the date of issuance. The Note is convertible at the option of the holder at any time into shares of the Company’s common stock at nine dollars and fifty cents $9.50 for the one hundred and eighty (180) days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest closing price of the common stock during the preceding twenty-five (25) trading day, ending on the last complete trading day prior to the issue date of the Note. 2) seventy-five (75) percent of the lowest trading price for the common stock during the twenty-five (25) consecutive trading days preceding the conversion date with a minimum trading volume of one thousand (1,000) shares.

In the event of a default of the Note, the Holder in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five (75) percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured.

The embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant to the Securities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 21,052 shares of common stock exercisable at fourteen dollars and twenty-five cents ($14.25) and expire in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 6 for valuation) resulting in full discount of the Note. The conversion feature and warrants have various reset provisions for which lower the exercise price and share and warrants issuable. As of March 31, 2022 and December 31, 2021, the convertible note payable balance was $280 thousand and $280 thousand, and has accrued interest of $68 thousand and $39 thousand, respectively.

Total interest expense on convertible notes payable, inclusive of amortization of debt discount of $280 thousand, amounted to $315 thousand for the year ended December 31, 2021. As of March 31, 2022, the convertible note payable discount is $0.

See Note 6– Derivative Liabilities.

In 2015, the Company issued $50 thousand in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible at $9.50 per share. The Company amended the convertible note on March 2, 2022 and an agreed offer of a $10 thousand discount on the principal and interest resulting in a $72 thousand payment in full.

In 2014, the Company issued $400 thousand in convertible notes payable. The convertible notes payable are unsecured, due in periods ranging up to one year, incurring interest between 10% to 12% per annum and are convertible at prices ranging from $3.14 to $9.50 per share. In addition, the Company issued 42,105 shares of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the 42,105 shares of common stock at $9.50 per share within one year of the note issuance date. On March 30, 2022, the Company entered into three forbearance agreements which granted the holders 2,105 shares of our common stock in exchange for not enforcing the terms of the agreement for a period of twelve months. As of March 31, 2022 and December 31, 2021, the Company held the obligation to repurchase the shares for $400 thousand. As of March 31, 2022 and December 31, 2021, the accrued interest related to the convertible notes was $278 thousand and $268 thousand, respectively.

Notes Payable

In 2020, the Company entered into a 30-year unsecured note payable with U.S. Small Business Administration for $68 thousand in proceeds. The notes payable incurred a $100 fee upon issuance and incurs interest at 3.75% per annum. All payments of principal and interest are deferred for thirty months from the date of the note. As of March 31, 2022 and December 31, 2021 the balance of the note payable was $68 thousand and $68 thousand, and accrued interest was $4 thousand and $4 thousand, respectively.

Two significant shareholders funded the Company’s operations through notes payable in primarily 2009 and 2010. The notes payable incur interest at 10% per annum and were due on December 31, 2016. On May 2, 2021, the Company entered into a debt reduction and confirmation agreement with a significant shareholder. The parties agreed to reduce the outstanding accrued interest in the amount of $275 thousand. On September 29, 2021, the Company converted notes issued for $51 thousand of principal and accrued interest into 5,329 shares of the Company’s common stock. On September 29, 2021, the Company entered into a forbearance agreement which granted the holder 3,140 shares with a current fair market value of $35 thousand in exchange for not enforcing the terms of the agreement for a period of twelve months. On February 4, 2022, the Company entered into an amended forbearance agreement. The parties agreed to reduce the outstanding accrued interest in the amount of $75 thousand along with a $50 thousand payment of accrued interest. As of March 31, 2022, and December 31, 2021, the aggregate balance of the notes payable was $597 thousand and accrued interest was $258 thousand and $383 thousand, respectively.

In Q3 of 2021, the Company converted notes issued for $503 thousand into 52,942 shares of the Company’s common stock. Also, the Company entered into a forbearance agreement which granted the holders 2,760 shares of the Company’s common stock with a current fair market value of $120 thousand in exchange for not enforcing the terms of the agreement for a period of twelve months.