Convertible Notes payable - Related Party

6 Months Ended

Jun. 30, 2021

Debt Instruments [Abstract]

Convertible Note Payable – Related Party

4. Convertible Note Payable – Related Party

On April 16, 2021, the Company and Richard E. Uihlein entered into a debt financing arrangement whereby Mr. Uihlein loaned $10,000,000 to Company. In consideration for the loan, the Company issued a convertible promissory note (the “Note”) in the principal amount of ten million dollars.

The Note has a maturity date of April 16, 2025, is prepayable at the option of the Company in whole or in part at any time, and is convertible into the Company’s common stock at a conversion price equal to $5.00 per share at the option of the noteholder. The Note bears interest at the rate of two percent (2%) per annum, compounded annually. For the period ended June 30, 2021, approximately $41,000 of interest expense was accrued and included with the principal in the financial statements.

The Note also includes a contingent interest component that requires the Company to pay additional interest at a rate of two and one-half percent (2.5%) per quarter (10% per annum) (the “Additional Interest”) beginning on the date of issuance of this Note and ending on the maturity date, provided however, that such payment is only required if and only if the noteholder elects to convert the entire balance of the Note into the Company’s common stock on or prior to maturity. As the contingent event is not based on creditworthiness, such feature is not clearly and closely related to the host instrument and accordingly must be bifurcated and recognized as a derivative liability and a debt discount on the Note at its inception. The fair value of the contingent interest derivative liability was $420,000 and $592,000 at note inception (April 16, 2021) and June 30, 2021, respectively, and is recognized as a derivative liability in the consolidated balance sheet. The change in the fair value of the derivative liability from April 16, 2021 to June 30, 2021 of $172,000 was charged to other expense for the three-month period ended June 30, 2021. The amortization of the debt discount of $420,000 recorded initially upon note inception of $22,000 was recorded as additional interest expense for the for the three-month period ended June 30, 2021.

The Company’s contractual cash obligations related to the outstanding convertible note payable is a repayment of the $10,000,000 plus accrued interest on April 16, 2025, unless converted at the option of the noteholder.