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Notes Payable
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Notes Payable Notes Payable
2019 Term Loan
During 2019, the Company entered into term loan subscription agreements with certain accredited investors, pursuant to which the Company issued secured promissory notes (the “Notes”) in the aggregate principal amount of approximately $5.7 million. The Company paid $707,000 in debt issuance costs which was recorded as a debt discount to be amortized as interest expense over the term of the loan using the straight-line method.
The Notes accrue interest at a rate of 12.0% per annum. Interest is payable quarterly with the first interest payment to be made on December 28, 2019, and each subsequent payment every three months thereafter.
The unpaid principal balance of the Notes, plus accrued and unpaid interest thereon, will mature on the earliest to occur of: (i) June 28, 2020 (subject to extension for up to sixty (60) days based upon the mutual agreement of the Company and the holders of a majority of the unpaid principal balance of all outstanding Notes) or (ii) at any time following an Event of Default.
The Notes may not be prepaid without the prior written consent of the holders of the Notes. The Notes are secured by a first lien and security interest on all the assets of the Company and certain of its wholly owned subsidiaries.

On December 28, 2019, the Company defaulted on the initial interest payment on the loan and the interest rate per annum increased to the default rate of 15%.
The Company recognized approximately $382,000 and $771,000 in interest expense related to Notes for the three and six months ended June 30, 2020 including $171,000 and $347,000 related to the amortization of debt issuance costs. The Company recognized $1,000 in interest expense related to the Notes for the three and six months ended June 30, 2019.
As of June 30, 2020, the Company has recorded approximately $5.7 million of debt related to the principal on the notes and $746,000 in accrued interest on the accompanying balance sheet. The Company is currently in default on the repayment of principal and interest on the notes.
2020 Term Loan

On February 5, 2020, the Company entered into a Securities Purchase Agreement accredited investors pursuant to purchase: (i) original issue discount unsecured Convertible Promissory Notes (the “Notes”), issued at a 10% original issue discount, for a total purchase price of $499,950, and (ii) warrants to purchase up to such number of shares of the common stock of the Company as is equal to the product obtained by multiplying 1.75 by the quotient obtained by dividing (A) the principal amount of the Notes by (B) the then applicable conversion price of the Notes.

The maturity date is the six (6) month anniversary of the original issue date, or August 5, 2020, or such earlier date as the Note is required or permitted to be repaid as provided thereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of the Note. Interest shall accrue to the Holders on the aggregate unconverted and then outstanding principal amount of the Notes at the rate of 10% per annum, calculated on the basis of a 360-day year and shall accrue daily commencing on the original issue date until payment in full of the outstanding principal (or conversion to the extent applicable), together with all accrued and unpaid interest, liquidated damages and other amounts which may become due thereunder, has been made.

On or after May 5, 2020 until the Notes are no longer outstanding, the Notes shall be convertible, in whole or in part, at any time, and from time to time, into shares of Common Stock at the option of the noteholder. The conversion price shall be the lower of: (i) $0.50 per share of Common Stock and (ii) 70% of the volume weighted average price of the Common Stock on the trading market on which the Common Stock is then listed or quoted for trading for the prior ten (10) trading days (as adjusted for stock splits, stock combinations and similar events); provided, that if the Notes are not prepaid on or before May 5, 2020, then the conversion price shall be the lower of (x) 60% of the conversion price as calculated above or (y) $0.05 (as adjusted for stock splits, stock combinations and similar events). The conversion price of the Notes shall also be adjusted as a result of subsequent equity sales by the Company, with customary exceptions.

The exercise price of the Warrants shall be equal to the conversion price of the Notes, provided, that on the date that the Notes are no longer outstanding, the exercise price shall be fixed at the conversion price of the Notes on such date, with the exercise price of the Warrants thereafter (and the number of shares of Common Stock issuable upon the exercise thereof) being subject to adjustment as set forth in the Warrants. The warrants have a 5 year term.

The Company recorded a discount related to the warrants of approximately $322,000, including a discount of $30,000 and issuance costs of $53,000 based on the relative fair value of the instruments as determined by using the Monte-Carlo simulation model. The Company also recorded a debt discount related to the convertible debt of approximately $21,000 and debt issuance cost of $38,000 using the relative fair value method to be amortized as interest expense over the term of the loan using the straight-line method.

On June 15, 2020, the Company defaulted on certain covenants in the 2020 term loan and the interest rate reset to the default rate of 18%.

The Company recognized $35,000 and $55,000 in interest expense related to the notes for the three and six months ended June 30, 2020, respectively including $18,000 and $30,000 related to the amortization of debt issuance costs. The Company amortized $171,000 and $276,000 of debt discount for the three and six months ended June 30, 2020, respectively.
As of June 30, 2020, the Company has recorded $551,000 of debt and approximately $67,000 and $7,000 in unamortized discount and issuance costs, respectively on the accompanying balance sheets. The Company is currently in default on the repayment of principal and interest on the notes.
Secured Promissory Note
On June 26, 2020, the Company issued to an existing investor in the Company a 10% original issue discount Senior Secured Convertible Promissory Note for a purchase price of $52,500. The Note matures on the date that is the six (6) month anniversary of the original issue date. Interest shall accrue on the aggregate unconverted and then outstanding principal amount of the Note at the rate of 10% per annum, calculated on the basis of a 360-day year. The Company recorded approximately $14,000 in debt issuance cost to be amortized over the life of the loan using the straight-line method.

On or after September 24, 2020, the Note shall be convertible, in whole or in part, into shares of common stock of the Company at the option of the noteholder at a conversion price of $0.02 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered. The conversion price shall also be adjusted as a result of subsequent equity sales by the Company. Because the share price on the commitment date was in excess of the conversion price, the Company recorded a beneficial conversion feature of $50,000 related to this note that was credited to additional paid in capital, and reduced the carrying amount. The discount recorded is being amortized to interest expense over the life of the loan using the straight-line method.

The obligations of the Company under the Note are secured by a senior lien and security interest in all of the assets of the Company and certain of its wholly-owned subsidiaries pursuant to the terms and conditions of a Security Agreement dated June 26, 2020 by the Company in favor of the noteholder. In connection with the issuance of the Note, the holders of the secured promissory notes that the Company issued to select accredited investors between June 28, 2019 and August 5, 2019 in the aggregate principal amount of approximately $5.7 million agreed to subordinate their lien and security interest in the assets of the Company and its subsidiaries as set forth in the Security Agreement dated June 28, 2019 that such holders entered into with the Company and its subsidiaries to the security interest granted to the holder of the Note.

For the three and six month period ended June 30, 2020 the Company recognized approximately $850 in interest expense including $750 related to the amortization of debt issuance costs. For the three and six month period ended June 30, 2020 the Company recognized $2,000 related to the amortization of debt discount.

As of June 30, 2020 the Company has recorded approximately $58,000 in debt and $53,000 and $13,000 in unamortized debt discount and issuance cost respectively.