Note 6 - Convertible Promissory Note

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Debt Disclosure [Text Block]

6. Convertible Promissory Note

July 2019 Note

On July 23, 2019, the Company entered into a private placement with Orbrex (USA) Co. Limited (“Orbrex”), pursuant to which the Company issued and sold to Orbrex an unsecured convertible promissory note in the original principal amount of $1,000,000 (the “July 2019 Note”). The July 2019 Note, as amended, bared an interest rate of twenty-four percent (24%) per annum which was payable quarterly in arrears. On January 31, 2023, the Company entered into Amendment No. 3 to the July 2019 Note which extended the maturity date from January 31, 2023 to July 31, 2023 and changed the fixed conversion price to $2.87 per share. On the July 2023 maturity date, the Company entered into an Amendment No. 4 to the July 2019 Note, which extended the maturity date of the July 2019 Note to January 31, 2024 and changed the fixed conversion price to $1.07 per share.

The Company performed a debt extinguishment vs. modification analysis on the Amendment No. 3 to the July 2019 Note and determined that the extension would be considered an extinguishment, due to an increase of more than 10% to the value of the embedded conversion option. The Company determined that the fair value of the July 2019 Note after the amendment was $1,239,000 representing a $239,000 increase in its fair value. The increase will be recorded as a premium to the July 2019 Note and amortized over the remaining term.

During the three months ended March 31, 2023, the holder of the July 2019 Note converted $603,000 of the Note for 215,000 shares. The July 2019 Note matured on January 31, 2024, at which time the Company paid the outstanding balance of $398,000.

The following summarizes the July 2019 Note:

	Maturity Date	Stated Interest Rate			Conversion Price		Face Value		Debt Discount			Carrying Value
December 31, 2023	1/31/24		24	%	$	0.79	$	397,000	$	(19,000	)	$	378,000

The Note includes a down-round anti-dilution provision that lowers its conversion price if the Company sells shares of common stock or issues convertible debt at a lower price per share. In 2024, the anti-dilution provision was triggered, as noted below:

In January 2024, through multiple transactions under the At The Market Agreement with Wainwright, the Company sold shares of its common stock with an average selling price of $0.45, resulting in a triggering event lowering the conversion price of the Note to $0.38. The triggering event created an incremental value of approximately $37,000 which was treated as a discount to the carrying amount of the Note and will be amortized over its remaining term.

A Black-Scholes pricing model was utilized to determine the change in the before and after incremental value of the conversion option at each triggering event, with the following inputs:

	January 2024
Conversion price before	$	0.79
Conversion price after	$	0.38
Term (years)		0.02
Volatility		83.9	%
Dividend rate		0	%
Risk free rate		4.38	%

The Company recorded amortization expense related to triggering events for the July 2019 Note of $72,000 and $41,000 for the three months ended March 31, 2024 and 2023, respectively. Additionally, an amortization expense of $15,000 and $174,000 related to a debt premium for the July 2019 Note was recorded for the three months ended March 31, 2024 and 2023. Interest expense related to the July 2019 Note was $8,000 and $42,000 for the three months ended March 31, 2024 and 2023. When the July 2019 Note matured on January 31, 2024, the Company paid approximately $102,000 for the accrued interest payable.