|9 Months Ended|
Sep. 30, 2021
|Debt Disclosure [Abstract]|
On August 21, 2015, the Board of Directors approved the 2015 Note Subscription Agreement (the “2015 Notes”) authorizing financing through the sale and issuance of 2015 convertible promissory notes (the “Financing”) for an aggregate amount not to exceed $1,000,000, with a maturity date of August, 25, 2017, which was derived from the issuance of the first 2015 Note, followed by an amendment on May 3, 2016, increasing the aggregate amount for issuance to $2,000,000 while leaving the maturity date unchanged. On March 2, 2017, a second amendment increased the aggregate amount for issuance to $2,500,000 and extended the maturity date to March 31, 2018. This was followed by the amendment dated January 18, 2018, increasing the aggregate amount for issuance to $3,500,000 and extending the maturity to December 31, 2018, followed by a fourth amendment dated September 6, 2018, increasing the aggregate amount for issuance to $4,500,000, with a maturity date of June 30, 2020, followed by a fifth amendment dated May 13, 2020, increasing the aggregate amount for issuance to $5,000,000, with a maturity date of December 31, 2021. The 2015 Notes convert to preferred stock in the event of a Qualified Financing, as defined in the 2015 Notes and occurring on or prior to the Maturity Date. In the event this occurs, the outstanding principal amount and all unpaid accrued interest shall automatically convert, under the terms of the 2015 Note, into the preferred stock issued under the Qualified Financing. At this time, the Company has not authorized any preferred stock. On March 22, 2021, the sixth amendment expanded the definition of a Qualified Financing of at least $2,000,000 as defined in the 2015 Notes to include either preferred stock or common stock, followed by a seventh amendment On October 7, 2021, increasing the aggregate amount for issuance to $5,500,000. All amendments were updated in accordance with the 2015 Note Subscription Agreements and approved by the Board of Directors. The Company has accounted for the sixth amendment to the 2015 Notes in accordance with ASC 470-50-40-6, (modifications and exchanges), under modification accounting and there was no impact to the financial statements as a result of the amendment to the 2015 Notes.
The sale and purchase of the 2015 Notes take place at closing on the date of the agreements. At closing, the Company will deliver to the investor the 2015 Note to be purchased by such investor, against receipt by the Company of the corresponding purchase price. The 2015 Notes will be registered in each investor’s name in the Company’s records. The 2015 Notes accrue interest payable at the rate of eight percent (8%) and the conversion price is equal to seventy percent (70%) of the per share price at which shares of preferred stock or common stock is to be sold.
During the nine months ended September 30, 2021, the Company’s assessment was that the conversion of the 2015 Notes prior to maturity in a “Qualified Financing” was the predominant feature, and the 2015 Notes would be share-settled debt at 30% discount, and as of March 31, 2021, there was less than 50% probability that a Qualified Financing would occur, therefore, the Company elected not to record any discounts since the cash repayment of principal and accrued interest at maturity was the most probable outcome.
During the three months ended June 30, 2021, the Company revised its assessment of the probability of a Qualified Financing occurring before maturity of the 2015 Notes to be greater than 50% (more likely than not) and remained consistent at September 30, 2021 . Under guidance ASC 480, the Company recorded the amount of the 2015 Notes’ 30% conversion discount of the sum of principal and accrued interest to the earliest of conversion date (if known) or maturity. As of September 30, 2021, the Company recorded approximately $1,856,000 as debt discount and accreted approximately $656,000 and $1,187,000 as interest expense during the three and nine months ended September 30, 2021.
As of September 30, 2021, the Company has $4,929,000 in 2015 Notes and $1,159,000 in accrued interest, offset by $669,000 debt discount. As of December 31, 2020, the Company has $3,369,000 in 2015 Notes, and $926,000 in accrued interest.
In 2019, the Company incurred financing fees of approximately $64,000. Under guidance ASC 835-30-35, these costs have been amortized and recognized as interest expense over the life of the 2015 Notes. During the three and nine months ended September 30, 2020, the Company amortized approximately $14,000 and $28,000 of the remaining balance as interest expense. There was no such expense during the three and nine months ended September 30, 2021.
SHORT TERM LOANS
On April 21, 2020, the Company received loan proceeds in the amount of approximately $22,000 under the Paycheck Protection Program (“PPP”), which was included in other current liabilities as of December 31, 2020. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provided for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. Following the PPP guidelines, the Company filed for loan forgiveness in February 2021 and on March 4, 2021 the Small Business Administration approved the filing and forgave the loan. The Company recognized the gain on forgiveness in other income on the statements of operations during the nine months ended September 30, 2021.
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef