Convertible Notes Payable
|9 Months Ended|
Sep. 30, 2022
|Debt Disclosure [Abstract]|
|Convertible Notes Payable||
The Company issues convertible notes in exchange for cash. The notes typically do not bear any interest; however, there is an implied interest rate of 10% since the notes are typically issued at a 10% discount. The notes are unsecured, and usually mature twelve months from issuance. The notes are convertible at the option of the note holder into shares of the Company’s common stock at a conversion price stipulated in the conversion agreement. In addition, the note holders receive warrants to purchase shares of common stock that are fully vested upon issuance and expire one year from the date of issuance. As a result, the Company records a note discount to account for the relative fair value of the warrants, and original issue discount of 10% (OID). The note discounts are amortized over the term of the notes.
As of December 31, 2021, total outstanding notes payable and accrued interest totaled $1,589,000. During the nine-month period ended September 30, 2022, the Company issued convertible promissory notes in the aggregate of $432,000 for cash proceeds of $393,000, net of OID of $39,000. Also during the nine-month period ended September 30, 2022, convertible notes and accrued interest of $58,000 were converted into shares of common stock, and accrued interest of $115,000 was recorded. As of September 30, 2022, total outstanding convertible notes payable and accrued interest totaled $2,078,000. As of September 30, 2022, a total of thirty-two convertible notes in the aggregate of $1,590,000 including accrued interest have reached maturity and are past due.
The $432,000 of convertible notes issued in 2022 have implied interest rate was 10%, mature in twelve months from issuance, and are convertible into shares of the Company’s common stock at $0.03 per share. In addition, the Company also granted these note holders warrants to purchase 14,409,995 shares of the Company’s common stock. The warrants are fully vested, exercisable at $0.04 per share and expire one year from the date of issuance.
As of December 31, 2021, unamortized note discount totaled $86,000. During the nine-month period ended September 30, 2022, the Company recorded $283,000 of note discount for the relative fair value of warrants issued with convertible notes, and $39,000 discount for OID. Also during the nine-month period ended September 30, 2022, the Company recorded amortization of note discount of $90,000, and $38,000 of note discount related to converted notes was removed and included in the carrying amount of the convertible notes upon conversion. As of September 30, 2022, unamortized discount totaled $280,000.
As of September 30, 2022, the convertible notes payable and accrued interest are convertible into 0.02 to $0.48 per share.shares of common stock at conversion rates ranging from $
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