Quarterly report pursuant to Section 13 or 15(d)

CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

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CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
9 Months Ended
Sep. 30, 2022
Convertible Notes Payable And Notes Payable  
CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

7. CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

 

The Company has the following outstanding notes payable as of September 30, 2022 and December 31, 2021:

 

Note   Issuance
Date
  Maturity Date   Interest
Rate
   

Original

Borrowing

   

Balance as of

September 30,

2022

   

Balance as of

December 31,

2021

 
Related party convertible note payable (A)   December 1, 2015   April 1, 2023     12.0 %   $ 1,249     $ 725     $ 725  
Related party convertible note payable (B)   April 4, 2016   June 4, 2021     12.0 %     343       40       40  
Note payable (C)   May 15, 2020   May 15, 2050     3.75 %     150       150       150  
Convertible Notes Due 2023 (D)   January 12, 2022   January 12, 2023     6.0 %   $ 6,300       3,560       -  
Debt discount                             (61 )     -  
Debt issuance costs                             (93 )     -  
Total notes payable                             4,321       915  
Non-current                             (150 )     (875 )
Current                           $ 4,171     $ 40  

 

  (A) On December 1, 2015, the Company issued a convertible note payable to Mr. Cutaia, the Company’s Chief Executive Officer and a director, to consolidate all loans and advances made by Mr. Cutaia to the Company as of that date. On May 19, 2021, the Company amended the note to allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price of $1.03, which was the closing price of the common stock on the amendment date. On May 12, 2022, the maturity date of the note was extended to April 1, 2023. As of September 30, 2022, and December 31, 2021, the outstanding balance under the note was $725.
     
  (B) On April 4, 2016, the Company issued a convertible note payable to Mr. Cutaia, in the amount of $343, to consolidate all advances made by Mr. Cutaia to the Company during the period December 2015 through March 2016. On May 19, 2021, the Company amended the note to allow for conversion of the note at any time at the discretion of the holder at a fixed conversion price of $1.03, which was the closing price of the common stock on the amendment date. As of September 30, 2022 and December 31, 2021, the outstanding balance under the note was $40.

 

 

  (C)

On May 15, 2020, the Company executed an unsecured loan with the SBA under the Economic Injury Disaster Loan program in the amount of $150. Installment payments, including principal and interest, began on October 26, 2022. Prior to September 30, 2022, the SBA approved an additional loan of $350 which is expected to be received before the end of 2022. As of September 30, 2022, and December 31, 2021, the outstanding balance of the note amounted to $150, respectively.

 

  (D)

On January 12, 2022, the Company entered into the January Note Offering, which provided for the sale and issuance of an aggregate original principal amount of $6,300 in Convertible Notes Due 2023. The Company and the January Note Holders also entered into a security agreement, dated January 12, 2022, in connection with the January Note Offering, pursuant to which the Company granted a security interest to the January Note Holders in substantially all of its assets. There are no financial covenants related to these notes payable.

 

    The Company received $6,000 in gross proceeds from the sale of the Notes. The Notes bear interest of 6.0% per annum, have an original issue discount of 5.0%, mature 12 months from the closing date, and have an initial conversion price of $3.00, subject to adjustment in certain circumstances as set forth in the Notes.
     
    In connection with the January Note Offering, the Company paid $460 of debt issuance costs. The debt issuance costs and the debt discount of $300 are being amortized over the term of the Notes using the effective interest rate method. During the nine months ended September 30, 2022, the Company amortized $239 of debt discount and $367 of debt issuance costs. As of September 30, 2022, the amount of unamortized debt discount and debt issuance costs was $61 and $93, respectively.
     
    As of September 30, 2022, and December 31, 2021, the outstanding balance of the Notes amounted to $3,560, and $0, respectively. During the nine months ended September 30, 2022, the Company repaid $2,740 in principal payments to January Note Holders pursuant to the terms of the Notes.
     
    On October 28, 2022, the Company paid $1,172 towards principal and accrued interest on the Notes. The Company and January Note Holders agreed to interest only payments with a final principal payment of $2,545 due on the maturity date.

 

The following table provides a breakdown of interest expense for the periods presented:

 

    2022     2021  
    Three Months Ended September 30,  
    2022     2021  
             
Interest expense – amortization of debt discount   $ 306     $ 497  
Interest expense – amortization of debt issuance costs     126       -  
Interest expense – other     118       28  
                 
Total interest expense   $ 550     $ 525  

 

Total interest expense for notes payable to related parties (see Notes A and B above) was $23 and $27 for the three months ended September 30, 2022 and 2021, respectively. The Company paid $0 and $78 in interest to related parties for the three months ended September 30, 2022 and 2021, respectively.

 

The following table provides a breakdown of interest expense for the periods presented:

 

    2022     2021  
    Nine Months Ended September 30,  
    2022     2021  
             
Interest expense – amortization of debt discount   $ 1,214     $ 1,537  
Interest expense – amortization of debt issuance costs     390       -  
Interest expense – other     344       92  
                 
Total interest expense   $ 1,948     $ 1,629  

 

Total interest expense for notes payable to related parties (see Notes A and B above) was $69 and $88 for the nine months ended September 30, 2022 and 2021, respectively. The Company paid $0 and $112 in interest to related parties for the nine months ended September 30, 2022 and 2021, respectively.