Debt |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Text Block] |
Note 7. Debt Notes Payable In December 2017, the Company issued a promissory note to an individual for $300,000 of borrowings for operating capital leading up to the Company’s public offering in January 2018. The note had a maturity of 30 days, an annual interest rate of 40%, and was paid in full at maturity in January 2018 including interest of $45,000. The note was personally guaranteed by Joseph Gamberale , a board member of the Company at the time.In May 2018, the Company issued a promissory note to an individual for $90,000 of borrowings for operating capital. The note had a maturity of June 30, 2018, an annual interest rate of 6%, and was paid in full in June 2018, including interest of $625. The note was secured by our common shares in SuckerPunch..
On May 9, 2018, the Company borrowed $200,000 from an individual pursuant to a promissory note. The note bears interest at 40% annually and initially matured on June 25, 2018. In June 2018, the note holder agreed to extend the maturity to December 31, 2018. In September 2018, the Company agreed to issue the note holder 200,000 [10,526] common shares with a fair value of $58,000 and 50,000 [2,632] warrants with an exercise price of $0.29 [$5.51], term of 5 years, and Black-Scholes fair value of $8,500, which is a component of stock based compensation, in exchange for the note holder’s agreement to convert all interest under the loan into common stock and extend the note to December 31, 2018. Mr. Gamberale personally guaranteed the note and Mr. Gamberale and Mr. Tracy agreed to subordinate their existing notes to the repayment of this note. Interest expense for the year ended December 31, 2018 was approximately
$50,000.
Convertible Notes Payable On June 28, 2018, the Company entered into an SPA with SCWorx, under which the Company agreed to sell up to $1.0 million in principal amount of convertible notes and warrants to purchase up to 671,142 [35,323] shares of common stock. The notes were originally convertible into shares of common stock at a conversion price of $0.3725 [$7.0775] and bore interest at 10% annually. The warrants were originally exercisable for shares of common stock at an exercise price of $0.3725 [$7.0775].
Under the SPA, SCWorx agreed to fund (i) $500,000 at the initial closing, (ii) a second tranche of $250,000 upon the signing of a business combination agreement with the Company and (iii) a third tranche of $250,000 upon mutual agreement of the Company and SCWorx. On December 18, 2018, SCWorx agreed to increase the total amount of principal from $1.0 million $1.25 million and to reduce the conversion price of the final $500,000 installment of the aggregate $1,250,000 note purchase to $0.20 [$3.80] per share. The warrant exercise price for the related warrants to purchase 625,000 [32,895,] shares was reduced to $0.30 [$5.70] per share.
Pursuant to the SCWorx SPA, during 2018, the Company sold SCWorx convertible notes in the principal amount of $1,035,000 and warrants to purchase an aggregate of 859,606 [45,242] shares of common stock, for an aggregate purchase price of approximately $1,035,000. The note for $750,000 bears interest at 10% annually and matures on July 31, 2019. This note was amended in January 2019 to reduce the conversion price to $0.215 [$4.09] per share. The related warrant to acquire 503,356 [26,492] common shares has an exercise price of $0.3725 [$7.0775], a term of five years and was vested upon grant. The note for $275,000 has a conversion price of $0.20 [$3.80], bears interest at 10% annually and matures on June 22, 2019. The warrant to acquire 356,250 [18,750] common shares has an exercise price of $0.30 [$5.70], a term of five years and was vested upon grant.The Company has accounted for the amendment of its convertible promissory notes as a modification, not an extinguishment, under GAAP.
Warrants Liability The Company has recorded a derivative warrant liability in relation to the contingent put option upon the occurrence of a “fundamental transaction”, as defined. The fair value of the derivative warrant liability (and related debt discount) at the date of issuance was determined using the Black-Scholes option pricing model, which was deemed not to be materially different than the fair value as would have been determined using an open simulation model such as the Monte Carlo. The Black-Scholes model uses a combination of observable inputs (Level 2) and unobservable inputs (Level 3) in calculating fair value.
The assumptions used to measure the fair value of the warrants as of their issuance date and as of December 31, 2018 were as follows:
The values of the derivative warrant liability at issuance and as of December 31, 2018 were $147,000 and $88,000, respectively, resulting in a gain on change in fair value of $59,000.
Derivative Liability The Company has recorded a derivative liability in relation to the contingent put option within its convertible note agreements, upon the occurrence of a “fundamental transaction”, as defined. The fair value of the derivative liability (and related debt discount) at the date of issuance was determined using the Black-Scholes option pricing model, which was deemed not to be materially different than the fair value as would have been determined using an open simulation model such as the Monte Carlo. The Black-Scholes model uses a combination of observable inputs (Level 2) and unobservable inputs (Level 3) in calculating fair value.
The assumptions used to measure the fair value of the derivatives as of their related convertible notes’ issuance date and as of December 31, 2018 were as follows:
The values of the derivative liability at issuance and as of December 31, 2018 were $9,000 and $13,800, respectively, resulting in a loss on change in fair value of $4,400.
Additional Information The SCWorx acquisition closed on February 1, 2019 and the principal and accrued interest converted in to shares of the Company’s common stock.
The Company applied a portion of the proceeds from the note to repay the aforementioned $90,000 promissory note. Accordingly, the lien on the capital stock of SuckerPunch Entertainment was released.
Interest expense, for borrowings under the various SCWorx notes, for the year ended December 31, 2018 was approximately $108,000.
The Company recorded non – cash interest expense in the amounts of $45,000 and $4,700 in relation to amortization of debt discount on the warrants and derivative liabilities, respectively.
Related Party Promissory Notes On April 10, 2018, the Company borrowed a total of $300,000 from two of its former board members, Joseph Gamberale and Joel Tracy, pursuant to promissory notes of $150,000, respectively. The notes bear interest at 12% annually and matured May 21, 2018. Mr. Gamberale personally guaranteed Mr. Tracy’s note. Interest expense for the year ended December 31, 2018 was approximately
$12,000 for the note with Mr. Gamberale and $14,000 for Mr. Tracy’s note.
On May 21, 2018 Mr. Gamberale agreed to extend the maturity to August 31, 2018. The repayment of this note was subordinate to the $200,000 promissory note of May 9, 2018. In July 2018, Mr. Gamberale agreed to convert his note to common shares (at a rate of $.3725 [$7.0775] per share) and warrants (25% warrant coverage with an exercise price of $.3725 [$7.0775] per share) (same as the original terms of the first $750,000 of the SCWorx investment). In October 2018, this arrangement was amended and Mr. Gamberale chose to participate in the Series A Preferred Stock placement. As of the date of this report, the note and accrued interest has been converted into shares of the Company’s Series A Preferred Stock and related warrants.On May 21, 2018 Mr. Tracy agreed to extend the maturity to December 31, 2018. In November, Mr. Tracy chose to participate in the Series A Preferred Stock placement. As of the date of this report, the note and accrued interest has been converted into shares of the Company’s preferred stock.
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