Annual report pursuant to Section 13 and 15(d)

Convertible Notes and Derivative Liabilities

v3.20.1
Convertible Notes and Derivative Liabilities
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Convertible Notes and Derivative Liabilities

NOTE 8 - CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES

 

Convertible Notes

 

On March 29, 2019, the Company completed a bridge financing, pursuant to which the Company issued to two accredited investors convertible notes on the aggregate principal amount of $225 (the “Notes”) and seven-year warrants (the “March Warrants”) to purchase an aggregate of 90,000 shares of the Company’s common stock or Series C Preferred Stock. These warrants were initially accounted for as a derivative liability.

 

Between April and May 2019, the Company completed multiple bridge financings, pursuant to which the Company issued to two accredited investors convertible notes in the aggregate principal amount of $250 and seven-year warrants to purchase an aggregate of 100,000 shares of the Company’s common stock or Series C Preferred Stock with the same terms as the notes issued on March 29, 2019.

 

In June 2019, the Company paid off all convertible notes and interest with funds raised from an equity financing of $2,000, or Qualified Financing. The balance of the notes and interest paid off was $475 and $5, respectively. As a result, a loss of $288 was recorded on extinguishment of derivative liabilities upon payoff of convertible notes.

 

    December 31, 2019  
Convertible Notes:        
Principal value of 6% convertible notes issued during the six months ended June 30, 2019   $ 475  
Fair value of derivative liability of convertible notes prior to payoff date     122  
Debt discount less amortization during the period prior to payoff date     (410 )
Loss on extinguishment of derivative liabilities upon payoff of convertible notes     288  
Payoff of convertible notes     (475 )
Total carrying value of convertible notes at December 31, 2019   $ -  

 

Derivative Liabilities

 

On March 29, 2019 the Company issued 90,000 warrants in conjunction with the issuance of convertible debt.

 

Between April and May 2019, the Company issued 100,000 warrants in conjunction with the issuance of convertible debt.

 

These warrants were initially accounted for as a derivative liability.

 

A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s purchase warrants that were categorized within Level 3 of the fair value hierarchy during the year ended December 31, 2019 is as follows:

 

Stock price   $ 2.77 - $4.05  
Conversion price   $ 1.60 - $2.50  
Contractual term (in years)     5  
Volatility (annual)     57.7% - 62.9 %
Risk-free rate     2.23% - 2.40 %
Dividend yield (per share)     0 %

 

The foregoing assumptions were reviewed quarterly and were subject to change based primarily on management’s assessment of the probability of the events described occurring.

 

As of June 26, 2019, the Company completed a Qualified Financing, at which point the warrants exercise price is fixed and the warrants no longer require derivative treatment. The warrants were remeasured at fair value on that date and the remaining derivative liability of $196 reclassed to equity.

 

Financial Liabilities Measured at Fair Value on a Recurring Basis

 

The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:

 

Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
   
Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and
   
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

There were no transfers between Level 3 during the year ended December 31, 2019.

 

The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2019:

 

   

Derivative

Liability -

-Warrants

   

Embedded

Conversion

Feature

Derivative

Liability

   

Total

Derivative

Liabilities

 
Balance - January 1, 2019   $ -     $ -     $ -  
Liabilities     261       159       420  
Change in fair value of warrant liability     (65 )     (37 )     (102 )
Eliminate derivative treatment     (196 )     (122 )     (318 )
Balance – December 31, 2019   $ -     $ -     $ -