Interesting...Financial Statements refer to them as notes.
NOTE 3 - 6% SENIOR CONVERTIBLE NOTES AND WARRANTS
The following is a summary of Senior Convertible Notes outstanding.
June 30,
2017
December 31,
2016
2016 Convertible Notes
$ 3,000,000 $ 3,000,000
2017 Convertible Notes
400,000 -
Debt Discount at issuance
(2,904,000 ) (2,551,000 )
Amortization of debt discount (cumulative)
325,000 94,000
6% Senior Convertible Notes (net)
$ 821,000 $ 543,000
During the first quarter of 2017, the board of directors authorized the issuance of up to $3 million in 6% Senior Convertible Promissory Notes and Warrants (the “2017 Convertible Notes”) in connection with the May 31, 2017 Securities Purchase Agreement (the “2017 SPA”). The 2017 Convertible Notes have a five year maturity and a fixed annual interest rate of 6%. The initial year of interest expense will be paid to the note holders on the first anniversary of each note's issuance and quarterly thereafter. Principal is due in full on each note's maturity date. The conversion rate of the notes was fixed at $0.50 per share as determined at the close of business on May 31, 2017. The investors were granted warrants to purchase an aggregate number of shares of common stock equal to 10% of the number of shares issuable upon the conversion of the notes. The warrants have a fixed exercise price of $0.50 and a ten-year term from the date of issuance. The notes were offered in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1934, as amended and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering was available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933. During the three and six month periods ended June 30, 2017, the Company issued $400,000 in 2017 Convertible Notes and 80,000 warrants.
The Company allocated $353,000 of the proceeds from the 2017 SPA to debt discount based on the computed fair value of the warrants issued, the beneficial conversion feature and the debt issuance costs. During the three and six months ended June 30, 2017 the Company recorded $1,000 in interest expense and amortization of debt discount of $6,000. As of June 30, 2017, the 2017 Convertible Notes have a face value of $400,000 and are presented net of unamortized debt discount of $347,000 related to warrants, beneficial conversion feature and debt issuance costs resulting in a carrying value of $53,000.
During the third quarter of 2016, the board of directors authorized the issuance of up to $3 million in 6% Senior Convertible Promissory Notes and Warrants (the “2016 Convertible Notes”) in connection with the August 25, 2016 Securities Purchase Agreement (the “2016 SPA”). The 2016 Convertible Notes have five year maturity dates ranging from August 2021 through December 2021 and a fixed annual interest rate of 6%. The initial year of interest expense will be paid to the note holders on the first anniversary of each note's issuance and quarterly thereafter. Principal is due in full on each note's maturity date. The conversion rate of the notes was fixed at $0.25 per share as determined at the close of business on August 25, 2016. The investors were granted warrants to purchase an aggregate number of shares of common stock equal to 10% of the number of shares issuable upon the conversion of the notes. The warrants have a fixed exercise price of $0.25 and a ten-year term from the date of issuance. The notes were offered in a private placement exempt from registration under Section 4(a)(2) of the Securities Act of 1934, as amended and Rule 506(c) of Regulation D as promulgated by the Securities and Exchange Commission. The offering was available only to “accredited investors” as defined in Rule 501(a) of Regulation D under the Securities Act of 1933.
The Company allocated $2,551,000 of the proceeds from the 2016 SPA to debt discount based on the computed fair value of the warrants issued, the beneficial conversion feature and the debt issuance costs. During the six months ended June 30, 2017 the Company recorded $89,000 in interest expense and amortization of debt discount of $225,000. During the three months ended June 30, 2017 the Company recorded $45,000 in interest expense and amortization of debt discount of $113,000. As of June 30, 2017, the 2016 Convertible Notes have a face value of $3,000,000 and are presented net of unamortized debt discount of $2,232,000 related to warrants, beneficial conversion feature and debt issuance costs resulting in a carrying value of $768,000
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