Note 6 – 2019 Senior 8% Convertible Notes Payable

On December 15, 2020, the holders of all our outstanding 2019 Senior 8% Convertible Notes converted their notes and accrued interest into 247,088 shares of our common stock based on a conversion price of $3.60 per share, which, pursuant to the 2019 Senior Note Agreement, is a 10% discount on the public offering price of $4.00 per share received on our underwritten offering in October 2020.

During the fourth quarter of 2019, accredited investors purchased $805,000 of 8% Senior Convertible Notes (“2019 Senior Notes”) from us. For every $1,000 principal amount purchased, the note holders received 70 warrants to purchase our common stock. As a result, we granted 56,350 warrants to purchase our common stock at an exercise price of $19.04, which expire on December 19, 2023. The 2019 Senior Notes bear interest at 8% per year and if converted, the interest is payable in kind (in common stock).

We incurred $201,683 in debt issuance costs related to the 2019 Senior Notes – $4,280 in professional fees and $197,403 related to the warrants’ calculated fair value. At the time the Senior Notes were issued, management believed the warrants were to be issued to the holders only if the notes were converted into shares of common stock. However, on September 4, 2020, we discovered the warrants should have been issued at the same time the notes were issued and have subsequently been issued. We calculated the impact using the Black-Scholes valuation model and determined $197,403 should have been allocated to the warrants in December 2019. As such, we recorded $197,403 in interest expense related to the warrants for the year ended December 31, 2020. During the years ended December 31, 2020 and 2019, we also amortized $2,497 and $1,783 to interest expense for the professional fees, respectively, using straight line amortization over the term of the 2019 Senior Notes.