Note 8 - Notes Payable
|9 Months Ended|
Sep. 30, 2022
|Notes to Financial Statements|
|Debt Disclosure [Text Block]||
Bridge Note from John K. Scott, Jr.
On April 10, 2022, the Company entered into a Purchase Agreement with John K. Scott, Jr., the current Vice Chairman of our Board of Directors, pursuant to which Mr. Scott agreed to make a loan to the Company in the principal amount of up to $2.5 million, of which $1.5 million was funded on the closing date. Mr. Scott funded an additional $1.0 million on July 1, 2022. The outstanding balance of the loan, which is evidenced by a Bridge Note, bears interest at a rate of 8% per annum, with payments of interest only to be made monthly over a period ofyears. All outstanding principal and accrued and unpaid interest under the Bridge Note is due and payable on the second anniversary of the Purchase Agreement. The Company’s obligations under the Bridge Note are secured by a first priority security interest in all of the Company’s assets and personal property pursuant to a Security Agreement. See Note 11.
As consideration and partial inducement for Mr. Scott to enter into the Bridge Note, the Company exchanged all 50,000 shares of Mr. Scott’s Series E Redeemable Convertible Preferred Stock (“Series E Preferred Stock”) for 1,740 shares of Series F Preferred Stock and 3,260 shares of Series G Redeemable Preferred Stock (“Series G Preferred Stock”). In accordance with current accounting guidance, the Company recorded a debt discount of $835,876 including $821,250 related to the difference in the value of Mr. Scott’s Series E Preferred Stock and the Series F and Series G Preferred Stock and $14,626 of debt issuance costs. The debt discount is being amortized as non-cash interest expense using the effective interest method over the term of the Bridge Note. The balance of the debt discount was $708,999 as of September 30, 2022.
Interest expense related to the Bridge Note totaled $100,696 and $183,878 during the three-month and nine-month periods ended September 30, 2022, respectively. The principal balance of the Bridge Note was $2.5 million as of September 30, 2022.
In November 2020, we prepaid $442,041 of insurance premiums through the issuance of a note payable to IPFS Corporation (“IPFS”) with an interest rate of 3.5%. The note was payable inmonthly installments of $63,888, with the final payment made in June 2021. In November 2021, we prepaid $565,760 of insurance premiums through the issuance of a note payable to IPFS with an interest rate of 4.36%. The note was payable in monthly installments of $114,388, with the final payment made in April 2022.
Interest expense related to the IPFS notes payable totaled $0 during the three-month periods ended September 30, 2022 and 2021. Interest expense related to the IPFS notes payable totaled $4,126 and $3,883 during the nine-month periods ended September 30, 2022 and 2021, respectively. The balance of the IPFS note was $0 as of September 30, 2022.
During the three-month periods ended September 30, 2022 and 2021, we recorded interest expense of $100,696 and $0, respectively, related to our notes payable. During the nine-month periods ended September 30, 2022 and 2021, we recorded interest expense of $188,004 and $3,883, respectively, related to our notes payable.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef