CONVERTIBLE NOTES | NOTE 3 – CONVERTIBLE NOTES A. On June 5, 2019, the Company entered into a Securities Purchase Agreement (“SPA”) with YAII PN, Ltd. (the “Investor”), pursuant to which the Investor agreed to provide the Company with a convertible loan in the aggregate amount of $1,100,000 in three tranches, and the Company agreed to issue convertible debentures and a warrant to the Investor. The first tranche of the convertible debentures in the amount of $200,000 was provided upon execution of the SPA. The second tranche in the amount of $300,000 was provided on October 23, 2019 upon the Company filing of a Registration Statement on Form S-4 in connection with the Merger with Samsara Delaware. The third tranche in the amount of $600,000 was provided on November 18, 2019 upon consummation of the Merger with Samsara Delaware and the fulfillment of all conditions required for the Merger. The Company incurred issuance cost of $100,000 with connection to those convertible debentures. In the period from loan inception through December 31, 2021, the full amount of outstanding principal and accrued interest was converted into shares of common stock. In addition, the Company issued to the Investor a warrant to purchase 13,095 shares of common stock, at an exercise price equal to $21.00. The warrants may be exercised within 5 years from the issuance date by cash payment or through cashless exercise by the surrender of warrants shares having a value equal to the exercise price of the portion of the warrant being exercised. The Company considered the provisions of ASC 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity”, with respect to the detachable warrants that were issued to the convertible loan, and determined that as a result of the “cashless exercise” and variable exercise price that would adjust the number of warrants and the exercise price of the warrants based on the price at which the Company subsequently issues shares or other equity-linked financial instruments, such warrants cannot be considered as indexed to the Company’s own stock. Accordingly, the warrants were recognized as derivative liability at their fair value on initial recognition. In subsequent periods, the warrants were marked to market with the changes in fair value recognized as financing expense or income in the consolidated statement of operations. The warrants were estimated by third party appraiser using the Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet date. The following are the data and assumptions used as of the balance sheet dates: March 31, Common stock price $ 0.6 Expected volatility 270.18 % Expected term 2.18 years Risk free rate 2.31 % Expected dividend yield 0 % Fair Market Value of Warrants $ 6 December 31, Common stock price 0.9585 Expected volatility 275.94 % Expected term 2.43 years Risk free rate 0.83 % Expected dividend yield 0 % Fair Market Value of Warrants $ 10 B. On September 3, 2020, Samsara Luggage, Inc. (the “Company”) entered into a second Securities Purchase Agreement (“SPA”) with the Investor, pursuant to which the Investor will invest an aggregate amount of $220 in two tranches, and the Company will issue convertible debentures and warrants to the Investor. The first tranche of the convertible debentures in the amount of $150 was provided upon execution of the SPA. The second tranche in the amount of $70 was provided on October 7, 2020. Each tranche of the loan bears interest at an annual rate of ten percent (10%). Each tranche of the investment bears interest at an annual rate of ten percent (10%) and will be repayable after two years. Each tranche of the investment will be convertible at any time into shares of the Company’s Common Stock at a conversion price equal to the lower of (a) $0.003 per share, or (b) 80% of the lowest the daily dollar volume-weighted average price for the Company’s Common Stock during the 10 trading days immediately preceding the conversion date. In the period from loan inception through December 31, 2021, the full amount of outstanding principal and accrued interest was converted into shares of common stock. In addition, the Company issued to the Investor a warrant to purchase 2,619 shares of common stock, at an exercise price equal to $21.00. The warrants may be exercised within 5 years from the issuance date by cash payment or through cashless exercise by the surrender of warrants shares having a value equal to the exercise price of the portion of the warrant being exercised. The Company considered the provisions of ASC 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity”, with respect to the detachable warrants that were issued to the Convertible loan, and determined that as a result of the “cashless exercise” and variable exercise price that would adjust the number of warrants and the exercise price of the warrants based on the price at which the Company subsequently issues shares or other equity-linked financial instruments, such warrants cannot be considered as indexed to the Company’s own stock. Accordingly, the warrants were recognized as derivative liability at their fair value on initial recognition. In subsequent periods, the warrants were marked to market with the changes in fair value recognized as financing expense or income in the consolidated statement of operations. The warrants were estimated by third party appraiser using the Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet dates: The following are the data and assumptions used as of the balance sheet dates: March 31, Common stock price $ 0.6 Expected volatility 267.55 % Expected term (years) 3.43 Risk free rate 2.44 % Expected dividend yield 0 % Fair Market Value of Warrants $ 1 December 31, Common stock price 0.9585 Expected volatility 275.94 % Expected term (years) 3.68 Risk free rate 1.07 % Expected dividend yield 0 % Fair Market Value of Warrants $ 2 C. On April 6, 2021, the Company entered into a third Securities Purchase Agreement (“SPA”) with YAII PN, Ltd. (the “Investor”), pursuant to which the Investor agreed to provide the Company with a convertible loan in the aggregate amount of $150 and the Company agreed to issue convertible debentures and a warrant to the Investor. The loan will bear interest at an annual rate of ten percent (10%) and will be repayable after two years. The investment will be convertible at any time into shares of the Company’s Common Stock at a conversion price equal to the lower of (a) $3.46, or (b) 80% of the lowest the daily dollar volume-weighted average price for the Company’s Common Stock during the 10 trading days immediately preceding the conversion date. In accordance with ASC 815-15-25 the conversion feature was considered embedded derivative instrument and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion feature derivative liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. The fair value of the convertible component was estimated by third party appraiser using the Monte Carlo Simulation Model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each of the issuance and balance sheet dates. The following are the data and assumptions used as of the balance sheet dates: March 31 , Common stock price $ 0.6 Expected volatility 162.97 % Expected term 1.02 Risk free rate 1.64 % Expected dividend yield 0 % Fair Market Value of Convertible component $ 89 December 31 , Common stock price $ 0.9585 Expected volatility 275.94 % Expected term 1.27 Risk free rate 1.07 % Expected dividend yield 0 % Fair Market Value of Convertible component $ 164 As part of the transaction, the Company issued to the Investor warrants to purchase an aggregate of 10,838 shares of Common Stock, at an exercise price equal to $3.46. The term of each warrant is five years from the issue date. Each warrant may be exercised by cash payment or through cashless exercise by the surrender of warrant shares having a value equal to the exercise price of the portion of the warrant being exercised. The warrants were estimated by third party appraiser using the Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each of the issuance and balance sheet dates. The following are the data and assumptions used as of the balance sheet dates: March 31 , Common stock price $ 0.6 Expected volatility 267.6 % Expected term 4.02 Risk free rate 2.43 % Expected dividend yield 0 % Fair Market Value of Warrants $ 6 December 31 , Common stock price $ 0.9585 Expected volatility 275.94 % Expected term 4.27 Risk free rate 1.07 % Expected dividend yield 0 % Fair Market Value of Warrants $ 12 D. On June 7, 2021, Samsara Luggage, Inc. (the “Company”) entered into a fourth Securities Purchase Agreement (“SPA”) with the Investor, pursuant to which the Investor will invest an aggregate amount of $1,250 in three tranches, and the Company will issue convertible debentures and warrants to the Investor, in which each tranche is convertible into shares of the Company’s common stock, par value $0.0001 (the “Common Stock”). The first tranche in the principal amount of $500 was issued on June 7, 2021. The second tranche in the principal amount of $500 was issued on July 6, 2021 following the filing of a registration statement on Form S-1 (the “Registration Statement”) under the Securities Act of 1933, as amended, registering the Conversion Shares issuable upon conversion of the Convertible Debentures with the Securities and Exchange Commission (the “SEC”). The third tranche in the principal amount of $250 was issued on September 7, 2021 following the Registration Statement being declared effective by the SEC. On September 20, 2021, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $100 into 47,887 shares of Common Stock of the Company. The fair market value of the shares was $130. On October 14, 2021, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $150 and accrued interest of $1 into 109,018 shares of Common Stock of the Company. The fair market value of the shares was $211. As of December 31, 2021 the third tranche from September 7, 2021 was fully converted into shares of Common Stock. On November 3, 2021, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $100 and accrued interest of $16 into 92,089 shares of Common Stock of the Company. The fair market value of the shares was $161. On December 20, 2021, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $75 and accrued interest of $5 into 98,538 shares of Common Stock of the Company. The fair market value of the shares was $123. On March 1, 2022, and pursuant to the SPA, YAII exercised its option to convert the Convertible Promissory Note principal in the amount of $35 and accrued interest of $6 into 97,458 shares of Common Stock of the Company. The fair market value of the shares was $56. The Convertible Debentures bear interest at a rate of 10% per annum (15% on default) and have a maturity date of one (1) year. The Convertible Debentures provide a conversion right, in which any portion of the principal amount of the Convertible Debentures, together with any accrued but unpaid interest, may be converted into the Company’s Common Stock at a conversion price equal to 80% of the lowest volume weighted average price of the Company’s Common Stock during the ten (10) trading days immediately preceding the date of conversion, subject to adjustment. The Convertible Debentures may not be converted into common stock to the extent such conversion would result in the Investor beneficially owning more than 9.99% of the Company’s outstanding Common Stock (the “Beneficial Ownership Limitation”); provided, however, that the Beneficial Ownership Limitation may be waived by the Investor upon not less than 65 days’ prior notice to the Company. The Convertible Debentures provide the Company with a redemption right, pursuant to which the Company, upon fifteen (15) business days’ prior notice to the Investor, may redeem, in whole or in part, outstanding principal and interest at a redemption price equal to the principal amount being redeemed plus a redemption premium equal to 5% of the outstanding principal amount being redeemed plus outstanding and accrued interest; however, the Investor shall have fifteen (15) business days after receipt of the Company’s redemption notice to elect to convert all or any portion of the Convertible Debentures, subject to the Beneficial Ownership Limitation. In connection with the Securities Purchase Agreement, the Company executed a registration rights agreement (the “Registration Rights Agreement”) pursuant to which it is required to file the Registration Statement with the SEC for the resale of the Conversion Shares. Pursuant to the Registration Rights Agreement, the Company is required to meet certain obligations with respect to, among other things, the timeliness of the filing and effectiveness of the Registration Statement. The Company is obligated to file the Registration Statement no later than 45 days after the First Closing Date and to have it declared effective by the SEC no later than 105 days after filing (the “Registration Obligations”). In accordance with ASC 815-15-25 the conversion feature was considered embedded derivative instrument and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion feature derivative liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. The fair value of the convertible component was estimated by third party appraiser using the Monte Carlo Simulation Model to compute the fair value of the derivative and to mark to market the fair value of the derivative at each balance sheet dates: The following are the data and assumptions used as of the balance sheet dates: March 31 , Common stock price $ 0.6 Expected volatility 94.76 % Expected term 0.19 – 0.27 Risk free rate 0.39 – 0.55 % Expected dividend yield 0 % Fair Market Value of Convertible component $ 319 December 31, Common stock price $ 0.9585 Expected volatility 86.8 – 87.57 % Expected term 0.43 – 0.51 Risk free rate 0.16 – 0.19 % Expected dividend yield 0 % Fair Market Value of Convertible component $ 331 E. On December 14, 2021, Samsara Luggage, Inc. (the “Company”) entered into a fifth Securities Purchase Agreement (“SPA”) with the Investor, pursuant to which the Investor will invest an aggregate amount of $ 500, and the Company will issue convertible debentures to the Investor. The Convertible Debenture bears interest at a rate of 10% per annum (15% on default) and has a maturity date of one (1) year. The Convertible Debenture provides a conversion right, in which any portion of the principal amount of the Convertible Debenture, together with any accrued but unpaid interest, may be converted into the Company’s Common Stock at a conversion price equal to 80% of the lowest volume weighted average price of the Company’s Common Stock during the ten (10) trading days immediately preceding the date of conversion, subject to adjustment. The Convertible Debenture may not be converted into common stock to the extent such conversion would result in the Investor beneficially owning more than 4.99% of the Company’s outstanding Common Stock; provided, however, that the Beneficial Ownership Limitation may be waived by the Investor upon not less than 65 days’ prior notice to the Company. The Convertible Debenture provides the Company with a redemption right, pursuant to which the Company, upon fifteen (15) business days’ prior notice to the Investor, may redeem, in whole or in part, outstanding principal and interest under the Convertible Debenture at a redemption price equal to the principal amount being redeemed plus a redemption premium equal to 5% of the outstanding principal amount being redeemed plus outstanding and accrued interest; however, the Investor shall have fifteen (15) business days after receipt of the Company’s redemption notice to elect to convert all or any portion of the Convertible Debenture, subject to the Beneficial Ownership Limitation. In accordance with ASC 815-15-25 the conversion feature was considered embedded derivative instrument and is to be recorded at its fair value as its fair value can be separated from the convertible loan and its conversion is independent of the underlying note value. The Company recorded finance expenses in respect of the convertible component in the convertible loan in the excess amount of the convertible component fair value over the face loan amount. The conversion feature derivative liability is then marked to market each reporting period with the resulting gains or losses shown in the statements of operations. The following are the data and assumptions used as of the balance sheet date: March 31, Common stock price $ 0.6 Expected volatility 82.33 % Expected term 0.71 Risk free rate 1.3 % Expected dividend yield 0 % Fair Market Value of Convertible component $ 204 December 31, Common stock price $ 0.9585 Expected volatility 205.2 % Expected term 0.95 Risk free rate 0.37 % Expected dividend yield 0 % Fair Market Value of Convertible component $ 522 The following table presents the changes in fair value of the level 3 liabilities for the periods ended March 31, 2022 and December 31, 2021: Warrants Convertible (U.S. dollars in thousands) Outstanding at December 31, 2021 24 1,017 Settled upon debt conversion - (4 ) Changes in fair value (10 ) (402 ) Outstanding at March 31, 2022 14 611 Warrants Convertible (U.S. dollars in thousands) Outstanding at December 31, 2021 20 493 Fair value of issued level 3 liability 21 2,064 Changes in fair value (17 ) (1,540 ) Outstanding at December 31, 2021 24 1,017 |