Convertible Notes | Note 5 - Convertible Notes February 29, 2020 November 30, 2019 Convertible Notes Payable, current: Principal value of 2018 Debenture $ 1,765,000 $ 2,730,000 Fair value of bifurcated contingent put option 4,000 74,000 Debt discount (33,000) (61,000) Carrying value of 2018 Debenture 1,736,000 2,743,000 Principal value of 2019 August Debenture 550,000 550,000 Debt discount (35,000) (50,000) Carrying value of 2019 August Debenture 515,000 500,000 Total carrying value of convertible notes payable, current $ 2,251,000 $ 3,243,000 Convertible Notes Payable, long-term: Principal value of 2019 October Debenture $ 500,000 $ 500,000 Fair value of bifurcated contingent put option 8,000 29,000 Debt discount (69,000) (82,000) Carrying value of 2019 October Debenture 439,000 447,000 Principal value of 2019 December Debenture 1,000,000 — Fair value of bifurcated contingent put option 107,000 — Debt discount (146,000) — Carrying value of 2019 December Debenture 961,000 — Principal value of 2020 January Debenture 1,000,000 — Fair value of bifurcated contingent put option 107,000 — Debt discount (150,000) — Carrying value of 2020 January Debenture 957,000 — Total carrying value of convertible notes, long-term $ 2,357,000 $ 447,000 During the quarter ended February 29, 2020, the Company raised approximately $2.0 million from issuance of various debentures (the “Debentures”). The Debentures have a maturity date of June 6, 2021. The Debentures bear interest at the rate of 5.5% per annum, and on issuance, the Company paid to the holder a commitment fee equal to 2.5% of the amount of the Debentures. The Debentures may be converted at any time on or prior to maturity at the lower of $3.00 or 93% of the average of the four lowest daily VWAPs during the 10 consecutive trading days immediately preceding the conversion date, provided that as long as we are not in default under the Debenture, the conversion price may never be less than $2.00. Any time after the six-month anniversary of the issuance of the Debentures that the daily VWAP is less than $2.00 for a period of twenty consecutive trading days (the “Triggering Date”) and only for so long as such conditions exist after a Triggering Date, the Company shall make monthly payments beginning on the last calendar day of the month when the Triggering Date occurred. Each monthly payment shall be in an amount equal to the sum of (i) the principal amount outstanding as of the Triggering Date divided by the number of such monthly payments until maturity, (ii) a redemption premium of 20% in respect of such principal amount and (iii) accrued and unpaid interest hereunder as of each payment date. The Company may, no more than twice, obtain a thirty-day deferral of a monthly payment due as a result of a Triggering Date through the payment of a deferral fee in the amount equal to 10% of the total amount of such monthly payment. Each deferral payment may be paid at the option of the Company in cash or by the issuance of such number of shares as is equal to the applicable deferral payment divided by a price per share equal to 93% of the average of the four lowest daily VWAPs during the 10 consecutive Trading Days immediately preceding the due date in respect of such monthly payment being deferred, provided that such shares issued will be immediately freely tradable shares in the hands of the holder. Upon issuance of the Debentures, the Company recognized a debt discount of approximately $331,000, resulting from the recognition of issuance costs of $35,000 and a bifurcated embedded derivative of $296,000. The monthly payment provision within the Debentures is a contingent put option that is required to be separately measured at fair value, with subsequent changes in fair value recognized in the Condensed Consolidated Statement of Operations. The fair value estimate is a Level 3 measurement. The Company estimated the fair value of the monthly payment provision by estimating the probability of the occurrence of a Triggering Date and applying the probability to the discounted maximum redemption premium for any given payment with the following key inputs: January 15, 2020 December 6, 2019 Strike price $ 3.00 $ 3.00 Terms (years) 1.4 1.5 Volatility Risk-free rate Dividend yield The fair value of the monthly payment provision in all outstanding debentures with the feature are revalued as of February 29, 2020 based on the following key inputs: February 29, 2020 Strike price $1.00 - $3.00 Terms (years) 1.0 Volatility 101% Risk-free rate 1.0% Dividend yield 0% Debt Conversion The following table summarizes debt conversion during the three months ended February 29, 2020: Principal value of 2018 Debenture $ 965,000 Accrued interest 85,000 Fair value of bifurcated contingent put option 86,000 Sub-total $ 1,136,000 Fair value of common stock issued (974,871 shares) $ 1,136,000 Interest expense Interest expense, included in the accompanying Condensed Consolidated Statements of Operations, is comprised of the following for each period presented: For the Three Months ended February 29, 2020 February 28, 2019 Interest expense based on the coupon interest rate of the outstanding debt $ 107,000 $ 55,000 Accretion of debt discount 91,000 236,000 Total interest expense $ 198,000 $ 291,000 |