I don't like the price reset, but both notes limit to 350k a month after 6 months, which is a very good restriction to include making it truly a 24 month note. Some on the first note is kicking in now, but I hope the pay one off within 6 months before both notes can be converted at 350k per month.
Quote:On June 26, 2018, the Company entered into a securities purchase agreement, pursuant to which the Company issued a convertible promissory note (the “Note”) with a two-year term to an institutional accredited investor in the initial principal amount of $5.7 million. The investor gave consideration of $5.0 million to the Company. The Note bears interest of 10% and is convertible into common stock, at $0.55 per share. The Note is convertible in total, or in part, of the outstanding balance, at any time after six months from the issue date upon five trading days’ notice, subject to certain adjustments and ownership limitations specified in the Note. The Investor may redeem any portion of the Note, at any time after six months from the issue date upon five trading days’ notice, subject to a maximum monthly redemption amount of $350,000. The securities purchase agreement requires the Company to reserve shares for future conversions or redemptions by dividing the outstanding principal balance plus accrued interest by the conversion price of $0.55 per share times 1.5.
In connection with the Note, the Company recorded debt discount of $0.6 million and debt issuance costs of $0.1 million. The discount and issuance costs will be amortized over the life of the Note, and accordingly, the Company recognized approximately $20,000 and $-0- amortization of debt issuance costs for the six months ended November 30, 2018 and November 30, 2017, respectively and approximately $118,000 and $-0- of amortization of debt discount for the six months ended November 30, 2018 and November 30, 2017, respectively.
Effective November 15, 2018, the Note was amended to allow the Investor to redeem the monthly redemption amount of $350,000 in cash or stock, at the lesser of (i) $0.55, or (ii) the lowest closing bid price of the Company’s common stock during the 20 days prior to the conversion, multiplied by a conversion factor of 85%. The variable rate redemption provision meets the definition of a derivative instrument and subsequent to the amendment, it no longer meets the criteria to be considered indexed to the Company’s own stock. As of November 15, 2018, the redemption provision requires bifurcation as a derivative liability at fair value under the guidance in ASC Topic No. 815, “Derivatives and Hedging.”
The amendment of the Note was also evaluated under ASC Topic 470-50-40, “Debt Modifications and Extinguishments.” Based on the guidance, the instruments were determined to be substantially different, and debt extinguishment accounting was applied. We recorded approximately $1.5 million as an extinguishment loss, which was the difference in the net carrying value of the Note prior to the amendment of approximately $5.4 million, and the fair value of the Note and embedded derivatives after the amendment of approximately $6.9 million. The extinguishment loss includes a write-off of unamortized debt issuance costs and the debt discount associated with the original Note. During the six months ended November 30, 2018 and November 30, 2017, the Co
