Convertible notes payable consisted of the following:

As part of the Company’s financing activities, the Company issued convertible notes payable in exchange for cash. These notes payable are unsecured, bears interest at a rate of 10% per annum matures in six months up to one year from the date of issuance and convertible to common stock at an average conversion rate of $19.65 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. As of December 31, 2018, outstanding balance of these notes payable amounted to $10,673,000.

During the year ended December 31, 2019, the Company issued similar notes payable in the aggregate of $3,827,000 in exchange for cash. These notes payable are unsecured, bears interest at a rate of 10% per annum matures in six months up to one year from the date of issuance and convertible to common stock at an average conversion rate of $5.74 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. The Company also determined that certain of these notes payable contained a beneficial conversions feature (BCF) cost of $158,000 since these notes’ were issued when the trading price of the Company’s stock was greater than the average conversion price of $5.74 per share. The BCF was accounted as a debt discount and is being amortized over the corresponding term of the notes payable to interest expense. In addition, during 2019, notes payable of $1,502,000 were converted to 205,000 shares of common stock and the Company amortized the debt discount of $505,000.

As of December 31, 2019, outstanding balance of these notes payable issued for cash amounted to $12,998,000 and unamortized debt discount of $91,000.

During the year ended December 31, 2020, the Company issued similar notes payable in the aggregate of $12,531,000 in exchange for cash. These notes payable are unsecured, bears interest at a rate of 10% per annum matures in six months up to one year from the date of issuance and convertible to common stock at a conversion rate of $3.40 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions. The Company also determined that certain of these notes payable contained a beneficial conversions feature (BCF) cost of $4,745,000 since certain of these notes’ were issued when the trading price of the Company’s stock was greater than the average conversion price of $3.40 per share. The BCF was accounted as a debt discount and is being amortized over the corresponding term of the notes payable to interest expense. In addition, during 2020, notes payable of $1,444,000 plus accrued interest were converted to 478,510 shares of common stock and the Company amortized the debt discount of $317,000.

In addition, in June 2020, the Company entered in a forbearance agreement with certain noteholders of past due notes payable in the aggregate of $13.2 million (see discussion at “C”).

As of December 31, 2020, outstanding balance of these notes payable issued for cash amounted to $24,085,000 and unamortized debt discount of $4,519,000.

During the year ended December 31, 2019, the Company issued notes payable of $300,000 as part of a debt settlement agreement. The notes are unsecured, bears interest at a rate of 10%, matures in six months up to one year from the date of issuance and convertible to common stock at a conversion rate of $10.20 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions.

As of December 31, 2019, outstanding balance of notes payable issued for settlement agreements amounted to $300,000.

During the year ended December 31, 2020, the Company entered into settlement agreements with certain parties such as Empery Asset Master Ltd., Empery Tax Efficient, LP, Empery Tax Efficient II, LP, Adam Kasower, East Ventures, Inc., SV Booth Investments III, LLC, and Theorem Group, LLC to resolve claims and disputes pertaining to certain debt and equity instruments issued by the Company to these parties in prior years.

As part of the agreement, the Company agreed to the following considerations:

Pursuant to current accounting guidelines, the Company recorded a loss of $5,384,000 to account the cash paid and the fair value of debt and equity instruments issued in these settlement agreements.

As of December 31, 2020, outstanding balance of these notes payable for settlement agreements amounted to $2,528,000.

On June 23, 2020, the Company entered into Standstill and Forbearance Agreements (collectively, the “Forbearance Agreements”) with the holders of $13.2 million aggregate principal amount of the Convertible Notes (the “Default Notes”), which are currently in default. Pursuant to the Forbearance Agreements, the holders of the Default Notes have agreed to forbear from exercising their rights and remedies under the Default Notes (including declaring such Default Notes (together with any default amounts and accrued and unpaid interest) immediately due and payable) until the earlier of (i) the date that the Company completes a future financing in the amount of $15 million and, in connection therewith, commences listing on NASDAQ (collectively, the “New Financing”) or (ii) January 31, 2021 (the “Termination Date”).

The obligations of the holders to forbear from exercising their rights and remedies under the Default Notes pursuant to the Forbearance Agreements will terminate on the earliest of (i) the Termination Date, (ii) the date of any bankruptcy filing by the Company or its subsidiaries, (iii) the date on which the Company defaults on any of the terms and conditions of the Forbearance Agreements or (iv) the date the Forbearance Agreements are otherwise terminated or expire.

In exchange for the forbearance agreement, the Company agreed to the following considerations:

In accordance with ASC 450-70, modifications or exchanges are considered extinguishments with gains or losses recognized in current earnings if the terms of the new debt and original instrument are substantially different. The instruments are considered “substantially different” when the present value of the cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. Pursuant to ASC 470, the Company accounted the forbearance transaction as an extinguishment of debt which acquires the measurement of the modified debt and additional consideration to be at fair value.

The Company determined the fair value of amended notes payable and warrants at the date of the agreement to be $28,976,000. The fair value of the host component of the notes payable was determined by discounting the future cash flows related to the notes at a market rate of interest. The conversion features of the notes payable were determined using a Monte Carlo valuation which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the conversion features, and future dividends. The fair value of the warrants was determined using a binomial option pricing model. The incremental difference between the old debt deemed extinguished and the fair value of the new debt recognized amounted to $8,643,000 and was accounted loss on forbearance agreement and additional paid in capital. In addition, the Company also accounted the issuance of the new notes payable of $3,955,000 as part of loss on forbearance agreement for a total loss of $12,598,000.

In addition, during 2020, notes payable of $106,000 plus accrued interest were converted to 33,369 shares of common stock.

As of December 31, 2020, outstanding balance of the notes payable amounted to $3,849,000. 

During the year ended December 31, 2020, the Company issued notes payable of $360,000 in exchange for consulting services. The notes are unsecured, bears interest at a rate of 10%, matures in one year from the date of issuance and convertible to common stock at a conversion rate of $3.40 per share, subject to certain beneficial ownership limitations (with a maximum ownership limit of 4.99%) and standard anti-dilution provisions.

As of December 31, 2020, outstanding balance of these notes payable amounted to $360,000.

As of December 31, 2020, total outstanding convertible notes payable that are matured and past due amounted to $16,824,000.

On February 11, 2021, all outstanding notes payable in the aggregate of $32 million and accrued interest of $5.5 million were converted to 11million shares of common stock (see Note 12)