8. ALPHA CAPITAL ANSTALT CONVERTIBLE NOTE (AS RESTATED)

On September 8, 2020 (the “Issue Date”), the Company entered into a $1,111,111 10% Secured Convertible Promissory Note (the “Alpha Capital Anstalt Convertible Note”) with Alpha Capital Anstalt (the “Holder”), which was issued to the Holder in conjunction with 100,000 shares of common stock (the “Alpha Capital Anstalt Commitment Shares”).

The Company collected $1,000,000 in cash from the Holder with the remainder retained by the Holder for the Original Issue Discount of $111,111. The Company recorded a debt discount related to the Alpha Capital Anstalt Commitment Shares pursuant to the transaction of $489,852 (including warrants to purchase 10,522 shares of common stock at an exercise price of $5.28 per share, which were valued at $76,237) and a beneficial conversion feature of $448,489. The beneficial conversion feature of $448,489 was recorded as a debt discount with an offsetting entry to additional paid-in capital decreasing the Alpha Capital Anstalt Convertible Note and increasing debt discount. The debt discount is being amortized to interest expense over the term of the debt. The Company promised to pay the principal amount, together with guaranteed interest at the annual rate of 10% (unless the Company defaults, which increases the interest rate to 15%), with principal and accrued interest on the Alpha Capital Anstalt Convertible Note due and payable on April 7, 2021 (the “Maturity Date”), unless converted under terms and provisions as set forth within the Alpha Capital Anstalt Convertible Note. The Alpha Capital Anstalt Convertible Note provides the Holder with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company’s common stock at a conversion price of $5.28 per share. The Alpha Capital Anstalt Convertible Note provides that the aggregate number of shares of common stock issued to the Holder under the Alpha Capital Anstalt Convertible Note shall not exceed 4.99% of the total number of shares of common stock outstanding as of the closing date unless the Company has obtained stockholder approval of the issuance (the “the Beneficial Ownership Limitation”). The Holder, upon not less than sixty-one (61) days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation; provided, that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Alpha Capital Anstalt Convertible Note held by the Holder.

On the 10th day following the Company consummating any public or private offering of any securities or other financing or capital-raising transaction of any kind (each a “Subsequent Offering”) on any date other than the Maturity Date, the Company shall, subject to the Holder’s conversion rights set forth herein, pay to the Holder in cash an amount equal to the Mandatory Prepayment Amount but in no event greater than fifty percent (50%) of the gross proceeds from the Subsequent Offering.

Immediately on and after the occurrence of any Event of Default, without need for notice or demand all of which are waived, interest on this Note shall accrue and be owed daily at an increased interest rate equal to the lesser of two percent (2.0%) per month (twenty-four percent (24.0%) per annum) or the maximum rate permitted under applicable law. In addition, in any Event of Default, the Company must pay a mandatory default amount equal to one hundred thirty percent (130%) of the sum of the outstanding principal amount of the Alpha Capital Anstalt Convertible Note at such time and all accrued interest unpaid at such time (including any Minimum Interest Amount remaining outstanding on such principal amount as of such time) and (b) all other amounts, costs, fees (including Late Fees), expenses, indemnification and liquidated and other damages and other amounts due to the Holder or any other party in respect of the Alpha Capital Anstalt Convertible Note.

The Alpha Capital Anstalt Convertible Note also contains a provision whereby the Holder is due a minimum interest amount or make whole amount meaning on any date and with respect to any principal amount owing under the Alpha Capital Anstalt Convertible Note, the difference between (a) 10% of such principal amount, representing a full year of interest payments thereunder and (b) any payment of interest made prior to such date with respect to such principal amount. To be free from doubt, the minimum interest amount is only applicable for the initial 12 month period from the Issue Date.

The Company assessed each of the above provisions in the Alpha Capital Anstalt Convertible Note under ASC Topic 815-15. The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. The following are the key assumptions that were used in connection with the valuation of the derivative identified during the period ending September 30, 2020:

The total derivative liability associated with the Alpha Capital Anstalt Convertible Note was $56,898 at September 30, 2020. The Company recorded a change in the fair value of the derivative liability of $4,761 during the three and nine months ended September 30, 2020, which is reflected in the unaudited condensed consolidated statements of operations. 

Principal of $1,111,111 remained outstanding as of September 30, 2020. Interest expense and amortization of debt discount, associated with the Alpha Capital Anstalt Convertible Note during the three and nine months ended September 30, 2020 amounted to $115,850 and $115,850, respectively. The unamortized discount related to the Alpha Capital Anstalt Convertible Note was $995,261 as of September 30, 2020.