Private Placement and JH Darbie Financing

9 Months Ended

Sep. 30, 2020

Private Placement And Jh Darbie Financing

Private Placement and JH Darbie Financing

NOTE 6 - PRIVATE PLACEMENT AND JH DARBIE FINANCING

During the three months ended September 30, 2020, the Company entered into subscription agreements with certain accredited investors pursuant to the JH Darbie Financing, whereby the Company issued and sold a total of 53 Units, for total gross proceeds of approximately $2.65 million or $2.31 million, net of fees paid to JH Darbie pursuant to the Darbie Placement Agreement, with each Unit consisting of:

■ 25,000 shares of Edgepoint Common Stock for a price of $1.00 per share of Edgepoint Common Stock.

■ One convertible promissory note, convertible into up to 25,000 shares of Edgepoint Common Stock, at a conversion price of $1.00 per share or up to 138,889 shares of the Company’s Common Stock, at a conversion price of $0.18 per share.

■ 50,000 warrants to purchase an equivalent number of shares of Edgepoint Common Stock at $1.00 per share or an equivalent number of shares of the Company’s Common Stock at $0.20 per share with a three-year expiration date.

As of September 30, 2020, funds received under the JH Darbie Financing, net of debt discount, consist of the following amounts:

	September 30, 2020
Convertible promissory notes
Subscription agreements - accredited investors	$	612,892
Subscription agreements – related party		33,274
Total convertible promissory notes	$	646,166

The Company incurred approximately $0.4 million of issuance costs, including legal costs of approximately $39,000, that are incremental costs directly related to the issuance of the various instruments bundled in the offering.

Concurrently with the sale of the Units, JH Darbie is granted, for nominal consideration, a warrant, exercisable over a five-year period, to purchase such number of Units equal 10% of the number of Units sold in the JH Darbie Financing. The Company granted 5.3 Units to JH Darbie pursuant to the Darbie Placement Agreement.

The terms of convertible notes are summarized as follows:

■ Term: June 30, 2021.

■ Coupon: 16%.

■ Convertible at the option of the holder at any time in the Company’s Common Stock or Edgepoint Common Stock.

■ The conversion price is initially set at $0.18 per share for the Company’s Common Stock or $1.00 for Edgepoint Common Stock, subject to adjustment.

The Company allocated the proceeds among the freestanding financial instruments that were issued in the single transaction using the relative fair value method, which affects the determination of each financial instrument initial carrying amount. The Company utilized the relative fair value method as none of the freestanding financial instruments issued as part of the single transaction are measured at fair value. Under the relative fair value method, the Company makes separate estimates of the fair value of each freestanding financial instrument and then allocates the proceeds in proportion to those fair value amounts. The Company recorded non-controlling interests of approximately $1 million in Edgepoint. Non-controlling interests represent the portion of net assets in consolidated entities that are not owned by the Company and are reported as a component of equity in the unaudited condensed consolidated balance sheets. 

The Company recorded an initial debt discount of approximately $0.6 million representing the intrinsic value of the conversion option embedded in the convertible debt instrument based upon the difference between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

The Company recognized amortization expense related to the debt discount and debt issuance costs of $162,267 for the three and nine months ended September 30, 2020 respectively, and $0 for the three and nine months ended September 30, 2019, respectively, which is included in interest expense in the condensed statements of operations.