| LOANS AND CONVERTIBLE BRIDGE FINANCING |
| NOTE 8:- |
LOANS AND CONVERTIBLE BRIDGE FINANCING |
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a. |
On March 22, 2017, the Company received a loan for a principal amount of $162,000 from a lender according to a promissory note executed between the parties. In connection with the loan, commitment fees in the total amount of $12,000 were deducted from the consideration received. The loan bears an interest rate of 12% annually, which must be repaid in five (5) equal monthly installments, commencing on May 31, 2017 and ending on September 30, 2017, subject to any early repayment in accordance with the terms set forth in the promissory note. In addition, pursuant to the loan agreement, the lender received a five-year warrant to purchase 50,000 ordinary shares, at an exercise price of $1.50 per share. The Company classified the warrants as liabilities in the amount of $24,573 (the Company used the following assumptions: 0% dividend yield, 71% expected volatility, 2.12% risk free rate and 4.22 expected life in years). As of December 31, 2019 and 2018 the fair value of the warrants amounted to $3 and $72, respectively. The loan was fully repaid by the Company on January 2, 2018. |
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b. |
In August 2017, the Company
entered into several Securities Purchase Agreements with new investors and additional existing shareholders (all together “CLA
August 2017”), whereby the Company issued and sold to such holders senior secured convertible notes in an aggregate principal
amount of $905,555 in consideration for an aggregate subscription amount of $774,400 net of issuance costs of $40,600 and five-year
warrants to purchase 33,332 ordinary shares, at an exercise price of $1.20 and additional five-year warrants to purchase 33,332 ordinary
shares, at an exercise price of $1.00 that were granted as additional issuance costs. The Company classified the warrants as liabilities in the amount of $37,592 (the Company used the following assumptions:
0% dividend yield, 69% expected volatility,2.16% risk free rate and 4.63 expected life in years). As of December 31, 2019 and 2018,
the fair value of the warrants amounted to $32 and $266, respectively. Additional principal loan of $22,322 was provided during the
year ended December 31, 2019. |
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|
As part of the secured
convertible notes, the Company also issued a five-year warrant to purchase 905,555 ordinary shares, at an exercise price of $1.20
per ordinary share. The Company classified the warrants as in the
amount of $492,034 (the Company used the following assumptions: 0% dividend yield, 69% expected volatility, 2.16% risk free rate
and 4.64 expected life in years). As of December 31, 2019 and 2018, the fair value of the warrants amounted
to $22,027 and $35,802, respectively. |
The notes include a 10% original issue
discount on the consideration paid and bear interest at 6% per annum. The notes mature after 14-24 months and may be converted into ordinary
shares, subject to the terms of such notes. The initial conversion price of the notes was $1.00, but it was adjusted in January 2018 to
$0.50 and further adjusted in October 2018 to $0.17. The Company accounted for the convertible loan in accordance with ASC 470-20, Debt
with conversion and other Options. According to ASC 470-20-30-8, since the intrinsic value of the beneficial conversion feature (“BCF”)
exceeds the entire proceeds of the convertible loan, The Company allocated the entire proceeds to the BCF as additional paid in capital.
During 2019 and 2018, $98,865 and $59,207 of the convertible notes were converted into 576,270 and 178,689 ordinary shares, respectively.
In June 2020, $35,145 of the convertible notes were converted into 206,735 ordinary shares and in January and February 2021, $84,758
of the convertible notes were converted into 498,578 ordinary shares. The Company may require mandatory conversion of the notes in certain
circumstances and pay the convertible note in cash upon event of fundamental transaction and change of control transaction as described
in the convertible note agreement.
In connection with the convertible
loan agreement signed in October 2018 as described in section d. below, the holders of CLA August 2017 agreed to extend the original maturity
date in additional 24 months. In addition, the Company issued to certain holders of CLA August 2017 four-year warrants to purchase 1,659,971
ordinary shares at an exercise price of $0.17. The Company classified
the warrants as liabilities in the amount of $42,591 (the Company used the following assumptions: 0% dividend yield, 59.69% expected volatility,
2.96% risk free rate and 3.75 expected life in years). As of December 31, 2019 and 2018, the fair value of the warrants amounted to $11,522
and $66,004, respectively.
The CLA August 2017 was required to
be repaid by October 2020. This lender did not exercise its conversion right under the convertible loans prior to the repayment date and
therefore became repayable in cash as such time. The Company did not timely repay such loan due to financial difficulties and therefore
the Company is currently in default under this agreement.
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c. |
On March 8, 2018, the Company entered into a Share Purchase Agreement with existing shareholders (“CLA March 2018”), pursuant to which the shareholders provided the Company an 18 month convertible loan in an aggregate principal amount of $150,000 and received from the Company warrants to purchase 400,000 ordinary shares at an exercise price of $0.50 per ordinary share. The loan amount is convertible into ordinary shares at a conversion price of $1.00 per ordinary share. The loan amount bears interest of 5% per annum. The warrants may be exercised, in whole or in part, for a period of five (5) years. Such warrants were classified as equity due to their nature, their fair value upon issuance date was $214,996 (the Company used the following assumptions: 0% dividend yield, 59.69% expected volatility, 2.65% risk free rate and 5 expected life in years). In connection with the loan agreement, both parties also agreed that in case the ordinary share fair value will be lower than $1.00 as of December 31, 2018, the Company will compensate the shareholders with additional warrants to purchase 200,000 ordinary shares with the same terms, such additional grant was realized and on December 31, 2018 the Company issued such warrants. Those additional warrants were recorded as liability as of March 8, 2018 in the amount of $82,748 (the Company used the following assumptions: 0% dividend yield, 59.69% expected volatility, 2.51% risk free rate and 5 expected life in years), upon their issuance date. As of December 31, 2018 the fair value of the warrants amounted to $4,314 (the Company used the following assumptions: 0% dividend yield, 59.69% expected volatility, 2.51% risk free rate and 5 expected life in years) and were reclassified to equity due to their nature.
The CLA March 2018 was required to be repaid by September 2019. This lender did not exercise its conversion right under the convertible loans prior to the repayment date and therefore became repayable in cash as such time. The Company did not timely repay such loan due to financial difficulties and therefore the Company is currently in default under this agreement.
|
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d. |
On May 8, 2018, the Company entered into a Share Purchase Agreement
with existing shareholders (“CLA May 2018”), pursuant to which the shareholders provided the Company with an 18 month convertible
loan in an aggregate principal amount of $170,000 and received from the Company warrants to purchase 170,000 ordinary shares at an exercise
price of $0.50 per ordinary share. The loan amount is convertible into ordinary shares at a conversion price of $1.00 per ordinary share.
The loan includes a 10% original issue discount and bears interest of 6% per annum. In accordance with the accounting guidance on convertible
instruments, the BCF of $15,300 was recognized in additional paid in capital. The warrants may be exercised, in whole or in part, for
a period of five (5) years. Such warrants were classified as equity due to their nature, their fair value upon issuance date amounted
to $65,718 (the Company used the following assumptions: 0% dividend yield, 59.69% expected volatility, 2.80% risk free rate and 5 expected
life in years).
The CLA May 2018 was required to be repaid by November 2019. This lender
did not exercise its conversion right under the convertible loans prior to the repayment date and therefore became repayable in cash as
such time. The Company did not timely repay such loan due to financial difficulties and therefore the Company is currently in default
under this agreement.
|
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e. |
On October 10, 2018,
the Company entered into a Convertible Loan Agreement with an existing investor who invested relatively low amounts previously (“CLA
October 2018”). Pursuant to this Agreement, the investor provided the Company with a convertible loan in an aggregate principal
amount of $1,000,000 at an exercise price as defined in the convertible loan agreement but no less than $0.17. The convertible loan bears
an interest rate at Israeli prime plus 4% per annum. Under the terms of the CLA October 2018, the investor was granted an option to lend
the Company an additional amount up to $2,000,000, (“Additional Loan Amount”) and also issued the investor a warrant to purchase
ordinary shares for an aggregate purchase price of $5,000,000, and an additional warrant conditioned upon the investment of an additional
Loan Amount to purchase ordinary shares for an aggregate purchase price of up to $5,000,000 calculated pro-rata to the amount out of the
Additional Loan Amount provided.
In March, April, August and December 2019
such investor invested additional amounts of $500,000, $500,000, $100,000 and $150,000, respectively on the account of the account of
the Additional Loan Amount (“CLA March-December 2019”). The Company determined that the $100,000 CLA received in August 2019
contained a BCF of $21,445 and recorded such BCF in the additional paid in capital in the year ended December 31, 2019. The Company also
issued the investor for the entire $1,250,000 additional investments mentioned above a warrant to purchase ordinary shares for an aggregate
purchase price of $3,125,000. Such convertible loans bears same terms as the CLA October 2018.
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|
The CLA October
2018 and the CLA March-December 2019 were required to be repaid by October 2020. This lender did not exercise its conversion right under
the convertible loans prior to their repayment date and therefore became repayable in cash as such time. The Company did not timely repay
such loans due to financial difficulties and therefore the Company is currently in default under those agreements.
The option to lend the Additional Loan Amount,
the warrants and the additional warrants classified as liability. The fair value of all those instruments aggregated to $500,741 as of
October 10, 2018 (the Company used the following assumptions: 0% dividend yield, 59.69% expected volatility, 2.82% risk free rate and
2 expected life in years). As of December 31, 2019 and 2018, the fair value of all the warrants amounted to $916,403 and $490,000, respectively.
In July 2020, this investor invested additional
$16,748 on the account of the Additional Loan Amount and the Company granted the investor warrants to purchase ordinary shares for an
aggregate purchase price of $83,740. The terms of that convertible loan and the associated warrants are the same as provided to the CLA
November 2018.
On December 31, 2019, the Company and GTRIMG entered
into a memorandum of understanding, or the MOU, pursuant to which GTRIMG agreed to provide additional loans to the Company and GTRIMG
would receive additional Warrants. The MOU also provided for certain amendments to the existing Convertible Loan Agreement. The Company
agreed to adopt a forecast, providing that, during 2020 grants, plus revenues, plus convertible loans (other than those received from
GTRIMG) less liabilities on the balance sheet as of December 31, 2019 should not be less than $2,500,000, or the Management Minimum Forecast,
out of which $1,250,000 shall be available in our bank account as of March 31, 2020, or the Target. Under the MOU, GTRIMG agreed to provide
an additional loan as of the execution of the MOU in the amount of $150,000 under the existing Convertible Loan Agreement, or the Initial
MOU Loan.
In addition, the MOU provides that if the C fail
to meet the Target, then: (a) the Company’s valuation for purposes of all investments after January 1, 2018 shall be $2.0 million
pre-money as of such date, thereby reflecting a price per share of $0.068, and (b) GTRIMG shall make loans to the Company of $100,000
per month for a period of 12 months commencing April 1, 2020, and under the same terms as the Convertible Loan Agreement, as adjusted
under (a) above, or the Additional MOU Loans; provided, that following each six month period, GTRIMG may review whether the Company has
complied with the Management Minimum Forecast as defined therein, and if it was not met for any six month period (beginning with the six
month period ended June 30, 2020), then, three months after such review, GTRIMG may determine not to fund additional amounts.
Furthermore, under the MOU, the Company agreed
to call a meeting of shareholders within 15 days of the date of the MOU in order to approve (i) the transactions contemplated by the MOU,
(ii) an amendment to the articles of association of the Company to provide that GTRIMG may appoint a number of directors as shall reflect
its holding should the Target not be met (assuming all convertible loans are converted) and (iii) an increase in authorized share capital
as necessary. The Company also agreed to immediately appoint a representative of GTRIMG as chairman of the board of directors.
In January 2020, GTRIMG made the Initial MOU Loan.
In March 2021, the Company directors
received a notice before legal action letter from GTRIMG’s lawyer associated with their previous agreements (including the MOU
mentioned above). The main request derives from this letter is to convert all the CLA so far at a price per share of $0.068. Due to
the early stage of this letter, we are in a process of assessing its consequences.
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f. |
On November 10, 2018, the Company entered into
several convertible loan agreements with existing shareholders (“CLA November 2018”), whereby they provided the Company with
a convertible loan in an aggregate principal amount of $225,000. The convertible loans bear an interest rate at Israeli prime plus 4%
per annum. Under those agreements, the Company issued the lenders warrants to purchase ordinary shares for an aggregate purchase price
of $1,125,000. The conversion price for both the loan amount and the warrants is defined in the convertible loan agreement but no less
than $0.17.
The granted warrants classified as liability at the issuance date, their fair value aggregated to $79,227 (the Company used the following assumptions: 0% dividend yield, 59.69% expected
volatility, 2.87% risk free rate and 2 expected life in years). As of December 31, 2019 and 2018, the fair value of the warrants amounted
to $50,510 and $78,796, respectively.
The CLA November 2018 was required to be repaid by November 2020. This
lender did not exercise its conversion right under the convertible loans prior to the repayment date and therefore became repayable in
cash as such time. The Company did not timely repay such loan due to financial difficulties and therefore the Company is currently in
default under this agreement.
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g. |
On December 29, 2018, the Company entered into
a convertible loan agreement with a new investor (“CLA December 2018”), whereby they provided the Company with a convertible
loan in an aggregate principal loan amount of $400,000. The convertible loan bears an interest rate at Israeli prime plus 4% per annum.
Under this agreement, the Company issued the lender warrants to purchase ordinary shares for an aggregate purchase price of $2,000,000.
As part of the CLA December 2018 the Company paid
a finder’s fee of $40,000 and issued a five-year warrant commencing February 2019 to purchase ordinary shares for an aggregate purchase
price of $240,000. The conversion price for both the loan amount and the warrants is defined in the convertible loan agreement but no
less than $0.17.
The warrants issued to the new investor were classified
as a liability. At the issuance date their fair value aggregated to $180,281, (the Company used the following assumptions: 0% dividend
yield, 59.69% expected volatility, 2.48% risk free rate and 2 expected life in years). As of December 31, 2019 and 2018, the fair value
of the warrants amounted to $107,602 and $151,858, respectively.
The warrants issued as a finder’s fee compensation
were classified as a liability. At the issuance date their fair value aggregated to $45,327, (the Company used the following assumptions:
0% dividend yield, 59.69% expected volatility, 2.51% risk free rate and 5 expected life in years). As of December 31, 2019 and 2018, the
fair value of the warrants amounted to $49,100 and $45,342, respectively.
The CLA December 2018 was required to be repaid by December 2020. This
lender did not exercise its conversion right under the convertible loans prior to the repayment date and therefore became repayable in
cash as such time. The Company did not timely repay such loan due to financial difficulties and therefore the Company is currently in
default under this agreement.
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h. |
In January, February and April 2019, the Company
entered into several convertible loan agreements with existing shareholders (“CLA January-April 2019”), whereby they provided
the Company with a convertible loan in an aggregate principal amount of $200,000. The convertible loans bear interest at Israeli prime
plus 4% per annum. Under those agreements, the Company issued to lenders warrants to purchase ordinary shares for an aggregate purchase
price of $1,000,000. The conversion price for all the loan amount and the warrants is defined in the convertible loan agreement but no
less than $0.17.
The granted warrants classified as liability.
At the issuance date, their fair value aggregated to $98,377 (the Company used the following assumptions: 0% dividend yield, 59.69% expected
volatility, 2.11% risk free rate and 2 expected life in years) and $61,541 as of December 31, 2019.
The CLA January-April 2019 were required to be
repaid by CLA January-April 2021. This lender did not exercise its conversion right under the convertible loans prior to the repayment
date and therefore became repayable in cash as such time. The Company did not timely repay such loan due to financial difficulties and
therefore the Company is currently in default under those agreements.
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i. |
In August, September and December 2019, the Company
entered into several convertible loan agreements with a new investor and existing shareholders (“CLA August-December 2019”),
whereby they provided the Company with a convertible loan in an aggregate principal amount of $475,000. The convertible loans bear an
interest rate at Israeli prime plus 4% per annum. Under those agreements, the Company issued the lenders warrants to purchase ordinary
shares for an aggregate purchase price of $2,375,000. The conversion price for all the loan amount and the warrants is defined in the
convertible loan agreement but no less than $0.17.
The granted warrants classified as liability at the issuance date, their fair value aggregated to $409,668 (the Company used the following assumptions: 0% dividend yield,
54.50% expected volatility, 1.60% risk free rate and 2 expected life in years) and $227,998 as of December 31, 2019.
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j. |
The fair value of the warrants issued as part of the convertible loan agreements (“CLA”) along with finder’s fees as applicable were bifurcated out of the principal loans. Commencing with the grant dates the Company is calculating the accretion back to the principal amount during the CLA period along with the related interest and record them financial expenses in connection with convertible loans’ as part of the financial expenses (income), net line item within the statement of operations. |
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The Company’s CLA’s presented as part of its current and non-current liabilities as of December 31, 2019 as follows: |
| Type of CLA |
|
Original
principal
loans
amounts |
|
|
Additional principal loans provided |
|
|
Loans
already
converted |
|
|
Remaining
principal
loans
amount |
|
|
Converted
through |
|
|
Loans
presented
as of
December 31,
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CLA August 2017(*) |
|
$ |
905,555 |
|
|
$ |
22,322 |
|
|
$ |
(141,211 |
) |
|
$ |
786,666 |
|
|
|
2020 |
|
|
$ |
896,799 |
Refer to Note 8b |
| CLA March 2018(*) |
|
|
150,000 |
|
|
|
- |
|
|
|
- |
|
|
|
150,000 |
|
|
|
2019 |
|
|
|
163,406 |
Refer to Note 8c |
| CLA May 2018(*) |
|
|
170,000 |
|
|
|
- |
|
|
|
- |
|
|
|
170,000 |
|
|
|
2019 |
|
|
|
204,118 |
Refer to Note 8d |
| CLA October 2018(*) |
|
|
1,000,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
2020 |
(***) |
|
|
875,630 |
Refer to Note 8e |
| CLA November 2018(*) |
|
|
225,000 |
|
|
|
- |
|
|
|
- |
|
|
|
225,000 |
|
|
|
2020 |
(***) |
|
|
205,636 |
Refer to Note 8f |
| CLA December 2018(*) |
|
|
400,000 |
|
|
|
- |
|
|
|
- |
|
|
|
400,000 |
|
|
|
2020 |
(***) |
|
|
310,188 |
Refer to Note 8g |
| CLA January-April 2019(**) |
|
|
200,000 |
|
|
|
- |
|
|
|
- |
|
|
|
200,000 |
|
|
|
2021 |
(***) |
|
|
155,062 |
Refer to Note 8h |
| CLA March-December 2019(**) |
|
|
1,250,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,250,000 |
|
|
|
2020 |
(****) |
|
|
1,243,739 |
Refer to Note 8e |
| CLA August-December 2019(**) |
|
|
475,000 |
|
|
|
- |
|
|
|
- |
|
|
|
475,000 |
|
|
|
2021 |
(***) |
|
|
136,412 |
Refer to Note 8i |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
4,775,555, |
|
|
$ |
22,322 |
|
|
$ |
(141,211 |
) |
|
$ |
4,656,666 |
|
|
|
|
|
|
$ |
4,190,990 |
|
|
(*) |
Aggregated to $3,899,516 and presented
within the current liabilities |
|
(**) |
Aggregated to $291,474 and presented
within the non-current liabilities |
|
(***) |
Structured as a 24 month- convertible
loan or less in case of a Public Offering (“PO”) event |
|
(****) |
The due date for those convertible
loans is October 2020 or earlier in case of a PO event |
|