Convertible Promissory Note
|12 Months Ended|
Dec. 31, 2019
|Debt Disclosure [Abstract]|
|Convertible Promissory Note||Convertible Promissory Note
On March 1, 2019, Inuvo entered into a Securities Purchase Agreement with three accredited investors (the “Purchasers”) for
the purchase and sale of an aggregate of $1,440,000 of principal of Original Issue Discount Unsecured Subordinated
Convertible Notes due September 1, 2020 (the “Calvary Notes”) to fund working capital and additional expenses resulting from
the delay in closing of the Mergers associated with the government shut down. The initial conversion price of the Calvary Notes
is $1.08 per share which would make them convertible into 1,333,333 unregistered shares of Inuvo’s common stock upon
conversion. The Calvary Notes were issued in a private placement and the shares of common stock issuable upon conversion
are restricted, subject to resale under Rule 144. The proceeds to Inuvo from the offering were $1,200,000. Inuvo did not pay
any commissions or finders fees in connection with the sale of the Calvary Notes and Inuvo utilized the proceeds for working
Consideration of Down Round price adjustment
The Notes contain certain triggers that create adjustments to the conversion ratio, which provide down round protection to the holders. Because the conversion feature has been bifurcated as an embedded derivative and is marked to fair value at each
reporting period, the actual occurrence of a trigger and the resulting adjustment to the conversion rate does not require any additional accounting treatment at the time of the price adjustment. Rather, the next fair value computation reflects the new terms of the conversion feature.
On July 15, 2019, we closed on an underwritten public offering of 13,750,000 shares at an offering price of $0.30 per share. As a result, this triggered a corresponding adjustment to the conversion ratio in the Notes to $0.30. The fair value of the embedded derivative at September 30, 2019, reflected these new terms.
On November 11, 2019, we entered into Note Modification and Release Agreements with the holders of $1,080,000 principal amount of the Calvary Notes. Under the terms of the Note Modification and Release Agreement, the parties agreed that in consideration of such noteholder’s agreement to convert a minimum of 50% of the outstanding amount of the note (the “First Conversion Amount”) that the conversion price for the First Conversion Amount would be $0.265 per share and that the conversion price for any remaining amount due under the note would be $0.30 per share, subject to future adjustment under the terms of the note including dilutive issuances at price below $0.30 per share. The agreement contains mutual general releases. These holders converted an aggregate of $765,000 due under the Calvary Notes into 2,886,792 shares of our common stock. Immediately prior to the conversion, the carrying value of the derivative was marked-to-market. Upon converting, the issued shares were recorded at their fair value of $0.29 per share. This resulted in a loss on extinguishment. Both the loss due to the marking to market and the loss on extinguishment totaling approximately $193,000 were recorded to other income, net. See Note 9 for discussion.
On November 1, 2018, the Company and CPT Investments entered into a Securities Purchase Agreement for up to $2 million
pursuant to which the Company issued and sold a $1,000,000 principal amount 10% senior unsecured subordinated convertible
promissory note ("the CPTI Note") to CPT Investments which we used for working capital. The CPTI Note, which bore interest
at the rate of 10% per annum and the principal and accrued interest was due on November 1, 2021. On June 20, 2019, the
Company entered into a Merger Termination Agreement with CPT and its affiliated companies and concurrently entered into a
Note Termination Agreement with CPT Investments as partial satisfaction of the termination fee required by the Merger
Agreement. On July 23, 2019, the Company received notice that the conditions precedent to effectiveness of the termination of
the CPTI Note were met pursuant to the Inuvo Note Termination Agreement, dated June 20, 2019, by and between the
Company and CPT Investments, and the CPTI Note has been canceled and terminated in full and rendered null and void. All
past, current, or future obligations under the CPTI Note have been extinguished. The termination of the note was recorded to
other income, net.
The entire disclosure for long-term debt.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef