An increase or decrease in volatility or interest free rate, in isolation, can significantly increase or decrease the fair value of financial assets and liabilities. Changes in the values of the assets and liabilities are recorded as a component of other income (expense) on the accompanying consolidated statement of operations.
Non-financial assets that are measured on a non-recurring basis include our intellectual property and property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists.
NOTE 6 DEBT PAYABLE – RELATED PARTIES
During 2019 and 2020, the Company entered into six promissory note agreements with a related party pursuant to which the Company could borrow up to $2,500,000 at an annual interest rate of 5%. Borrowings pursuant to those agreements were $2,500,000 at March 31, 2021 and December 31, 2020.
During the year ended December 31, 2020, a related party provided financing of approximately $950,000 for the Company’s purchase of 7,600 tablets. Payment was due to the related party upon the closing of the Company’s IPO. There was no stated interest rate or additional repayment terms.
On December 30, 2020, the Company entered into a $2,000,000 bridge loan agreement with a related party. As of December 31, 2020, $251,654 had been funded on the bridge loan. The terms of the bridge loan included repayment of principal on or before June 30, 2021, and an annual interest rate of 18%. In addition to repayment of principal and interest under the bridge loan, the Company issued to the related party 1,260,023 shares of Common Stock. Management valued this issuance of shares at $2,000,000 and recorded that amount in interest expense.
During the year ended December 31, 2020, the Company received a cash advance of $27,154 from a related party. The cash advances carried no specified repayment term, interest rate, or security interest.
During the three-month period ended March 31, 2021, the Company entered into bridge loans totaling $250,000 with related party investors. Terms of the bridge loans with related party included repayment of principal on or before June 30, 2021, and an annual interest rate of 18%. In addition to repayment of principal and interest under the bridge loans, the Company issued 157,503 shares of Common Stock. Management valued these issuances of shares at $250,000 and recorded that amount in interest expense.
Subsequent to March 31, 2021, in April 2021, the Company entered into bridge loans with related party and non-related party investors for an additional aggregate amount of $500,000, with an 18% interest rate. In addition to paying the interest and principal, the Company issued 315,007 Common Stock shares to the bridge loan lenders. Management valued these issuances of shares at $500,000 and recorded that amount in interest expense.
All borrowings from related parties were paid in full upon completion of the Company’s IPO in May 2021.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
Generally, the Company’s cash balances, which are deposited in non-interest-bearing accounts may exceed FDIC insurance limits from time to time. The financial stability of these institutions is periodically reviewed by senior management. At March 31, 2021 and December 31, 2020, cash balances in excess of FDIC requirements were $-0- and $-0-, respectively.
Litigation, Claims, and Assessments
The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.
NOTE 8 STOCKHOLDERS’ EQUITY (DEFICIT)
Common shares issued before the IPO were recorded at estimated fair value. In May 2021, the Company completed its IPO of its Common Stock, creating liquidity and a visible fair market value for its Common Stock. The Common Stock is listed on the Nasdaq Capital Market under the symbol “ALF”.