SecProbe.io

CORRESP
1
filename1.htm

    March
    7, 2025

Via
EDGAR

U.S.
Securities and Exchange Commission

Division
of Corporation Finance

Office
of Life Sciences

100
F Street, N.E.

Washington,
D.C. 20549

    Attn:

    Ms.
    Ibolya Ignat / Ms. Angela Connell

    Re:
    Impact
    BioMedical, INC.

    Impact
                                            BioMedical, INC.

    Form
    10-K for the fiscal year ended December 31, 2023 Filed February 20, 2024

    Form
    10-Q for the quarter ended

    File
    No. 001-42212

Dear
Ms. Ignat and Ms. Connell:

On
behalf of Impact BioMedical, INC. (the “Company”), we have set forth below responses to the comments of the staff
(the “Staff”) of the Securities and Exchange Commission (the “SEC”) contained in its letter of
February 6, 2025, with respect to the Company’s Annual Report on Form 10-K (the “Form 10-K”) and Quarterly Report
on Form 10-Q (the “Form 10-Q”) as noted above.

For
your convenience, the text of the Staff’s comments is set forth below in bold, followed in each case by the Company’s responses.
Please note that all references to page numbers in the responses are references to the page numbers in the Form 10-K a the Form 10-Q.

Form
10-Q for the Quarterly Period Ended September 30, 2024

Notes
to the Consolidated Financial Statements

Note
7. Note payable, related party, page 12

1.
We note your response to prior comment one. Your response does not address our request for an analysis under ASC 470-50-40. Accordingly,
we reissue this part of our comment. Specifically, please provide a robust analysis which explains how you evaluated the terms of the
Second Amended and Restated Promissory Note, which was effective September 16, 2024, to determine if the modification resulted in substantially
different terms which would result in extinguishment accounting. Refer to ASC 470-50-40-6 through 40-16.

Response:
In response to the Staff’s first question regarding Note 7 within the September 30, 2024, financial statements of the Company,
the Company respectfully advises the Staff to please see attached the memo written to support the accounting treatment, annexed hereto
as Exhibit A.

1185
AVENUE OF THE AMERICAS |  31ST FLOOR | NEW YORK, NY | 10036

T (212) 930-9700 | F (212) 930-9725 | WWW.SRFC.LAW

2.
In your response, you indicate that the instrument would not be considered freestanding and therefore not accounted for under ASC 480.
By “instrument”, it appears that you are referring to the option to settle your repayment obligation by issuing shares, which
you have referred to as a conversion option. It is unclear to us why your Note payable, related party, in its entirety, would not be
considered a freestanding financial instrument under ASC 480. Please advise. Please also explain your consideration of ASC 480-10-25-14(a)
which requires liability classification for an obligation to issue a variable number of shares provided that, at inception, the monetary
value of the obligation is based solely or predominantly on a fixed dollar amount. In this regard, we note that the September 2024 amendment
to the Promissory Note stipulates that any stock issued as payment under the Note should be based on a conversion ratio of $3 per share
during the first 12-month period and based on a 10-day volume-weighted average price (VWAP) thereafter. The amount of shares to be issued
to settle your repayment obligation would appear to vary after month 12 based on the volume-weighted average price of the company’s
shares.

Response:
In response to the Staff’s second question regarding Note 7 within the September 30, 2024, financial statements of the Company,
the Company respectfully advises the Staff to please see attached the memo written to support the accounting treatment, annexed hereto
as Exhibit B.

3.
In the event that you continue to believe that your Note payable, related party is not required to be accounted for as a liability at
fair value under ASC 480 but that such note will be remeasured at fair value pursuant to the election under ASC 815-15-25-4, please revise
to provide the disclosures required by ASC 825-10-50-28 through 50-32. Provide us with a draft of your intended disclosure revisions.

Response:
In response to the Staff’s third question regarding Note 7 within the September 30, 2024, financial statements of the Company,
the Company respectfully advises the Staff that the Company agrees with that the note should be accounted for under ASC 480 at fair value
(see memo at Exhibit B). Please see comments to question 4 below for further discussion.

4.
As a related matter, you indicate in your response that the disclosure in your Form 10- Q incorrectly describes your accounting for your
Note payable, related party and the related embedded derivative, but that this error does not impact the amount reported in your financial
statements. Please address the following:

    ●
    Confirm
    whether you plan to amend your September 30, 2024 Form 10-Q to correct such disclosures.

    ○
    Response:
    In response to the Staff’s fourth question, first bullet regarding Note 7 within the September 30, 2024, financial statements
    of the Company, Management does believe that the transaction is accurately accounted for within the Condensed Consolidated Balance
    Sheet, Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows. However, upon further review
    of this disclosure, which illustrates a bifurcation of the embedded derivative, Management has determined that what was disclosed
    does not adequately depict the accounting treatment of the Note payable, related party. Although the disclosure in Note 7 does not
    adequately depict the accounting treatment, no restatement is deemed needed for the period ended September 30, 2024.

    ●
    Provide
    us with a draft of the disclosures you intend to revise as it relates to the accounting for you Note payable, related party and the
    classification of the associated gain in your Statement of Operations.

    ○
    Response:
    In response to the Staff’s fourth question, second bullet regarding Note 7 within the September 30, 2024, financial statements
    of the Company, please see Exhibit C for the footnote disclosure to be utilized within the December 31, 2024 10-K filing. Further,
    this Note will be identified as a Level 2 financial instrument within the Footnote 3 – Financial Instruments.

1185
AVENUE OF THE AMERICAS | 31ST FLOOR | NEW YORK, NY | 10036

T (212) 930-9700 | F (212) 930-9725 | WWW.SRFC.LAW

    ●
    More
    clearly explain to us why the fair value of your Note payable, related party decreased from $12 million at December 31, 2023 to $8
    million at September 30, 2024 and what contributed to the gain of $5.7 million recognized in your Statement of Operations. In this
    regard, it appears that the outstanding principal balance as of September 30, 2024 s $12.9 million.

    ○
    Response:
    In response to the Staff’s fourth question, third bullet regarding Note 7 within the September 30, 2024, financial statements
    of the note in question at December 31, 2023 did not contain and optional repayment method via Company shares. The 2nd
    amendment to this note introduced this feature thus requiring a fair value analysis under ASC 825 to be performed, resulting in the
    gain recognized in the Statement of Operations.

We
trust that the above is responsive to your comments.

Should
you have any questions relating to the foregoing or wish to discuss any aspect of the Company’s filing, please contact me at (212)
930-9700.

    Sincerely,

    /s/
    Darrin M. Ocasio

    Darrin
    M. Ocasio, Esq.

    Sichenzia
    Ross Ference Carmel LLP

1185
AVENUE OF THE AMERICAS | 31ST FLOOR | NEW YORK, NY | 10036

T (212) 930-9700 | F (212) 930-9725 | WWW.SRFC.LAW

Exhibit A

MEMORANDUM

  To:
  Accounting files

  From:
  Todd D. Macko, CFO

  Date:
  December 31, 2024

  CC:
  Grassi

  Subject:
  Evaluation of Impact/DSS Loan Amendment Under ASC 470-50-40

Background

On
January 18, 2024, the Company entered into a loan agreement with the following key terms:

Original
Loan

● Start
                                            Date: January 18, 2024

● Maturity
                                            Date: September 30, 2030

● Interest
                                            Rate: WSJ Prime + 0.5%

● Payment
                                            Frequency: Monthly

● Payment
                                            Terms: Interest-only payments through February 2026; principal and interest of $126,381
                                            thereafter

● On-Demand
                                            Feature: Yes

● Payment
                                            Calculation: Cash

● Prepayment:
                                            Allowed with no penalty

On
September 16, 2024 this loan was amended to include the following key terms:

    1

Amended
Loan

● Start
                                            Date: September 16, 2024

● Maturity
                                            Date: September 30, 2030

● Interest
                                            Rate: WSJ Prime + 0.5%

● Payment
                                            Frequency: Quarterly

● Payment
                                            Terms: Interest-only payments beginning December 31, 2024; principal and interest of
                                            $126,381 beginning October 2027

● On-Demand
                                            Feature: Yes, beginning September 2026

● Payment
                                            Calculation: Cash; optional stock payment at $3 per share for first 12 months and then
                                            10-day VWAP until maturity

● Prepayment:
                                            Allowed with no penalty

● Principal
                                            Increase: Due to additional borrowings

Accounting
Analysis Under ASC 470-50-40

ASC
470-50-40 provides guidance on debt modifications and extinguishments. Specifically, ASC 470-50-40-6 through ASC 470-50-40-16 outlines
the criteria for determining whether a debt restructuring should be treated as an extinguishment or a modification.

According to ASC 470-50-40-6, a debtor should evaluate whether the terms of the amended debt are substantially different from the original
terms. The assessment includes:

 1. Present
                                            Value Test (ASC 470-50-40-10): A modification is considered an extinguishment if the
                                            present value of the cash flows under the new terms differs by at least 10% from the original
                                            debt. This test involves discounting the cash flows of both the original and amended debt
                                            using the effective interest rate of the original debt.

 2. Lender
                                            Relationship (ASC 470-50-40-6): If the amendment does not involve a change in lender
                                            or a legal defeasance of the original debt, it is more likely to be considered a modification.

 3. Changes
                                            in Payment Terms (ASC 470-50-40-8): Significant changes in payment structure, including
                                            the timing of payments, extension of maturity, and introduction of new payment mechanisms,
                                            may indicate an extinguishment.

 4. Additional
                                            Borrowings (ASC 470-50-40-15 and ASC 470-50-40-16): If additional borrowings occur alongside
                                            modifications, the increase in principal is evaluated separately from the modification assessment.
                                            The incremental borrowings are treated as a new debt instrument.

    2

Application
to the Loan Amendment

 1. Present
                                            Value Test (ASC 470-50-40-10): The core financial terms of the loan remain consistent,
                                            with the interest rate staying at WSJ Prime + 0.5%. The shift from monthly to quarterly payments
                                            and changes in the interest-only period do not result in a substantial change in the overall
                                            present value of cash flows exceeding the 10% threshold.

 2. Lender
                                            Relationship (ASC 470-50-40-6): The lender remains the same, and there is no transfer
                                            of debt to a different creditor, supporting modification accounting.

 3. Changes
                                            in Payment Structure (ASC 470-50-40-8): While payment frequency has changed, the overall
                                            economic structure of the loan is retained. The modification extends the interest-only period
                                            and changes payment timing but does not fundamentally alter the borrower’s obligations.

 4. Principal
                                            Increase (ASC 470-50-40-15 and ASC 470-50-40-16): The increase in principal is attributable
                                            to additional borrowings rather than a fundamental change in terms. As per the guidance,
                                            these additional borrowings should be accounted for as a separate debt issuance rather than
                                            as part of the modification analysis.

Conclusion

Based
on the analysis under ASC 470-50-40-6 through ASC 470-50-40-16, the loan amendment should be accounted for as a modification rather than
an extinguishment. The primary factors supporting this conclusion are:

● The
                                            present value of cash flows does not exceed the 10% threshold under ASC 470-50-40-10.

● The
                                            lender remains the same under ASC 470-50-40-6.

● The
                                            changes in payment structure under ASC 470-50-40-8 do not result in a fundamental restructuring
                                            of the debt.

● The principal increase is due to additional borrowings, which are accounted for separately under ASC 470-50-40-15 and ASC 470-50-40-16.

    3

Exhibit B

MEMORANDUM

  To:
  Accounting files

  From:
  Todd D. Macko, CFO

  Date:
  March 6, 2025

  CC:
  Grassi

  Subject:
  Evaluation of Impact/DSS Loan Amendment Under ASC 480 and ASC 815

Conclusion
on ASC 480 vs. ASC 815 (with Non-Mandatory Stock Payment):

Given
that repayment in stock is not mandatory in this loan agreement and considering the specifics of the payment options and the conversion
features, the loan would be accounted for under ASC 480 (Distinguishing Liabilities from Equity), rather than ASC 815 (Derivatives and
Hedging). Further,

ASC
480 - Distinguishing Liabilities from Equity:

 1. Liability
                                            Classification: The loan is primarily a debt instrument, as it includes a clear repayment
                                            schedule with interest payments based on the WSJ Prime Rate (which adjusts periodically).
                                            The Company (“Borrower”) has an obligation to repay the principal and interest,
                                            even if there is an option to settle in stock. Under ASC 480-10-25-14 (Distinguishing Liabilities
                                            from Equity), the standard provides that a financial instrument should be classified as liability
                                            if there is an obligation