Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Debt Debt
Multi-Draw Credit Agreement- Related Party
The Company’s Debt with Sciences consists of the following:
As of September 30,
As of December 31,
Total principal value of convertible debt—related party $ 0.40  $ 2,014,500  $ 2,014,500 
Unamortized debt discount (8,535) (487,668)
Unamortized debt issuance costs (594) (1,927)
Carrying value of total convertible debt - related party 2,005,371  1,524,905 
Total principal value of non-convertible debt—related party n/a 450,000  450,000 
Total carrying value of advances under the multi-draw credit agreement $ 2,455,371  $ 1,974,905 
On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party (Note 9). On April 29, 2020, the Company entered into the Amended Credit Agreement with Sciences, which amends and restates the Credit Agreement. For all pre-existing and new advances, the Amended Credit Agreement removed the change in control as an event of default. The amendments to the pre-existing advances were accounted for as a modification.
On March 29, 2021, the Company amended the Amended Credit Agreement to defer interest payments through the earlier of maturity or prepayment of the principal balance. On September 15, 2021, the Company further amended the Amended Credit Agreement to close the disbursement line. The amendments were considered a modification for accounting purposes.
Advances under the Amended Credit Agreement are unsecured, and bear interest at an annual rate of 7% and mature on October 5, 2022 (Note 11). The Company is currently within the 30 business day grace period which expires on November 17, 2022. At Sciences’ election, convertible advances and unpaid interest may be converted into common stock at the applicable fixed conversion price of the underlying advance, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc.
The Amended Credit Agreement provides for customary events of default which may result in the acceleration of the maturity of the advances in addition to, but not limited to, cross acceleration to certain other indebtedness of the Company. In the case of an event of default arising from specified events of bankruptcy or insolvency or reorganization, all outstanding advances will become due and payable immediately without further action or notice. If any other event of default under the Amended Credit Agreement occurs or is continuing, Sciences may, by written notice, terminate its commitment to make any advances and/or declare all the advances, including accrued interest, payable due immediately. If any amount under the Amended Credit Agreement is not paid when due, such overdue amount shall bear interest at an annual default interest rate of the applicable rate plus 10%, until such amount is paid in full.
In connection with each advance under the Amended Credit Agreement, the Company has agreed to issue to Sciences warrants to purchase shares of common stock in an amount equal to 50% of the number of shares of common stock that each advance may be converted into. The warrants have a term of five years and are immediately exercisable upon issuance. Under the Amended Credit Agreement, Sciences may issue notice that no warrants will be granted at the time of the advance request. The warrants issued under the Credit Agreement have an exercise price of $0.50 per share. The exercise prices are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events or upon any distributions of assets, including cash, stock or other property to the Company’s stockholders (Note 4).
As of September 30, 2022, the unamortized debt discount on the convertible advances will be amortized over a remaining period of 0.01 years. As of September 30, 2022, the fair value of the shares underlying the convertible advances under the Amended Credit Agreement was $130,943. As of September 30, 2022, the if-converted value did not exceed the principal balance.
Insurance premium loan payable
On February 28, 2022, the Company entered into an annual financing arrangement for a portion of its Directors and Officers Insurance Policy (the “D&O Insurance”) with Marsh & McLennan in an amount of $275,537. The loan is payable in equal monthly installments of $31,149, matures on October 28, 2022 and bears interest at a rate 4.17% per annum. As of September 30, 2022, a total of $132,028 and $30,615, remains financed in prepaid expenses and loans payable, respectively.
Interest Expense
The Company’s interest expense consists of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022 2021 2022 2021
Related party interest expense – stated rate $ 44,086  $ 44,086  $ 130,824  $ 130,824 
Insurance premium loan payable - stated rate 1,602  —  4,273  — 
PPP loan interest expense – stated rate —  —  —  445 
Non-cash interest expense:
Amortization of debt discount 165,082  150,852  479,133  437,834 
Amortization of transaction costs 459  420  1,333  1,219 
$ 211,229  $ 195,358  $ 615,563  $ 570,322