Annual report pursuant to Section 13 and 15(d)

Debt

v3.23.1
Debt
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
Debt Debt
Multi-Draw Credit Agreement - Related Party
The Company’s debt with Sciences consists of the following:
As of December 31,
Conversion
Price		 2022 2021
Total principal value of convertible debt—related party $ 0.40  $ 1,848,375  $ 2,014,500 
Unamortized debt discount —  (487,668)
Unamortized debt issuance costs —  (1,927)
Carrying value of total convertible debt—related party 1,848,375  1,524,905 
Total principal value of non-convertible debt—related party n/a —  450,000 
Total carrying value of advances under the multi-draw credit agreement $ 1,848,375  $ 1,974,905 
On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party (See Note 13). 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 and deferred the quarterly payment of interest until the Company completed a capital raise of at least $5,000,000. As of August 2020, interest ceased being deferred as a result of the August 2020 Financing. 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.
On November 17, 2022, the Company entered into Amendment No. 4 with Sciences. Under the terms of Amendment No. 4, the parties agreed that the Company would prepay 25% of the outstanding principal amount equal to $616,125, plus all accrued interest of $328,737 through the date of the Amendment No. 4. In addition, the Amended Credit Agreement was amended to extend the maturity date to the earlier of December 30, 2022 or the Termination Date (as such term is defined in the Credit Agreement) and the parties agreed to use good faith efforts to enter into a customary piggyback registration rights agreement. In exchange for the extension, the Company agreed to reprice all of the outstanding Sciences warrants to $0.017 per share (Note 3).
On December 30, 2022, the Company entered into Amendment No. 5 to the Amended Credit Agreement to extend the maturity date to the earlier of (a) five business days after the closing of the sale of VDL (b) February 28, 2023 or (c) the Termination Date (as such term is defined in the Amended Credit Agreement).
Advances under the Amended Credit Agreement are unsecured and bear interest at an annual rate of 7%. At Sciences' election, convertible advances and unpaid interest may be converted into common stock at the 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 with any other amounts 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 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 that are immediately exercisable upon issuance. All of the warrants issued under the Credit Agreement had an initial exercise price of $0.50 per share which was reset to $0.017 per share in connection with Amendment No. 4. The exercise price is 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 (See Note 7).
In accounting for each advance and the warrants issued under the Amended Credit Agreement, the Company allocated the proceeds between the debt host and the freestanding warrants on a relative fair value basis for each advance. On the date of each advance, if the effective conversion rate of the debt was less than the market value of the Company’s common stock, the Company recorded a beneficial conversion feature as a discount to the debt and an increase to additional paid-in capital. The debt discounts related to the warrants, beneficial conversion features and compound derivatives, if any, are being amortized over the term of the Amended Credit Agreement using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense and the compound derivatives related to the contingent interest feature and acceleration upon default provision were remeasured at fair value in subsequent periods in the Company’s Consolidated Balance Sheets.
From November 1, 2018 to March 2019, Sciences advanced the Company an aggregate of $6,000,000 under the Credit Agreement. In connection with the advances under the Credit Agreement, the Company issued Sciences 7,500,000 warrants with an original exercise price of $0.50 per share and a term of five years. The warrants were fully vested at issuance.
During the year ended December 31, 2019, the Company used $3,985,500 in proceeds from the exercise of the 2020 Emerald Financing Warrants to prepay a portion of the outstanding principal balance. After the prepayment, the total remaining principal amount excluding discounts under the Credit Agreement was $2,014,500.
On April 29, 2020, the Company entered into an Amended and Restated Multi-Draw Credit Agreement with Sciences (the "Amended Credit Agreement"), which amended and restated the Credit Agreement, as reported in the current report on the Form 8-K filed with the SEC on April 29, 2020. During the year ended December 31, 2020, the Company received non-convertible advances of $150,000 and $300,000 pursuant to the Amended Credit Agreement. The advances bear interest at 7% per annum and mature on October 5, 2022. The net proceeds of each advance were used for general corporate purposes.
Aggregate financing costs of $63,007 have been incurred and are recorded as a discount to the debt host along with discounts recorded on the convertible advances were amortized through the original maturity date of October 5, 2022 using the effective interest rate method, interest expense related to the discounts was recognized as non-cash interest expense in Other expense within the Consolidated Statements of Operations.
For the years ended December 31, 2022 and 2021, the effective interest rate related to the convertible portion of the Amended Credit Agreement was 29.20% and 43.30%, respectively. As of December 31, 2022, the debt discount on the convertible advances was fully amortized. As of December 31, 2022, the fair value of the shares underlying the convertible advances under the Amended Credit agreement was $73,935. As of December 31, 2022, the if-converted value did not exceed the principal balance. Subsequent to year end, the Company entered into a Master Transaction Agreement with Sciences (the "MTA") that resulted in the conversion of the remaining principal balance of $1,848,375 plus accrued interest under the Amended Credit Agreement into 41,379,164 shares of common stock of the Company at a conversion price of $0.039. Refer to Note 15 - Subsequent Events for further information.
PPP Loan
On April 24, 2020, the Company received funding from the PPP Loan Lender pursuant to the PPP of the CARES Act administered by the SBA for a principal amount of $116,700. The PPP Loan had an interest rate of 1.00% per year and funds from the PPP Loan could only be used by the Company for payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before October 9, 2020.
On April 5, 2021, the Company submitted an application for the full forgiveness of the PPP Loan to the PPP Loan Lender for the full amount of the loan. On May 20, 2021, the Company received notification that the application was accepted and that the full amount of the PPP Loan including accrued interest was forgiven. During the year ended December 31, 2021, the Company has recorded a gain on forgiveness of the PPP loan in an amount of $117,953.
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 December 31, 2022, a total of $22,961 remains in prepaid expenses and the loan has been repaid.
Interest Expense
The Company’s interest expense consists of the following:
Year Ended
December 31,
2022 2021
Related party interest expense – stated rate $ 169,640  $ 174,911 
Interest Expense - insurance premium loan payable 5,896  — 
PPP loan interest expense – stated rate —  446 
Non-cash interest expense:
Amortization of debt discount 488,238  592,154 
Amortization of transaction costs 1,359  1,648 
$ 665,133  $ 769,159