Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.23.3
Debt
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Debt Debt
The Company’s convertible debt consists of the following:
As of
September 30,
2023		 December 31,
2022
Total principal value of convertible note - related party, net of discount $ 5,000,000  $ — 
Total principal value of convertible multi-draw credit agreement - related party —  1,848,375 
Unamortized debt discount (831,989) — 
Unamortized debt issuance costs (23,503) — 
Carrying value of total convertible debt - related party $ 4,144,508  $ 1,848,375 
Convertible Note - Related Party
On August 15, 2023, the Company entered into a Secured Note and Warrant Purchase Agreement with MFDI, LLC (“MFDI”), pursuant to which the Company issued to MFDI a $5,000,000 secured convertible promissory note (the "Convertible Note") and a warrant to purchase 340,000 shares of common stock on August 18, 2023 (the "Convertible Note Financing") (Notes 5 & 11). The Convertible Note bears interest at a rate of 10% per annum and matures on August 18, 2024, unless earlier repurchased or converted. The Convertible Note may be converted at any time and the conversion price is fixed at $5.16. Accrued interest will be payable quarterly within 30 days of the last day of each calendar quarter. The Company may prepay the principal or interest outstanding under the Note at any time without penalty.
In accounting for the Convertible Note, the Company allocated $4,068,424 in proceeds to the debt host and $931,576 in proceeds to the freestanding warrants based on relative fair value. The debt discounts of $931,576 and $26,316 related to the warrants, and debt issuance costs, respectively, are being amortized over the term of the Convertible Note using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense in Other expense within the Consolidated Statements of Operations. In addition, the Company recorded $6,026 in equity issuance costs as a deduction to additional paid in capital in the Statements of Stockholders' (Equity) Deficit.
For the three and nine months ended September 30, 2023, the effective interest rate on the Convertible Note was 31.39%.
Bridge Loan
On July 24, 2023, the Company entered into a loan agreement in the principal amount of $250,000 (the “Bridge Loan”) with MFDI, LLC. The Bridge Loan was obtained in order to provide bridge financing for the operations of the Company until it completed the BRB Acquisition. Concurrent with the closing of the BRB Acquisition, PIPE Financing and Convertible Note Financing, the Bridge Loan was cancelled and converted into an investment in the PIPE Financing (Note 7). All interest and rights related to the Bridge Loan were concurrently cancelled.
Multi-Draw Credit Agreement- Related Party
On October 5, 2018, the Company entered into the Credit Agreement with Sciences, a related party (Note 11). Between April 29, 2020 and March 29, 2021, the Company and Sciences entered into a series of Amendments until the disbursement line was closed on September 15, 2021. The amendments were considered a modifications for accounting purposes.
Advances under the Amended Credit Agreement were unsecured and accrued interest at an annual rate of 7%. The maturity date of the Amended Credit Agreement was extended 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). The terms of the Amended Credit Agreement provided that 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. Effective February 16, 2023, upon entering the MTA, the remaining principal balance plus accrued interest was offset by the aggregate exercise price of $282,905 from the exercise of the MTA Warrants (Note 5) and the Company induced conversion by reducing the conversion price of the Amended Credit Agreement from $100.00 to $9.65. The remaining balance of $1,597,236 was converted into 165,517 shares of common stock of the Company. In connection with the induced conversion, the Company recorded a debt conversion inducement expense of $1,383,285 equal to the fair value of the incremental shares issued upon conversion.
Following the issuance of shares described above, the Amended Credit Agreement was terminated in its entirety per the terms of the MTA. Additionally, under the MTA, Sciences agreed to use its best efforts to transfer all of the common stock of the
Company held by Sciences to its shareholders on a pro-rata basis at or immediately prior to the Company's listing to a nationally recognized stock exchange, subject to compliance with applicable securities laws.
Insurance premium loan payable
On February 28, 2023, the Company entered into an annual financing arrangement for a portion of its Directors and Officers Insurance Policy (the “D&O Insurance”) with First Insurance Funding in an amount of $203,884. The loan is payable in equal monthly installments of $22,654, matures in January 31, 2024, and bears interest at a rate 4.24% per annum. As of September 30, 2023, a total of $67,961 and $22,654, remains financed in prepaid expenses and insurance premium loan payable, respectively.
Interest Expense
The Company’s interest expense consists of the following:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2023 2022 2023 2022
Related party interest expense – stated rate $ 60,274  $ 44,086  $ 76,227  $ 130,824 
Insurance premium loan payable – stated rate 2,162  1,602  5,764  4,273 
Legal judgment interest (income) expense (23,320) —  158,851  — 
Bond premium 59,930  —  59,930  — 
Premium on irrevocable letter of credit 69,861  —  69,861  — 
Other interest expense —  —  3,102  — 
Non-cash interest expense:
Amortization of debt discount 99,587  165,082  99,587  479,133 
Amortization of transaction costs 2,813  459  2,813  1,333 
$ 271,307  $ 211,229  $ 476,135  $ 615,563