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Notes Payable
 9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]  
Notes Payable

Note 7 — Notes Payable

 

During the nine months ended September 30, 2021, the Company issued senior secured convertible promissory notes to investors (“Convertible Notes”, hereafter “Amended Notes” after the amendment in March 2021), for total proceeds of $250,000. The Convertible Notes accrued interest at 10% per annum, matured at the earlier of 24 months from issuance or the Company’s next qualified equity offering of a minimum of $7.5 million, and were convertible at $3.75 per share. In connection with these Convertible Notes, the Company issued warrants to purchase the number of common shares equal to 100% of the total amount of shares issuable to the noteholders upon conversion of these Convertible Notes (77,330 shares) at the exercise price equal to $4.10 per share and additional common stock purchase warrants as a placement fee to purchase a number of shares of common stock equal to 8% of the total amount of potential new shares issued to investors (800 shares).

The grant-date fair values of these warrants were immaterial.

 

On February 3, 2021, the preferred stockholder and the holder of $2,910,710 in the Convertible Notes and Promissory Notes of the Company granted the Company an extension on all their notes to be repaid on or before July 31, 2022. This amendment was accounted for on a prospective basis under the troubled debt restructuring guidance.

 

During March 2021, the Company entered into a series of agreements with the noteholders to automatically convert $786,730 in outstanding Promissory Notes and $1,305,000 in Convertible Notes (“Amended Notes”), to common stock upon the closing of the IPO (“Conversion Agreements”), of which $1,552,683 is held by St. Laurent Investments, LLC and its affiliates. Under the terms of the Conversion Agreements, $826,020 and $1,265,710 in Amended Notes were converted at the closing of the IPO based on the $3.75 and $3.10 conversion prices, respectively. Since the automatic conversion may result in a material benefit to the noteholders, this amendment was deemed substantive and was accounted for as an extinguishment of debt. Accordingly, the Company recognized a loss on extinguishment of debt totaling $934,257 in the consolidated statement of operations in March 2021, which represents the excess of the fair value of the Amended Notes totaling $3,118,235 over their carrying value of $2,183,978. The fair value of the Amended Notes was estimated using probability weighted expected payouts under various settlement scenarios, discounted to their present value based on the estimated effective rate of return.

 

On April 29, 2021, the Company entered into an agreement with a noteholder to automatically convert an additional $50,000 in outstanding Amended Notes, including any accrued interest, to common stock upon the closing of the IPO at the conversion price of $3.75 per share.

 

The Company elected the option to account for the Amended Notes at fair value, with the changes in fair value recognized in the statement of operations.

 

At the IPO date, the Amended Notes automatically converted based on their original terms into 641,895 shares of common stock. The fair value of the Amended Notes of $3,364,198 immediately prior to the conversion, less $141,884 cash payment related to the accrued interest, was reclassified into the additional paid in capital on the condensed consolidated balance sheet. The fair value of the Amended Notes at the conversion date was estimated based on the fair value of the common stock issued upon the conversion.

 

The Company recognized a loss from the change in fair value of the Amended Notes between the end of the preceding quarterly period and their conversion at the IPO date of $193,776 during the three-month period ended September 30, 2021. The Company recognized $195,962 in the accounting loss due to the change in fair value of the Amended Notes between the amendment date and their conversion at the IPO date.

For the three months ended September 30, 2021 and 2020, interest expense was $41,066 and $72,768, respectively. For the nine months ended September 30, 2021 and 2020, interest expense was $189,993 and $211,927, respectively.