XML 22 R12.htm IDEA: XBRL DOCUMENT v3.23.1
Notes Payable
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
NOTES PAYABLE

4. NOTES PAYABLE

 

2017 Notes Payable

 

In 2017, the Company entered into multiple Unit Purchase Agreements (the “Financing”) whereby the Company issued 106 Units. Each Unit consisted of 100 shares of Series A redeemable, convertible preferred stock (“Series A”) at a purchase price of $100 per share and $10,000 in notes payable (the “Notes”). The Company defaulted on certain Notes issued in 2017 with aggregate principal amount of $1,060,000 in January 2021. On February 17, 2021, the Company repaid in cash $268,000 in principal and $2,010 in accrued interest on the Notes. On May 26, 2021, the remaining Notes of $580,000 were amended and restated (the “Amended Notes”). The Amended Notes accrue no interest and were due in May 2023. On June 8, 2021, the Amended Notes were automatically convertible into 580,000 shares of common stock at the conversion rate of $1.00 per share upon the issuance by the Company of securities to Sabby Volatility Warrant Master Fund, Ltd (“Sabby”) (the “Sabby Agreement”). The amendment and subsequent conversion of the Notes was accounted for as the debt settlement in equity under ASC 470-60 Troubled Debt Restructurings by Debtors. The Company recognized a gain on extinguishment of $6,360, equal to the difference between the carrying amount of the Amended Notes at the conversion date, totaling $586,360, and the fair value of the common stock shares issued to the noteholders of $580,000. This gain on extinguishment is included in other income on the consolidated statement of operations for the year ended December 31, 2021. For the year ended December 31, 2021 the interest expense on the Notes was $6,360.

 

The allocation of the gross proceeds from the Financing resulted in recording a premium on the Notes of $583,349. The premium is amortized over the term of the Notes. As a result of the event of default in January 2021 and the Notes becoming due on demand, the Company accelerated the amortization of the premium and discount and amortized the remaining balances during the three-month period ended March 31, 2021. The Company recognized the amortization of the premium of $145,837 as a reduction to non-cash interest expense during the year ended December 31, 2021. The premium amortization was included within interest income (expense) on the consolidated statements of operations.

 

In connection with the Financing, the Company paid $183,194 in issuance costs of which $91,597 was recorded as a discount on the Notes and is being amortized over the term of the Notes. The remaining $91,597 was netted with the proceeds allocated to Series A (see Note 7). The Company recognized the amortization of the discount of $22,899 as non-cash interest expense during the year ended December 31, 2021. The discount amortization was included in the interest income (expense) on the consolidated statements of operations.

 

2020 Subordinated Notes

 

On October 22, 2020, the Company issued $154,000 in subordinated promissory notes (“Subordinated Notes”) to the Company’s stockholders, including $30,000 to Lana Management and Business Research International, LLC (“LMBRI”). The Subordinated Notes accrued interest at 8% payable at each quarter end and had a maturity date of March 31, 2021. The Company defaulted on the Subordinated Notes on March 31, 2021, and the Subordinated Notes started to accrue 15% penalty interest starting on the date of default. For the year ended December 31, 2021 interest expense on the Subordinated Notes was $7,443. In conjunction with the issuance of the Subordinated Notes, the Company issued to each noteholder warrants to purchase shares of the Company’s common stock (“Subordinated Note Warrants”) totaling 4,846,688 Common Stock Warrants, of which 944,160 were issued to LMBRI. The allocation of the proceeds to the Subordinated Note Warrants resulted in a discount to the Subordinated Notes of $148,892. The Company amortized this discount through non-cash interest expense using the effective interest method, of which $83,752 was amortized during the year ended December 31, 2021, and included in the interest income (expense) in the consolidated statement of operations.

 

On June 7, 2021, the holders of $132,383 in principal of the Subordinated Notes elected to exercise their warrants into 4,166,357 shares of common stock, with the principal from the Subordinated Notes applied to the exercise price of the warrants. The remaining $21,617 principal amount of the Subordinated Notes was repaid in cash in 2021.