Convertible Notes Payable - Related Party |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Convertible Notes Payable - Related Party [Member] | |
| Debt Instrument [Line Items] | |
| Convertible Notes Payable - Related Party |
3. Convertible Notes Payable – Related Party
On April 16, 2021, the Company and
Richard E. Uihlein entered into a debt financing arrangement whereby Mr. Uihlein loaned $10,000,000 to Company. In consideration for
the loan, the Company issued a convertible promissory note (the “April Note”) in the principal amount of ten million dollars.
The April Note has a maturity date of April 16, 2025, is prepayable at the option of the Company in whole or in part at any time and is convertible into the Company’s common stock at a
conversion price equal to $5.00 per share at the option of the noteholder. The April Note bears interest at the rate of two percent (2%) per annum, compounded annually. For the three and nine months ended September 30, 2022, approximately $50,000 and $150,000 of interest expense, respectively, was
accrued and included with the principal in the financial statements. Inception to September 30, 2022, approximately $292,000 of
interest expense has been accrued and included with the principal balance.
The April Note also includes a contingent
interest component that requires the Company to pay additional interest at a rate of two and one-half percent (2.5%) per quarter (10% per annum) (the “Additional Interest”) beginning on the date of issuance of this Note and ending on the maturity date, provided however, that such
payment is only required if and only if the noteholder elects to convert the entire balance of the April Note into the Company’s common stock on or prior to maturity. As the contingent event is not based on creditworthiness, such feature is not
clearly and closely related to the host instrument and accordingly must be bifurcated and recognized as a derivative liability and a debt discount on the April Note at its inception. The fair value of the contingent interest derivative liability
was $420,000 and $373,000
at note inception (April 16, 2021) and September 30, 2022, respectively, and is recognized as a derivative liability in the consolidated balance sheet. The change in the fair value of the derivative
liability from December 31, 2021 to September 30, 2022 of ($122,000) was charged to
other income for the nine months ended September 30, 2022. The amortization of the debt discount of $420,000
recorded initially upon note inception of $79,000 was recorded as additional interest expense for
the for the nine months ended September 30, 2022.
On September 17, 2021, the Company and
Mr. Uihlein entered into a loan agreement in the aggregate of $20,000,000 (the “Loan Agreement”) to be funded in two closings and evidenced by two
separate unsecured convertible promissory notes. The first of the two promissory notes was also executed and delivered on September
17, 2021, (the “September Note”) to evidence the first loan in the principal amount of $10,000,000. The second closing under the Loan
Agreement for the remaining $10,000,000 occurred on December 20, 2021.
The September Note has a
maturity date of September 17, 2025, is prepayable at the option of the Company in whole or in part at any time and is convertible
into the Company’s common stock at a conversion price equal to $8.64 per share at the option of the noteholder. The September Note
bears interest at the rate of two percent (2%) per annum, compounded annually. For the three and nine months ended September 30, 2022, approximately $50,000 and $150,000, respectively, of interest expense was accrued and included with the principal in the financial statements. Inception to September 30, 2022,
approximately $207,000 of interest expense has been accrued and included with the principal balance.
The September Note also includes a contingent interest component that requires the Company to pay
additional interest at a rate of two and one-half percent (2.5%) per quarter (10% per annum) (the “Additional Interest”) beginning on the date of issuance of this Note and ending on the maturity date, provided however, that such payment is only
required if and only if the noteholder elects to convert the entire balance of the September Note into the Company’s common stock on or prior to maturity. As the contingent event is not based on creditworthiness, such feature is not clearly and
closely related to the host instrument and accordingly must be bifurcated and recognized as a derivative liability and a debt discount on the September Note at its inception. The fair value of the contingent interest derivative liability was $433,000 and $177,000 at note
inception (September 17, 2021) and September 30, 2022, respectively, and is recognized as a derivative liability in the consolidated balance sheet. The change in the fair value of the derivative
liability from December 31, 2021 to September 30, 2022 of ($73,000) was recorded to
other income for the nine months ended September 30, 2022. The amortization of the debt discount of $433,000
recorded initially upon note inception of $81,000 was recorded as additional interest expense for the nine months ended September 30, 2022.
On December 20, 2021, the second
of the two promissory notes under the Loan Agreement was executed and delivered, (the “December Note”) to evidence the second loan
in the principal amount of $10,000,000. The December Note has a maturity date of December 20, 2025, is prepayable at the option of the Company in whole or in part at any time and is convertible into the Company’s common stock at a conversion price equal
to $5.43 per share at the option of the noteholder. The December Note bears interest at the rate of two percent (2%) per annum, compounded annually. For the three and nine months ended September 30, 2022, approximately $50,000 and $150,000, respectively, of
interest expense was accrued and included with the principal in the financial statements. Inception to September 30, 2022, approximately $156,000
of interest expense has been accrued and included with the principal balance.
The December Note also
includes a contingent interest component that requires the Company to pay additional interest at a rate of two and one-half percent (2.5%)
per quarter (10% per annum) (the “Additional Interest”) beginning on the date of issuance of this Note and ending on the maturity
date, provided however, that such payment is only required if and only if the noteholder elects to convert the entire balance of the December Note into the Company’s common stock on or prior to maturity. As the contingent event is not based on
creditworthiness, such feature is not clearly and closely related to the host instrument and accordingly must be bifurcated and recognized as a derivative liability and a debt discount on the December Note at its inception. The fair value of
the contingent interest derivative liability was $415,000 and $301,000 at note inception (December 20, 2021) and September 30, 2022, respectively, and is recognized as a derivative liability in the
consolidated balance sheet. The change in the fair value of the derivative liability from December 31, 2021 to September 30, 2022 of ($85,000) was recorded to other income for nine months ended September 30, 2022. The amortization of the debt discount of $415,000 recorded initially upon note inception of $78,000
was recorded as additional interest expense for the for nine months ended September 30, 2022.
The Company’s contractual cash obligations related to the outstanding
convertible notes payable is a repayment of the April Note of the $10,000,000 plus accrued interest on April 16, 2025 and a
repayment of the September Note of the $10,000,000 plus accrued interest on September 17, 2025 and a
repayment of the December Note of the $10,000,000 plus accrued interest on December 30, 2025, unless converted at the option of
the noteholder.
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