DEBT |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
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NOTE 5 - DEBT
Short Term Loan
On February 14, 2023, the Company entered into a short-term, unsecured loan agreement to finance a portion of the Company’s directors’ and officers’, and employment practices liability insurance premiums. The note in the amount of $605,600 carries a 8.4% annual percentage rate and will be paid down equal monthly payments of $69,666, which payment began March 10, 2023. The principal balance of June 30, 2023 was $336,444.
Payne Bridge Loan
On April 3, 2023, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with the Company’s Chief Executive Officer (the“Subscriber”), pursuant to which the Company, in a private placement (the “Private Placement”), agreed to issue and sell to the Subscriber a 10% promissory note with a principal amount of $1 million (the “Note”) and a warrant (the “Warrant”) to purchase 390,000 shares of the Company’s common stock, par value $0.001 per share.
The Note will mature on October 2, 2023 and bear interest at an annual rate of 10.0%. The Company may prepay all or a portion of the outstanding Note principal and accrued and unpaid interest without any prepayment fee. The Company recorded $238,978 of interest expense related to the Note, which included $214,914 of non-cash interest of amortization of the loan discount. Each warrant is exercisable for a period of three years from issuance at a per-share exercise price equal to $2.91. The exercise price and number of the shares of our Common Stock issuable upon exercising the Warrant will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described therein.
The Warrants, which met equity classification, were recognized as a component of permanent stockholders’ equity within additional paid-in-capital on the condensed balance sheets and were recorded at the issuance date using a relative fair value allocation method. The Company valued the Warrants at issuance, which resulted in a discount on the Note, and allocated the proceeds from the loan proportionately to the Note and to the Warrants, of which $433,594 was allocated to the Warrants.
The Company determined the fair value of the Warrants as of April 3, 2023 using the Black-Scholes option pricing model and applying the following assumptions:
The effective interest rate on the Note, including the amortization of the discount was 48.96% as of June 30, 2023.
Balance sheet information related to the Note is as follows:
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