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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 an 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 as of September 30, 2023 was $134,578.
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 65,000 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”). The Company had the ability to prepay all or a portion of the outstanding Note principal and accrued and unpaid interest without any prepayment fee.
Each warrant is exercisable for a period of three years from issuance at a per-share exercise price equal to $17.46. 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 allocation of fair value between the Note and the Warrant was recorded at the issuance date using a relative fair value allocation method. 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:
As a result, $433,594 or the proceeds were allocated to the Warrant and the debt discount. The Warrant, which qualified for the derivatives scope exception, met equity classification, and were recognized as a component of permanent stockholders’ equity within additional paid-in-capital and as a debt discount on the condensed consolidated balance sheet. The Note matured on October 2, 2023 and bore interest at an annual rate of 10.0%. The debt discount was amortized using the effective interest rate method over the term of the Note. The effective interest rate on the Note, including the amortization of the discount was 54.0% as of September 30, 2023. In the three and nine months ended September 30, 2023, the Company recorded $504,458 of interest expense related to the Note, which included $439,594 of non-cash amortization of the loan discount. The Note was satisfied in full on October 2, 2023.
Balance sheet information related to the Note is as follows:
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