Notes Payable

9 Months Ended

Sep. 30, 2022

Debt Disclosure [Abstract]

Notes Payable

Note 7. Notes Payable

December 2020 Note

On December 8, 2020, the Company entered into a securities purchase agreement pursuant to which it issued a convertible promissory note (the “December 2020 Note”) in the principal amount of $230 which is convertible, at the option of the holder, into shares of common stock at a conversion price equal to 70% of the lowest price for a share of common stock during the ten trading days immediately preceding the applicable conversion. The Company received consideration of $200 for the convertible promissory note. The note bears interest at a rate of 8% per annum and matures in twelve months.

The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company measured the beneficial conversion feature’s intrinsic value on December 8, 2020 and determined that the beneficial conversion feature was valued at $200 which was recorded as a debt discount, and together with the original issue discount of $30, in the aggregate of $230, is being amortized over the life of the loan. The Company measured the derivative liability’s fair value on December 8, 2020 and determined that the derivative liability was valued at $555 which exceeded the intrinsic value of the beneficial conversion feature by $355 and resulted in the Company recording non-cash interest expense of $355.

On June 15, 2021, the holder converted $120 of principal into 4,761,905 shares of common stock valued at $238. As a result of this conversion, $172 of derivative liability was settled, $86 unamortized debt discount was settled and $32 was recorded as loss on settlement of debt.

On July 27, 2021, the holder converted the remaining $110 of principal and $11 of accrued interest into 6,673,384 shares of common stock valued at $280. As a result of this conversion, $153 of derivative liability was settled, $66 unamortized debt discount was settled and $72 was recorded as loss on settlement of debt. As of December 31, 2021, this note had no outstanding balance.

March 2021 Note

On March 5, 2021, the Company entered into a securities purchase agreement with Bucktown Capital, LLC (the “Investor”), pursuant to which the Company issued a convertible promissory note in the original principal amount of $13,210 (the “March 2021 Note”). The March 2021 Note was convertible, at the option of the Investor, into shares of common stock of the Company at a conversion price equal to 70% of the lowest price for a share of common stock during the ten trading days immediately preceding the applicable conversion (the “Conversion Price”); provided, however, in no event was the Conversion Price to be less than $0.04 per share. The March 2021 Note bore interest at a rate of 8% per annum and will mature in twelve months.

The March 2021 Note was to be funded in tranches, with the initial tranche of $1,210 funded on March 5, 2021 for consideration of $1,000. Six subsequent tranches (five tranches, each for $1,200 and one tranche for $6,000) were to be funded upon the notice of effectiveness of a Registration Statement on Form S-1 covering the common stock issuable in connection with the March 2021 Note. Further, the final tranche required the mutual agreement of the Company and Investor. Until such time as Investor funded the subsequent tranches, the Company would hold a series of Investor Notes that offset any unfunded portion of the March 2021 Note.

The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature. The Company measured the beneficial conversion feature’s intrinsic value on March 5, 2021 and determined that the beneficial conversion feature was valued at $1,000 which was recorded as a debt discount, and together with the original issue discount of $210, in the aggregate of $1,210, is being amortized over the life of the loan.

As a result of the Company failing to meet certain registration requirements under the March 2021 Note, the outstanding balance of the March 2021 Note was automatically increased by 5% on each of July 5, 2021, August 5, 2021, and September 5, 2021 and as part of the exchange agreement an additional 5% on September 30, 2021, prior to the exchange. An additional $270 was recorded as outstanding principal, bringing the outstanding balance prior to the exchange to $1,481.

On September 30, 2021, the Company entered into an exchange agreement with the March 2021 Note holder under which the outstanding principal balance of $1,481 and $60 of accrued interest were exchanged for 53,500,000 warrants to purchase common stock (See Note 7), which were treated as a warrant derivative liability. Upon the exchange, the Company settled $1,481 of outstanding principal, $60 of accrued interest, $758 of debt discount, recorded a warrant liability in the amount of $1,221 resulting in a loss on settlement of debt of $438. The derivative was calculated using a share fair value of $0.025 per share, a discount rate of 0.98%, remaining lives of 4.43 years and volatility of 176.1%. As of December 31, 2021, this note had no outstanding balance.

September 2022 Note

On September 12, 2022, the Company entered into a securities purchase agreement, pursuant to which the Company received $1,335 in exchange for the issuance of a secured convertible promissory note (the “September 2022 Note”) in the principal amount of $1,500 with an original issue discount of $165. Any time prior to a change of control transaction, the September 2022 Note is convertible into 30% of the outstanding shares of the Company’s common stock on the conversion date on a post-conversion basis (the “Conversion Shares”). The September 2022 Note matures December 31, 2023 and bears interest at a rate of 6% per annum.

Additionally, the Company issued to the lender three series of warrants (collectively, the “Warrants”). Each of the Series of Warrants is exercisable into 60% of the Conversion Shares and has a term of three years. The Warrants have exercise prices as follows:

● Series X Warrant, the lower of $0.02 and 120% of the closing price on the date of exercise;

● Series Y Warrant, the lower of $0.04 and 150% of the closing price on the date of exercise; and

● Series Z Warrant, the lower of $0.06 and 200% of the closing price on the date of exercise.

The Company has previous warrants outstanding whereby it cannot conclude that it has enough authorized and unissued shares to satisfy the settlement requirements for those already outstanding warrants. As a result, the equity environment would be considered tainted, and the conversion feature and the attached warrants are treated as derivative liabilities.

The Monte Carlo Simulation was calculated using the following assumptions:

	September 12, 2022			September 30, 2022
Stock price	$	0.006		$	0.013
Term (years)		1.30			1.25
Annual volatility		143.91	%		154.04	%
Annual expected return		8.77	%		9.22	%
Discount rate		3.60	%		4.05	%
Dividend yield		0	%		0	%

Derivative Liability

The Company’s activity in its convertible debt related derivative liability was as follows for the three and nine months ended September 30, 2022:

Balance of derivative liability at January 1, 2022	$	-
Transfer in due to issuance of convertible promissory note with embedded conversion features		4,207
Change in fair value of derivative liability		6,318
Balance of derivative liability at September 30, 2022	$	10,525

As of September 30, 2022, the fair value of the warrant derivative liability was $10,525 and for the three and nine months ended September 30, 2022 the Company recorded a loss of $6,318 from the change in fair value of derivative warrant liability as non-operating income in the statements of operations. The Company valued the derivative liability using the used the Monte Carlo Simulation Method because of the unknown stock price at the future time of conversion.

Warrant Derivative Liabilities

The Company’s activity in its warrant related derivative liability was as follows for the three and nine months ended September 30, 2022:

Balance of derivative liability at January 1, 2021	$	246
Transfer in due to issuance of warrants with embedded conversion features		2,492
Transfer out upon conversion of convertible notes and warrants with embedded conversion provisions		(732	)
Change in fair value of warrant liability		(955	)
Change in fair value of derivative liability		79
Balance of derivative liability at December 31, 2021		1,130
Transfer out upon exercise of warrants		(171	)
Change in fair value of warrant liability		407
Balance of derivative liabilities at March 31, 2022		1,366
Transfer out upon exercise of warrants		(38	)
Change in fair value of warrant liability		(999	)
Balance of derivative liabilities at June 30, 2022		329
Transfer in due to issuance of warrants		2,554
Transfer out upon exercise of warrants		(22	)
Change in fair value of warrant liability		4,109
Balance of derivative liabilities at September 30, 2022	$	6,970

The Company recorded loss on settlement of derivative liability in the amount of $178 and $757 for the three and nine months ended September 30, 2022, respectively. The Company had no settlement of derivative liabilities for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, the fair value of the warrant derivative liabilities was $6,970 and for the three and nine months ended September 30, 2022 the Company recorded losses of $4,109 and $3,517, respectively, from the change in fair value of derivative warrant liability as non-operating income in the statements of operations. The Company valued the warrant derivative liabilities other than the warrants issued as part of the debt financing using the Black-Scholes option pricing model using the following assumptions as of September 30, 2022: 1) stock price of $0.013, 2) exercise prices of $0.03 - 0.12, 3) remaining lives of 2.85 – 3.81 years, 4) dividend yields of 0%, 5) risk free rates of 4.25%, and 6) volatility of 167.0 - 173.1%. The Company valued the warrant derivative liability relating to the warrants issued in the 2022 debt financing using the used the binomial lattice model because of the variable exercise price whereby the warrants have the following exercise prices:

· Series X Warrants, the lower of $0.02 and 120% of the closing price on the date of exercise

· Series Y Warrants, the lower of $0.04 and 150% of the closing price on the date of exercise

· Series Z Warrants, the lower of $0.06 and 200% of the closing price on the date of exercise

The following assumptions were used in the binomial lattice model as follows:

	September 12, 2022			September 30, 2022
Stock price	$	0.006		$	0.013
Exercise price(s)		Variable (see above exercise prices)			Variable (see above exercise prices)
Term (years)		3.00			2.95
Annual volatility		167.43	%		171.21	%
Discount rate		3.60	%		4.25	%
Dividend yield		0	%		0	%

As of December 31, 2021, the fair value of the warrant derivative liability was $1,130 and for the year ended December 31, 2021 the Company recorded a gain of $955 from the change in fair value of derivative warrant liability as non-operating income in the statements of operations. The Company valued the warrant derivative liability using the Black-Scholes option pricing model using the following assumptions as of December 31, 2021: 1) stock price of $0.017, 2) exercise prices of $0.05, 3) remaining lives of 4.2 – 4.6 years, 4) dividend yields of 0%, 5) risk free rates of 1.26%, and 6) volatility of 175.5%.

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.

The following table summarizes the Company’s debt related derivative liabilities as of September 30, 2022 and December 31, 2021:

	September 30, 2022
	Level 1		Level 2		Level 3		Fair Value
Derivative liability	$	-	$	-	$	10,525	$	10,525
Warrant derivative liability		-		-		6,970		6,970

	December 31, 2021
	Level 1		Level 2		Level 3		Fair Value
Warrant derivative liability	$	-	$	-	$	1,130	$	1,130