Convertible Notes with Warrants (November 2023 Financing) |
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| Convertible Notes with Warrants (November 2023 Financing) [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible Notes with Warrants (November 2023 Financing) |
On November 21, 2023, the Company issued (i) senior unsecured convertible notes in an
aggregate principal amount of $6,850,000, convertible into shares of common stock at a conversion price of $1.18 per share, (ii) Series A Warrants to purchase up to an aggregate of 5,805,083 shares of common stock at an exercise price of $1.18 per share, and
(iii) Series B Warrants, together with the Series A Warrants, and, together with the convertible notes, to purchase up to an aggregate of 5,805,083
shares of common stock at an exercise price of $1.475 per share. The financing resulted in aggregate gross proceeds of $6,850,000, before $525,144 of transaction
costs. The Company intends to use the net proceeds from the offering for general corporate purposes.
The Notes accrue interest at a rate of 6.0% per annum, payable annually, in cash or shares of common stock at the Company’s option, and mature on , unless earlier converted or redeemed.
The Notes are convertible into shares of common stock at the election of the holder
at any time at an initial conversion price of $1.18. The Company has agreed not to issue or sell any equity securities of the Company at a
price below the then-current conversion price for a period of 18 months after closing, subject to certain exceptions. Beginning six months
after issuance, the Company may require holders to convert their Notes into conversion shares if the closing price of the common stock exceeds $2.36
per share for 10 consecutive trading days and the daily dollar trading volume of the common stock exceeds $1,000,000 per day during the same period and certain equity conditions described in the Notes are satisfied. The Notes provide for certain events of
default, whereby each holder of Notes will be able to require the Company to redeem in cash any or all of the holder’s Notes at a premium of 115%.
The conversion feature did not meet the requirements for separate accounting and is not accounted for as a derivative instrument.
The Warrants
The Series A Warrants are exercisable immediately and expire five years from the date of issuance. The Company has the right to call the exercise of the Series A Warrants if the closing price of the common stock
exceeds 200% of the Series A Exercise Price for 10 consecutive trading days and the daily dollar trading volume of the common stock exceeds $1,000,000
per day during the same period and certain equity conditions are satisfied.
The Series B Warrants are exercisable immediately, together with the Series A Warrant
Shares, and expire one year from the date of issuance. The Company has the right to call the exercise of the Series B Warrants if the
closing price of the common stock exceeds 200% of the Series B exercise price for 10 consecutive trading days and the daily dollar trading volume of the common stock exceeds $1,000,000
per day during the same period and certain equity conditions are satisfied. There is no established public trading market for the warrants and the Company does not intend to list the Warrants on any national securities exchange or nationally
recognized trading system.
The Series A Warrants and Series B Warrants are classified as a component of
permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock from which they are issued, are immediately exercisable, do not embody an obligation for the
Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise.
The Series A and Series B Warrants were valued using the relative fair value method
and the following Black-Scholes assumptions:
The November 2023 Financing proceeds of $6,850,000 net of $525,144 in transaction costs were allocated to
the convertible notes and Series A and Series B Warrants using the relative fair value method. The valuation of the warrants was $2,219,165
and is recorded as a component of stockholders’ equity, and a total debt discount of $2,744,309. The convertible notes are recorded as a
long-term liability, net of discount and issuance costs.
For the convertible notes for the year ended December 31, 2023, the Company
recognized total interest expense of $152,488, including coupon interest expense of $44,525 amortization of debt discount and issuance costs of $107,963.
The effective interest rate for the discount amortization was 32.3%. The Notes and accrued interest, net of unamortized discount
costs was $4,258,179 as of December 31, 2023. The fair value of the convertible notes at December 31, 2023, calculated using a discounted
cash flow analysis, was $6,126,151. There were no convertible notes as of December 31,2022.
Future principal payments under the Notes if the conversion feature is not exercised,
net of unamortized debt discounts, are as follows:
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