Convertible Notes Payable |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible Notes Payable |
The Company issues convertible notes in exchange for cash. The notes typically do not bear any interest; however, there is an implied interest rate of 10% since the notes are typically issued at a 10% discount. The notes are unsecured, and usually mature twelve months from issuance. The notes are convertible at the option of the note holder into shares of the Company’s common stock at a conversion price stipulated in the conversion agreement. In addition, the note holders receive warrants to purchase shares of common stock that are fully vested upon issuance and expire one year from the date of issuance. As a result, the Company records a note discount to account for the relative fair value of the warrants, and original issue discount of 10% (OID). The note discounts are amortized over the term of the notes.
Convertible notes
As of December 31, 2022, total outstanding notes payable totaled $1,393,000. During the nine-month period ended September 30, 2023, the Company issued convertible promissory notes in the aggregate of $586,000 for cash proceeds of $533,000, net of OID of $53,000. The notes are unsecured, have an implied interest rate of 10%, mature in twelve months from issuance, and are convertible into 11,715,748 shares of the Company’s common stock at $0.05 per share. In addition, the Company granted the note holders warrants to purchase 11,715,748 shares of the Company’s common stock with a relative value of $231,000. The warrants are fully vested, and expire one year from the date of issuance. The Company determined the fair value of the warrants by using a Black-Scholes option pricing model, with the following assumptions: expected term of 1.0 year, stock price of $0.05 to $0.08, exercise price of $0.07, volatility of 169% to 206%, risk-free rate of 4.64% to 5.46%, and no forfeiture rate. Also during the period ended September 30, 2023, convertible notes of $469,000, net of unamortized discount of $216,000, were converted into shares of common stock. At September 30, 2023, total outstanding convertible notes payable totaled $1,510,000. As of September 30, 2023, convertible notes payable and accrued interest are convertible into approximately 37,535,351 shares of common stock at conversion rates ranging from $0.02 to $0.48 per share. As of September 30, 2023, a total of thirty-eight convertible notes and accrued interest in the aggregate of $1,977,000 have reached maturity and are past due.
Accrued interest
At December 31, 2022, accrued interest on convertible notes payable totaled $612,000. During the nine-month period ended September 30, 2023, accrued interest of $137,000 was recorded. At September 30, 2023, accrued interest on convertible notes payable totaled $749,000.
Debt discount
At December 31, 2022, the unamortized debt discount was $140,000. During the nine-month period ended September 30, 2023, debt discount of $284,000 was recorded for the relative fair value of warrants of $231,000 and OID of $53,000, debt discount amortization of $90,000 was recorded, and $216,000 of debt discount was removed and included in the carrying amount of related convertible notes payable that were converted into shares of common stock. At September 30, 2023, the unamortized debt discount was $118,000. |
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