Convertible Promissory Notes, Net |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||
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| Convertible Promissory Notes, Net |
6. Convertible Promissory Notes, Net On March 31, 2020, June 10, 2020, and August 21, 2020, the Company completed and closed its first, second, and third round, respectively, of its fifth offering subscription (the “Fifth Offering”) for the issuance of convertible promissory notes (collectively with the promissory notes of the Fourth Offering, the “Notes”) for convertible preferred membership interests and received $1,162,500, $706,633, and $125,000, respectively. The terms of both the First Round and Second Round were substantially identical to those of the Third Round, except that the Third Round allowed the investors to convert the cash interest component into additional equity. There were no Notes outstanding as of December 31, 2020, after giving effect to the July 2020 and November 2020 maturity of Notes sold in the first and second rounds of its fourth offering subscription (the “Fourth Offering”) and the conversion of the remaining notes into membership interests prior to and in conjunction with the Corporate Conversion, at which time all of the Company’s outstanding membership interest converted into shares of common stock. The Notes bore interest at 8% per annum, with a maximum term of 18 months. The Notes were unsecured obligations and did not contain any financial covenants or restrictions on the payments to members, in incurrence of indebtedness, or the issuance or repurchase of securities by the Company. The Company recognized interest expense related to the Notes as follows:
In addition, each Note included warrant coverage of 25% of the principal value of the Note, which provided an option to purchase additional membership interests in cash at the same price as the conversion of the Note. The warrant coverage was exercisable on the conversion date, or within 30 days post conversion. If not exercised within this 30-day period, the warrant coverage was forfeited. The warrant coverage was evaluated to determine whether the arrangements were embedded or free-standing (i.e., to determine whether they needed to be bifurcated and accounted for as a separate financial instrument). However, since the warrants were only exercisable at the time of conversion or within 30 days post conversion, and there were restrictions on transfer, they were considered to be non-detachable and did not require to be accounted for separately from the hybrid instrument. None of the outstanding warrants of $366,250 were exercised within the 30-day exercise period post maturity of the July 20, 2020 Notes, and thus were forfeited. At the Corporate Conversion outstanding warrants of $231,250, relating to the maturity of the November 2020 Notes, were converted into 29,629 exercisable warrants of the Company’s common stock, of which 21,620 warrants were exercised within the exercise period post maturity and the remaining 8,009 were forfeited. At the Corporate Conversion, the remaining Notes matured. As a result, the aggregate outstanding principal amount of $3,279,133 plus accrued interest through the conversion date of December 16, 2020 of $196,769 converted into memberships interests based on the carrying value of the convertible debt, net of unamortized deferred offering costs of $41,445 with no gain or loss recognized. Accrued interest of $9,551 was paid in cash. Warrants totaling $820,033 were converted into 105,044 exercisable warrants of the Company’s common stock, of which 961 warrants were exercised and 104,083 were outstanding as of December 31, 2020. In January 2021, 25,315 of these warrants were exercised for $197,562. The remaining unexercised warrants of 78,768 expired on January 20, 2021. |
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