Convertible Notes Payable

12 Months Ended

Dec. 31, 2022

Convertible Notes Payable [Abstract]

Convertible Notes Payable [Text Block]

5. Convertible Notes Payable

Convertible notes payable consists of the following:

		December 31,
		2022			2021
Convertible notes payable (a) (includes $324,000 due to related party)	$	3,116,880		$	-
Convertible note payable, secured, due to officer (b)		115,000			-
Convertible notes payable (c )		-			2,715,343
		3,231,880			2,715,343
Debt discount		(2,448,101	)		-
Total		783,779			2,715,343
Convertible notes		(511,759	)		(2,715,343	)
Convertible notes-related parties	$	272,020			-

(a) Convertible notes totaling $2,576,880 issued in February 2022 and March 2022 On February 15, 2022 and March 28, 2022, Live Current issued convertible promissory notes for a total of $2,576,880 in exchange for cash of $2,386,000, net of original issue discount of $190,880. The notes bear interest at 4.0% per annum, and mature in two years. The notes were initially convertible into the Company's common stock at a conversion price of $0.34 per share. The note issued in February 2022 totals $1,620,000 and is secured by all of the assets of the Company, including a lien on and security interest in all of the issued and outstanding equity interests of the wholly-owned subsidiaries of the Company. The notes issued in March 2022 total $956,880 and are unsecured. As part of the note issuances, the Company also granted the noteholders warrants to purchase up to 5,684,292 shares of common stock at an exercise price of $0.60 per share for a term of five years from the date of issuance with an estimated relative fair value $870,629. In addition, the Company issued 221,402 shares of its common stock with a fair value of $60,000 to registered broker dealers and incurred other legal fees of $135,000.

 

As a result of the issuance of these convertible notes payable, the Company recorded a debt discount of $1,178,509 to account for the notes original issue discount of $190,880, direct costs incurred of $195,000 and the relative fair value of the warrants of $792,629. The debt discount is being amortized over the term of the corresponding notes payable.

Upon completion of the Merger on April 22, 2022, the Company assumed Live Current's convertible promissory notes. On the reverse acquisition date, components of the acquired notes were as follows:

 

		Total
Face value of convertible notes	$	2,576,880
Original issue discount		(190,880	)
Legal and brokerage fees recorded as discount		(217,874	)
Allocation of proceeds to warrants recorded as discount		(773,786	)
Allocation of proceeds to convertible notes upon issuance		1,394,340
Amortization of discount to April 22, 2022		48,685
Convertible note payable, net of discount at April 22, 2022	$	1,443,025

 

In October 2022, the Company issued convertible notes with a conversion price of $0.18 per share and warrants with an exercise price of $0.18 per share (see below), which resulted in a down round triggering event for the notes issued in February 2022 and March 2022 and lowered the conversion price on those notes from $0.34 per share to $0.18 per share. The triggering event created an incremental value of $1,690,000, of which $1,327,000 was treated as additional debt discount to be amortized over the remaining term of the notes, and $363,000 was expensed immediately as a financing expense.

Convertible note totaling $540,000 issued in October 2022

On October 27, 2022, the Company issued an additional note to a note holder that was previously issued a $1,620,000 convertible note in February 2022 (See above). The October 2022 note is for $540,000, bears interest at 4.0% per annum, secured by all of the assets of the Company, and matures in two years. The notes have an initial conversion price into the Company's common stock of $0.18 per share. In addition, the Company paid fees of $96,633 as part of the note issuance.

The Company issued warrants to the note holder to purchase up to 2,250,000 shares of common stock at an exercise price of $0.18 per share for a term of five years from the date of issuance. The warrant contains features that require it to be accounted for as a derivative liability (see Note 9). The fair value of the warrant derivative liability on date of issuance was $591,590 which was greater than the net proceeds received from the note of $403,367. The excess amount of $188,223 was recognized as interest expense during the year ended December 31, 2022.

In total, during the year ended December 31, 2022, the Company recognized $89,632 in interest expense and $535,425 in financing costs associated with the amortization of the debt discount on the February 2022, March 2022, and October 2022 notes. The unamortized discount balance is $2,448,101 at December 31, 2022 and will be amortized over the next 1.8 years. Accrued interest on the notes is $89,632 at December 31, 2022.

 

(b)

On December 6, 2022, the Company issued a convertible note payable to its president and CEO, Mark Ollilia with a principal balance of $115,000 in exchange for cash of $79,960, net of original issue discount of $35,050. The note bears interest at 4.0% per annum, is secured by all of the assets of the Company, and matures in two years. The Company also issued warrants to the note holder to purchase up to 479,167 shares of common stock at an exercise price of $0.32 per share for a term of five years from the date of issuance with a relative fair value of $46,823. Upon issuance of the Notes, total debt discount of $74,667 was recorded and is being amortized over the terms of the Notes. As of December 31, 2022, outstanding balance of the note payable amounted to $115,000 and the unamortized discount balance is $71,965.

(c)

At December 31, 2021, the balance of Evasyst convertible notes was $2,715,343 and accrued interest was $210,013, including $911,905 of convertible notes and $93,044 of accrued interest due to related parties. In 2022, prior to the Merger, the Company issued $631,167 of additional convertible notes for consulting services related to the Merger to entities associated with major shareholders of Evasyst. Prior to the Merger, the balance of Evasyst convertible notes was $3,346,510 and accrued interest was $236,560, and the total of $3,583,070 was converted into 26,212,690 shares of Evasyst common stock.