Annual report pursuant to Section 13 and 15(d)

DEBENTURES

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DEBENTURES
 12 Months Ended
Dec. 31, 2023
Debt Disclosure [Abstract]  
DEBENTURES

11. DEBENTURES

 

On June 30, 2022, the Company executed the definitive agreements (the “Purchase Agreements”) with arm’s length accredited institutional investors (the “Investors”) for $14,025,000 in debentures with a 10% original issue discount for gross proceeds of $12,750,000 (“First Tranche Debentures”). The First Tranche Debentures were convertible into common shares at $111.00 per share. In addition, the Investors received 82,129 warrants at a strike price of $122.10, which expire on December 31, 2025 (the “First Tranche Warrants”). The First Tranche Warrants and First Tranche Debentures each have down round provisions whereby the conversion and strike prices will be adjusted downward if the Company issues equity instruments at lower prices. The First Tranche Warrants strike price and the First Tranche Debenture conversion price will be adjusted down to the effective conversion price of the issued equity instruments. The transaction costs incurred in relation to first tranche were $1,634,894. The Debentures are senior to all other indebtedness or claims in right of payment, other than indebtedness secured by purchase money security interested.

 

The Investors had the right to purchase additional tranches of $5,000,000 each, up to a total additional principal amount of $33,000,000.

 

On January 17, 2023, the Investors purchased additional debentures totaling $5,076,923 with a 10% original issue discount for gross proceeds of $4,615,385 (the “Second Tranche Debenture”). The Second Tranche Debentures were convertible into common shares at $62.00 per share and the Investors received an additional 53,226 warrants at a strike price of $62.00, which expire on December 31, 2025 (the “Second Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of the First Tranche Debentures and the First Tranche Warrants to $62.00. The transaction costs incurred in relation to second tranche were $325,962.

 

On June 26, 2023, the Company entered into waiver and amendment agreements (“Debenture Modification Agreements”) with the Investors to modify terms of the Purchase Agreements. The Debenture Modification Agreements provide as follows:

 

  1. The July 1, 2023 interest and principal payments will be settled with the Company’s Common Shares
  2. The Conversion Price has been reduced to the lower of $22.50 or the price of subsequent dilutive issuances under the Company’s ATM program.
  3. 100% of ATM proceeds up to $1 million USD may be kept by Company, while any dollar amount over this threshold will be distributed 33% to the Company and 67% to the Investors.
  4. The minimum tranche value for Additional Closings has been reduced from $5.0 million to $2.5 million.
  5. The Investors have each agreed to raise no objection to one or more private placements of securities by the Company with an aggregate purchase price of up to $1,000,000 at a purchase price of at least $12.50 per common share and two-year warrant (with a per share exercise price of $25.00, and no registration rights).
  6. The Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Investor; However the Company must apply the approved or percentage of approved gross proceeds from the sale of its Common Stock from an at-the-market offering to prepay this Debenture (pro-rated among all Debentures) and shall be permitted to prepay the Debentures notwithstanding any contrary provision of this Debenture or the Purchase Agreement.

 

On August 9, 2023, the Company entered into another waiver and amendment agreement (“Agreement”) with the Investors with respect to a certain Senior Convertible Debenture (the “Debentures”) due July 17, 2025 issued by the Company to that Investor. The Agreement provides as follows:

 

  1. The Company wishes to make Monthly Redemptions in shares of the Company’s Common Stock in lieu of cash payments, until further written notice from the Company to the Purchaser.
  2. The Purchaser is willing to accept such shares as payment of the Monthly Redemption Amount provided that the Equity Conditions are met; and will consider on a case-by-case basis accepting payments in shares of Common Stock if the Equity Conditions are not met, at its sole discretion. The Company may inquire of the Purchaser at least five (5) Trading Days prior to a Monthly Redemption Date whether the Purchaser is willing to accept Shares without the Equity Conditions having been met. An email reply from the Purchaser shall be sufficient evidence of such monthly waiver.
  3. The Purchaser will accept the August 1, 2023 Monthly Redemption Amount in shares of Common Stock valued at the August 1 Repayment Price for such date.

 

On October 18, 2023, the Investors purchased additional debentures totaling $2,750,000 with a 10% original issue discount for gross proceeds of $2,500,000 (the “Third Tranche Debenture”). The Third Tranche Debentures were convertible into common shares at $2.62 per share and the Investors received an additional 620,230 warrants at a strike price of $2.62, which expire on April 18, 2027 (the “Third Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of the First and Second Tranche Debentures and the First and Second Tranche Warrants to $2.62. The transaction costs incurred in relation to third tranche were $31,915.

 

On November 30, 2023, the Investors purchased additional debentures totaling $2,750,000 with a 10% original issue discount for gross proceeds of $2,500,000 (the “Fourth Tranche Debenture”). The Fourth Tranche Debentures were convertible into common shares at $0.90 per share and the Investors received an additional 1,986,112 warrants at a strike price of $0.90, which expire on May 30, 2027 (the “Fourth Tranche Warrants”). The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of the First, Second and Third Tranche Debentures and the First, Second and Third Tranche Warrants to $0.90. The transaction costs incurred in relation to fourth tranche were $30,040.

 

The First, Second, Third and Fourth Tranche Debentures (the “Debentures”) have an interest rate of 5% for the first 12 months, 6% for the subsequent 12 months, and 8% per annum thereafter. Principal repayments will be made in 25 equal installments which began on September 1, 2022 for the First Tranche Debentures, July 1, 2023 for the Second Tranche Debentures, January 1, 2024 for the Third Tranche Debentures and May 1, 2024 for the Fourth Tranche Debentures. The Debentures may be extended by nine months at the election of the Company by paying a sum equal to nine months’ interest on the principal amount outstanding at the end of the 18th month, at the rate of 8% per annum.

 

The following table summarizes our outstanding debentures as of the dates indicated:

 

    Maturity   Cash
Interest Rate		     December 31,
2023		     December 31,
2022		  
Principal (First Tranche Debentures)   12/31/2024     5.00% - 8.00 %   $ 3,029,676     $ 11,070,000  
Principal (Second Tranche Debentures)   07/17/2025     5.00% - 8.00 %     2,940,461       -  
Principal (Third Tranche Debentures)   04/18/2026     5.00% - 8.00 %     2,750,000       -  
Principal (Fourth Tranche Debentures)   06/01/2026     5.00% - 8.00 %     2,750,000       -  
Debt issuance costs and discounts (Note 11 & 13)                 (7,385,494 )     (7,128,084 )
Total Debentures (current)               $ 4,084,643     $ 3,941,916  

 

The effective interest rates of the First Tranche Debentures were 168.60% and 18.5% as of December 31, 2023 (December 31, 2022 – 168.60% for both First Tranche Debentures). The fair value of the First Tranche Debentures as of December 31, 2023 was $3,113,000 (Level 3).

 

The effective interest rates of the Second Tranche Debentures were 320.16% as of December 31, 2023 and 2022. The fair value of the First Tranche Debentures as of December 31, 2023 was $3,188,000 (Level 3).

 

The effective interest rates of the Third Tranche Debentures were 970.08% as of December 31, 2023. The fair value of the First Tranche Debentures as of December 31, 2023 was $2,946,000 (Level 3).

 

The effective interest rates of the Fourth Tranche Debentures were 218.52% as of December 31, 2023. The fair value of the First Tranche Debentures as of December 31, 2023 was $3,006,000 (Level 3).

 

On November 30, 2023, an Investor converted $1,489,974 of the First Tranche Debentures into 1,655,527 shares of the Company. The conversion was determined to be an extinguishment of the existing debt and issuance of new debt. As a result, the Company recorded a loss on debt extinguishment in the amount of $680,935.

 

During the year ended December 31, 2023, the Investors converted $6,543,721 of principal and $426,661 of interest into 2,911,443 shares of the Company resulting in a $1,190,730 loss on the conversion of convertible debentures.

 

During the year, the investors provided waivers for certain monthly redemptions to be settled in shares despite the Company not meeting the equity conditions, which require daily trading volume for the Common Stock on the principal Trading Market exceeds $1,000,000 per Trading Day for 20 consecutive days.

 

During the year ended December 31, 2023, the Company recorded $7,963,299 of accretion interest.

 

Subsequent to the year end, an Investor purchased an additional tranche of $1,100,000. The convertible debt and warrants were issued with an exercise price of $0.214. The issuance of the additional tranche triggered the down round provision, adjusting the exercise prices of the First, Second, Third and Fourth Tranche Debentures and the First, Second, Third and Fourth Tranche Warrants to $0.214.