Convertible Notes

9 Months Ended

Jun. 30, 2023

4. CONVERTIBLE NOTES

The table below summarizes outstanding convertible notes as of June 30, 2023 and June 30, 2022:

Balance of related party notes payable, net as of September 30, 2022	$	20,900
Issuance of debt		30,000
Accrued interest		8,540
Accretion of debt discount		180,333
Beneficial conversion feature related to issuance of convertible notes		(28,800	)
Derivative liabilities in connection with issuance of convertible notes		(1,200	)
Conversion of convertible notes		(209,773	)
Balance of related notes payable, net as of June 30, 2023	$	—

Balance of non-related notes payable, net as of September 30, 2021	$	371,997
Accrued Interest		9,153
Accretion of debt discount		358,118
Beneficial conversion feature related to issuance of convertible notes		(206,801	)
Derivative liabilities in connection with issuance of convertible notes		(28,017	)
Conversion of convertible notes		(504,450	)
Balance of non-related notes payable, net as of June 30, 2022	$	—

Balance of related notes payable, net as of September 30, 2021	$	230,287
Issuance of debt		160,000
Accrued Interest		27,792
Accretion of debt discount		512,303
Beneficial conversion feature related to issuance of convertible notes		(389,680	)
Derivative liabilities in connection with issuance of convertible notes		(46,505	)
Conversion of convertible notes		(494,197	)
Balance of related notes payable, net as of June 30, 2022	$	—

On December 23, 2022, the Company entered into a 16% Convertible Promissory Note with Panetta Partners Ltd. (the “Holder”) pursuant to which the Company issued a Convertible Promissory Note to the Holder. The Holder provided the Company with $30,000 in cash. The Note provides the Holder with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company’s common stock at a conversion price equal to the lower of (i) $0.001 per share or (ii) the price of the next equity financing, which raises at least US $1,000,000, subject to adjustments noted within the Agreement. The number of shares issuable upon a conversion shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of the Note to be converted by (y) the Conversion Price. The Note requires the Company to reserve and keep available out of its authorized and unissued shares of common stock the amount of shares that would be issued upon conversion of the Note, which includes the outstanding principal amount of the Note and interest accrued and to be accrued through the date of maturity.

On January 23, 2023, all outstanding notes with a principal value of $195,000 and accrued interest of $14,773 were converted into 209,773,333 shares with a par value of $0.001.

Embedded Derivative Liability

Under the promissory note agreement, the interest rate will reset upon the event of a default and an additional penalty of 6% will be accrued. The Company analyzed the conversion features of the note agreement for derivative accounting consideration under ASC 815, Derivatives and Hedging, and determined the interest rate resets met the definition of a derivative. It also noted that the Contingent Interest Rate feature required bifurcation from the host note contract and was to be accounted for at fair value. In accordance with ASC 815-15, the Company bifurcated the Contingent Interest Rate feature of the note and recorded a derivative liability.

The embedded derivatives for the notes are carried on the Company’s balance sheet at fair value. During the three and nine months ended June 30, 2023, the Company recognized an additional derivative liability of $0 and $1,200, respectively, due to the issuance of the convertible notes. During the three and nine months ended June 30, 2023, the Company recognized a gain on derivative liability of $0 and $8,744 due to the conversion of outstanding notes. During the three and nine months to June 30, 2022, the Company recognized an additional $3,002 and $74,522 respectively due to the extension and issuance of the convertible notes. During the three and nine month period ended June 30, 2022, the Company recognized a gain of $73,569 and $112,538 relating to the issuance and extension of convertible notes.

Beneficial Conversion Feature

The conversion features for all notes issued are in the money as of the issuance date and accordingly a beneficial conversion feature was recorded upon issuance. As the intrinsic value of the beneficial conversion feature exceeds the face value, the recorded beneficial conversion feature was limited to the gross proceeds less any debt discounts. As at June 30, 2023 this amounted to $28,800 for the new notes issued, which was fully amortized upon conversion of the notes. As at June 30, 2022 the beneficial conversion feature amounted to $596,481 for the amended and new notes issued.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

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+ Details

Rasna Therapeutics Inc. 10-Q