which $192,787 was recognized as deferred financing costs and the remaining $67,287 as a reduction of the proceeds allocated to the attached W Warrants.
Between February 2020 and June 2020, the Company issued Convertible Notes on identical terms to those issued in the Convertible Notes Private Placement to HCFP/Portfolio Services LLC (“Portfolio Services”) (see Note 9), investors and vendors, on a direct basis, in an aggregate initial principal amount of $636,230 for $187,500 in cash, with the balance as consideration for legal and management services rendered and payable (the “Company Direct Offering”).
Holders of W Warrants purchased in December 2019 and January 2020 were provided the option to surrender two W Warrants for the purchase of $1.00 of initial principal amount of Convertible Notes. On September 28, 2020, all holders of W Warrants purchased in December 2019 and January 2020 elected to surrender all of their W Warrants and, accordingly, the Company issued an aggregate initial principal amount of $252,000 of Convertible Notes in exchange for 504,000 surrendered W Warrants, of equivalent fair market value, as part of the Convertible Notes Private Placement.
Effective July 31, 2021, the holders of the Convertible Notes converted, under the original terms of the Convertible Notes, an aggregate of $3,084,875 of initial principal and accrued and unpaid interest at a rate of $0.50 per W Warrant, resulting in the issuance of 6,169,771 W Warrants. The remaining outstanding principal and accrued and unpaid interest through July 31, 2021 of $129,548 was repaid in cash. Accordingly, the Company has no further obligations under the Convertible Notes at September 30, 2022 or December 31, 2021.
As of their issuance dates, the Convertible Notes principal amount of $2,889,835, reduced for issuance costs of $260,074, was allocated to the Convertible Notes and W Warrants, based on their respective relative fair value, resulting in an allocation of $1,733,769 and $895,992 to the Convertible Notes and W Warrants, respectively. The resulting difference between the principal amount and the amount allocated to Convertible Notes of $1,156,066 was recognized as debt discount, which was amortized as interest expense over the term of the Convertible Notes.
No interest expense was incurred during the three and nine months ended September 30, 2022. Interest expense for the three and nine months ended September 30, 2021 totaled $110,669 and $774,679, respectively, and is included in “Interest expense” in the accompanying condensed consolidated statements of comprehensive loss. For the three and nine months ended September 30, 2021, interest expense includes $24,083 and $168,575, respectively, of interest expense and $86,586 and $606,104, respectively, of debt discount and amortization of deferred financing costs.
7. | Research and Development Agreements |
Agreement Related to Intellectual Property Rights
In July 2017, VSI, as “Licensee,” entered into a Patent License Agreement (the “Patent License Agreement”) with the U.S. Department of Health and Human Services, as represented by the National Institute on Alcohol Abuse and Alcoholism (“NIAAA”) and the National Institute on Drug Abuse (“NIDA”) of the National Institutes of Health (“NIH”), (collectively “Licensor”). In the course of conducting biomedical and behavioral research, the Licensor developed inventions that may have commercial applicability. The Company acquired commercialization rights to certain inventions in order to develop processes, methods, or marketable products for public use and benefit.
Patent fee reimbursement under the Patent License Agreement was $5,016 and $15,050 for the three and nine months ended September 30, 2022, respectively. Patent fee reimbursement under the Patent license agreement was $5,017 and $15,050 for the three and nine months ended September 30, 2021, respectively. These costs are included in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss.
Pursuant to the terms of the Patent License Agreement, VSI is required to make minimum annual royalty payments on January 1 of each calendar year, which shall be credited against any earned royalties due for sales made in that year, throughout the term of the Patent License Agreement. For the three months ended September 30, 2022 and 2021, $6,250 of this prepaid royalty expense was recognized in each period in “Research and development” expenses in the accompanying condensed consolidated statements of comprehensive loss. For the nine months ended September 30, 2022 and 2021, $18,750 of this prepaid royalty expense was