Convertible Notes Payable

3 Months Ended

Mar. 31, 2022

Convertible Notes Payable

Convertible Notes Payable

Note 13 Convertible Notes Payable

The principal portions of our convertible notes payable are as follows as of:

		March 31, 2022		December 31, 2021
Senior Secured	[a]	$	16,500,000	$	16,500,000
Series 1	[b]		850,000		850,000
Series 2	[c]		325,000		-
Series 3	[d]		275,000		-
			17,950,000		17,350,000
Less current portion			1,450,000		850,000
Long-term portion		$	16,500,000	$	16,500,000

[a] On February 17, 2021, we entered into a securities purchase agreement with funds affiliated with Arena Investors LP (the “Investors”) pursuant to which it issued two convertible notes having an aggregate principal amount of $16,500,000 for an aggregate purchase price of $15,000,000 (collectively, the “Notes”). In connection with the issuance of the Notes, we issued to the Investors Warrants to purchase an aggregate of 192,073,017 shares of our Common Stock (collectively, the “Warrants”) and 1,000 shares of Series F Preferred Stock that convert into 192,073,017 shares of our Common Stock (the “Series F Preferred Stock”). The Warrants and Series F Preferred Stock were each valued at $864,000 based on a $0.0045 price per share of our Common Stock and treated as a debt discount this is amortized over the term of the Notes.

The Notes have a term of thirty-six months and mature on February 17, 2024, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at our election, any interest payable on an applicable payment date may be paid in registered shares of our Common Stock in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average volume-weighted average price of our Common Stock for the five (5) days immediately preceding the date of conversion. At March 31, 2022 and December 31, 2021 accrued and unpaid interest was $825,000 and $453,750, respectively. We have not yet made the $453,750 million interest payments on the Notes held by Arena Partners LP that were due on April 1, 2022 and July 1, 2022, and we are currently in discussions with Arena Capital LP on a plan of forbearance.

On September 24, 2021, the Company and the Investors amended the Notes and related closing documents, by executing the Limited Waiver and First Amendment the closing documents (“the amendment”). The amendment also waived specified events of default. The Notes are henceforth convertible at any time, at the holder’s option, into shares of our Common Stock at a price of $0.02 per share, subject to default event adjustment. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion price in effect shall be equal to the alternate conversion price. If at any time the conversion price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the conversion price hereunder may equal such par value for such conversion and the conversion amount for such conversion may be increased to include Additional Principal, where Additional Principal means such additional amount to be added to the principal amount of this Note to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the conversion price not been adjusted by the Holder to the par value price, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of our Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. We may not redeem the Notes.

As part of the agreement with the Investors, we issued 192,073,017 Warrants. On September 24, 2021, we and the Investor amended the warrant agreement such that each Warrant is exercisable for a period of five (5) years from the date of issuance at an initial exercise price equal to $0.025 per share, that is adjusted to $0.020 per share when interest is paid late, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The exercise price is also subject to adjustment due to certain events, including stock dividends, stock splits and recapitalizations. The Holder may be eligible for cashless exercise.

The Series F Preferred Stock has no voting rights and shall convert into 4.9% of our issued and outstanding shares of our Common Stock on a fully diluted basis upon Common Shareholder Approval. The Series F Preferred Stock was converted and 192,073,017 common shares were issued on October 11, 2021.

The Investors have contractually agreed to restrict their ability to exercise the Warrants and convert the Notes such that the number of shares of our Common Stock held by the Investors and their affiliates after such conversion or exercise does not exceed 9.99% of our then issued and outstanding shares of Common Stock.

[b] Series 1:   We sold a total of $850,000 in subordinated convertible note that bear interest at 6% per annum, mature on December 31, 2022 and may be converted at the noteholder’s option at any time into shares of our Common Stock at a fixed price of $0.021 per share.

[c] Series 2:   On January 6, 2022, we sold one of our shareholders a $250,000 unsecured note payable that bears interest at 12% per annum and matures on April 6, 2022. In connection with the note sale, we issued the noteholder a Warrant to purchase 6,250,000 shares of our Common Stock, on a cashless exercise basis, at $0.021 per share at any time starting July 1, 2022 and ending July 1, 2024. We estimate the value of the Warrant to be $112,500, based on a $0.018 price per share of our Common Stock that is treated as a debt discount to be amortized over the term of the note. We have not yet repaid the noteholder.   On January 14, 2022, we sold one of our shareholders a $25,000 unsecured note payable that bears interest at 12% per annum and matures on April 6, 2022. In connection with the note sale, we issued the noteholder a Warrant to purchase 600,000 shares of our Common Stock, on a cashless exercise basis, at $0.021 per share at any time starting July 1, 2022 and ending July 1, 2024. We estimate the value of the Warrant to be $10,800, based on a $0.018 price per share of our Common Stock that we treated as a debt discount to be amortized over the term of the note. In May 2022, we repaid the note.   On February 17, 2022, we sold a $50,000 unsecured note payable that bears interest at 12% per annum and matures on April 6, 2022. In connection with the note sale, we issued the noteholder a Warrant to purchase 1,250,000 shares of our Common Stock, on a cashless exercise basis, at $0.021 per share at any time starting July 1, 2022 and ending July 1, 2024. We estimate the value of the Warrant to be $22,500, based on a $0.018 price per share of our Common Stock that we treat as a debt discount that we amortized over the term of the note. In April 2022, we repaid the note.

[d] Series 3:   On February 15, 2022, we sold two $137,500 unsecured convertible notes payable bearing an 11.25% interest rate per annum that mature on February 23, 2023 and have a $15,000 original issuance discount. In connection with the note sales, we issued the noteholders Warrants to purchase a total of 2,500,000 shares of our Common Stock at $0.10 per share, on a cashless exercise basis, that are exercisable at any time until February 11, 2027. We estimate the total value of the Warrants to be $90,000, based on a $0.018 price per share of our Common Stock that we treat as a debt discount and amortize over the terms of the notes along with the deferred financing fees. The notes’ principal and interest may be converted into our Common Stock at $0.02 per share.