Convertible Notes Payable

3 Months Ended

Mar. 31, 2023

Convertible Notes Payable [Abstract]

CONVERTIBLE NOTES PAYABLE

9 CONVERTIBLE NOTES PAYABLE

December 2022 Note Amendment Transaction

On February 16, 2021, we entered into separate SPAs with each of Cavalry and Mercer, pursuant to which we received $500,500 and $500,500 from Cavalry and Mercer, respectively, in exchange for the issuance of: (i) Original Issue Discount 12.5% Convertible Notes (the “Notes”) in the principal amount of $572,000 to each of Cavalry and Mercer; and (ii) five-year warrants (the “Original Warrants”) issued to each of Cavalry and Mercer to purchase 2,486,957 shares of the Company’s common stock (the “Common Stock”) at an exercise price of $0.24 per share. Cavalry and Mercer are Selling Stockholders listed in this prospectus.

The Original Warrants are discussed in note 8 above.

The Company twice extended its indebtedness to each Cavalry and Mercer. On February 3, 2022, the Company agreed to extend the maturity date of the Notes to August 16, 2022. Additionally, on August 30, 2022, the Company entered agreements for an additional maturity date extension to November 16, 2022. In consideration for the second extension, the Company agreed to (i) increase the principal amount outstanding and due to Cavalry and Mercer under their respective Notes by twenty percent (20%) and (ii) issue to each of Cavalry and Mercer a new five-year warrant (each, an “Extension Warrant”) to purchase an additional 3,000,000 shares of common stock at an exercise price of $0.15 per share. The Extension Warrant contains the same terms and provisions in all material respects as the Original Warrants, except for difference in exercise price.

On December 30, 2022, the Company again extended the maturity dates of each of the Notes to December 30, 2023. Each of Cavalry and Mercer entered into Note Amendment Letter Agreement with the Company (the “Note Amendment”) pursuant to which the parties agreed to the following:

(1) The conversion price of the Notes was reduced from $0.15 to $0.0115 per share (such reduced conversion price being the current conversion price of the Notes give the passage of the November 16, 2022 maturity date of the Notes). As a result of this change in conversion price, under the existing terms of the Notes, the 3,000,000 shares of common stock underlying the Extension Warrants was increased to 39,130,435 shares;

(2) The Original Warrants issued on February 16, 2021 were irrevocably exchanged for 12-month non-convertible promissory notes in the amount of $482,000 (the “Exchange Notes”). This exchange caused the cancellation of the Original Warrants for all purposes. The Exchange Notes have a maturity date of December 30, 2023 and carry an interest rate of ten percent (10%). The Company shall have the right, but not the obligation, in lieu of a cash payment upon maturity of the Exchange Notes, to issue 51,901,711 shares of common stock, as adjusted for any stock splits, dividends or other similar corporate events, in full satisfaction of its obligations under each of the Exchange Notes (or any pro rata portion of such number of shares in partial satisfaction of such obligations). The Company is under no legal obligation to reserve such number of shares for future issuance;

(3) Each of Cavalry and Mercer agreed (i) not to convert all or any portion of the Notes until after March 30, 2023 and (ii) waive any events of default under the Notes and the SPAs;

(4) Certain other warrants held by Cavalry and Mercer which contain a mandatory exercise provision allowing us to force exercise of such warrants if the price of the common stock is $0.06 per share or above were amended effective December 30, 2022 to reduce such forced exercise price to $0.04 per share; and

(5) The company was obligated to register the shares of common stock underlying the Notes and the shares underlying all warrants held by Cavalry and Mercer for resale with the Securities and Exchange Commission and the Company filed the registration statement to satisfy such registration obligation.

The parties also acknowledged that the principal and accrued interest under the Notes as of December 28, 2022 is equal to an aggregate of $2,264,784, or $1,132,392 for each of Cavalry and Mercer. In addition, as a result of the reduction in the conversion price of the Notes, certain other warrants held by third parties have their exercise price of such warrants reduced to $0.0115 per share. All of the shares of our common stock underlying the Notes as amended and all warrants held by Cavalry and Mercer as adjusted were registered for resale pursuant to the filed registration statement.

The amendments to the convertible debt were evaluated in terms of ASC470, Debt, to determine if the amendments to the convertible debt were considered a modification of the debt or an extinguishment of the debt. Based on the penalty interest incurred on the convertible notes of $836,414, the reduction in the conversion price of the convertible notes from $0.15 to $0.0115 per share, which was valued at $1,499,577 using a Black-Scholes valuation model, the issuance of additional warrants to the convertible note holders valued at $238,182 using a Black-Scholes valuation model and the conversion of certain warrants to notes payable, resulting in an additional charge of $920,392, consisting of a mark-to-market warrant cost of $(43,608) and the value of the notes of $964,000 (Note 8 above) and the value of full rachet provisions of certain of the warrants issued to the convertible note holders amounting to $841,003, see note 12 below, the amendment of the convertible notes was determined to be a debt extinguishment.

Convertible notes payable consists of the following:

Description	Interest Rate			Maturity date	Principal		Accrued Interest		Unamortized debt discount			March 31, 2023 Amount, net		December 31, 2022 Amount, net
Cavalry Fund I LP		10	%	December 30,  2023		1,091,754		68,841		-			1,160,595		1,133,301
Mercer Street Global Opportunity Fund, LLC		10	%	December 30,  2023		1,091,754		68,841		-			1,160,595		1,133,301
February 2023 convertible notes		8	%	February 13, 2024 to February 23, 2024		535,000		5,149		(228,888	)		311,261		-
Total convertible notes payable					$	2,718,508	$	142,831	$	(228,888	)	$	2,632,451	$	2,266,602

Interest expense totaled $59,737 and $44,379 for the three months ended March 31, 2023 and 2022, respectively.

Amortization of debt discount totaled $22,967 and $263,200 for the three months ended March 31, 2023 and 2022, respectively.

The Cavalry and Mercer convertible notes have variable conversion prices based on a discount to market price of trading activity over a specified period of time. The variable conversion features were valued using a Black Scholes valuation model. The difference between the fair market value of the common stock and the calculated conversion price on the issuance date was recorded as a debt discount with a corresponding credit to derivative financial liability.

Cavalry Fund LLP

On February 16, 2021, the Company closed a transaction with Cavalry, pursuant to which the Company received net proceeds of $500,500, after an original issue discount of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 16, 2022. The Note was convertible into shares of common stock at an initial conversion price of $0.23 per share, in addition, the Company issued a warrant exercisable for 2,486,957 shares of common stock at an initial exercise price of $0.24 per share.

As described more fully above, the maturity date of the note was extended to August 16, 2022, additionally to November 16, 2022 and again to December 30, 2023. In consideration for the November 16, 2022 extension, the Company agreed to (i) increase the principal amount outstanding and due to Cavalry by twenty percent (20%) and (ii) issue a new five-year warrant to purchase an additional 3,000,000 shares of common stock at an exercise price of $0.15 per share. In consideration of the December 30, 2022 extension, the Company agreed to the following terms; (i) the conversion price of the Note was reduced from $0.15 to $0.0115 per share; (ii) Cavalry agreed (a) not to convert all or any portion of the Notes until after March 30, 2023 and (b) waive any events of default under the Note and the SPA; (iii) the Company agreed to and registered the shares of common stock underlying the Note and the shares underlying all warrants held by Cavalry for resale with the Securities and Exchange Commission and filed the registration statement to satisfy the Company’s registration obligation.  

The balance of the Cavalry Note plus accrued interest at March 31, 2023 was $1,160,595.

Mercer Street Global Opportunity Fund, LLC

On February 16, 2021, the Company closed a transaction with Mercer, pursuant to which the Company received net proceeds of $500,500, after an original issue discount of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 16, 2022. The Note is convertible into shares of common stock at an initial conversion price of $0.23 per share, in addition, the Company issued a warrant exercisable for 2,486,957 shares of common stock at an initial exercise price of $0.24 per share.

As described more fully above, the maturity date of the note was extended to August 16, 2022, additionally to November 16, 2022 and again to December 30, 2023. In consideration for the November 16, 2022 extension, the Company agreed to (i) increase the principal amount outstanding and due to Mercer by twenty percent (20%) and (ii) issue a new five-year warrant to purchase an additional 3,000,000 shares of common stock at an exercise price of $0.15 per share. In consideration of the December 30, 2022 extension, the Company agreed to the following terms; (i) the conversion price of the Note was reduced from $0.15 to $0.0115 per share; (ii) Mercer agreed (a) not to convert all or any portion of the Notes until after March 30, 2023 and (b) waive any events of default under the Note and the SPA; (iii) the Company agreed to and registered the shares of common stock underlying the Note and the shares underlying all warrants held by Mercer for resale with the Securities and Exchange Commission and filed the registration statement to satisfy the Company’s registration obligation.

The balance of the Mercer Note plus accrued interest at March 31, 2023 was $1,160,595.

February 2023 convertible notes

Between February 13, 2023 and February 23, 2023, the Company, entered into Securities Purchase Agreements (the “Securities Purchase Agreement”) with 11 accredited investors, pursuant to which the Company received an aggregate of $535,000 in gross proceeds from the Investors through the initial closing of a private placement issuance of:

● Convertible Notes Promissory (the “Notes” and each a “Note”); and

● five-year warrants (the “Warrants”) to purchase an aggregate 46,521,739 shares of the Company’s common stock (the “Common Stock”) at an exercise price of $0.0115 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events).

The Notes mature in 12 months, bears interest at a rate of 8% per annum, and are convertible into shares of Common Stock at a conversion price of $0.0115 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). The Notes may be prepaid at any time without penalty. The Company is under no obligation to register the shares of Common Stock underlying the Notes or the Warrants for public resale.

The Notes and the Warrants contain conversion limitations providing that a holder thereof may not convert the Notes or exercise the Warrants to the extent that, if after giving effect to such conversion, the holder or any of its affiliates would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the outstanding shares of the Common Stock immediately after giving effect to such conversion or exercise. A holder may increase or decrease its beneficial ownership limitation upon notice to the Company provided that in no event such limitation exceeds 9.99%, and that any increase shall not be effective until the 61st day after such notice.

The balance of the February 2023 Notes plus accrued interest at March 31, 2023 was $311,261, net of unamortized debt discount of $228,888.