Convertible Notes Payable

6 Months Ended

Jun. 30, 2023

Convertible Notes Payable [Abstract]

CONVERTIBLE NOTES PAYABLE

12 CONVERTIBLE NOTES PAYABLE

December 2022 Note Amendment Transaction

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 Cavalry/Mercer 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 the Cavalry/Mercer 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 Cavalry/Mercer 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 Cavalry/Mercer 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 Cavalry/Mercer Notes). As a result of this change in conversion price, under the existing terms of the Cavalry/Mercer 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 Cavalry/Mercer Notes until after March 30, 2023 and (ii) waive any events of default under the Cavalry/Mercer Notes and the Cavalry/Mercer 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 Cavalry/Mercer 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 Cavalry/Mercer 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 Cavalry/Mercer 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 Cavalry/Mercer Notes as amended and all warrants held by Cavalry and Mercer as adjusted were registered for resale pursuant to a registration statement that was declared effective on February 6, 2023.

The amendments to the Cavalry/Mercer Notes were evaluated in terms of ASC470, Debt, to determine if the amendments to the Cavalry/Mercer Notes 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 Cavalry/Mercer 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 Cavalry and Mercer valued at $238,182 using a Black-Scholes valuation model and the conversion of certain warrants held by Cavalry and Mercer 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 (see note 11 above) and the value of full rachet provisions of certain of the warrants issued to the Cavalry and Mercer amounting to $841,003 (see note 14 below), the amendment of the Cavalry/Mercer 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			June 30, 2023 Amount, net		December 31, 2022 Amount, net
Cavalry Fund I LP		10.00	%	December 30, 2023		1,066,754		96,147		-			1,162,901		1,133,301
Mercer Street Global Opportunity Fund, LLC		10.00	%	December 30, 2023		1,091,754		96,438		-			1,188,192		1,133,301
Quick Capital, LLC		8.00	%	December 20, 2023		62,857		138		(44,340	)		18,655		-
1800 Diagonal Street Lending, LLC*		13.00	%	May 10, 2024		105,480		708		(90,782	)		15,406		-
		17.33	%	March 13, 2024		62,700		506		(58,810	)		4,396		-
2023 convertible notes		8.00	%	February 13, 2024 to June 21, 2024		700,000		16,798		(269,172	)		447,626		-
Total convertible notes payable					$	3,089,545	$	210,735	$	(463,104	)	$	2,837,176	$	2,266,602

* These notes were repaid on August 3, 2023. See note 18.

Interest expense totaled $69,320 and $43,793 for the three months ended June 30, 2023 and 2022, respectively, and $129,057 and $88,172 for the six months ended June 30, 2023 and 2022, respectively.

Amortization of debt discount totaled $88,687 and $0 for the three months ended June 30, 2023 and 2022, respectively, and $111,654 and $263,200 for the six months ended June 30, 2023 and 2022, respectively.

The Cavalry, Mercer and 1800 Diagonal Street 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.  

On May 19, 2023, Cavalry converted $25,000 of principal into 2,173,913 shares of Common Stock at a conversion price of $0.0115 per share realizing a loss on conversion of $18,478. 

The balance of the Cavalry Note plus accrued interest at June 30, 2023 was $1,162,901.

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 June 30, 2023 was $1,188,192.

Quick Capital, LLC

On June 20, 2023, the Company closed a transaction with Quick Capital, LLC pursuant to which the Company received net proceeds of $50,000, after an original issue discount and fees of $12,857 in exchange for the issuance of a $62,857 Convertible Note, bearing interest at 8% per annum, which interest is earned on issuance of the note, and maturing on December 20, 2023. The Note is convertible into shares of Common Stock at an initial conversion price of $0.0115 per share, in addition, the Company issued a warrant exercisable for 5,465,826 shares of Common Stock at an initial exercise price of $0.0115 per share.

The balance of the Quick Capital Note plus accrued interest at June 30, 2023 was $18,655, net of unamortized debt discount of $44,340.

1800 Diagonal Street Lending LLC

● On May 10, 2023, the Company closed a transaction with 1800 Diagonal Street Lending LLC (“1800 Diagonal”) pursuant to which the Company received net proceeds of $100,000, after an original issue discount and fees of $17,320 in exchange for the issuance of a $117,320 Convertible Note (the “May 1800 Diagonal Note”), bearing interest at 13% per annum, which interest is earned on issuance of the note, and maturing on May 10, 2024. The May 1800 Diagonal Note was convertible into shares of Common Stock at a variable conversion rate of 60% of the lowest trading price twenty trading days before conversion.     The balance of the May 1800 Diagonal Note plus accrued interest at June 30, 2023 was $15,406, net of unamortized debt discount of $90,782.

● On June 13 2023, the Company closed a transaction with 1800 Diagonal, pursuant to which the Company received net proceeds of $50,000, after an original issue discount and fees of $12,700 in exchange for the issuance of a $62,700 Convertible Note (the “June 1800 Diagonal Note”), bearing interest at 17.33% per annum, which interest is earned on issuance of the note, and maturing on March 13, 2024. The June 1800 Diagonal Note was convertible into shares of Common Stock at a variable conversion rate of 60% of the lowest trading price twenty trading days before conversion.    The balance of the June 1800 Diagonal Note plus accrued interest at June 30, 2023 was $4,396, net of unamortized debt discount of $58,810.   The two 1800 Diagonal Notes were repaid by the Company on August 3, 2023 (see note 18).

2023 Convertible Notes

Between February 13, 2023 and June 21, 2023, the Company entered into Securities Purchase Agreements with 12 accredited investors, pursuant to which the Company received an aggregate of $700,000 in gross proceeds in a private placement through the issuance of:

● Convertible Promissory Notes (the “2023 Notes” and each a “2023 Note”); and

● five-year warrants (the “2023 Warrants”) to purchase an aggregate 66,335,391 shares of Common Stock at an exercise price of $0.0115 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events).

The 2023 Notes mature in 12 months, bear 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 2023 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 2023 Warrants for public resale.

The 2023 Notes and the 2023 Warrants contain conversion limitations providing that a holder thereof may not convert the 2023 Notes or exercise the 2023 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 2023 Notes plus accrued interest at June 30, 2023 was $447,626, net of unamortized debt discount of $269,172.