Convertible Notes Payable

3 Months Ended

Mar. 31, 2024

Convertible Notes Payable [Abstract]

CONVERTIBLE NOTES PAYABLE

11 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 100,000 shares of Common Stock at an exercise price of $4.50 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 $4.50 to $0.345 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 100,000 shares of Common Stock underlying the Extension Warrants was increased to 1,304,348 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 1,730,057 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 $1.80 per share or above were amended effective December 30, 2022 to reduce such forced exercise price to $1.20 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 $0.345 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 ASC 470, 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 $4.50 to $0.345 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.

Effective December 30, 2023, on February 27, 2024, the Company again extended the maturity dates of each of the Cavalry/Mercer Notes to April 30, 2024, with an automatic one month extension each month until such time as the note is declared to be in default, other than the maturity date all other terms remained the same. The Company performed an analysis in terms of ASC 470 and it was determined that the extension was a debt modification, in addition, no additional consideration was paid for the maturity date extension.

Convertible notes payable consists of the following:

Description	Interest Rate			Maturity date	Principal		Accrued Interest		Unamortized debt discount			March 31, 2024 Amount, net		December 31, 2023 Amount, net
Cavalry Fund I LP		10.00	%	April 30, 2024	$	898,980	$	32,963	$	-		$	931,943	$	909,218
Mercer Street Global  Opportunity Fund, LLC		10.00	%	April 30, 2024		991,754		173,079		-			1,164,833		1,139,764
Red Road Holdings Corporation*		29.32	%	June 15, 2024		52,691		722		(14,457	)		38,956		41,771
		27.77	%	July 30, 2024		43,385		880		(18,419	)		25,846		18,683
		32.04	%	September 30, 2024		51,148		1,209		(32,843	)		19,514		3,109
Quick Capital, LLC*		11.12	%	September 30, 2024		114,286		2,348		(52,602	)		64,032		-
2023 and 2024 convertible notes		8.00 to 12.00	%	May 22, 2024 to February 21, 2025		2,335,001		127,735		(314,381	)		2,148,355		1,591,735
Total convertible notes payable					$	4,487,245	$	338,936	$	(432,702	)	$	4,393,479	$	3,704,280

* The Red Road Holdings Corporation and Quick Capital LLC, interest rates are an effective interest rate as these convertible notes have a fixed interest charge which is earned on the issuance date, regardless of when payments are made.

Interest expense totaled $110,769 and $59,737 for the three months ended March 31, 2024 and 2023, respectively.

Amortization of debt discount totaled $319,899 and $22,967 for the three months ended March 31, 2024 and 2023, respectively.

The Cavalry, Mercer and Red Road Holdings 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 LP

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 82,899 shares of Common Stock at an initial exercise price of $7.20 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 100,000 shares of Common Stock at an exercise price of $4.50 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 $4.50 to $0.345 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.  

Between August 24, 2023 and November 20, 2023, Cavalry converted $139,726 of interest and $192,774 of interest into 963,769 shares of Common Stock at a conversion price of $0.345 per share realizing a loss on conversion of $42,210.

On February 27, 2024, the maturity date of the notes was extended to April 30, 2024, , with an automatic one month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. Based on an analysis performed in terms of ASC470, the amendment to the agreement was determined to be a debt modification, there were no expenses incurred on the amendment and interest will be accrued at the effective interest rate.

The balance of the Cavalry Note plus accrued interest at March 31, 2024 was $931,943.

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 $6.90 per share, in addition, the Company issued a warrant exercisable for 82,899 shares of Common Stock at an initial exercise price of $7.20 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 100,000 shares of Common Stock at an exercise price of $4.50 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 $4.50 to $0.345 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.

Between May 19, 2023 and August 30, 2023, Mercer converted an aggregate of $100,000 into 289,856 shares of Common Stock at a conversion price of $0.345 per share, realizing a loss on conversion of $48,551.

On February 27, 2024, Cavalry entered into a note amendment with the company extending the maturity date of the convertible note to April 30, 2024. with an automatic one month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. Based on an analysis performed in terms of ASC 470, the amendment to the agreement was determined to be a debt modification, there were no expenses incurred on the amendment and interest will be accrued at the effective interest rate.

The balance of the Mercer Note plus accrued interest at March 31, 2024 was $1,164,833.

Red Road Holdings Corporation

● On September 9, 2023, the Company closed a transaction with Red Road Holdings Corporation (“RRH”) pursuant to which the Company received net proceeds of $125,000, after an original issue discount and fees of $21,900 in exchange for the issuance of a $146,900 Convertible Note (“RRH Note 1”), bearing interest at 13%, which interest is earned on issuance of the note, an effective interest rate of 29.3%, and maturing on June 15, 2024. The RRH Note 1 has mandatory monthly repayments of $18,444 which commenced on October 14, 2023. The RRH Note 1 is 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 RRH Note 1 plus accrued interest at March 31, 2024 was $38,956, net of unamortized debt discount of $14,457.

● On October 19, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $60,000, after an original issue discount and fees of $13,450 in exchange for the issuance of a $73,450 Convertible Note (“RRH Note 2”), bearing interest at 13%, which interest is earned on issuance of the note, an effective interest rate of 27.8%, and maturing on July 30, 2024. The RRH Note 2 has mandatory monthly repayments of $9,222 which commenced on November 30, 2023. The RRH Note 2 is 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 RRH Note 2 plus accrued interest at March 31, 2024 was $25,846, net of unamortized debt discount of $18,419.

● On December 20, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $50,000, after an original issue discount and fees of $13,250 in exchange for the issuance of a $63,250 Convertible Note (“RRH Note 3”), bearing interest at 15%, which interest is earned on issuance of the note, an effective interest rate of 32.0%, and maturing on September 30, 2024. The RRH Note 3 has mandatory monthly repayments of $8,082. The RRH Note 3 is 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 RRH Note 3 plus accrued interest at March 31, 2024 was $19,514, net of unamortized debt discount of $32,842.

Quick Capital, LLC

On March 4, 2024, the Company closed a transaction with Quick Capital, LLC pursuant to which the Company received net proceeds of $94,000, after an original issue discount and fees of $20,286 in exchange for the issuance of a $114,286 Convertible Note, bearing interest at an effective interest rate of 11.12% per annum, which interest is earned on issuance of the note, and maturing on September 4, 2024. The Note is convertible into shares of Common Stock at an initial conversion price of $0.345 per share, in addition, the Company issued a warrant exercisable for 357,764 shares of Common Stock at an initial exercise price of $0.345 per share.

The balance of the Quick Capital note plus accrued interest at March 31, 2024 was $64,032, net of unamortized debt discount of $52,602.

2023 and 2024 Convertible Notes

Between February 13, 2023 and November 27, 2023, the Company entered into Securities Purchase Agreements with 30 accredited investors (the “2023 Notes”), and between February 6, 2024 and February 21, 2024 (the “2024 Notes”), the Company entered into Securities Purchase Agreements with 4 accredited investors, pursuant to which the Company received an aggregate of $2,026,666 from the 2023 Notes and $308,335 from the 2024 Notes,  in gross proceeds in private placements through the issuance of:

● Convertible Promissory Notes (the “2023 Notes and 2024 Notes”); and

● five-year warrants to purchase an aggregate 5,696,586 shares of Common Stock (the “2023 Warrants”), at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events).

The 2023 Notes and the 2024 Notes mature between 3.5 months and 12 months, bear interest at rates between 8% and 12% per annum, and are convertible into shares of Common Stock at a conversion price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). The 2023 Notes and 2024 Notes may be prepaid at any time without penalty. The Company is under no obligation to register the shares of Common Stock underlying the 2023 Notes and the 2024 Notes or the 2023 Warrants for public resale.

The 2023 Notes, the 2024 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.

On December 14, 2023, two notes totaling $225,000 which matured on December 31, 2023 were rolled over for an additional 3 months to March 30, 2024. In exchange for the roll-over, the Company issued the note holders warrants exercisable for 292,463 shares of Common Stock at an exercise price of $0.345 per share. On May 4, 2024, the maturity date of the $200,000 note was further extended to June 14, 2024, and the maturity date of the $25,000 note was further extended to June 30, 2024. In exchange for the maturity date extension, the Company issued to note holders warrants exercisable for 292,463 shares of Common Stock at an exercise price of $0.345 per share.

On March 14, 2024, the Company extended the maturity date of 11 convertible notes maturing between February 13, 2024 and February 23, 2024 by an additional six months and as compensation for the extension, the note holders were issued warrants exercisable for 387,673 shares of Common Stock at an exercise price of $0.345 per share. The modification was assessed in terms of ASC 470 and determined to be a debt extinguishment, resulting in the warrant value of $66,047 being expensed as a loss on convertible notes.

The balance of the 2023 Notes and the 2024 Notes plus accrued interest at March 31, 2024 was $2,148,355, net of unamortized debt discount of $314,381.