NOTES PAYABLE & NOTES PAYABLE – RELATED PARTY

9 Months Ended

Sep. 30, 2022

Debt Disclosure [Abstract]

NOTES PAYABLE & NOTES PAYABLE – RELATED PARTY

5. NOTES PAYABLE & NOTES PAYABLE – RELATED PARTY

At September 30, 2022, the Company had outstanding notes payable of $1,088,421 and outstanding notes payable – related party of $4,152,611, compared to $1,088,421 and outstanding notes payable – related party of $4,064,211 at December 31, 2021. The notes payable and notes payable – related party and accrued interest of 15% are due within 10 days of a demand notice of the holders. There has been no notice of default or demand issued by any holder. The related party is Nicholas Gallagher, a shareholder and director of the Company, who also holds the full balance of the notes payable – related party described above. The notes are due upon demand; therefore, all discounts have been immediately expensed to finance costs.

During the nine months ended September 30, 2022, the Company borrowed no additional amounts under the notes payable and a net $83,980 under the notes payable – related party. The amount borrowed during the period of $83,980 consists of a principal balance of $88,400 less a discount of 5%, or $4,420. During the nine months ended September 30, 2021, the Company borrowed additional amounts of net $25,000 under the notes payable and a net $253,500 under the notes payable – related party. The amount borrowed during the nine months ended September 30, 2021 for the notes payable of $25,000 consists of principal balance of $26,316 less a discount of 5%, or $1,316 and for the notes payable – related party of $253,500 consists of principal balance of $266,842 less a discount of 5%, or $13,341.

During the three and nine months ended September 30, 2022, the Company incurred finder fees totaling $1,650 and $2,969, respectively to related party entities compared to $4,875 and $8,355 for the three- and nine-month periods ended September 30, 2021, respectively. Interest of $196,442 and $585,261 was expensed during the three- and nine-month periods ended September 30, 2022, respectively, of which $155,626 and $462,814 was to related parties, respectively, which is included in interest expense and finance costs – related party on the condensed consolidated statements of operations, compared to interest of $183,175 and $541,864, of which $142,952 and $421,982 was to related parties, for the three- and nine-month periods ended September 30, 2021, respectively. Interest and finders fees are included in accounts payable and accrued liabilities, interest payable and interest payable – related party on the condensed consolidated balance sheet at September 30, 2022.

Inter-Creditor Agreement

As a result of an Amended and Restated Loan, Security, and Intercreditor Agreement (the “Amended Agreement”) dated November 1, 2019 and a First Amendment dated August 25, 2021, for each holder of the notes payable, whether or not a related party:

1. The borrower and holder entered into a Deed of Trust whereunder the notes are secured by a security interest in all real property, claims, contracts, agreements, leases, permits and the like.

2. The Company entered into a written Guaranty (“Guaranty”) whereunder, among other conditions, the Company unconditionally guarantees and promises to pay to the order of each holder the principal sum and all interest payable on each note payable held by such holder when and as the same becomes due, whether at the stated maturity thereof, by acceleration, call for redemption, tender, or otherwise. The Company is not in default as no demand has been made for payment or delivery.

3. Mr. Gallagher, at his option, has the right to convert outstanding but unpaid and future interest on his note into shares of the Company’s common stock at $0.015 per share.

4. All loans by Mr. Gallagher and any additional loans made by Mr. Gallagher are designated as Senior Notes and accounted for as Notes payable – related party and all loans by the other holders made prior to August 25, 2021 were designated as Junior Notes. Additionally, notes arising in the future to certain unrelated parties are also designated as Senior notes. Senior Notes, which include principal and interest are entitled to be repaid in full before any of the Junior Notes are repaid.

5. The Company confirmed that the written Guaranty extends to the repayment of additional loans made by the holders.

6. The Company confirmed that repayment of additional loans will be and remain secured by the Deed of Trust.