Debt

3 Months Ended

Sep. 30, 2022

Debt Disclosure [Abstract]

Debt

6.  Debt

Notes Payable - Related Parties

The following is a summary of notes payable – related parties on September 30, 2022 and June 30, 2022: 

	September 30, 2022
	Outstanding		Accrued
	Principal		Interest
Related entity 1	$	9,844,207	$	182,010
Related entity 2		9,204,049		169,910
Related entity 3		506,188		14,470
Related entity 4		1,733,785		135,343
Related entity 5		–		–
Related entity 6		447,856		3,537
	$	21,736,085	$	505,270

	June 30, 2022
	Outstanding		Accrued
	Principal		Interest
Related entity 1	$	8,261,310	$	120,050
Related entity 2		8,213,976		106,951
Related entity 3		453,052		11,072
Related entity 4		1,512,924		123,996
Related entity 5		–		–
Related entity 6		366,800		786
	$	18,808,062	$	362,855

The following is a summary of current and long-term notes payable – related parties as of September 30, 2022 and June 30, 2022: 

	September 30, 2022
	Current		Long-Term
	Portion		Portion		Total
Related entity 1	$	5,320,094	$	4,524,113	$	9,844,207
Related entity 2		4,541,571		4,662,478		9,204,049
Related entity 3		499,438		6,750		506,188
Related entity 4		1,733,785		–		1,733,785
Related entity 5		–		–		–
Related entity 6		447,856		–		447,856
	$	12,542,744	$	9,193,341	$	21,736,085

	June 30, 2022
	Current		Long-Term
	Portion		Portion		Total
Related entity 1	$	3,737,197	$	4,524,113	$	8,261,310
Related entity 2		3,206,154		5,007,822		8,213,976
Related entity 3		446,302		6,750		453,052
Related entity 4		1,512,924		–		1,512,924
Related entity 5		–		–		–
Related entity 6		366,800		–		366,800
	$	9,269,377	$	9,538,685	$	18,808,062

All notes are unsecured, bear interest at 3% per annum, and are due 360 days from the date of issuance, ranging from June 25, 2020, to June 25, 2022. Each entity has significant influence or common ownership with the Company’s Chief Executive Officer. Several of these notes are in default. The Company has not received any notices of default or demands for payment. All notes are unsecured and those which are past-due are due on demand. As of September 30, 2022, and 2021, total accrued interest for Notes Payable-Related Parties was $505,270 and $362,855, respectively. The Company recorded interest expense from Notes Payable-Related Party for fiscal quarters ending September 30, 2022, and 2021, of $142,415 and $180,708, respectively.

In September 2021, the Company converted $4,428,589 in principal and $102,054 in accrued interest into 6,937 shares of Series G convertible preferred stock. As of September 30, 2022, the remaining outstanding amounts of the related party notes payable were extended through September 30, 2026.

Pacific Stem and IHG’s EIDL loans, dated June 7, 2020 and May 10, 2020, respectively, include a 3.75% interest rate for up to 30 years; the payments are deferred for the first two years (during which interest will accrue), and payments of principal and interest are made over the remaining 28 years. The EIDL loan has no penalty for prepayment. The EIDL loans attach collateral which includes the following property that EIDL borrower owns or shall acquire or create immediately upon the acquisition or creation thereof: all tangible and intangible personal property, including, but not limited to: (a) inventory, (b) equipment, (c) instruments, including promissory notes (d) chattel paper, including tangible chattel paper and electronic chattel paper, (e) documents, (f) letter of credit rights, (g) accounts, including health-care insurance receivables and credit card receivables, (h) deposit accounts, (i) commercial tort claims, (j) general intangibles, including payment intangibles and software and (k) as-extracted collateral as such terms may from time to time be defined in the Uniform Commercial Code. The security interest the EIDL borrower grants includes all accessions, attachments, accessories, parts, supplies and replacements for the collateral, all products, proceeds and collections thereof and all records and data relating thereto. The EIDL loans are technically in default as a result of a change in ownership without SBA’s prior written consent. The Company has contacted the Small Business Administration regarding the transfer of ownership and has not yet finalized the transfer of ownership.

Likido’s COVID-19 Government Loan includes a 2.5% interest rate for up to six years; the payments are deferred for the first year (during which interest will accrue).

Watson’s outstanding loans includes an interest rate of 5% with a maturity date of April 29, 2025. The outstanding loans are collateralized by personal property and include monthly payments in the amount of $3,320 with a balloon payment at the maturity date in the amount of $466,460. Watson’s Letter of Credit includes an interest rate of Prime + 1% and a maturity date of May 5, 2021.

Convertible Notes

On February 4, 2022, the Company” entered into a securities purchase agreement (“SPA”) with YA II PN, Ltd. (the “Buyer”) for issuance and sale of convertible debentures (the “Debentures”) in the aggregate principal amount of $3,000,000, including net proceeds received of $2,880,000 from February to March 2022.

The Debentures have a fixed conversion price of $0.9151 per share (the “Fixed Conversion Price”). The principal and interest, which will accrue at a rate of 5% per annum, payable under the Debentures will mature 15 months from the issuance date (the “Maturity Date”), unless earlier converted or redeemed by the Company. At any time before the Maturity Date, the Buyer may convert the Debentures into the Company’s common stock at the Fixed Conversion Price. Beginning on May 1, 2022, and continuing on the first day of each calendar month thereafter through February 1, 2023, the Principal amount plus a 20% redemption premium and plus accrued and unpaid interest will be subject to monthly redemption (“Monthly Redemption”). Under Monthly Redemption, the Company shall redeem an applicable redemption amount in accordance with the redemption schedule provided in the Debenture, which is subject to pro rata adjustment to reflect the conversion or redemption otherwise effected pursuant to the Debenture contemporaneous with or prior to the scheduled redemption date, in cash, in common stock through the Buyer’s conversion of the Debenture (at any time after the applicable redemption date), or a combination of both at the Company’s option. With respect to each Monthly Redemption all or partially in common stock, the conversion price shall be the lower of (1) the Fixed Conversion Price, or (2) 100% of the lowest daily VWAP during the ten consecutive trading days immediately preceding the date of conversion (the “Variable Conversion Price”). The conversion price shall be adjusted from time to time pursuant to the other terms and conditions of the Debenture. At no point will the conversion price be less than $0.01.

The Company, in its sole discretion, may redeem in cash amounts owed under the Debentures prior to the Maturity Date by providing the Buyer with advance written notice at least 10 trading days prior to such redemption, provided that the Shares are trading below the Fixed Conversion Price at the time of the redemption notice. The Company shall pay a redemption premium equal to 20% (the “Redemption Premium”) of the principal amount being redeemed.

In connection with the Debenture, the Company issued to the Buyer warrants equal to 30% coverage exercisable at a strike price equal to the Fixed Conversion Price determined at the date of the initial closing, or a total of 983,499 warrants to purchase common stock. The Warrants shall be exercisable for four years and shall be exercised on a cash basis provided the Company is not in default and the shares underlying the Warrant are subject to an effective registration statement at the time of the Investor’s exercise. There is a cashless provision.

The Company analyzed the conversion feature of the warrants and determined they did not need to be bifurcated under ASC 815. Based on adoption of ASU-2020-06, the debt will be accounted for as traditional convertible debt with no portion of the proceeds attributed to the conversion feature. The warrants issued with the debt will be accounted for as a debt discount and will be amortized as interest expense over the life of the note. The warrants were valued using the Monte Carlo model and the Company recognized $1,427,495 as a debt discount. Key variables used in the valuation are as follows: 

Volatility	Risk Free Rate	Stock Price	Term Remaining (Yrs)
225.50%	1.16%	$0.59	4.0

In connection with the Debenture, the Company incurred $120,000 in issuance costs. Furthermore, the Company issued 192,000 shares of common stock to the Buyer and broker at a fair value of $115,200. Both the issuance costs and fair value of common stock were recorded as a debt discount.

The total debt discounts related to the convertible notes were $1,659,442 and amortized using a straight-line method over a fifteen-month period. During the quarter year ended September 30, 2022, the Company amortized $332,865 of debt discount, incurred interest expense of $25,199, and accrued interest of $13,226.

The total redemption premiums related to the convertible notes were $600,000 and amortized using a straight-line method over a 10-month period, starting in May 2022. During the quarter ended September 30, 2022, the Company paid redemption premiums related of $40,000 and $140,000 in cash and stock, respectively. In addition, the Company recorded accretion of $180,000 related to interest expense.

During the quarter ended September 30, 2022, the Company redeemed $200,000 and $900,000 of the Debentures in cash and stock, respectively. 6,813,021 shares of the Company’s common stock were issued through the stock redemption.

The net balance of the convertible note, after unamortized debt discount of $891,607, was $628,392 as of September 30, 2022. See “Note 16. Subsequent Events” for additional redemptions after quarter ended September 30,2022.