NOTES PAYABLE

9 Months Ended

Sep. 30, 2023

NOTES PAYABLE.

NOTES PAYABLE

NOTE 9.   NOTES PAYABLE

Our notes payable consisted of the following:

	September 30, 2023						December 31, 2022
	Third-party		Related-party		Total		Third-party		Related-party		Total
2022 12% Notes	$	13,167,796		332,204		13,500,000	$	13,167,796	$	332,204	$	13,500,000
Trees Transaction Notes		—		314,154		314,154		—		1,191,865		1,191,865
Green Tree Acquisition Notes		774,750		2,725,250		3,500,000		774,750		2,725,250		3,500,000
Green Man Acquisition Notes		1,500,000		—		1,500,000		1,500,000		—		1,500,000
Unamortized debt discount		(1,123,845)		(165,746)		(1,289,591)		(1,527,346)		(361,587)		(1,888,933)
Total debt		14,318,701		3,205,862		17,524,563		13,915,200		3,887,732		17,802,932
Less: Current portion		(1,556,433)		(2,857,724)		(4,414,157)		(179,827)		(1,723,517)		(1,903,344)
Long-term portion	$	12,762,268	$	348,138	$	13,110,406	$	13,735,373	$	2,164,215	$	15,899,588

Trees Transaction Notes

In January 2022, with the completion of the Trees MLK acquisition, we are obligated to pay the Seller cash equal to $384,873 in equal month installments over a period of 24 months. The payments began on June 15, 2022 and the payment is equal to $16,036 per month.

In December 2022, with the completion of the Green Tree Acquisition, we are obligated to pay the Seller cash equal to $3,500,000 in equal month installments over a period of 15 months. Payments of $233,333 are due monthly beginning in September 2023. The relative fair value of this obligation resulted in a debt discount of $512,367. We recorded amortization of debt discount expense from this obligation of $251,520 and nil for the nine months ended September 30, 2023 and September 30, 2022, respectively, and $96,672 and nil for the three months ended September, 2023 and September 30, 2022, respectively.    

In December 2022, with the completion of the Green Man Acquisition, we are obligated to pay the Seller cash equal to $1,500,000 in equal month installments over a period of 18 months. The payments begin in December 2023 and the payment is equal to $83,333 per month. The relative fair value of this obligation resulted in a debt discount of $275,154. We recorded amortization of debt discount expense from this obligation of $115,171 and nil for the nine months ended September 30, 2023 and September 30, 2022, respectively, and $39,545 and nil for the three months ended September 30, 2023 and September 30, 2022, respectively.

12% Notes

On September 15, 2022, we entered into a Securities Purchase Agreement with certain accredited investors (the “12% Investors”), pursuant to which we agreed to issue and sell senior secured convertible notes (the “12% Notes”) with an aggregate principal amount of $13,500,000 to such 12% Investors, in exchange for payment by certain 12% Investors of an aggregate amount of $10,587,250 in cash, as well as cancellation of outstanding indebtedness in the aggregate amount of $2,912,750 represented by the 10% Notes discussed below.  

In connection with the 12% Notes, the 12% Investors received warrants (the “12% Warrants”) to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount with an exercise price of $0.70 per share, which equals an aggregate of warrants to purchase 3,857,150 shares of Common Stock.  The lead 12% Investor received an additional 10% warrant coverage on the aggregate principal amount of 12% Notes for total additional warrants to purchase 1,928,571 shares of Common Stock.  The lead 12% Investor also will receive a five percent fee on the aggregate principal amount of the 12% Notes.  This total fee in the amount of $675,000 was recorded as a debt discount and will be amortized over the life of the loan.  The 12% Notes bear interest at an annual rate of 12% and will mature on September 16, 2026.  The 12% Investors have the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 12% Notes into Common Stock at a fixed conversion price equal to $1.00 per share.  

The relative fair value of the new funding on the 12% Warrants was recorded as a debt discount and additional paid-in capital of $569,223.  The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $103,577.  We recorded amortization of debt discount expense from the 12% Notes of $232,651 and $11,931 for the nine months ended September 30, 2023 and 2022, respectively, and $78,404 and $11,931 for the three months ended September 30, 2023 and September 30, 2022, respectively.  We determined there was no beneficial conversion feature on the 12% Notes issued.  The 12% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 12% Warrants as of September 15, 2022, were:

Current stock price	$	0.20
Exercise price	$	0.70
Risk-free interest rate		3.66%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		107%

In connection with the acquisition of Station 2, LLC in February 2023, we agreed to issue and sell an additional 12% Note with an aggregate principal amount of $384,873. The relative fair value of this 12% Note resulted in a debt discount of $50,918. We recorded amortization of debt discount expense from this Note of $22,197 for the nine months ended September 30, 2023, and $5,164 for the three months ended September 30, 2023. This 12% Note is treated as conventional debt and was relieved as part of the Station 2 license transfer (see Note 5).

10% Notes

In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “10% Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “10% Notes”) with an aggregate principal amount of $2,940,000 in exchange for payment to us by certain 10% Investors of an aggregate amount of $1,940,000 in cash, as well as cancellation of outstanding indebtedness of previously issued 15% notes in the aggregate amount of $1,000,000.  In connection with the issuance of the 10% Notes, the holders of the 10% Notes received warrants (the “10% Warrants”) to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share.  In the aggregate, this equals 1,050,011 shares of our common stock.  The 10% Notes bear interest at an annual rate of 10% and will mature on December 23, 2023.  The 10% Investors have the option at any time to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share.  The 10% Warrants are exercisable at an exercise price of $0.56 per warrant.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $254,400.  The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $131,000. We recorded amortization of debt discount expense from the 10% Notes of nil and $84,375 for the nine months ended September 30, 2023 and 2022, and nil and $41,352 for the three months ended September 30, 2023 and September 30, 2022, respectively. We determined there was no beneficial conversion feature on the 10% Notes issued in December 2020.  The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10% Warrants as of December 23, 2020, were:

Current stock price	$	0.53
Exercise price	$	0.56
Risk-free interest rate		0.38%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		115%

On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited 10% Investor, pursuant to which we issued and sold 10% Notes with an aggregate principal amount of $1,660,000 to such 10% Investor.  The 10% Notes are part of an over-allotment option exercised by us in connection with the convertible note offering consummated on December 23, 2020, as discussed above. In connection with the issuance of the 10% Notes, the holder received warrants to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share. In the aggregate, this equals 592,858 shares of our common stock with a par value $0.001 per share.  The 10% Notes bear interest at an annual rate of 10% and will mature on February 8, 2024.  The 10% Investor has the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of $0.56 per warrant.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $429,300.  We determined that this 10% Note had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.66 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $0.90, multiplied by the number of shares into which the debt is convertible).  The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued.  We recorded $417,539 as additional paid in capital and a debt discount and included in our consolidated statement of operations.  We recorded amortization of debt discount expense from the February 2021 10% Notes of nil and $594,721 for the nine months ended September 30, 2023 and 2022, respectively, and nil and $454,741 for the three months ended September 30, 2023 and September 30, 2022, respectively. The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10% Warrants as of February 8, 2021, were:

Current stock price	$	1.12
Exercise price	$	0.56
Risk-free interest rate		0.48%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		118%

On April 20, 2021, we entered into a Securities Purchase Agreement with accredited 10% Investors, pursuant to which we issued and sold 10% Notes with an aggregate principal amount of $2,300,000 to such 10% Investors.  The 10% Notes are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering of $4,600,000 consummated on December 23, 2020, and February 8, 2021.  In connection with the issuance of the 10% Notes, each holder received warrants to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share, except that the warrants coverage to one Investor acting as lead investor in the raise received approximately 35.5% of the aggregate principal amount invested.  The 10% Notes bear interest at an annual rate of 10% and will mature on April 20, 2024.  The 10% Investors have the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share.  The 10% Warrants are exercisable at an exercise price of $0.56 per warrant.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $810,000.  We determined that these 10% Notes had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.49 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $0.83, multiplied by the number of shares into which the debt is convertible).  The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued.  We recorded $692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations.  We recorded amortization of debt discount expense from the April 2021 10% Notes of nil and $1,023,577 for the nine months ended September 30, 2023 and 2022, respectively, and nil and $775,638 for the three months ended September 30, 2023 and 2022, respectively.  The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10% Warrants as of April 20, 2021, were:

Current stock price	$	0.83
Exercise price	$	0.56
Risk-free interest rate		0.81%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		115%

In September 2022, $2,912,750 of the 10% Notes were exchanged for the 12% Notes (see above) and the remaining $3,987,250 was paid in full.  Of the remaining debt discount, $207,045 was expensed to extinguishment of debt and $1,125,844 was expensed to amortization of debt discount.