CONVERTIBLE NOTES PAYABLE

12 Months Ended

Dec. 31, 2023

Debt Disclosure [Abstract]

CONVERTIBLE NOTES PAYABLE

NOTE 13 – CONVERTIBLE NOTES PAYABLE

On November 29, 2021, the Company entered into a securities purchase agreement with certain institutional investors (“Investors”). Pursuant to the securities purchase agreement, the Company sold, and the Investors purchased, approximately $37,714,966, which consisted of approximately $27,585,450 in cash and $4,762,838 of existing debt of the Company which was exchanged for the notes and warrants issued in this offering principal amount of senior secured convertible notes and 2,514,331 warrants valued at $36,516,852. The senior notes were issued with an original issue discount of 6%, bear interest at the rate of 6% per annum, and mature after 6 months, on May 30, 2022. The senior notes are convertible into shares of the Company’s common stock, par value $0.001 per share at a conversion price per share of $15.00, subject to adjustment under certain circumstances described in the senior notes. To secure its obligations thereunder and under the securities purchase agreement, the Company has granted a security interest over substantially all of its assets to the collateral agent for the benefit of the Investors, pursuant to a pledge and security agreement. Upon the listing of the common stock on a national exchange and certain other conditions being met, the senior notes issued in this offering will automatically convert into common stock at the conversion price set forth in the senior notes. The Company paid $2,200,000 and a warrant to purchase 200,000 shares of common stock valued at $2,904,697 as commission for the offering.

The maturity date of the senior notes was extended by the Company on May 27, 2022 from May 30, 2022 to November 30, 2022, which was accounted for as a debt modification. The maturity date of the senior notes may be extended by the holders under other circumstances specified therein. If the Company is unable to extend the senior notes or elects not to do so, the Company will be required to repay the senior notes through equity issuances, additional borrowings, cash flows from operations and/or other sources of liquidity. The warrants are exercisable for five (5) years to purchase an aggregate of 2,514,331 shares of common stock at an exercise price per share of $19.50, subject to adjustment under certain circumstances described in the warrants.

Upon the issuance of certain convertible notes, the Company determined that the features associated with the embedded conversion option embedded in the notes, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions. Upon the consummation of a 1:300 reverse split on February 17, 2022, the Company determined it had a sufficient number of authorized and unissued shares to cover all potential future conversion transactions and the derivative liabilities were eliminated.

On July 22, 2022, simultaneously with the listing of the Company’s common stock on Nasdaq, the Company issued 6,896,903 shares of common stock for the conversion of its senior secured convertible notes in the principal amount of $37,714,966 together with accrued interest in the amount of $1,470,884. The Company realized a gain on conversion of $2,625,378.

On September 12, 2022, in exchange for the waiver of liquidated damages in the amount of $2,726,022 due under the Registration Rights Agreement dated November 29, 2021, by and among the Company and certain of its convertible note and warrant holders party thereto, the Company reduced the exercise price of warrants to purchase 6,512,773 shares of common stock from $7.52 per share to $5.50 per share, in addition to issuing additional warrants to purchase 2,726,022 shares of common stock at $5.50 per share. The Company realized a deemed dividend of $462,556 as result of the repricing of certain warrants. The Company recorded an expense of $7,408,681 for the issuance of new warrants for the waiver of liquidated damages.

On July 3, 2023, the Company closed a bridge financing in the principal amount of $1,031,250 for a purchase price of $825,000 with certain accredited investors. The bridge notes matured on July 31, 2023 and were personally guaranteed by the Company’s Chief Executive Officer. The bridge notes were exchanged into the senior secured offering which closed on July 31, 2023 and are retired.

On July 31, 2023, the Company entered into a Purchase Agreement with certain institutional investors as purchasers whereby, the Company sold, and the investors purchased, approximately $15,000,000, which consisted of approximately $13,188,750 in cash and $1,031,250 of existing debt of the Company which was exchanged for the notes and warrants issued in this offering in principal amount of senior secured convertible notes and warrants and $500,000 in notes issued as commission. The transaction closed on August 1, 2023. The Senior Notes were issued with an original issue discount of 16.67%, do not bear interest, unless in the event of an event of default, in which case the notes bear interest at the rate of 18% per annum until such default has been cured, and mature after 24 months, on July 31, 2025. The aggregate principal amount of the notes is $18,000,000. The Company will pay to the Investors an aggregate of $1,000,000 per month beginning on the last business day of the sixth (6th) full calendar month following the issuance thereof. The Senior Notes are convertible into shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), at a conversion price per share of $1.50, subject to adjustment under certain circumstances described in the Senior Notes. There is a 125% conversion premium for any principal converted to shares of common stock. In occurrence of an event of default, until such event of default has been cured, the Holder may, at the Holder’s option, convert all, or any part of, the Conversion Amount (into shares of Common Stock at a conversion rate equal to the quotient of (x) the Redemption Premium of the Conversion Amount, divided by (y) the greater of (A) 90% of the lowest VWAP of the Common Stock for the three (3) Trading Days immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, and (B) the lesser of (1) 80% of the VWAP of the Common Stock as of the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, and (2) 80% of the price computed as the quotient of (x) the sum of the VWAPs of the Common Stock for each of the three (3) Trading Days with the lowest VWAP of the Common Stock during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice, divided by (y) three (3) and (II) the floor price of $0.196. To secure its obligations thereunder and under the Purchase Agreement, the Company has granted a security interest over substantially all of its assets to the collateral agent for the benefit of the Investors, pursuant to a security agreement and a related trademark security agreement. The Company has the option to redeem the Senior Notes at a 10% redemption premium. There is a 125% change in control redemption premium. The maturity date of the Senior Notes also may be extended by the holders under circumstances specified therein. Danny Meeks, the Company’s Chief Executive Officer, and the Company’s subsidiaries each guaranteed the Company’s obligations under the Senior Notes. In the event of default, the Company shall immediately pay to the Holder an amount in cash representing (i) all outstanding Principal and accrued and unpaid late charges on such principal, multiplied by (ii) the Redemption Premium, in addition to any and all other amounts due hereunder, without the requirement for any notice or demand or other action by the holder or any other person or entity, provided that the Holder may, in its sole discretion, waive such right to receive payment upon a bankruptcy event of default. The Warrants are exercisable for five years to purchase an aggregate of 4,420,460 shares of Common Stock at an exercise price of $0.01, subject to adjustment under certain circumstances described in the Warrants. There were an additional 866,441 warrants issued at an exercise price of $1.50 per share for a period of five years as commission for the offering, the Company credited additional paid in capital $3,279,570 and $753,567 for a debt discount for the fair value of warrants issued in its senior secured debt offering and the warrants issued as commission for its senior secured debt offering, respectively. Further, there was a $3,850,000 debt discount created for the offering costs and original issuance discount on the Senior Notes.

The Company estimated the fair value of the warrants using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 148.60% to 149.08%, (3) risk-free interest rate of 4.18% - 4.70%, and (4) expected life of 5.01 years.

On August 21, 2023, as a result of the Company’s registered direct offering, the conversion price of the Senior Notes was reduced from $1.50 to $1.02 per share. The Company credited additional paid in capital $5,022,200 for a deemed dividend for the triggering of certain price protection provisions in its senior secured debt. During the nine months ended September 30, 2023, the Company credited additional paid in capital $5,022,200 for a deemed dividend for the triggering of certain price protection provisions in its senior secured debt. The Company estimated the fair value of the deemed dividend using the Black-Scholes Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 148.60%, (3) risk-free interest rate of 4.70%, and (4) expected life of 2.95 years.

During the year ended December 31, 2023, there was amortization of debt discount of $2,219,221.

As of December 31, 2023, the carrying value of the convertible notes was $12,098,241, net of unamortized debt discount of $5,901,759.

As of December 31, 2023, the current and non-current portions of the note are $8,065,494 and $4,032,747, net unamortized debt discounts of $3,394,506 and $1,967,253, respectively.

The maturity date of the convertible notes outstanding at December 31, 2023 is:

Maturity Date	Principal Balance Due
2024	$	12,000,000
2025	$	6,000,000
Total Principal Outstanding	$	18,000,000