| Convertible Notes | 9. CONVERTIBLE NOTES The following tables set forth the components
of the Company’s convertible notes as of March 31, 2021 and December 31, 2020:
March 31, 2021 December 31,
8% - 12% Convertible Promissory Notes (Bridge Notes) $ 1,178,787 $ 373,587
10% Unsecured Convertible Redeemable Notes – Variable Conversion Price 100,000 265,000
10% Secured Convertible Notes with Original Issuance Discounts (OID Notes) 153,250 153,250
12% Senior Secured Convertible Notes (Newbridge) – 52,572
12% Senior Secured Convertible Notes (Original TDH Notes) 829,122 882,175
12% Senior Secured Convertible Notes (TDH Secured Notes) 414,556 1,645,393
12% Senior Secured Convertible Notes (Additional Secured Notes) 78,766 260,315
Loan discounts (850,139 ) (385,266 )
Total convertible notes, net 1,904,342 3,247,026
Less: current portion of convertible notes, net (1,612,259 ) (2,349,677 )
Convertible notes, net $ 292,083 $ 897,349 8% - 12% Convertible Promissory Notes (Bridge
Notes) On November 30, 2020, the Company entered into
a securities purchase agreement with EMA Financial, LLC (“EMA”) pursuant to which the Company issued to EMA a nine-month 8%
convertible promissory note in the principal amount of $260,000 (the “EMA Note”) for a $234,000 investment. The term of the
EMA Note may be extended by EMA up to an additional year. The EMA Note is convertible into common stock of the Company at any time after
180 days from issuance. The conversion price of the EMA Note is equal to the lower of: (i) $0.06 per share, or (ii) 70% of the lowest
trading price of the common stock during the ten consecutive trading days including and immediately preceding the conversion date. On February 17, 2021, the terms of the EMA financing
were amended to (a) increase the principal amount of the EMA Note to $265,200, (b) reduce the conversion rate to $0.04, and (c) add a
three-year warrant to purchase up to 2,652,000 shares of the Company’s common stock, at an exercise price of $0.05 per share. ASC 470-20 requires proceeds from the sale of
a debt instrument with stock purchase warrants be allocated to the two elements based on the relative fair values of the debt instrument
without the warrants and of the warrants themselves at the time of issuance. In connection with the EMA warrant issuance, the Company
allocated a fair value of $71,909 to the stock warrants and recorded a debt discount which will be amortized to interest expense over
the term of the loan using the effective interest method so the debt, at its term, is recorded at its face value. The Company estimated
the fair value of this warrant at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price
on the date of grant of $0.06, (ii) the contractual term of the warrant of 3 years, (iii) a risk-free interest rate of 0.19% and (iv)
an expected volatility of the price of the underlying common stock of 224.9%. On December 17, 2020, the Company entered into
a note purchase agreement with Quick Capital, LLC (“Quick Capital”) pursuant to which the Company issued Quick Capital a nine-month
convertible promissory note in the principal amount of $113,587 (the “Quick Note”) for a $100,000 investment, which included
an original issuance discount of 8% and a $4,500 credit for Quick Capital’s transaction expenses. The Quick Note may be converted
into shares of common stock at (i) a 30% discount to the lowest price per share of any debt or securities offering by the Company if the
Company’s common stock is listed on NASDAQ or NYSE within 90 days of the Quick Note issuance; (ii) the lesser of (A) $0.04 or (B)
a 30% discount to the average of the two lowest closing prices during the ten trading days prior to the conversion date; (iii) $0.04 per
share, upon an event of default as described in the Note. The Company analyzed the conversion feature of
the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial
conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $12,621. This
amount is recorded as a debt discount and is amortized as interest expense over the term of the related convertible note. In connection with the Quick Note issuance, the
Company also issued a three-year warrant to purchase up to an aggregate of 1,183,197 shares of the Company’s common stock at an
exercise price of $0.05 per share. The Company estimated the fair value of this warrant at date of grant using the Black-Scholes option
pricing model using the following inputs: (i) stock price on the date of grant of $0.05, (ii) the contractual term of the warrant of 3
years, (iii) a risk-free interest rate of 0.19% and (iv) an expected volatility of the price of the underlying common stock of 224.3%.
As a result, the Company allocated a fair value of $33,056 to the stock warrants and recorded debt discount to be amortized as interest
expense over the term of the related convertible note. On February 9, 2021, the Company entered into
a securities purchase agreement with Auctus Fund, LLC (“Auctus”) pursuant to which the Company issued to Auctus a twelve-month
12% convertible promissory note in the principal amount of $500,000. The note is convertible into shares common stock at a conversion
price of $0.06 per share. The net proceeds received by the Company were $428,000 after deducting fees and expenses related to the transaction. The Company analyzed the conversion feature of
the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial
conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $155,875. This
amount is recorded as a debt discount and is amortized as interest expense over the term of the related convertible note. In connection with the note issuance, Auctus was
also issued a five-year warrant to purchase up to an aggregate of 6,250,000 shares of the Company’s common stock, at an exercise
price of $0.06 per share. The Company estimated the fair value of this warrant at date of grant using the Black-Scholes option pricing
model using the following inputs: (i) stock price on the date of grant of $0.14, (ii) the contractual term of the warrant of 5 years,
(iii) a risk-free interest rate of 0.48% and (iv) an expected volatility of the price of the underlying common stock of 259.2%. As a result,
the Company allocated a fair value of $272,125 to the stock warrants and recorded debt discount to be amortized as interest expense over
the term of the related convertible note. On March 11, 2021, the Company entered into a
securities purchase agreement with FirstFire Global Opportunities Fund, LLC (“FirstFire”) pursuant to which the Company issued
to FirstFire a twelve-month 12% convertible promissory note in the principal amount of $300,000. At any time after 180 days from the date
of issuance, FirstFire may convert any amount due under the note into shares of the Company’s common stock at a conversion price
of $0.06 per share. The net proceeds received by the Company were $238,500 after deducting fees and expenses related to the transaction. The Company analyzed the conversion feature of
the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial
conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $93,220. This
amount is recorded as a debt discount and is amortized as interest expense over the term of the related convertible note. In connection with the issuance of the note, FirstFire
was also issued a five-year warrant to purchase up to an aggregate of 3,750,000 shares of the Company’s common stock, at an exercise
price of $0.06 per share. The Company estimated the fair value of this warrant at date of grant using the Black-Scholes option pricing
model using the following inputs: (i) stock price on the date of grant of $0.13, (ii) the contractual term of the warrant of 5 years,
(iii) a risk-free interest rate of 0.78% and (iv) an expected volatility of the price of the underlying common stock of 258.6%. As a result,
the Company allocated a fair value of $145,280 to the stock warrants and recorded debt discount to be amortized as interest expense over
the term of the related convertible note. At March 31, 2021, the principal balance of these
notes was $1,178,787 and the remaining balance on the associated loan discounts was $788,531. 10% Unsecured Convertible Redeemable Note
– Variable Conversion Price On July 9, 2019, the Company issued a convertible
redeemable note to an unrelated party in the principal amount of $100,000 less $5,000 in third party fees resulting in net cash proceeds
to the Company of $95,000. The note accrues interest at a rate of 10% per annum, was due on July 9, 2020 and is convertible into common
stock of the Company at the option of the noteholder six months after issuance at a rate equal to a 30% discount from the lowest volume
weighted average price of the Company’s common stock in the preceding 20 trading days. The Company analyzed the conversion feature of
the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial
conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $51,730. This
amount is recorded as a debt discount and is amortized as interest expense over the term of the note. The Company also analyzed the conversion feature
of the note for derivative accounting consideration and determined that the embedded conversion features should be classified as a derivative
because the exercise price of the convertible note is subject to a variable conversion rate. The aggregate fair value of the derivative
at the issuance date of the note was $85,410 which was recorded as a derivative liability on the balance sheet. The Company recorded a
debt discount of $43,270 which was up to the face value of the convertible note with the excess fair value at initial measurement of $42,140
being recognized as derivative expense. On October 2, 2020, the lender converted all amounts
outstanding on the note into 1,535,507 shares of common stock. On March 1, 2020, the Company issued a convertible
redeemable note to an unrelated party in the principal amount of $100,000. The note accrues interest at a rate of 10% per annum, was due
on August 31, 2020 and is convertible into common stock of the Company at the option of the noteholder at a rate equal to a 30% discount
from the lowest volume weighted average price of the Company’s common stock in the preceding 20 trading days. The Company analyzed the conversion feature of
the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial
conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $44,129. This
amount is recorded as a debt discount and is amortized as interest expense over the term of the note. In connection with the note issuance, the Company
also issued a five-year warrant to purchase up to an aggregate of 500,000 shares of the Company’s common stock at an exercise price
of $0.10 per share. ASC 470-20 requires proceeds from the sale of a debt instrument with stock purchase warrants be allocated to the two
elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance.
This resulted in the debt being recorded at a discount which will be amortized to interest expense over the term of the loan using the
effective interest method so the debt, at its term, is recorded at its face value. The Company estimated the fair value of this warrant
at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $0.10,
(ii) the contractual term of the warrant of 5 years, (iii) a risk-free interest rate of 0.89% and (iv) an expected volatility of the price
of the underlying common stock of 144.4%. As a result, the Company allocated a fair value of $30,935 to the stock warrants. At March 31, 2021, the remaining principal balance
of $100,000 and accrued interest of $10,822 was in default of payment. No formal notices of default or demands for payment have been received
by the Company. On November 20, 2020, the Company issued a convertible
redeemable note to an unrelated party in the principal amount of $165,000 less a $15,000 original issuance discount resulting in net cash
proceeds to the Company of $150,000. The note accrues interest at a rate of 10% per annum, was due on February 15, 2021 and is convertible
into common stock of the Company at the option of the noteholder at a rate equal to a 30% discount from the lowest volume weighted average
price of the Company’s common stock in the preceding 20 trading days. The Company analyzed the conversion feature of
the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial
conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $50,871. This
amount is recorded as a debt discount and is amortized as interest expense over the term of the note. On February 17, 2021, the Company entered into
a debt exchange agreement with the holder of the convertible promissory note, in the aggregate amount of $169,000 of outstanding principal
and accrued and unpaid interest. Pursuant to the terms of the debt exchange agreement, the holder exchanged the outstanding note, and
all amounts owed by the Company thereunder, for 169,000 shares of the Company’s 8% Series B convertible preferred stock. At the
time of the exchange, all amounts due under the note was deemed to be paid in full and the note was cancelled. At March 31, 2021, the principal balance
of this note was $0 and all associated loan discounts were fully amortized. 10% Secured Convertible Notes with Original
Issuance Discounts (“OID Notes”) During the year ended December 31, 2017, the Company
issued secured, convertible notes with original issuance discounts to accredited investors for gross proceeds of $601,223. The notes were
issued with original issuance discounts of 10.0%, or $60,122, bear interest at a rate of 10% per annum, are payable semiannually in cash,
and carry a two-year term with a fixed conversion price of $0.78. In connection with the issuance of these notes, the Company issued to
such investors an aggregate of 150,305 shares of common stock as an inducement to lend. These shares were valued at $78,321 with share
prices ranging between $0.48 and $0.70 per share. The Company recorded the value of these shares as a loan discount to be amortized as
interest expense over the term of the related convertible notes. On August 6, 2020, the Company entered into debt
exchange agreements with certain holders of these 10% convertible notes pursuant to which an aggregate of 331,954 shares of the Company’s
Series B preferred stock (“Series B Stock) were issued to noteholders for an aggregate of $211,223 of outstanding principal and
accrued and unpaid interest. On November 30, 2020, the Company entered into a debt exchange agreement with the remaining holder of these
10% convertible notes pursuant to which an aggregate of 158,000 shares of Series B Stock were issued to the noteholder for an aggregate
of $111,250 of outstanding principal and accrued and unpaid interest. At March 31, 2021, the principal balance
of these notes was $0 and all associated loan discounts were fully amortized. During the year ended December 31, 2018, the Company
issued secured, convertible notes with original issuance discounts to accredited investors for gross proceeds of $1,313,485 in a private
offering. The notes were issued with original issuance discounts of 10.0%, or $131,348, bear interest at a rate of 10% per annum, are
payable semiannually in cash, and carry a two-year term with a fixed conversion price of $0.78. In connection with the issuance of these
notes, the Company issued to such investors an aggregate of 328,371 shares of common stock as an inducement to lend. These shares were
valued at $198,259 with share prices ranging between $0.30 and $0.81 per share. The Company recorded the value of these shares as a loan
discount to be amortized as interest expense over the term of the related convertible notes. On August 6, 2020, the Company entered into debt
exchange agreements with certain holders of these 10% convertible notes pursuant to which an aggregate of 316,000 shares of the Company’s
Series B Stock were issued to noteholders for an aggregate of $200,000 of outstanding principal and accrued and unpaid interest. As of March 31, 2021, the principal
balance of these notes was $97,250 and all associated loan discounts were fully amortized. No formal notices of default or demands for
payment have been received by the Company. During the year ended December 31, 2018, the Company
also issued secured, convertible notes with original issuance discounts to accredited investors for gross proceeds of $356,000 in a private
offering. The notes were issued with original issuance discounts of 20.0%, or $71,200, bear interest at a rate of 10% per annum, are payable
semiannually in cash, and carry a two-year term with a fixed conversion price of $0.50. In connection with the issuance of these notes,
the Company issued to such investors an aggregate of 203,000 shares of common stock as an inducement to lend. These shares were valued
at $62,269 with share prices ranging between $0.29 and $0.35 per share. The Company recorded the value of these shares as a loan discount
to be amortized as interest expense over the term of the related convertible notes. As of March 31, 2021, the principal
balance of these notes was $56,000 and all associated loan discounts were fully amortized. No formal notices of default or demands for
payment have been received by the Company. 12% Senior Secured Convertible Notes (Newbridge Offering) On November 30, 2018, the Company closed a private
offering in which it sold 12% secured convertible promissory notes (“12% Notes”) in an aggregate principal amount of $552,000
and issued an aggregate of 730,974 shares of its common stock to nine accredited investors pursuant to a private placement memorandum
and subscription agreement. The 12% Notes which are due and payable two years from issuance are secured by certain assets of the Company
and rank senior to all other indebtedness of the Company except for the $4,000,000 promissory notes (the “TD Notes”) issued
to the shareholders of TD Holdings in connection with a share sale agreement dated June 30, 2016, as amended. Messrs. Marks and Leiner
pledged an aggregate of 10,000,000 shares of common stock of the Company pursuant to a pledge and security agreement to secure the timely
payment of the 12% Notes. The 12% Notes are convertible, in whole or in part, by the noteholders at a conversion rate of $0.40 if the
Company’s common stock trades or is quoted at more than $0.40 per share for 10 consecutive days. The conversion price is subject
to adjustment resulting from certain corporate actions including the subdivision or combination of stock, payment of dividends, reorganization,
reclassification, consolidations, merger or sale of the Company. Interest on the 12% Notes is payable monthly in
21 equal installments commencing four months after the issuance of the 12% Notes. Upon the occurrence of an event of default, the interest
rate will increase to 15% and the 12% Notes will become immediately due and payable. The Company may prepay the 12% Notes in full at any
time by paying accrued interest and 110% of the outstanding principal balance. Newbridge Securities Corporation acted as exclusive placement
agent for the offering and received (i) $55,200, (ii) 113,586 shares of common stock, and (iii) $11,040, representing a non-accountable
expense allowance for its services. As of March 31, 2021, the principal balance
of these notes was $0 and all associated loan discounts were fully amortized. 12% Senior Secured Convertible Notes (Original TDH Notes) On June 20, 2016, the Company issued $4,000,000
of senior secured promissory notes to the shareholders of TD Holdings (the “TDH Sellers”) in connection with a share sale
agreement pursuant to which the Company acquired 100% of the common stock of TD Holdings (“the TDH Share Sale Agreement”).
The notes bear interest at 5.0% per annum and are due on the earlier of (i) June 20, 2018 or (ii) the date on which the Company successfully
completes a qualified initial public offering as defined in the agreement. The notes are collateralized by all of the assets of TD Holdings. First Amendment to the TDH Share Sale Agreement On January 3, 2018, the Company entered into an
amendment to the TDH Share Sale Agreement (the “First Amendment”). Under the terms of the First Amendment:
· The maturity date of the notes was extended from July 1, 2018 until July 1, 2019.
· The interest rate on the notes during for one-year extension period from July 2, 2018 to July 1, 2019 was increased to 10%.
· Interest is payable quarterly in arrears during the one-year extension period, instead of annually in arrears. The first such quarterly interest payment of $100,000 is due on September 30, 2018.
· Under the terms of the terms of TDH Share Sale Agreement, the TDH Sellers could earn up to an additional $5.0 million in contingent earnout payments. The original earnout period ended on December 31, 2018. The First Amendment extended the earnout period by one year to December 31, 2019. As consideration to enter into the First Amendment,
the Company issued 800,000 shares of its common stock valued at $480,000 to the TDH Sellers. Second Amendment to the TDH Share Sale Agreement On January 15, 2019, the Company entered into
a second amendment to the TDH Share Sale Agreement (the “Second Amendment”). Under the terms of the Second Amendment:
· The maturity date of the notes was extended from July 1, 2019 to April 2, 2020.
· The TDH Sellers shall have the right to convert the notes at a conversion price of $0.27 per share, either in whole or in part at any time prior to the maturity, subject to the terms and conditions set forth in the Second Amendment.
· In the event that the notes are not repaid prior to July 2, 2019, no funds will be transferred by TDH to the Company.
· The payment terms of the contingent earnout was modified from 50% payable in cash and 50% payable in stock to 75% payable in cash and 25% payable in stock. As consideration to enter into the Second Amendment,
the Company issued an additional 800,000 shares of its common stock valued at $220,000 to the TDH Sellers. Due to the inclusion of a conversion feature,
the Second Amendment was considered an extinguishment and subsequent reissuance of the notes under the guidelines of ASC 470-20-40-7 through
40-9. As a result, the Company recorded a loss on the extinguishment of debt of $363,468 related to the Second Amendment during the year
ended December 31, 2019. The principal value of the notes was reclassified
to convertible notes, net – current on the Company’s condensed consolidated financial statements. Third Amendment to the TDH Share Sale Agreement On March 16, 2020, the Company entered into a
third amendment (the “Third Amendment”) to the TDH Share Sale Agreement, pursuant to which the Company’s subsidiary,
Grom Holdings, had acquired 100% of the common stock of TDH (representing ownership of the animation studio) from certain individuals
(the “TDH Sellers”). The Company used the proceeds received from the TDH Secured Notes Offering to pay the TDH Sellers $3,000,000
of the principal due under the Original TDH Notes, leaving a balance due to the TDH Sellers of $1,000,000 in principal (plus accrued interest
and costs). In addition, the accrued interest of $361,767 due to the TDH Sellers pursuant to the Original TDH Notes will be paid by three
monthly payments of $93,922, commencing April 16, 2020, and twelve monthly installments of $6,667 commencing April 16, 2020. Pursuant to the Third Amendment, the TDH Sellers
and the Company agreed, among other things:
· To extend the maturity date of the remaining Original TDH Notes by one year to June 30, 2021;
· To increase the interest rate on the remaining Original TDH Notes to 12%;
· To grant a first priority security interest on the shares of TDH and TDAHK to the TDH Sellers, pari passu with the holders of the TDH Secured Notes; and
· To pay the balance of the Original TDH Notes monthly in arrears, amortized over a four-year period. As of March 31, 2021, the principal
balance of the Original TDH Notes was $829,122. 12% Senior Secured Convertible Notes (“TDH
Secured Notes”) On March 16, 2020, the Company sold (the “TDH
Secured Notes Offering”) an aggregate $3,000,000 of its 12% senior secured convertible notes (the “TDH Secured Notes”),
to eleven accredited investors (the “TDH Secured Note Lenders”), pursuant to a subscription agreement with the TDH Secured
Note Lenders. Interest on the TDH Secured Notes accrues on the outstanding principal amount at the rate of 12% per annum. Principal and
interest on the TDH Secured Notes are payable monthly, on an amortized basis over 48 months, with the last payment due on March 16, 2024.
Pursuant to the TDH Secured Notes, TD Holdings will pay amounts due under the TDH Secured Notes. Prepayment of amounts due under TDH Secured
Notes is subject to a prepayment penalty in an amount equal to 4% of the amount prepaid. The TDH Secured Notes are convertible at the option
of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding conversion
provided that the conversion price shall not be less than $0.10 per share. The Company’s obligations under the TDH
Secured Notes, are secured by Grom Holdings’ shares of stock of TDH, and of its wholly owned subsidiary, TDAHK. The TDH Secured
Notes rank equally and ratably on a pari passu basis with (i) the other TDH Secured Notes and (ii) the Original TDH Notes issued by the
Company pursuant to TDH Share Sale Agreement. If the Company sells the animation studio located
in Manila, Philippines, which is currently owned by TDH through TDAHK (the “Animation Studio”), for more than $12,000,000,
and so long as any amount of principal is outstanding under the TDH Secured Notes, the Company will pay the TDH Secured Notes holders
from the proceeds of the sale (i) all amounts of principal outstanding under the TDH Secured Notes, (ii) such amount of interest which
would be due and payable assuming the TDH Secured Notes were held to maturity (minus any amounts of interest previously paid hereunder),
and (iii) an additional 10% of the amount of principal outstanding under the TDH Secured Notes within five days of the closing of such
sale. In connection with the issuance of the TDH
Secured Notes, the Company issued to each TDH Secured Note holder shares of common stock equal to 20% of the principal amount of such
holder’s TDH Secured Note, divided by $0.10. Accordingly, an aggregate of 6,000,000 shares of common stock were issued to the TDH
Secured Note holders on March 16, 2020. These shares were valued at $420,000, or $0.07 per share, which represents fair market value.
The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the notes. On August 6, 2020, the
Company entered into debt exchange agreements with certain holders of these 12% TDH Secured Notes pursuant to which an aggregate of 1,739,580
shares of the Company’s Series B Stock were issued to noteholders for an aggregate of $1,101,000 of outstanding principal and accrued
and unpaid interest. On November 30, 2020,
the Company entered into a debt exchange agreement with another holder of these 12% TDH Secured Notes pursuant to which an aggregate of
158,000 shares of Series B Stock were issued to the noteholder for an aggregate of $99,633 of outstanding principal and accrued and unpaid
interest. On February 17, 2021, the Company entered into
debt exchange agreements with certain holders of these 12% TDH Secured Notes pursuant to which an aggregate of 2,106,825 shares of the
Company’s Series B Stock were issued to noteholders for an aggregate of $1,256,722 of outstanding principal and accrued and unpaid
interest. As of March 31, 2021, the principal
balance of these notes was $414,556 and the remaining balance on the associated loan discounts was $51,771. 12% Senior Secured Convertible Notes (Additional
Secured Notes) On March 16, 2020, the Company issued to seven
accredited investors (the “Additional Secured Note Lenders”) an aggregate of $1,060,000 of its 12% senior secured convertible
notes (the “Additional Secured Notes”) in a private offering pursuant to a subscription agreement with substantially the same
terms as the TDH Secured Notes except that the Additional Secured Notes are secured by all of the assets of the Company other than the
shares and other assets of TDH and TDAHK, pursuant to a security agreement by and among the Company and the Additional Secured Note Lenders. Interest on the Additional Secured Notes accrues
on the outstanding principal amount at the rate of 12% per annum. Principal and interest on the Additional Secured Notes are payable monthly,
on an amortized basis over 48 months, with the last payment due on March 16, 2024. Prepayment of the amounts due under the Additional
Secured Notes is subject to a prepayment penalty of 4% of the amount prepaid. The Additional Secured Notes are convertible at
the option of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding
conversion provided that the conversion price shall not be less than $0.10 per share. In connection with the issuance of the Additional
Secured Notes, the Company issued to each Additional Secured Note Lender shares of common stock equal to 20% of the principal amount of
such holder’s Additional Secured Note, divided by $0.10. Accordingly, an aggregate of 2,120,000 shares of common stock were issued.
These shares were valued at $148,000, or $0.07 per share, which represents fair market value. The Company recorded the value of these
shares as a loan discount to be amortized as interest expense over the term of the related convertible notes. On August 6, 2020, the Company entered into debt
exchange agreements with certain holders of these 12% Additional Secured Notes pursuant to which an aggregate of 1,236,350 shares of the
Company’s Series B Stock were issued to noteholders for an aggregate of $782,500 of outstanding principal and accrued and unpaid
interest. On February 17, 2021, the Company entered into
a debt exchange agreement with another holder of these 12% Additional Secured Notes pursuant to which an aggregate of 288,350 shares of
the Company’s Series B Stock were issued to the noteholder for an aggregate of $191,273 of outstanding principal and accrued and
unpaid interest. As of March 31, 2021, the principal
balance of these notes was $78,766 and the remaining balance on the associated loan discounts . Future Minimum Principal Payments The remaining principal repayments based upon
the maturity dates of the Company’s borrowings for each of the next five years are as follows:
2021 $ 2,416,907
2022 $ 151,900
2023 $ 171,165
2024 $ 14,509
2025 and thereafter $ – |
