Notes Payable and Convertible Promissory Notes | Note 4 – Notes Payable and Convertible Promissory Notes 2019 Term Loans During 2019, the Company entered into term loan subscription agreements with certain accredited investors, pursuant to which the Company issued secured promissory notes in the aggregate principal amount of approximately $ 5.7 million (collectively, the “2019 Term Loans”). The Company paid $ 707,000 in debt issuance costs which was recorded as a debt discount to be amortized as interest expense over the term of the loan using the straight-line method. The promissory notes accrued interest at a rate of 12% 15% The unpaid principal balance of the notes, plus accrued and unpaid interest thereon, matured on June 28, 2020 . The notes were secured by a first lien and security interest on all the assets of the Company and certain of its wholly owned subsidiaries. On June 28, 2020, the Company defaulted on the maturity date principal payment. In June 26, 2021, the holders of the 2019 Term Loans agreed to subordinate their lien and security interest in the assets of the Company and its subsidiaries as set forth in the Security Agreement dated June 28, 2019 to the holders of the June 2021 convertible notes. The Company recognized approximately $ 210,000 in interest expense related to the Notes for the three months ended March 31, 2022 and March 31, 2021. As of March 31, 2022, the debt discount and issuance costs for this term loan were fully amortized. As of March 31, 2022, the Company had approximately $ 2.2 million of accrued interest on the notes included in accrued expenses and remains in default on the repayment of approximately $ 5.7 million in principal and $ 2.2 million in accrued interest on the 2019 Term Loans. Convertible Promissory Notes The following table summarizes the Company’s outstanding convertible notes as of March 31, 2022, and December 31, 2021: Schedule of Convertible Promissory Notes (in thousands) March 31, 2022 December 31, 2021 Convertible Notes $ 1,756 $ 1,516 Unamortized discounts and fees (605 ) (530 ) Convertible Notes Payable $ 1,151 $ 986 Ten convertible notes with outstanding principal of approximately $ 1.5 Secured Convertible Promissory Note – February 2020 On February 5, 2020, the Company entered into a Securities Purchase Agreement with accredited investors and issued the investors, (i) original issue discount Convertible Promissory Notes with a principal of $ 550,500 issued at a 10% original issue discount, for a total purchase price of $ 499,950 , and (ii) warrants to purchase up to such number of shares of the common stock of the Company as is equal to the product obtained by multiplying 1.75 by the quotient obtained by dividing (A) the principal amount of the Notes by (B) the then applicable conversion price of the Notes. This results in a variable quantity of warrants at any point in time due to the variable conversion price of the Notes. (See Note 7) The Convertible Notes matured on August 5, 2020 10% 18% Until the Convertible Notes are no longer outstanding, the Convertible Notes are convertible, in whole or in part, at any time, and from time to time, into shares of Common Stock at the option of the noteholder. The conversion price is the lower of: (i) $ 0.50 70% 60% 0.05 The exercise price of the Warrants shall be equal to the conversion price of the Convertible Notes, provided, that on the date that the Convertible Notes are no longer outstanding, the exercise price shall be fixed at the conversion price of the Convertible Notes on such date, with the exercise price of the Warrants thereafter (and the number of shares of Common Stock issuable upon the exercise thereof) being subject to adjustment as set forth in the Warrants. The warrants have a 5 The Company recorded a discount related to the Warrants of approximately $ 322,000 30,000 53,000 21,000 38,000 381,000 On March 19, 2021, the holder of the Convertible Note converted $ 25,900 518,000 On July 29, 2021, the holder of the Convertible Note converted $ 27,500 550,000 On August 16, 2021, the holder of the Convertible Note converted $ 25,000 500,000 On September 13, 2021, the holder of the Convertible Note converted $ 32,500 650,000 On October 4, 2021, the holder of the Convertible Note converted $ 26,250 525,000 On November 29, 2021, the holder of the Convertible Note converted $ 31,150 623,012 The total note principal and interest converted during the year ended December 31, 2021, was $ 168,300 3,366,012 554,000 386,000 245,000 245,000 141,000 On January 27, 2022, the conversion price of the notes and warrants was adjusted to be the lower of (x) 60% 0.039 For the three months ended March 31, 2022, and March 31, 2021, the Company recognized approximately $ 25,000 in interest expense related to the note As of March 31, 2022, the Company had accrued interest on the February 2020 Convertible Note of approximately $ 126,000 As of March 31, 2022, the Company remains in default on the repayment of remaining principal of $ 457,359 and accrued interest on the February 2020 Convertible Notes. Upon demand for repayment at the election of the holder, the holder of the Convertible Note is due 140% of the aggregate of outstanding principal, interest, and other expenses due in respect of this Convertible Note. The 40% premium will be recorded once a demand occurs . Secured Convertible Promissory Note – June 2020 On June 26, 2020, the Company issued to an existing investor in the Company a 10% 58,055 52,500 5,555 December 26, 2020 10% 14,000 18% The Note is convertible, in whole or in part, into shares of common stock of the Company at the option of the noteholder at a conversion price of $ 0.02 65% 50,000 203,000 The obligations of the Company under the Note are secured by a senior lien and security interest in all of the assets of the Company and certain of its wholly-owned subsidiaries pursuant to the terms and conditions of a Security Agreement dated June 26, 2020 by the Company in favor of the noteholder. In connection with the issuance of the Note, the holders of the secured promissory notes that the Company issued to select accredited investors between June 28, 2019 and August 5, 2019 in the aggregate principal amount of approximately $ 5.7 On January 27, 2022, the conversion price of the note was adjusted to the lower of 65% of the lowest closing bid price of the Company’s common stock as reported on its principal trading market for the twenty consecutive trading day period ending on (and including) the trading day immediately preceding the date on which the conversion notice was delivered or $ 0.039 as a result of issuance of common shares for a convertible note conversion. For the three-month period ended March 31, 2022, and March 31, 2021, the Company recognized approximately $ 2,600 As of March 31, 2022, the Company remains in default on the repayment of principal of $ 58,055 18,000 140% The 40% premium will be recorded once a demand occurs Secured Convertible Promissory Note – October 2020 On October 30, 2020, the Company issued to an existing investor in and lender to the Company a 10% original issue discount senior secured convertible promissory note with a principal of $ 111,111 , for a purchase price of $ 100,000 . The note is convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $ 0.07 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of then conversion price. The conversion price of the notes is subject to anti-dilution price protection and on March 19, 2021, the conversion price of the notes was adjusted to $ 0.05 per share as a result of subsequent equity sales by the Company. The obligations of the Company under the note are secured by a senior lien and security interest in all of the assets of the Company. The Company recorded approximately $ 9,000 The interest rate on the note was 10% 18% Additionally, the Company issued the noteholder 1,587,301 0.08 0.05 952,379 57,000 0.16% 262.27% 0.92 The Company recorded a discount related to the warrants of approximately $ 66,000 6,000 5,000 45,000 69,000 5,000 4,000 On January 27, 2022, the exercise price of the notes and warrants was adjusted from the default conversion price of $ 0.049 0.039 as a result of a convertible note exercise and the Company issued an additional 716,320 warrants to the note holder. For the three months ended March 31, 2022, the Company recognized approximately $ 5,000 4,700 1,900 57,000 As of March 31, 2022, the debt discount and issuance costs for the note were fully amortized. As of March 31, 2022, the Company has outstanding principal of $ 111,111 24,000 As of March 31, 2022, the Company remains in default on the repayment of principal and interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 125% The 25% premium will be recorded once a demand occurs Secured Convertible Promissory Note – January 202 On January 31, 2021, the Company issued to an existing investor in and lender to the Company a 10% original issue discounted Senior Secured Convertible Promissory Note with a principal of $ 52,778 , for a purchase price of $ 47,500 , net of original issue discount of $ 5,278 . The Note was convertible into shares of common stock of the Company at the option of the noteholder at a conversion price of $ 0.07 (as adjusted for stock splits, stock combinations and similar events); provided, that if an event of default has occurred under the Note, then the conversion price shall be 70% of the then conversion price. The conversion price of the notes is subject to anti-dilution price protection and will be adjusted upon subsequent equity sales by the Company. The obligations of the Company under the Note are secured by a senior lien and security interest in all assets of the Company. Additionally, the Company issued to the investor 753,968 0.08 0.05 452,372 27,000 0.16% 262.27% 0.97 The Company recorded approximately $ 2,000 The interest rate on the note was 10% 18% The Company recorded a discount related to the warrants of approximately $ 32,000 3,000 1,000 0.45% 240.83% The Company also recorded a debt discount related to the convertible debt of approximately $ 2,000 1,000 Total discounts recorded including the original issue discount were approximately $ 35,000 On January 27, 2022, the exercise price of the notes and warrants was adjusted from the default conversion price of $ 0.049 0.039 as a result of a convertible note exercise and the Company issued an additional 340,250 warrants to the note holder. For the year ended March 31, 2021, the Company recognized approximately $ 1,200 300 18,000 For three months ended March 31, 2022, the Company recognized approximately $ 2,400 As of March 31, 2022, the Company has outstanding principal of $ 52,778 9,000 As of March 31, 2022, the Company remains in default on the repayment of principal and accrued interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 125% The 25% premium will be recorded once a demand occurs Secured Convertible Promissory Note – April 2021 On April 12, 2021, the Company issued to an accredited investor in and lender to the Company a 10% 66,667 60,000 6,667 800,000 five 0.095 The note matured on October 12, 2021, Prior to default, interest accrued on the aggregate unconverted and then outstanding principal amount of the note at the rate of 10% 18% The Note is convertible, in whole or in part, at any time, and from time to time, into shares of the common stock of the Company at the option of the noteholder at a conversion price of $ 0.075 70% The Company recorded a discount related to the warrants of approximately $ 34,000 3,700 3,000 0.89% 240.64% one year On June 25, 2021, the exercise price of the warrants was adjusted to $ 0.075 213,333 11,000 0.92% 247.52% 0.96 On November 4, 2021, the Company issued 153,227 250,000 On November 30, 2021, the exercise price of the warrants was adjusted to $ 0.05 0.05 131,667 On January 27, 2022, the exercise price of the note and warrants was adjusted from the default conversion price of $ 0.0525 0.039 based on a convertible note conversion at $ 0.039 and the Company issued an additional 322,949 warrants to the note holder. For the three months ended March 31, 2022, the Company recognized approximately $ 3,000 As of March 31, 2022, the Company has recorded $ 66,667 9,100 As of March 31, 2022, the Company remains in default on the repayment of principal and accrued interest on the notes. Upon demand for repayment at the election of the holder, the holder of the note is due 125% The 25% premium will be recorded once a demand occurs Secured Convertible Promissory Note – June 2021 On June 25, 2021, the Company issued to an accredited investor in and lender to the Company a 5% original issue discounted Senior Secured Convertible Promissory Note with a principal amount of $ 66,500 , for a purchase price of $ 63,000 , net of an original issue discount of $ 3,500 . Additionally, the Company issued to the investor 800,000 three -year warrants to purchase the Company’s common stock at an exercise price of $ 0.095 per share. Upon subsequent down-round equity sales by the Company, the number of shares issuable upon exercise of the Warrant shall be proportionately adjusted such that the aggregate exercise price of this Warrant shall remain $ 76,000 which is a full ratchet price protection provision. The note matures on June 25, 2022 10% The Note was convertible, in whole or in part, at any time, and from time to time, into shares of the common stock of the Company at the option of the noteholder at a conversion price of $ 0.075 (as adjusted for stock splits, stock combinations and similar events); provided, however that in the event, the Company’s Common Stock trades below $ 0.08 per share for more than three (3) consecutive trading days, the holder of this Note is entitled, at its option, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock at a price for each share of Common Stock equal to 65% of the lowest trading price of the Common Stock for the twenty prior trading days including the day upon which a Notice of Conversion is received. The conversion discount, look back period and other terms of the Note will be adjusted on a ratchet basis if the Company offers a more favorable conversion discount, prepayment rate, interest rate, (whether through a straight discount or in combination with an original issue discount), look back period or other more favorable term to another party for any financings while this Note is in effect The obligations of the Company under the Note are secured by a senior lien and security interest in all assets of the Company. The Company incurred approximately $ 9,300 The Company also issued 47,547 5,040 Due to the variability in the conversion price of the Note the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $ 102,823 87,039 15,784 Total discounts recorded were $ 66,500 3,500 9,300 37,916 15,784 0.48 302.11% 0.60 On August 11, 2021, the exercise price of the warrants was adjusted to $ 0.075 213,333 25,000 0.81 209% 0.57 On October 27, 2021, the Company and the institutional investor who holds the convertible promissory note agreed to extend the maturity date of the note by six months to December 25, 2022 for no consideration. On November 30, 2021, the exercise price of the warrants was adjusted to $ 0.05 0.05 506,667 On January 27, 2022, the holder of the June 25, 2021, convertible note converted $ 9,500 of principal and $ 421 of interest at $ 0.039 per share into 254,401 shares of common stock that were valued at fair value based on the quoted trading prices on the conversion dates aggregating approximately $ 28,000 resulting in a loss on debt extinguishment of $ 18,000 . In addition, derivative fair value of $ 23,000 relating to the portion of the Note converted was settled resulting in a gain on extinguishment of approximately $ 23,000 . The net gain on extinguishment was approximately $ 5,000 . 0.039 428,718 For the three months ended March 31, 2022, the Company recognized approximately $ 9,800 3,500 At March 31, 2022, the Company has recorded $ 57,000 8,800 28,900 Convertible Promissory Note – August 11, 2021 On August 11, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor pursuant to which the Company issued to the investor its Original Issue Discount Secured Convertible Promissory Note in the principal amount of $ 220,500 800,000 210,000 10,500 100,000 The note matures one year from issuance and absent an event of default provides for an interest rate of 10% 0.075 65% 24% In addition to customary anti-dilution adjustments the Note provides, subject to certain limited exceptions, that if the Company issues any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such shares or common share equivalents were sold. The warrants are initially exercisable for a period of three years at a price of $ 0.095 per share, subject to customary anti-dilution adjustments upon the occurrence of certain corporate events as set forth in the warrant. The Company incurred approximately $ 30,000 The Company also issued 140,000 Due to the variability in the conversion price of the Note the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $ 340,893 234,388 106,505 The Company recorded a total debt discount of $ 220,500 10,500 56,454 30,000 17,041 106,505 The fair value of the warrants on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of 0.81% 253% one year On November 30, 2021, the exercise price of the warrants was adjusted to $ 0.05 0.05 720,000 On January 27, 2022, the conversion price of the notes was adjusted to the lower of $ 0.039 65% 0.039 428,718 0.039 For the three months ended March 31, 2022, the Company recognized approximately $ 54,400 12,400 At March 31, 2022, the Company has remaining $ 220,500 28,200 79,700 Convertible Promissory Note – August 17, 2021 On August 17, 2021, the Company entered into a Securities Purchase Agreement with an accredited institutional investor pursuant to which the Company issued to the investor its Original Issue Discount Secured Convertible Promissory Note in the principal amount of $ 220,500 and warrants to purchase 800,000 shares of the common stock of the Company for which the Company received consideration of $ 210,000 net of original discount of $ 10,500 . In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor 100,000 common shares as a commitment fee. The note matures one year 10% 0.075 0.08 65% In addition to customary anti-dilution adjustments the Note provides, subject to certain limited exceptions, that if the Company issues any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such shares or common share equivalents were sold. The Warrants are initially exercisable for a period of three years at a price of $ 0.095 The Company incurred approximately $ 30,000 112,601 Due to the variability in the conversion price of the Note, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $ 398,404 297,833 100,571 The Company recorded a total debt discount of $ 220,500 10,500 62,220 30,000 17,209 100,571 The fair value of the warrants on which the relative fair value was based was determined by using a simple binomial lattice model. The assumptions used in the model were a risk-free rate of 0.77% 254% one year On October 27, 2021, the Company and the institutional investor who holds the promissory note agreed to extend the maturity date the notes by six months to February 17, 2023 On November 15, 2021, the Company defaulted on certain covenants in the note and the interest rate on the note reset to 24% On November 30, 2021, the exercise price of the warrants was adjusted to $ 0.05 0.05 720,000 On January 27, 2022, the conversion price of the notes was adjusted to the lower of $ 0.039 65% 0.039 428,718 0.039 For the three months ended March 31, 2022, the Company recognized approximately $ 34,700 12,400 At March 31, 2022, the Company has recorded $ 220,500 27,800 123,200 Convertible Promissory Note – October 4, 2021 On October 4, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the Buyer a 10% Convertible Redeemable Note in the principal amount of $ 131,250 and a three-year warrant to purchase 476,190 shares of common stock of the Company for which the Company received proceeds of $ 110,000 . In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor 59,523 common shares as a commitment fee. The Note is due October 4, 2022. The Note provides for interest at the rate of 10% 0.075 The Warrants are exercisable for three-years from October 4, 2021, at an exercise price of $ 0.095 45,238 The Company incurred approximately $ 15,000 43,459 Due to the lack of authorized shares, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $ 564,943 487,052 77,891 The Company recorded a total debt discount of $ 131,250 6,250 15,000 32,109 77,891 On January 2, 2022, the Company defaulted on certain covenants contained in the October 4, 2021, convertible note and the interest rate reset to 16% . On January 27, 2022, the exercise price of the note was adjusted to $ 0.039 0.039 For the three months ended March 31, 2022, the Company recognized approximately $ 32,400 5,000 At March 31, 2022, the Company has recorded $ 131,250 8,200 66,900 Convertible Promissory Note – October 7, 2021 On October 7, 2021, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the investor a 10% Convertible Redeemable Note in the principal amount of $ 131,250 and a three-year warrant to purchase 476,190 shares of common stock of the Company for which the Company received proceeds of $ 110,000 . In addition, the Company entered into a Registration Rights Agreement with the investor and issued the investor 59,523 common shares as a commitment fee and an additional 52,632 shares as a commission to the broker. The Note is due October 7, 2022. The Note provides for interest at the rate of 10% per annum, payable at maturity. The Note was convertible into shares of common stock at any time following the date of cash payment at the investor’s option at a conversion price of $ 0.075 per share, subject to certain adjustments. The Warrants are exercisable for three-years from October 7, 2021, at an exercise price of $ 0.095 45,238 The Company incurred approximately $ 15,000 Due to the lack of authorized shares, the embedded conversion option has been bifurcated and reflected as a derivative liability with an initial fair value of $ 564,184 487,667 76,517 The Company recorded a total debt discount of $ 131,250 6,250 15,000 33,483 76,517 On January 5, 2022, the Company defaulted on certain covenants contained in the October 7, 2021, convertible note and the interest rate reset to 16% . On January 27, 2022, the exercise price of the note was adjusted to $ 0.039 0.039 For the three months ended March 31, 2022, the Company recognized approximately $ 32,400 5,000 At March 31, 2022, the Company has recorded $ 131,250 8,100 68,000 Convertible Promissory Note – March 15, 2022 On March 15, 2022, the Company entered into a Securities Purchase Agreement (“SPA”) with an institutional investor pursuant to which the Company issued the investor a 10% Convertible Note in the principal amount of $ 250,000 for a purchase price of $ 200,000 reflecting a $ 50,000 original issue discount. The Company received total consideration of $ 180,000 after debt issuance costs of $ 20,000 . In addition, the Company issued 50,000 shares of common stock as a commitment fee to the investor. The Company also issued 200,000 shares to the broker as a commission on the sale. The Note provides for guaranteed interest at the rate of 10% 25,000 39,285.71 The Note is convertible into shares of common stock at any time following any event of default at the investor’s option at a conversion price of ninety percent (90%) per share of the lowest per-share trading price of the Company; stock during the ten trading day periods before the conversion, subject to certain adjustments. The Company recorded a total debt discount of $ 250,000 including an original issue discount of $ 50,000 , a discount related to issuance costs of $ 34,384 a discount related to the issuance of common stock of approximately $ 3,596 and a $162,020 discount related to the initial derivative value of the embedded conversion feature on the Note all based on the relative fair value of the instruments. The discounts are being amortized over the life of the convertible note. For the three months ended March 31, 2022, the Company recognized approximately $ 11,600 25,000 At March 31, 2022, the Company has recorded $ 250,000 25,000 238,400 Derivative Liabilities Pursuant to Convertible Notes and Warrants In connection with the issuance of the unrelated party convertible notes (collectively referred to as “Notes”) and warrants (collectively referred to as “Warrants”), discussed above, the Company determined that the terms of certain Notes and Warrants contain an embedded conversion options to be accounted for as derivative liabilities due to the holder having the potential to gain value upon conversion and provisions which includes events not within the control of the Company. Due to the fact that the number of shares of common stock issuable exceed the Company’s authorized share limit as of March 31, 2022, the equity environment was tainted and all convertible debentures and warrants were included in the value of the derivative. In accordance with ASC 815-40 – Derivatives and Hedging – Contracts in an Entity’s Own Stock During the three month period ended March 31, 2022, in connection with the issuance of the Notes, on the initial measurement dates, the fair values of the embedded conversion option of approximately $ 271,000 was recorded as derivative liabilities of which $ 163,000 was allocated as a debt discount and $ 108,000 as derivative expense. At the end of the period, the Company revalued the embedded conversion option derivative liabilities. In connection with the initial valuations and these revaluations, the Company recorded a gain from the initial and change in the derivative liabilities fair value of approximately $ 776,000 During the three months period ended March 31, 2022, the fair value of the derivative liabilities was estimated at issuance and at March 31, 2022, using the Binomial Lattice valuation model with the following assumptions: Schedule of Fair Value of Derivative Liabilities Estimated Issuance and Valuation Mode Dividend rate — % Term (in years) 0.0 0.88 Volatility 245 309 % Risk-free interest rate 1.28 2.45 % Other than the effect on the derivative valuation recognized in operations, there was no accounting effect to the ratchet adjustments of certain convertible notes to reduce the conversion price to $ 0.039 |