Note 5 – Notes Payable

As of June 30, 2022 and through the date of this filing, notes and convertible notes payable with principal amounts totaling $1,408,000 were past due and are classified as current liabilities on the condensed consolidated balance sheet as of June 30, 2022. Such notes continue to accrue interest and all relevant penalties have been accrued as of June 30, 2022. Of such past due notes payable, a holder of a note with principal amount of $250,000 issued a notice of default. See Note 8, Commitments and Contingencies – Litigation for additional details. The Company is in negotiations with certain holders of notes payable to extend the maturity dates of such notes or to convert the principal and accrued interest into equity.

During the three months ended June 30, 2022 and 2021, the Company recorded interest expense of $193,362 and $162,845, respectively, and amortization of debt discount of $58,355 and $155,169, respectively. During the six months ended June 30, 2022 and 2021, the Company recorded interest expense of $360,127 and $443,732 respectively, and amortization of debt discount of $131,493 and $277,932, respectively. As of June 30, 2022 and December 31, 2021, the Company had $1,574,021 and $1,182,225, respectively, of accrued interest (including interest in the form of warrants (see Note 4) and penalties related to notes payable, which is included with accrued interest and accrued interest – related parties on the condensed consolidated balance sheets.

Convertible Notes Payable

During the six months ended June 30, 2022, the Company issued convertible notes payable in the aggregate principal amount of $245,000 which have maturity dates ranging from August 2, 2022 through October 4, 2022. The notes accrue interest at 8% per annum and are convertible at any time at the option of the holder into the Company’s Series C Convertible Preferred Stock at a conversion price of $7.50 per share. The notes automatically convert into Series C Convertible Preferred Stock on the maturity date. In connection with the issuances, the Company issued five-year immediately vested warrants to purchase an aggregate of 176,000 shares of common stock at an exercise price $1.25 per share. The warrants had an issuance date relative fair value of $25,448 which will be amortized over the term of the notes.

During the six months ended June 30, 2022, an aggregate of $1,485,697 of principal outstanding under convertible notes automatically converted into an aggregate of 198,088 shares of Series C Convertible Preferred Stock and the Company elected to convert an aggregate of $61,871 of interest accrued under such notes into an aggregate of 82,494 shares of common stock. The aggregate note principal had a conversion price of $7.50 per share and the common stock was valued at $0.75 per share for purposes of the interest payment. The Company analyzed the notes for a beneficial conversion feature and determined that there was none because the notes have an effective conversion price of $0.75 per share of underlying common stock, which exceeds the $0.34 per share commitment date fair value of the common stock.

Convertible Notes Payable - Related Parties

On March 10, 2022, the Board of Directors of the Company appointed George Verstraete as a member of the Board.

The Company and Mr. Verstraete entered into a promissory note agreement dated March 10, 2022, whereby Mr. Verstraete, at his discretion, can loan up to $6,000,000 to the Company. Mr. Verstraete has agreed to loan an aggregate of $2,500,000 to the Company under the note. The note bears interest at a rate of 10% per annum and will mature twelve months from the date of issuance. Mr. Verstraete has the right, at his option, to convert the note into shares of the Company’s Series B Convertible Preferred Stock at a conversion price of $7.50 per share at any time after the creation and sale of the Series B Convertible Preferred Stock. Interest accruing under the note will be payable upon the maturity of the note and may be paid at the Company’s option in either cash or shares of the Company’s common stock (calculated based upon $0.75 per share for purposes of calculating the number of shares of common stock to be issued). For each $500,000 advanced under the note, Mr. Verstraete will be issued a warrant to purchase 400,000 shares of the Company’s common stock at an exercise price of $1.25 per share. Each warrant will have a five-year term. As of June 30, 2022, the Company had received $1,000,000 under the note. In connection with the issuance, the Company accrued an obligation to issue five-year immediately vested warrants to purchase an aggregate of 800,000 shares of common stock at an exercise price $1.25 per share. The warrants had an issuance date relative fair value of $114,727 which will be amortized over the term of the notes. Subsequent to June 30, 2022, the Company issued the 800,000 warrants which have been previously accrued for as of June 30, 2022. See Note 9, Subsequent Events- Convertible Notes Payable - Related Parties for additional details of an additional $1,500,000 advanced under the note subsequent to June 30, 2022.

Notes Payable

On June 16, 2022, the Company issued a note payable in the principal amount of $168,094 which has a maturity date of June 16, 2023. The note accrues interest at 10% per annum and the interest shall be payable, at the Company’s election, either in cash or in common stock at $0.75 per share. In connection with the issuance, the Company issued a five-year immediately vested warrant to purchase 200,000 shares of common stock at an exercise price $0.75 per share. The warrants had an issuance date relative fair value of $31,814 which will be amortized over the term of the note.

See Note 8, Commitments and Contingencies – Litigation for details of the repayment of a certain note payable.