| Item
2.03 | Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement
of a Registrant |
Mast
Hill Loan
On
February 5, 2023 (the “Issuance Date”), the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”)
and issued and sold to Mast Hill, a Promissory Note (the “MH Note”) in the principal amount of $619,000.00 (actual amount
of purchase price of $526,150.00 plus an original issue discount (“OID”) in the amount of $92,850.00). Also pursuant to the
Purchase Agreement, in connection with the issuance of the MH Note, the Company issued (a) common stock purchase warrants (the “First
Warrants”), allowing Mast Hill to purchase an aggregate of 6,900,000 shares of the Company’s common stock and (b) common
stock purchase warrants (the “Second Warrants”), allowing Mast Hill to purchase an aggregate of 7,000,000 shares of the Company’s
common stock.
Also
pursuant to the Purchase Agreement, in connection with the issuance of the MH Note, the First Warrants and the Second Warrants, the Company
granted piggy-back registration rights to Mast Hill.
The
Company paid to J.H. Darbie & Co., Inc. $10,000 in fees pursuant to the Company’s existing agreement with J.H. Darbie &
Co., Inc., in relation to the transactions contemplated by the Purchase Agreement. The Company is currently determining the fees payable
to Spencer Clarke LLC (which may include cash and/or warrants), pursuant to the Company’s existing agreement with Spencer Clarke
LLC, in relation to the transactions contemplated by the Purchase Agreement.
The
Company intends to use the net proceeds from the sale of the MH Note for required debt service.
The
maturity date of the MH Note is the 12-month anniversary of the Issuance Date, and is the date upon which the principal amount, the OID,
as well as any accrued and unpaid interest and other fees, shall be due and payable.
Mast
Hill has the right, at any time on or following the six month anniversary of the Issuance Date, to convert all or any portion of the
then outstanding and unpaid principal amount and interest (including any default interest) into common stock of the Company, at a conversion
price of $0.10, subject to customary adjustments as provided in the MH Note for stock dividends and stock splits, rights offerings, pro
rata distributions, fundamental transactions and dilutive issuances. In addition, Mast Hill is entitled to deduct $1,750.00 from the
conversion amount upon each conversion, to cover Mast Hill’s fees associated with each conversion. Any such conversion is subject
to customary conversion limitations set forth in the MH Note so Mast Hill beneficially owns less than 4.99% of the common stock of the
Company.
At
any time prior to the date that an Event of Default (as defined in the MH Note) occurs under the MH Note, the Company may prepay the
outstanding principal amount and interest then due under the MH Note. On any such event, the Company shall make payment to Mast Hill
of an amount in cash equal to the sum of (a) 100% multiplied by the principal amount then outstanding plus (b) accrued and unpaid interest
on the principal amount to the prepayment date plus (c) $750.00 to reimburse Mast Hill for administrative fees.
In
addition, if, at any time prior to the full repayment or full conversion of all amounts owed under the MH Note, the Company receives
cash proceeds of more than $800,000 (the “Minimum Threshold”) in the aggregate from any source or series of related or unrelated
sources from the issuance of equity (subject to exclusions described in the MH Note), debt or the issuance of securities pursuant to
an Equity Line of Credit (as defined in the MH Note) of the Company, Mast Hill shall have the right in its sole discretion to require
the Company to apply up to 50% of such proceeds after the Minimum Threshold to repay all or any portion of the outstanding principal
amount and interest then due under the MH Note.
The
MH Note contains customary Events of Default for transactions similar to the transactions contemplated by the Purchase Agreement and
the MH Note, which entitle Mast Hill, among other things, to accelerate the due date of the unpaid principal amount of, and all accrued
and unpaid interest on, the MH Note, in addition to triggering the conversion rights. Any principal amount or interest on the MH Note
which is not paid when due shall bear interest at the rate of the lesser of (i) 16% per annum and (ii) the maximum amount permitted by
law from the due date until the same is paid. Upon the occurrence of any Event of Default, Mast Hill shall no longer be required to cancel
and extinguish the Second Warrants, the MH Note shall become immediately due and payable, and the Company shall pay to Mast Hill an amount
equal to the principal amount then outstanding plus accrued interest (including any default interest) through the date of full repayment
multiplied by 150%, as well as all costs of collection.
The
MH Note contains restrictions on the Company’s ability to (a) incur additional indebtedness, (b) make distributions or pay dividends,
(c) redeem, repurchase or otherwise acquire its securities, (d) sell its assets outside of the ordinary course, (e) enter into certain
affiliate transactions, (f) enter into 3(a)(9) Transactions or 3(a)(10) Transactions (each as defined in the MH Note), or (g) change
the nature of its business.
Commencing
as of the Issuance Date, and until such time as the MH Note is fully converted or repaid, the Company shall not effect or enter into
an agreement to effect any Variable Rate Transaction (as defined in the Purchase Agreement).
The
Purchase Agreement contains customary representations and warranties made by each of the Company and Mast Hill. It further grants to
Mast Hill certain rights of participation and first refusal, and most-favored nation rights, all as set forth in the Purchase Agreement.
The
Company is subject to customary indemnification terms in favor of Mast Hill and its affiliates and certain other parties.
The
First Warrants have an initial exercise price of $0.10 per share, subject to customary adjustments (including price-based anti-dilution
adjustments), and may be exercised at any time until the five year anniversary of the First Warrants. The First Warrants include a cashless
exercise provision as set forth therein. The exercise of the First Warrants are subject to a beneficial ownership limitation of 4.99%
of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. In the event of the Company’s
failure to timely deliver shares of Common Stock upon exercise of the First Warrants, the Company would be obligated to pay a “Buy-In”
amount pursuant to the terms of the First Warrants.
The
Second Warrants have an initial exercise price of $0.30 per share, subject to customary adjustments (including price-based anti-dilution
adjustments), and may be exercised at any time after February 5, 2024 (if not previously cancelled in accordance with the terms of the
MH Note and the Second Warrant) until the five year anniversary of such date. The Second Warrants include a cashless exercise provision
as set forth therein. The exercise of the Second Warrants are subject to a beneficial ownership limitation of 4.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such exercise. In the event of the Company’s failure to timely
deliver shares of Common Stock upon exercise of the Second Warrants, the Company would be obligated to pay a “Buy-In” amount
pursuant to the terms of the Second Warrants.
The
foregoing is a brief description of the Purchase Agreement, the MH Note, the First Warrants and the Second Warrants, and is qualified
in its entirety by reference to the full text of the Purchase Agreement, the MH Note, the First Warrants and the Second Warrants, which
are included as Exhibits 10.2, 10.3, 10.4 and 10.5, respectively, to this Current Report on Form 8-K, each of which are incorporated
herein by reference.
Sean
Folkson Loan
On
February 7, 2023, Sean Folkson, the Chairman and CEO of the Company, loaned $40,000 to the Company, which was evidenced by a promissory
note (the “Folkson Note”). The maturity date under the Folkson Note is February 7, 2024. The Folkson Note bears interest
at a fixed rate of 12.0% per annum, and shall be payable on the maturity date. Notwithstanding the foregoing, the Company shall not make
any payment to Mr. Folkson under the Folkson Note, whether of principal or interest, and whether or not on the maturity date when due
and payable, unless and until all indebtedness of the Company owed or owing to each of Mast Hill, Puritan Partners and Verition has been
repaid in full. The Folkson Note has customary events of default.
The
Company intends to use the proceeds from the Folkson Note for working capital.
The
foregoing is a brief description of the Folkson Note, and is qualified in its entirety by reference to the full text of the Folkson Note,
which is included as Exhibit 10.6 to this Current Report on Form 8-K, and which is incorporated herein by reference.