| 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 March 30, 2023, the Company consummated
the transactions pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) effective as of March 24, 2023 (the
“Effective Date”) and issued and sold to Mast Hill Fund, L.P. (“Mast Hill”), a Promissory Note (the “MH
Note”) in the principal amount of $160,941.18 (actual amount of purchase price of $136,800 plus an original issue discount (“OID”)
in the amount of $24,141.18). 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 1,790,000 shares
of Common Stock and (b) common stock purchase warrants (the “Second Warrants”), allowing Mast Hill to purchase an aggregate
of 1,820,000 shares of 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 and general corporate purposes.
The maturity date of the MH Note is the 12-month
anniversary of the Effective 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 Effective Date, to convert all or any portion of the then outstanding and unpaid principal
amount and interest (including any default interest) into Common Stock, 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.
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 $650,000 (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 Effective 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 $0.10 per share, subject to customary adjustments (including price-based anti-dilution adjustments), and may be exercised at
any time after February 28, 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 10.1, 10.2, 10.3
and 10.4, respectively, to this Current Report on Form 8-K, each of which are incorporated herein by reference.