NOTE 7 – CONVERTIBLE NOTES PAYABLE

Mercer Convertible Debt

On October 15, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with Mercer Street Global Opportunity Fund, LLC (the “Investor”), pursuant to which the Company issued and sold to Investor a 10% Original Issue Discount Senior Convertible Promissory Note in the principal amount of $825,000 (the “Mercer Note”) and five-year warrants to purchase up to 16,500,000 shares of the Company’s common stock at an initial exercise price of $0.05 per share, an amount equal to 50% of the conversion shares that were issued (the “Mercer Warrants”). The Company received net proceeds of $680,000, which was net of original issue discounts of $75,000, placement fees of $60,000, and legal fees of $10,000. The transactions contemplated under the SPA closed on October 18, 2021.

The Mercer Note matured 12 months after issuance, bore interest at a rate of 4% per annum through the date of default, and was initially convertible beginning on the six-month anniversary of the original issue date into the Company’s common stock at a fixed conversion price of $0.025 per share, subject to adjustment for stock splits, stock combinations, dilutive issuances, and similar events, as described in the Initial Note.

The Mercer Note and Mercer Warrants contain conversion limitations providing that a holder thereof may not convert the Notes or exercise the Warrants to the extent (but only to the extent) that, if after giving effect to such conversion, the holder or any of its affiliates would beneficially own in excess of 4.99% of the outstanding shares of the Company’s common stock immediately after giving effect to such conversion or exercise. A holder may increase or decrease its beneficial ownership limitation upon notice to the Company provided that in no event such limitation exceeds 9.99%, and that any increase shall not be effective until the 61^st day after such notice.

Upon the occurrence of an event of default under the Mercer Note, the Investor has the right to be prepaid at 125% of the outstanding principal balance and accrued interest, and interest accrues at 18% per annum. Events of default included, among other things,

The Company has also granted the investor a 12-month (or until the Notes are no longer outstanding) right to participate in specified future financings, up to a level of 30%.

On April 20, 2022, the Company and the Investor entered into an Exchange Agreement (the “Exchange Agreement”). The original SPA remains in effect. Per the terms of the Exchange Agreement, the Parties agreed to exchange (i) the Mercer Note for a new Convertible Promissory Note (the “New Note”) and (ii) the Mercer Warrant for a new five-year warrant to purchase, in the aggregate, 33,000,000 shares of the Company’s common stock at an exercise price of $0.025 per share (the “New Warrant” and together with the New Note, the “New Securities”), according to the terms and conditions of the Exchange Agreement. On April 20, 2022, pursuant to the terms of the Exchange Agreement, the Investor surrendered the Prior Securities in exchange for the New Securities. Other than the surrender of the Prior Securities, no consideration of any kind whatsoever was given by the Investor to the Company in connection with the Exchange Agreement. The terms of the New Securities are the same as the Prior Securities except for the pricing of the shares issuable under the New Note and the shares issuable upon exercise of the New Warrant. The New Securities are composed of the New Note, which is a 10% Original Issue Discount Senior Convertible Promissory Note in the principal amount of $825,000, and the New Warrant. The New Note matured on October 15, 2022, bore interest at a rate of 4% per annum through the date of default, and was initially convertible into the Company’s common stock at a fixed conversion price of $0.0125 per share, subject to adjustment for stock splits, stock combinations, dilutive issuances, and similar events, as described in the New Note. If the average Closing Price during any 10 consecutive Trading Day period beginning and ending during the 60 Day Effectiveness Period (the “Average Closing Price”) is below the Conversion Price than the conversion price will be reduced to such Average Closing Price but in no event less than $0.00875.

On October 15, 2022, the due date of the New Note, the New Note defaulted due to non-payment. Accordingly, the Company added a default penalty of $206,250, or 25%, to the principal balance and recorded interest expense of $206,250, and interest shall accrue at 18% per annum.

On December 4, 2023, the Company entered into a letter agreement (the “Agreement”) with the Investor to eliminate the convertible features and implement a standstill on the interest due under the Convertible Promissory Note Dated October 15, 2021 (the “Note”). Per the terms of the Agreement, provided that the Company continues making the Payments as outlined in the Agreement and meets its obligations under the Agreement, the Investor shall not have the right to convert the Note into the Company’s common stock. The Company shall make the Payments on the 15th of every month. “Payments” shall mean $15,000 per month for 35 months with a balloon payment of $588,091 on the 36th month, for aggregate payments of $1,113,091.

Additionally, the Company shall pay Mercer 20% of the gross proceeds from capital raised by the Company through the issuance of securities or incurrence of any Debt (regardless of whether the incurrence of debt includes of the sale of any securities) (“Capital Raise Payments”). Capital Raise Payments shall only be required for capital raises resulting in the Company receiving gross proceeds of at least $500,000. By way example, if the Company receives $600,000 from the issuance of Debt, the Company shall make a Capital Raise Payment of $120,000 to Mercer. Any Capital Raise Payments shall be first be applied to the then outstanding Balloon Payment and thereafter to the last Payments (35th, 34th and so on). “Debt” means borrowed money including the sale of any existing and future receivables. The Capital Raise Payments shall be made within two business days of the receipt of the funds under such raise. Any failure to make the Payments within the cure period or from the Capital Raise Payments by the required date shall make this Agreement null and void.

Additionally, provided that the Company is in compliance with this Agreement, Mercer agrees to a standstill on the interest due under the Note beginning with the date that the first $15,000 Payment is made which the Company paid on December 15, 2023 as required by the Note. Further, if the Company pays off the entire principal and accrued interest by the dates detailed below, the Investor agrees to reduce the total amount due on the Note (principal and interest) by the percentages as follows: 20% if fully paid by March 31, 2024, 15% if fully paid by June 30, 2024, 10% if fully paid by September 30, 2024, and 5% if fully paid by December 31, 2024. All rights and obligations under the original Note shall remain the same. Mercer is not waiving any of its rights under the original Note, including but not limited to, rights available prior to this Agreement.

As of September 30, 2024 and December 31, 2023, the principal balance of the New Note was $963,091 and $1,098,091, respectively. Additionally, as of September 30, 2024 and December 31, 2023, accrued interest payable amounted to $176,184 and $176,184, respectively, which is reflected in accrued expenses on the accompanying unaudited consolidated statements of operations. Under the terms of the Agreement, $176,184 of accrued interest is subject to forgiveness if the Company complies with the terms of the Agreement. In October 2024, the Company ceased making payments and is in discussion with Mercer to extend the Agreement. As of the date of this report, Mercer has not declared any default.

At any time this Note or any amounts accrued and payable thereunder remain outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any common stock or common stock equivalents entitling any Person to acquire shares of the Company’s common stock at an effective price per share that is lower than the conversion price then in effect (such lower price, the “Base Conversion Price” and each such issuance or announcement a “Dilutive Issuance”), then the conversion price shall be immediately reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such common stock or common stock equivalents are issued.

Pursuant to the provisions of ASC 815-40 – Derivatives and Hedging – Contracts in an Entity’s Own Stock, the convertible note and related warrants issued in connection with the Mercer convertible note was analyzed and it was determined that the terms of the convertible note and warrants contained terms that were not considered derivatives.

1800 Diagonal Lending Convertible Debt

2022/2023

On November 9, 2022, the Company closed a Securities Purchase Agreement dated November 4, 2022, with 1800 DIAGONAL LENDING LLC (“Diagonal”), pursuant to which a Promissory Note (the “November 2022 Diagonal Note”) dated November 4, 2022, was made to Diagonal in the aggregate principal amount of $104,250 and the Company received net proceeds of $100,000 which was net of fees of $4,250. The November 2022 Diagonal Note bore interest at a rate of 12% per annum and all outstanding principal and accrued and unpaid interest was due on May 4, 2024. In May 2023, the November 2022 Diagonal Note and any interest due was repaid in full (See Note 16).

On December 27, 2022, the Company closed a Securities Purchase Agreement dated December 27, 2022, with 1800 Diagonal pursuant to which a Promissory Note (“December 2022 Diagonal Note”) dated December 27, 2022, was made to Diagonal in the aggregate principal amount of $64,250 and the Company received net proceeds of $60,000 which was net of fees of $4,250. The December 2022 Diagonal Note bore interest at a rate of 12% per annum and all outstanding principal and accrued and unpaid interest was due on June 27, 2024. In May 2023, the December 2022 Diagonal Note and any interest due was repaid in full (See Note 16).

On March 17, 2023, the Company closed a Securities Purchase Agreement dated November 4, 2022, with Diagonal pursuant to which a Promissory Note (the “March 2023 Diagonal Note”) dated March 17, 2023, was made to Diagonal in the aggregate principal amount of $54,250 and the Company received net proceeds of $50,000 which was net of fees of $4,250. The March 2023 Diagonal Note bore interest at a rate of 12% per annum and all outstanding principal and accrued and unpaid interest was due on March 17, 2024. In May 2023, the March 2023 Diagonal Note and any interest due was repaid in full (See Note 16).

The Company accounted for the November 2022 and December 2022 Diagonal Notes as stock settled debt under ASC 480 and recorded an aggregate debt premium of $90,731 with a charge to interest expense. The Company has accounted for the March 2023 Diagonal Note as stock settled debt under ASC 480 and recorded an aggregate debt premium of $29,212 with a charge to interest expense. On May 11, 2023, upon repayment of the November 2022, December 2022 and March 2023 Diagonal Notes, the Company reversed the debt premium of $119,943 and recorded a gain on debt extinguishment of $119,943 on the accompanying unaudited consolidated statement of operations.

2024

On March 1, 2024, the Company executed a Promissory Note (the “March 2024 Note”) in favor of Diagonal in the aggregate principal amount of $157,000 (the “Principal”), and an accompanying Securities Purchase Agreement (“SPA”). Through August 15, 2024, the March 2024 Note was only convertible into shares of the Company’s common stock in the event of a default. On August 15, 2024, the Company entered into two amendments to the March 2024 Note. The amendments to the March 2024 Note changed the number and dollar amount of mandatory monthly payments to be paid to 9 payments, each in the amount of $17,877 (a total payback to the Holder of $160,893). The first payment shall be due August 30, 2024, with 8 subsequent payments due on the 30th day of each month thereafter. The amendments to the March 2024 Note also made the March 2024 Note convertible at any time at Diagonal’s option and changed the conversion price to 65% multiplied by the lowest closing bid price during the 10 trading days prior to the conversion date (representing a discount rate of 35%). All other terms in the March 2024 Note remain the same. Accordingly, on August 15, 2024, the principal amount outstanding of $139,548 was reclassified from notes payable to convertible notes payable (See Note 8). Among other things, an event of default (“Event of Default”) shall occur if the Company fails to pay the principal or interest when due on the March 2024 Note, whether at maturity, upon acceleration or otherwise. Upon the occurrence of any Event of Default, the March 2024 Note shall become immediately due and payable and the Company shall pay to the Investor, in full satisfaction of its obligations hereunder, an amount equal to 220% times the sum of the then outstanding principal amount of this March 2024 Note plus accrued and unpaid interest on the unpaid principal amount of this March 2024 Note to the date of payment plus Default Interest, if any. At no time may the Note be converted into shares of our common stock if such conversion would result in the Investor and its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of our common stock. As of September 30, 2024, the principal balance of the March 2024 Note was $139,548 (See Note 17).

On April 8, 2024, the Company executed a Promissory Note (the “April 2024 Note”) in favor of Diagonal in the aggregate principal amount of $127,693 (the “Principal”), and an accompanying Securities Purchase Agreement (“SPA”). The April 2024 Note was funded on April 10, 2024, in the amount of $100,000. Through August 15, 2024, the April 2024 Note was only convertible into shares of the Company’s common stock in the event of a default. On August 15, 2024, the Company entered into two amendments to its April 2024 Note in favor of Diagonal in the principal amount of $127,693. The amendments to the April 2024 Note changed the number and dollar amount of mandatory monthly payments to be paid to 9 payments, each in the amount of $21,980 (a total payback to the Holder of $197,820). The first payment shall be due August 13, 2024, with 8 subsequent payments due on the 15th day of each month thereafter. The amendments to the April 2024 Note also made the April 2024 Note convertible at any time at Diagonal’s option and changed the conversion price to 65% multiplied by the lowest closing bid price during the 10 trading days prior to the conversion date (representing a discount rate of 35%). All other terms in the April 2024 Note remain the same. Accordingly, on August 15, 2024, the principal amount outstanding of $97,407 was reclassified from notes payable to convertible notes payable (See Note 8). A one-time interest charge of 12% (the “Interest Rate”) shall be applied on the issuance date to the Principal. Under the terms of the original April 2024 Note, the Company was required to make monthly payments beginning on August 15, 2024. Any amount of principal or interest on the April 2024 Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid (“Default Interest”). Among other things, an event of default (“Event of Default”) shall occur if the Company fails to pay the principal or interest when due on the Note, whether at maturity, upon acceleration or otherwise. Upon the occurrence of any Event of Default, the April 2024 Note shall become immediately due and payable and the Company shall pay to the Investor, in full satisfaction of its obligations hereunder, an amount equal to 220% times the sum of the then outstanding principal amount of this April 2024 Note plus accrued and unpaid interest on the unpaid principal amount of this April 2024 Note to the date of payment plus Default Interest, if any. At no time may the April 2024 Note be converted into shares of our common stock if such conversion would result in the Investor and its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares. As of September 30, 2024, the principal balance of the April 2024 Note was $97,407 (See Note 17).

On June 5, 2024, the Company executed a Promissory Note (the “June 2024 Note”) in favor of Diagonal in the aggregate principal amount of $67,500 (the “Principal”), and an accompanying Securities Purchase Agreement (“SPA”). The June 2024 Note was funded on June 5, 2024, in the amount of $50,000, net of original issue discount and fees of $17,500. Under the terms of the June 2024 Note, the Company is required to make nine monthly payments of principal and interest of $8,775 beginning on July 15, 2024. Any amount of principal or interest on the April 2024 Note which is not paid when due shall bear interest at the rate of 22% per annum from the due date thereof until the same is paid (“Default Interest”). Through August 15, 2024, the June 2024 Note was only convertible into shares of the Company’s common stock in the event of a default.

On August 15, 2024, the Company entered into an amendment to its June 2024 Note in favor of Diagonal in the principal amount of $67,500. The amendment to the June 2024 Note made the June 2024 Note convertible at any time at Diagonal’s option and changed the conversion price to 65% multiplied by the lowest closing bid price during the 10 trading days prior to the conversion date (representing a discount rate of 35%). All other terms in the June 2024 Note remain the same. Accordingly, on August 15, 2024, the principal amount outstanding of $47,453 was reclassified from notes to convertible notes payable (See Note 8). Among other things, an event of default (“Event of Default”) shall occur if the Company fails to pay the principal or interest when due on the June 2024 Note, whether at maturity, upon acceleration or otherwise. Upon the occurrence of any Event of Default, the June 2024 Note shall become immediately due and payable and the Company shall pay to the Investor, in full satisfaction of its obligations hereunder, an amount equal to 220% times the sum of the then outstanding principal amount of this June 2024 Note plus accrued and unpaid interest on the unpaid principal amount of this June 2024 Note to the date of payment plus Default Interest, if any. At no time may the June 2024 Note be converted into shares of our common stock if such conversion would result in the Investor and its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of the Company’s common stock. As of September 30, 2024, the principal balance of the June 2024 Note was $47,453 (See Note 17).

In accordance with ASC 470-50, Debt Modifications and Extinguishments, on August 15, 2024, in connection with the amendments to the March 2024 Note, April 2024 Note and June 2024 Note discussed above (the “Amendments”), the Company performed an assessment of whether the Amendments were deemed to be new debt, a modification of existing debt, or an extinguishment of existing debt. The Company evaluated the Amendments for debt modification and concluded that the debt qualified for debt extinguishment. On August 15, 2024, the Company agreed to make the March 2024 Note, April 2024 Note and July 2024 Note convertible, at the option of the holder, at a conversion price of 65% multiplied by the lowest closing bid price during the 10 trading days prior to the conversion date (representing a discount rate of 35%). Chanes to the payments term of the March 2024 Note and April 2024 did not materially change the cash flows of the note and all other terms of these notes remained unchanged. The Company determined the transaction was considered a debt extinguishment because the change in conversion price was substantial. Upon extinguishment, the Company had $31,578 of unamortized debt discount recorded which it wrote off to loss on debt extinguishment, net.

On August 15, 2024, the Company accounted for the amended March 2024 Note, April 2024 Note, and June 2024 Note as stock settled debt under ASC 480 and recorded an aggregate debt premium of $189,642 with a charge to loss of debt extinguishment.

For the nine months ended September 30, 2024 and 2023, amortization of debt discounts related to the convertible notes payable amounted to $0 and $2,627, respectively, which has been included in interest expense on the accompanying unaudited consolidated statements of operations.

On September 30, 2024 and December 31, 2023, accrued interest payable under all outstanding convertible notes discussed above amounted to $176,184 and $176,184, respectively, and was included in accrued expenses on the accompanying unaudited consolidated balance sheets.

On September 30, 2024 and December 31, 2023, convertible notes payable consisted of the following:

On September 30, 2024, future annual principal maturities of convertible notes payable are as follows: