ITEM
1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On
September 13, 2022, we completed execution of a Securities Purchase Agreement (the “Purchase Agreement”) dated September
8, 2022 with an accredited investor (the “Investor”), pursuant to which we issued and sold to the Investor a convertible
promissory note, dated September 8, 2022, in the principal amount of $600,000 (the “Note”). We received $526,500 from the
Note on September 13, 2022, after subtracting the original issue discount, legal and due diligence fees.
The
maturity date for repayment of the Note is six months from issuance and the Notes bear interest at 12% per annum. The maturity date on
the Note may be extended for another six months, but at an increased interest rate of 15% per annum.
All
principal and accrued interest on the Note is convertible into shares of our common stock at the election of the Investor at any time
at the conversion price equal to the volume weighted average trading price (i) during the previous twenty (20) trading day period ending
on the date of issuance of the Note, or (ii) during the previous twenty (20) trading day period ending on the conversion date, whichever
is lower.
The
Purchase Agreement contains a provision that allows the Investor to a right of first refusal on our future offerings of equity or convertible
debt unless it is an exempt offering, such as an underwritten public offering, issuances to employees, officers, directors, contractors,
consultants or other advisors, among other exemptions stated in the Purchase Agreement. The Purchase Agreement contains a leak out provision
as to the securities.
Commencing
as of the date of the Note, and until the sooner of the twelve months or payment of the Note in full, or full conversion of the Note,
the Company shall not, directly or indirectly, without Investor’s prior written consent, which consent shall not be unreasonably
withheld: (a) change the nature of its business; (b) sell, divest, acquire, change the structure of any material assets other than in
the ordinary course of business; or (c) solicit any offers for, respond to any unsolicited offers for, or conduct any negotiations with
any other person or entity in respect of any variable rate debt transactions (i.e., transactions were the conversion or exercise price
of the security issued by the Company varies based on the market price of the Common Stock) with a price per share below $0.07, whether
a transaction similar to the one contemplated with Investor or any other investment.
With
some exceptions, we are restricted as to borrowing from others, disposing of a significant portion of our assets, advancing funds to
others or engaging in Section 3(a)(9) and 3(a)(10) transactions. We are also subject to a most favored nation clause that allows the
Investor to attach more favorable terms in any subsequent issuances we may conduct.
In
connection with the investment, we issued Commitment Shares to the Investor of 5,571,429, with 3,000,000 shares returnable to our treasury
as discussed below. We also issued a warrant to the Investor to purchase 1,000,000 shares of our common stock at an exercise price of
$0.25 per share, subject to adjustments.
We
may at any time pay or prepay all or any portion of the amounts outstanding hereunder by making a payment to the Investor of an amount
in cash equal to the sum of: (w) the then outstanding principal amount of the Note plus (x) accrued and unpaid interest on the unpaid
principal amount of the Note plus (y) default interest, if any. In the event that the Note has been repaid in full (including accrued
and unpaid interest) on or prior to the maturity date (without extension), we shall have the right to redeem 3,000,000 of the Commitment
Fee shares which were originally issued for an amount payable by us to the Investor in cash of an aggregate of one ordinary U.S. dollar
($1.00).
The
Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.
We
have agreed to include the shares of common stock underlying the Note, the Commitment Shares, and the shares of common stock underlying
the warrant in the next succeeding registration statement we file with respect to a public offering of our securities after the closing
of the transaction. If no such registration statement is filed or if we fail to include such shares in such registration statement, then
no later than the date that is the one hundred twenty (120) days after the issuance date of the Note, the Company shall file a registration
statement including all of the above shares of common stock, and shall cause such registration statement to be declared effective within
one hundred eighty (180) days after the issuance date.
We
subject to significant liquidated damages for the failure to register, including 25% of the outstanding principal of the Note being immediately
due and payable, as well the Investor may exercise the warrant using a cashless feature.
The
foregoing description of the Purchase Agreement, the Note, the Warrant, and the transactions contemplated thereby does not purport to
be complete and is subject to, and qualified in its entirety by reference to, the full text of the Purchase Agreement, the Note and the
Warrant, which are included in this Current Report as Exhibits 10.1 and 4.1-4.2, respectively, and are incorporated herein by reference.