Item 1.01 Entry into a Material Definitive Agreement.
On January 11, 2022, the Company entered into a Securities Purchase Agreement
(the "SPA") with AJB Capital Investments, LLC (the "Purchaser"), pursuant to
which we sold a Promissory Note in the principal amount of $600,000 (the "Note")
to the Purchaser in a private transaction to for a purchase price of $540,000
(giving effect to original issue discount of $60,000). In connection with the
sale of the Note, the Company also paid the Purchaser's legal fees and due
diligence costs of $12,500 and brokerage fees of $10,000 to J.H. Darbie & Co., a
registered broker-dealer. After payment of the legal fees and brokerage fees,
the net proceeds to the Company were $517,500, which will be used for working
capital and other general corporate purposes.
The Note matures on July 11, 2022, subject to extension at the option of the
Company for up to an additional six month period, bears interest at the a rate
of 10% per annum for the first six months and 12% per annum thereafter if
extended, and only following an event of default (as defined in the Note), is
convertible into shares of the Company's common stock at a conversion price
equal to the lower of the "VWAP" (as hereinafter defined) of the common stock
during (i) the twenty (20) trading day period preceding the issuance date of the
Note; or (ii) the twenty (20) trading day period preceding the date of
conversion of the Note. As used in the Note, "VWAP" means, for any date, the
price of our common stock as determined by the first of the following clauses
that applies: (i) if the common stock is then listed or quoted on one or more
established stock exchanges or national market systems, the daily volume
weighted average price of the common stock for such date on the trading market
on which the common stock is then listed or quoted as reported by Bloomberg
L.P.; or (ii) if the common stock is regularly quoted on an automated quotation
system (including applicable tiers of the over-the-counter market maintained by
OTC Market Group, Inc.) or by a recognized securities dealer, the volume
weighted average price of the common stock for such date on the applicable OTC
Markets Group, Inc. tier or as quoted by such securities dealer. In accordance
with the terms of the SPA, as of January 11, 2022, the Company has reserved
36,923,080 shares of its authorized but unissued common stock for issuance in
the event the Purchaser exercises its right to convert the Note following an
event of default.
The Note may be prepaid by the Company at any time without penalty. The Note
also contains covenants, events of defaults, penalties, default interest and
other terms and conditions customary in transactions of this nature.
Pursuant to the terms of the SPA, the Company paid a commitment fee to the
Purchaser in the amount of $200,000 (the "Initial Commitment Fee") in the form
of 3,076,921 shares of the Company's common stock (the "Initial Commitment Fee
Shares"). In addition, if the Company exercises the option to extend the
maturity date of the Note, the Company will pay an additional commitment fee to
the Purchaser in the amount of $100,000 (the "Additional Commitment Fee," and
together with the Initial Commitment Fee, collectively, the "Commitment Fee") in
the form of an additional 1,538,462 shares of its common stock (the "Additional
Commitment Fee Shares," and together with the Initial Commitment Fee Shares,
collectively, the "Commitment Fee Shares"). In the event that by the first
anniversary of repayment of the Note by the Company, the Purchaser has not
generated the amount of the Commitment Fee from public sales of the Commitment
Fee Shares, the Company shall either pay the amount of any such shortfall either
(i) by issuing additional shares of our common stock at a price equal to the
VWAP for the common stock during the five (5) trading day period prior to such
anniversary date; or (ii) in cash, in which case, the Company shall repurchase
any unsold Commitment Fee Shares then held by the Purchaser for such shortfall
amount.
The offer and sale of the Note to the Purchaser was made in a private
transaction exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), in reliance on exemptions afforded by
Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D
promulgated thereunder.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.01 is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities
The information set forth under Item 1.01 is incorporated herein by reference.
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