Item
1.01 Entry into a Material Definitive Agreement.
Private
Offering of Secured Convertible Notes and Warrants
On
April 19, 2021, the Company entered into a securities purchase agreement (“Purchase Agreement”) with accredited investors
(“Subscribers”) for their purchase of up to Three Million Three Hundred Thousand Dollars ($3,300,000) of principal amount
of six percent (6%) secured convertible promissory notes of the Company (“Note” or “Notes”) which notes are convertible
into shares (“Conversion Shares”) of the Company’s common stock, par value $0.0001 per share (“Common Stock”)
pursuant to the terms and conditions set forth in the Notes with an initial conversion price of $2.20, and, in connection with the purchase
of such Notes, each Subscriber shall receive a warrant (a “Warrant”), to purchase a number of shares of Common Stock (“Warrant
Shares”) equal to 60% of the principal amount of any Note issued to such Subscriber hereunder divided by the conversion price of
the Note issued to such Subscriber, at an exercise price equal to $2.65. In connection with the Purchase Agreement, the Notes, and the
Warrants, the Company entered into a Security Agreement under which the Corporation would grant the Subscribers a security interest in
certain assets of the Company (the “Security Agreement”) and a Registration Rights Agreement under which the Company would
agree to register for resale the Conversion Shares and the Warrant Shares (the “Registration Rights Agreement”). Concurrently
therewith, the Company and the investors closed on Three Million Dollars ($3,000,000) of the private offering.
Roth
Capital, LLC acted as placement agent (the “Placement Agent”) in the private offering, and the Company paid the Placement
Agent a cash fee of five percent (5%) of the gross proceeds therefrom. The Company received approximately $2.81 million in net proceeds
from the initial closing, after deducting the fee payable to the Placement Agent and the legal fees of the Subscribers in connection
with the transaction. The Company intends to use the proceeds to repay prior outstanding notes payable and for working capital and general
corporate purposes.
So
long as 15% of the Notes issued to Subscribers remain outstanding, if the Company offers to sell Covered Securities (as defined in the
Purchase Agreement), other than Excluded Securities (as defined in the Purchase Agreement), in a public or private offering of Covered
Securities solely for cash (a “Qualified Offering”), each Subscriber shall be afforded the opportunity to acquire from the
Company, for the same price and on the same terms as such Covered Securities are offered, in the aggregate up to the amount of Covered
Securities required to enable it to maintain its Subscriber Percentage Interest (as defined in the Purchase Agreement), all on the terms
and conditions set forth in the Purchase Agreement.
The
terms of the private offering are more fully set forth in the Purchase Agreement attached hereto as Exhibit 10.1 and incorporated herein
by reference. The Notes are subject to the terms and conditions of the form attached hereto as Exhibit 4.1 and incorporated by reference
herein. The Warrants are subject to the terms and conditions of the form attached hereto as Exhibit 4.2 and incorporated by reference
herein.
Interest
on the Notes accrues at a rate of six percent (6%) per annum and is payable either in cash or in shares of the Company’s common
stock at the conversion price in the Note on each of the six and twelve month anniversary of the issuance date and on the maturity date
of October 18, 2022 (the “Maturity Date”). All amounts due under the Notes are convertible at any time after the issuance
date, in whole or in part (subject to rounding for fractional shares), at the option of the holders into the Company’s common stock
at a fixed conversion price, which is subject to adjustment as summarized below. The Notes are initially convertible into the Company’s
common stock at an initial fixed conversion price of $2.20 per share. This conversion price is subject to adjustment for stock splits,
combinations, or similar events, among other adjustments.
Pursuant
to the Purchase Agreement, until the Company shall have obtained stockholder approval, the Company may not make any sale, grant, or other
disposition or issuance (or announce any sale, grant or other disposition or issuance) of (i) any Common Stock or any rights, options,
or warrants to purchase or securities convertible into or exercisable or exchangeable for Common Stock, or (ii) any rights to reprice
any Common Stock or any rights, options, or warrants to purchase or securities convertible into or exercisable or exchangeable for Common
Stock, if any such sale, grant, or other disposition or issuance would entitle any person to acquire shares of Common Stock for a consideration
per share less than a price equal to the Exercise Price (as defined in the Warrants) in effect immediately prior to such sale, grant,
or other disposition or issuance or deemed sale, grant, or other disposition or issuance; provided, however, that the foregoing provisions
of this sentence shall not be applicable to any sale, grant, or other disposition or issuance (or announcement of any sale, grant or
other disposition or issuance) of any Excluded Securities (as defined in the Warrants) or any Excluded Securities (as defined in the
Notes).
If,
at any time after the Company has obtained stockholder approval and while the Notes are outstanding, the Company 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 (other than Excluded Securities) entitling any person to acquire shares of Common
Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price”
and such issuances, collectively, a “Dilutive Issuance”), then the Conversion Price of the Notes shall be reduced to such
lower Dilutive Issuance price. In addition, if, at any time after the Company has obtained stockholder approval and while any Warrant
is outstanding, the Company 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 (other than Excluded Securities)
(including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded
Securities issued or sold or deemed to have been issued or sold) entitling any Person to acquire shares of Common Stock (“Additional
Shares of Common Stock”) for a consideration per share (the “Base Share Price”) less than a price equal to the Exercise
Price in effect immediately prior to such issuance or sale or deemed issuance or sale (such Exercise Price then in effect is referred
to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount price (calculated to the nearest one-hundredth of a cent) on
a weighted average basis.
A
Note may not be converted and shares of common stock may not be issued under the Notes if, after giving effect to the conversion or issuance,
the holder, together with its affiliates, would beneficially own in excess of 9.99% of the Company’s outstanding common stock.
In addition, a Warrant may not be exercised and shares of common stock may not be issued under the Warrant if, after giving effect to
the exercise or issuance, the holder, together with its affiliates, would beneficially own in excess of 9.99% of the Company’s
outstanding common stock.
The
Company may prepay the Notes at any time in whole or in part by paying a s sum of money equal to 100% of the principal amount to be redeemed,
together with accrued and unpaid interest, plus a prepayment fee equal to five one percent (5%) of the principal amount to be repaid.
The
Notes contain customary triggering events including but not limited to: (i) failure to make payments when due under the Notes; and (ii)
bankruptcy or insolvency of the Company. If a triggering event occurs, each holder may require the Company to redeem all or any portion
of the Notes (including all accrued and unpaid interest thereon), in cash.
The
Notes are secured by a subordinated security interest in the Company’s assets pursuant to the terms of a Security Agreement entered
into between the Company and the Subscribers attached hereto as Exhibit 10.2 and incorporated herein by reference.
The
Company entered into a Registration Rights Agreement with the holders of the Notes as of the date of Closing (the “Registration
Rights Agreement”). Pursuant to the terms of Registration Rights Agreement, the Company has agreed to file with the Securities
and Exchange Commission (“SEC”) an initial Registration Statement on Form S-3 covering the resale of all of the Registrable
Securities (as defined in the Registration Rights Agreement), with the filing of such initial Registration Statement to occur within
30 days of each closing date. The Registration Rights is attached hereto as Exhibit 10.3 and incorporated herein by reference.