Bridge Notes from John K. Scott, Jr.

On April 10, 2022, the Company entered into a Stock Exchange Agreement with John K. Scott, Jr., pursuant to which Mr. Scott agreed to make a loan to the Company in the principal amount of up to $2.5 million, of which $1.5 million was funded on the closing date and $1.0 million was funded on July 1, 2022. The outstanding balance of the loan, which is evidenced by a bridge note (“2022 Bridge Note”), bears interest at a rate of 8% per annum, with payments of interest only to be made monthly over a period of two years. All outstanding principal and accrued and unpaid interest under the 2022 Bridge Note is due and payable on the second anniversary of the Stock Exchange Agreement. The Company’s obligations under the 2022 Bridge Note are secured by a first priority security interest in all of the Company’s assets and personal property pursuant to a Security Agreement between Mr. Scott and the Company, entered into at closing of the 2022 Bridge Note (the “2022 Security Agreement”).

As consideration and partial inducement for Mr. Scott to enter into the 2022 Bridge Note, the Company exchanged all 50,000 shares of Mr. Scott’s Series E Preferred Stock for 1,740 shares of Series F Preferred Stock and 3,260 shares of Series G Preferred Stock. In accordance with current accounting guidance, the Company recorded a debt discount of $835,876 including $821,250 related to the difference in the value of Mr. Scott’s Series E Preferred Stock and the Series F and Series G Preferred Stock and $14,626 of debt issuance costs. The debt discount is being amortized as non-cash interest expense using the effective interest method over the term of the 2022 Bridge Note.

On April 25, 2023, Mr. Scott agreed to make a second loan to the Company in the principal amount of up to $300,000 under the terms of a secured bridge note (“2023 Bridge Note”), of which $225,000 and $75,000 were funded on April 26, 2023 and May 9, 2023, respectively. The Company’s obligations under the 2023 Bridge Note were secured by a first priority security interest in all of the Company’s assets and personal property pursuant to the 2022 Security Agreement, as amended on April 25, 2023 in favor of Mr. Scott. The Company paid the principal balance of $300,000, plus a non-refundable fee of $15,000 and accrued interest of $105, to Mr. Scott at maturity on June 27, 2023.

On June 29, 2023, the Company entered into a letter agreement with Mr. Scott to exchange $1,073,600 principal amount of the 2022 Bridge Note for 12,200,000 shares of our Common Stock, based on the closing stock price on June 28, 2023. Pursuant to the exchange, a proportional $185,056 balance of the debt discount was cancelled. The Company recognized a loss on the partial debt extinguishment of $185,056 during the second quarter of 2023.

Interest expense related to the 2022 Bridge Note totaled $97,063 and $394,424 during the three-month and nine-month periods ended September 30, 2023, respectively. The principal and debt discount balances related to the 2022 Bridge Note were $1,426,400 and $177,333, respectively, as of September 30, 2023. Interest expense related to the 2023 Bridge Note totaled $0 and $105 during the three-month and nine-month periods ended September 30, 2023, respectively. The principal balance of the 2023 Bridge Note was $0 as of September 30, 2023.

IPFS Corporation

In November 2021, the Company prepaid $565,760 of insurance premiums through the issuance of a note payable to IPFS Corporation (“IPFS”) with an interest rate of 4.36%. The note was payable in five monthly installments of $114,388, with the final payment made in April 2022.

Interest expense related to the IPFS note payable totaled $0 during the three-month periods ended September 30, 2023 and 2022. Interest expense related to the IPFS note payable totaled $0 and $4,126 during the nine-month periods ended September 30, 2023 and 2022, respectively. The balance of the IPFS note was $0 as of September 30, 2023.

AFCO Premium Credit LLC

In November 2022, the Company prepaid $608,275 of insurance premiums through the issuance of a note payable to AFCO Premium Credit LLC (“AFCO”) with an interest rate of 7.85%. The note was payable in nine monthly installments of $69,967, with the final payment due in August 2023.

Interest expense related to the AFCO note payable totaled $1,361 and $0 during the three-month periods ended September 30, 2023 and 2022, respectively. Interest expense related to the AFCO note payable totaled $16,124 and $0 during the nine-month periods ended September 30, 2023 and 2022, respectively. The balance of the AFCO note was $0 as of September 30, 2023.

Summary

During the three-month periods ended September 30, 2023 and 2022, we recorded interest expense of $98,424 and $120,696, respectively, related to our notes payable. During the nine-month periods ended September 30, 2023 and 2022, we recorded interest expense of $410,653 and $208,004, respectively, related to our notes payable. Annual principal maturities of our notes payable are $0 and $1.43 million in 2023 and 2024, respectively.