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CONVERTIBLE NOTES PAYABLE | 9 Months Ended
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Sep. 30, 2021
Debt Disclosure [Abstract] |
CONVERTIBLE NOTES PAYABLE | 9.CONVERTIBLE NOTES PAYABLE On May 14, 2021, the Company’s wholly owned subsidiary, Empire New Mexico entered into a Senior Secured Convertible Note Agreement (the “Secured Note”) in the amount of $16,250,000 with Energy Evolution Master Fund, Ltd., a related party (“Energy Evolution”) (See Note 12). The Secured Note is collateralized by all assets of Empire New Mexico, matures on December 31, 2021 and bears an interest rate of 3.8%. The Secured Note provides that up to 40% of the balance, together with accrued interest, can be converted into the Company’s common stock at the lesser of $1.25 per share or the offering price if the Company has a subsequent capital raise or an aggregate of 5,200,000 shares of common stock (without giving effect to any interest that may be converted). The conversion terms of the Secured Note were subject to further adjustments as defined in that agreement. The embedded conversion option has been bifurcated and accounted for separately as a derivative financial instrument. The separated derivative was initially recorded at fair value at the inception date and revalued as of September 30, 2021 resulting in a fair value of $5,530,677 and $5,437,746, respectively. On September 30, 2021, the existing bifurcated derivative liability was removed in connection with the Amended Secured Note as further discussed. The change in fair value for the three and nine months ended September 31, 2021 of $689,215 and $92,931 is recorded as Unrealized Gain on the Embedded Conversion Option in the Statements of Operations. As partial consideration for the issuance of the Secured Note, Energy Evolution received a closing fee of 1,500,000 shares of the Company’s common stock and warrants to purchase three million shares of common stock for $1.00 per share which expire on May 14, 2022. The Company determined these were equity-classified financing instruments and the proceeds are allocated on a relative fair value basis between the debt, warrants, and common shares at issuance. At issuance, the discount associated with the Secured Note was $10,125,177; consisting of $5,530,677 relating to the embedded derivative liability, $1,500 and $2,773,500 in common stock and paid in capital, respectively, relating to the issuance of shares of the Company’s common stock, and $1,819,500 in paid in capital relating to the issuance of warrants to purchase common stock. The fair value of the warrants was determined using a Black-Scholes model. The warrants were exercised in 2021 and the Company received cash proceeds of $3,000,000. The discount associated with the Secured Note related to the embedded conversion liability and the issuance of the equity-classified financing instruments is amortized under the interest method and resulted in interest expense of $3,832,440 and $6,125,306 for the three and nine months ended September 30, 2021. Prior to amending the Secured Note in September 2021, the Company made principal payments totaling $4,050,000, inclusive of the application of the $1,250,000 proceeds from the termination of the investment in the Energy Evolution Fund LP (See Note 3). On September 29, 2021 the parties entered into a Loan Modification Agreement (the “Amended Secured Note”) pursuant to which Energy Evolution exchanged $6,500,000 in principal under the Secured Note in exchange for 5,305,208 shares of common stock, warrants to purchase 2,000,000 shares of the Company’s common stock at $1.25 per share and amended certain terms of the remaining $5,700,000 of principal under the Secured Note. As amended, the remaining principal balance matures and becomes due on June 30, 2023 and upon maturity of the Amended Secured Note, Energy Evolution has the sole discretion to require cash settlement or to redeem the principal balance, together with accrued interest, in exchange for the Company’s common stock at $2 per share. Prior to maturity, interest accrues quarterly at 3.8% and Energy Evolution has the option to receive interest in common stock at $1.25 per share in lieu of cash. Pursuant to the Amended Secured Note, the Company’s obligations with respect to a registration statement under the Secured Note were extended, the Company executed and delivered a Pledge and Security Agreement granting Energy Evolution a first priority perfected security interest in the Company’s membership interest in Empire New Mexico, d/b/a Green Tree New Mexico, the Company and Green Tree New Mexico agreed to use commercial reasonable best efforts to separate Green Tree New Mexico from the Company as an independent business on or before December 31, 2022 in a spin-off to stockholders of the Company. In accordance with ASC 470-20, the Company accounted for this exchange as an induced conversion based on the short period time of the offer was open and the substantive conversion feature offer. The Company accounted for the conversion of the debt instruments as an inducement by expensing the fair value of the instruments that were issued in excess of the original terms of the Secured Notes. The Company reduced the outstanding debt by $9,141,327, representing the face amount of the Secured Notes converted of $6,500,000, net of unamortized discount costs of $2,796,419, and the embedded conversion liability of $5,437,746. The Company recorded induced conversion expense of $2,276,813 representing the difference in fair value of the instruments exchanged, including the fair value of the warrants to purchase 2,000,000 shares of common stock at $1.25 per share. The embedded conversion option of the principal balance outstanding after the conversion and amendment, has been bifurcated and accounted for separately as a derivative financial instrument. The separated derivative was initially recorded at fair value of $2,017,287, with the amount recorded as a discount against the surviving Amended Secured Note balance and the derivative liability will be revalued on a quarterly basis. On September 30, 2021, 95,208 shares of common stock were issued as payment for the outstanding accrued interest on the Secured Note. In May 2021 the Empire New Mexico entered into $3,243,000 of Unsecured Convertible Notes (the “Unsecured Notes”) with a group of accredited investors, including the Company’s related party Energy Evolution, constituting $1,500,000 of the total Unsecured Convertible Notes. The Unsecured Notes had a maturity of May 9, 2022 with a single payment and interest at 5%. The Unsecured Note holders had the ability to convert their notes to common stock of the Company at the lesser of $1.25 per share or the price per share offered by the Company if the Company has a future capital raise for an aggregate 2,594,400 shares of common stock (without giving effect to any interest that may be converted). At September 30, 2021 $2,918,000 of the Unsecured Notes have been converted into 2,334,400 shares of common stock of the Company and 22,378 shares of common stock have been issued as payment for accrued interest on the Unsecured Note. The remaining Unsecured Notes in the amount of $325,000 were repaid in September 2021. The Company determined the embedded conversion features of the Unsecured Notes were equity-classified financing instruments. The fair value of the conversion feature was determined using a beneficial conversion model based on a 60-day weighted average stock price and the maximum number of shares to be received if converted. As issuance, the amount recorded to additional paid in capital was $544,824. The discount associated with these transactions is amortized under the interest method and resulted in interest expense of $254,876 and $544,824 for the three and nine months ended September 30, 2021, respectively. As an inducement for investors to enter into the Unsecured Convertible Notes, the Company’s Chief Executive Officer and President collectively offered to each investor the right to purchase a number of shares of common stock equal to 40% of such investor’s principal balance under its Unsecured Convertible Note at $0.75 per share (the “right to buy”). Energy Evolution exercised its right to buy 600,000 shares of the Company’s common stock. In conjunction with the conversion of the Unsecured Notes, each of the Company’s Chief Executive Officer and President partially exercised a warrant and options to purchase 643,600 shares at an exercise price of $0.25 and $0.33 respectively. The Company determined that offering the “right to buy” shares resulted in an expense of $989,155 of the Company based on the fair value of contributions made by the Company’s Chief Executive Officer and President on its behalf. The fair value of the “right to buy” shares was determined using a Black-Scholes model. The expense is including in General and Administrative in the Condensed Consolidated Statement of Operations. At September 30, 2021, there was a subscription receivable balance for stock purchased on September 29, 2021 by the Company’s Chief Executive Officer for which payment was not received until October 2021.

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