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CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2023

17. CONVERTIBLE NOTES

Convertible notes payable at March 31, 2023 and December 31, 2022, were comprised of the following:

Schedule of convertible notes payable
	Conversion price per share	Interest rate	Due date	March 31, 2023			December 31, 2022
Convertible promissory note	$4.00	4%	May 10, 2024	$	500,000		$	660,000
AVLP convertible promissory notes, principal	$0.35 (AVLP stock)	7%	August 22, 2025		9,911,000			9,911,000
GIGA senior secured convertible notes – in default	$0.25 (GIGA stock)	18%	October 11, 2023		3,333,000			-
Fair value of embedded options and derivatives					2,283,000			2,316,000
Less: unamortized debt discounts					(744,000	)		(111,000	)
Total convertible notes payable, net of financing cost, long term				$	15,283,000		$	12,776,000
Less: current portion					(3,869,000	)		(1,325,000	)
Convertible notes payable, net of financing cost – long-term portion				$	11,414,000		$	11,451,000

Significant inputs associated with the embedded option include:


	March 31, 2023			December 31, 2022
Exercise price		Variable			Variable
Contractual term in years		2.7			2.7
Volatility		75% – 97	%		75% – 93	%
Dividend yield		0	%		0	%
Risk-free interest rate		4.6	%		4.0	%

GIGA Senior Secured Convertible Notes

On January 11, 2023, GIGA entered into a Securities Purchase Agreement (“GIGA SPA”) with two accredited investors (the “Lenders”) pursuant to which GIGA sold to the Lenders $3.3 million 10% original issue discount Senior Secured Convertible Notes (the “Notes”) and five-year warrants (the “Warrants”) to purchase shares of common stock, no par value for total gross proceeds of $3.0 million. The net proceeds shall be used primarily for working capital.

The Notes are secured by the assets of GIGA pursuant to a Security Agreement entered into for such purpose, and are senior to the indebtedness payable to Ault and Ault Lending, pursuant to a Subordination Agreement entered into in connection with the GIGA SPA.

The Notes mature on the earlier of (i) nine months from the issuance date, or October 11, 2023, or (ii) completion of the uplist transaction pursuant to which GIGA’s common stock becomes listed for trading on a national securities exchange operated by The Nasdaq Stock Market or the New York Stock Exchange (an “Uplist Transaction”). The Notes accrue interest at a rate of 6% per annum payable monthly, which increases to 18% upon an event of default. In addition, under the Notes upon an event of default GIGA is required to pay 20% of its consolidated revenues monthly on each interest payment date in reduction of the principal amount of the Notes then outstanding.

The Notes provide for certain events of default which include failure of the Uplist Transaction to occur by the maturity date, failure to maintain effectiveness of the registration statement under the Registration Rights Agreement (as described below), suspension of trading of GIGA’s common stock for five consecutive trading days, failure to timely deliver shares issuable upon conversion of the Notes or exercise of the Warrants, failure to timely make payments under the Notes, default under other indebtedness, and certain other customary events of default, subject to certain exceptions and limitations.

Upon an event of default, the holders will have the right to require GIGA to prepay the Notes at a 125% premium. Further, upon a bankruptcy event of default or a change of control event, GIGA will be required to prepay the Notes at a premium. If the conversion price falls below $0.25, GIGA may also elect to prepay the notes at a 125% premium.

The Notes are convertible upon the earlier of the Uplist Transaction and an event of default at a conversion price equal to the greater of (a) 90% of the lowest volume weighted average price (“VWAP”) for the 10 trading days prior to the conversion date and (b) $0.25 per share, subject to adjustment including downward adjustment upon any dilutive issuance of securities.

GIGA repaid its existing line of credit with Western Alliance Bank which had an existing balance of approximately $59,000. Under the Notes, GIGA may enter into a factoring agreement of $2 million using GIGA’s accounts receivable as collateral.

The Warrants entitle the holders to purchase a total of 1.7 million shares of common stock for a five-year period from issuance, at an exercise price determined as follows: (i) beginning on the issuance date and for a period of 90 days thereafter, $0.78, (ii) if the Uplist Transaction has occurred as of the date of exercise, the lower of (A) $0.78 and (B) 110% of the per share offering price to the public in the Uplist Transaction, and (iii) if neither of (i) and (ii) apply, the lower of (A) $0.78 and (B) 90% of the lowest VWAP for the 10 trading days prior to the date of the exercise, subject to adjustment including downward adjustment upon any dilutive issuance of securities. If the Uplist Transaction is not completed prior to the maturity date of the Notes, the number of shares of common stock that may be purchased upon exercise of the Warrants will be doubled, without an adjustment to the exercise price.

The GIGA SPA, Warrants and Notes require a reserve of authorized but unissued shares of common stock initially equal to approximately 15.0 million shares of common stock, subject to reduction as the Notes and Warrants are converted and exercised, respectively.

Spartan Capital Securities, LLC (the “Placement Agent”) served as placement agent in the offering and received a cash commission in the amount of 8% of the gross proceeds, or $0.2 million. In addition, GIGA agreed to pay the Placement Agent an expense allowance of $30,000. Furthermore, GIGA agreed to issue the Placement Agent five-year warrants (the “Placement Agent Warrants”) to purchase a number of shares of common stock equal to 8% of the total number of shares of common stock underlying the Notes and Warrants sold in the offering, or 1.2 million shares. The Placement Agent Warrants have an exercise price of 110% of the Warrant exercise price.

Under the GIGA SPA, GIGA reimbursed the Lenders a total of $60,000 out of the proceeds from the offering for fees and expenses incurred in connection therewith.

In connection with the GIGA SPA, GIGA entered into a Registration Rights Agreement pursuant to which it agreed to register the resale by the Lenders of the common stock issuable upon conversion of the Notes and Warrants. Pursuant to the Registration Rights Agreement, the initial registration statement on Form S-1 must be filed 30 days after the Notes become convertible, and to cause the registration statement to be declared effective within 90 days thereafter, subject to certain limitations and exceptions. GIGA did not complete the registration statement in a timely manner, which is an event of default. The Lenders required GIGA to terminate the Financing Agreement as a condition of lending it the $3 million and GIGA’s issuance of the Notes.