| Convertible Debt and Other Debt | 6) Convertible Debt and Other Debt Conversion of
Notes We issued 5,075.40 shares
of our Series AA Convertible Preferred Stock in satisfaction of $12,688,634 of convertible promissory notes, Revolving Note and
short-term loans issued:
Debt converted to stock
Current liabilities
Convertible Debentures, face value $ 6,962,634
Revolving Note with interest 4,750,000
May 19, 2017 Promissory Note with interest 750,000
Other Notes with interest 226,000
Total debt converted in the second quarter of 2018 $ 12,688,634 Senior Secured Convertible
Debentures and Warrants We entered into Subscription
Agreements (the “ Subscription Agreement Purchaser Debentures Warrants Purchase Price The Company issued a principal
aggregate amount of $6,962,634 in Debentures which includes a 10% original issue discount on the Purchase Price. The Debenture
does not accrue any additional interest during the first year it is outstanding but accrues interest at a rate equal to 10% per
annum for the second year it is outstanding. The Debenture has a maturity date of two years from issuance. The Debenture is convertible
any time after its issuance date. The Purchaser has the right to convert the Debenture into shares of the Company’s common
stock at a fixed conversion price equal to $8.40 per share, subject to applicable adjustments. In the second year that the Debenture
is outstanding, any interest accrued shall be payable quarterly in either cash or common stock, at the Company’s discretion. In connection with the
Debentures issued, the Company issued warrants exercisable into a total of 376,759 shares of our common stock. The Warrants issued
in this transaction are immediately exercisable at an exercise price of $12.00 per share, subject to applicable adjustments including
full ratchet anti-dilution if we issue any securities at a price lower than the exercise price then in effect. The Warrants have
an expiration period of five years from the original issue date. The Warrants are subject to adjustment for stock splits, stock
dividends or recapitalizations and also include anti-dilution price protection for subsequent equity sales below the exercise price. On May 2, 2018, the Company
entered into a Securities Purchase Agreement with an existing shareholder pursuant to which the Company sold an aggregate of 100
shares of Series AA Convertible Preferred Stock for an aggregate Purchase Price of $250,000. We issued to the shareholder a new
warrant to purchase 100,000 shares of common stock with an exercise price of $3.50 per share. The Company, pursuant
to a price protection provision triggered on May 2, 2018 with the sale of Series AA units, amended the Debentures and Warrants
to purchase Common Stock held by the Debenture Holders entered into between July 22, 2015 and March 31, 2016 as first disclosed
in the Company’s Current Report on Form 8-K filed on July 28, 2015. The fair value of $207,899 relating to the reduction
in exercise price was treated as a deemed dividend and recorded as a charge against additional paid-in capital within equity. The
amended Debenture conversion price was exempt from revaluation because a beneficial conversion feature had already been recorded
on the Debenture at issuance. Subject to the terms and
conditions of the Warrants, at any time commencing six months from the Final Closing, the Company has the right to call the Warrants
for cancellation if the volume weighted average price of its Common Stock on the OTCQB (or other primary trading market or exchange
on which the Common Stock is then traded) equals or exceeds three times the per share exercise price of the Warrants for 15 out
of 20 consecutive trading days. In connection with the
Subscription Agreement and Debenture, the Company entered into Security Agreements with the Purchasers whereby the Company agreed
to grant to Purchasers an unconditional and continuing, first priority security interest in all of the assets and property of the
Company to secure the prompt payment, performance and discharge in full of all of Company’s obligations under the Debentures,
Warrants and the other Transaction Documents. On May 14 and June 11, 2018, the Company signed letter agreements with the Debenture
holders as explained below that discharged all of the Company’s obligations within the Debenture Agreement. Conversion of
Debentures On May 14, 2018, we entered
into letter agreements (the “Letter Agreements”) with 22 investors (each a “Debenture Holder” and together
the “Debenture Holders”) holding convertible debentures (collectively the “Debentures”) and warrants to
purchase common stock (the “Debenture Warrants”) whereby the Debenture Holders agreed to convert a total of $6,220,500
in principal and original issue discount due them under the Debentures into 2,448.20 shares of Series AA Convertible Preferred
Stock with a conversion price of $2.50 per share. The Debenture Holders were also: (a) issued amended Debenture Warrants such that
the exercise price will be $3.50 per share; and (b) issued a new warrant with an exercise price of $3.50 per share to purchase
2,448,200 shares of common stock (the number of shares of common stock issuable upon conversion of the Series AA Convertible Preferred
Stock shares received as a result of the Debenture conversions). The Debenture Holders also agreed to waive any and all defaults
or events of default by the Company with respect to any failure by the Company to comply with any covenants contained in the Debentures.
The fair value of $29,865 relating to the adjustment in exercise price was treated as a loan modification and recorded as a gain
toward the extinguishment of debt. On June 11, 2018, the
Company entered into additional Letter Agreements with 15 Debenture Holders whereby the Debenture Holders agreed to convert a total
of $742,134 in principal and original issue discount due them under the Debentures into 296.80 shares of Series AA Convertible
Preferred Stock with a conversion price of $2.50 per share. The Debenture Holders were also: (a) issued amended Debenture Warrants
such that the exercise price will be $3.50 per share; and (b) issued a new warrant with an exercise price of $3.50 per share to
purchase 296,800 shares of common stock (the number of shares of common stock issuable upon conversion of the Series AA Convertible
Preferred Stock shares received as a result of the Debenture conversions). The Debenture Holders also agreed to waive any and all
defaults or events of default by the Company with respect to any failure by the Company to comply with any covenants contained
in the Debentures. The fair value of $3,155 relating to the adjustment in exercise price was treated as a loan modification and
recorded as a gain toward the extinguishment of debt. In connection with the
above Debenture conversions and cancellation of the debt term, the Company recorded the full amount of the remaining unamortized
Debenture discounts of $157,908 as interest expense by June 11, 2018. The Company recorded $287,676 of the Debenture discounts
during 2018 through the cancellation date of June 11, 2018. On various dates for the
nine months ended September 30, 2018, the Company issued 56,007 shares of common stock based on the 10-day VWAP prior to quarter
end to holders of the Debentures in payment of the quarterly interest accrued from the Debentures first anniversary date through
June 11, 2018 for an aggregate amount of $211,047. We recognized a $9,615 gain on extinguishment of debt for the nine months ended
September 30, 2018 by calculating the difference of the shares valued on the issuance date and the amount of accrued interest through
June 11, 2018. Other convertible notes The Company, pursuant
to a price protection provision triggered on May 2, 2018 with the sale of Series AA units, amended the conversion price of a March
12, 2018 loan to $2.50 per share. The fair value of $253,000, limited to the face value of the loan, relating to the reset in the
conversion price was recorded as a debt discount and amortized as interest expense over the remaining loan term. On various dates during
the nine months ended September 30, 2018, the Company issued convertible notes for net proceeds of $3,848,484 which contained varied
terms and conditions as follows: a) maturity dates ranging from 3 to 12 months; b) interest rates that accrue per annum ranging
from 4% to 15%; c) convertible to the Company’s common stock at issuance at a fixed rate of $7.50 or convertible at variable
conversion rates either after 6 months after issuance or in the event of a default. Certain of these notes were issued with shares
of common stock or warrants to purchase common stock that were fair valued at issuance dates. The aggregate relative fair value
of $384,295 of the shares of common stock or warrants to purchase common stock issued with the notes was recorded as a debt discount
and amortized over the term of the notes. We then computed the effective conversion price of the notes, noting that no beneficial
conversion feature exists. We also evaluated the convertible notes for derivative liability treatment and determined that the notes
did not qualify for derivative accounting treatment as of September 30, 2018. The specific terms of
the convertible notes and outstanding balances as of September 30, 2018 are listed in the tables below. Convertible Notes
Inception Date Term Loan Amount
Outstanding Balance with OID Original Issue Discount Interest Rate Conversion Price (Convertible at Inception Date) Deferred Finance Fees Discount related to fair value of conversion feature and warrants/shares
July 22, 2015 30 months 1 $ 2,398,000 $ - 4 $ 218,000 2 10 % 3 $ 8.40 $ 388,532 $ 2,163,074
September 25, 2015 30 months 1 1,210,000 - 4 110,000 2 10 % 3 $ 8.40 185,956 1,022,052
October 2, 2015 30 months 1 165,000 - 4 15,000 2 10 % 3 $ 8.40 26,345 140,832
October 6, 2015 30 months 1 33,000 - 4 3,000 2 10 % 3 $ 8.40 5,168 26,721
October 14, 2015 30 months 1 55,000 - 4 5,000 2 10 % 3 $ 8.40 8,954 49,377
November 2, 2015 30 months 1 275,000 - 4 25,000 2 10 % 3 $ 8.40 43,079 222,723
November 10, 2015 30 months 1 55,000 - 4 5,000 2 10 % 3 $ 8.40 8,790 46,984
November 12, 2015 30 months 1 236,500 - 4 21,500 2 10 % 3 $ 8.40 38,518 212,399
November 20, 2015 30 months 1 220,000 - 4 20,000 2 10 % 3 $ 8.40 37,185 200,000
December 4, 2015 30 months 1 187,000 - 4 17,000 2 10 % 3 $ 8.40 37,352 170,000
December 11, 2015 30 months 1 396,000 - 4 36,000 2 10 % 3 $ 8.40 75,449 360,000
December 18, 2015 30 months 1 60,500 - 4 5,500 2 10 % 3 $ 8.40 11,714 55,000
December 31, 2015 30 months 1 110,000 - 4 10,000 2 10 % 3 $ 8.40 20,634 100,000
January 11, 2016 30 months 1 110,000 - 4 10,000 2 10 % 3 $ 8.40 24,966 80,034
January 20, 2016 30 months 1 55,000 - 4 5,000 2 10 % 3 $ 8.40 9,812 40,188
January 29, 2016 30 months 1 330,000 - 4 30,000 2 10 % 3 $ 8.40 60,887 239,113
February 26, 2016 30 months 1 220,000 - 4 20,000 2 10 % 3 $ 8.40 43,952 156,048
March 10, 2016 30 months 1 137,500 - 4 12,500 2 10 % 3 $ 8.40 18,260 106,740
March 18, 2016 30 months 1 396,000 - 4 36,000 2 10 % 3 $ 8.40 94,992 265,008
March 24, 2016 30 months 1 117,334 - 4 10,667 2 10 % 3 $ 8.40 15,427 91,240
March 31, 2016 30 months 1 195,670 - 4 17,788 2 10 % 3 $ 8.40 2,436 175,446
October 20, 2017 12 months 150,000 - - 5 % $ 7.50 7,500 -
October 25, 2017 6 months 103,000 - - 12 % - 3,000 -
October 27, 2017 12 months 170,000 - - 5 % - 4,250 10,000
November 13, 2017 9 months 380,000 - 15,200 8 % $ 7.50 15,200 46,274
November 22, 2017 12 months 100,000 - 10,000 5 % - 2,000 -
November 28, 2017 10 months 103,000 - 3,000 12 % - - -
November 29, 2017 6 months 150,000 - - 15 % $ 7.50 - 15,200
November 30, 2017 3 months 50,000 - - 8 % $ 7.50 - -
December 5, 2017 3 months 52,500 - - 10 % $ 7.50 2,500 -
December 6, 2017 4 months 100,000 - - 10 % $ 7.50 - -
December 11, 2017 6 months 130,000 - 1,500 5 % - 6,500 6,460
December 19, 2017 6 months 110,000 - 1,500 5 % - 5,500 5,775
December 28, 2017 6 months 55,000 - - 15 % $ 7.50 5,000 -
December 29, 2017 12 months 105,000 - - 5 % - 5,000 -
January 3, 2018 12 months 95,000 - 4,750 5 % - 2,000 -
January 16, 2018 12 months 131,250 - - - 6,250 -
January 19, 2018 6 months 150,000 - - 10 % $ 7.50 6,000 12,267
February 9, 2018 6 months 100,000 - - 15 % $ 7.50 23,500 -
February 15, 2018 6 months 100,000 - - 15 % $ 7.50 9,000 10,474
March 12, 2018 6 months 85,000 - 1,150 5 % - 4,250 5,183
March 12, 2018 6 months 253,000 - 53,000 0 % - 28,722
April 11, 2018 6 months 100,000 100,000 4,000 15 % $ 7.50 20,000 7,218
April 23, 2018 6 months 103,000 103,000 - 12 % - 3,000 -
April 24, 2018 9 months 77,000 77,000 - 12 % $ 7.50 2,000 -
April 25, 2018 12 months 105,000 105,000 - 4 % $ 7.50 5,000 4,590
April 25, 2018 12 months 105,000 105,000 - 4 % $ 7.50 5,000 4,590
April 25, 2018 12 months 130,000 130,000 - 6 % $ 7.50 6,500 -
April 26, 2018 12 months 65,000 65,000 6,500 5 % - 2,000 -
May 9, 2018 12 months 250,000 250,000 - 10 % $ 7.50 12,500 26,466
May 11, 2018 6 months 161,250 161,250 11,250 15 % $ 7.50 10,000 -
May 14, 2018 9 months 50,000 50,000 2,500 15 % $ 7.50 2,500 3,704
May 17, 2018 12 months 380,000 380,000 15,200 8 % $ 7.50 15,200 43,607
May 23, 2018 9 months 103,000 103,000 - 12 % - 3,000 -
May 24, 2018 9 months 52,500 52,500 2,500 4 % - - 2,075
May 25, 2018 12 months 78,750 78,750 - 4 % $ 7.50 3,750 3,112
May 30, 2018 2 months 150,000 - - 8 % $ 7.50 - 6,870
June 4, 2018 12 months 75,000 75,000 7,500 5 % - 2,000 3,869
June 8, 2018 6 months 50,000 50,000 2,500 15 % $ 7.50 2,500 3,271
June 12, 2018 6 months 100,000 - - 5 % $ 7.50 5,000 -
June 14, 2018 9 months 280,000 280,000 25,000 10 % - 5,000 17,573
June 16, 2018 9 months 130,000 130,000 - 5 % - - -
June 16, 2018 6 months 110,000 110,000 - 5 % - - -
June 26, 2018 3 months 150,000 150,000 - 15 % $ 7.50 - 20,242
June 28, 2018 6 months 50,000 50,000 - 15 % $ 7.50 - 10,518
July 2, 2018 12 months 125,000 125,000 - 4 % - 6,250 5,588
July 10, 2018 12 months 95,000 95,000 6,750 5 % - - -
July 13, 2018 9 months 103,000 103,000 - 12 % - 3,000 -
July 17, 2018 3 months 100,000 100,000 15,000 15 % $ 7.50 - 16,944
July 19, 2018 12 months 184,685 184,685 34,685 10 % $ 7.50 - -
July 30, 2018 12 months 80,000 80,000 - 6 % $ 7.50 4,000 -
July 31, 2018 3 months 150,000 150,000 - 12 % $ 7.50 - 6,578
August 8, 2018 6 months 100,000 100,000 - 15 % $ 7.50 - -
August 15, 2018 4 months 100,000 100,000 - 15 % $ 7.50 - -
August 28, 2018 12 months 131,250 131,250 - 4 % - 6,250 4,443
September 7, 2018 6 months 85,000 85,000 - 5 % - - 4,364
$ 13,744,689 $ 3,859,435 $ 856,440 $ 1,390,308 $ 6,258,956 1. The loan term was extended
by 180 days and further extended on January 15, 2018 by 60 days to repay in common stock. The Debenture holders signed letter agreements
on May 14, 2018 and June 11, 2018 to waive default penalties relating to the maturity date. 2. The original issue
discount is reflected in the first year. 3. The annual interest
started accruing in the second year. 4. The Debentures were
converted into Series AA Convertible Preferred Stock. For the nine months ended
September 30, 2018, the Company recognized amortization expense related to the convertible debt discounts indicated above of $1,327,983.
The unamortized debt discounts as of September 30, 2018 related to the convertible debentures and other convertible notes amounted
to $239,872. Revolving Note Payable
and May 19, 2017 Promissory Note On October 28, 2016, an
accredited investor (the “ Investor Revolving Note Maturity
Date Line of Credit Warrants The Revolving Note was
amended on May 2, 2017 to increase the aggregate principal amount to $3,000,000, to issue 16,667 shares of our Common Stock to
the Investor, to decrease the exercise price per share of the warrants to the lower of (i) $12.00 or (ii) the per share purchase
price of the shares of our Common Stock sold in the Qualified Offering, and to change the references in the Revolving Note from
“the six (6) month anniversary of October 28, 2016” to “July 25, 2017.” The fair value of the 16,667 shares
issued of $149,018 was accounted for as a note discount and are amortized to interest expense over the life of the loan. We evaluated
the accounting impact of the Revolving Note amendment and deemed that the amendment did not have a material impact on our consolidated
financial statements. The Revolving Note was
amended on August 18, 2017 to increase the aggregate principal amount to $3,500,000 with all other terms unchanged. The Revolving
Note, previously amended, was further amended on January 30, 2018 to increase the aggregate principal amount to $4,000,000 with
all other terms unchanged. In the event that a Qualified
Offering had occurred after July 25, 2017, but prior to the Maturity Date, within seven (7) Business Days of the closing of the
Qualified Offering, the Company was to pay a cash fee equal to five percent (5%) of the total outstanding amount owed by the Company
to the Holder as of the closing date of the Qualified Offering or, at the option of the Company, issue to the Holder a number of
restricted shares of the Company’s common stock equal to (x) five percent (5%) of the total outstanding amount owed by the
Company to the Holder as of the closing date of the Qualified Offering divided by (y) the purchase price provided by the documents
governing the Qualified Offering. A Qualified Offering Interest on the principal
balance of the Revolving Note shall be paid in full on the Maturity Date, unless otherwise paid prior to the Maturity Date. Interest
shall be assessed as follows: (i) a one-time interest of 10% on all principal amounts advanced prior to April 28, 2017; (ii) the
foregoing and 4% on any amount remaining outstanding if the principal amount is repaid between April 28, 2017 and July 28, 2017;
or (iii) both of the foregoing and 4% on any amount remaining outstanding if the principal amount is repaid between July 28, 2017
and October 28, 2017. Broker fees amounting
to $336,500, the one-time interest of $400,000 and the relative fair value of the 333,334 warrants issued to the Investor amounting
to $1,266,691 were recorded as debt discounts and amortized over the term of the revolving note. The unamortized debt discounts
related to the Revolving Note were fully amortized as of December 31, 2017. The finance costs from advances after December 31,
2017 were charged to interest expense directly because the maturity date had passed. On May 19, 2017, we received
a 45-day non-convertible loan of $630,000 from the Investor. The loan provided guaranteed interest of $63,000 and had an origination
fee of $32,000. We paid a broker $31,500 in connection with this loan. The unamortized debt discount as of September 30, 2018 was
zero. Conversion of
October 26, 2016 Revolving Note and May 19, 2017 Promissory Note On June 11, 2018, the
Company entered into a Letter Agreement with the Investor to convert a total of $5,500,000 in principal and interest due to the
Investor pursuant to the Revolving Note and the May 19, 2017 promissory note into 2,200 shares of Series AA Convertible Preferred
Stock with a conversion price of $2.50 per share. The Company also amended the Line of Credit Warrants held by the Investor. The
Company lowered the Line of Credit Warrants’ exercise price from $12.00 per share to $3.50 per share. The fair value of $82,904
relating to the reduction in exercise price was treated as a loan modification and recorded as a charge against the extinguishment
of debt. The Company also issued
a new warrant to the Investor with an exercise price of $3.50 per share to purchase 2,200,000 shares of common stock (the number
of shares of common stock issuable upon conversion of the Series AA Convertible Preferred Stock shares received as a result of
the conversion of a total of $5,500,000). In connection with the Letter Agreement, the Investor also waived $520,680 of interest
and fees owed as of September 30, 2018. We recognized $520,680 as a gain on extinguishment of debt. Convertible Loan
modifications and extinguishments We refinanced certain convertible loans during
the three months ended September 30, 2018 at substantially the same terms for extensions of six months. We amortized any remaining
unamortized debt discount as of the modification date over the remaining, extended term of the new loans. We applied ASC 470 of
modification accounting to the debt instruments which were modified during the quarter or those settled with new notes issued concurrently
for the same amounts but different maturity dates. The terms such as the interest rate, prepayment penalties, and default rates
will be the same over the new extensions. According to ASC 470, an exchange of debt instruments between or a modification of a
debt instrument by a debtor and a creditor in a nontroubled debt situation is deemed to have been accomplished with debt instruments
that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least
10 percent different from the present value of the remaining cash flows under the terms of the original instrument. If the terms
of a debt instrument are changed or modified and the cash flow effect on a present value basis is less than 10 percent, the debt
instruments are not considered to be substantially different and will be accounted for as modifications. The cash flows of new
debt exceeded 10% of the remaining cash flows of the original debt on five loans. We recorded losses on debt extinguishment of
$124,879 on these five loans by calculating the difference of the fair value of the new debt and the carrying value of the old
debt. The loss was primarily from the fair value of common stock issued in connection with these refinancings. The fees paid to
the lenders which formed part of the $124,879 loss on debt extinguishment included the aggregate fair value of $68,334 for the
shares issued with the new debt, the writedown of $5,883 for unamortized discounts remaining on the original debt and cash fees
of $50,662.
Origination Date Amended Start Date New Maturity Date Loan Amount New Loan Amount Total Unamortized Discount as of June 30, 2018 Amortization from July 1, 2018 to Modification Date Unamortized discount
12/11/2017 6/15/2018 12/11/2018 * $ 130,000 $ 130,000 $ - $ - $ -
12/19/2017 6/15/2018 12/19/2018 * 110,000 110,000 - - -
1/3/2018 7/11/2018 7/10/2019 95,000 95,000 3,458 (69 ) 3,389
1/17/2018 8/29/2018 8/27/2019 131,250 131,250 3,442 (352 ) 3,090
1/19/2018 7/19/2018 8/22/2019 * 150,000 184,685 1,288 (42 ) 1,246
2/9/2018 8/8/2018 2/8/2019 * 100,000 100,000 5,193 (556 ) 4,637
2/15/2018 8/15/2018 12/15/2018 * 100,000 100,000 2,662 (2,662 ) -
3/12/2018 9/7/2018 3/12/2019 85,000 85,000 2,172 (411 ) 1,761
5/30/2018 7/31/2018 10/31/2018 150,000 150,000 9,280 (1,868 ) 7,412
3/30/2018 4/30/2018 9/30/2018 170,000 170,000 - - -
$ 1,221,250 $ 1,255,935 $ 27,495 $ (5,960 ) $ 21,535 * The original loans were recorded as extinguished,
the unamortized debt discounts on the old debt were written off on extinguishment date, and a loss was recorded for each extinguishment.
The July 19, 2018 Note includes an original issue discount of $34,685 added to the new loan. The following table provides
a summary of the changes in convertible debt and revolving note payable, net of unamortized discounts, during 2018:
2018
Balance at January 1, $ 11,787,776
Issuance of convertible debt, face value 4,664,000
Deferred financing cost (315,516 )
Debt discount related to one-time interest charge (147,000 )
Contingent beneficial conversion feature on convertible note (253,000 )
Debt discount from warrants issued with debt (162,023 )
Debt discount from shares issued with the notes (222,272 )
Conversion of debt into equity (10,962,634 )
Payments (2,097,750 )
Accretion of interest and amortization of debt discount to interest expense through September 30, 1,327,984
Balance at September 30, 3,619,565
Less: current portion 3,619,565
Convertible debt, long-term portion $ - Other Notes On March 21, 2017, we
received an eight-month, non-convertible loan of $170,000 from an accredited investor. The loan earns an annual interest rate of
10% and includes a 10% original issue discount. We also agreed to issue the investor 5,667 shares of restricted common stock. We
recorded the fair value of the shares amounting to $35,079 as a debt discount that will be amortized to interest expense during
the term of the loan. The loan still remains outstanding as of September 30, 2018 with a balance of $170,000. The lender extended
the term to December 31, 2017 and further to March 31, 2018 in exchange for a total of 9,500 shares of common stock with a fair
value of $28,490 recorded as interest expense. The lender further extended the term to April 30, 2018 then to September 30, 2018
in exchange for an aggregate of 7,200 shares of company stock. We fully amortized $52,079 of the original debt discount in the
year ended December 31, 2017. We recorded a loss of $20,400 relating to the fair value of common stock issued for the September
30 extension. On August 1, 2017, we
signed a non-convertible installment loan with a lender. Under the agreement we received a loan of $75,000 with a weekly repayment
of $3,500 until payment in full. The loan includes $18,750 representing an original issue discount, interest and fees resulting
in a total payable of $93,750. The loan was paid off entirely as of September 30, 2018. On September 12, 2017,
we received a 9-month non-convertible loan of $225,000 from a privately-held investment firm. The loan earns an annual interest
rate of 10%. The Company paid total fees of $25,000 including original issue discount and other costs related to this loan. We
agreed to issue 3,333 shares at closing. We recorded the fair value of the shares as a debt discount that will be amortized to
interest expense during the term of the loan. We amortized the entire debt discount of $38,000 as of September 30, 2018. In the
event of default and at the option of the holder, the loan is convertible into common stock at a 35% discount to the average of
the two lowest daily volume weighted average closing stock price for the 20 trading days prior to conversion. The loan was paid
off entirely as of September 30, 2018. In March 2018, we received
non-convertible loans totaling $150,000 from private investors. The loans include one-year term and 10% guaranteed interest. We
converted these loans into Series AA Units. See below. In April 2018, we received
a non-convertible loan for $10,000 from a private investor. The loan includes a one-year term and 10% guaranteed interest. We converted
this loan into Series AA Units. See below. On July 16, 2018 we signed
a Merchant Agreement with a lender. Under the agreement we received $180,000, of which $103,450 was used to pay off the outstanding
balance on a previous loan dated April 11, 2018 from this lender, in exchange for rights to all customer receipts until the lender
is paid $246,600, which is collected at the rate of $1,790.00 per business day. The $66,600 imputed interest will be recorded as
interest expense when paid each day. Fees of $3,600 were deducted from the initial advance. The payments were secured by second
position rights to all customer receipts until the loan has been paid in full. We accounted for the Merchant Agreement as a secured
loan under ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts. On August 8, 2018, we
received a non-convertible loan of $50,000 from a private investor. The loan does not charge interest and was repaid entirely on
October 3, 2018. In September 2018, we
received a non-convertible loan of $67,000 from a private investor. The loan does not charge interest and was repaid entirely in
October 2018. On September 14, 2018,
we received a short-term non-convertible loan of $350,000 from an accredited investor. The loan was repaid entirely on September
18, 2018. We paid $20,000 in interest on this loan which includes a $15,000 original issue discount. Conversion of
Non-Convertible Notes On June 11, 2018, the
Company entered into Letter Agreements with certain private investors to convert a total of $176,000 in principal and interest
due to the private investors pursuant to certain loan documents into 70.4 Series AA Units representing 70.4 shares of Series AA
Convertible Preferred Stock with a conversion price of $2.50 per share and warrants to purchase 70,400 shares of common stock. Merchant Agreements We have signed various
Merchant Agreements which entitle the lenders to our customer receipts. We accounted for the Merchant Agreements as loans under
ASC 860 because while we provided rights to current and future receipts, we still had control over the receipts. The following
table shows our Merchant Agreements as of September 30, 2018.
Inception Date Purchase Price Purchased Amount Outstanding Balance Daily Payment Interest Rate Deferred Finance Fees
September 29, 2017 75,000 102,000 $ - 1,200.00 15 % 1,500
October 25, 2017 110,000 153,890 - 1,539.00 15 % 8,800
December 7, 2017 160,000 212,800 - 1,251.76 25 % 5,799
December 12, 2017 160,000 212,800 - 1,251.76 15 % 5,258
February 27, 2018 110,000 147,400 - 921.25 25 % 1,650
April 11, 2018 140,000 187,600 - 1,275.00 13 % 2,800
May 11, 2018 180,000 243,000 82,468 1,518.75 25 % 2,599
May 15, 2018 180,000 244,800 86,858 1,530.00 15 % 3,600
June 29, 2018 140,000 190,400 88,657 1,269.33 25 % 2,100
July 16, 2018 180,000 246,600 124,544 1,790.00 13 % 3,600
$ 1,435,000 $ 1,941,290 $ 382,527 $ 37,706 We amortized $94,050 and
$225,508 of debt discounts during the nine months ended September 30, 2018 and 2017, respectively for all non-convertible notes.
The total unamortized discount for all non-convertible notes as of September 30, 2018 was $6,343. Related Party Notes On March 14, 2018, we
received a one-year, non-convertible loan of $50,000 from a related party (a member of the Company’s Board of Directors).
This loan is included in net proceeds from non-convertible debt in the Statement of Cash Flows. The amount of $50,000 was converted
on June 11, 2018 into 20 shares of Series AA Convertible Preferred Stock and 20,000 warrants to purchase common stock. The $7,500
guaranteed interest on the loan was recorded as a debt discount and amortized over the term of the debt. The interest is outstanding
as of September 30, 2018. On May 31, 2018, we received
two short-term loans of $46,500 and $5,600 from two members of the Company’s Board of Directors, respectively. We repaid
both loans in full during June 2018 and paid interest of $6,975. On June 11, 2018, the
Company entered into a Letter Agreement with one non-employee member of the Board, to convert $50,000 in principal due to the board
member pursuant to a certain loan document into 20 Series AA Units representing 20 shares of Series AA Convertible Preferred Stock
with a conversion price of $2.50 per share and warrants to purchase 20,000 shares of common stock. In June 2018, we received
a non-convertible loan of $15,000 from a private investor. The loan includes a one-year term and 10% guaranteed interest. On August 6, 2018 and
on September 28, 2018, we received two short-term loans of $6,500 and $7,500 from an employee and an officer of the Company, respectively.
We repaid both loans in full in August and October 2018, respectively. There was no interest charged on these loans. |
