Convertible Debt and Other Debt | 5) Convertible Debt and Other Debt Convertible Debt On various dates during the three months ended March 31, 2021, the Company issued convertible notes for a total of $860,000 which contained varied terms and conditions as follows: a) 6-12 month maturity date; b) interest rates of 10-18%; c) convertible to the Company’s common stock at issuance at a fixed rate of $2.50. These notes were issued with warrants to purchase common stock that were fair valued at issuance date. The aggregate relative fair value of warrants issued with the notes of $162,654 was recorded as a debt discount to be amortized over the term of the notes. We then computed the effective conversion price of the notes, and recorded a $53,777 beneficial conversion feature as a debt discount to be amortized over the term of the notes. We also evaluated the convertible notes for derivative liability treatment and determined that the notes did not qualify for derivative accounting treatment at March 31, 2021. The specific terms of the convertible notes and outstanding balances as of March 31, 2021 are listed in the tables below. Inception Date Term Loan Amount Outstanding balance with OID Original Issue Discount (OID) Interest Rate Conversion Price Deferred Finance Fees Discount for conversion feature and warrants/shares May 17, 2018 (2) 12 months $ 380,000 $ 166,703 $ 15,200 8 % $ 2.50 $ 15,200 $ 332,407 October 19, 2018 (1) 6 months $ 100,000 $ 100,000 $ - 5 % $ 7.50 $ - $ - November 13, 2018 (1) (3) (4) 6 months $ 200,000 $ 220,000 $ - 5 % $ 2.50 $ - $ 168,634 January 3, 2019 (1)(4) 6 months $ 50,000 $ 50,000 $ 2,500 24 % $ 7.50 $ 2,500 $ - February 21, 2019 (2) 12 months $ 215,000 $ 215,000 $ - 4 % $ 2.50 $ 15,000 $ 107,709 March 18, 2019 (1) 6 months $ 100,000 $ 100,000 $ - 4 % $ 7.50 $ - $ 10,762 June 4, 2019 (2) 9 months $ 500,000 $ 302,484 $ - 8 % $ 2.50 $ 40,500 $ 70,631 June 19, 2019 (2) 12 months $ 105,000 $ 105,000 $ - 4 % $ 2.50 $ 5,000 $ 2,646 June 7, 2019 (1) (4) 6 months $ 125,000 $ 25,000 $ - 5 % $ 7.50 $ - $ 18,254 July 1, 2019 (2) 12 months $ 107,500 $ 107,500 $ - 4 % $ 2.50 $ 7,500 $ 85,791 July 19, 2019 (2) 12 months $ 115,000 $ 115,000 $ - 4 % $ 2.50 $ 5,750 $ 15,460 July 19, 2019 (2) 12 months $ 130,000 $ 130,000 $ - 6 % $ 2.50 $ 6,500 $ - September 27,2019 (2) 12 months $ 78,750 $ 78,750 $ - 4 % $ 2.50 $ 3,750 $ 13,759 October 24, 2019 (2) 12 months $ 78,750 $ 78,750 $ - 4 % $ 2.50 $ 3,750 $ - November 1, 2019 (2) 12 months $ 270,000 $ 270,000 $ - 6 % $ 2.50 $ 13,500 $ - November 15, 2019 (1) 12 months $ 385,000 $ 320,000 $ 35,000 10 % $ 2.50 $ 35,000 $ 90,917 January 2, 2020 (1) 12 months $ 330,000 $ 330,000 $ 30,000 10 % $ 2.50 $ 30,000 $ 91,606 January 24, 2020 (1) 12 months $ 247,500 $ 247,500 $ 22,500 10 % $ 2.50 $ 22,500 $ 89,707 January 29, 2020 (1) 12 months $ 363,000 $ 363,000 $ 33,000 10 % $ 2.50 $ 33,000 $ 297,000 February 12, 2020 (1) 12 months $ 275,000 $ 275,000 $ 25,000 10 % $ 2.50 $ 25,000 $ 225,000 February 19, 2020 (1) 12 months $ 165,000 $ 165,000 $ 15,000 10 % $ 2.50 $ 15,000 $ 135,000 March 11, 2020 (1) 12 months $ 330,000 $ 330,000 $ 30,000 10 % $ 2.50 $ 30,000 $ 232,810 March 13, 2020 (1) 12 months $ 165,000 $ 165,000 $ 15,000 10 % $ 2.50 $ 15,000 $ 60,705 March 26, 2020 (1) 12 months $ 111,100 $ 111,100 $ 10,100 10 % $ 2.50 $ 10,100 $ 90,900 April 8, 2020 (1) 12 months $ 276,100 $ 276,100 $ 25,100 10 % $ 2.50 $ 25,000 $ 221,654 April 17, 2020 (1) 12 months $ 143,750 $ 143,750 $ 18,750 10 % $ 2.50 $ - $ 96,208 April 30, 2020 (1) 12 months $ 546,250 $ 546,250 $ 71,250 10 % $ 2.50 $ 47,500 $ 427,500 May 6, 2020 (1) 12 months $ 460,000 $ 460,000 $ 60,000 10 % $ 2.50 $ 40,000 $ 360,000 May 18, 2020 12 months $ 546,250 $ 221,250 $ 46,250 10 % $ 2.50 $ 35,500 $ 439,500 June 2, 2020 12 months $ 902,750 $ 652,750 $ 92,750 10 % $ 2.50 $ 58,900 $ 708,500 June 12, 2020 12 months $ 57,500 $ 57,500 $ 7,500 10 % $ 2.50 $ 5,000 $ 45,000 June 22, 2020 12 months $ 138,000 $ 138,000 $ 18,000 10 % $ 2.50 $ 12,000 $ 108,000 July 7, 2020 12 months $ 586,500 $ 586,500 $ 76,500 10 % $ 2.50 $ 51,000 $ 400,234 July 17, 2020 12 months $ 362,250 $ 362,250 $ 47,250 10 % $ 2.50 $ 31,500 $ 185,698 July 29, 2020 12 months $ 345,000 $ 345,000 $ 45,000 10 % $ 2.50 $ 30,000 $ 241,245 July 21, 2020 (5) 12 months $ 115,000 $ 115,000 $ 15,000 10 % $ 2.50 $ 10,000 $ 24,875 August 14, 2020 12 months $ 762,450 $ 462,450 $ 69,450 10 % $ 2.50 $ 66,300 $ 580,124 September 10, 2020 12 months $ 391,000 $ 391,000 $ 51,000 10 % $ 2.50 $ 34,000 $ 231,043 September 21, 2020 (5) 12 months $ 345,000 $ 345,000 $ 45,000 10 % $ 2.50 $ 30,000 $ 66,375 September 23, 2020 (5) 12 months $ 115,000 $ 115,000 $ 15,000 10 % $ 2.50 $ 10,000 $ 20,500 September 25, 2020 (5) 12 months $ 115,000 $ 115,000 $ 15,000 10 % $ 2.50 $ - $ 19,125 December 3, 2020 12 months $ 299,000 $ 299,000 $ 39,000 10 % $ 2.50 $ 26,000 $ 197,882 December 21, 2020 6 months $ 100,000 $ 100,000 $ 5,000 12 % $ 2.50 $ 29,964 $ 24,400 October 22, 2020 (5) 12 months $ 115,000 $ 115,000 $ 15,000 10 % $ 2.50 $ 10,000 $ 18,875 December 23, 2020 (5) 6 months $ 1,000,000 $ 1,000,000 $ 100,000 10 % $ 2.50 $ - $ 833,536 January 5, 2021 6 months $ 575,000 $ 575,000 $ 75,000 18 % $ 2.50 $ - $ - February 17, 2021 12 months $ 230,000 $ 230,000 $ 30,000 10 % $ 2.50 $ 20,000 $ 180,000 March 23, 2021 12 months $ 55,000 $ 55,000 $ 5,000 10 % $ 2.50 $ - $ 36,431 $ 12,077,587 $ 1,221,100 $ 907,214 $ 7,606,403 (1) The Note is past due. The Company and the lender are negotiating in good faith to extend the loan. (2) As of March 31, 2021 the Company and lender have agreed to the extension of the Standstill and Forbearance agreements (as described below). Loan is convertible at $2.50 as of March 31, 2021. (3) Interest was capitalized and added to outstanding principal. (4) During the year ended December 31,2020 the Company entered into Rate Modification Agreements with these lenders. In these agreements five lenders agreed to reduce their interest rate and were granted the right to convert loans using a variable conversion price if more than one other variable rate lender converted at a variable rate. (5) The Company has agreed to issue shares of its common stock to lenders if their notes are not repaid by a defined date. As of March 31, 2021 one lender holds approximately $7.5 million of the $12.1 million convertible notes outstanding. For the three months ended March 31, 2021, the Company recognized amortization expense related to the debt discounts indicated above of $2,124,788. The unamortized debt discounts as of March 31, 2021 related to the convertible debentures and other convertible notes amounted to $2,184,810. Standstill and Forbearance Agreements The Company has entered into Standstill and Forbearance Agreements with lenders who hold convertible notes with a total principal as of March 31, 2021 of $1.57 million. Pursuant to the Standstill and Forbearance Agreements, the lenders agreed to not convert any portion of their notes into shares of common stock at a variable rate until March 31, 2021 for convertible notes with a principal balance of $469 thousand and until April 16, 2021 for convertible notes with a principal balance of $1.1 million. For the three months ended March 31, 2021, the Company incurred fees of approximately $0.5 million in connection with these agreements. Convertible Loan Modifications and Extinguishments We refinanced certain convertible loans during the three months ended March 31, 2021 at substantially the same terms for extensions ranging over a period of three to 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 several loans. During the three months ended March 31, 2021 we recorded losses on extinguishment of liabilities of approximately $1.1 million by calculating the difference of the fair value of the new debt and the carrying value of the old debt. The following table provides a summary of the changes in convertible debt, net of unamortized discounts, during 2021: 2021 Balance at January 1, $ 7,545,670 Issuance of convertible debt, face value 860,000 Deferred financing cost (130,000 ) Beneficial conversion feature on convertible note (53,777 ) Debt discount from shares and warrants issued with debt (162,654 ) Payments (191,250 ) Conversion of debt into equity (100,000 ) Accretion of interest and amortization of debt discount to interest expense 2,124,788 Balance at March 31, 9,892,777 Less: current portion 9,892,777 Convertible debt, long-term portion $ – Other Notes On September 9, 2019 and February 28,2020 we received a total of $966,500 unsecured non-convertible loans from a private investor with a one-month term. During the year ended December 31, 2020, the Company received net proceeds of $463,500, issued 150,000 warrants to purchase common stock (five-year term and $3.50 exercise price) and repaid $275,000. The relative fair value of $185,660 of the warrants issued with the note was recorded as a debt discount to be amortized over the term of the notes. As of March 31, 2021 the Company owes $691,500 on these notes which are past due. The Company and the investor are negotiating in good faith to extend the loans. On October 1, 2019, the Company and the holder of the $170,000 non-convertible loan issued in May 2017 agreed to extend the term of the loan to December 31, 2019. The Company agreed to issue 1,200 shares of its common stock per month while the note remains outstanding. The note will continue to earn 10% annual interest. The loan is currently past due, and the Company and the investor are negotiating in good faith to extend the loan. On October 11, 2019 we received a non-convertible loan with a one-month term and a 2% interest charge for $25,000 from a private investor. The loan is past due, and the Company and the investor are negotiating in good faith to extend the loan. Merchant Agreements We have signed various Merchant Agreements which are secured by second position rights to all customer receipts until the loan has been repaid in full and subject to interest rates of 4% - 5.7% per month. As illustrated in the following table, under the terms of these agreements, we received the disclosed Purchase Price and agreed to repay the disclosed Purchase Amount, which is collected by the Merchant lenders at the disclosed Daily Payment Rate. The Company’s Chief Executive Officer is personally guaranteeing the performance of the merchant loans. The following table shows our Merchant Agreements as of March 31, 2021: Inception Date Purchase Price Purchased Outstanding Daily Rate Deferred Fees November 19, 2020 100,000 137,900 38,468 985.00 - February 4, 2021 125,000 165,000 102,084 1,032.00 - March 11, 2021 125,000 167,500 111,565 1,396.00 $ 2,500 March 26, 2021 240,000 330,960 236,257 2,364.00 - $ 590,000 $ 801,360 $ 488,374 $ 5,777.00 $ 2,500 The following table shows our Merchant Agreements as of December 31, 2020: Inception Date Purchase Price Purchased Outstanding Daily Rate Deferred Fees November 5, 2020 $ 200,000 $ 275,800 $ 163,955 1,724.00 $ - November 19, 2020 100,000 137,900 85,013 985.00 - $ 300,000 $ 413,700 $ 248,968 $ 2,709.00 $ - We have 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 difference between the Purchase Amount and the Purchase Price is imputed interest that is recorded as interest expense when paid each day. Related Party Notes In June 2018, we received a non-convertible loan of $15,000 from a private investor. The loan includes a one-year term and 15% guaranteed interest. This loan remains outstanding at March 31, 2021 and is currently past due. During the three months ended March 31, 2021, we received short-term non-convertible loans of $85,000 from related parties and repaid $70,000 of related party loans. These notes bear interest ranging from 5% to 15% and are due upon demand. Long term debt During the quarter ended March 31, 2021, the Company borrowed $367,038 through a COVID-19 program that was sponsored by the United States and administered by the Small Business Administration (the “SBA”). The most notable programs were the Payroll Protection Program (or “PPP”) and the Economic Injury Disaster Loan program (or “EIDL”). PPP loan has a 1% interest rate and a five-year term. During this period, the Company’s first PPP loan borrowed in 2020 ($367,039) was forgiven by the SBA. This gain was reported in losses on extinguishment of liabilities on the consolidated statements of operations. The Company’s EIDL loan, $150,000, accrues interest at 3.75% and requires monthly payments of $731 for principal and interest beginning in June 2021. The balance of the principal will be due in 30 years. In connection with the EIDL loan the Company entered into a security agreement with the SBA, whereby the Company granted the SBA a security interest in all of the Company’s right, title and interest in all of the Company’s assets. |