Convertible Debt and Other Debt

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Convertible Debt and Other Debt

5) Convertible Debt and Other Debt

Convertible Debt

On various dates during the six months ended June 30, 2021, the Company issued convertible notes for a total of $3,104,625 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 or at variable conversion rates upon an event of default. These notes were issued with either shares of common stock or warrants to purchase common stock that were fair valued at issuance date. The aggregate relative fair value of the shares of common stock and warrants issued with the notes of $1,181,719 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 $566,847 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 June 30, 2021.

The specific terms of the convertible notes and outstanding balances as of June 30, 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 (1) (2)			12 months	$	380,000	$	166,703	$	15,200		8	%	$	2.50	$	15,200	$	332,407
June 8, 2018 (1) (4)	(1)		6 months	$	50,000	$	50,000	$	2,500		2	%	$	7.50	$	2,500	$	3,271
October 19, 2018 (1)			6 months	$	100,000	$	100,000	$	-		5	%	$	7.50	$	-	$	-
November 13, 2018 (1) (3) (4)			6 months	$	200,000	$	78,508	$	-		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 (1) (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 (1) (2)			9 months	$	500,000	$	302,484	$	-		8	%	$	2.50	$	40,500	$	70,631
June 19, 2019 (1) (2)			12 months	$	105,000	$	105,000	$	-		4	%	$	2.50	$	5,000	$	2,646
June 7, 2019 (1) (4)			6 months	$	125,000	$	6,746	$	-		5	%	$	7.50	$	-	$	18,254
July 1, 2019 (1) (2)			12 months	$	107,500	$	107,500	$	-		4	%	$	2.50	$	7,500	$	85,791
July 19, 2019 (1) (2)			12 months	$	115,000	$	115,000	$	-		4	%	$	2.50	$	5,750	$	15,460
July 19, 2019 (1) (2)			12 months	$	130,000	$	130,000	$	-		6	%	$	2.50	$	6,500	$	-
September 27, 2019 (1) (2)			12 months	$	78,750	$	78,750	$	-		4	%	$	2.50	$	3,750	$	13,759
October 24, 2019 (1) (2)			12 months	$	78,750	$	78,750	$	-		4	%	$	2.50	$	3,750	$	-
November 1, 2019 (1) (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 (1)			12 months	$	546,250	$	221,250	$	46,250		10	%	$	2.50	$	35,500	$	439,500
June 2, 2020 (1)			12 months	$	902,750	$	652,750	$	92,750		10	%	$	2.50	$	58,900	$	708,500
June 12, 2020 (1)			12 months	$	57,500	$	57,500	$	7,500		10	%	$	2.50	$	5,000	$	45,000
June 22, 2020 (1)			12 months	$	138,000	$	138,000	$	18,000		10	%	$	2.50	$	12,000	$	108,000
July 7, 2020 (1)			12 months	$	586,500	$	586,500	$	76,500		10	%	$	2.50	$	51,000	$	400,234
July 17, 2020 (1)			12 months	$	362,250	$	362,250	$	47,250		10	%	$	2.50	$	31,500	$	185,698
July 29, 2020 (1)			12 months	$	345,000	$	345,000	$	45,000		10	%	$	2.50	$	30,000	$	241,245
July 21, 2020 (1) (5)			12 months	$	115,000	$	115,000	$	15,000		10	%	$	2.50	$	10,000	$	24,875
August 14, 2020 (1)			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
October 22, 2020 (5)			12 months	$	115,000	$	115,000	$	15,000		10	%	$	2.50	$	10,000	$	18,875
December 23, 2020 (1) (5)			6 months	$	1,000,000	$	150,000	$	100,000		10	%	$	2.50	$	-	$	833,536
January 5, 2021 (1)			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
May 24, 2021			6 months	$	54,625	$	54,625	$	7,125		12	%	$	2.50	$	-	$	-
May 6, 2021			12 months	$	402,500	$	402,500	$	52,500		10	%	$	2.50	$	35,000	$	312,551
June 17, 2021			12 months	$	230,000	$	230,000	$	30,000		10	%	$	2.50	$	20,000	$	144,760
June 25, 2021			12 months	$	977,500	$	977,500	$	127,500		10	%	$	2.50	$	-	$	773,802
May 20, 2021			12 months	$	180,000	$	180,000	$	30,000		10	%	$	2.50	$	15,000	$	25,824
June 3, 2021			12 months	$	50,000	$	50,000	$	1,500		12	%	$	2.50	$	-	$	7,948
June 28, 2021			12 months	$	350,000	$	350,000	$	35,000		12	%		(6)	$	22,750	$	267,250
						$	13,262,466	$	1,502,225						$	972,500	$	9,117,409

(1)	The Note is past due. The Company and the lender are negotiating in good faith to extend the loan.
(2)	The Company and lender have agreed to the extension of the Standstill and Forbearance agreements (as described below).
(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.
(6)	Loan is not convertible until 180 days from the date of issuance of the Note and following an Event of Default will be convertible at the lesser of $2.50 per share or 90% of the lowest trading price over the previous 20 days. The loan is guaranteed by the Company’s Chief Executive Officer, but the lender may only enforce this guarantee after certain conditions have been met, specifically after (i) the occurrence of an Event of Default (as defined in the Note), (ii) the failure of the Company to cure the Default in 10 business days, and (iii) a failure by the Company to issue, or cause to be issued, shares of its common stock upon submission by the lender of a notice of conversion.

As of June 30, 2021 one lender holds approximately $9.1 million of the $13.3 million convertible notes outstanding.

For the six months ended June 30, 2021, the Company recognized amortization expense related to the debt discounts indicated above of $3,864,956. The unamortized debt discounts as of June 30, 2021 related to the convertible debentures and other convertible notes amounted to $2,353,152.

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 June 30, 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 six months ended June 30, 2021, the Company incurred fees of approximately $1.0 million in connection with these agreements. After June 30, 2021 the Company settled $827,500 of these loans (see Note 7).

Convertible Loan Modifications and Extinguishments

We refinanced certain convertible loans during the three months ended June 30, 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 six months ended June 30, 2021 we recorded losses on extinguishment of liabilities of approximately $1.6 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		3,104,625
Deferred financing cost		(506,375	)
Beneficial conversion feature on convertible note		(566,847	)
Debt discount from shares and warrants issued with debt		(1,181,719	)
Payments		(1,200,996	)
Conversion of debt into equity		(150,000	)
Accretion of interest and amortization of debt discount to interest expense		3,864,956
Balance at June 30,		10,909,314
Less: current portion		10,909,314
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 June 30, 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 9.3% - 11.5% 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 June 30, 2021:

Inception Date	Purchase Price		Purchased Amount		Outstanding Balance		Daily Payment Rate		Deferred Finance Fees
February 4, 2021		125,000		165,000		55,281		1,032		-
March 11, 2021		125,000		167,500		40,559		1,396		2,500
March 26, 2021		240,000		330,960		129,952		2,364		-
May 3, 2021		200,000		275,800		141,458		1,970		5,000
June 2, 2021		135,000		186,165		115,677		1,400		1,350
	$	825,000	$	1,125,425	$	482,927	$	8,162	$	8,850

The following table shows our Merchant Agreements as of December 31, 2020:

Inception Date	Purchase Price		Purchased Amount		Outstanding Balance		Daily Payment Rate		Deferred Finance Fees
November 5, 2020	$	200,000	$	275,800	$	163,955		1,724	$	-
November 19, 2020		100,000		137,900		85,013		985		-
	$	300,000	$	413,700	$	248,968	$	2,709	$	-

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 June 30, 2021 and is currently past due.

During the six months ended June 30, 2021, we received short-term non-convertible loans of $171,600 from related parties and repaid $153,000 of related party loans. These notes bear interest ranging from 10% to 15% and are due upon demand.

Long term debt

During the six months ended June 30, 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.