Quarterly report pursuant to Section 13 or 15(d)

Convertible Debt and Other Debt

v3.22.2.2
Convertible Debt and Other Debt
 9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Convertible Debt and Other Debt

5) Convertible Debt and Other Debt

 

Convertible Debt

 

On various dates during the nine months ended September 30, 2022, the Company issued convertible notes for a total of $3,921,617 which contained varied terms and conditions including the following: a) 1 to 12-month maturity date; b) interest rates of 12% to 15%; c) convertible to the Company’s common stock at issuance at a fixed rate of $2.50 or at variable conversion rates upon the Company’s up-listing to NASDAQ or NYSE or 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 $606,169 was recorded 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 September 30, 2022.

 

 

The specific terms of the convertible notes and outstanding balances as of September 30, 2022 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     $ 98,544     $ 15,200       8 %   $ 2.50     $ 15,200     $ 332,407  
January 3, 2019 (1)(4)     6 months     $ 50,000     $ 50,000     $ 2,500       24 %   $ 7.50     $ 2,500       -  
June 4, 2019 (1)(2)     9 months     $ 500,000     $ 302,484       -       8 %   $ 2.50     $ 40,500     $ 70,631  
July 19, 2019 (1) (2)     12 months     $ 115,000     $ 115,000       -       4 %   $ 2.50     $ 5,750     $ 15,460  
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 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 (1)     12 months     $ 391,000     $ 391,000     $ 51,000       10 %   $ 2.50     $ 34,000     $ 231,043  
September 21, 2020 (1) (5)     12 months     $ 345,000     $ 345,000     $ 45,000       10 %   $ 2.50     $ 30,000     $ 66,375  
September 23, 2020 (1)     12 months     $ 115,000     $ 15,000     $ 15,000       10 %   $ 2.50     $ 10,000     $ 20,500  
December 3, 2020 (1)     12 months     $ 299,000     $ 299,000     $ 39,000       10 %   $ 2.50     $ 26,000     $ 197,882  
October 22, 2020 (1) (5)     12 months     $ 115,000     $ 115,000     $ 15,000       10 %   $ 2.50     $ 10,000     $ 18,875  
February 17, 2021 (1)     12 months     $ 230,000     $ 230,000     $ 30,000       10 %   $ 2.50     $ 20,000     $ 180,000  
March 23, 2021 (1)     12 months     $ 55,000     $ 55,000     $ 5,000       10 %   $ 2.50       -     $ 36,431  
May 6, 2021 (1)     12 months     $ 402,500     $ 402,500     $ 52,500       10 %   $ 2.50     $ 35,000     $ 312,551  
June 17, 2021 (1)     12 months     $ 230,000     $ 230,000     $ 30,000       10 %   $ 2.50     $ 20,000     $ 144,760  
June 25, 2021 (1)     12 months     $ 977,500     $ 977,500     $ 127,500       10 %   $ 2.50       -     $ 773,802  
August 4, 2022 (13)     12 months     $ 50,000     $ 50,000     $ 1,500       12 %   (14 )     -     $ 7,948  
August 31, 2022 (13)     6 months     $ 700,000     $ 700,000     $ 84,000       12 %     (6 )     -       -  
July 3, 2021 (1)     12 months     $ 115,000     $ 115,000     $ 15,000       10 %   $ 2.50     $ 10,000     $ 90,000  
July 1,2022 (13)     6 months     $ 260,000     $ 185,000     $ 10,000       12 %   (15 )   $ 2,000       -  
February 4, 2022 (1)(13)     8 months     $ 500,000     $ 500,000     $ 30,000       12 %     (11 )     -       -  
May 13, 2022 (11)(13)     7 months     $ 500,000     $ 500,000     $ 25,000       12 %   (11 )     -       -  
January 19,2022 (1) (13)     6 months     $ 52,000     $ 52,000     $ 2,000       12 %   $ 2.50   $ 2,000       -  
September 16, 2022 (3)(13)     1 month     $ 352,188     $ 352,188     $ 45,938       15 %     (8 )     -       -  
September 26, 2022 (1)(3)(13)     1 month     $ 140,875     $ 140,875     $ 18,375       15 %     (8 )     -       -  
August 31, 2021 (1)     12 months     $ 189,750     $ 189,750     $ 24,750       10 %     (9 )   $ 16,500     $ 148,500  
May 8, 2022(13)     8 months     $ 65,000     $ 65,000     $ 3,000       12 %     (7 )     -       -  
September 10, 2021 (1)     8 months     $ 100,000     $ 100,000     $ 4,000       12 %     (7 )     -     $ 43,520  
September 15, 2021 (1)     6 months     $ 250,000     $ 250,000     $ 12,500       12 %     (7 )     -     $ 108,801  
September 16, 2021 (1)     6 months     $ 250,000     $ 250,000     $ 12,500       12 %     (7 )     -     $ 112,337  
September 24, 2021 (1)     8 months     $ 125,000     $ 125,000     $ 6,250       12 %     (7 )     -     $ 61,876  
September 15, 2021 (1)     6 months     $ 250,000     $ 250,000     $ 37,500       12 %     (7 )   $ 30,000       -  
October 21, 2021 (1)(5)     12 months     $ 189,750     $ 189,750     $ 24,750       12 %   $ 2.50     $ 16,500     $ 87,332  
November 1, 2021 (1)(5)     12 months     $ 189,750     $ 189,750     $ 24,750       12 %   $ 2.50       -     $ 96,991  
March 29,2022     8 months     $ 112,000     $ (8,573 )   $ 13,000       12 %     (12 )     -       -  
February 9,2022     12 months     $ 88,987     $ 35,737     $ 10,237       12 %     (10 )     -       -  
March 30,2022     12 months     $ 100,000     $ 100,000     $ 5,000       12 %   $ 2.50     -     $ 19,614  
April 19,2022     12 months     $ 95,000     $ 95,000       -       12 %     (12 )     -     $ 16,234  
May 23,2022     8 months     $ 950,000     $ 950,000     $ 57,000       12 %   $ 2.50     $ 22,333       -  
July 15, 2022     12 months     $ 22,000     $ 22,000     $ 880       12 %   $ 2.50       -     $ 6,286  
August 3, 2022     12 months     $ 25,000     $ 25,000     $ 980       12 %   $ 2.50     -     $ 6,412  
August 10, 2022     12 months     $ 196,319     $ 196,319     $ 22,585       12 %   (10 )     -       -  
August 11, 2022     12 months     $ 50,000     $ 50,000     $ 2,000       12 %   (16 )      -       -  
August 17, 2022     12 months     $ 50,000     $ 50,000     $ 2,000       12 %   (15 )     -     $ 7,149  
August 24, 2022     12 months     $ 200,000     $ 200,000     $ 14,000       15 %   (15 )     -       -  
September 7, 2022     12 months     $ 50,000     $ 50,000     $ 2,000       12 %   (14 )     -      $ 9,845  
September 8, 2022     12 months     $ 87,500     $ 87,500     $ 11,375       12 %     (12 )     -     $ 22,430  
September 16, 2022     12 months     $ 113,000     $ 113,000       -       12 %   (17 )     -     $ 25,651  
September 9, 2022     10 months     $ 175,000     $ 175,000     $ 22,750       12 %     (12 )     -       -  
September 26, 2022 (1)     1 month     $ 26,250     $ 26,250       -       0 %   (15 )     -       -  
September 28, 2022     12 months     $ 52,000     $ 52,000       -       12 %   (14 )     -     $ 8,420  
September 28, 2022     9 months     $ 262,500     $ 262,500     $ 12,500       12 %   (18 )     -     $ 50,005  
                    $ 17,142,974     $ 1,794,220                     $ 984,083     $ 8,496,019  
      Less remaining debt discount     $ 434,313                                          
      Total convertible debt     $ 16,708,661                                          

 

 

Notes:

 

  (1) The Note is past due. The Company and the lender are negotiating in good faith to extend the loan.
  (2) The Company and lenders have entered into Standstill and Forbearance Agreements (as described below).
  (3) Note is secured by the assets of the Company’s subsidiary, PBI Agrochem, Inc. and interest rate is 40.9% OID.
  (4) During the year ended December 31, 2020, the Company entered into a Rate Modification Agreement with this lender. In this agreement the lender 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 lowest trading price of the 20 days prior to conversion. 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.
  (7) Notes are convertible before maturity at $2.50 per share or mandatorily convertible when the Company up-lists to the NASDAQ at the lower of $2.50 or the up-list price.
  (8) Notes can be converted at the lesser of $2.5 per share or 25% discount to the opening price of the Company’s first day of trading on either Nasdaq or NYSE. In addition, if the Company fails to pay the Note in cash on maturity date, the conversion price will be adjusted to the lesser of (i) original conversion price or (ii) a 35% discount to the VWAP prior to each conversion date.
  (9) Conversion price of this note is $2.50 and will be adjusted to, upon an Event of Default, the lower of (i) the conversion price or (ii) a 25% discount to the 5-day average VWAP of the stock prior to default. Additionally, if an up-list to a national exchange occurs while this note is outstanding, the conversion price shall be changed to the lower of (i) the conversion price or (ii) a 25% discount to the up-list price.
  (10) Notes are convertible upon an Event of Default at 75% multiplied by the lowest trading price for the common stock during the five days prior to the conversion.
  (11) Loans can be voluntarily converted before maturity at $2.50 per share. Lender retains the option upon an Up-list to convert at the lower of $2.50 or the 10% off Up-list price.
  (12) Notes are convertible at $2.50 per share except that following an Event of Default the conversion price will be adjusted to 75% multiplied by the lowest trading price for the common stock during the five days prior to the conversion.
  (13) During the nine months ended September 30, 2022, the Company extended 10 loans totaling $1,700,000 and increased the principal to $2,909,561. The Company issued 759,900 shares of common stock for these extensions and added principal.
  (14) These notes can be voluntary converted at lower of 1) $2.50/share; or 2) purchase price of stock sold by PBI at a price lower than $2.50/share. In the event of default, these notes can be converted at lower of 1) $2.50/share; 2) 30% discount to 5-day VWAP prior to date of default.
  (15) These notes can be voluntary converted at lower of 1) $2.50/share; or 2) purchase price of stock sold by PBI at a price lower than $2.50/share. In the event of default, these notes can be converted at lower of 1) $2.50/share; 2) 25% discount to 5-day VWAP prior to date of default.
  (16) Conversion price is lower of (i) $2.50 or (ii) the price per share that the Company last sold Common Stock after the execution of an anti-dilution protection agreement.
  (17) Conversion price is $2.50. If note is in default, it is $1.
  (18) Note can be converted at a Voluntary Conversion Price which is the lower of 1) $2.50/share; or 2) purchase price of stock sold by the Company at a price lower than $2.50 except that following an Event of Default, the Holder shall have the right, with no further consent from the Borrower, to convert this note which can be converted at lower of 1) the Voluntary Conversion Price; 2) 70% of 5-day VWAP prior to conversion.

 

 

As of September 30, 2022, one lender holds approximately $9.4 million of the $17.1 million convertible notes outstanding.

 

For the nine months ended September 30, 2022, the Company recognized amortization expense related to the debt discounts indicated above of $1,728,846. The unamortized debt discounts as of September 30, 2022 related to the convertible debentures and other convertible notes amounted to $434,313.

 

Standstill and Forbearance Agreements

 

In recent years, the Company entered into Standstill and Forbearance Agreements with lenders who hold variable-rate convertible notes. Pursuant to these agreements the lenders agreed to not convert any portion of their notes into shares of common stock at a variable rate. The Company and two lenders ($673,528 outstanding principal at September 30, 2022) are negotiating in good faith to resolve the remaining loans.

 

In connection to these agreements, the Company incurred interest, penalties, and fees of approximately $202,058 and $606,158, in the three and nine months ended September 30, 2022, respectively.

 

Convertible Loan Modifications and Extinguishments

 

We refinanced certain convertible loans during the nine months ended September 30, 2022 at substantially the same terms for extensions ranging over a period of one to twelve 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 nine months ended September 30, 2022 we recorded losses on extinguishment of liabilities of approximately $1,809,249 by calculating the difference of the fair value of the new debt and the carrying value of the old debt.

 

Other Debt

 

Other debt consists of non-convertible debt and Merchant agreements.

 

The following is a detail of the non-convertible debt:

 

 

            Principal Balance          
Note  

Original Term

   Inception  

September

30, 2022		    

December

31, 2021		     Interest Rate     Security
Accredited investor 1   9 mos.   3/21/17   $ 170,000     $ 170,000       10 %   Unsecured
Accredited investor 2   13 mos.   9/19/19 & 2/28/20     691,500       691,500       7.5 %   Unsecured (1)
On Deck Capital   12 mos.   4/29/22     29,807       -       2.5 % (2)   Unsecured
Totals           $ 891,307     $ 861,500                     

 

  (1) As of September 30, 2022 the Company owes $691,500 on two notes to a private investor. During the nine months ended September 30, 2022, the Company issued 100,000 warrants (3-year term, $3.50 strike price) to the lender. The Company and the lender are negotiating in good faith to extend these loans.
  (2) Rate is per month.

 

 

The following is a detail of the Merchant agreements debt:

 

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 2.8-9.1% 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 Payment Rate. The Company’s Chief Executive Officer (“Guarantor”) is guaranteeing that the Company will perform its obligations under the Agreement. In no circumstance will Guarantor be asked or obligated to repay or be liable for the payment of any amount paid by Buyer to Seller, including, but not limited to, the Purchase Price.

 

The following table shows our Merchant Agreements as of September 30, 2022:

 

Issue Date   Purchase Price     Purchase Amount     Outstanding Balance     Payment Frequency   Payment Rate     Deferred Finance Fees  
12/21/21   $ 400,000     $ 520,000     $ 65,126     Weekly   $ 11,305     $ 6,000  
5/11/22   $ 225,000     $ 308,250     $ 79,562     Weekly   $ 11,009       -  
6/28/22   $ 250,000     $ 337,250     $ 125,575     Daily   $ 2,595       -  
7/21/22   $ 180,000     $ 242,820     $ 114,081     Daily   $ 1,868       -  
8/8/22   $ 140,000     $ 190,260     $ 96,645     Daily   $ 1,586       -  
9/21/22   $ 190,000     $ 256,310     $ 183,479     Daily   $ 1,972       -  
    $ 1,385,000     $ 1,854,890     $ 664,468                      

 

The following table shows our Merchant Agreements as of December 31, 2021:

 

Inception Date  

Purchase

Price

     Purchased Amount     Outstanding Balance    

Payment

frequency

  

Payment

Rate

    

Deferred
Finance

Fees

  
December 21, 2021   $ 400,000     $ 520,000     $ 390,120     Weekly   $ 11,305     $ 6,000  
July 6, 2021     125,000       166,250       8,790     Daily   $ 1,279       2,500  
    $ 525,000     $ 686,250     $ 398,910                 $ 8,500  

 

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 Debt

 

   

Principal Balance

    
Note  

September 30, 2022

      

December 31, 2021

     Interest rate     Security  
Candy Schumacher   $ 70,400       $ -       12 %     Unsecured  
Jeff Peterson     222,200         -       10 % (1)   Unsecured  
Richard Schumacher     165,550         -       12 %     Unsecured  
Accredited investor 3     110,000         -       12 %     Unsecured  
Accredited investor 4     16,500       $ -       12 %     Unsecured  
Totals   $ 584,650       $ -                  
Unamortized debt discount   19,149       -                  
Total current notes due   $ 565,501       $       -                  

 

  (1) Rate is per month.

 

The related parties’ notes are due upon demand, 10% original issue discount and 12% to 120% in interest and are convertible into the Company’s common stock at a fixed rate of $2.50 per share, at the option of holder. During the nine months ended September 30, 2022, related parties loaned the Company $844,250 and the Company paid back $259,600.

 

 

Long term debt

 

The Company entered into a COVID-19 government loan in 2020, the Economic Injury Disaster Loan (or “EIDL”). The Company’s EIDL loan, $150,000, accrues interest at 3.75% and requires monthly payments of $731 for principal and interest beginning in December 2022. 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.