Annual report pursuant to Section 13 and 15(d)

Convertible Debt and Other Debt

v3.19.1
Convertible Debt and Other Debt
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Convertible Debt and Other Debt

(9) Convertible Debt and Other Debt

 

Conversion of Notes

 

We issued 5,075.40 shares of our Series AA Convertible Preferred Stock in satisfaction of $12,688,635 of convertible promissory notes, Revolving Note and short-term loans issued:

 

    Debt converted 
to stock
 
Current liabilities        
Convertible Debentures, face value   $ 6,962,635  
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 during the year 2018   $ 12,688,635  

 

Senior Secured Convertible Debentures and Warrants

 

We entered into Subscription Agreements (the “Subscription Agreement”) with various individuals (each, a “Purchaser”) between July 23, 2015 and March 31, 2016, pursuant to which the Company sold Senior Secured Convertible Debentures (the “Debentures”) and warrants to purchase shares of common stock equal to 50% of the number of shares issuable pursuant to the subscription amount (the “Warrants”) for an aggregate purchase price of $6,329,549 (the “Purchase Price”).

 

The Company issued a principal aggregate amount of $6,962,504 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. On September 11, 2017, we notified Debenture holders that their Debentures will be extended 180 days beyond the original maturity date as permitted in the Debenture agreement. We will continue to pay interest on the Debentures until the extended maturity date. We accounted for the Debenture extensions as debt modifications and not extinguishment of debt since the changes in fair value are not substantial in accordance with ASC 470-50. We started amortizing the remaining unamortized discount as of September 11, 2017 over the new term, which extends 180 days beyond the original maturity date.

 

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 $742,135 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 year ended December 31, 2017, the Company issued 61,307 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 30, 2017 for an aggregate amount of $483,054. We recognized a $218,452 gain on extinguishment of debt by calculating the difference of the shares valued on the issuance date and the amount of accrued interest through June 30, 2017.

 

On various dates for the year ended December 31, 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 year ended December 31, 2018 by calculating the difference of the shares valued on the issuance date and the amount of accrued interest through June 11, 2018.

 

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 year ended December 31, 2018, the Company issued convertible notes for net proceeds of approximately $5.7 million which contained varied terms and conditions as follows: a) maturity dates ranging from 2 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 $450,671 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 December 31, 2018.

 

The specific terms of the convertible notes and outstanding balances as of December 31, 2018 are listed in the tables below.

 

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  
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       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 1   6 months     100,000       100,000       4,000       15 %   $ 7.50       20,000       7,218  
April 23, 2018   6 months     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       -       -       6 %   $ 7.50       6,500       -  
April 26, 2018   12 months     65,000       -       6,500       5 %     -       2,000       -  
May 9, 2018   12 months     250,000       -       -       10 %   $ 7.50       12,500       26,466  
May 11, 2018 1   6 months     161,250       161,250       11,250       15 %   $ 7.50       10,000       -  
May 14, 2018   9 months     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       -       -       12 %     -       3,000       -  
May 24, 2018   9 months     52,500       -       2,500       4 %     -       -       2,075  
May 25, 2018   12 months     78,750       -       -       4 %   $ 7.50       3,750       3,112  
May 30, 2018   2 months     150,000       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 1   6 months     50,000       50,000       2,500       15 %   $ 7.50       2,500       3,271  
June 12, 2018   6 months     100,000       100,000       -       5 %   $ 7.50       5,000       -  
June 14, 2018   9 months     280,000       210,000       25,000       10 %     -       5,000       17,573  
June 16, 2018   9 months     130,000       101,500       -       5 %     -       -       -  
June 16, 2018 1   6 months     110,000       101,500       -       5 %     -       -       -  
June 26, 2018 1   3 months     150,000       75,000       -       15 %   $ 7.50       -       20,242  
June 28, 2018 1   6 months     50,000       50,000       -       15 %   $ 7.50       -       10,518  
July 2, 2018   12 months     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 1   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       -       -       12 %   $ 7.50       -       6,578  
August 8, 2018   6 months     100,000       -       -       15 %   $ 7.50       -       -  
August 15, 2018   4 months     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  
October 1, 2018   6 months     118,800       118,800       8,800       25 %   $ 7.50       3,000          
October 19, 2018   6 months     100,000       100,000       -       5 %   $ 7.50                  
October 23, 2018   6 months     103,000       103,000               12 %     -       3,000          
October 29, 2018   6 months     77,000       77,000               12 %   $ 7.50       2,000          
November 5, 2018   6 months     105,000       105,000               4 %     -       5,000       3,872  
November 5, 2018   6 months     130,000       130,000               6 %   $ 7.50       6,500          
November 7, 2018   6 months     205,000       205,000               4 %   $ 7.50       5,000       17,906  
November 13, 2018   6 months     75,000       75,000       7,500       5 %     -       2,000       4,656  
November 13, 2018   6 months     200,000       200,000               15 %   $ 7.50               30,026  
November 21, 2018   9 months     103,000       103,000               12 %     -       3,000          
November 27, 2018   12 months     70,000       70,000             4 %     -       2,500       1,922  
December 26, 2018   2 months     150,000       150,000       3,750       5 %   $ 7.50       3,750          
                                                             
        $ 6,460,485     $ 4,156,985     $ 212,335                     $ 211,200     $ 310,650  

 

1.) The notes were extended for an additional term.

 

For the year ended December 31, 2018, the Company recognized amortization expense related to the debt discounts indicated above of $1,517,394. The unamortized debt discounts as of December 31, 2018 related to the convertible debentures and other convertible notes amounted to $156,180.

  

Revolving Note Payable and May 19,2017 Promissory Note

 

On October 28, 2016, an accredited investor (the “Investor”) purchased from us a promissory note in the aggregate principal amount of up to $2,000,000 (the “Revolving Note”) due and payable on the earlier of October 28, 2017 (the “Maturity Date”) or on the seventh business day after the closing of a Qualified Offering (as defined in the Revolving Note). Although the Revolving Note is dated October 26, 2016, the transaction did not close until October 28, 2016, when we received its initial $250,000 advance pursuant to the Revolving Note. As a result, on the same day and pursuant to the Revolving Note, we issued to the Investor a Common Stock Purchase Warrant to purchase 20,834 shares of our common stock at an exercise price per share equal to $12.00 per share. The Investor is obligated to provide us with advances of $250,000 under the Revolving Note, but the Investor shall not be required to advance more than $250,000 in any individual fifteen (15) day period and no more than $500,000 in the thirty (30) day period immediately following the date of the initial advance. We received $3,500,000 pursuant to the Revolving Note as amended of which $2,070,000 net proceeds was received in 2017 and we issued to the Investor warrants to purchase 291,667 shares of our Common Stock at an exercise price per share equal to $12.00 per share. The terms of the Warrants are identical except for the exercise date, issue date, and termination date which are based on the advance date.

 

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 Offeringmeans the completion of a public offering of the Company’s securities pursuant to which the Company receives aggregate gross proceeds of at least Seven Million United States Dollars (US$7,000,000) in consideration of the purchase of its securities and resulting in, pursuant to the effectiveness of the registration statement for such offering, the Company’s common stock being traded on the NASDAQ Capital Market, NASDAQ Global Select Market or the New York Stock Exchange. A Qualified Offering did not occur on or prior to the Maturity Date.

 

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.

 

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 year ended December 31, 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 eleven loans. We recorded losses on debt extinguishment of $237,888 on these eleven 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 $217,488 loss on debt extinguishment included the aggregate fair value of $150,438 for the shares issued with the new debt, the write-down of $5,883 for unamortized discounts remaining on the original debt and cash fees of $61,167.

  

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     6,625,800  
Deferred financing cost     (448,002 )
Debt discount related to one-time interest charge     (187,311 )
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     (288,648 )
Conversion of debt into equity     (10,962,634 )
Payments     (3,522,000 )
Accretion of interest and amortization of debt discount to interest expense through September 30,     1,410,847  
Balance at December 31,     4,000,805  
Less: current portion     4,000,805  
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 December 31, 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 on extinguishment of debt relating to the fair value of common stock issued for the September 30 extension. The note was extended from September 30, 2018 to December 31, 2018 and the lender will receive 3,600 shares of Company common stock. The note was subsequently extended to June 30, 2019 and the lender will receive an additional 3,500 shares of Company common stock for each quarter the loan is outstanding.

 

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 December 31, 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 December 31, 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 December 31, 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. Certain of these loans are guaranteed by an officer of the Company. The following table shows our Merchant Agreements as of December 31, 2018.

 

Inception Date   Purchase Price     Purchased Amount     Outstanding Balance     Daily Payment     Deferred Finance Fees  
February 27, 2018     110,000       147,400       -       921.25       1,650  
April 11, 2018     140,000       187,600       -       1,275.00       2,800  
May 11, 2018     180,000       243,000       -       1,518.75       2,599  
May 15, 2018     180,000       244,800       -       1,530.00       3,600  
June 29, 2018     140,000       190,400       -       1,269.33       2,100  
July 16, 2018     180,000       246,600       -       1,790.00       3,600  
October 18, 2018     550,000       725,800       447,839       3,630.00       5,500  
December 18, 2018     250,000       335,000       243,593       1,675.00       3,912  
    $ 1,730,000     $ 2,320,600     $ 691,432             $ 25,761  

 

We amortized $112,429 and $312,870 of debt discounts during the year ended December 31, 2018 and 2017, respectively for all non-convertible notes. The total unamortized discount for all non-convertible notes as of December 31, 2018 was $9,118.

 

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 a Warrant to purchase 20,000 shares of 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 December 31, 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.

 

On October 26,2018 we received a short-term loan of $30,000 from an officer of the Company. The loan was repaid on October 29, 2018. There was no interest charged on this loan.