NOTE 6: NOTES PAYABLE

6 Months Ended

Jun. 30, 2021

Notes

NOTE 6: NOTES PAYABLE

NOTE 6: NOTES PAYABLE

On September 10, 2019, the Company entered into a promissory note payable whereby the Company borrowed $500,000 bearing interest at 8% per annum. Interest on the note is payable quarterly on the first business day of December, March, June and September commencing December 1, 2019. In May 2021, the Company and the holder of the promissory note reached an agreement to extend the maturity date of the note from September 30, 2022 to September 30, 2024. In connection with the extension, the Company issued 2,000,000 shares of its common stock to the noteholder in lieu of $40,000 of interest accrued and accruing on the promissory note through December 31, 2021.

In connection with the promissory note on September 10, 2019, the Company issued warrants to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.10 per share. The warrants were exercised on June 30, 2021 and the Company received $50,000.

The note was discounted by $17,624 allocated from the valuation of the warrants issued. The discount recorded on the note is being amortized as interest expense through the maturity date, which amounted to $2,948 and $2,926 for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, the net book value of the promissory note amounted to $493,019 including the principal amount outstanding of $500,000 net of the remaining discount of $6,981.

On May 6, 2020, the Company entered into a promissory note, or the Note, with Pacific Western Bank, evidencing an unsecured loan, or the Loan, in the amount of $263,000 made to the Company under the Paycheck Protection Program, or the PPP. The PPP is a program of the U.S. Small Business Administration, or SBA, established under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. Under the PPP, the proceeds of the Loan may be used to pay payroll and make certain covered interest payments, lease payments and utility payments, or the Qualifying Expenses. The Company intends to use the entire Loan amount for Qualifying Expenses under the PPP. Under the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of Qualifying Expenses and the Company maintaining its payroll levels over certain required thresholds under the PPP. The terms of any forgiveness also may be subject to further requirements in any regulations and guidelines the SBA may adopt. No assurance can be provided that the Company will obtain forgiveness of the Loan in whole or in part.

The interest rate on the Loan is 1.0% per annum. The Note matures on May 6, 2022. On December 1, 2021 and on the first day of each month thereafter until May 1, 2023, the Company must make monthly payments of $14,727 under the Loan that is not forgiven in accordance with the terms of the PPP and related accrued interest thereon. The Note contains events of default and other conditions customary for a Note of this type. As of June 30, 2021, the current portion of the Loan due within the next 12 months amounted to $103,089.  The Company has applied for full forgiveness of the amounts due under the Note.

On June 24, 2020, the Company entered into a Loan Authorization and Agreement with the SBA under which the Company borrowed $150,000 and issued to the SBA a note and security agreement for the amount borrowed. Outstanding borrowings accrue interest at a rate of 3.75% per annum, and installment payments, including principal and interest, of $731 are due monthly and begin 12 months from the date of the loan agreement. The balance of any remaining principal and interest is due 30 years from the date of the loan agreement. As collateral for the borrowing, the Company granted the SBA a security interest in substantially all assets of the Company.

On February 25, 2021, the Company entered into a secondary promissory note, or the Second PPP Note, with Pacific Western Bank, evidencing an unsecured loan, or the Second Loan, in the amount of $263,000 made to the Company under the PPP. Under the PPP, the proceeds of the Second Loan may be used to pay payroll and make certain covered interest payments, lease payments and utility payments, or the Qualifying Expenses. The Company intends to use the entire Second Loan amount for Qualifying Expenses under the PPP. Under the terms of the CARES Act, PPP loan recipients can be granted forgiveness for all or a portion of the loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of Qualifying Expenses and the Company maintaining its payroll levels over certain required thresholds under the PPP. The terms of any forgiveness also may be subject to further requirements in any regulations and guidelines the SBA may adopt. No assurance can be provided that the Company will obtain forgiveness of the Second Loan in whole or in part.

The interest rate on the Second Loan is 1.0% per annum. The Second PPP Note matures on February 25, 2023. On September 1, 2022 and on the first day of each month thereafter until February 1, 2024, the Company must make monthly payments of $14,727 under the Second Loan that is not forgiven in accordance with the terms of the PPP and related accrued interest thereon. The Second PPP Note contains events of default and other conditions customary for a note of this type. As of June 30, 2021, the current portion of the Second Loan due within the next 12 months amounted to $0.  The Company plans to apply for full forgiveness of the Second PPP Note.

Future scheduled maturities of long-term debt are as follows.

	Year Ending December 31,
2021	$13,996
2022	235,632
2023	250,535
2024	530,653
2025	3,416
Thereafter	134,056
Total	$1,168,288

The aggregate current portion of long-term debt as of June 30, 2021 amounted to $13,996, which represents the contractual principal payments due during the remainder of 2021.