NOTE 8 - NOTES PAYABLE AND LOAN FACILITY

Letter of Credit

The Company entered into a $125,000 letter of credit agreement with Fidelity Co-operative Bank in November 2020. The pledged collateral of a $125,000 cash deposit account is included in prepaid expenses and other. The letter of credit was required pursuant to an agreement with a third-party financial institution for customer financing.

Advances

On May 29, 2020, Rotmans entered into a sale promotion consulting agreement with a national furniture sales event company. Under the agreement, Rotmans appointed the third-party as its exclusive agent to assist with a high-impact sale. Before the sale, the agent advanced the Company funds of approximately $2,300,000 to pay off a bank line of credit and certain other vendors. The agent will be reimbursed for the advance from the proceeds of the sale. The initial sales agreement with the agent ended in May 2021. A new agreement was entered into with the agent in June 2021. The remaining inventories on hand were used to pay off the liability of the first sale and then simultaneously purchased back for the next sale. The agreement has been amended numerous times and is scheduled to end in October 2022. The agent has a senior first priority security interest and lien in Rotmans inventories and other assets until all obligations and liabilities are satisfied. The outstanding balance of the advance is approximately $1,947,000 and $2,082,000 as of June 30, 2022 and December 31, 2021, respectively, and is included in accounts payable in the accompanying condensed consolidated balance sheet.

Term Notes

On April 16, 2020, Rotmans received $1,402,900 in loan funding from the Paycheck Protection Program (the “PPP”), established pursuant to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) was evidenced by a promissory note of the Company dated April 16, 2020 (the “Note”) in the principal amount of $1,402,900 with United Community Bank (the “Bank”), the lender. Under the terms of the Note and the PPP Loan, interest accrues on the outstanding principal at the rate of 1.0% per annum. The term of the Note was two years, though it may be payable sooner in connection with an event of default under the Note. On January 24, 2021, the PPP loan was fully forgiven by the SBA.

On February 2, 2021, Rotmans received an additional $1,402,900 in PPP loan funding from the SBA. The terms of the Note are the same as the original PPP Loan. On June 25, 2021, the PPP loan was fully forgiven by the SBA.

Shareholder, Convertible and Contingently Convertible Notes Payable

The following table summarizes shareholder, convertible and contingently convertible notes payable:

SCHEDULE OF LONG-TERM DEBT

Shareholder Convertible Notes Payable

During the year ended December 31, 2018, the Company issued shareholder contingently convertible notes payable, some of which were for contract work performed by other entities in lieu of compensation and expense reimbursement, totaling approximately $335,000. The notes are (i) unsecured, (ii) bear interest at an annual rate of five percent (5%) from date of issuance, and (iii) are convertible at the Company’s option post April 19, 2018. The notes mature one year from issuance but may be extended one (1) additional year by the Company. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at the prior twenty (20) day average closing price with a 50% discount. The outstanding balance of all of these notes of as June 30, 2022 and December 31, 2021 is $338,195. The notes matured in January 2020 and continue to accrue interest until settlement. The unpaid balance on the notes bears interest at an annual rate of eight percent (8%) in arrears. All of these notes except one were settled in April 2022 at a gain of approximately $89,000 and included in stock subscription payable at June 30, 2022.

During the year ended December 31, 2019, the Company issued certain contingently convertible promissory notes in varying amounts to existing shareholders which totaled $613,700. The face amount of the note represents the amount due at maturity along with the accrued interest at an annual rate of five percent (5%). The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying a 35% to 50% discount. These notes can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. All of these notes were settled in April 2022 at a gain of approximately $142,000 and included in stock subscription payable at June 30, 2022.

During the year ended December 31, 2021, the Company issued certain contingently convertible promissory notes in varying amounts to existing shareholders which totaled $290,000. The notes are unsecured and bear interest at an annual rate of five percent (5%) from date of issuance. The face amount of the notes represents the amount due at maturity along with the accrued interest. In the event that the spin-off of RxAir does not occur within 2022, the Company will convert these notes into common stock at a conversion price of $0.016. If the spin-off does occur, these notes will convert into RxAir common stock with two conversion prices of $0.15 and $2, which equates to a blended conversion price of $0.18. All of these notes are outstanding as of June 30, 2022. At the issuance date of these notes, it was determined they contain a beneficial conversion feature amounting to approximately $90,000. As these notes are contingently convertible, the beneficial conversion feature will not be recorded on the consolidated financial statements until the actual conversion occurs.

Based on the variable conversion price of these notes issued prior to 2021, the Company recorded the embedded conversion features as derivative liabilities, which amounted to $647,100 at December 31, 2021. With the debt settlements in April 2022, the value of the embedded conversion features on the one remaining note was $17,800 at June 30, 2022.

Related Party Debt

The following table summarizes related party debt:

SCHEDULE OF RELATED PARTY DEBT 

Rotman Family Convertible Notes

On September 30, 2019, the Company issued contingently convertible promissory notes totaling $180,000 to Steven Rotman ($105,000) and Greg Rotman ($75,000). These notes are (i) unsecured, (ii) bear interest at an annual rate of eight percent (8%) from date of issuance, (iii) are convertible at the Company’s option after December 31, 2019, and (iv) mature five years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at the average of the five lowest closing prices in the 90-day period prior to conversion with a 50% discount. The balance of the notes payable including accrued interest to Steven and Greg Rotman is approximately $130,000 and $68,000, respectively, at June 30, 2022 and approximately $126,000 and $66,000, respectively, at December 31, 2021.

On July 18, 2019, the Company issued contingently convertible notes totaling $1,522,500 to Steven Rotman ($1,102,500) and Bernard Rotman ($420,000) as partial consideration for the acquisition of 58% of Rotmans. These notes are (i) unsecured, and (ii) bear interest at an annual rate of five percent (5%) from date of issuance. These notes can be converted only after an acceleration event which involves a symbol change, or reverse stock split and such conversion is in the control of the Company. Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance. If converted, the notes plus accrued interest are convertible into shares of the Company’s common stock at a 20-day average closing price at a 50% discount. The balance of the notes payable including accrued interest to Steven and Bernard Rotman were approximately $1,266,000 and $482,000, respectively, at June 30, 2022 and approximately $1,238,000 and $472,000, respectively, at December 31, 2021.

On December 19, 2019, the Company issued a contingently convertible promissory note totaling $100,000 to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest at 5%. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note was extended to mature two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $113,000 and $110,000 at June 30, 2022 and December 31, 2021, respectively.

On February 20, 2020, the Company issued a contingently convertible promissory note totaling $50,000 to Steven Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest at 5%. The amount can be converted into shares of the Company’s stock, at the option of the Company, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount. The note can be converted only after an acceleration event which involves a symbol change, uplisting, or reverse stock split and such conversion is in the control of the Company. The note matures two years from issuance. The balance of the note payable including accrued interest to Steven Rotman is approximately $56,000 and $55,000 at June 30, 2022 and December 31, 2021, respectively.

On June 3, 2021, the Company issued a contingently convertible promissory note totaling $130,030 to Gregory Rotman. The face amount of the note represents the amount due at maturity along with the accrued interest at 5%. The amount can be converted into shares of the Company’s stock, at the holder’s option, based on the average closing price for the trailing 20 days prior to conversion and carrying 50% discount or $0.165 per share whichever is lower. The holder may elect to accelerate conversion in the event of a spin-out or reverse split. The note matures two years from issuance. The balance of the note payable including accrued interest to Gregory Rotman is approximately $137,000 and $134,000 at June 30, 2022 and December 31, 2021, respectively.

On August 17, 2021, the Company issued a contingently convertible promissory note totaling $5,000 to Jamie Rotman. The note is unsecured and bears interest at an annual rate of five percent (5%) from date of issuance. The face amount of the note represents the amount due at maturity along with the accrued interest. In the event that the spin-off of RxAir does not occur within one year, the Company will convert the note into common stock at a conversion price of $0.016. If the spin-off does occur, the note will convert into RxAir common stock with two conversion prices of $0.15 and $2, which equates to a blended conversion price of $0.18. At the issuance date of this note, it was determined to contain a beneficial conversion feature amounting to approximately $2,000. As this note is contingently convertible, the beneficial conversion feature will not be recorded on the consolidated financial statements until the actual conversion occurs. The balance of the note payable including accrued interest to Jamie Rotman is approximately $5,000 at June 30, 2022 and December 31, 2021.

As disclosed in note 18, Steven and Gregory Rotman notes were converted into Preferred Class C shares in July 2022.

The following table summarizes the Rotman Family Convertible Notes:

SCHEDULE OF NOTES PAYABLE 

Based on the variable conversion price for these convertible notes excluding the one issued in August 2021, the Company recorded the embedded conversion features as derivative liabilities, which amounted to $1,131,000 at December 31, 2021. With the subsequent conversions of Steven and Gregory Rotman notes in July 2022, the value of the embedded conversion features was $240,300 at June 30, 2022.

Rotman Family Nonconvertible Notes

In connection with the acquisition of 58% of Rotmans, Steven and Bernard Rotman were issued related party notes payable in the amounts of $367,500 and $140,000, respectively. The notes bear interest at an annual rate of five percent (5%). Steven Rotman’s note matures eight years from issuance and Bernard Rotman’s note matures four years from issuance. Payments of $3,828 and $2,917 to Steven and Bernard Rotman, respectively, per month were scheduled to begin six months from issuance until maturity in December 2027 and 2023, respectively. The balance of these notes payable including accrued interest to Steven and Bernard Rotman is approximately $422,000 and $161,000, respectively, at June 30, 2022 and approximately $413,000 and $157,000, respectively, at December 31, 2021. No payments have been made by the Company as of June 30, 2022.

During the six months ended December 31, 2020, Steven Rotman advanced the Company funds totaling $1,048,000. In December 2020, the Company formalized the advances and issued a promissory note to Steven Rotman. The note bears interest at an annual rate of five percent (5%) and was due one year from issuance. The maturity date has been extended to December 2022. The face amount of the note represents the amount due at maturity along with accrued interest. The balance of the note payable including accrued interest to Steven Rotman is approximately $1,141,000 and $1,115,000, at June 30, 2022 and December 31, 2021, respectively.

During 2021, Steven Rotman advanced the Company funds totaling $398,009. The Company formalized the advances and issued promissory notes to Steven Rotman. The notes bear interest at an annual rate of five percent (5%) and are due no later than two years from the issuance date. The face amount of the notes represents the amount due at maturity along with accrued interest. The balance of the notes payable including accrued interest to Steven Rotman is approximately $425,000 and $415,000 at June 30, 2022 and December 31, 2021, respectively.

During 2022, Gregory Rotman and Steven Rotman advanced the Company funds totaling $50,733 and $19,087, respectively. The Company has not yet formalized the advances. The advances will bear interest at an annual rate of five percent (5%) and will be due no later than two years from the date of receipt.

In April 2022, Blue Oar Consulting, Inc. (“Blue Oar”), an entity wholly owned by Gregory Rotman, advanced the Company $500,000 and paid bills totaling $100,000 on the Company’s behalf. The Company formalized the advances and issued a promissory note to Blue Oar. The note bears interest at an annual rate of six percent (6%) and requires weekly payments of $12,500 until the note and interest is paid in full. The Company also granted Blue Oar a security interest in Murida’s inventory and the employee retention credit receivable. Upon receipt of the tax credits, the Company will escrow funds equal to the amount of the outstanding principal and interest on the loan.

The following table summarizes the Rotman Family Nonconvertible Notes:

SCHEDULE OF NOTES PAYABLE 

Approximate maturities for the succeeding years are as follows:

SCHEDULE OF MATURITIES OF NOTES PAYABLE