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NOTES PAYABLE
 12 Months Ended
Dec. 31, 2022
NOTES PAYABLE  
NOTES PAYABLE

NOTE 12 – NOTES PAYABLE

 

A summary of the Company’s third-party debt during the years ended December 31, 2022 and 2021 is presented below:

 

December 31, 2022

 

Loan

Facility

 

 

Trade

Facility

 

 

Third

Party

 

 

COVID

Loans

 

 

Total

 

Beginning balance

 

$1,299,784

 

 

$6,207,010

 

 

$10,077,977

 

 

$641,291

 

 

$18,226,062

 

Proceeds

 

 

-

 

 

 

-

 

 

 

492,336

 

 

 

-

 

 

 

492,336

 

Payments

 

 

(240,705)

 

 

(2,795,786)

 

 

(9,494,823)

 

 

(10,029)

 

 

(12,541,343)

Conversion of debt

 

 

(1,190,000)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,190,000)

Recapitalized upon debt modification

 

 

(81,923)

 

 

(221,060)

 

 

(781,752)

 

 

-

 

 

 

(1,084,735)

Accretion of debt and debt discount

 

 

81,910

 

 

 

216,182

 

 

 

781,752

 

 

 

-

 

 

 

1,079,844

 

Foreign currency translation

 

 

130,934

 

 

 

(100,814)

 

 

22,414

 

 

 

(16,711)

 

 

35,823

 

Subtotal

 

 

-

 

 

 

3,305,532

 

 

 

1,505,078

 

 

 

207,377

 

 

 

5,017,987

 

Notes payable - long-term

 

 

-

 

 

 

(1,604,700)

 

 

(1,076,698)

 

 

(178,172)

 

 

(2,859,570)

Notes payable - short-term

 

$-

 

 

$1,700,832

 

 

$428,380

 

 

$29,205

 

 

$2,158,417

 

December 31, 2021

 

Loan

Facility

 

 

Trade

Facility

 

 

Third

Party

 

 

COVID

Loans

 

 

Total

 

Beginning balance

 

$3,302,100

 

 

$6,446,000

 

 

$12,631,284

 

 

$435,210

 

 

$22,814,594

 

Proceeds

 

 

-

 

 

 

-

 

 

 

565,900

 

 

 

-

 

 

 

565,900

 

Payments

 

 

(141,475)

 

 

(57,835)

 

 

(62,878)

 

 

(3,233)

 

 

(265,421)

Conversion of debt

 

 

(1,606,500)

 

 

-

 

 

 

(3,010,000)

 

 

-

 

 

 

(4,616,500)

Recapitalized upon debt modification

 

 

(86,670)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(86,670)

Debt forgiveness

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(169,770)

 

 

(169,770)

Reclassification of Line of Credit

 

 

-

 

 

 

-

 

 

 

-

 

 

 

407,174

 

 

 

407,174

 

Foreign currency translation

 

 

(167,671)

 

 

(181,155)

 

 

(46,329)

 

 

(28,090)

 

 

(423,245)

Subtotal

 

 

1,299,784

 

 

 

6,207,010

 

 

 

10,077,977

 

 

 

641,291

 

 

 

18,226,062

 

Notes payable - long-term

 

 

-

 

 

 

(2,450,000)

 

 

(9,854,906)

 

 

(417,649)

 

 

(12,722,555)

Notes payable - short-term

 

$1,299,784

 

 

$3,757,010

 

 

$223,071

 

 

$223,642

 

 

$5,503,507

 

 

Our outstanding debt as of December 31, 2022 is repayable as follows:

 

 

December 31, 2022

 

2023

 

$2,158,417

 

2024

 

 

794,171

 

2025

 

 

1,729,737

 

2026

 

 

204,829

 

2027 and thereafter

 

 

130,833

 

Total debt

 

 

5,017,987

 

Less: notes payable - current portion

 

 

(2,158,417 )

Notes payable - long term portion

 

$2,859,570

 

Loan Facility Agreement

 

On August 4, 2021, the Company entered into an exchange agreement for the existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby the Company agreed to the following:

 

 

•

Issue on August 4, 2021, 12,852 shares of common stock to settle $1,606,500 (€1,350,000) of debt. The Company recorded a gain on settlement of $292,383 upon the issuance of the 12,852 shares; and

 

 

 

 

•

Agreed to issue no more than 9,520 shares of common stock upon approval of the listing of the Company’s common stock on Nasdaq to settle $1,190,000 (€1,000,000) of debt. The Company issued these shares on February 28, 2022. Upon issuance of the 9,520 shares of common stock, the Company recorded a gain on extinguishment of debt in the amount of $216,580 determined using the fair value of the Company’s common stock at the commitment date of $102.25 per share.

 

The Company evaluated the August 4, 2021, exchange agreement for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment because a substantial conversion feature was added to the debt terms. Upon extinguishment, the Company recorded a loss upon extinguishment in the amount of $6,642 and recorded the new debt at fair value based on the present value of future cash flows using a discount rate of 11.66%.

 

The Company incurred non-cash interest expense of $81,910 during the period ended December 31, 2022 concerning the debt extinguishment effect on August 4, 2021. The principal debt balance was paid in full during the year ended December 31, 2022. As of December 31, 2022 and 2021, the Company has accrued interest expense of $12,853 and $4,414, respectively, and the principal balance of the debt is $0 and $1,299,784, respectively, which is classified as Notes payable on the consolidated balance sheets.

 

The debt is subject to acceleration in an Event of Default (as defined in the Notes). This agreement is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 40,000 shares of common stock of the Company owned by Mr. Siokas.

 

During Q2 2022, the Company informally agreed with the Lender to extend the maturity of the facility to September 30, 2022. During Q3 2022, the maturity of the facility was further informally extended to December 31, 2022. The Company reassessed and adjusted accordingly the accretion of the debt extinguishment effect described above.

 

Trade Facility Agreements

 

On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “TFF”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”) as amended on November 16, 2017, and May 16, 2018.

 

On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($5,629,555) and related accrued interest of €453,094 ($524,094) would be split into two principal balances of Euro €2,000,000 and USD $4,000,000. Interest on the new balances commenced on October 1, 2018, at 6% per annum plus one-month Euribor, when it is positive, on the Euro balance and 6% per annum plus one-month LIBOR on the USD balance.

 

On December 30, 2020, the Company transferred the Euro €2,000,000 loan to a new third-party lender. The terms remained the same except interest will now accrue at 5.5% per annum plus Euribor. The principal is to be repaid in a total of five quarterly installments beginning October 31, 2021 of 50,000 Euro each with a final repayment of 1,800,000 Euro payable on the earlier of 24 months after December 30, 2020 or October 31, 2022.

 

During the year ended December 31, 2021, the Company repaid €50,000 ($56,508) of the €2,000,000 balance such that as of December 31, 2021, the Company had principal balances of €1,950,000 ($2,207,010) and $4,000,000 under the agreements, of which $2,450,000 is classified as notes payable-long term on the consolidated balance sheet and the Company had accrued $10,466 in interest expense related to these agreements. 

On March 3, 2022, the Company entered into a modification agreement to extend the maturity date to January 10, 2023 and payments under the $4,000,000 loan. The loan was considered a modification under ASC 470-50 because the change in the present value of cash flows is less than 10%. During June 2022, the Company agreed with the Lender to postpone the repayment of an installment of $500,000 due on June 30, 2022 (based on the extension agreement signed on March 3, 2022) until January 2023. Based on the updated cash flow test performed, the change in the present value of the cash flows was again less than 10% and the change is considered a modification. During September 2022 the Company agreed with the Lender to postpone the full repayment of the outstanding balance, $3,950,000, plus unpaid accrued interest until January 2023. The Company capitalized fees paid upon modification of €200,000 that are being amortized over the life of the loan. The Company incurred non-cash interest expense of $216,182 during the period ended December 31, 2022 concerning the above capitalized fees. During the year ended December 31, 2022, the Company repaid €175,000 ($187,215) of the €1,950,000 balance and $2,593,363 of the $4,000,000 balance such that as of December 31, 2022, the Company had principal balances of €1,775,000 ($1,898,895) and $1,406,637 under the agreements. As of December 31, 2022, the Company had accrued $309,365 in interest expense related to these agreements. 

 

On January 31, 2023, the Company entered into a Settlement Agreement for the $4,000,000 Trade Finance Facility dated July 5, 2017 and later amended on June 10, 2019 that agreed to the full and final settlement of the Fund, the settlement of which is to be recorded on a binding basis. The Company paid $1,100,000 to the Fund on February 3, 2023, and the remaining outstanding balance was waived in full such that the balance of the Fund is now $0.

 

Third Party Debt

 

On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($42,832) as a note payable from Mr. Drakopoulos. The note bears an interest rate of 6% per annum and was due and payable in full on November 15, 2016. As of December 31, 2021, the Company had an outstanding principal balance of €8,000 ($9,054) and accrued interest of €6,318 ($7,151). As of December 31, 2022, the Company had an outstanding principal balance of €8,000 ($8,558) and accrued interest of €6,797 ($7,271).

 

Conversion of Senior Promissory Notes

    

In the year ending December 31, 2019, the Company executed Senior Promissory Notes (the “Debt”) in an aggregate total of $2,500,000 to an unaffiliated third-party lender (the “Lender”). In the year ended December 31, 2020, the Company executed additional Senior Promissory Notes to an unaffiliated third-party lender in an aggregate principal total of $510,000. As of December 31, 2020, the Company had an aggregate principal balance of $3,010,000 on this Debt and the Company had accrued $527,604 in interest expense. On February 5, 2021, The Company entered into an Amended and Restated Debt Exchange Agreement (the “Agreement”) with the Lender that provided for the issuance by the Company of 31,273 shares of common stock (the “Exchange Shares”), at the rate of $96.25 per share, in exchange for an aggregate of $3,010,000 principal amount of existing loans made by the Lender to the Company. The market price at the time this Agreement was negotiated was $82.00 per share and the Company recorded a gain on debt extinguishment of $445,636.

 

All accrued and unpaid interest, $563,613 as of December 31, 2021, as well as any unpaid fees, shall be paid in three (3) equal monthly installments following the closing of a planned Canadian public offering. Pursuant to this Agreement, Grigorios Siokas, the Company’s Chief Executive Officer and principal shareholder, will be released from all personal guarantees on the Debt. During October 2022, the Company repaid $436,383 of the outstanding interest and received forgiveness for the remaining balance of $127,230. Thus, the balance of the accrued interest as of December 31, 2022 is $0.

 

May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes

 

May 18, 2020 Senior Promissory Note

 

On May 18, 2020, the Company executed a Senior Promissory Note (the “May 18 Note”) in the principal amount of $2,000,000 payable to an unaffiliated third-party lender. The May 18 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The May 18 Note matured on December 31, 2020.

 

The May 18 Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 18 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2021 the Company had a principal balance of $2,000,000 on this note, which was classified as Notes payable long-term portion on the consolidated balance sheet. This note was modified during fiscal year 2022, see further discussion below.

July 3, 2020 Senior Promissory Note

 

On July 3, 2020, the Company executed a Senior Promissory Note (the “July 3 Note”) in the principal amount of $5,000,000 payable to an unaffiliated third-party lender. The July 3 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The July 3 Note matures on June 30, 2022 unless in default.

 

The July 3 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the July 3 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.

 

The Company used the proceeds from the July 3 Note to repay the principal outstanding on the May 18 Note ($2,000,000), the May 18 Note ($2,000,000), and the February Note ($1,000,000). As of December 31, 2021, the Company had a principal balance of $5,000,000 on this note, which was classified as Notes payable – long term portion on the consolidated balance sheet.

 

As of December 31, 2021, the Company had accrued an aggregate total of $210,574 in interest expense related to these loans. This note was modified during fiscal year 2022, see further discussion below.

 

August 4, 2020 Senior Promissory Note

 

On August 4, 2020, the Company executed a Senior Promissory Note (the “August 4 Note”) in the principal amount of $3,000,000 payable to an unaffiliated third-party lender. The August 4 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The August 4 Note matured on December 31, 2020.

 

The August 4 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the August 4 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.

 

On October 29, 2020, the Company entered into a debt exchange agreement with the lender whereby the Company issued 10,390 shares of common stock at the rate of $96.25 per share in exchange for an aggregate of $1,000,000 principal amount of the existing loan. The fair market value of the Company’s common stock on the date of exchange was $77.75 per share and as such, the Company recorded a gain of $192,205. Interest continued to accrue on the remaining debt and the converted amount until December 31, 2020. As of December 31, 2020, the Company had a principal balance of $2,000,000 on this note and prepaid interest of $8,514. As of December 31, 2021, the Company had a principal balance of $2,000,000 on this note, which was classified as Notes payable – long term portion on the consolidated balance sheet, and $60,166 in accrued interest expense. This note was modified during fiscal year 2022, see further discussion below.

 

Modification of May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes

 

On February 23, 2022, the Company entered into modification agreements to extend the due dates of the May 18 Note, July 3 Note, and August 4 Note to June 30, 2023 of $9,000,000, in the aggregate. The Company paid restructuring fees totaling $506,087 upon modification. The Company determined the modification should be recorded as debt extinguishment in accordance with ASC 470 because the present value of the remaining cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. The Company recorded the new debt at fair value in the amount of $7,706,369 and a gain upon extinguishment in the amount of $787,544. During the year ended December 31, 2022, the Company repaid the aggregate principal balance of $7,000,000 and the aggregate accrued interest related to these notes in full and recorded non-cash interest expense in the amount of $1,293,631 for the accretion of debt. As of December 31, 2022, the Company had a principal balance of $0 in relation to the May 18 Note, July 3 Note, and August 4 Note.

 

November 19, 2020 Debt Agreement

 

On November 19, 2020, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($611,500). The note matures on November 18, 2025 and bears an annual interest rate, based on a 360-day year, of 3.3% plus .6% plus 6-month Euribor when Euribor is positive. Pursuant to the terms of the agreement, there is a nine-month grievance from the first deposit date, which was November 19, 2020, for principal repayment. The principal is to be repaid in 18 quarterly installments of €27,778 with the first payment due 9 months from the first deposit. During the year ended December 31, 2021, the Company repaid €55,556 ($62,878) of the principal and as of December 31, 2021, the Company had accrued interest of $5,642 related to this note and a principal balance of €444,444 ($503,022), of which $377,270 is classified as Notes payable – long term portion on the consolidated balance sheet. During the year ended December 31, 2022, the Company repaid €111,111 ($118,867) of the principal and as of December 31, 2022, the Company has accrued interest of $8,069 related to this note and a principal balance of €333,333 ($356,600), of which $237,733 is classified as Notes payable – long term portion on the accompanying consolidated balance sheet.

July 30, 2021 Debt Agreement

 

On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($578,850). The note matures on August 5, 2026 and bears an annual interest rate that applies to 60% of the principal of the note that is based on a 365-day year, of 5.84% plus 3-month Euribor when Euribor is positive. Pursuant to the terms of the agreement, there is a nine-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 18 quarterly installments of €27,778 commencing three months from the end of the grace period. As of December 31, 2021, the Company has accrued interest of $3,100 and a principal balance of €500,000 ($565,900), of which $477,637 is classified as Notes payable – long term portion on the consolidated balance sheet. During the year ended December 31, 2022, the Company repaid €77,985 ($83,428) of the principal balance. As of December 31, 2022, the Company has accrued interest of $2,728 and a principal balance of €422,016 ($451,472), of which $336,788 is classified as Notes payable – long term portion on the accompanying consolidated balance sheet.

 

June 9, 2022 Debt Agreement

 

On June 9, 2022 the Company entered into an agreement with a third-party lender in the principal amount of €320,000 ($335,008). The Note matures on June 16, 2027 and bears an annual interest of 3.89% plus levy of 0.60% plus the 3-month Euribor (when positive). Pursuant to the agreement, there is a twelve-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 17 equal quarterly installments of €18,824 commencing on June 30, 2023. As of December 31, 2022 the Company has accrued interest of $8,379 and an outstanding balance of €320,000 ($342,336), of which $281,924 is classified as Notes payable – long term portion on the accompanying consolidated balance sheet.

 

August 29, 2022 Promissory Note

 

On August 29, 2022, the Company entered into a promissory note for the principal amount $166,667. The Company received $150,000 in cash and recorded $16,667 as an original issue discount upon issuance. The promissory note matures on the earlier of (a) December 27, 2022, or (b) the date the Company completes a debt or equity financing of at least $1,000,000. The debt carries an annual interest rate of 12% which is due upon maturity. During the three and nine months ended December 31, 2022, the Company has recorded amortization of debt discount of $16,667 in relation to the original issue discount. As of December 31, 2022, the Company has repaid the principal balance in full and has a balance of $5,041 in accrued interest related to this note.

 

 COVID-19 Government Loans

 

On May 12, 2020, the Company’s subsidiary, SkyPharm, was granted and on May 22, 2020 the Company received a €300,000 ($366,900) loan from the Greek government. The loan will be repaid in 40 equal monthly installments beginning on July 29, 2022. As a condition to the loan, the Company was required to retain the same number of employees until October 31, 2020. During the year ended December 31, 2021, the Company received a waiver of 50% forgiveness of the loan and recorded $177,450 as other income. As of December 31, 2021 the principal balance was $169,770. As of December 31, 2022, the principal balance was $150,441.

 

On June 23, 2020, the Company’s subsidiary, Cosmofarm, entered into an agreement with the “National Bank of Greece SA” (the “Bank”) to borrow a maximum of €500,000 ($611,500). The note has a maturity date of sixty (60) months from the date of the first disbursement, which includes a grace period of nine months. The total amount of the initial proceeds was paid in 3 equal monthly installments. The note is interest bearing from the date of receipt and is payable every three (3) months at an interest rate of 2.7%. During the year ending December 31, 2022, the Company reclassified $407,174 from Lines of Credit on the consolidated balance sheet to Notes Payable. The outstanding balance was €323,529 ($346,112) and €359,758 ($407,174) on December 31, 2022 and 2021, respectively of which $220,253 and $366,171, respectively, is classified as Notes payable - long-term portion on the consolidated balance sheets.

On June 24, 2020, the Company received a loan £50,000 ($68,310) from the United Kingdom government. The loan has a ten-year maturity and bears interest at a rate of 2.5% per annum beginning 12-months after the initial disbursement. The Company may prepay this loan without penalty at any time. The Company repaid £2,335 ($3,233) of principal during the year ended December 31, 2021, and the balance as of December 31, 2021 was £47,665 ($64,347). As of December 31, 2022, the principal balance was £47,144 ($56,936).

 

Distribution and Equity Agreement

    

As discussed in Note 3 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products (as defined) initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. As consideration for its services, Company received: (a) a 33 1/3% equity interest or 5 million shares in Marathon as partial consideration for the Company’s distribution services; and (b) received cash of CAD $2,000,000, subject to repayment in Common Shares of the Company if it fails to meet certain performance milestones. The Company is entitled to receive an additional CAD $2,750,000 upon the Company’s receipt of gross sales of CAD $6,500,000 and an additional CAD $2,750,000 upon receipt of gross sales of CAD $13,000,000.

 

As discussed in Note 3, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to the CAD $2 million cash received noted in (b) above, the Company accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC 480 measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). If settlement were to occur on December 31, 2022, the Company would be required to issue 420,471 common shares to settle its debt obligation. The Company could be obligated to potentially issue an unlimited number of common shares to settle its Share-settled debt obligation. If such events were to occur, the Company would be required to increase its authorized share capital and since increasing the authorized share capital is within the control of the Company, as our CEO controls greater than 50% of the outstanding common stock of the Company, the original classification of equity-classified financial instruments issued by the Company were not affected.

 

On March 20, 2023, the Company’s Legal counsel provided notice to Marathon Global Inc, that Cosmos terminated the Equity agreement dated on March 19, 2018 pursuant to Section 3.2 and that termination is effective thirty days from the date of the letter.

 

None of the above loans were made by any related parties.