| Convertible Notes Payable |
NOTE 9 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted
of the following as of:
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Convertible note 2019-01. On April 18, 2019, the Company issued a convertible note payable in the amount $150,000. This note accrued interest at 10% per annum, payable at maturity, and was originally due December 31, 2019, but the maturity date was extended to March 31, 2020. This note was fully repaid as of March 17, 2020. Prior to repayment, this note and accrued interest were convertible into shares of common stock at the conversion price then in effect (initially $24 per share, subject to adjustment) any time at the holder’s option. The conversion price was subject to adjustment upon the issuance of the Company’s common stock or securities convertible into common stock at a price per share less than the then prevailing conversion price, other than specified exempt issuances; accordingly, the adjusted conversion price was equal to $4.27 per share as of March 17, 2020, and $14 per share as of December 31, 2019. A beneficial conversion feature was recognized as a result of the conversion price upon issuance and adjustment being less than fair market value. This note was also issued with a detachable warrant to purchase 2,500 shares of stock at $40 per share. The valuation of the conversion feature and detachable warrant and intrinsic value of the beneficial conversion feature resulted in the recognition of discounts on this note equal to $199,012 as of December 31, 2019. The discounts on this note and accumulated amortization of such discounts were eliminated upon repayment. |
|
$ |
- |
|
|
$ |
150,000 |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2019-03. On September 4, 2019, the Company issued a convertible note payable in the amount $108,696, with an original issue discount of $8,696 in exchange for $100,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to December 31, 2020. This note and accrued interest may convert into shares of common stock at $24 per share any time at the holder’s option. A beneficial conversion feature was recognized as a result of the conversion price upon issuance being less than fair market value. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty (30) months, as amended. This note was also issued with a detachable warrant to purchase 1,000 shares of stock at $24 per share. The valuation of the detachable warrant and intrinsic value of the beneficial conversion feature resulted in the recognition of discounts on this note equal to $18,326. |
|
|
108,696 |
|
|
|
108,696 |
|
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Convertible note 2019-04. On September 25, 2019, the Company issued a convertible note payable in the amount $54,348, with an original issue discount of $4,348 in exchange for $50,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $24 per share any time at the holder’s option. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant to purchase 500 shares of stock at $24 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $4,190. |
|
|
54,348 |
|
|
|
54,348 |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2019-05. On October 3, 2019, the Company issued a convertible note payable in the amount $27,174, with an original issue discount of $2,174 in exchange for $25,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $24 per share any time at the holder’s option. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant to purchase 250 shares of stock at $24 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $2,705. |
|
|
27,174 |
|
|
|
27,174 |
|
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Convertible note 2019-06. On October 10, 2019, the Company issued a convertible note payable in the amount $27,174, with an original issue discount of $2,174 in exchange for $25,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $24 per share any time at the holder’s option. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant to purchase 250 shares of stock at $24 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $2,505. |
|
|
27,174 |
|
|
|
27,174 |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2019-08. On October 23, 2019, the Company issued a convertible note payable in the amount $108,696, with an original issue discount of $8,696 in exchange for $100,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $24 per share any time at the holder’s option. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with detachable warrants to purchase 1,250 shares of stock at $30 per share and 1,250 shares of stock at $40 per share. The valuation of the detachable warrants resulted in the recognition of a discount on this note equal to $21,363. |
|
|
108,696 |
|
|
|
108,696 |
|
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Convertible note 2019-09. On October 29, 2019, the Company issued a convertible note payable in the amount $27,174, with an original issue discount of $2,174 in exchange for $25,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $24 per share any time at the holder’s option. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant to purchase 250 shares of stock at $24 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $2,295. |
|
|
27,174 |
|
|
|
27,174 |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2019-10. On November 8, 2019, the Company issued a convertible note payable in the amount $16,304, with an original issue discount of $1,304 in exchange for $15,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $14 per share any time at the holder’s option. A beneficial conversion feature was recognized as a result of the conversion price upon issuance being less than fair market value. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant to purchase 150 shares of stock at $14 per share. The valuation of the detachable warrant and intrinsic value of the beneficial conversion feature resulted in the recognition of discounts on this note equal to $3,279. |
|
|
16,304 |
|
|
|
16,304 |
|
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Convertible note 2020-01. On January 6, 2020, the Company issued a convertible note payable in the amount $10,870, with an original issue discount of $870 in exchange for $10,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $10 per share any time at the holder’s option. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant to purchase 100 shares of stock at $10 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $793. |
|
|
10,870 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-02. On January 21, 2020, the Company issued a convertible note payable in the amount $262,500, with an original issue discount of $12,500 in exchange for $250,000. This note accrues interest at 10% per annum from and after July 1, 2020, and accrued a one-time fixed interest charge upon issuance equal to 10% of the principal amount. This note was originally due June 30, 2020, but the maturity date was extended to September 1, 2020, and subsequently to October 30, 2020, and then to December 15, 2020. The Company issued 6,250 shares of common stock as consideration for the initial extension to September 1, 2020. The Company paid an extension fee of $25,000 as consideration for the extension to December 15, 2020. This note and accrued interest may convert into shares of common stock at $4.27 per share (as adjusted on February 21, 2020) any time at the holder’s option. A beneficial conversion feature was recognized as a result of the conversion price upon adjustment being less than fair market value. As amended, the before-mentioned conversion features shall not be permitted unless the note remains outstanding after the revised maturity date of October 30, 2020. 5,855 shares of common stock were issued as a commitment fee in connection with the purchase of this note and recognized as a debt issuance cost. The debt issuance costs and intrinsic value of the beneficial conversion feature resulted in the recognition of discounts on this note equal to $85,247. This note is secured by finished goods inventory. $200,000 was paid to the holder on September 18, 2020: $32,003 for accrued and unpaid interest to date, $129,228 for principal repayment, and $38,769 as a premium on the principal repayment. The remaining balance is to be paid to the holder on or before December 15, 2020. The amendment to this note on November 10, 2020, which extended the maturity date to December 15, 2020, was considered a material modification under ASC 470-50-40, and as a result, is considered an accounting extinguishment in the period the note was modified. |
|
|
133,272 |
|
|
|
- |
|
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Convertible note 2020-03. On February 25, 2020, the Company issued a convertible note payable in the amount $52,631, with an original issue discount of $2,632 in exchange for $50,000. This note accrues interest at 8% per annum, payable monthly, and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. This note and accrued interest may convert into shares of common stock at $7.50 per share any time at the holder’s option or automatically upon a qualified financing of at least $5 million at the lower of the conversion price then in effect or a 25% discount to the offering price. If this note, or any portion thereof, has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance plus any accrued and unpaid interest thereon, shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant to purchase 500 shares of stock at $7.50 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $1,985. |
|
|
52,631 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-04. On March 16, 2020, the Company issued a convertible note payable in the amount $250,000, with an original issue discount of $20,000 in exchange for $230,000. This note accrued interest at 10% per annum, payable at maturity, and was originally due September 16, 2020. This note was fully repaid as of May 14, 2020. Prior to repayment, this note and accrued interest were convertible into shares of common stock at the conversion price then in effect (initially $4.50 per share, subject to adjustment) any time at the holder’s option. A beneficial conversion feature was recognized as a result of the conversion price upon issuance being less than fair market value. The conversion price was subject to adjustment upon the issuance of the Company’s common stock or securities convertible into common stock at a price per share less than the then prevailing conversion price, other than specified exempt issuances. 5,000 shares of common stock were issued as a commitment fee in connection with the purchase of this note and recognized as a debt issuance cost. 27,777 shares of common stock were also issued in connection with the purchase of this note and recognized as a debt issuance cost; however, these shares were subject to return if the note was fully repaid within 6 months of issuance and were therefore returned upon repayment. $5,000 was paid for the holder’s legal expenses in connection with the transaction and recognized as a debt issuance cost. The valuation of the conversion feature, debt issuance costs, and intrinsic value of the beneficial conversion feature resulted in the recognition of discounts on this note equal to $343,854 upon issuance. The discounts on this note and accumulated amortization of such discounts were eliminated upon repayment. |
|
|
- |
|
|
|
- |
|
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Convertible note 2020-05. On March 16, 2020, the Company issued a convertible note payable in the amount $250,000, with an original issue discount of $20,000 in exchange for $230,000. This note accrues interest at 10% per annum, payable at maturity, and was originally due September 16, 2020, but the maturity date was extended to October 31, 2020, and subsequently to December 31, 2020. The principal amount was increased by $10,000 on August 10, 2020, as consideration for the extension to October 31, 2020. The Company agreed to pay an extension fee of $15,000 as consideration for the extension to December 31, 2020. This note and accrued interest may convert into shares of common stock at the conversion price then in effect (initially $4.50 per share, subject to adjustment) any time at the holder’s option. A beneficial conversion feature was recognized as a result of the conversion price upon issuance being less than fair market value. The conversion price is subject to adjustment upon the issuance of the Company’s common stock or securities convertible into common stock at a price per share less than the then prevailing conversion price, other than specified exempt issuances. 5,000 shares of common stock were issued as a commitment fee in connection with the purchase of this note and recognized as a debt issuance cost. 27,777 shares of common stock were also issued in connection with the purchase of this note and recognized as a debt issuance cost; however, these shares are subject to return if the note, as amended, is fully repaid by December 31, 2020. $5,000 was withheld from the proceeds for the holder’s legal expenses in connection with the transaction and recognized as a debt issuance cost. The valuation of the conversion feature, debt issuance costs, and intrinsic value of the beneficial conversion feature resulted in the recognition of discounts on this note equal to $343,854. The amendment to this note on November 11, 2020, which extended the maturity date to December 31, 2020, was not considered a material modification under ASC 470-50-40, and as a result, is not considered an accounting extinguishment in the period the note was modified. |
|
|
260,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-06. On May 14, 2020, the Company issued a convertible note payable in the amount $500,000, with an original issue discount of $40,000 in exchange for $460,000. This note accrues interest at 10% per annum, payable at maturity, and matures on May 14, 2021. This note and accrued interest may convert into shares of common stock at the conversion price then in effect (initially $9.75 per share, subject to adjustment) any time at the holder’s option. The conversion price is subject to adjustment upon the issuance of the Company’s common stock or securities convertible into common stock at a price per share less than the then prevailing conversion price, other than specified exempt issuances; accordingly, the adjusted conversion price was equal to $4.50 per share as of September 30, 2020. 10,000 shares of common stock were issued as a commitment fee in connection with the purchase of this note and recognized as a debt issuance cost. $10,000 was paid for the holder’s legal expenses in connection with the transaction and recognized as a debt issuance cost. The valuation of the conversion feature and debt issuance costs resulted in the recognition of discounts on this note equal to $230,158 based on the revaluation of such features upon adjustment of the conversion price in September 2020. The amendment to this note on November 4, 2020, which extended the period before the conversion price adjusts from a fixed price to a variable price at a discount to market and the period the Company may prepay the note without penalty or premium, was not considered a material modification under ASC 470-50-40, and as a result, is not considered an accounting extinguishment in the period the note was modified. |
|
|
500,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-07. On July 21, 2020, the Company issued a convertible note payable in the amount $100,000. This note accrues interest at 8% per annum, payable at maturity, and matures on June 30, 2021. This note and accrued interest may convert into shares of common stock (i) any time at the holder’s option at a conversion price of $5.00 per share, or (ii) automatically upon a qualified financing of at least $5 million at a conversion price equal to the lower of $5.00 per share or a 25% discount to the market price. The Company has the right to prepay this note without penalty or premium. If this note has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance shall be amortized over the following thirty-six (36) months. This note also contains detachable warrants exercisable for 5 years to purchase 20,000 shares of common stock at $7.50 per share and 20,000 shares of common stock at $10.00 per share. The valuation of the detachable warrants resulted in the recognition of a discount on this note equal to $105,800. |
|
|
100,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-08. On July 30, 2020, the Company issued a convertible note payable in the amount $25,000. This note accrues interest at 12% per annum, payable monthly, and was originally due September 30, 2020, but the maturity date was extended to December 31, 2020. This note and accrued interest may convert into shares of common stock any time at the holder’s option at a conversion price of $5.00 per share. The Company has the right to prepay this note without penalty or premium. If this note has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance shall be amortized over the following thirty (30) months, as amended. This note also contains a detachable warrant exercisable for 5 years to purchase 250 shares of common stock at $5.00 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $953. |
|
|
25,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-09. On August 7, 2020, the Company issued a convertible note payable in the amount $100,000. This note accrues interest at 8% per annum, payable at maturity, and matures on July 31, 2021. This note and accrued interest may convert into shares of common stock any time at the holder’s option at a conversion price of $5.00 per share. The Company may not prepay this note without the prior written consent of the holder. If this note has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance shall be amortized over the following twenty-four (24) months. This note also contains detachable warrants exercisable for 5 years on a cash or cashless basis to purchase 20,000 shares of common stock at $7.50 per share and 20,000 shares of common stock at $10.00 per share. The valuation of the detachable warrants resulted in the recognition of a discount on this note equal to $106,000. |
|
|
100,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-10. On September 8, 2020, the Company issued a convertible note payable in the amount $15,000. This note accrues interest at 8% per annum, payable at maturity, and matures on June 30, 2021. This note and accrued interest may convert into shares of common stock any time at the holder’s option at a conversion price of $4.50 per share. The Company has the right to prepay this note without penalty or premium. If this note has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance shall be amortized over the following thirty-six (36) months. This note also contains detachable warrants exercisable for 5 years to purchase 2,000 shares of common stock at $7.50 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $5,300. |
|
|
15,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-12. On September 22, 2020, the Company issued a convertible note payable in the amount $25,000. This note accrues interest at 8% per annum, payable monthly, and matures on June 30, 2021. This note and accrued interest may convert into shares of common stock any time at the holder’s option at a conversion price of $4.50 per share. The Company has the right to prepay this note without penalty or premium. If this note has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance shall be amortized over the following thirty-six (36) months. This note also contains detachable warrants exercisable for 5 years to purchase 5,555 shares of common stock at $4.50 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $11,499. |
|
|
25,000 |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
| Convertible note 2020-13. On September 28, 2020, the Company issued a convertible note payable in the amount $108,696 with an original issue discount of $8,696 in exchange for $100,000. This note accrues interest at 8% per annum, payable monthly, and matures on June 30, 2021. This note and accrued interest may convert into shares of common stock any time at the holder’s option at a conversion price of $4.50 per share. The Company has the right to prepay this note without penalty or premium. If this note has not been repaid or converted in full on or prior to the maturity date, then repayment of the unpaid principal balance shall be amortized over the following thirty-six (36) months. This note also contains detachable warrants exercisable for 5 years to purchase 24,155 shares of common stock at $4.50 per share. The valuation of the detachable warrant resulted in the recognition of a discount on this note equal to $50,001. |
|
|
108,696 |
|
|
|
- |
|
| |
|
September 30,
2020
|
|
|
December 31,
2019
|
|
| |
|
(Unaudited) |
|
|
|
|
| |
|
|
|
|
|
|
| Total convertible notes payable |
|
|
1,700,034 |
|
|
|
519,566 |
|
| |
|
|
|
|
|
|
|
|
| Less original issue discounts |
|
|
(114,262 |
) |
|
|
(29,566 |
) |
| |
|
|
|
|
|
|
|
|
| Convertible notes payable, net |
|
|
1,585,772 |
|
|
|
490,000 |
|
| |
|
|
|
|
|
|
|
|
| Less discounts for conversion rights, beneficial conversion features, debt issuance costs, and detachable warrants |
|
|
(996,253 |
) |
|
|
(253,675 |
) |
| |
|
|
|
|
|
|
|
|
| Plus amortization of discounts |
|
|
627,688 |
|
|
|
121,964 |
|
| |
|
|
|
|
|
|
|
|
| Total convertible notes payable, net |
|
$ |
1,217,207 |
|
|
$ |
358,289 |
|
Discounts
Total discounts (original issue
discounts plus discounts for conversion rights, beneficial conversion features, debt issuance costs, and detachable warrants) of
$1,110,515 are amortized using the interest method, which resulted in amortization recorded as interest expense of $224,670 and
$1,065,943 for the three and nine-months ended September 30, 2020, with total accumulated amortization equal to $627,688 as of
September 30, 2020.
Modifications
In February 2020, the Company adjusted
the conversion price of a convertible note payable in accordance with its terms, which triggered modification accounting and resulted
in a gain of $95,888.
On June 30, 2020, the Company extended
the maturity dates of certain convertible notes payable as described in the table above. In conjunction with these extensions,
management compared the present values of these notes prior to the extension and after the extension in accordance with FASB ASC
No. 470-50, Debt Modifications and Extinguishments, noting that the change in present value was less than 10%. As such, these notes
were determined to not be substantially different and no changes in values were recognized.
In September 2020, the Company adjusted
the conversion price of a convertible note payable in accordance with its terms, which triggered modification accounting and resulted
in a gain of $40,133.
Interest expense
The Company incurred interest charges
on these convertible notes payable of $37,418 and $4,496 during the three-months ended September 30, 2020 and 2019, respectively.
The Company incurred interest charges on these convertible notes payable of $101,850 and $7,537 during the nine-months ended September
30, 2020 and 2019, respectively. The aggregate amount of accrued and unpaid interest on these convertible notes payable was $39,392
and $7,537 as of September 30, 2020 and 2019, respectively.
Maturities
Future maturities of these convertible
notes payable are as follows as of September 30:
| 2021 |
|
$ |
1,700,034 |
|
| |
|
$ |
1,700,034 |
|
|