| Related Party Convertible Notes Payable |
NOTE 8 – RELATED PARTY CONVERTIBLE NOTES PAYABLE
Related party convertible notes payable consisted
of the following as of:
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March 31, 2021
(Unaudited) |
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December 31, 2020 |
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| Convertible note 2019-02. On July 19, 2019, the Company issued a convertible note payable in the amount $815,217, with an original issue discount of $65,217 in exchange for $750,000. This note accrues interest at 8% per annum and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. Interest was originally payable monthly but was amended on January 1, 2021, to be payable at maturity. This note and accrued interest may convert 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 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. 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 $4.27 per share as of March 31, 2021, and December 31, 2020. 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 7,500 shares of stock at $24 per share, which is subject to adjustment in accordance with any adjustment to the conversion price of this note; accordingly, the adjusted exercise price was equal to $4.27 per share as of March 31, 2021, and December 31, 2020. 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 $234,300 as of March 31, 2021, and December 31, 2020. |
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$ |
815,217 |
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$ |
815,217 |
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| Convertible note 2019-07. On October 16, 2019, the Company issued a convertible note payable in the amount $217,391, with an original issue discount of $17,391 in exchange for $200,000. This note accrues interest at 8% per annum and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. Interest was originally payable monthly but was amended on January 1, 2021, to be payable at maturity. This note and accrued interest may convert 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 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. 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 $4.27 per share as of March 31, 2021, and December 31, 2020. A beneficial conversion feature was recognized as a result of the conversion price upon adjustment being less than fair market value. This note was also issued with a detachable warrant to purchase 2,000 shares of stock at $24 per share, which is subject to adjustment in accordance with any adjustment to the conversion price of this note; accordingly, the adjusted exercise price was equal to $4.27 per share as of March 31, 2021, and December 31, 2020. 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 $63,060 as of March 31, 2021, and December 31, 2020. |
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217,391 |
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217,391 |
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March 31, 2021
(Unaudited) |
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December 31, 2020 |
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| Officer convertible note. On November 15, 2019, the Company issued a convertible note payable in the amount $100,000. This note accrues interest at 14% per annum and was originally due June 30, 2020, but the maturity date was extended to June 30, 2021. Interest was originally payable monthly but was amended on January 1, 2021, to be payable at maturity. This note and accrued interest may convert into shares of common stock at the conversion price of $20 per share. |
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100,000 |
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100,000 |
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| Convertible note 2020-11. On September 17, 2020, the Company issued a convertible note payable in the amount $271,739, with an original issue discount of $21,739 in exchange for $250,000. This note accrues interest at 8% per annum and has a maturity of June 30, 2021. Interest was originally payable monthly but was amended on January 1, 2021, to be payable at maturity. 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 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. 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. This note was also issued with a detachable warrant to purchase 13,333 shares of stock at $4.50 per share, which is subject to adjustment in accordance with any adjustment to the conversion price of this note. The valuation of the conversion feature and detachable warrant resulted in the recognition of discounts on this note equal to $88,950. |
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271,739
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271,739
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| Convertible note 2020-16. On December 17, 2020, the Company issued a convertible note payable in the amount $90,000. This note accrued interest at 4% per annum, payable at maturity, and was originally due December 31, 2021. This note was fully converted into 18,000 shares of common stock as of December 17, 2020. |
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- |
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- |
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| Convertible note 2021-02. On January 28, 2021, the Company and the Chairman of the Board of Directors, as a lender to the Company, entered into a convertible note payable in the amount of $100,000. This note accrues interest at the rate of 8% per annum and matures on December 31, 2021. This note and accrued interest may convert into shares of common stock at $5.00 per share any time at the holder’s option. 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 outstanding principal balance shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant exercisable for 5 years to purchase 20,000 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 $22,200. |
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100,000 |
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- |
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| Convertible note 2021-03. On March 8, 2021, the Company and a current stockholder that beneficially owns more than 5% of the Company’s common stock, as a lender to the Company, entered into a convertible note payable in the amount of $150,000. This note accrues interest at the rate of 8% per annum and matures on March 8, 2022. This note and accrued interest may convert into shares of common stock at $5.00 per share any time at the holder’s option. 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 outstanding principal balance shall be amortized over the following thirty-six (36) months. This note was also issued with a detachable warrant exercisable for 5 years to purchase 30,000 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 $40,200. |
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150,000 |
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- |
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Related party convertible notes payable consisted
of the following as of:
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March 31, 2021
(Unaudited) |
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December 31, 2020 |
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| Total related party convertible notes payable |
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1,654,347 |
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1,404,347 |
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| Less original issue discounts |
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(104,347 |
) |
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(104,347 |
) |
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| Related party convertible notes payable, net |
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1,550,000 |
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1,300,000 |
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| Less discounts for conversion rights, beneficial conversion features, and detachable warrants |
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(448,710 |
) |
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(386,310 |
) |
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| Plus amortization of discounts |
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461,905 |
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420,606 |
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| Total related party convertible notes payable, net |
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$ |
1,563,195 |
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$ |
1,334,296 |
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Discounts
Total discounts (original issue discounts
plus discounts for conversion rights, beneficial conversion features, and detachable warrants) of $553,057 are amortized using the interest
method, which resulted in amortization recorded as interest expense of $41,299 and $112,446 for the three-months ended March 31, 2021
and 2020, respectively, with total accumulated amortization equal to $461,905 as of March 31, 2021.
Modifications
The Company evaluated changes to the terms
of certain related party convertible notes payable in accordance with FASB ASC No. 470-50, Debt Modifications and Extinguishments,
as described below.
In February 2020, the Company adjusted the
conversion price of certain related party convertible notes payable in accordance with their terms, which triggered modification accounting
and resulted in a gain of $258,903.
On June 30, 2020, the Company extended the
maturity dates of the related party convertible notes payable as described in the table above. Management compared the present values
of these notes before and after the extensions, 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.
On January 1, 2021, amendments to certain
related party convertible notes payable as described in the table above provided that interest shall be payable at maturity. All other
terms remain unchanged. The amendments were not considered material modifications, and as a result, were not considered accounting extinguishments
in the period the notes were modified.
Interest expense
The Company incurred interest charges on
these related party convertible notes payable of $31,352 and $24,020 for the three-months ended March 31, 2021 and 2020, respectively.
The aggregate amount of accrued and unpaid interest on these related party convertible notes payable was $41,376 and $8,183 as of March
31, 2021 and 2020, respectively.
Maturities
These related party convertible notes payable
mature within one year of March 31, 2021.
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