Quarterly report pursuant to Section 13 or 15(d)

Notes Payable and Convertible Notes Payable

v3.19.3
Notes Payable and Convertible Notes Payable
9 Months Ended
Sep. 30, 2019
Notes Payable and Convertible Notes Payable  
Note 5 - Notes Payable and Convertible Notes Payable

During the three months ended September 30, 2019 and 2018, the Company recorded interest expense of $26,418 and $30,923, respectively, and interest expense for related party debt of $683 and $756, respectively. During the nine months ended September 30, 2019 and 2018, the Company recorded interest expense of $159,202 and $124,774, respectively, and interest expense for related party debt of $1,977 and $49,244, respectively.

 

During the three months ended September 30, 2019 and 2018, the Company recorded amortization of debt discount of $3,566 and $0, respectively, and amortization of debt discount for related party debt of $0 and $0, respectively. During the nine months ended September 30, 2019 and 2018, the Company recorded amortization of debt discount of $10,095 and $173,099, respectively, and amortization of debt discount for related party debt of $0 and $28,356, respectively.

 

As of September 30, 2019 and through the date of this filing, notes payable with principal amounts totaling $1,983,000 were past due and are classified as current liabilities on the condensed consolidated balance sheet as of September 30, 2019. Such notes continue to accrue interest and all relevant penalties have been accrued as of September 30, 2019. Of such past due notes payable, a holder of a note with principal amount of $250,000 issued a notice of default. See Note 8, Commitments and Contingencies Litigation for additional details. The Company is in negotiations with all holders of notes payable to extend the maturity dates of such notes or to convert the principal and accrued interest into equity.

 

As of September 30, 2019 and December 31, 2018, the Company had $270,025 and $302,974, respectively, of accrued interest and penalties related to notes payable, which is included with accrued interest and accrued interest related parties on the condensed consolidated balance sheets.

 

Notes Payable

 

On March 31, 2019, holders of notes with aggregate principal amounts of $400,000 and aggregate late payment penalties of $40,000 exchanged those notes for 70,400 shares of the Company's Series A Convertible Preferred Stock. The value of the shares issued exceeded the carrying value of the debt and accrued interest and, as more fully discussed in Note 6, Stockholders Deficiency - Series A Convertible Preferred Stock, this difference of $88,000 was recorded in the condensed consolidated statement of operations as a loss on exchange of notes payable for Series A Convertible Preferred Stock.

 

On May 15, 2019, the Company issued a note payable in the principal amount of $70,000. The note did not accrue interest and matured on May 25, 2019. The note was repaid in full on May 22, 2019. In connection with the note issuance, the Company issued a five-year immediately vested warrant for the purchase of 35,000 shares of common stock at $0.75 per share. The warrant had an issuance date fair value of $5,800, which was recorded as a debt discount and was amortized over the term of the note.

 

On July 29, 2019, the Company issued a note payable in the principal amount of $50,000. The note does not accrue interest and matures on January 29, 2020. In connection with the note issuance, the Company issued to the noteholder a five-year immediately vested warrant for the purchase of 50,000 shares of common stock at $0.75 per share. The warrant had an issuance date fair value of $8,200, which was recorded as a debt discount and was amortized over the term of the note.

 

Convertible Notes Payable

 

On March 31, 2019, holders of notes with aggregate principal amounts of $290,000 and aggregate accrued interest of $97,784 exchanged those notes for 74,967 shares of the Company's Series A Convertible Preferred Stock. The value of the shares issued exceeded the carrying value of the debt and accrued interest and, as more fully discussed in Note 6, Stockholders Deficiency - Series A Convertible Preferred Stock, this difference of $174,470 was recorded in the condensed consolidated statements of operations as a loss on exchange of notes payable for Series A Convertible Preferred Stock.

 

On May 20, 2019, the Company issued a convertible note payable in the principal amount of $103,000 for cash proceeds of $100,000 which matures on November 20, 2019. The note accrues interest at 8% per annum, of which, twelve months of interest was guaranteed. The note also includes certain prepayment penalties that provide for payments ranging from 115% to 140% of the then outstanding principal and interest. The note is convertible at the option of the holder into common stock at either (i) $0.75 per share or (ii) in the event of a default, at 75% of the volume-weighted average price in the ten consecutive trading days prior to the conversion date. The conversion option had an issuance date fair value of $1,600 and, together with the original issuance discount of $3,000, was recorded as a debt discount and was amortized to expense over the term of the note. In accordance with the Company's sequencing policy, this conversion option was determined to be a derivative liability. On June 27, 2019, a third-party repaid the note in full on behalf of the Company, which payment included a 20% prepayment penalty for an aggregate total payment of $133,488, which has been recorded as accrued expenses on the Company s condensed consolidated balance sheet as of September 30, 2019. The Company determined the transaction was a note extinguishment and recorded a loss on extinguishment of debt of $1,504 in the condensed consolidated statements of operations.

 

On July 2, 2019, the Company issued a convertible note payable in the principal amount of $68,000. The note accrues interest at 12% per annum and matures on July 2, 2020 and any amount of principal or interest which is not paid at maturity shall accrue interest at 22% per annum. The note also includes certain prepayment penalties that provide for payments ranging from 115% to 140% of the then outstanding principal and interest. The note is convertible at the option of the holder into common stock at 61% of the lowest trading price during the ten consecutive trading days prior to the conversion date at any time during the period which is 180 days following the issuance date of the convertible note and ending on the later of (i) July 2, 2020 or (ii) in the event of default, the date of the payment of the default amount. The convertible note contained an original issuance discount of $3,000 which was recorded as a debt discount and will be amortized to expense over the term of the note.