Quarterly report pursuant to Section 13 or 15(d)

5. Convertible Notes

v3.20.1
5. Convertible Notes
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Convertible Notes

  5. Convertible Notes

 

   

March 31,
2020

(unaudited)

   

December 31,

2019

 
Balance due on convertible notes   $ 854,000     $ 1,019,000  
Accrued interest     215,000       184,000  
Subtotal     1,069,000       1,203,000  
Convertible note discount     (86,000 )     (153,000 )
Balance on convertible notes, net of note discounts   $ 983,000     $ 1,050,000  

 

The Company issues convertible notes in exchange for cash. The notes typically do not bear any interest; however, there is an implied interest rate of 10% since the notes are typically issued at a 10% discount. The notes are unsecured, and usually mature twelve months from issuance.

 

The notes are convertible at the option of the note holder into the Company’s common stock at a conversion price stipulated in the conversion agreement. In addition, the note holders receive warrants to purchase shares of common stock that are fully vested and will expire in one year from the date of issuance. As a result, the Company records a note discount to account for the relative fair value of the warrants, the notes’ beneficial conversion feature or BCF, and original issue discount of 10% (OID). The note discounts are amortized over the term of the notes or amortized in full upon its conversion to common stock.

 

As of December 31, 2019, total outstanding notes payable amounted to $1,019,000 which are due through December 2019 and unamortized note discount of $153,000.

 

During the three-month periods ended March 31, 2020, the Company issued similar convertible promissory notes in the aggregate of $39,000 for cash of $35,000 or a discount of $4,000. The notes do not bear any interest; however, the implied interest rate used was 10% since the notes were issued 10% less than its face value. The notes are unsecured, mature in twelve months from issuance and convertible at $0.035 per share. In addition, the Company also granted these note holders warrants to purchase 550,000 shares of the Company’ common stock. The warrants are fully vested, exercisable at $0.035 per share and will expire in one year. As a result, the Company recorded a note discount of $35,000 to account for the relative fair value of the warrants, the notes’ beneficial conversion feature (BCF), and original issue discount (OID). The note discounts are being amortized over the term of the note or amortized in full upon the conversion to common stock. During the three-month period ended March 31, 2020 notes payable of $219,000 were converted into 3,645,673 shares of common stock.

 

As of March 31, 2020, total outstanding notes payable amounted to $854,000, accrued interest of $215,000 and unamortized note discount of $86,000 for a net balance of $983,000. A total of sixteen notes in the aggregate of $600,000 have reached maturity and are past due.