Quarterly report pursuant to Section 13 or 15(d)

Convertible Notes Payable

v3.22.2.2
Convertible Notes Payable
 9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Convertible Notes Payable

 

  5. Convertible Notes Payable

               
   

September 30,
2022

(unaudited)

    

December 31,

2021

  
Convertible notes   $ 1,529,000     $ 1,154,000  
Accrued interest     549,000       435,000  
Subtotal, including $1,590,000 and $1,333,000 in default at September 30, 2022 and December 31, 2021, respectively     2,078,000       1,589,000  
Convertible note discount     (280,000 )     (86,000 )
Balance on convertible notes, net of note discounts   $ 1,798,000     $ 1,503,000  

 

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 shares of 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 upon issuance and expire 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, and original issue discount of 10% (OID). The note discounts are amortized over the term of the notes.

 

As of December 31, 2021, total outstanding notes payable and accrued interest totaled $1,589,000. During the nine-month period ended September 30, 2022, the Company issued convertible promissory notes in the aggregate of $432,000 for cash proceeds of $393,000, net of OID of $39,000. Also during the nine-month period ended September 30, 2022, convertible notes and accrued interest of $58,000 were converted into 1,930,633 shares of common stock, and accrued interest of $115,000 was recorded. As of September 30, 2022, total outstanding convertible notes payable and accrued interest totaled $2,078,000. As of September 30, 2022, a total of thirty-two convertible notes in the aggregate of $1,590,000 including accrued interest have reached maturity and are past due.

 

The $432,000 of convertible notes issued in 2022 have implied interest rate was 10%, mature in twelve months from issuance, and are convertible into 14,409,995 shares of the Company’s common stock at $0.03 per share. In addition, the Company also granted these note holders warrants to purchase 14,409,995 shares of the Company’s common stock. The warrants are fully vested, exercisable at $0.04 per share and expire one year from the date of issuance.

 

As of December 31, 2021, unamortized note discount totaled $86,000. During the nine-month period ended September 30, 2022, the Company recorded $283,000 of note discount for the relative fair value of warrants issued with convertible notes, and $39,000 discount for OID. Also during the nine-month period ended September 30, 2022, the Company recorded amortization of note discount of $90,000, and $38,000 of note discount related to converted notes was removed and included in the carrying amount of the convertible notes upon conversion. As of September 30, 2022, unamortized discount totaled $280,000.

 

As of September 30, 2022, the convertible notes payable and accrued interest are convertible into 38,371,627 shares of common stock at conversion rates ranging from $0.02 to $0.48 per share.