Annual report pursuant to Section 13 and 15(d)

Convertible Notes

v3.19.1
Convertible Notes
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Convertible Notes

NOTE 6 – CONVERTIBLE NOTES

 

On April 20, 2018, (modified May 22, 2018) the Company issued a $165,000 (originally $158,000) convertible note with original issue discount (OID) of $15,000 and bearing interest at 8% per annum. The note matures on April 20, 2019 and is convertible on or after October 17, 2018 into the Company’s restricted common stock at $0.20 per share at the holder’s request. The OID is recorded as a discount to the debt agreement. The Company has determined the note to contain a beneficial conversion feature valued as $104,000 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 3-year warrants to purchase 200,000 shares of the company’s restricted common stock at an exercise price of $0.375 per share, 200,000 shares of the company’s restricted common stock at an exercise price of $0.50 per share, and 100,000 shares of the company’s restricted common stock at an exercise price of $0.625 per share. The warrants were valued at $126,000 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement. The noteholder was also issued 116,000 shares of the company’s restricted common stock valued at $34,000 based upon the closing price of the Company stock on the date of the modified agreement and recorded as a discount to the debt agreement. During the year ended December 31, 2018 the Company has accrued interest for this note in the amount of $9,000. At December 31, 2018, the principal balance together with total accrued interest is recorded on the Company’s consolidated balance sheets net of discounts at $124,000. The note holder has responded to an audit confirmation that he believes the note is in default, which the Company disputes. If it is determined that the note is in default, the amount of additional interest and damages would approximate $87,000. The Company has established a contingent liability of $87,000 which is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheet as of December 31, 2018 and reported as interest expense on the accompanying consolidated statement of operations for the year ended December 31, 2018.

 

On May 22, 2018, the Company issued a $275,000 convertible note with original issue discount (OID) of $25,000 and bearing a one-time interest charge at 8%. The note matured on February 22, 2019 and is convertible into the Company’s restricted common stock at $0.25 per share at the holder’s request. The OID is recorded as a discount to the debt agreement. The Company has determined the note to contain a beneficial conversion feature valued as $40,000 based on the intrinsic per share value of the conversion feature. This beneficial conversion feature is recorded as a discount to the debt agreement. The noteholder was also granted detachable 5-year warrants to purchase 500,000 shares of the company’s restricted common stock at an exercise price of $2.00 per share. The warrants were valued at $45,000 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement. The noteholder was also issued 200,000 shares of the company’s restricted common stock valued at $58,000 based upon the closing price of the Company stock on the date of the agreement and recorded as a discount to the debt agreement. During the year ended December 31, 2018 the Company has accrued interest for this note in the amount of $20,000. At December 31, 2018, the principal balance together with total accrued interest of $20,000 and liquidated damages of $25,000 is recorded on the Company’s consolidated balance sheets net of discounts at $308,000.

 

The following table summarized the Company's convertible notes payable as of December 31, 2018 and December 31, 2017:

 

    December 31, 2018   December 31, 2017
Beginning Balance   $ —       $ —    
Proceeds from the issuance of convertible notes, net of issuance discounts     137,000       —    
Repayments     —         —    
Conversion of notes payable into common stock     —         —    
Amortization of discounts     241,000       —    
Liquidated damages     25,000          
Accrued Interest     29,000       —    
Ending Balance   $ 432,000     $ —    
                 
Convertible notes, short term   $ 440,000     $ —    
                 
Debt discounts   $ 62,000     $ —