Notes Payable

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Notes Payable

Note 6- Notes Payable

Notes Payable

During the nine months ended September 30, 2020, the Company issued 5 fixed rate promissory notes totaling $800,000 for funding of $401,424 with original terms of six to twelve months and interest rates of 8% to 10%. If the notes are not paid at maturity, two of the five notes will bear a 22% default interest rate and the other three will bear a 24% default interest rate. As of September 30, 2020, four of the promissory notes became variable rate notes, which triggered the recognition of a derivative liability for the embedded conversion feature. As of September 30, 2020, all of the notes remain outstanding.

During the nine months ended September 30, 2020, the Company converted six previous fixed rate notes into variable rate notes in an accumulated amount of $833,250 as a result of the notes not being paid at maturity and, therefore, triggering a conditional conversion option for the noteholder. The conversion rate is 70% and 75% of the Company’s common stock based on the terms included in the variable rate notes. As of September 30, 2020, the Company exchanged one of the variable notes with $316,494 unamortized principal and accrued interest into one fixed rate promissory notes for $525,000 due in twelve months from issuance date and convertible upon an event of default. The Company recorded the exchange in accordance with ASC 470-50 Debt-Modifications and Extinguishments and recorded $151,496 as gain from debt extinguishment in the condensed consolidated statements of operations.

The gross amount of all convertible notes with variable conversion rates outstanding at September 30, 2020 is $4,485,451, of which $4,418,626 are past maturity.

On May 20, 2020, the Company entered into modification and forbearance agreements (the “agreements”) with three investors as a condition for the execution of the equity line purchase agreement (see note 7), collectively totaling $4,397,000 in principal and approximately $1,080,000 in accrued interest. As long as the Equity Line Purchase Agreement is in effect and its terms are being complied with, the terms of the forbearance agreements include the extension of the maturity date, elimination of the conversion feature attached to the hybrid instrument and a 12.5% premium for future cash redemption.

On July 16, 2020, the Securities and Exchange Commission declared effective the registration statement on Form S-1, for the registration of the shares under the Equity Line Purchase Agreements, which was filed on June 23, 2020 and amended on July 10, 2020. Management reviewed the guidance per ASC 470-60 Troubled debt restructurings and ASC 470-50 Debt-Modifications and Extinguishments and concluded that the terms of the agreements were not substantially different as of September 30, 2020 and accounted for the transaction as a debt modification.

Notes payable to a related party in the aggregate amount of $146,000 were outstanding at September 30, 2020 which are past maturity date. The notes bear interest between 10% and 12% per annum. During the nine months ended September 30, 2020, the Company paid $19,000 principal to this related party.

As of September 30, 2020, fixed rate notes payable outstanding totaled $1,585,903, of which $724,903 is past maturity.

	September 30, 2020			December 31, 2019
Notes payable at beginning of period	$	6,874,795		$	8,158,198
Notes payable issued		717,918			2,101,000
Notes payable increased principal		25,190
Loan fees added to note payable		82,082			91,250
Repayments of notes payable in cash		(19,000	)		(235,000	)
Less amounts converted to redeemable notes		-			(67,500	)
Less amounts exchanged to fixed rate notes		(283,000	)		-
Less amounts converted to stock		(1,180,631	)		(3,173,153	)
Notes payable at end of period		6,217,354			6,874,795
Less debt discount		(115,981	)		(12,649	)
	$	6,101,373		$	6,862,146
Notes payable issued to related parties	$	146,000		$	165,000
Notes payable issued to non-related party	$	5,955,373		$	6,697,146

The maturity dates on the notes-payable are as follows:

	Notes to
12 months ending,	Related parties		Non-related parties		Total
Past due	$	146,000	$	5,045,354	$	5,191,354
September 30, 2021		-		1,026,000		1,026,000
	$	146,000	$	6,071,354	$	6,217,354