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Notes Payable and Convertible Notes Payable

12 Months Ended

Dec. 31, 2023

Notes Payable And Convertible Notes Payable

Notes Payable and Convertible Notes Payable

Note 3 – Notes Payable and Convertible Notes Payable

Notes Payable - Net

The Company had the following activity related to its notes payable:

Note payable and Convertible note

Balance–-December 31, 2021	$	135,955
Proceeds (face amount of note)		150,000
Original issue debt discount		(75,000	)
Amortization of debt discount		296,181
Balance–-December 31, 2022	$	507,136
Proceeds (face amount of note)		122,873
Reclassifications		640,000
Balance–-December 31, 2023	$	1,270,009

Notes payable are summarized as follows:

Summary of Note payables

Issue Date	Maturity Date	Interest Rate			Collateral		2023		2022
June 2012	July 2024		8	%		Unsecured	$	6,240	$	6,240
May 2014	July 2024		8	%		Unsecured		3,456		3,456
June 2016	July 2024		8	%		Unsecured		38,216		38,216
January 2017	July 2024		8	%		Unsecured		7,344		7,344
November 2020	July 2024		12	%		Unsecured		46,480		46,480
March 2021	July 2024		8	%		Unsecured		5,400		5,400
November 2021	July 2024		0	%		Unsecured		250,000		250,000
February 2023	July 2024		0	%		Unsecured		150,000		150,000
August 2023	August 2024		8	%		Unsecured		122,873		—
January 2023	July 2024		0	%		Unsecured		100,000		—
October 2022⁽¹⁾	July 2024		0	%		Unsecured		440,000		—
November 2022⁽¹⁾	July 2024		0	%		Unsecured		100,000		—
							$	1,270,009	$	507,136

(1)	In November 2023, the convertible notes were amended to remove the conversion features and the Company reclassified $540,000 from convertible notes to notes payable.

Note Payable

Modification of Notes Payable

The notes listed above at December 31, 2022 totaling $507,136 (excludes note for $122,873 due August 2024 and $100,000 due October 2024) were originally due at various dates in 2023. In 2023, the Company extended the maturity dates of these notes listed above to January 2024 or April 2024.

The Company evaluated the modification of terms under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension of the maturity dates did not result in significant and consequential changes to the economic substance of the debt totaling $107,136 (due January 2024), and thus resulted in a modification of the debt and not an extinguishment of the debt. Accordingly, no gain or loss on debt extinguishment was recorded.

Specifically, on the date of modification, the Company determined that the present value of the cash flows of the modified debt instruments were less than 10% different from the present value of the remaining cash flows under the original debt instruments.

The Company evaluated the modification of terms under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension of the maturity dates resulted in significant and consequential changes to the economic substance of the debt totaling $400,000 (due April 2024), and thus resulted in an extinguishment of the debt. The Company issued 400,000 shares of common stock, having a fair value of $71,600 (based upon the quoted closing price of $0.179/share) in connection with the lender agreeing to extend the loan maturity date. There were no other changes to these notes payable. Accordingly, the Company recorded an inducement expense of $71,600.

Specifically, on the date of modification, the Company determined that the present value of the cash flows of the modified debt instruments were greater than 10% different from the present value of the remaining cash flows under the original debt instruments.

See Note 5 regarding common stock issued.

Convertible Notes Payable - Net

The Company had the following activity related to its convertible notes payable:

Convertible Notes Payable Net

Balance–-December 31, 2021	$	—
Proceeds (face amount of note)		1,307,857
Original issue debt discount		(552,857	)
Debt discount–-beneficial conversion feature		(75,000	)
Amortization of debt discount		138,871
Conversion of notes payable to common stock		9,473
Balance–-December 31, 2022	$	828,344
Proceeds (face amount of note)		305,000
Reclassfiications		(640,000	)
Original issue debt discount		(65,000	)
Amortization of debt discount		469,514
Conversion of notes payable to common stock		(797,858	)
Balance–-December 31, 2023	$	100,000

Convertible Notes Payable are summarized as follows:

Summary of Convertible Notes Payable

						December 31,		December 31,
Issue Date	Maturity Date	Interest Rate			Collateral	2023		2022
October 2022	April 2024		0	%	Unsecured	$	—	$	440,000
November 2022	November 2023		0	%	Unsecured		—		200,000
December 2022	April 2024		0	%	Unsecured		—		592,857
October 2023	October 2024		8	%	Unsecured		100,000		—
						$	100,000	$	1,232,857
					Less: unamortized debt discount		—		(404,513	)
					Convertible notes payable – net		100,000	$	828,344

Note Issued in 2023

In January 2023, the Company issued an unsecured, one (1) year, original issue discount convertible note with a face amount of $100,000. This note contained an original issue discount of $30,000, resulting in net proceeds of $70,000.

The total debt discount of $30,000 is being amortized over the life of the convertible note and has been recorded as a component of other income (expense) – net in the accompanying consolidated statements of operations.

This note is convertible at a 20% discount to market upon the effectiveness of the Company’s Form S-1 registration statement. This convertible note contains an embedded contingent conversion feature that until the contingency is resolved (declared effectiveness of the S-1 registration statement) is not required to be accounted for in accordance with the related accounting guidance. The embedded feature in this convertible note was not accounted for at September 30, 2023 and December 31, 2022, respectively, given the probability of the S-1 not becoming effective and also due to the expected inability to acquire sufficient funds from an effective S-1 to repay the note holder, as determined by the Company.

On November 8, 2023, the Company’s S-1 registration statement was declared effective. However, the lender has waived their right to the discount to market feature. As a result, both at September 30, 2023 and November 8, 2023, the Company was not required to account for the discount to market feature as a derivative liability.

In October and November 2023, the Company issued unsecured, one (1) month, original issue discount convertible notes with a total of face amount of $105,000. These notes contained an original issue discount of $35,000, resulting in net proceeds of $70,000. The convertible note was fully converted into 954,638 shares of common stock in November and December 2023. The notes were also issued with 62,000 bonus shares having a fair value of $11,098 ($0.179/share), based upon the closing price. These shares are considered an inducement expense. See Note 5 regarding common stock issued.

These notes are payable in cash or convertible at $0.11 per share, at the sole option of the Company.

In October 2023, the Company executed a one-year (1) note payable for $100,000. The note bears interest at 8% and is unsecured. The note was also issued with 1,000,000 shares of common stock having a fair value of $179,000 ($0.179/share), based upon the quoted closing price. These shares are considered and inducement expense. See Note 5 regarding common stock issued.

See below for discussion of inducement expense.

Notes Issued in 2022

During 2022, the Company issued a convertible note payable for $150,000. In connection with the issuance of this note, the Company recorded an original discount of $75,000. Additionally, due to the fixed rate embedded conversion feature, the Company also recorded a beneficial conversion feature of $75,000, resulting in an increase to additional paid in capital. The Company received $75,000 in net proceeds.

The total debt discount of $150,000 is being amortized over the life of the convertible note and has been recorded as a component of other income (expense) – net in the accompanying consolidated statements of operations.

The remaining convertible notes issued in 2022 totaling $1,232,857 contained original issue discounts totaling $477,857, resulting in net proceeds of $755,000. These original issue discounts are being amortized over the life of the notes and have been recorded as a component of other income (expense) – net in the accompanying consolidated statements of operations.

Each of these convertible notes aggregating $1,232,857 are convertible at a 20% discount to market upon the effectiveness of the Company’s Form S-1 registration statement. These convertible notes each contain an embedded contingent conversion feature that until the contingency is resolved (declared effectiveness of the S1 registration statement) is not required to be accounted for in accordance with the related accounting guidance. The embedded feature in these convertible notes was not accounted for at December 31, 2022.

For the years ended December 31, 2023 and 2022, the Company recorded amortization of debt discount of $469,514 and $435,052, respectively.

Modification and Extinguishment of Convertible Notes Payable (Year Ended December 31, 2023 and 2022)

Year Ended December 31, 2023

Maturity Date, Note Modifications in 2023 and 2022 and Inducement Expense

Prior to the modification, the convertible notes payable matured on various dates ranging from 2020 and prior through 2022. In connection with the 2022 modification, maturity dates ranged from April 2023 to May 2023.

In May 2023, all of the notes listed above ($440,000) were extended to January 2024.

The Company evaluated the modification of terms under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension of the maturity date did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt. Accordingly, no gain or loss on debt extinguishment was recorded.

Specifically, on the date of modification, the Company determined that the present value of the cash flows of the modified debt instrument was less than 10% different from the present value of the remaining cash flows under the original debt instrument.

In May 2023, the outstanding $1,232,857 in convertible notes payable balance, $692,857 of these notes were converted to 6,298,703 shares of common stock ($0.11/share) (see Note 4 and below regarding inducement).

As a result, $540,000 in convertible notes remained from this initial debt modification (October 2022 - $440,000 (now due April 2024), and December 2022 - $100,000 (now due April 2024)).

In September 2023, all of the notes listed above ($540,000) as well as the note issued in January 2023 ($100,000) were extended to April 2024 (total $640,000).

The Company evaluated the modification of terms under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension of the maturity dates resulted in significant and consequential changes to the economic substance of the debt totaling $640,000 (due April 2024), and thus resulted in an extinguishment of the debt. The Company issued 640,000 shares of common stock, having a fair value of $114,560 (based upon the quoted closing price of $0.179/share) in connection with the lender agreeing to extend the loan maturity date. There were no other changes to these notes payable. Accordingly, the Company recorded an inducement expense of $114,560.

In November, 2023, the holders of all of the convertible notes listed above waived the convertibility feature of these notes. As a result, $640,000 of Convertible Notes Payable were reclassified from Convertible Notes Payable to Notes Payable.

In December 2023, 6 notes totaling $107,136 were extended to July 2024.

In March 2024, all of the notes listed above, as well as the note issued in January 2023 ($100,000) were extended to July 2024 (total ($640,000).

Inducements

1^st Inducement

In May 2023, the Company added a second conversion feature to certain notes aggregating $342,857. The Company, in addition to allowing conversion at a discount to market pending the effectiveness of their S1 registration statement, allowed these debt holders an option to convert their debt at a fixed rate of $0.11/share.

In adding this substantive conversion option ($0.11/share), the Company determined that an inducement had occurred. Of the $692,857 in debt converted, $342,857 was the amount of debt that received a fixed rate conversion option ($0.11/share), the remaining $350,000 in debt did not receive a fixed rate conversion option, however, was converted at an agreed upon amount of $0.11/share.

The entire $692,857 was converted into 6,298,703 shares of common stock. See Note 5.

The fair value of the Company’s common stock on the date of inducement was in excess of the value of the debt converted by $102,857 as follows during the year ended December 31, 2023:

Schedule of debt conversion

	December 31, 2023
Fair value of common stock on conversion date	$	445,714
Fair value of debt subject to inducement		342,857
Inducement expense	$	102,857

2nd Inducement (summary of activity from above – excludes inducement related to addition of substantive conversion option at $0.11/share)

As noted above for various notes ($400,000) and convertible notes ($640,000) which were amended in September 2023 (aggregate $1,040,000) to extend the maturity date of these notes to April 2024, the Company issued 1,040,000 shares of common stock having a fair value of $186,160, based upon the quoted closing price of $0.179/share.

The fair value of the Company’s common stock on the date of inducement was in excess of the value of the debt converted by $186,160 as follows during the year ended December 31, 2023:

Schedule of Debt Conversion notes

	December 31, 2023
Fair value of debt and common stock on extinguishment date	$	1,226,160
Fair value of debt subject to inducement		1,040,000
Inducement expense	$	186,160

3rd Inducement

In October 2023, the Company issued convertible notes of $105,000. As a result of conversion of notes, the Company issued extra shares and recorded it as inducement expense.

The fair value of the Company’s common stock on the date of inducement was in excess of the value of the debt converted by $105,000 as follows during the year ended December 31, 2023:

Schedule of Debt Conversion third

	December 31, 2023
Fair value of debt and common stock on extinguishment date	$	154,438
Fair value of debt subject to inducement		105,000
Inducement expense	$	49,438

See Note 5 regarding common stock issued.

Year ended December 31, 2022

Elimination of Conversion Options and Balance Sheet Classification

In April and June 2022, the Company eliminated the conversion options ($0.001 - $0.01/share) associated with all of its then outstanding convertible notes payable, including certain original issue discount notes.

On the date of modification, the Company determined that the present value of the cash flows of the modified debt instruments (including accrued interest) were greater than 10% different from the present value of the remaining cash flows under the original debt instruments. Additionally, the Company determined that the elimination of the conversion options were substantive on the date of modification.

As a result, the Company recorded a gain on debt extinguishment of $44,475 as follows:

Schedule of debt extinguishment

Debt–-prior to modjfication	$	151,611
Debt–-after modification		107,136
Gain on debt extinguishment	$	44,475

All classification terminology on the accompanying balance sheets for these notes was changed from convertible notes payable–- net to notes payable – net for 2022, whereas the classification of convertible notes payable – net was reflected for the year ended December 31, 2021 since at that time, these notes had an effective conversion option.

All notes issued subsequent to the modifications are classified as convertible notes in the accompanying consolidated balance sheets.

Conversion of Accrued Interest Payable into Notes Payable

$9,473 of accrued interest payable on the convertible notes payable outstanding at the time of modification were added to the existing balance of various notes and carried forward as new notes.

Interest Rate

Prior to the modification, the convertible notes payable bore interest ranging from 8% to 15%. In connection with the modification, interest rates ranged from 8% to 12%.

There is no default interest rate for any notes or convertible notes issued.

Maturity Date

Prior to the modification, the convertible notes payable matured on various dates ranging from 2020 and prior through 2022. In connection with the modification, maturity dates ranged from April 2023 to May 2023.