Notes Payable

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 3 – NOTES PAYABLE

On May 24, 2019, the Company entered into an Asset Purchase Agreement (the “APA”) with Applied Optical Sciences, LLC (“AOS”) to acquire certain assets. As consideration for the APA, the Company entered into a promissory note issued to the shareholders of AOS for $2,500,000. The note is non-interest bearing and shall be repaid in equal installments, the first payment is due on February 10, 2021 and subsequent payments being due May, 24, 2021 and the remainder on the last day of each six-month period thereafter, the final such payment being due on November 24, 2022. The Promissory Note may be prepaid at any time (in whole or in part). Upon inception, the Company recorded a debt discount in the amount of $2,500,000 in relation to the transaction which is being amortized over the life of the loan as compensation expense. As of December 31, 2020 and 2019, the note is not in default.

During the year ended December 31, 2019, the company received $2,350,000 from eleven non-affiliated individuals based on 10% Promissory Notes (“Notes”). $1,150,000 of the Notes mature September 1, 2019 and $1,200,000 of the notes mature December 1, 2019. The Notes are accompanied by a Common Stock Purchase Warrant (a “Warrant”) entitling the holder to purchase one share of the company’s common stock, par value $0.001 per share (the “Common Shares”), for each $2.00 of Note principle, at an exercise price of $0.07 per share, for two years from the date of issuance. During the year ended December 31, 2020, the Company cash settled $1,525,490 of principal and interest and exchanged $1,087,699 of principal and interest for convertible notes (the Exchange Notes”). The Exchange Notes are convertible into shares of our common stock at a conversion price of $0.30 per share. The Company evaluated the Exchange Notes for modification accounting in accordance with ASC 470-50 and concluded that the modification qualified for debt extinguishment as the debt is substantially different because a substantive conversion option was added. Company recorded $210,966 as additional paid-in capital in relation to the beneficial conversion feature entered into upon exchange. During the year ended December 31, 2020, the Company converted the principal and interest of $1,108,590 into 3,695,301 shares of common stock. During the period ending December 31, 2020, the Company amortized the $210,966 as interest expense in the consolidated statements of operations upon conversion. As of December 31, 2020, these notes were not outstanding.

During the year ended December 31, 2020, the Company received $4,324,000 in bridge funding pursuant to 10% Convertible Promissory Notes. These notes are convertible into shares of our common stock at a conversion price of $0.30 per share, as negotiated with the holders based on the prevailing market price of the common stock leading up to the issuance of the notes. At any time after October 15, 2020 until July 15, 2021, the date of maturity, (i) each investor may elect to convert these notes into shares of our common stock, at a conversion price of $0.30 per share and (ii) the company may elect to prepay, either in cash or in shares of common stock at a price of $0.30 per share, at the option of the holder, the amount of principal and interest then outstanding under each note. In the event we elect to prepay the notes, we will notify the holders, each of whom will then have five business days to notify the company if they prefer to receive such prepayment in cash or stock. These notes are payable in full at maturity. In lieu of repayment of the principal and interest on the notes at maturity, the Company may elect to convert the amounts due into shares of Common Stock at a price of $0.15 per share. In November of 2020, the Company converted the total principal and interest of $4,407,262 into 14,690,873 shares of common stock. The Company recorded a debt discount in the amount of $708,034 in relation to the conversion feature which was fully amortized to interest expense in the consolidated statements of operations during the year ended December 31, 2020.

On April 28, 2020, the Company entered into a loan agreement with Alliance Bank of Arizona, N.A. for a loan in the amount of $133,000 pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020 (the “CARES Act”). This loan is evidenced by a promissory note dated April 27, 2020 and matures two years from the disbursement date. This loan bears interest at a rate of 1.00% per annum, with the first nine months of interest deferred. Principal and interest are payable monthly commencing nine months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. This loan contains customary events of default relating to, among other things, payment defaults or breaches of the terms of the loan. Upon the occurrence of an event of default, the lender may require immediate repayment of all amounts outstanding under the note.

The following reconciles notes payable as of December 31, 2020 and December 31, 2019:

	December 31, 2020			December 31, 2019
Beginning balance	$	4,967,890		$	-
Notes payable		4,456,760			4,880,000
Accrued interest		297,849			119,218
Transfer from prepaid		108,064			54,329
Initial beneficial conversion feature		(919,000	)		-
Amortize beneficial conversion feature		919,000			-
Payments on notes payable		(1,480,951	)		(85,657	)
Repayment of interest		(152,603	)		-
Converted into common stock		(5,515,852	)		-
Total		2,681,157			4,967,890
Less-Notes payable - current		(1,547,695	)		(3,467,890	)
Notes payable - non-current	$	1,133,462		$	1,500,000

Future principal payments for the Company’s Notes as of December 31, 2020 are as follows:

2021	$	1,547,695
2022		1,133,462
Thereafter		-
Total	$	2,681,157

Of the $2,681,000 note payable balance, $1,548,000 are short term of which $1,500,000 are payments on the note to acquire Applied Optical Sciences and $1,133,000 are long term, of which $1,000,000 are payments on the note to acquire Applied Optical Sciences. Of the note to acquire Applied Optical Sciences, the first payment is due on February 10, 2021 and subsequent payments being due May, 24, 2021 and the remainder on the last day of each six-month period thereafter, the final such payment being due on November 24, 2022.