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Convertible Notes (Related and Unrelated Party) | 12 Months Ended
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Dec. 31, 2020
Debt Disclosure [Abstract] |
Convertible Notes (Related and Unrelated Party) | Note 7. Convertible Notes (Related and Unrelated Party) In March 2018, we closed an offering of $2,527,500 in convertible notes, Series CN Note 1 of 2, of which, management, directors and significant shareholders have invested $840,000. The convertible notes bear 10% interest per annum and are due and payable on March 14, 2020. The notes are convertible at any time prior to the due date into our common stock at conversion price of $0.88 per share or 85% of the average closing price of the common stock over the twenty consecutive trading days immediately preceding the date of note holders’ election; but in no event lower than $0.60 per share. In addition, the interest is convertible at any time prior to the due dates into our common stock at conversion price of 85% of the average closing price of the common stock over the twenty consecutive trading days immediately preceding the date of note holders’ election; but in no event lower than $0.60 per share. There were 1,331,583 warrants issued, in conjunction with the convertible note offering. The fair value of the warrants, $0.17 per share ($220,548 in the aggregate), was calculated using the Black-Scholes option pricing model using the following assumptions:
Expected life (in years) |  |  | 3 |
Volatility (based on a comparable company) |  |  | 54.82 | %
Risk Free interest rate |  |  | 2.41 | %
Dividend yield (on common stock) |  |  | - |
The value of $220,548 was recorded as a debt discount related to the issuance of the warrants. In April 2018, we offered investors in our March 2018 Convertible Note (“Series CN Notes”) the opportunity to accelerate the issuance of certain warrants associated with the CN Notes. Pursuant to the acceleration offer, Series CN Notes investors who invested an additional 10% to 20% of the Series CN Note amount, immediately received an additional 25% warrant coverage on their initial CN Note investment, which would otherwise have been issued after one year. During April 2018, we closed the CN Note acceleration offer in the amount of $177,300 in convertible notes, of which, management, directors and significant shareholders have invested $30,000. The CN Note acceleration offer convertible notes bear 10% interest per annum and are due and payable on March 14, 2020. The notes are convertible at any time prior to the due date into our common stock at conversion price of $0.88 per share or 85% of the average closing price of the common stock over the twenty consecutive trading days immediately preceding the date of note holders’ election; but in no event lower than $0.60 per share. In addition, the interest is convertible at any time prior to the due dates into our common stock at conversion price of 85% of the average closing price of the common stock over the twenty consecutive trading days immediately preceding the date of note holders’ election; but in no event lower than $0.60 per share. There were 937,373 warrants issued in conjunction with the Series CN Note acceleration offer convertible note offering. The fair value of the warrants, $0.25 per share ($235,519 in the aggregate), was calculated using the Black-Scholes option pricing model using the following assumptions:
Expected life (in years) |  |  | 3 |
Volatility (based on a comparable company) |  |  | 55.49 | %
Risk Free interest rate |  |  | 2.45 | %
Dividend yield (on common stock) |  |  | - |
The value of $105,199 was recorded as a debt discount related to the issuance of the warrants as using the fair value would cause the debt discount to exceed the gross proceeds received. In March 2019, an investor elected to exercise I-Warrants by using part of the investor’s convertible note. The total debt settled was $350,634 of principal and $33,929 of accrued interest. On March 20, 2020, we completed a Private Placement offering of $3,825,000 of common stock. In connection with the transaction, the Company offered the Convertible Noteholders of Series CN Note 1 and 2 to participate in the equity offering. A total of $720,000 principal balance of Series CN 1 was converted into common stock [$630,000 from related parties]. The Series CN Note 1 Noteholders were offered bonus interest equivalent to 20% of their outstanding principal which was converted to common stock. For $1,071,000 of the remaining $1,186,167 Series CN Note 1 Noteholders that chose not to participate in the equity offering, the terms of the Series CN Note 1 were amended to increase the interest rate to 15% per annum and to extend the maturity of the outstanding principal balance by 24 months to March 20, 2022. The notes are convertible at any time prior to the maturity into our common stock at a conversion price of $0.50 per share. If the six month price is less than the $0.50 per share, the principal conversion price will be automatically reduced to the $0.50 per share, but in no event less than $0.35 per Share, in which case the Company shall issue to each purchaser, based on such purchaser’s investment, (a) shares in a quantity that equals the difference between the number of Shares issued to such purchaser at closing and the number of Shares that would have been issued to such purchaser at closing at the $0.50 per share and (b) warrants in a quantity that equals fifty percent (50%) of the difference between the number of shares issued to such Purchaser at closing and the number of shares that would have been issued to such purchaser at closing at the $0.50 per share, with an exercise price that equals the sum of $0.10 per share and the $0.50 per share, but in no event less than $0.45 per share. The exercise price per share for the Convertible Note Warrants and the Bonus Warrant issued at closing will automatically adjust as well to the sum of $0.10 per share and the Six Month Price, but in no event less than $0.45 per share. There were 864,000 O warrants issued to the Series CN Note 1 Noteholders for participating in the common stock offering. On March 20, 2020, 1,082,727 of the original L Warrants related to the Series CN Note 1 Noteholders had their terms modified, whereby the exercise price was reduced from $0.70 to $0.50 per share. In addition, the Series CN Note 1 Noteholders that chose to extend their notes for 24 months were granted 1,071,000 Series P warrants. The fair value of the warrants, ($92,266 in the aggregate which consists of the L and P Warrants), were calculated using the Black-Scholes option pricing model using the following assumptions:
Expected life (in years) |  |  | 1 to 3 |
Volatility |  |  | 76.74- 98.00 | %
Risk Free interest rate |  |  | .15 - .41 | %
Dividend yield (on common stock) |  |  | - |
Based on the relative fair value, we recorded a debt discount of $75,184 related to the issue of P Warrants to CN 1 and CN 2 Noteholders. The modification of the L Warrants resulted in an incremental increase in fair value of $17,082, which was recorded as a debt discount. The convertible notes consist of the following components as of December 31, 2020 and December 31, 2019:
|  | 2020 |  |  | 2019 |
Convertible notes |  | $ | 1,181,167 |  |  | $ | 2,704,800 |
Less: Debt discount (warrant value) |  |  | (92,266 | ) |  |  | (325,747 | )
Less: Debt discount (derivative value) (Note 8) |  |  | - |  |  |  | (638,988 | )
Less: Debt discount (issuance costs paid) |  |  | (6,004 | ) |  |  | (27,000 | )
Less: Note repayments/conversion |  |  | (110,166 | ) |  |  | (803,634 | )
Add: Debt discount amortization |  |  | 38,173 |  |  |  | 898,940 |
|  | $ | 1,010,904 |  |  | $ | 1,808,371 |
In December 2018, we closed an offering of $1,363,200 in convertible notes, Series CN 2 of 2, of which, management, directors and significant shareholders have invested $560,000. The convertible notes bear 10% interest per annum and are due and payable on November 30, 2020. The notes are convertible at any time prior to the due date into our common stock at conversion price of $0.88 per share or 85% of the average closing price of the common stock over the twenty consecutive trading days immediately preceding the date of note holders’ election; but in no event lower than $0.60 per share. In addition, the interest is convertible at any time prior to the due dates into our common stock at conversion price of 85% of the average closing price of the common stock over the twenty consecutive trading days immediately preceding the date of note holders’ election; but in no event lower than $0.60 per share. There were 678,864 warrants issued, in conjunction with the convertible note offering. The fair value of the warrants, $0.31 per share ($212,763 in the aggregate), was calculated using the Black-Scholes option pricing model using the following assumptions:
Expected life (in years) |  |  | 3 |
Volatility (based on a comparable company) |  |  | 59.00 | %
Risk Free interest rate |  |  | 2.83 | %
Dividend yield (on common stock) |  |  | - |
The value of $212,763 was recorded as a debt discount related to the issuance of the warrants. On March 20, 2020, a total of $1,128,000 principal balance of Series CN Note 2 was converted into common stock [$560,000 from related parties]. The Noteholders were offered bonus interest equivalent to 20% of their outstanding principal and converted their accrued interest into common stock. For $168,000 of the remaining $235,200 Series CN Note 2 Noteholders that chose not to participate in the equity offering, the terms of the Series CN Note 2 were amended to extend the maturity of the outstanding principal balance by 12 months to November 30, 2021. The notes are convertible at any time prior to the maturity into our common stock at a conversion price of $0.60 per share. There were 1,501,012 O warrants issued to the Series CN Note 2 Noteholders for participating in the common stock offering. The fair value of the modified L warrants, ($4,279 prior to modification, and $6,096 post modification), was calculated using the Black-Scholes option pricing model using the following assumptions:
Expected life (in years) |  |  | 1.71 |
Volatility |  |  | 88.02 | %
Risk Free interest rate |  |  | 0.37 | %
Dividend yield (on common stock) |  |  | - |
The incremental value of $1,817 was recorded as a debt discount related to the modification of existing L warrants. The convertible notes consist of the following components as of December 31, 2020 and December 31, 2019:
|  | 2020 |  |  | 2019 |
Convertible notes |  | $ | 235,200 |  |  | $ | 1,363,200 |
Less: Debt discount (warrant value) |  |  | (1,817 | ) |  |  | (212,763 | )
Less: Debt discount (derivative value) (Note 8) |  |  | (13,528 | ) |  |  | (697,186 | )
Less: Debt discount (issuance costs paid) |  |  | (6,004 | ) |  |  | (23,700 | )
Less: Note repayments |  |  | (67,200 | ) |  |  | - |
Add: Debt discount amortization |  |  | 9,487 |  |  |  | 502,639 |
|  | $ | 156,138 |  |  | $ | 938,190 |
The total of the two tables above at December 31, 2020, net of discount, equals $1,167,042 which is presented on the consolidated balance sheet as, $158,243 Convertible Note, net of discount, Current Liabilities, $197,804 Convertible Note, Related Party, Net of Discount, Long-Term Liabilities and $810,995 Convertible Note, Net of Discount, Long-term Liabilities. The total of $2,740,561 shown in the two tables above at December 31, 2019, are presented in the balance sheet as Long-Term Liabilities: Convertible Note – related party net of discount, of $1,181,942, Convertible Note – net of Discount of $1,407,877, and Current Liabilities: Convertible Note – net of Discount $150,742. Future maturity of convertible notes at face value before effect of all discount, are as follow:
Years Ending December 31, |  | Total Convertible Notes |
2021 |  | $ | 168,000 |
2022 |  |  | 1,071,000 |
|  | $ | 1,139,000 |
On March 20, 2020, the Company and the Holders of the Series CN Note 1 and Note 2 mutually agreed to amend its terms to change the maturity date to March 20, 2022 and November 30, 2021, respectively. The Company accounted for the modification in accordance with ASC 470-50, Modifications and Extinguishments, which states that for all extinguishments of debt, the difference between the reacquisition price (including any premium) and the net carrying amount of the debt being extinguished (including any deferred debt issuance costs) should be recognized as a gain or loss when the debt is extinguished. Accordingly, the Company recorded a net gain on extinguishment of debt of $379,200 which was comprised of a gain of $437,201, offset by a loss of $58,001. The gain of $437,201 related to the portion of Convertible Notes that were converted to common stock on March 20, 2020. The loss on extinguishment of debt of $58,001 related to the portion of Convertible Notes that were extended by either 24 months for CN I, or 12 months for CN2.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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