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Convertible Notes Payable to Related and Nonrelated Parties

9 Months Ended

Sep. 30, 2020

Convertible Notes Payable to Related and Nonrelated Parties

Note 6 - Convertible Notes Payable to Related and Nonrelated Parties

In January, March, and May 2019, the Company issued Convertible Promissory Notes totaling $200,000 to stockholders and $100,000 convertible note payable to a nonrelated party. The notes are to be paid in one principal payment, along with any unpaid interest by December 31, 2021. Interest is payable semiannually at 10%. The notes are convertible into common stock at a price of $.20 per share through December 31, 2019, $.30 per share from January 1, 2020 through December 31, 2020, and $.40 per share from January 1, 2021 through the maturity date of December 31, 2021.

In December 2019, the Company issued a Convertible Promissory Note in the principal amount of $25,000 to a stockholder in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by December 31, 2022. Interest is payable semiannually at 10%. The note is convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2022.

In March 2020, the Company issued a Convertible Promissory Note in the principal amount of $100,000 to a nonrelated party in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by December 31, 2022. Interest is payable semiannually at 10%. The note is convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2022.

In June 2020, the Company issued a Convertible Promissory Note in the principal amount of $25,000 to a stockholder in connection with a loan in the same amount. The note is to be paid in one principal payment, along with any unpaid interest by July 31, 2023. Interest is payable semiannually at 10%. The note is convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of July 31, 2023.

In the third quarter 2020, the Company issued Convertible Promissory Notes totaling $511,000, of which $25,000 was with a stockholder and the remaining $486,000 was with nonrelated accredited investors in connection with loans for the same amount. The notes are to be paid in one principal payment, along with any unpaid interest by December 31, 2023. Interest is payable semiannually at 10% on June 30 and December 31. The notes are convertible into common stock at a price of $.20 per share through December 31, 2020, $.30 per share from January 1, 2021 through December 31, 2021, and $.40 per share from January 1, 2022 through the maturity date of December 31, 2023.

Consequently, the Company has outstanding Convertible Promissory Notes in an aggregate principal amount of $961,000 through September 30, 2020, of which $275,000 are due to related parties and $686,000 are to nonrelated parties. See Note 11 for further related party transactions.

Total interest accrued of $13,564 and $185 as of September 30, 2020 and December 31, 2019, respectively, is included in the Accounts payable and accrued expenses on the Condensed Consolidated Balance Sheets.

The convertible promissory notes that were issued in the third quarter 2020 included a beneficial conversion feature, which is recorded as a discount against the notes and amortized through the earlier of the conversion into common stock, or the maturity date. Amortization of the debt discount is reported as interest expense in the income statement. The total debt discount associated with the beneficial conversion feature for the three and nine months ended September 30, 2020 was $472,300. Total amortization associated with the beneficial conversion feature debt discount was $6,366 for the three and nine months ended September 30, 2020

Total debt issuance costs were $2,025 and $12,625 for the three and nine months ended September 30, 2020, respectively. Total amortization associated with the debt issuance costs paid was $3,193 and $10,060 for the three and nine months ended September 30, 2020.

Convertible Notes Payable at September 30, 2020 and December 31, 2019 consisted of the following:

	September 30, 2020		December 31, 2019
Convertible notes payable to related parties	$	275,000	$	225,000
Less:
Unamortized debt discount		35,336		—
Unamortized debt issuance costs		11,420		13,100
Total convertible notes payable to related parties	$	228,244	$	211,900

Convertible notes payable	$	686,000	$	100,000
Less:
Unamortized debt discount		430,596
Unamortized debt issuance costs		9,893		5,646
Total convertible notes payable	$	245,511	$	94,354