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CONVERTIBLE NOTES

12 Months Ended

Dec. 31, 2020

Long-term Debt, Unclassified [Abstract]

21. CONVERTIBLE NOTES

Convertible Notes Payable at December 31, 2020 and 2019, are comprised of the following:

	December 31,
	2020			2019
8% Convertible promissory note	$	—		$	935,772
12% Convertible promissory note		—			815,218
4% Convertible promissory note		660,000			660,000
12% November 2019 convertible promissory note		—			350,000
Total convertible notes payable		660,000			2,760,990
Less:
Unamortized debt discounts		(273,717	)		(355,227	)
Total convertible notes payable, net of financing cost	$	386,283		$	2,405,763
Less: current portion		—			(2,100,990	)
Convertible notes payable, net of financing cost – long-term portion	$	386,283		$	304,773

8% Convertible Promissory Note

On November 15, 2019, the Company entered into an exchange agreement with a lender pursuant to which the Company issued to the lender a convertible promissory note in the principal amount of $935,772 with an interest rate of 8% per annum. The 8% convertible promissory note was convertible into shares of Common Stock at a conversion price of $1.80 per share. During the year ended December 31, 2020, the Company issued 529,425 shares of Common Stock upon the conversion of principal and interest of $952,965. Since the proceeds received by the investor from the sales of common stock were less than the amount of principal and accrued interest, the investor was due a true up payment in the amount of $210,049, which was recognized as additional interest expense.

12% Convertible Promissory Note

On February 5, 2020 the Company entered into the February 2020 Exchange Agreement with an institutional investor pursuant to which the Company issued to the investor a 12% convertible promissory note in the principal amount of $295,000 with a conversion price of $1.45 per share of Common Stock and a 12% promissory note in the principal amount of $585,919. These two notes were issued upon the exchange of the 12% convertible promissory note, in the principal amount of $815,218, issued on September 26, 2019 (the “September 2019 Exchange Agreement”). Since the exchange provided the institutional investor with a substantive conversion feature, the debt instruments were determined to be substantially different and a loss on extinguishment of $20,345 was recognized. On February 25, 2020, the Company issued to the investor 203,448 shares of Common Stock upon the conversion of principal of $295,000. During the year ended December 31, 2020, Esousa purchased the 12% promissory note in the principal amount of $585,919 from the institutional investor (See Note 19).

4% Convertible Promissory Note

On May 20, 2019, the Company entered into a securities purchase agreement with an investor to sell, for a purchase price of $500,000, a 4% original issue discount (“OID”) convertible promissory note with an aggregate principal face amount of $660,000 and a five-year warrant to purchase an aggregate of 12,500 shares of the Company’s common stock. The Company is required to make quarterly interest payments and the principal amount of the note is due on May 20, 2024. The note is convertible into shares of Common Stock at $4.00 per share. The exercise price of the warrant is $12.00 per share. In addition, the Executive Chairman of the Company agreed to guarantee and act as surety for the Company’s obligation to repay the note pursuant to a personal guarantee.

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $58,448 based on the estimated fair value of the warrants. At the time of issuance of the note, the closing price of the Common Stock was in excess of the effective conversion price, resulting in a beneficial conversion feature (“BCF”) of $188,448, based on the difference between the effective conversion price and the fair value of the Company’s common stock at the commitment date of the transaction.

In aggregate, the Company recorded a debt discount in the amount of $406,896 based on the relative fair values of the warrants, BCF and OID. During the years ended December 31, 2020 and 2019, non-cash interest expense of $81,510 and $51,669, respectively, was recorded from the amortization of debt discounts. The fair value of the warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate of 2.18% was derived from the U.S. Treasury yield curve, matching the term of the warrant, in effect at the measurement date. The volatility factor of 87.51% was determined based on historical stock prices of similar technology companies.

12% November 2019 Convertible Promissory Note

On November 4, 2019, the Company entered into an exchange agreement with an investor pursuant to which, in exchange for an OID promissory note issued by the Company for the benefit of the investor on July 25, 2019, as amended, the Company sold to the investor a new convertible promissory note in the principal amount of $350,000 with an interest rate of 12% per annum. The note was convertible into shares of Common Stock at a conversion price of $1.20 per share, subject to adjustments. Principal and interest on this note was due on July 4, 2020. Since the exchange provided the institutional investor with a substantive conversion feature, the debt instruments were determined to be substantially different and a loss on extinguishment of $30,053 was recognized. During the year ended December 31, 2020, the Company issued 320,483 shares of Common Stock upon the conversion of principal and interest in the amount of $350,000 and $31,585, respectively.

10% Convertible Promissory Note

On April 13, 2020, the Company issued a convertible promissory note in the principal amount of $100,000 with an interest rate of 10% per annum and a five-year warrant to purchase shares of Common Stock equal to the lesser of 157,143 or 50% of the number of shares of Common Stock issuable pursuant to the convertible promissory note, at an exercise price equal to $1.17 per share of Common Stock. During the year ended December 31, 2020, pursuant to the terms of the convertible promissory note, the Company issued to the investor 90,299 shares of Common Stock upon the exchange of principal and interest in the amount of $100,000 and $5,317, respectively. A loss on extinguishment of $83,682 was recognized on the issuance of Common Stock based on the fair value of the Common Stock at the date of the exchange.

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $53,763 based on the estimated fair value of the warrants. During the year ended December 31, 2020, the entire amount of debt discount was amortized as non-cash interest expense. The fair value of the warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate was 0.44% and was derived from the U.S. Treasury yield curve, matching the term of the warrants, in effect at the measurement date. The volatility factor of 94.51% was determined based on historical stock prices for similar technology companies.

During December 2020, the Company issued 45,150 shares of Common Stock, the equivalent of 50% of the number of shares of Common Stock issued upon conversion of the convertible promissory note, upon the cash exercise of these warrants (see Note 24). These warrants to purchase Common Stock did not qualify to be treated as equity, and accordingly, were recorded as a liability. The Company was required to present these instruments at fair value at each reporting date and any changes in fair values were recorded as an adjustment to earnings.

September 2019 Exchange Agreement

On July 2, 2019, the Company entered into an exchange agreement with an institutional investor pursuant to which, in exchange for a term promissory note issued by the Company to the investor on September 21, 2018, in the principal face amount of $526,316, the Company sold to the investor a new convertible promissory note in the principal amount of $783,031 with an interest rate of 12% per annum and a maturity date of December 31, 2019. This note was convertible into shares of Common Stock at a conversion price equal to the greater of (A) $8.80 or (B) 80% of the lowest daily VWAP in the three trading days prior to the date of conversion. Since the exchange provided the institutional investor with a substantive conversion feature, the debt instruments were determined to be substantially different and a loss on extinguishment of $36,999 was recognized.

Further, at the time of issuance of the 12% Convertible Note, the closing price of the Company’s common stock was in excess of the conversion price, resulting in a BCF. At issuance, the intrinsic value of the BCF totaled $71,185, based on the difference between the effective conversion price and the fair value of the Company’s common stock at the commitment date of the transaction. During the year ended December 31, 2019, non-cash interest expense of $71,185 was recorded from the amortization of debt discounts attributed to the 12% Convertible Note.

On September 26, 2019, principal and interest on the 12% Convertible Note was exchanged for a convertible promissory note in the principal amount of $815,218 with an interest rate of 12% per annum and a maturity date of December 31, 2019. This note is convertible into shares of Common Stock at a conversion price of $4.00. The Company recognized an additional loss on extinguishment of $11,647.