v3.22.2.2
Loans and Notes Payable
 12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Loans and Notes Payable

Note D – Loans and Notes Payable

 

Convertible Notes Payable - Related Parties

 

We had uncollateralized related party convertible debt obligations outstanding during the year ended December 31, 2018, which were converted in full as detailed below. There were no related party convertible debt obligations outstanding as of the years ended December 31, 2019 and 2018.

 

(a) Gulf Coast Capital, LLC is a company owned by Mark Bogani, our former CEO. The note was dated September 30, 2016 and represented the consolidation of various smaller notes payable previously outstanding totaling $145,112 plus $15,471 in accrued interest.  Interest continued to accrue at the rate of 5%, with principal and interest being due on demand and convertible into our common stock at the option of the lender at a fixed rate of $.275 per share.  Upon the note’s inception, there was a beneficial conversion feature totaling $29,022 that was being amortized and netted against the principal balance as a debt discount. On December 30, 2016, Gulf Coast Capital converted $115,000 of the note into 418,182 shares of the Company’s common stock.  On January 8, 2018, Gulf Coast Capital converted $24,090 principal plus $21,376 in accrued interest into 165,331 shares of our common stock (Note D), at which point the remaining unamortized debt discount of $4,516 was amortized to interest expense. On June 30, 2018, the remaining $6,022 principal balance was forgiven and written-off to additional paid-in capital.
   
(b) Avcon Services, Inc. is a company owned by Tracy Madsen, our CFO. The note represented amounts totaling $30,500 for CFO services during the period of June 2014 through September 2015, was dated December 31, 2015, carried an interest rate of 5%, and was due on demand. The note and accrued interest, or any portion thereof, were convertible at the option of Avcon, into the Company’s common stock at a fixed rate of $.275 per share through December 31, 2020.  On May 10, 2018, this note was sold to Khalid Mirza. On May 30, 2018, Mr. Mirza converted the note principal of $30,500 plus accrued interest of $5,548 into 131,083 shares of our common stock.

 

 

(c) On June 29, 2017, the Company entered into an uncollateralized note payable with its then-CFO, Philip Grey, in the amount of $12,500.  The note carried an interest rate of 6% and matured on June 29, 2018.  The note and accrued interest, or any portion thereof, were convertible at the option of the lender, into the Company’s common stock at a fixed rate of $.275 per share. Upon the note’s inception, there was a beneficial conversion feature totaling $12,500 that was being amortized and netted against the note balance as a debt discount. On January 8, 2018, Mr. Grey converted the $12,500 principal plus accrued interest of $375 into 46,818 shares of common stock (Note E), and the remaining debt discount of $6,216 was amortized to interest expense.
   
(d) On September 25, 2017, the Company entered into an uncollateralized note payable with its former CEO, Mark Bogani, in the amount of $12,500.  The note carried an interest rate of 6% and matured on September 25, 2018.  The note and accrued interest, or any portion thereof, were convertible at the option of the lender, into the Company’s common stock at a fixed rate of $.275 per share. Upon the note’s inception, there was a beneficial conversion feature totaling $12,500 that was being amortized and netted against the principal balance as a debt discount. On January 8, 2018, Mr. Bogani converted the $12,500 principal plus accrued interest of $188 into 46,138 shares of common stock (Note E), and the remaining debt discount of $9,204 was amortized to interest expense.

 

Deferred Offering Costs

 

On June 11, 2018, we issued a fixed price convertible note payable in the amount of $50,000 as a commitment fee to Tangiers in order to provide a long-term funding facility for our operations. The note bears interest at 10% per year, is due and payable on January 11, 2019, and is convertible into shares of our common stock at a fixed rate of $1.44 per share. Under the investment agreement, Tangiers has agreed to provide us with up to $5,000,000 of funding during a three-year period. This investment agreement is pending approval of our S-1 filing. This commitment fee is deemed an offering cost, along with an associated beneficial conversion feature of $14,236, for total offering costs of $64,236 being reported as a non-current asset to be amortized to additional paid-in capital pro-rata in conjunction with each future long-term funding tranche received from Tangiers.

 

As of December 31, 2019, we determined that based on the current price of our stock and the limited prospects for a stock price that would allow us to draw upon the line of credit, we canceled the line of credit and wrote off deferred offering costs in the amount of $64,236.

 

Convertible Notes Payable

 

We had uncollateralized convertible debt obligations with unaffiliated investors outstanding at December 31, 2019 and 2018 as follows:

 

   December 31, 2019   December 31, 2018 
Note  Principal   Less Debt Discount   Plus Premium   Net Note Balance   Accrued Interest   Principal   Less Debt Discount   Plus Premium   Net Note Balance   Accrued Interest 
(a)  $66,691   $-   $-   $66,691   $5,177   $75,000   $(33,599)  $56,250   $97,651   $1,134 
(b)   -    -    -    -    -    50,000    -    -    50,000    2,713 
(c)   49,925    -    -    49,925    8,584    125,000    (11,250)   68,072    181,822    4,500 
(d)   -    -    -    -    -    63,000    (4,980)   34,308    92,328    2,016 
(e)   -    -    -    -    -    65,000    (5,214)   35,561    95,347    2,582 
(f)   -    -    -    -    -    125,000    (12,003)   58,829    171,826    5,417 
(g)   -    -    -    -    -    150,000    (13,978)   70,023    206,045    6,700 
(h)   -    -    -    -    -    50,000    (5,597)   35,401    79,804    1,111 
(i)   273,000    -    -    273,000    11,070    273,000    (37,942)   145,942    381,000    2,791 
(j)   -    -    -    -    -    -    -    -    -    - 
(k)   67,101    (1,076)   10,293    76,318    6,156    -    -    -    -    - 
(l)   -    -    -    -    -    -    -    -    -    - 
(m)   -    -    -    -    -    -    -    -    -    - 
(n)   8,800    (10,066)   53,399    52,133    -    -    -    -    -    - 
(o)   100,000    (62)   17,542    117,480    8,750    -    -    -    -    - 
(p)   26,540    (982)   10,833    36,391    1,254    -    -    -    -    - 
(q)   200    (369)   15,757    15,588    4,936    -    -    -    -    - 
(r)   610,000    (10,792)   267,243    866,451    433,615    -    -    -    -    - 
(s)   85,380    (3,514)   18,741    100,607    5,940    -    -    -    -    - 
(t)   63,000    (1,157)   19,247    81,090    5,061    -    -    -    -    - 
(u)   282,000    -    -    282,000    14,284    -    -    -    -    - 
(v)   40,000    (2,938)   9,685    46,747    2,567    -    -    -    -    - 
(w)   65,185    (6,004)   23,218    82,399    3,632    -    -    -    -    - 
(x)   165,800    (6,800)   45,333    204,333    9,934    -    -    -    -    - 
(y)   200,000    (7,535)   99,537    292,002    10,278    -    -    -    -    - 
(z)   63,000    (3,539)   22,867    82,328    2,296    -    -    -    -    - 
(aa)   282,641    (7,049)   34,113    309,705    16,724    -    -    -    -    - 
(bb)   69,300    (7,858)   26,308    87,750    2,685    -    -    -    -    - 
(cc)   100,000    (5,300)   39,259    133,959    4,111    -    -    -    -    - 
(dd)   88,000    (2,118)   61,166    147,048    4,165    -    -    -    -    - 
Totals  $2,706,563   $(77,159)  $774,541   $3,403,945   $181,466   $976,000   $(124,563)  $504,386   $1,355,823   $28,964 

 

 

From January 17, 2019 through August 7, 2019, the Company issued twenty-one (21) Convertible Promissory Notes to third parties ranging in face values from a low of $40,000 to a high of $610,000 all with maturity dates ranging of nine (9) months to one (1) year. Annual interest rates ranged from a low of 0% to a high of 12%. All notes are convertible at any time after 6 months of the funding of the note into a variable number of the Company’s common stock, based on a conversion rate from 58% to 62% of the lowest trading price from a range of 15 to 25 of the previous days to conversion. When the Company received proceeds, proceeds ranged from $31,800 to $557,500, after disbursements for the lender’s transaction costs, fees and expenses which in aggregate resulted in a total discount ranging from $500 to $52,500 that are amortized to interest expense over the life of each note. Additionally, the notes’ variable conversion rate component requires that the note be valued at its stock redemption value (i.e., “if converted” value) pursuant to ASC 480, “Distinguishing Liabilities from Equity,” with the excess over the note’s undiscounted face value being deemed a premium to be added to the principal balance and amortized to additional paid-in capital over the life of the note. As such, the Company recorded premiums on the note(s) ranging from $42,200 to $1,300,101 as a reduction to additional paid-in capital based on a discounted “if-converted” rates from $.04 to $.33 per share based on the trading prices ranging from 15 to 25 days preceding the note’s issuance), with redemption values between $67,029 and $191,101 due to the range from $.06 to $.45 per share fair market value of the Company’s stock on the note’s date of issuance. Debt discount amortization is recorded as interest expense, while debt premium amortization is recorded as an increase to additional paid-in capital.

 

Debt discount amortization for the years ended December 31, 2019 and 2018, totaled $326,754 and $210,108 respectively. Amortization of debt premiums for the years ended December 31, 2019 and 2018, totaled $3,096,431 and $805,150, respectively, while interest expense for the years ended December 31, 2019 and 2018 totaled was $1,105,762 and $74,199 respectively. Based on the share conversion formula and the share price of $.0001 on December 31, 2019, the outstanding convertible debt principal of 2,706,563 is convertible into 68,023,290,276 shares of fully diluted common stock. Accrued interest of $181,465 on December 31, 2019, is convertible into 4,562,481,921 fully diluted shares if converted based on a discounted share price of $.0001 in accordance with the conversion agreements

 

The convertible notes have various default provisions which result in default during 2020 (see Note H – Subsequent Events). These default terms include a default interest rate of 24% if the notes are not repaid or converted by the maturity date. The noteholder (aa) declared an event of default during the quarter ending December 31, 2019, which increased the note payable from $75,000 to $207,641 and accrued interest from $3,925 to $18,399.

 

 

For a description of conversions of convertible notes payable during the reporting periods, please see Note E.