NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

NOTE 6 – NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE

The Company funds operations through cash flows generated from operations and the issuance of loans and notes payable. The following is a summary of loans and notes payable outstanding as of March 31, 2021 and 2020. Related parties noted below are either members of management, board of directors, significant shareholders or individuals in which have significant influence over the Company.

Loans Payable – Related Parties

During the three months ended March 31, 2021 and 2020, the Company obtained (paid) $(32,500) and $39,319 loans payable from related parties, net. As of March 31, 2021 and December 31, 2020, the balance of the loans payable was $1,900 and $34,400, respectively. The loans payable are due on demand, unsecured and non-interest bearing as there are no formal agreements executed.

Subordinated Notes Payable

In 2016, the Company issued $350,000 in subordinated notes payable to third parties. The subordinated notes payable were due in 30 to 180 days and incurred interest at 10% per annum. As of March 31, 2021 and December 31, 2020, accrued interest related to the subordinated notes was $162,295 and $153,545, respectively. The Company is currently in default of the subordinated note agreements.

Convertible Notes Payable

In 2020, the Company entered into a Securities Purchase Agreement with an investor pursuant to which the Company agreed to sell to the investor a $300,000 convertible note bearing interest at 12% per annum (the “Note”). The Note matures in 365 days from the date of issuance. The Note is convertible at the option of the holder at any time into shares of the Company’s common stock at one dollar ($1.00) for the one hundred and eighty (180) days immediately following the issue date and thereafter shall equal the lower of: 1) the lowest closing price of the common stock during the preceding twenty five (25) trading day, ending on the last complete trading day prior to the issue date of the Note. 2) seventy-five (75) percent of the lowest trading price for the common stock during the twenty-five (25) consecutive trading days preceding the conversion date with a minimum trading volume of one thousand (1,000) shares.

In the event of a default of the Note, the Holder in its sole discretion may elect to use a conversion price equal to the lower of: 1) the lowest trading price of the common stock on the trading day immediately preceding the issue date or 2) seventy-five (75) percent of either the lowest trading price or the closing bid price, whichever is lower during any trading day in which the event of default has not been cured.

The embedded conversion feature of this Note was deemed to require bifurcation and liability classification, at fair value. Pursuant to the Securities Purchase Agreement, the Company also sold warrants to the investors to purchase up to an aggregate of 200,000 shares of common stock exercisable at one dollar and fifty cents ($1.50) and expire in five (5) years. The fair value of the derivative liability and warrants as of the date of issuance was in excess of the Note (see Note 7 for valuation) resulting in full discount of the Note. The conversion feature and warrants have various reset provisions for which lower the exercise price and share and warrants issuable.

Total interest expense on convertible notes payable, inclusive of amortization of debt discount of $39,919, amounted to $48,919 for the three months ended March 31, 2021. As of March 31, 2021 and December 31, 2020, the convertible note payable discount is $240,225 and $280,174 and will be amortized over the life of the convertible note payable in 2021. As of March 31, 2021 and December 31, 2021, the derivative liability is as follows:

	March 31, 2021		December 31, 2021
Convertible note payable	$	642,180	$	378,134
Warrants		463,310		219,814
	$	1,105,490	$	597,948

In 2017, the Company received $222,000 in convertible notes payable from related parties. The convertible notes payable are unsecured, were due in 180 days, incur interest at 10% per annum and are convertible at $0.10 per share. As of March 31, 2021 and December 31, 2020, accrued interest related to the convertible notes was $81,737 and $76,187, respectively. On the date of the agreement, Management calculated the beneficial conversion feature in connection with the convertible notes payable and recorded a discount of $222,000. The Company amortized the discount over the term of the convertible notes payable of 180 days. On February 24, 2021, the chief executive officer assigned $200,000 in convertible notes to direct relative. On April 29, 2021, the note holders converted the principal and interest in the amount of $305,588 on their respective notes into 3,055,875 shares of the Company’s common stock. Due to the subsequent conversion, the amounts have been reflected as long-term on the accompanying balance sheet.

In 2015, the Company issued $50,000 in convertible notes payable. The convertible notes payable are unsecured, were due in nine months, incur interest at 10% per annum and are convertible at $1.00 per share. As of March 31, 2021 and December 31, 2020, the accrued interest related to the convertible notes was $27,084 and $25,833, respectively. The Company is currently in default on the convertible note payable.

In 2014, the Company issued $400,000 in convertible notes payable. The convertible notes payable are unsecured, due in periods ranging up to one year, incurring interest between 10% to 12% per annum and are convertible at prices ranging from $0.33 to $1.00 per share. In addition, the Company issued 400,000 shares of common stock in connection with the convertible notes payable. The Company had the obligation to repurchase the 400,000 shares of common stock at $1.00 per share within one year of the note issuance date. As of March 31, 2021 and December 31, 2020, the Company held the obligation to repurchase the shares for $400,000. As of March 31, 2021 and 2020, the accrued interest related to the convertible notes was $237,333 and $227,083, respectively. The Company is currently in default of the note agreements.

In 2008 and 2009, the Company issued $320,000 in convertible notes payable, of which $150,000 was from related parties. The convertible notes payable are currently due on demand, incur interest at 15% per annum, and convertible at $0.60 per share. As of March 31, 2021 and December 31, 2020, accrued interest related to the convertible notes was $576,013 and $564,013 of which $271,500 and $265,875, respectively, was due to related parties. On April 29, 2021, then note holders converted the principal and interest in the amount of $902,013 of which $423,375 was from related parties on their respective notes into 1,503,354 shares of the Company’s common stock, of which 705,625 shares were to related parties. Due to the subsequent conversion, the amounts have been reflected as long-term on the accompanying balance sheet.

Notes Payable

In 2020, the Company entered into a 30-year unsecured note payable with U.S. Small Business Administration for $68,200 in proceeds. The notes payable incurred a $100 fee upon issuance and incurs interest at 3.75% per annum. All payments of principal and interest are deferred for twelve months with the first $333 payment due July 1, 2021. As of March 31, 2021 and December 31, 2020 the balance of the note payable was $68,300, and accrued interest was $1,921 and $1,281.

In 2016, the Company issued $143,000 in notes payable to third parties. The notes payable were due in ninety days or less. During 2019, the Company paid $36,000 in notes payable. The Company is currently in default of the note agreements.

Two significant shareholders funded the Company’s operations through notes payable in primarily 2009 and 2010 and continue to support operations on a limited basis. The notes payable incur interest at 10% per annum and were due on December 31, 2016. The Company is currently in default of the note agreements. As of March 31, 2021 and December 31, 2020, the aggregate balance of the notes payable was $620,355 and accrued interest was $653,650 and $638,016, respectively. On May 2, 2021, the Company entered into a debt reduction and confirmation agreement with a significant shareholder. The parties will reduce the outstanding accrued interest in the amount of $275,000.

In 2008, the Company entered into a note payable with a third party for $10,000 in total proceeds. The note payable is currently in default and has a flat interest amount due of $21,000. As of March 31, 2021 and 2020, the Company was in default of the note agreement and the entire amount of $21,000 has been included within accrued interest. Since the notes payable do not incur interest, the Company imputed interest at $250 and $250, respectively, which represented an interest rate of 10% per annum during the three months ended March 31, 2021 and 2020.

In 2008, the Company entered into notes payable with a third party for $26,000 in total proceeds. The notes payable have a flat interest amount due of $80,000. During 2015, the Company received another $50,000 from the third party. During 2017, the Company entered into an agreement whereby they would repay the principal and accrued interest in the amount of $145,000 by April 4, 2018 and issue the holders 800,000 shares of common stock. The Company recorded the fair market value of the common stock issued at $336,000 based on the date of issuance as interest expense. Other than the issuance of shares of common stock, the Company did not perform under the agreement. The Company is currently in default of the note agreement.

In 2007 and 2008, the Company entered into notes payable with a related party for $46,000 in proceeds. The notes payable were due on demand and incurred interest at 12% per annum. These were combined into a single note agreement in 2014. As of March 31, 2021 and December 31, 2020, the balance on the note payable was $88,136 and accrued interest related to the note payable was $62,564 and $59,900, respectively. The Company is currently in default of the note payable agreement.

In 2007, the Company entered into note payable with a third party for $128,000 in proceeds. Under the terms of the agreement the holder received a flat interest amount of $37,496. The Company is currently in default of the note payable agreement and the entire amount of $37,496 has been included within accrued interest. Since the note payable did not incur interest, the Company imputed interest at $3,200 and $3,200, respectively, which represented an interest rate of 10% per annum during the three months ended March 31, 2021 and 2020.

In 2007, the Company entered into note payable with a third party for $221,800 in proceeds. The note payable is currently in default and incurs interest at 10% per annum. On December 31, 2013, the holder received an arbitration settlement for the principal and accrued interest. As of March 31, 2021 and December 31, 2020, the Company was in default of the arbitration settlement. As of March 31, 2021 and December 31, 2020, accrued interest related to the note payable was $480,213 and $470,143, respectively.

In 2007, the Company entered into note payable with a significant shareholder for $58,600 in proceeds. The note payable is currently due on demand and incurs interest at 10% per annum. As of March 31, 2021 and December 31, 2020, accrued interest related to the note payable was $77,838 and $76,372, respectively. The Company is currently in default of the note agreement.