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7. Convertible Note Payable
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Convertible Note Payable

Note 7 – Convertible Note Payable

 

Effective April 1, 2015, the Company executed a convertible promissory note (the “Note”) in the principal amount of $51,270 in favor of Clifford Neuman, the Company’s legal counsel, representing accrued and unpaid fees for past legal services. The Note is unsecured and accrues interest at the rate of 6% per annum, compounded quarterly, and is due on demand. The principal and accrued interest due under the Note may be converted, at the option of the holder, into shares of the Company’s common stock.

 

On April 24, 2020, the Company agreed to reduce the conversion price from $0.0735 per share to $0.021 per share. All other terms of the convertible note remain unchanged, and therefore did not change the cash flows of the note. The Company determined the transaction was considered an extinguishment because of the change in conversion price in which no gain or loss was recorded according to ASC 470-50. However, because the conversion price was reduced below the $0.03 market value on the date of the change, a beneficial conversion feature resulted from the price reduction in the amount of $21,973, which was accounted for as a discount to the debt and a corresponding increase in additional paid in capital. The debt discount is being amortized on a straight-line basis over one year to interest expense. A total of $14,649 was amortized to interest expense during the year, ending December 31, 2020.

  

The Note also contains certain anti-dilution provisions that would reduce the conversion price should the Company issue common stock equivalents at a price less than the Note conversion price. Accordingly, prior to the prospective adoption of ASU 2017-11 on January 1, 2019, the conversion features of the Note were considered a discount to the Note. However, since the Note is payable upon demand by the note holder, the value of the discount was considered interest expense at the time of its inception. The Note was evaluated quarterly, and upon any quarterly valuations in which the value of the conversion option changed we recognized a gain or loss due to a decrease or increase in the fair value of the derivative liability, respectively.

 

As discussed in Note 4, the Company adopted ASU 2017-11 on January 1, 2019, which resulted in the elimination of the derivative liability of $14,730 at December 31, 2018 as a cumulative adjustment to accumulated deficit.

 

Accrued interest totaled $21,189 and $16,897 at December 31, 2020 and 2019, respectively, and is included in Accrued interest on the accompanying consolidated balance sheets. Total interest expense associated with this Note was $18,941 and $4,026 for the years ended December 31, 2020 and 2019, respectively.